-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdEtdS65ITbRiCeXTG0nktaLXmM3YInDfz18glUYhvTyltsa0W7fUbyvTzDpDpTv I1qGETzGihwq1uETOiNfnA== 0000950124-96-005626.txt : 19961231 0000950124-96-005626.hdr.sgml : 19961231 ACCESSION NUMBER: 0000950124-96-005626 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCLAIN INDUSTRIES INC CENTRAL INDEX KEY: 0000063686 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 381867649 STATE OF INCORPORATION: MI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07770 FILM NUMBER: 96687171 BUSINESS ADDRESS: STREET 1: 6200 ELMRIDGE RD CITY: STERLING HEIGHTS STATE: MI ZIP: 48310 BUSINESS PHONE: 8102643611 10-K 1 FORM 10-K 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------------- --------------- Commission File No. 0-7770 MCCLAIN INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) STATE OF MICHIGAN 38-1867649 State of Incorporation I.R.S. Employer I.D. No. 6200 ELMRIDGE ROAD STERLING HEIGHTS, MICHIGAN 48310 (810) 264-3611 (Address of principal executive offices and telephone number) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of December 5, 1996, the aggregate market value of the Registrant's voting stock held by nonaffiliates of the Registrant was $9,564,350 determined in accordance with the highest price at which the stock was sold on such date as reported by the Nasdaq National Market. As of December 5, 1996, there were 4,693,916 shares of the Registrant's common stock issued and outstanding. Exhibit Index is on Page 53 Page 1 of 208 Pages 2 PART I ITEM 1. BUSINESS GENERAL McClain Industries, Inc., a Michigan corporation ("McClain-Michigan"), together with its subsidiaries (the "Company"), is one of the nation's leading manufacturers of a diversified line of dump truck bodies and solid waste handling equipment. Dump truck bodies are assemblies attached to truck frames and used to carry and dump solid materials such as dirt or gravel. Solid waste handling equipment is used for the temporary storage, transportation and compaction of residential, commercial and industrial waste and recycling materials. In addition, the Company operates a steel tube mill to manufacture some of its steel tubing needs. The Company also provides coiled steel cutting and warehousing services for its own manufacturing operations and, on a limited basis, for sale to third-party customers. BACKGROUND McClain-Michigan was incorporated in 1968 and became a publicly-traded company in 1973. It currently has: (i) seven wholly-owned operating subsidiaries: McClain of Alabama, Inc. ("McClain-Alabama"); McClain of Georgia, Inc. ("McClain-Georgia"); McClain of Ohio, Inc. ("McClain-Ohio"); McClain of Oklahoma, Inc. ("Oklahoma"); McClain EPCO, Inc. ("EPCO"); Shelby Steel Processing Co. ("Shelby Steel"); and McClain Tube Company (d/b/a Quality Tubing) ("Tube"); (ii) one wholly-owned lease financing subsidiary: McClain Group Leasing, Inc. ("Leasing"); (iii) one wholly-owned holding company subsidiary: Galion Holding Company ("Galion Holding"); and (iv) an international sales corporation, McClain International FSC, Inc. ("FSC"). Galion Holding is the sole shareholder of two additional operating subsidiaries, McClain E-Z Pack, Inc. ("E-Z Pack") and Galion Dump Bodies, Inc. ("Galion Dump Bodies"). McClain-Michigan, E-Z Pack and Galion Dump Bodies collectively own all of the issued and outstanding stock of McClain Group Sales, Inc. ("Sales"), which is the exclusive sales representative of McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio, McClain-Oklahoma, E-Z Pack and Galion Dump Bodies. Sales owns all of the issued and outstanding stock of McClain Group Sales of Florida, Inc., a distributor of the Company's products in Florida. All of these companies are Michigan corporations, except for McClain-Georgia, which is a Georgia corporation, EPCO, which is a New York corporation, and FSC, which is a Virgin Islands corporation. McClain-Alabama was formed during the past year to acquire, on August 29, 1996, the Demopolis, Alabama roll off container manufacturing facility and related equipment of Waste Management of Alabama, Inc. See Note 2 of the Notes to Consolidated Financial Statements. McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio, McClain-Oklahoma and EPCO are sometimes collectively referred to as "McClain"; Galion Holding, E-Z Pack and Galion Dump Bodies are sometimes collectively referred to as "Galion"; and, unless the context otherwise requires, all references to the Company 2 3 mean McClain-Michigan and all of the entities owned or controlled by McClain-Michigan. The Company's executive offices are located at 6200 Elmridge Road, Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611. PRODUCTS The Company manufactures and markets dump truck bodies and four solid waste handling equipment product lines: (1) containers; (2) compactors and baling equipment; (3) garbage and recycling truck bodies; and (4) transfer trailers. Sales of dump truck bodies accounted for approximately 23%, and sales of solid waste handling equipment accounted for approximately 75%, of the Company's consolidated net sales for the fiscal year ended September 30, 1996. Dump Truck Bodies and Hoists Galion Dump Bodies manufactures steel dump truck bodies varying in capacity from two to twenty-five cubic yards at its Winesburg, Ohio facility. McClain-Georgia and McClain-Oklahoma, under license from Galion Dump Bodies, also manufacture dump truck bodies at their Macon, Georgia and Oklahoma City, Oklahoma facilities, respectively. Dump truck bodies are assemblies which are attached to a truck's frame or chassis, to allow the truck to carry and dump solid materials such as dirt, gravel or waste materials. Hoists are the hydraulic lift mechanisms used to tilt the dump body. Trucks with a dump body and hoist are commonly seen in use as "dump trucks". The products manufactured by Galion Dump Bodies are sold under the registered trademark "Galion". The trademark registration, if not renewed, will expire in the year 2001. Containers Detachable Roll-Off Containers and Roll-Off Hoists. McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio and McClain-Oklahoma manufacture several types of detachable roll-off containers and roll-off hoists at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama, Oklahoma City, Oklahoma, and Galion, Ohio. Detachable roll-off containers vary in capacity from ten to forty-five cubic yards and are transported with their contents to recycling centers, incinerators or landfill sites. Roll-off hoists consist of frames mounted on truck chassis which are hydraulically operated to load, transport and dump roll-off containers. Roll-off hoists are advertised and sold under the trade name "MAGNA-HOIST." Intermodal, Water-Tight and Sludge Containers. The Company manufactures various types of intermodal, water-tight and sludge containers at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama, Oklahoma City, Oklahoma, and Galion, Ohio. Intermodal containers vary in capacity from nineteen cubic yards to thirty-five cubic yards and are designed for highway, railroad and marine movement of waste products. Water-tight containers vary in capacity from ten to forty cubic yards and are designed for highway movement of wet 3 4 waste. Sludge containers vary in capacity from ten to thirty-five cubic yards and are designed for highway movement of slurry type waste products. Compactors and Baling Equipment The Company manufactures compactors at its Sterling Heights, Michigan facility. Compactors consist of a compaction unit and separate power source. Compaction units force deposited refuse through an opening at one end of the unit into a roll-off body coupled to the compaction unit. When the roll-off body is filled, the compactor is detached and the roll-off body is removed for dumping. The Company also manufactures unitized compaction systems consisting of a compactor and roll-off container manufactured as a single unit. Compactors are sold under the trade name "MAGNUM" and unitized compactor systems are sold under the trade name "OCTAMAG". EPCO manufactures at its Buffalo, New York facility 24 models of balers which compact plastic and paper products, primarily cardboard. Balers are either vertical downstroke or closed door horizontal balers. Garbage and Recycling Truck Bodies E-Z Pack manufactures at its Galion, Ohio facility traditional garbage truck bodies comprised of front, rear and side loading truck bodies and a recycling truck body used in solid waste handling and disposal. The front loading truck bodies vary in capacity from thirty-two cubic yards to forty-three cubic yards, the rear loading truck bodies vary in capacity from eighteen cubic yards to thirty-one cubic yards, and the side loading truck bodies vary in capacity from twenty-nine cubic yards to thirty-nine cubic yards. The recycling truck bodies vary in capacity from thirty cubic yards to forty cubic yards. The products manufactured by E-Z Pack are sold under the registered trademark "E-Z Pack". Within this line, E-Z Pack sells its rear loading truck bodies under the trademarks "Goliath", "Goliath II", and "Apollo", and its front loading truck bodies under the trademark "Hercules". The side loading truck bodies and the recycling truck bodies are principally identified by the E-Z Pack name only. These trademarks will expire in the year 2001, unless renewed. The Company has several patents covering its recycling truck. Transfer Trailers McClain-Ohio manufactures at its Galion, Ohio facility, various types of steel and aluminum transfer trailers, including open-top walking floor trailers, closed-top walking floor trailers, ejection trailers and open-top tipper trailers, varying in capacity from thirty cubic yards to 124 cubic yards. Transfer trailers are used to transport compacted solid waste from transfer stations to landfills or incinerators. CUSTOMERS AND DISTRIBUTION For the fiscal year ended September 30, 1996, the Company's consolidated net sales were divided approximately 47% to distributors, 48% to solid waste handling companies, 3% to end users and 2% to governmental agencies. 4 5 The Company traditionally has not depended on product sales to any one customer and no single customer accounted for more than 10% of the Company's net sales for the fiscal years ended September 30, 1996, 1995 or 1994. The Company has no contracts with any of its customers and, accordingly, sells its products pursuant to purchase orders placed from time to time in the ordinary course of business. The Company delivers its products to its customers through the use of its own trucks or common carriers. The Company obtains its municipal as well as certain private contracts through the process of competitive bidding. There can be no assurance that municipalities or others will continue to solicit bids, or if they do, that the Company will continue to be successful in having its bids accepted. Additionally, inherent in the competitive bidding process is the risk that if a bid is submitted and a contract is subsequently awarded, actual performance costs may exceed the projected costs upon which the submitted bid or contract price was based. Although historically foreign sales have not accounted for a significant portion of the Company's revenues, the Company anticipates that a greater portion of its future net sales will be derived from sales of its products in foreign markets. SALES AND MARKETING Historically, the Company's products have been marketed by the Company's executive officers and sales personnel who have worked closely with customers to solicit orders and to render technical assistance and advice. The Company's executive officers will continue to devote a significant amount of time to developing and maintaining continuing relations with the Company's customers. The Company operates Sales, a separate wholly-owned corporation, to act as the Company's exclusive sales representative for its solid waste handling equipment product lines. The Company also engages independent distributors and dealers in various regions throughout the United States and certain foreign countries, for marketing its products to customers. The Company's dealers are generally responsible in their respective geographic markets for identifying customers and soliciting customer orders. As of December 1, 1996, there were approximately 285 authorized Company dealers located in numerous states and 15 authorized Company dealers, licensees and commissioned district managers in 9 foreign countries, each of which is independently owned. The Company is dependent on such dealers for a significant portion of its revenues. These dealers typically specialize in specific products and areas and, accordingly, have specific knowledge of and contacts in particular markets. The Company believes that its dealers have enhanced and will continue to enhance the scope of the Company's marketing and sales efforts and have, to a certain extent, also enabled the Company to avoid certain significant costs associated with creating a more extensive direct sales network. The Company advertises its products under trade names and under its name in trade journals and brochures. Other marketing efforts include articles in trade publications, attendance at trade shows and presentations by the Company's personnel at industry trade conferences. 5 6 The Company, through Leasing, also provides both sales-type financing and operating leases. At September 30, 1996, Leasing held net lease receivables of approximately $5.6 million. RAW MATERIALS The Company is dependent on third-party suppliers and manufacturers for the raw materials and a significant portion of the parts it uses in the manufacture of its products. The major raw materials used by the Company are steel in sheet, plate, structural and tubular form and aluminum in sheet and extruded form. The Company purchases its steel, principally in coils, and its sheet and extruded aluminum from domestic mills and warehouses. Coiled steel is received by the Company at various manufacturing facilities where it is then cut, bent, sheared and formed for assembly by welding. Electric and hydraulic components incorporated into the power units of compactors, balers and hoists used with dump bodies manufactured by the Company are brand name items purchased from various sources and assembled by the Company or to their specifications by outside sources. The assembled products are then painted to customers' specifications. While the Company attempts to maintain alternative sources for the Company's raw materials and believes that multiple sources are currently available for all of the raw materials (other than aluminum extrusions) that it uses, the Company's business is generally subject to periodic shortages of raw materials which could have an adverse effect on the Company. The Company currently purchases all of its extruded aluminum from one source. The Company is unaware of other potential providers of extruded aluminum which meets the Company's requirements and, therefore, the failure of the Company's extruded aluminum supplier to continue to supply the Company could have a material adverse effect on the Company. Although to date the Company has been able to obtain sufficient quantities of extruded aluminum to satisfy its manufacturing needs, a prolonged shortage of such raw material could adversely affect the Company. In addition, the Company currently purchases all of its hydraulic cylinders from only a few major suppliers. The failure by any of such suppliers to continue to supply the Company with cylinders on commercially reasonable terms, or at all, could also have a material adverse effect on the Company. The Company generally has no supply agreements with any of its suppliers and, accordingly, generally purchases raw materials pursuant to purchase orders placed from time to time in the ordinary course of business. Failure or delay by suppliers in supplying necessary raw materials to the Company could adversely affect the Company's ability to obtain and deliver its products on a timely and competitive basis. In addition, the Company has experienced price fluctuations for the raw materials that it purchases, particularly with respect to steel and aluminum. Any significant price fluctuations in the future could also have an adverse effect on the Company. The Company uses a forecasting and purchasing system to monitor the quantity and cost of necessary raw materials. Such cost controls allow the Company to minimize its operating costs by purchasing from the lowest priced suppliers the appropriate amount of raw materials in light of the Company's needs. The Company 6 7 often orders raw materials in amounts in excess of its anticipated short-term needs in order to take advantage of price discounts available on large volume purchases of raw materials. To reduce its cost of raw materials, the Company has been processing coiled steel and manufacturing some of its own tubing, rather than purchasing tubing and processed sheet steel from third parties. The Company believes that it is the only manufacturer of dump truck bodies and solid waste handling equipment to process coiled steel and to operate a steel tube mill. Steel Processing Shelby Steel, a wholly-owned subsidiary of the Company, receives coiled steel and either warehouses or cuts and processes the steel at its River Rouge, Michigan facility to prescribed specifications. In addition to processing coiled steel for use by the Company, Shelby Steel also offers steel processing and warehousing services to third parties. Shelby Steel's ability to warehouse customers' steel attracts customers such as steel brokers who do not maintain facilities of their own to warehouse steel. Its steel processing and warehousing sales are generally limited to customers in the Detroit metropolitan area. Sales to third parties represented 89%, 78.6%, and 86.7% of Shelby Steel's business and 1.9%, 1.2%, and 2.0% of the Company's consolidated net sales for the fiscal years ended September 30, 1996, 1995 and 1994, respectively. Tube Manufacturing Tube, a wholly-owned subsidiary of the Company, began operating its tube manufacturing line in the Company's Kalamazoo facility in mid-1994. The facility receives coiled steel, slits the coil to proper width and forms it into square and rectangular tubing. The tubing produced by this facility provides the Company with approximately 90% of its steel tubing requirements. COMPETITION The Company faces intense competition in the solid waste handling equipment and dump truck bodies industries. Certain of the Company's competitors offer as wide a range of products, have greater market share and financial, marketing, manufacturing and other resources than the Company. At present, the Company's order backlogs are approximately two to four weeks. In addition, the Company believes that several of its competitors have added or are in the process of adding additional manufacturing capacity, which could reduce order backlogs and price levels, and consequently adversely affect the Company. Moreover, the absence of highly sophisticated technology results in a number of small regional companies entering the container product business periodically and competing with the Company. Shortly after the Company acquired the E-Z Pack business in July of 1992, management began a project to redesign and restructure the E-Z Pack product line in order to make it competitive in the garbage truck body market. Since that date the Company has expended on this project approximately $2.5 million. This program is 7 8 now essentially complete and management believes the E-Z Pack line is firmly positioned in the market. Although the Company believes that its products are superior to those of most of its competitors because of the quality and amount of steel used in its products, consumers generally find the products relatively interchangeable. Consequently, price, product availability and delivery, design and manufacturing quality and service are the principal means of competition. The Company believes that it can continue to compete and further strengthen its competitive position through proper pricing, marketing and cost-effective distribution of the Company's products. The steel processing industry is also highly competitive, with quality, price and delivery the principal means of competition. The Company believes that it will generally continue to maintain its competitive position in the marketplace with respect to steel processing. Shelby Steel's ability to warehouse customers' steel attracts customers such as steel brokers who do not maintain facilities of their own to warehouse steel. BACKLOG AND INVENTORY The Company generally produces solid waste handling equipment and dump truck bodies pursuant to customer purchase orders. The Company includes in its backlog only firm product orders, which are subject to termination at will and rescheduling, without penalty. The Company's backlog was approximately $11.5 million and $8.6 million at September 30, 1996 and 1995, respectively. Substantially all of the Company's backlog is delivered within four weeks of the Company's receipt of purchase orders. Due to numerous factors, including termination of orders, rescheduling, possible change orders and delays, which affect production and delivery of the Company's products, there can be no assurance as to if or when cash receipts will be recognized from the Company's backlog. In addition, year to year comparisons of backlog are not necessarily indicative of future operating results. Although most of the Company's sales are based on orders for goods to be manufactured, the Company nevertheless carries certain amounts of finished goods inventory in order to meet customer delivery dates. In addition, from time to time, the Company manufactures units in excess of ordered units to "round out" production runs or to maintain base stock levels. At September 30, 1996, 1995 and 1994, the Company had inventory of $25.6 million, $31.2 million, and $23.3 million, respectively. EMPLOYEES The Company had approximately 700 employees as of December 1, 1996. Sixty of the Company's hourly employees are represented by the McClain Hourly Employees' Union pursuant to a collective bargaining agreement which expires September 16, 1999. The 130 hourly employees of E-Z Pack are represented by the International Association of Machinists and Aerospace Workers Union pursuant to a collective bargaining agreement which expires June 12, 1997. The 46 hourly employees of McClain-Ohio are represented by the International Association of Machinists and Aerospace Workers Union pursuant to a collective bargaining agreement which expires November 1, 1999. On February 23, 1995 the National Labor Relations Board (the "NLRB") conducted an election in response to a petition filed by the Shopmen's Local 8 9 Union No. 616 of the International Association of Bridge, Structural and Ornamental Iron Workers (AFL-CIO) (the "Union") to represent the hourly employees at the McClain-Georgia facility in Macon, Georgia. The ballots of 11 employees were challenged as ineligible. The Union filed charges against the Company asserting that it committed various unfair labor practices which affected the election results and that the challenged ballots should be counted. On October 17, 1996, the NLRB issued a Decision, Order and Direction upholding the unfair labor practice charges, and on November 5, 1996, the NLRB determined that the results of the election were in favor of the Union. The Company continues to vigorously defend against the unfair labor practice allegations. The Company does not believe a final decision upholding the Union certification or the unfair labor practice charges would have a material adverse affect on the Company. The Company believes that relations with the hourly employees at McClain of Georgia are generally satisfactory. There have been no work stoppages due to labor difficulties. ENVIRONMENTAL The Company's operations are subject to extensive federal, state and local regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Inherent in manufacturing operations and in owning real estate is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs, on an ongoing basis, associated with environmental regulatory compliance in its business. State and local agencies have become increasingly active in the environmental area. The increased regulation by multiple agencies can be expected to increase the Company's future environmental costs. In particular, properties under federal and state scrutiny frequently result in significant clean-up costs and litigation expenses related to a party's clean-up obligation. However, the Company believes that the ever-increasing waste stream and the continuing initiatives of government authorities relating to environmental and waste disposal problems, including restrictions on landfill locations and operations and extensive regulation relating to the disposal of waste, create significant opportunities for companies in the solid waste handling equipment industry. ITEM 2. PROPERTIES In the aggregate, the Company owns or leases approximately 968,500 square feet of real property located in Michigan, Ohio, Georgia, Oklahoma, Alabama and New York. The Company owns three facilities in Michigan, three facilities in Ohio, one facility in Georgia, one facility in Oklahoma and one facility in Alabama. The properties that the Company owns or leases consist of the following: 9 10
OWNED SQUARE LOCATION OR LEASED FOOTAGE ------------------------ --------- ------- Sterling Heights, Michigan Owned 37,000 Sterling Heights, Michigan Leased 18,000 Kalamazoo, Michigan Owned 55,000 River Rouge, Michigan Owned 50,000 Galion, Ohio Owned 365,000 Winesburg, Ohio Owned 67,500 Winesburg, Ohio Owned 16,000 Winesburg, Ohio Owned 15,200 Macon, Georgia Owned 114,500 Oklahoma City, Oklahoma Owned 100,000 Demopolis, Alabama Owned 102,000 Buffalo, New York Leased 28,300
The Company's main office and manufacturing facilities are located in a 37,000 square foot facility situated on 8 2/3 acres in Sterling Heights, Michigan owned by McClain-Michigan. This facility is used to manufacture roll-off containers, roll-off hoists and compactors. McClain-Michigan also owns a 55,000 square foot facility located in Kalamazoo, Michigan which is home to the Company's tube mill. Shelby Steel owns a 50,000 square foot steel processing facility on six acres of land in River Rouge, Michigan, where all of its operations are conducted. McClain-Michigan leases, under a verbal month-to-month lease, an 18,000 square foot manufacturing facility also located in Sterling Heights, Michigan from the mother of Messrs. Kenneth and Robert McClain. This facility is used by the Company as a fabrication facility. The monthly rental for this facility is $3,500, with the lessor responsible for the payment of real estate taxes, assessments, insurance premiums and replacement in case of damage by fire, and the Company responsible for maintenance of the building. The Company believes that the terms and conditions of this lease are comparable to the terms and conditions which would be available from an unrelated party with respect to similar facilities, although other similarly situated unrelated parties would, in all likelihood, require a long-term written lease. E-Z Pack owns three buildings comprising approximately 365,000 square feet situated on approximately 38 acres of land in Galion, Ohio. This three-building facility is the sole location for its manufacturing operations. This facility manufactures front, side and rear loading garbage truck bodies and recycling trucks. Sales's executive offices are located in one of the Galion, Ohio buildings under a lease arrangement and McClain-Ohio leases one of the other buildings at this location. Galion Dump Bodies owns three manufacturing facilities (67,500, 15,200 and 16,000 square feet) situated on 20 acres of land in Winesburg, Ohio where it manufactures dump bodies and hoists. The Company's Georgia facility is an approximately 114,500 square foot manufacturing facility on 13.2 acres in Macon, Georgia. McClain-Georgia manufactures roll-off containers and fabricates and processes steel for its own use in the manufacturing process at this facility. This facility is being reorganized to manufacture dump bodies, rear loaders and roll-off hoists to sell principally in the Southeast. 10 11 The Company's Oklahoma facility consists of three buildings in Oklahoma City, aggregating 100,000 square feet. This facility is used to fabricate and process steel for its own use and to manufacture roll-off containers. McClain-Alabama owns an approximately 102,000 square foot manufacturing facility in Demopolis, Alabama on approximately 84 acres of land. This facility is used to fabricate and process steel for its own use and to manufacture roll-off containers. EPCO leases an approximately 28,300 square foot facility outside Buffalo, New York, where it manufacturers balers. McClain-Michigan's Sterling Heights, Michigan facility and McClain-Ohio's Ohio facility are currently operating at approximately 80% of capacity. The Oklahoma facility is currently operating at 65% of capacity. The Georgia facility is currently operating at 60% of capacity. The Alabama facility is currently operating at 80% capacity. The E-Z Pack portion of the Galion, Ohio facility is currently operating at 75% of capacity. The Winesburg, Ohio facility is currently operating at 90% of capacity. The Kalamazoo, Michigan facility is currently operating at 60% of capacity. The EPCO facility is currently operating at 80% capacity. The determination of the productive capacity on each facility actually used by the Company is a function of the mix of products being produced at such facility and the pricing of such products. The production capacity figures set forth in this paragraph reflect the mix of products presently produced by each facility and the present pricing of such products. The Company enjoys expandable capacity at most of these facilities depending on double-shifting and other performance enhancing activities. The facilities owned and leased by the Company are well maintained and in good operating condition. Its plants and equipment are subject to various liens and encumbrances which collateralize certain obligations. See Notes 7 and 8 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS The Company is from time to time subject to various claims from existing or former employees alleging gender, age or racial discrimination and anti-union activity, none of which are expected to have a material adverse affect on the Company. See ITEM 1. BUSINESS. Employees. In addition, as a manufacturer of industrial products, the Company is, from time to time, subjected to various product liability claims. Such claims typically involve personal injury or wrongful death associated with the use or misuse of the Company's products. While such claims have not been material to the Company in any year and the Company believes that it maintains adequate product liability insurance, there can be no assurance that such insurance will continue to be available on terms acceptable to the Company. Any product liability claim not fully covered by insurance, as well as any adverse publicity from a product liability claim, could have a material adverse effect on the Company. The Company is currently defending a few legal proceedings involving product liability claims relating to McClain, Galion Dump Bodies and E-Z Pack brand products. Galion Holding purchased the business now conducted by Galion Dump Bodies and E-Z Pack from the Peabody Galion Division of Peabody International Corporation ("Peabody"). Pursuant to an 11 12 indemnification Galion Holding provided Peabody in connection with the acquisition, it is currently defending a number of legal proceedings involving product liability claims arising out of products manufactured by Peabody prior to the date of the acquisition. These claims are also covered by insurance. Although the Company has already settled many of these cases and the Company believes that it can continue to successfully resolve these product liability claims, there can be no assurance that the Company can continue to do so. The Company is not presently a party to any material legal proceedings except as described above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded and quoted on the Nasdaq National Market ("Nasdaq/NMS") under the trading symbol "MCCL." The following table sets forth, for the periods indicated, the high and low sales prices for the Common Stock as reported by Nasdaq/NMS. These per share quotations represent inter-dealer prices on the Nasdaq/NMS, and do not include retail mark-ups or commissions.
SALES PRICE OF COMMON STOCK -------------- HIGH LOW ------ ------ FISCAL YEAR ENDED SEPTEMBER 30, 1995 First Quarter(1)................ 9.1825 6.750 Second Quarter(1)............... 8.625 4.969 Third Quarter................... 8.75 7.125 Fourth Quarter.................. 7.88 6.38 FISCAL YEAR ENDED SEPTEMBER 30, 1996 First Quarter................... 7.00 3.375 Second Quarter.................. 5.00 3.50 Third Quarter................... 6.125 3.875 Fourth Quarter.................. 6.50 4.875
(1) Adjusted to reflect a 4-for-3 stock split effective February 28, 1995 On December 5, 1996, the last reported sales price for the Common Stock as reported by Nasdaq/NMS was $5.25. As of such date there were approximately 247 12 13 holders of record of the Common Stock. The Company believes there are a substantial number of beneficial owners of the Company's Common Stock whose shares are held in street name. The Company has never paid any cash dividends. The payment of dividends by the Company is within the discretion of the Board of Directors and will depend on the Company's earnings, its capital requirements and financial condition, as well as other relevant factors. The Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain earnings for use in the Company's operations. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for each of the Company's last five fiscal years ended September 30 are as follows:
========================================================================================================= 1996 1995 1994 1993 1992 ------------- ------------- ------------- ------------- ------------- Net Sales $84,680,797 $82,263,202 $79,166,990 $61,794,822 $31,895,313 Net Income $ 2,384,957 $ 2,462,755 $ 3,250,996 $ 2,110,838 $ 1,190,385 Net Earnings Per Common and Common Equivalent Share (1)(2) $ .50 $ .53 $ .71 $ .51 $ .30 AS OF SEPTEMBER 30, ------------------------------------------------------------------------- Working Capital $32,371,639 $33,868,556 $21,997,601 $10,664,115 $12,577,620 Total Assets $79,425,255 $73,899,197 $58,189,747 $49,562,268 $36,014,382 Long-Term Debt $34,217,149 $31,170,287 $18,039,869 $ 7,022,215 $ 4,814,324 Stockholders' Investment $25,457,255 $22,841,274 $19,359,709 $15,794,210 $11,707,722 Weighted Average Number of Common Equivalent Shares Outstanding (1)(2) 4,752,050 4,657,476 4,608,137 4,104,076 3,921,769 Current Ratio 3.18:1 3.37:1 2.49:1 1.55:1 2.20:1 Long Term Debt to Equity 1.34:1 1.36:1 0.93:1 0.44:1 0.41:1 =========================================================================================================
(1) Average number of shares outstanding includes, as appropriate, adjustments for the effect of common stock equivalents. (2) Adjusted to reflect a 4-for-3 stock split effective February 28, 1995. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the consolidated financial statements, including the notes to them, appearing elsewhere in this report. The following table presents, as a percentage of net sales, certain selected financial data for the Company for the years indicated:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- Net Sales 100.00% 100.00% 100.00% 100.00% 100.00% Cost of Sales 79.07 77.68 78.12 78.13 75.23 -------- ------- ------- ------- ------- Gross Profit 20.93 22.32 21.88 21.87 24.77 Selling, General & Administrative Expenses 13.31 14.19 13.48 15.00 15.74 -------- ------- ------- ------- ------- Operating Profit 7.62 8.13 8.40 6.87 9.03 Other Expense 3.35 3.59 2.19 2.18 3.01 -------- ------- ------- ------- ------- Income Before Income Taxes 4.27 4.54 6.21 4.69 6.02 Income Taxes 1.45 1.55 2.09 1.27 2.29 -------- ------- ------- ------- ------- Net Income 2.82% 2.99% 4.12% 3.42% 3.73% ======== ======= ======= ======= =======
The Company manufactures dump truck bodies and a variety of solid waste handling products including: (i) detachable roll-off waste containers ("roll-off containers") and hydraulically operated roll-off hoist tilt truck frames used to load, transport and dump roll-off containers ("roll-off hoists"); (ii) intermodal waste containers designed for interchangeable use on trucks, trains and ships ("intermodals"); (iii) water-tight and sludge detachable roll-off waste containers designed to handle wet waste and slurry type waste, respectively; (iv) compactors, unitized compactor/roll-off container systems ("unitized compaction systems"), and balers; (v) an assortment of front, rear and side loading garbage truck bodies; (vi) recycling truck bodies; and (vii) transfer trailers used to transport compacted solid waste from transfer stations to landfills or incinerators. RESULTS OF OPERATIONS Comparison of year ended September 30, 1996 to year ended September 30, 1995 Net sales for the fiscal year ended September 30, 1996 amounted to $84.7 million compared to sales of $82.3 million for the fiscal year ended September 30, 1995, an increase of 2.93%. This increase in Fiscal 1996 sales was due primarily to an increase of $4.0 million in baler sales resulting from the EPCO acquisition in late Fiscal 14 15 1995. Sales of the Company's other products remained essentially stable during Fiscal 1996. Gross profit as a percentage of sales declined to 20.93% for Fiscal 1996 from 22.32% for Fiscal 1995. This decline was due largely to the Company's inventory reduction program, increased price competition in the solid waste industry, and certain manufacturing inefficiencies at the Georgia and the McClain-Ohio facilities. The union organizing efforts in the Georgia facility (see ITEM 3. LEGAL PROCEEDINGS) caused significant manufacturing inefficiencies during the past year at that plant, while the manufacturing inefficiencies at the McClain-Ohio facility resulted from a failure to rapidly adjust its work force during the first half of the year to compensate for the oversupply of trailers which began during Fiscal 1995. Management expects that the reorganization of the Georgia plant will result in an acceptable efficiency level. The inventory reduction program, begun during March 1996, resulted in a $5.65 million reduction in inventory levels at September 30, 1996. Management believes that this program will have a positive effect on both interest expense and the normal carrying costs associated with inventory during Fiscal 1997. Selling, general and administrative expenses declined to 13.31% as a percentage of net sales during Fiscal 1996 compared to 14.19% for Fiscal 1995. Interest expense increased to 3.59% of net sales during Fiscal 1996 compared to 3.01% during Fiscal 1995. The increase in interest expense resulted from greater borrowing to fund the Company's increased leasing activities and the cost of carrying the inventory built up during Fiscal 1995. Comparison of year ended September 30, 1995 to year ended September 30, 1994 Net sales for the fiscal year ended September 30, 1995 reached $82.3 million reflecting a 3.91% increase over sales for Fiscal 1994 of $79.2 million. This increase in sales for Fiscal 1995 was attributable to container sales, exclusive of intermodal and sludge containers, increasing by $2.8 million for the period and garbage and recycling truck bodies sales increasing by $3.6 million for the period. Sales of other product lines remained static or declined in comparison to Fiscal 1994; most notably trailer sales which declined $2.3 million and intermodal and sludge containers sales which declined $1.8 million. The decline in trailer sales is attributable to a temporary over supply of trailers by end users and a restructuring of the Company's sales force. Management expects the restructuring of the trailer sales force to have a positive effect on sales commencing in the second quarter of Fiscal 1996. The decline in intermodal and sludge containers sales is primarily due to an over supply of intermodal and sludge containers in rental fleet markets. Gross profit as a percentage of net sales was 22.32% for Fiscal 1995 compared to 21.88% for 1994. The gross profit margins for Fiscal 1995 are lower than originally forecasted as a result of increased costs incurred for raw materials, principally steel and aluminum which were not fully recoverable due to intense pricing competition within the Solid Waste Industry, and start-up expenses incurred in transferring production of one of the product lines from one manufacturing facility to another facility. Steel prices declined in the latter part of the fourth quarter of Fiscal 1995 and this decline is 15 16 expected to have a positive effect on gross profit margins in the latter part of the first quarter of Fiscal 1996. Selling, general and administrative expenses as a percentage of net sales increased modestly to 14.19% for Fiscal 1995 compared to 13.48% for Fiscal 1994. Interest expense as a percentage of net sales increased to 3.01% of net sales for Fiscal 1995 compared to 1.67% of net sales in Fiscal 1994 as a result of increased long-term debt. The increase in long-term debt resulted from acquiring approximately $4 million of fixed assets and supporting higher inventory. Machinery and equipment was acquired to replace existing equipment to enhance productivity levels. Higher inventories of raw materials and supplies were maintained in order to be more responsive to customer needs and to reduce delivery time of finished goods. Net income as a percentage of net sales was 2.99% for Fiscal 1995 compared to 4.12% for Fiscal 1994. The decline in net income is attributable to increased interest expense and increased prices of raw materials which were not recoverable through higher selling prices. LIQUIDITY AND CAPITAL RESOURCES The Company's required level of working capital during Fiscal 1996 was consistent with that of Fiscal 1995, while long-term debt continued to increase due primarily to the Company's increased leasing activity and its on-going commitment to increased production efficiency by properly maintaining and upgrading its production facilities and machinery and equipment. The Company had working capital of approximately $32.4 million at September 30, 1996, compared to $33.9 million at September 30, 1995. The ratio of the Company's current assets to its current liabilities was 3.18:1 at September 30, 1996 compared to 3.37:1 at September 30, 1995. The Company's cash and short term investments totaled $1.1 million at September 30, 1996. Cash flows provided by operating activities were $6.0 million during Fiscal 1996 due primarily to the success of the Company's inventory reduction program. The Company also invested approximately $2.0 million in new machinery and equipment during Fiscal 1996. The Company's leasing subsidiary financed approximately $3 million of new leases in Fiscal 1996. The Company has several Revolving Credit Facilities with Standard Federal Bank, a federal savings bank ("Standard"), which provide maximum availability of $21 million for working capital needs and $1.5 million to fund demonstration equipment. At September 30, 1996, the Company had borrowed approximately $15.9 million under the working capital line and $1.1 million under the demonstrator line. Borrowings under the working capital line are limited to 80% of eligible accounts receivable and 50% of qualified inventory while the demonstrator line is limited to 85% of related equipment. The Company also has a Revolving Credit Facility with Standard used to finance certain of its lease receivables. The agreement calls for a maximum availability of $7.5 million with borrowings limited to 80% of eligible lease receivables. At September 30, 1996 approximately $5.1 million had been drawn on this facility. 16 17 All borrowings with Standard are secured by substantially all of the assets of the Company. In addition, the loans contain various covenants including those requiring the Company to maintain certain current ratios, levels of tangible net worth and debt ratios, and restricting the amount of capital expenditures the Company may make each year. The revolving credit agreements bear interest at prime and expire in March 1998, at which time the Company expects to obtain renewals on the same or similar terms. The Company has agreements with two financial institutions to provide financing for its TRAC (Terminal Rental Adjustment Clause) Leasing Agreements. The agreements call for maximum availability of $8 million in lease commitments. Under these facilities, the Company may finance 100% of eligible lease receivables over the term of the related lease at a fixed interest rate determined at the time of the lease closing. The notes are secured by the related lease receivable. At September 30, 1996, approximately $2.5 million had been drawn on this facility. The Company believes that the available credit under its debt facilities, together with cash generated from the Company's operations, will be adequate to meet the Company's working capital requirements for the next 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are filed herewith under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There have been no changes in the Company's independent public accountants during the past two fiscal years and the Company does not disagree with such accountants on any matter of accounting principles, practices or financial statement disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows:
APPROXIMATE DATE SERVICE NAME AGE OFFICE BEGAN ---- --- ------ ----------- Kenneth D. McClain(1) 55 Chairman of the Board, Chief Executive Officer and President 3/68 Robert W. McClain(1) 60 Senior Vice President, Assistant Secretary and Director 3/68 Raymond Elliott 62 Director 8/90
17 18 Walter J. Kirchberger 61 Director 11/95 Carl Jaworski 53 Secretary and Treasurer 10/72
(1) Kenneth D. McClain and Robert W. McClain are brothers. KENNETH D. MCCLAIN is Chairman of the Board and President of the Company. He has been a director and officer of the Company since its inception in March 1968. He also serves as Vice President and a director of Shelby Steel and President and a director of McClain-Georgia. Mr. McClain is also a director and the Chairman of the Board of Galion Holding, E-Z Pack, Galion Dump Bodies and Sales ROBERT W. MCCLAIN is Senior Vice President and Assistant Secretary of the Company. He has been a director and officer of the Company since its inception in March 1968. He also serves as President of Shelby Steel and Vice President of McClain-Georgia. RAYMOND ELLIOTT has been a director of the Company since August 1990. He has been President and a director of Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans Insurance Agency, Inc. since 1967. Mr. Elliott also serves as a director of the Boys and Girls Club of Troy, a charitable organization located in Troy, Michigan. WALTER J. KIRCHBERGER was elected to fill a vacancy in the Board of Directors resulting from the return of Peter Sugar to his former law firm which serves as general counsel to the Company. Mr. Kirchberger is First Vice President - Research of PaineWebber Incorporated, and has served in such capacity for more than 25 years. He also serves as a director of Simpson Industries, Inc. CARL JAWORSKI is Secretary and Treasurer of the Company. He has served as Secretary since October 1972. He was elected Treasurer of the Company effective March 31, 1996, the date on which the Company's previous treasurer resigned. Mr. Jaworski was also a director and the Treasurer of the Company from October 1972 until April 1992. Mr. Jaworski also serves as Treasurer, Secretary and a director of Shelby Steel and Treasurer and Secretary of McClain-Georgia. Mr. Jaworski is the Secretary of E-Z Pack, the Treasurer of Galion Dump Bodies and a Vice President and Secretary of Sales. The Company is required to identify each person who was an officer, director or beneficial owner of more than 10% of the Company's registered equity securities during the Company's most recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. Based solely upon its review of copies of such reports received by it during or with respect to the fiscal year ended September 30, 1996, the Company believes that all officers, directors and beneficial owners of more than 10% of the Company's registered equity securities timely filed all required reports. 18 19 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following tables set forth all cash compensation paid to the Chief Executive Officer of the Company and the only other executive officer whose total annual salary and bonus from the Company exceeded $100,000 during the fiscal year ended September 30, 1996. SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------ Annual Compensation Long Term Compensation - ------------------------------------------------------------------------------------ Name and Fiscal Salary Options/ Principal Position Year Amount($) SARs(#) - ------------------------------------ ------- --------- ---------- Kenneth D. McClain, President/ CEO 1996 $275,000 --- 1995 219,675 13,333 1994 194,250 26,666 Robert W. McClain, Senior Vice President 1996 $246,832 --- 1995 216,582 6,666 1994 191,250 22,666 ===== ======== ========
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES TABLE
- ------------------------------------------------------------------------------------------------------- Shares Acquired No. of Unexercised Value of Unexercised on Exercise Value Options/SARs at In-The-Money Options/SARs at in 1996 Realized Fiscal Year-End Fiscal Year-End(2) ------------------------------------------------------------ Not Not Exercisable Exercisable(1) Exercisable Exercisable - ------------------------------------------------------------------------------------------------------- Kenneth D. McClain 4,135 -0- 18,086 17,778 $ -0- $ -0- Robert W. McClain 2,064 -0- 15,268 12,000 $ -0- $ -0-
19 20 (1) Stock options granted April 18, 1994 pursuant to the Company's 1989 Incentive Stock Plan (the "Incentive Plan"). Options must be exercised by April 17, 1999. Exercise price is $6.56 per share. (2) Value based on the average of the September 30, 1996 closing bid high and low price which was $5.75 per share. COMPENSATION OF DIRECTORS Directors who are employees of the Company do not receive compensation for serving on the Board or on the Board's committees. Directors who are not employees of the Company are entitled to a quarterly retainer fee of $3,250, a $1,000 fee for each regular or special meeting of the Board and a $1,000 fee for each committee meeting attended on a day other than a regular or special Board meeting date (collectively, the "Fees"). A Director may elect to receive payment of the Fees in shares of Common Stock pursuant to the Company's 1989 Retainer Stock Plan for Non-Employee Directors (the "Retainer Plan"). To participate in the Retainer Plan, an eligible director must elect prior to December 31 of each year the percentage, if any, of Fees he desires to receive in the form of shares of Common Stock. The Common Stock is issued quarterly during the following calendar year. The number of shares of Common Stock to be issued to an eligible director is determined by dividing the dollar amount of the percentage of fees such director elects to receive in Common Stock by the "fair market value" of Common Stock on the day prior to the date of issuance of the Common Stock to such director. The term "fair market value" means the average of the highest and lowest selling price for the Common Stock as quoted on Nasdaq/NMS for the day prior to the date of issuance or for the first date prior to the date of issuance for which shares of Common Stock are quoted, if not quoted on the day prior to the date of issuance. Any fractional share of Common Stock derived from such calculation is paid in cash. The aggregate fair market value of the shares of Common Stock issued to any eligible director in a given year cannot exceed 100% of such eligible director's fees. Fees may not be increased more often than annually. For the fiscal year ended September 30, 1996, 3,303 shares of Common Stock were issued under the Retainer Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 5,1996, certain information regarding the beneficial ownership of Common Stock, of: (i) each person known to the Company to be the beneficial owner of more than five (5%) percent of the Common Stock; (ii) each director of the Company; (iii) each executive officer listed in the Summary Compensation Table; and (iv) all executive officers and directors of the Company as a group, based upon information available to the Company.
AMOUNT AND NATURE OF PERCENT OF NAME AND ADDRESS BENEFICIAL OUTSTANDING OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2) - ------------------- ------------ ----------- Kenneth D. McClain 6200 Elmridge Road Sterling Heights, MI 48310 1,511,481(3) 32.20%
20 21
AMOUNT AND NATURE OF PERCENT OF NAME AND ADDRESS BENEFICIAL OUTSTANDING OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2) - ------------------- ------------ ----------- Robert W. McClain 6200 Elmridge Road Sterling Heights, MI 48310 1,126,788(4) 24.00% June McClain 68333 DeQuindre Oakland, MI 48368 337,178 7.18% Lisa McClain Pfeil(5) 67667 Sisson Romeo, MI 48065 310,474 6.61% Raymond Elliott 290 Town Center P.O. Box 890 Troy, Michigan 48084 9,879 0.21% Walter Kirchberger 2301 West Big Beaver Rd., Suite 800 Troy, Michigan 48084 1,407 0.03% All current executive officers and directors as a group (5 persons) 2,764,048(6) 58.89%
(1) For purposes of this table, a person is deemed to have "beneficial ownership" of any shares that such person has a right to acquire within 60 days. (2) Based on 4,693,916 shares of Common Stock issued and outstanding as of December 5, 1996. In addition, for purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security that such person or persons has or have the right to acquire within 60 days is also deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (3) Includes 2,430 shares of Common Stock owned by Kenneth D. McClain's wife. Mr. McClain disclaims beneficial ownership of these shares. (4) Includes 337,178 shares of Common Stock owned by Robert W. McClain's wife. Mr. McClain disclaims beneficial ownership of these shares. (5) Of the shares beneficially owned by Mrs. Pfeil, 305,098 are held of record by an irrevocable trust for her benefit. Mrs. Pfeil is the daughter of Kenneth D. McClain. (6) Includes 60,686 shares which executive officers and directors have the right to acquire pursuant to stock options exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 2, 1993, the Company consummated the purchase of three facilities which it had been leasing from three different entities controlled by certain officers and directors of the Company, including its main Sterling Heights, Michigan facility, its Kalamazoo, Michigan facility and its Macon, Georgia facility. In each instance, the Company paid the purchase price by issuing shares of Common Stock and assuming existing mortgages on the facilities. The purchase prices were determined by the 21 22 Company's Board of Directors on the basis of independent appraisals of the facilities. The stock issued was valued at $5.40 per share, based on the market price for shares of Common Stock as of March 29, 1993, the date that definitive purchase agreements for the facilities were executed. These shares are restricted within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), meaning that it cannot be resold unless registered under the Securities Act, or in a transaction which is exempt from such registration. The seller of each facility owned the facility for more than two years before the sale. In November 1994, in connection with a contemplated public offering of its Common Stock, the Company agreed to value the shares issued in exchange for these facilities at a price based on the market value of shares of Common Stock as of August 2, 1993, the date these transactions were consummated. This revision gave effect to the fact that the shares had increased in value by $504,000 from March 29, 1993. Messrs. Kenneth and Robert McClain have agreed to pay this amount to the Company, with interest at Standard's prime rate, in five equal principal installments with accrued interest, commencing September 30, 1995. The Company leases one of its facilities from the mother of Messrs. Kenneth and Robert McClain. See "Properties." The Company believes that the terms and conditions of this lease are comparable to those available from an unrelated party with respect to similar facilities. See also Note 13 of Notes to Consolidated Financial Statements. The Company had sales of approximately $660,000 in Fiscal 1996 to McClain Leasing Corporation, an entity controlled by certain officers and directors of the Company. Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans, Inc., entities controlled by Raymond Elliott, a director of the Company, provided insurance to the Company during Fiscal 1996. Sales from these entities to the Company aggregated approximately $1.2 million during Fiscal 1996, for which these entities received fees and commissions in the approximate amount of $120,000. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed herewith as part of this Form 10-K: (1) A list of the financial statements required to be filed as a part of this Form 10-K is shown in the "Index to the Consolidated Financial Statements and Schedules" filed herewith. 22 23 (2) A list of financial statement schedules required to be filed as a part of this Form 10-K is shown in the "Index to the Consolidated Financial Statements and Schedules" filed herewith. (3) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-K is shown on the "Index to Exhibits" filed herewith. (b) Reports on Form 8-K The Company filed a report on Form 8-K during September 1996 regarding its acquisition of the Demopolis, Alabama facility. 23 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 13, 1996 McCLAIN INDUSTRIES, INC. By:/s/ Kenneth D. McClain ------------------------------------- Kenneth D. McClain , President (Principal Executive Officer) And By:/s/ Carl Jaworski ------------------------------------- Carl Jaworski, Treasurer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: December 13, 1996 /s/ Kenneth D. McClain ------------------------------- Kenneth D. McClain, Director Dated: December 13, 1996 /s/ Robert W. McClain ------------------------------- Robert W. McClain, Director Dated: December 13, 1996 /s/ Raymond Elliott -------------------------------- Raymond Elliott, Director Dated: December 13, 1996 /s/ Walter J. Kirchberger -------------------------------- Walter J. Kirchberger, Director 24 25 SECURITIES AND EXCHANGE COMMISSION - ----------------------------------------------------------------------------- Washington, D. C. Form 10-K ---- For Corporations ANNUAL REPORT ------------- FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 and 1994 ----------------------------------------------------- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES ----------------------------------------- (NAME OF REGISTRANT) CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- AND --- INDEPENDENT AUDITORS' REPORT ---------------------------- -25- 26 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets - September 30, 1996 and September 30, 1995 Consolidated Statements of Income for the years ended September 30, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Investment for the years ended September 30, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended September 30, 1996, 1995 and 1994 Notes to Consolidated Financial Statements SCHEDULES The information required to be submitted in Schedule II is included in the consolidated financial statements and notes thereto. The following schedules are omitted as not required or not applicable: I, III, IV and V. -26- 27 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders McClain Industries, Inc. and Subsidiaries Sterling Heights, Michigan We have audited the accompanying consolidated balance sheets of McClain Industries, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of income, stockholders' investment, and cash flows for each of the three years in the period ended September 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of McClain Industries, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996 in conformity with generally accepted accounting principles. REHMANN ROBSON Farmington Hills, Michigan December 20, 1996 -27- 28 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
ASSETS 1 9 9 6 1 9 9 5 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 1,065,039 $ 1,173,370 Accounts receivable, net of allowance for doubtful accounts of $600,000 in 1996 and 1995 (Notes 4, 7 and 8) 18,502,950 14,284,478 Inventory (Notes 5, 7 and 8) 25,577,000 31,229,399 Net investment in sales-type leases, current portion 1,910,000 1,305,800 Prepaid expenses 191,645 176,075 ----------- ----------- TOTAL CURRENT ASSETS 47,246,634 48,169,122 ----------- ----------- PLANT AND EQUIPMENT (NOTES 7 AND 8) Land 2,233,906 1,895,367 Buildings 11,271,975 9,701,280 Storage areas 1,601,190 1,518,928 Machinery and equipment 18,835,127 16,448,110 Furniture and fixtures 2,254,177 1,644,569 Transportation equipment 1,376,963 1,407,063 Leasehold improvements 574,184 462,818 ----------- ----------- Total 38,147,522 33,078,135 Less accumulated depreciation and amortization 13,899,589 11,894,922 ----------- ----------- NET PLANT AND EQUIPMENT 24,247,933 21,183,213 ----------- ----------- OTHER ASSETS Net investment in sales-type leases, net of current portion (Notes 6 and 7) 3,706,350 2,255,164 Goodwill, net of amortization (Note 1) 3,453,772 1,737,921 Other 390,141 553,777 Equipment under construction (Note 15) 380,425 - ----------- ----------- TOTAL OTHER ASSETS 7,930,688 4,546,862 ----------- ----------- TOTAL ASSETS $79,425,255 $73,899,197 =========== =========== LIABILITIES AND STOCKHOLDERS' INVESTMENT 1 9 9 6 1 9 9 5 ----------- ----------- CURRENT LIABILITIES Accounts payable $10,547,642 $ 9,190,309 Current portion of long-term debt 2,132,201 2,179,449 Accrued expenses (Note 9) 2,165,869 2,331,809 Federal and state income taxes 29,283 598,999 ----------- ----------- TOTAL CURRENT LIABILITIES 14,874,995 14,300,566 Long-term debt, net of current portion (Note 8) 34,217,149 31,170,287 Product liability (Note 15) 2,775,856 4,147,070 Deferred income taxes (Note 10) 2,100,000 1,440,000 ----------- ----------- TOTAL LIABILITIES 53,968,000 51,057,923 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTE 15) STOCKHOLDERS' INVESTMENT Common stock, no par value, authorized 10,000,000 shares; issued and outstanding, 4,693,916 shares (4,587,744 shares in 1995) 5,803,870 5,572,846 Retained earnings 20,157,385 17,772,428 Less amount due from officers (Note 13) (504,000) (504,000) ----------- ----------- TOTAL STOCKHOLDERS' INVESTMENT 25,457,255 22,841,274 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $79,425,255 $73,899,197 =========== ===========
See notes to consolidated financial statements. -28- 29 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1 9 9 6 1 9 9 5 1 9 9 4 ----------- ------------ ----------- Net sales $84,680,797 $82,263,202 $79,166,990 Cost of sales 66,959,726 63,901,196 61,843,845 ----------- ------------ ------------ GROSS PROFIT 17,721,071 18,362,006 17,323,145 Selling, general and administrative expenses 11,273,491 11,673,686 10,674,043 ----------- ------------ ------------ OPERATING PROFIT 6,447,580 6,688,320 6,649,102 ----------- ------------ ------------ OTHER INCOME (EXPENSE) Interest (3,044,398) (2,478,350) (1,321,533) Other, net (Note 12) 211,775 (473,215) (412,873) ----------- ------------ ------------ OTHER EXPENSE, NET (2,832,623) (2,951,565) (1,734,406) ----------- ------------ ------------ INCOME BEFORE INCOME TAXES 3,614,957 3,736,755 4,914,696 Income taxes (Note 10) 1,230,000 1,274,000 1,663,700 ----------- ------------ ------------ NET INCOME $ 2,384,957 $ 2,462,755 $ 3,250,996 =========== =========== =========== Net income per common and common equivalent shares $0.50 $0.53 $0.71 ===== ===== ===== Weighted average number of common and common equivalent shares outstanding (Note 1) 4,752,050 4,657,476 4,608,137 ========= ========= =========
See notes to consolidated financial statements. -29- 30 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
COMMON STOCK AMOUNT ------------------------ RETAINED DUE FROM SHARES AMOUNT EARNINGS OFFICERS TOTALS --------- ---------- ----------- ----------- ----------- Balance at October 1, 1993 4,320,967 $4,239,533 $12,058,677 $(504,000) $15,794,210 Proceeds from common stock issued (Note 14) 124,000 296,450 - - 296,450 Common stock issued in lieu of cash (Note 14) 2,193 18,053 - - 18,053 Net income - - 3,250,996 - 3,250,996 --------- ---------- ----------- ---------- ----------- Balance at September 30, 1994 4,447,160 4,554,036 15,309,673 (504,000) 19,359,709 Proceeds from common stock issued (Note 14) 3,416 8,389 - - 8,389 Common stock issued in lieu of cash (Note 14) 1,565 11,510 - - 11,510 Redemption of fractional shares (98) (1,089) - - (1,089) Common stock issued in connection with EPCO acquisition (Notes 2 and 3) 135,701 1,000,000 - - 1,000,000 Net income - - 2,462,755 - 2,462,755 --------- ---------- ----------- ---------- ----------- Balance at September 30, 1995 4,587,744 5,572,846 17,772,428 (504,000) 22,841,274 Proceeds from common stock issued (Note 14) 134,244 359,411 - - 359,411 Common stock issued in lieu of cash (Note 14) 3,555 18,613 - - 18,613 Redemptions of common stock (Note 15) (31,627) (147,000) - - (147,000) Net income - - 2,384,957 - 2,384,957 --------- ---------- ----------- ---------- ----------- Balance at September 30, 1996 4,693,916 $5,803,870 $20,157,385 $(504,000) $25,457,255 ========= ========== =========== ========= ===========
See notes to consolidated financial statements. -30- 31 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1 9 9 6 1 9 9 5 1 9 9 4 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $2,384,957 $2,462,755 $3,250,996 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 2,550,935 2,179,992 1,936,191 Deferred income taxes 660,000 375,000 709,700 Provision for doubtful accounts 49,400 205,000 276,610 Loss on sale of plant and equipment 3,981 22,067 24,672 Common stock issued for services 18,613 11,510 18,053 Net changes in operating assets and liabilities which provided (used) cash, net of effects in 1996 and 1995 of business acquisitions: Accounts receivable (3,987,569) (3,067,591) (1,217,437) Inventories 6,072,095 (7,721,234) (4,895,119) Net investment in sales-type leases (2,055,386) (1,684,275) (345,126) Prepaid expenses and other assets (300,974) (195,718) (234,104) Accounts payable 1,357,333 (1,909,327) 2,202,094 Accrued expenses (735,656) 277,852 (784,335) ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,017,729 (9,043,969) 942,195 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment (1,991,316) (3,995,109) (3,079,553) Payments on liabilities assumed upon the Galion acquisition (1,371,214) (809,902) (1,092,532) Proceeds from sale of plant and equipment 22,331 30,112 33,869 ---------- ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (3,340,199) (4,774,899) (4,138,216) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 2,139,126 22,927,180 6,354,350 Repayments of long-term borrowings (5,137,398) (9,639,955) (2,223,270) Sale of common stock under stock option plan 359,411 8,389 296,450 Redemption of common stock (147,000) (1,089) - ---------- ---------- ---------- Net cash (used in) provided by financing activities (2,785,861) 13,294,525 4,427,530 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (108,331) (524,343) 1,231,509 Cash and cash equivalents, beginning of year 1,173,370 1,697,713 466,204 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $1,065,039 $1,173,370 $1,697,713 ========== ========== ==========
See notes to consolidated financial statements. -31- 32 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business McClain Industries, Inc. and its wholly-owned subsidiaries (the "Company") manufacture and sell a diversified line of dump truck bodies (assemblies attached to truck frames which are used to carry and dump solid materials such as dirt, gravel or waste materials) and solid waste handling equipment (including containers, compactors and baling equipment, garbage and recycling truck bodies, and transfer trailers) used for the temporary storage, transportation and compaction of residential, commercial and industrial waste and recycling materials. The Company sells its dump truck bodies primarily to truck equipment dealers and its solid waste handling equipment primarily to distributors, solid waste handling companies, government agencies, shopping centers and other large retail outlets principally within the United States. In addition, the Company provides coiled steel cutting and warehousing services for its own manufacturing operations in order to reduce its processed steel expense (one of its major cost components) and, on a limited basis, for sale to third-party customers. Concentration Risks The Company grants trade credit to its customers in the normal course of business. No collateral is required. Concentrations of credit risk with respect to trade receivables are limited due to the relatively large number of customers comprising the Company's customer base and its geographic dispersion. The Company maintains reserves for potential credit losses and such losses have historically been insignificant and generally within management's expectations. The Company currently procures all of its extruded aluminum, which is used in the manufacture of transfer trailers, from one source. The Company is unaware of other potential providers of extruded aluminum which meet the Company's production requirements. The loss of this supplier could adversely affect the Company's short-term operating results. Principles of Consolidation The consolidated financial statements include the accounts of McClain Industries, Inc., and its wholly-owned subsidiaries (Galion Holding Company, Shelby Steel Processing Co., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain of Alabama, Inc., McClain EPCO, Inc., McClain Group Leasing, Inc., McClain Tube Company, McClain International FSC, Inc., an international sales corporation, and McClain Group Sales, Inc., a corporation owned jointly by McClain Industries, Inc. and the two operating subsidiaries of Galion Holding Company). All significant intercompany accounts and transactions have been eliminated. In August 1996, McClain of Alabama, Inc. was formed and acquired a roll-off container manufacturing facility (Note 2). In July 1995, the Company acquired and began operating a wholly-owned subsidiary, McClain EPCO, Inc., a business incorporated in the State of New York (Note 2). -32- 33 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include but are not limited to product liability, goodwill amortization and the allowance for doubtful receivables. Inventories Inventories are stated at the lower of cost or market. The LIFO (last-in, first-out) method is utilized for certain inventories, while the FIFO (first-in, first-out) method is utilized for the remaining inventories. Plant and Equipment Plant and equipment are recorded in the accounts at cost which does not purport to represent replacement cost or realizable value. Depreciation is provided at annual rates sufficient to allocate the cost of the assets over their estimated useful lives. The principal estimated useful lives are summarized as follows: Buildings 20-30 years Storage areas 5-10 years Machinery and equipment 4-30 years Furniture and fixtures 5-10 years Transportation equipment 3-10 years Leaseholds 5-20 years
Depreciation and amortization are computed primarily using the straight-line method for financial reporting purposes and accelerated methods for federal income tax purposes. The cost of properties retired or otherwise disposed of and the accumulated depreciation and amortization thereon are eliminated from the accounts at the time of retirement, and the resulting gain or loss is taken into income. Maintenance and repairs are charged against income as incurred, and renewals and betterments are capitalized. -33- 34 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities. Deferred income taxes arise from temporary basis differences principally related to inventory, product liability, and plant and equipment. Cash and Cash Equivalents Cash and cash equivalents consist of demand deposits in banks. The Company maintains certain bank accounts which hold balances in excess of the Federal Deposit Insurance Corporation insured limit of $100,000. Sales-Type Leases The Company, through McClain Group Leasing, Inc., offers lease financing to certain purchasers of the Company's products. These leases meet the criteria for classification as capitalized leases and are accounted for as sales-type leases. Accordingly, an investment is reflected on the accompanying balance sheets in an amount equal to the gross minimum lease payments receivable less unearned finance income. Unearned finance income is amortized in such a manner as to produce a constant periodic rate of return on the net investment in the lease. Goodwill Goodwill representing the purchase price in excess of the fair values of net assets acquired is amortized by direct charges to its carrying value. The amortization period is estimated based upon management's judgements and generally ranges from 5 to 40 years. Accumulated amortization as of September 30, 1996 and 1995 was $174,053 and $116,155, respectively. A significant portion of goodwill attributable to certain business combinations has arisen in recent years. While management believes that these costs will be recovered from the profitable operating of these businesses in the future, a change in the estimates of the applicable recovery periods or the development of unfavorable business conditions pertinent to these operations could adversely affect the Company's operating results. -34- 35 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Common Stock Issued for Services Common stock is issued from time to time in lieu of cash for services provided to the Company and is recorded as compensation expense at generally the fair value on the date of issuance. Earnings Per Common and Common Equivalent Shares Earnings per common and common equivalent shares were calculated using the weighted average number of common shares and common stock equivalents outstanding during the year. The number of common shares was increased by the number of shares issuable on the exercise of stock options when the market price of the common stock exceeds the option price granted. This increase in the number of common shares was reduced by the number of common shares that were assumed to have been purchased with the proceeds from the exercise of the stock options; those purchases were assumed to have been made at the average price of the common stock during the year. Fair Values of Financial Instruments The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term maturity of these financial instruments. The carrying amounts of long-term debt approximate their fair values because the interest rates are representative of, or change with, market rates. New Accounting Pronouncements In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No 121, "Accounting for the Impairment of Long-Term Assets and for Long-Lived Assets to be Disposed Of". The Statement requires that long- lived assets and certain intangibles to be held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will adopt this pronouncement during the quarter beginning October 1, 1996. Such adoption is not expected to have a material effect on the Company's consolidated financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", which encourages, but does not require, a change in the way compensation cost arising from stock options granted is measured. The Company plans to continue to apply the existing accounting policy contained in Accounting Principles Board Opinion No. 25, which requires no recognition of compensation expense for stock option grants where the exercise price is not less than the market price on the date of grant. The Company intends to adopt the disclosure aspects of SFAS No. 123 during the year ending September 30, 1997, if material. -35- 36 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reclassifications Certain amounts reported in 1995 and 1994 have been reclassified to conform to the 1996 presentation. 2. BUSINESS ACQUISITIONS Container Manufacturing Facility On August 29, 1996, the Company acquired the Demopolis, Alabama roll-off container manufacturing facility and related equipment and properties operated by Waste Management of Alabama, Inc., in a business combination accounted for as a purchase. The Company paid approximately $5,700,000 in cash at the closing, which was allocated to the assets received as follows: Plant, including land $1,615,000 Machinery and equipment 1,911,250 Inventories 400,000 Goodwill 1,773,750 ---------- $5,700,000 ==========
Goodwill resulting from this acquisition is expected to be amortized ratably over the next five years. In connection with this transaction, the seller has agreed to use reasonable commercial efforts to purchase annually from the Company, containers and related other manufactured products in an amount that is not less than $25,000,000 in sales per year during the five- year period following the closing. In this event, the Company has agreed to pay to the seller up to $1,200,000 during each year. If the seller purchases less than $25,000,000 annually, the $1,200,000 amount is to be reduced in accordance with the terms of the acquisition agreement. The Company intends to account for such payments, if any, as sales discounts when and as earned by the seller. -36- 37 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 2. BUSINESS ACQUISITIONS (CONTINUED) The accompanying 1996 statement of income includes the results of operations of the roll-off container manufacturing business for the one month period since the date of acquisition by the Company. Unaudited proforma results of operations as if the acquisition had taken place effective October 1, 1994 are summarized as follows:
(000's omitted) Year Ended September 30, ------------------------- 1 9 9 6 1 9 9 5 ------- ------- Net sales $98,276 $94,839 Net income $ 2,619 $ 2,555 Earnings per share $ 0.55 $ 0.55
These proforma results are not indicative of either future financial performance or actual results which would have occurred had the acquisition taken place at the beginning of the previous year. EPCO On July 17, 1995, the Company acquired all of the issued and outstanding common stock of EPCO Manufacturing Corporation, Inc. ("EPCO") in a business combination accounted for as a purchase. EPCO is a manufacturer of vertical downstroke and closed door horizontal baling equipment used for processing of cardboard, paper, plastic and non-ferrous metals in the recycling industry. Concurrent with the acquisition, EPCO's name was changed to McClain EPCO, Inc., an enterprise which operates as a wholly-owned subsidiary of McClain Industries, Inc. The purchase price of EPCO was $1,000,000 which was paid at closing by the issuance of 135,701 shares of unregistered common stock valued at the market price of approximately $7.37, determined for a period immediately preceding the acquisition date. The purchase price was significantly in excess of the fair values of the net assets acquired and such excess was substantially allocated to goodwill, which is being amortized over fifteen years. Additional consideration not to exceed $500,000 is payable in additional shares of the Company's common stock contingent upon EPCO sales exceeding specified amounts during the three-year period ending on September 30, 1998. Results of operations of EPCO have been included in the Company's consolidated financial statements since the date of acquisition. EPCO sales during the year ended September 30, 1996 were approximately $4,729,000. -37- 38 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 3. SUPPLEMENTAL CASH FLOWS INFORMATION Non-cash Investing and Financing Activities During the years ended September 30, 1996, 1995 and 1994, common stock valued at $18,613, $11,510 and $18,053, respectively, was issued to non-employee directors in exchange for services rendered. During the year ended September 30, 1996, the Company financed $5,700,000 of the Alabama acquisition by taking out a $5,300,000 term loan and borrowing $400,000 pursuant to the revolving credit facilities provided by its principal lender (Note 8). Non-cash investing and financing transactions during the year ended September 30, 1995 consisted of the EPCO acquisition and placing into service certain equipment valued at approximately $426,000, which had previously been included in other assets. The Company issued common stock valued at $1,000,000 in connection with the EPCO acquisition, which is summarized as follows: Fair value of assets acquired $ 876,000 Goodwill assigned 1,203,000 Liabilities assumed (1,079,000) ----------- Total consideration exchanged $ 1,000,000 ===========
Non-cash financing and investing transactions during the year ended September 30, 1994 consisted of placing into service a tube mill valued at $1,735,000, which had previously been included in other assets, and settling $7,623,414 of short-term notes payable for which a like amount of long-term debt was incurred as a result of debt refinancing. Other Cash Flows Information Cash paid for interest amounted to $3,044,398 for 1996, $2,482,481 for 1995, and $1,321,533 for 1994. Cash paid for federal income taxes amounted to $1,198,137 for 1996, $945,314 for 1995, and $835,000 for 1994. -38- 39 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 4. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE The following is a summary of changes in the allowance for doubtful accounts for each of the three years in the period ended September 30, 1996:
1 9 9 6 1 9 9 5 1 9 9 4 ------- ------- ------- Balance, beginning of year $600,000 $425,800 $194,733 Add provision charged against income 49,400 205,000 276,610 Less uncollectible accounts written off, net of recoveries (49,400) (30,800) (45,543) -------- -------- -------- Balance, end of year $600,000 $600,000 $425,800 ======== ======== ========
5. INVENTORIES The major components of inventories at September 30, 1996 and 1995 were as follows:
1 9 9 6 1 9 9 5 ----------- ----------- Materials and supplies $11,677,000 $17,400,070 Work-in-process 6,776,000 6,255,749 Finished goods 7,124,000 7,573,580 ----------- ----------- $25,577,000 $31,229,399 =========== ===========
-39- 40 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 6. LEASING OPERATIONS Sales-Type Leases The Company provides financing contracts for the sales of various manufactured products to certain of its customers. Such financing is principally structured in the form of finance leases, typically for a five-year term, which are accounted for as sales-type leases. The net investment in these sales-type leases is comprised of the following amounts at September 30:
1 9 9 6 1 9 9 5 ---------- ---------- Gross minimum lease payments collectible in monthly installments $7,575,657 $4,727,944 Less advance lease payments and deposits received 210,705 178,780 ---------- ---------- Subtotal 7,364,952 4,549,164 Less unearned finance income 1,748,602 988,200 ---------- ---------- Total net investment in sales-type leases 5,616,350 3,560,964 Current portion 1,910,000 1,305,800 ---------- ---------- Noncurrent portion $3,706,350 $2,255,164 ========== ==========
Gross minimum lease payments are collectible in the following scheduled annual amounts for the years succeeding September 30, 1996:
YEAR ENDING SEPTEMBER 30 AMOUNT ------------ ---------- 1997 $2,504,084 1998 2,135,836 1999 1,399,340 2000 810,145 2001 515,547 ---------- GROSS MINIMUM AMOUNT COLLECTIBLE $7,364,952 ==========
-40- 41 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 6. LEASING OPERATIONS (CONTINUED) Sale-Leaseback Transactions The Company, through McClain Group Leasing, Inc., has TRAC (Terminal Rental Adjustment Clause) leasing programs in place with two financial institutions in order to assist customers in obtaining financing for certain products delivered by guaranteeing a portion of the residual values of such products. Distribution of the Company's products in this manner has been accomplished by (i) selling the products to the independent financial institution leasing company, (ii) leasing the products back and providing a specified minimum guaranteed residual value to the leasing company, and (iii) subleasing the product to the user customer. The gross profit from the sale of these products is deferred and recognized to income in proportion to the related gross rental charged to expense over the term of the lease arrangement. Rental expense for the leaseback of the products was $316,486 during the year ended September 30, 1996. As of that date, minimum scheduled rental payments under these operating lease arrangements in future years are summarized as follows:
YEAR ENDING SEPTEMBER 30 AMOUNT ------------ ---------- 1997 $555,000 1998 555,000 1999 555,000 2000 555,000 2001 548,981 ---------- GROSS MINIMUM RENTAL PAYMENTS $2,768,981 ==========
Total residual values guaranteed by the Company under these leasing arrangements approximates $380,000 as of September 30, 1996. -41- 42 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 7. LINES OF CREDIT The Company and certain of its subsidiaries are party to the following line of credit agreements with financial institutions as of September 30, 1996 and 1995:
1 9 9 6 1 9 9 5 ----------- ----------- Revolving lines of credit providing for maximum availability of up to $21,000,000. Borrowings are limited to 80% of the eligible accounts receivable and 50% of qualified inventory and are subject to interest at the bank's prime rate (8.25% at September 30, 1996). $15,887,347 $20,093,093 Revolving line of credit providing for maximum availability of up to $1,500,000. Borrowings are limited to 85% of the cost of demonstrator units and are subject to interest at the bank's prime rate. 1,053,000 - The above agreements are collateralized by substantially all the assets of the Company and contain various covenants requiring the Company to maintain certain financial ratios. The agreements also prohibit the Company from incurring additional indebtedness other than subordinated indebtedness and limit plant and equipment acquisitions to $4.5 million per fiscal year. These agreements expire in March 1998, at which time the Company expects to obtain renewals upon the same or similar terms. Line of credit providing for maximum availability of up to $7,500,000. Borrowings are limited to 80% of eligible lease receivables and are subject to interest at the bank's prime rate. The agreement is collateralized by certain equipment leases held by the Company's leasing subsidiary. This agreement expires in March 1998, at which time the Company expects to obtain a renewal upon the same or similar terms. 5,149,620 2,908,785 ----------- ----------- Total lines of credit borrowings $22,089,967 $23,001,878 =========== ===========
-42- 43 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 7. LINES OF CREDIT (CONTINUED) Information as to borrowings and related interest rates pursuant to these credit facilities are summarized as follows during the years ended September 30:
1 9 9 6 1 9 9 5 1 9 9 4 ----------- ----------- ----------- Average aggregate borrowings outstanding during the year $19,607,621 $15,069,445 $ 9,027,614 Maximum amount of borrowings outstanding during the year $21,573,937 $20,093,093 $10,058,476 Average interest rates on borrowings outstanding at the end of the year 8.25% 9.00% 8.00% Average interest rates on borrowings outstanding during the year, based on monthly averages 8.36% 8.93% 6.85%
8. LONG-TERM DEBT Long-term debt as of September 30, 1996 and 1995 consisted of the following obligations:
1 9 9 6 1 9 9 5 ----------- ----------- Promissory notes to a bank, collateralized by certain assets as disclosed in Note 7. The notes are payable in monthly installments of $160,000 plus interest at rates ranging from prime to prime plus 1/2% as published in the Wall Street Journal (effective rates of 8.25% to 8.75% at September 30, 1996), maturing at various dates through July 2002. $11,425,953 $ 6,820,396 Promissory notes to banks, collateralized by commercial mortgages on certain real estate, payable in monthly installments of $27,578 plus interest ranging from the bank prime rate to prime plus 1/4% (effective rates of 8.25% to 8.50% at September 30, 1996), maturing at various dates through January 2000. 2,833,430 3,527,462 Lines of credit borrowings (Note 7) 22,089,967 23,001,878 ----------- ----------- Total debt 36,349,350 33,349,736 Less current portion 2,132,201 2,179,449 ----------- ----------- Long-term portion $34,217,149 $31,170,287 =========== ===========
-43- 44 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 8. LONG-TERM DEBT (CONTINUED) Scheduled aggregate principal maturities of long-term debt for years succeeding September 30, 1996 are presented below:
YEAR ENDING SEPTEMBER 30 AMOUNT ------------ ----------- 1997 $ 2,132,201 1998 23,811,886 1999 2,940,233 2000 2,887,141 2001 1,464,065 Thereafter 3,113,824 ----------- TOTAL $36,349,350 ===========
9. ACCRUED EXPENSES Accrued expenses included on the accompanying consolidated balance sheets consist of the following amounts at September 30:
1 9 9 6 1 9 9 5 ---------- ---------- Compensation $ 374,385 $ 442,158 Vacation and holiday pay 495,097 513,988 Taxes 221,902 374,558 Insurance 307,822 321,713 Other 766,663 679,392 ---------- ---------- TOTAL $2,165,869 $2,331,809 ========== ==========
10. INCOME TAXES The provision for income taxes for each of the three years in the period ended September 30, 1996 consists of the following components:
1 9 9 6 1 9 9 5 1 9 9 4 ---------- ---------- ---------- Current federal provision $ 570,000 $ 899,000 $ 954,000 Deferred provision 660,000 375,000 709,700 ---------- ---------- ---------- TOTAL INCOME TAXES $1,230,000 $1,274,000 $1,663,700 ========== ========== ==========
-44- 45 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 10. INCOME TAXES (CONTINUED) The effective income tax rate on consolidated pre-tax income differs from the federal statutory rate for the following reasons:
1 9 9 6 1 9 9 5 1 9 9 4 ----------------- ------------------ ----------------- Amount % Amount % Amount % ---------- --- ---------- --- ---------- --- Provision computed at statutory rate $1,229,000 34 $1,270,000 34 $1,671,000 34 Nondeductible expenses 31,000 1 26,000 1 14,000 - Alternative minimum tax credit - - - - (293,000) (6) Other (30,000) (1) (22,000) (1) 271,700 6 ---------- --- ---------- --- ---------- --- $1,230,000 34 $1,274,000 34 $1,663,700 34 ========== === ========== === ========== ===
The components of the deferred income tax provision are as follows:
1 9 9 6 1 9 9 5 1 9 9 4 ------- ------- ------- Temporary differences resulting primarily from differences in depreciation, inventory, product liability, bad debts and accrued liabilities $626,000 $403,000 $399,000 Alternative minimum tax - - 293,000 Other, net 34,000 (28,000) 17,700 -------- -------- -------- $660,000 $375,000 $709,700 ======== ======== ========
During the year ended September 30, 1994, the Company utilized its remaining available alternative minimum tax (AMT) credits to reduce its current tax liability (such credits arose because of tax preference items related to the Galion acquisition in 1992). -45- 46 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 10. INCOME TAXES (CONTINUED) The balance of the net deferred income tax liability as of September 30, 1996 and 1995 consists of temporary basis differences related to the following assets and liabilities:
1 9 9 6 1 9 9 5 ---------- ---------- Taxable differences: Property and equipment $2,081,000 $2,138,000 Inventory 1,562,000 1,478,000 ---------- ---------- Gross deferred tax liabilities 3,643,000 3,616,000 ---------- ---------- Deductible differences: Product liability 944,000 1,410,000 Accounts receivable 204,000 405,000 Accrued expenses 389,000 351,000 Other 6,000 10,000 ---------- ---------- Gross deferred tax assets 1,543,000 2,176,000 ---------- ---------- NET DEFERRED INCOME TAX LIABILITY $2,100,000 $1,440,000 ========== ==========
The components which comprise gross deferred taxes are predominantly noncurrent; as such, the entire related net liability is classified as noncurrent. 11. EMPLOYEE PENSION AND PROFIT SHARING PLANS The Company and certain subsidiaries have qualified pension and profit sharing plans covering substantially all union employees. Contributions to the plans were calculated at an hourly rate as defined in the various union contracts. The Company also maintains a defined contribution pension plan qualified pursuant to Section 401(k) of the Internal Revenue Code for certain union employees and all eligible non-union employees. The Company makes matching contributions of specified percentages of participants' compensation. The cost of all of these plans was $334,924 in 1996, $346,368 in 1995 and $314,249 in 1994. The Company has an employee stock bonus plan for full time, salaried and non-union employees. Company contributions are discretionary each year and are generally limited to 15% of participants' compensation. No contributions were made for the years ended September 30, 1996, 1995 and 1994. -46- 47 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 12. SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEAR ENDED SEPTEMBER 30 ------------------------------------------- 1 9 9 6 1 9 9 5 1 9 9 4 ---------- ---------- ---------- Components of Other, net: Interest income $ 795,519 $ 410,221 $ 254,553 TRAC leasing operations, net 161,311 - - Sales discounts (458,987) (603,775) (626,756) Single business and state income taxes (176,975) (180,893) (96,198) Amortization of goodwill and organizational costs (126,514) (80,880) (80,880) Loss on sale of equipment (3,981) (22,067) (24,672) Other income, net 21,402 4,179 161,080 ---------- ---------- ---------- $ 211,775 $ (473,215) $ (412,873) ========== ========== ========== Charged to Operating Costs and Expenses: Depreciation $2,424,421 $2,099,192 $1,855,311 Maintenance and repairs 874,331 1,153,509 728,850 Taxes, other than payroll and 368,186 396,276 388,348 income taxes Advertising 394,616 212,007 194,133
13. RELATED PARTY TRANSACTIONS Leases The Company leases an operating facility from the mother of the President of McClain Industries, Inc. on a month-to-month basis with annual rentals totaling $42,000 in each of the years ended September 30, 1996, 1995 and 1994. Waste Stream Programs In connection with its acquisition of EPCO in July 1995, the Company entered into a consulting and commission agreement with Waste Stream Associates ("Waste Stream"), a partnership consisting of certain stockholders of the Company, to compensate Waste Stream in an amount equal to 50% of the pre-tax profit derived by EPCO from Waste Stream Programs, as defined. Such compensation was not significant for the years ended September 30, 1996 and 1995. -47- 48 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 13. RELATED PARTY TRANSACTIONS (CONTINUED) Note Receivable The Company's office and operating facility, the Georgia facility and the Kalamazoo facility were leased from related party partnerships comprised of officers, directors and employees of McClain Industries, Inc. On August 2, 1993, the Company acquired these facilities in exchange for 360,000 shares of common stock. In November 1994, in connection with an aborted securities offering, the Company agreed to value these shares at a price based on the market value of such shares as of August 2, 1993, the date the transactions were consummated. This revision gives effect to the fact that the shares increased in value by $504,000 from March 29, 1993, the date the definitive agreements for the transactions were executed by the parties, to August 2, 1993. The Company's principal shareholders have agreed to reimburse that amount to the Company. A letter agreement has been executed calling for equal annual principal payments to be received by the Company over a five-year period beginning on September 30, 1995, plus interest at the Company's cost of funds, which approximates the prime rate. Other Elliott & Sons Insurance Agency, Inc. and Michigan Defined Plans, Inc., entities controlled by Raymond Elliott, a director of the Company, provided insurance at a cost of approximately $1,200,000, $1,300,000, and $1,400,000, to the Company during the years ended September 30, 1996, 1995 and 1994, respectively. These entities received fees and commissions in connection with these transactions of approximately $120,000, $129,000, and $118,000, respectively. Product Sales The Company had product sales of approximately $660,000, $239,000, and $232,000 during the years ended September 30, 1996, 1995 and 1994, respectively, to a business controlled by the President of McClain Industries, Inc. -48- 49 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 14. INCENTIVE STOCK OPTION PLANS The Company maintains the 1989 Retainer Stock Plan for Non-employee Directors and the McClain 1989 Incentive Stock Plan. Retainer Stock Plan The Retainer Stock Plan as adopted calls for reserving 100,000 shares of the Company's no par common stock and allows non-employee directors the option to receive payment of all or a portion of their directors fees in the form of shares of common stock at the fair market value of such shares on the date of issuance. For the years ended September 30, 1996, 1995 and 1994 the Company issued 3,555, 1,565, and 2,193 shares, respectively, of its common stock to such directors in exchange for services rendered. Incentive Stock Plan The Incentive Stock Plan as adopted calls for reserving 1,000,000 shares of the Company's no par common stock for the granting of stock awards to officers and key management personnel. The awards consist of incentive stock option (ISO) or non-qualified options, stock appreciation rights (SARs) and restricted share rights, and may be granted at the following prices at the date of grant: incentive stock options must be equal to or greater than the fair market value of common stock; stock appreciation rights and restricted share rights may be issued at a price which may not be less than 50% of the price of the common stock. In connection with the EPCO acquisition on July 17, 1995, the Board of Directors granted to two EPCO employees options to purchase 20,000 shares of the Company's common stock at an exercise price of $7.37 per share, which was the fair market value of the shares on the date of grant. The employees may exercise one-third of the options at any time after July 1996, one-third of the options at any time after July 1997 and one-third of the options at any time after July 1998, but no options may be exercised after July 2000. On January 16, 1995, the Board of Directors granted to the Company's President and other key employees options to purchase 30,667 shares of the Company's common stock at an exercise price of $7.31 per share, which was the fair market value for the shares on the date of grant. The employees may exercise one-third of the options at any time after January 1996, one-third of the options at any time after January 1997, and one-third of the options at any time after January 1998, but no options may be exercised after January 2000. On September 12, 1994, the Board of Directors granted to key employees options to purchase 13,333 shares of the Company's common stock at an exercise price of $8.81 per share, which was the fair market value for the shares on the date of the grant. The employees may exercise one-third of the options at any time after September 1995, one-third of the options at any time after September 1996, and one- third of the options at any time after September 1997, but no options may be exercised after September 1999. -49- 50 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 14. INCENTIVE STOCK OPTION PLANS (CONTINUED) On April 4, 1994, the Board of Directors granted to the Company's President and other key employees options to purchase 52,667 shares of the Company's common stock at an exercise price of $6.56 per share, which was the fair market value for the shares on the date of the grant. The employees may exercise one-third of the options at any time after April 1995, one-third of the options at any time after April 1996, and one-third of the options at any time after April 1997, but no options may be exercised after April 1999. The following table presents a summary of stock option activity for each of the years in the three year period ended September 30, 1996:
Shares Under Option ------------------------------------------ 1 9 9 6 1 9 9 5 1 9 9 4 -------- ------- -------- Outstanding, beginning of year 373,251 326,000 384,000 Granted during the year - 50,667 66,000 Canceled during the year (11,111) - - Exercised during the year (134,244) (3,416) (124,000) -------- ------- -------- Outstanding, end of year (at exercise prices ranging from $2.63 to $8.81 per share) 227,896 373,251 326,000 ======== ======= ======== Eligible, end of year for exercise currently (at prices ranging from $2.63 to $8.81 per share) 172,117 252,166 208,888 ======== ======= ========
15. COMMITMENTS AND CONTINGENCIES Product Liability As a manufacturer of industrial products, the Company is occasionally subjected to various product liability claims. Such claims typically involve personal injury or wrongful death associated with the use or misuse of the Company's products. The Company is currently defending certain legal proceedings involving allegations of product liability relating to products manufactured and sold by the Company. Historically, such claims have not resulted in material losses to the Company in any one year, and the Company maintains product liability insurance in amounts believed by management to be adequate. -50- 51 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 15. COMMITMENTS AND CONTINGENCIES (CONTINUED) Galion Holding Company (GHC), pursuant to an indemnification it provided to the seller in connection with GHC's July 1992 acquisition of the Galion operations, is currently defending a number of legal proceedings involving product liability claims arising out of products manufactured and sold prior to the acquisition. These claims are covered by insurance and many of these cases have been settled. A liability to provide for these product claims was established at the acquisition date. Since many of the cases have been settled and insurance coverage exists, management believes that the ongoing costs to defend these claims will not exceed the amount accrued on the accompanying consolidated balance sheet at September 30, 1996. Environmental Matters The Company's operations are subject to extensive federal, state and local regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Inherent in manufacturing operations and in owning real estate is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs, on an ongoing basis, associated with environmental regulatory compliance in its business. Labor Union Matters Certain of the Company's hourly employees are represented by various labor unions pursuant to collective bargaining agreements which expire between June 1997 and November 1999. On February 23, 1995, the National Labor Relations Board (NLRB) conducted an election in response to a petition filed by a local union (Union) to represent the hourly employees at the Company's Macon, Georgia plant. The ballots of certain employees were challenged as ineligible. The Union filed charges asserting that the Company committed various unfair labor practices which affected the election results and that the challenged ballots should be counted. On October 17, 1996 the NLRB upheld the unfair labor practice charges and on November 5, 1996 the NLRB determined that the results of the election were in favor of the Union. Management, based upon the opinion of counsel, does not believe a final decision upholding the Union certification or the unfair labor practice charges would have a material adverse effect on the Company. Other Legal Matters The Company is also involved in routine litigation incidental to its business. Management believes that the resolution of these matters will not materially affect the consolidated financial statements. -51- 52 McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 15. COMMITMENTS AND CONTINGENCIES (CONTINUED) Employment Agreement In connection with the EPCO acquisition on July 17, 1995, the Company entered into a three-year employment agreement with the president of EPCO, which provides for a base salary of $100,000 annually. As an inducement for the Company to enter into the employment agreement, the officer agreed to not compete with the Company's business for a period of three years after employment is terminated, or five years from the date of the agreement, whichever is longer. Operating Lease In connection with the EPCO acquisition in July 1995, the Company assumed a contractual commitment to lease for a five-year period ending on April 1, 2000 the New York facilities used in its baler manufacturing operation. The Company is responsible for insurance, utilities, maintenance including a percentage of common area charges, and a portion of the property taxes. Minimum rental payments required pursuant to this noncancellable lease agreement for the years succeeding September 30, 1996 amount to approximately $223,000. The Company has an option to extend the term of the lease for an additional five-year period at a minimum fixed aggregate rental of approximately $347,000. Common Stock Repurchase In December 1995, the Board of Directors authorized the Company to repurchase from time to time on the open market up to 100,000 shares of the Company's common stock. During the year ended September 30, 1996, the Company redeemed 31,627 shares at prices ranging from $4.25 to $4.75 per share. Equipment Acquisition In May 1996, the Company entered into a $1,220,000 commitment to increase the capacity of an existing cut-to-length steel processing equipment line in its Shelby Steel plant. Payments made by the Company towards the completion of this contract were approximately $366,000 as of September 30, 1996. 16. FOURTH QUARTER ADJUSTMENTS During the quarter ended September 30, 1995, the Company recorded various adjustments of approximately $1,100,000 principally related to the valuation of inventories and carrying values of certain liabilities. The aggregate effect of such adjustments was to decrease net income for the fourth quarter by approximately $720,000 ($.15 per share). * * * * * * -52- 53 INDEX TO EXHIBITS
Sequentially Numbered Exhibit No. Description Page ----------- ------------ ---- 3.1 Articles of Incorporation of McClain Industries, Inc. (7) 3.2 Bylaws of McClain Industries, Inc. (1) 10.1 McClain Industries, Inc. 1989 Incentive Stock Plan (2) 10.2 McClain Industries, Inc. 1989 Retainer Stock Plan for Non-Employee Directors (2) 10.3 Land Contract dated November 12, 1991 between Robert and Helen J. Warzyniak and Violet and Walter H. Urban, as Seller, and the Company, as Purchaser (3) 10.4 Agreement of Purchase and Sale dated July 20, 1992 by and between Peabody International Corporation, as Seller, and Galion Holding Company, as Buyer (4) 10.5 Manufacture and License Agreement dated as of November 2, 1992, between Galion Dump Bodies, as Licensor, and the Company, as Licensee (6) 10.6 Loan documents dated as of March 1, 1993, between the Company and Galion Dump Bodies and E-Z Pack (6) 10.7 Guaranty Fee Agreement dated as of March 2, 1993, between Galion Holding and the Company (6) 10.8 Loan documents dated June 29, 1993, between Standard Federal Bank and Galion Holding, E-Z Pack and Galion Dump Bodies (6) 10.9 Term Note dated January 18, 1994 between Trust Company Bank of Middle Georgia, N.A. and the Company (7) 10.10 Loan Agreement, dated September 15, 1994, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Quality Tube and McClain-Ohio (7) 10.11 Loan Agreement, dated September 15, 1994, between Standard Federal Bank and Galion Holding, E-Z Pack and Galion Dump Bodies (7)
53 54 10.12 Promissory Note (Term Loan), dated September 15, 1994, between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (7) 10.13 Promissory Note (Line of Credit), dated September 15, 1994, between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (7) 10.14 Purchase Agreement, dated as of March 30, 1993, between the Company and Group Properties III (7) 10.15 Purchase Agreement, dated as of March 30, 1993, between the Company and Group Properties (7) 10.16 Purchase Agreement, dated as of March 30, 1993, between the Company and Group Properties of Georgia (7) 10.17 Letter Agreement, dated November 17, 1994, among the Company, Kenneth D. McClain and Robert W. McClain (7) 10.18 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement Dated February 6, 1995, between Standard Federal Bank and the Company (8) 10.19 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement Dated February 6, 1995, between Standard Federal Bank and the Company (8) 10.20 Loan Agreement Between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Quality Tubing and McClain-Ohio dated February 6, 1995 (8) 10.21 Loan Agreement between Standard Federal Bank and Galion Holding, E-Z Pack and Galion Dump Bodies dated February 6, 1995 (8) 10.22 Promissory Note (Line of Credit with Term Provisions) (First Line of Credit) dated February 6, 1995 between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8) 10.23 Promissory Note (Line of Credit with Term Provisions) (Second Line of Credit) dated February 6, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8) 10.24 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (Secures Future Advances)
54 55 dated February 6, 1995, between Standard Federal Bank and E-Z Pack (8) 10.25 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (Secures Future Advances) dated February 6, 1995, between Standard Federal Bank and Galion Dump Bodies (8) 10.26 First Amendment to Loan Agreement Between Standard Federal Bank, the Company, McClain-Georgia, Shelby Steel, Quality Tubing and McClain-Ohio Dated February 16, 1995 (8) 10.27 Amended and Restated Promissory Note (Line of Credit) dated February 16, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8) 10.28 First Amendment to Loan Agreement between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies dated February 16, 1995. (8) 10.29 Amended and Restated Promissory Note (Line of Credit) dated May 5, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8) 10.30 Second Amendment to Loan Agreement between Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump Bodies dated May 5, 1995 (8) 10.31 Second Amendment to Loan Agreement between Standard Federal Bank, the Company, McClain-Georgia, Shelby Steel, Quality Tubing, McClain-Ohio and EPCO dated June 22, 1995 (8) 10.32 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (Secures Future Advances) between Standard Federal Bank and Galion Dump Bodies dated June 22, 1995. (8) 10.33 Third Amendment to Loan Agreement between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida dated June 22, 1995. (8) 10.34 Third Amended and Restated Promissory Note (Line of Credit) dated June 22, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida (8)
55 56 10.35 Security Agreement dated June 22, 1995, between Standard Federal Bank and McClain Group Sales of Florida (8) 10.36 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (Secures Future Advances) dated June 22, 1995, between Standard Federal Bank and E-Z Pack (8) 10.37 Certification of Resolution of Corporation Authority to Borrow and Pledge Collateral dated June 22, 1995, between Standard Federal Bank and McClain Group Sales of Florida (8) 10.39 Certification of Resolution of Corporation Authority to Borrow and Pledge Collateral dated July 18, 1995, between Standard Federal Bank and EPCO (8) 10.40 Security Agreement dated July 18, 1995, between Standard Federal Bank and EPCO (8) 10.41 Amendment Agreement Promissory Note (Line of Credit) dated September 25, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida (8) 10.42 Second Amendment Agreement Promissory Note (Line of Credit with Term Provisions) (First Line of Credit) dated September 25, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack, and Galion Dump Bodies (8) 10.43 Third Amendment Agreement Promissory Note (Line of Credit with Term Provisions) (Second Line of Credit) dated September 25, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack, and Galion Dump Bodies (8) 10.44 Amendment Agreement Promissory Note (Term Loan) dated September 25, 1995, between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida (8) 10.45 First Amended and Restated Loan Agreement Between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida dated October 2, 1995 (8) 10.46 Amended and Restated Loan Agreement dated July 17, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tube, McClain-Ohio and EPCO. 59
56 57 10.47 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio and EPCO. 83 10.48 Promissory Note (Term Loan) dated July 17, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio and EPCO. 88 10.49 Promissory Note (Line of Credit with Term Provisions) dated July 17, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio and EPCO. 93 10.50 Third Amended and Restated Promissory Note (Line of Credit( between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida. 98 10.51 Promissory Note (Line of Credit) between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida. 104 10.52 Loan Agreement dated July 17, 1996, between Standard Federal Bank and Leasing 110 10.53 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank and Leasing 126 10.54 Loan Agreement dated August 29, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio, EPCO and McClain-Alabama. . 130 10.55 Promissory Note (Term Loan) dated July 17, 1996, between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio and EPCO. 151 10.56 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement dated August 29, 1996, between Standard Federal Bank and McClain-Alabama. 157 10.57 Security Agreement dated August 29, 1996, between Standard Federal Bank and McClain-Alabama. 182 10.58 Master Lease Agreement dated July 15, 1995 between Fifth Third Leasing Company and Leasing 194 10.59 Master Lease Agreement dated May 17, 1996 between NBD Bank and Leasing 202
57 58 21 List of Subsidiaries 208 EXHIBIT 27 Financial Data Schedule
- ----------------- (1) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/89 (2) Incorporated by reference to the Company's Registration Statement (33-29613) (3) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/91 (4) Incorporated by reference to the Company's Form 8-K dated 7/27/92 (5) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/92 (6) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/93 (7) Incorporated by reference to the Company's Registration Statement on Form S-2 (33-84562) (8) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/95 58 EX-10.46 2 EXHIBIT 10.46 1 EXHIBIT 10.46 SF100000.MCC AMENDED AND RESTATED LOAN AGREEMENT BETWEEN STANDARD FEDERAL BANK AND MCCLAIN INDUSTRIES, INC., MCCLAIN OF GEORGIA, INC., SHELBY STEEL PROCESSING COMPANY, MCCLAIN TUBE COMPANY D/B/A QUALITY TUBE, MCCLAIN INDUSTRIES OF OHIO, INC. AND MCCLAIN EPCO, INC. THIS AMENDED AND RESTATED LOAN AGREEMENT is made and delivered this 17th day of July, 1996, by and between McClain Industries, Inc., a Michigan corporation, McClain of Georgia, Inc., a Georgia corporation, Shelby Steel Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan corporation, and McClain Epco, Inc., a New York corporation (collectively, "Borrower"), whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. On September 15, 1994, the Borrower and Standard Federal entered into a Loan Agreement, as amended by a First Amendment to Loan Agreement, dated February 16, 1995, and a Second Amendment to Loan Agreement, dated June 22, 1995 (the "1994 Loan Agreement"), pursuant to which the Borrower opened a revolving line of credit facility with Standard Federal, Loan No. 0250006199, with a credit limit of up to $11,000,000.00 (the "Line of Credit"), as evidenced by a Second Amended and Restated Promissory Note (Line of Credit), dated June 22, 1995, in the principal amount of $11,000,000.00, and Standard Federal made to the Borrower a term loan, Loan No. 02500016768, as evidenced by a Promissory Note (Term Loan), dated September 15, 1994, in the principal amount of $3,148,575.60 ("Term Loan No. 16768"); a term loan, Loan No. 025000193855, as evidenced by a Promissory Note (Term Loan), dated July 18, 1995, in the principal amount of $240,000.00 ("Term Loan No. 193855"); a line of credit with term provisions, Loan No. 025000193863, as evidenced by a Promissory Note (Line of Credit with Term Provisions) (First Line of Credit), dated July 18, 1995, in the principal amount of $426,000.00 ("Term Loan No. 193863"), and a line of credit with term provisions, Loan No. 0250193871, as evidenced by a Promissory Note (Line of Credit with Term Provisions) (Second Line of Credit), dated July 18, 1995, in the principal amount of $426,000.00 ("Term Loan No. 193871"). 2 B. On February 6, 1994, the Borrower and Standard Federal entered into a Loan Agreement, pursuant to which Standard Federal made to the Borrower a term loan, Loan No. 0250017724, as evidenced by a Promissory Note (Term Loan), dated February 6, 1995, in the principal amount of $2,000,000.00 ("Term Loan No. 17724"); a line of credit with term provisions, Loan No. 02500017740, as evidenced by a Promissory Note (Line of Credit with Term Provisions) (First Line of Credit), dated February 6, 1995, in the principal amount of $950,000.00 ("Term Loan No. 17740"); and a line of credit with term provisions, Loan No. 0250017675, as evidenced by a Promissory Note (Line of Credit with Term Provisions) (Second Line of Credit), dated February 6, in the principal amount of $950,000.00 ("Term Loan No. 17675"). C. The loans described in paragraphs A and B above are secured by a Security Agreement dated September 15, 1994 (the "Security Agreement"). D. The Borrower has requested a renewal of the Line of Credit, a new term loan in the principal amount of $3,465,888.23, the proceeds of which will be used to refinance Term Loan No. 17740, Term Loan No. 17675, Term Loan No. 16768, Term Loan No. 193855, Term Loan No. 193863, and Term Loan No. 193871, and a new equipment line of credit in the principal amount of $1,000,000.00, and Standard Federal is willing to supply such financing subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in reliance upon the representations herein provided and in consideration of the premises and the mutual promises herein contained, the Borrower and Standard Federal hereby agree as follows: SECTION 1. LINE OF CREDIT 1.1 Standard Federal hereby renews the Line of Credit to the Borrower, which shall not exceed at any one time outstanding the Credit Limit as hereafter defined. The term "Credit Limit" shall mean the lesser of: (a) Eleven Million and 00/100 Dollars ($11,000,000.00), or (b) an amount equal to the sum of: (i) an amount equal to 80% of Eligible Accounts Receivable, plus (ii) an amount equal to the lesser of: (1) Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00), or (2) an amount equal to 50% of Qualified Inventory. As used herein, the term "Eligible Accounts Receivable" shall mean accounts receivable of the Borrower less than 90 days old, not doubtful as to collectibility or disputed as to existence or amount or subject to offset, contra-indebtedness or return and not intra-company or owing from any affiliated or related company or other entity, exclusive of any account receivable arising under a government contract, the assignment of which is subject to the Assignment of Claims Act of 1940, as amended, or any other similar federal or state statute or regulation governing the assignment of contracts with a 2 3 governmental agency. The term "Qualified Inventory" shall mean the inventory of Borrower in which Standard Federal holds a perfected first security interest exclusive of any returned or damaged items and work-in-process. 1.2 The Line of Credit herein extended shall be subject to the terms and conditions of a renewal Promissory Note (Line of Credit) of even date herewith and all renewals and amendments thereof (the "Line of Credit Note"). The Line of Credit shall be payable and shall bear interest as set forth in the Line of Credit Note. This Loan Agreement and the Line of Credit Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. 1.3 Standard Federal shall, from time to time during the term hereof, make advances to Borrower under the Line of Credit upon request therefor by Borrower, provided that upon giving effect to such advance no Event of Default (as defined in the Line of Credit Note or this Agreement) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; and provided further that upon giving effect to such advance and at the time the advance is to be made all of the representations and warranties of Borrower contained in this Agreement and all other documents executed in connection with the Line of Credit are true and correct in all material respects; and provided further that at the time the advance is to be made Standard Federal shall not have previously or concurrently declared all amounts owing under the Line of Credit Note to be immediately due and payable; and provided further the amount requested shall not cause the total amount outstanding under the Line of Credit to exceed the Credit Limit. 1.4 If at any time the amount outstanding under the Line of Credit shall exceed the Credit Limit, Borrower shall, on demand, forthwith pay to Standard Federal such sums as are necessary to reduce the amount outstanding to an amount not greater than the Credit Limit. 1.5 Borrower shall pay to Standard Federal, on the first day of each month, commencing on the first payment date after the date hereof, and continuing on the same day of each consecutive month thereafter until the termination of the Line of Credit and all sums owing for principal and interest with respect to the Line of Credit are paid in full, an Unused Line Fee in the amount of 0.25% per annum of the amount available for draw but not advanced from time to time on the Line of Credit ("Unused Line"). The amount of the Unused Line Fee payable on the first day of each month will be determined by multiplying the average daily balance of the Unused Line for the calendar month which ends one month prior to the due date of such Unused Line Fee by .020833%. 3 4 1.6 In all events, unless earlier terminated, the Line of Credit shall terminate March 1, 1998. Upon termination, Borrower shall forthwith pay to Standard Federal all sums owing for principal and interest with respect to the Line of Credit. SECTION 1A. TERM LOAN 1A.1 Standard Federal hereby extends to the Borrower a term loan (the "Term Loan") in the principal amount of Three Million Four Hundred Sixty Five Thousand Eight Hundred Eighty Eight and 00/100 Dollars ($3,465,888.23). 1A.2 The Term Loan herein extended shall be subject to the terms and conditions of a Promissory Note (Term Loan) of even date herewith and all renewals and amendments thereof (the "Term Note"). The Term Loan shall be payable and shall bear interest as set forth in the Term Note. This Loan Agreement and the Term Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. SECTION 1B. EQUIPMENT PURCHASE LINE OF CREDIT 1B.1 Standard Federal hereby extends to the Borrower a revolving line of credit (the "Equipment Line of Credit") which shall not exceed at any one time outstanding the principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Equipment Credit Limit"). 1B.2 The Equipment Line of Credit herein extended shall be subject to the terms and conditions of a Promissory Note (Line of Credit with Term Provisions) (Equipment Line of Credit), in the principal amount of One Million and 00/100 Dollars ($1,000,000.00), of even date herewith and all renewals and amendments thereof (the "Equipment Line of Credit Note"). The Equipment Line of Credit shall be payable and shall bear interest as set forth in the Equipment Line of Credit Note. This Loan Agreement and the Equipment Line of Credit Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. 1B.3 If at any time the amount outstanding under the Equipment Line of Credit shall exceed the Equipment Credit Limit, Borrower shall, on demand, forthwith pay to Standard Federal such sums as are necessary to reduce the amount outstanding to an amount not greater than the Equipment Credit Limit. 1B.4 Each advance under the Equipment Line of Credit shall be used solely for the purchase of equipment. Each advance shall be in an amount not in excess of Eighty Five percent (85.0%) of the cost to the Borrower of the equipment to be purchased with such advance. Standard Federal shall make advances under the Equipment Line of Credit only upon receipt by it in a form satisfactory to it 4 5 of a true and authentic copy of the dealer invoice for the equipment purchased or to be purchased with the advance. SECTION 1C. CONDITIONS TO MAKING LOANS 1C.1 The following are conditions precedent to the obligation of Standard to make the Line of Credit, the Term Loan and the Equipment Line of Credit and hereunder: 1C.1(a) The Borrower shall have delivered or shall have had delivered to Standard Federal, in form and substance satisfactory to Standard Federal and its counsel, each of the following: a. A duly executed copy of this Loan Agreement; b. A duly executed copy of the Line of Credit Note, the Term Note, the Equipment Line of Credit Note and such other loan documents as Standard Federal shall require to evidence and document the Line of Credit, the Term Loan and the Equipment Line of Credit (the "Loan Documents"); c. Such credit applications, financial statements, authorizations, and such information concerning the Borrower and its business, operations, and condition (financial and otherwise) as Standard Federal may reasonably request; d. Certified copies of resolutions of the Boards of Directors of the Borrower approving the execution and delivery of the Loan Documents required hereunder; e. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents required hereunder; f. Copies of each of the Articles of Incorporation of the Borrower, certified by the Secretary of State of Michigan as of a recent date; g. Copies of each of the Articles of Incorporation and Bylaws of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as of the date of this Agreement as being accurate and complete; h. Certificate of good standing of the Borrower from the Secretary of State of Michigan as of a recent date; i. Certificates of authority and good standing of the Borrower for each state in which the Borrower is qualified to do business; j. A certificate of compliance of the chief financial officer or treasurer of the Borrower in form satisfactory to Standard Federal dated as of the date of this Agreement; k. Such certificates, binders or other evidence of all insurance required of the Borrower under this Loan Agreement as Standard Federal may reasonably require; and l. Acknowledgement copies of all UCC-1 financing statements filed with respect to the Collateral accompanied by a 5 6 search report showing such financing statements as duly filed and evidencing that the security interest of Standard Federal in the Collateral is prior to all other security interests of record. 1C.1(b) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings, or registrations) required to be done and performed and to have happened precedent to the execution, delivery, and performance of the Loan Documents required hereunder and to constitute the same legal, valid, and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. 1C.1(c) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to Standard Federal and its counsel and all fees and charges, including recording and filing fees, shall have been paid as required hereunder. 1C.2 As conditions precedent to Standard Federal's obligation to make the Term Loan and to fund any request for an advance under the Line of Credit or the Equipment Line of Credit, at and as of the date of the funding thereof; a. The representations and warranties of the Borrower contained in the Loan Documents shall be accurate and complete in all respects as if made on and as of such date; b. The Borrower shall have paid all fees and expenses, including any recording fees and charges, required hereunder; c. There shall not have occurred an Event of Default or any event which with the passage of time of the giving of notice or both would constitute an Event of Default; and d. Following the making of such loan or advance, the aggregate principal amount outstanding will not exceed the limitations described in Sections 1 and 1A. SECTION 2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to Standard Federal that as of the date of acceptance of this Agreement, as of the time any advance is to be made hereunder and, unless expressly provided otherwise herein or agreed to by a writing signed by Standard Federal, at all times any amounts are outstanding hereunder: 2.1 The Borrower and each of its subsidiaries, if any, are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation; the Borrower 6 7 and each of its subsidiaries (if any) have the legal power and authority to own their properties and assets and to carry out their business as now being conducted and each is qualified to do business in the state of its incorporation and in every jurisdiction where the nature of its business or the property owned or operated by it makes such qualification necessary and is otherwise in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets; the Borrower has the legal power and authority to execute and perform this Agreement, to borrow money in accordance with its terms, to execute and deliver the Line of Credit Note, the Term Note, the Equipment Line of Credit Note and other documents contemplated hereby, to grant to Standard Federal mortgages and security interests in the Collateral, as hereby contemplated, and to do any and all other things required of it hereunder; and this Agreement, the Line of Credit Note, the Term Note, the Equipment Line of Credit Note and all other documents contemplated hereby, when executed by the Borrower's duly authorized officers will constitute its valid and binding legal obligations enforceable in accordance with their terms. 2.2 The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution and delivery of the Line of Credit Note, the Term Note, the Equipment Line of Credit Note and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action, (b) do not require governmental approval or the approval of any person not a party to this Agreement, (c) will not result (with or without notice and/or the passage of time) in any conflict with or breach or violation of or default under, any provision of law, the Articles of Incorporation or Bylaws of the Borrower or any indenture, agreement or other instrument to which the Borrower is a party, or by which it or any of its properties or assets are bound, and (d) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower other than in favor of Standard Federal and as contemplated hereby. 2.3 There is not pending or, to the best of the knowledge of the Borrower, threatened, any litigation, proceeding or governmental investigation which could materially and adversely affect the business of the Borrower or its subsidiaries, if any, or its ability to perform its covenants hereunder. 2.4 Borrower has good and marketable title to its properties given as security as herein described, and, except for liens in favor of Standard Federal, liens for taxes not delinquent or being contested in good faith and liens created in connection with worker's compensation, unemployment insurance and social security, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money), leases, statutory 7 8 obligations, surety and appeal bonds, and other obligations of like nature made in the ordinary course of business, none of the Borrower's or any of its subsidiaries' (if any) assets are subject to any mortgage, pledge, lien, security interest, or other encumbrance of any kind or character except as have been disclosed to Standard Federal in writing. The Borrower owns all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from any material restrictions, that are necessary for the operation of its business as presently conducted. 2.5 All financial data which has been or shall hereafter be furnished to Standard Federal for the purposes of, or in connection with, this Agreement, including particularly, but without limitation, the audited consolidated financial statements of McClain Industries, Inc. and the Form 10-Q's filed with the Securities and Exchange Commission by McClain Industries, Inc. pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and the transactions contemplated hereby has been and/or shall be prepared in accordance with generally accepted accounting principles consistently applied, and does or will fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the periods, for which the same is furnished to Standard Federal. 2.6 There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower or its subsidiaries (if any) since the date of the latest financial statements provided to Standard Federal and there are no material debts, liabilities or obligations (absolute or contingent) of the Borrower except as reflected in such financial statements (or in the notes thereto). 2.7 The Borrower is not in default in the repayment of any indebtedness for money borrowed by it nor has there occurred any event which, with or without notice or the passage of time or both, would constitute a default by the Borrower under any agreement or instrument pertaining to any indebtedness for money borrowed by it. 2.8 Borrower has filed all reports and tax returns required by governmental authority to be filed by it prior to the date hereof and Borrower has received no notice that such reports or returns have been rejected, declared insufficient, or otherwise challenged by such governmental authority. 2.9 The principal officers of the Borrower ("Principal Officers") are as follows: 8 9 McClain Industries, Inc.: Chairman of the Board Kenneth D. McClain ------------------ Senior Vice President Robert W. McClain ------------------ Secretary Carl L. Jaworski ------------------ McClain of Georgia, Inc.: President Kenneth D. McClain ------------------ Senior Vice President Robert W. McClain ------------------ Secretary Carl L. Jaworski ------------------ Shelby Steel Processing Company: President Robert W. McClain ------------------ Vice President Kenneth D. McClain ------------------ Secretary Carl L. Jaworski ------------------ McClain Tube Company d/b/a Quality Tube: President Kenneth D. McClain ------------------ Secretary Carl L. Jaworski ------------------ McClain Industries of Ohio, Inc.: President Kenneth D. McClain ------------------ Vice President Robert W. McClain ------------------ Secretary Margaret Bruce ------------------ McClain Epco, Inc.: President Kenneth D. McClain ------------------ Vice President Robert W. McClain ------------------ Secretary Margaret Bruce ------------------ 2.10 McClain of Georgia, Inc., a Georgia corporation, Shelby Steel Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan corporation, McClain Epco, Inc., a New York corporation, and Southfield Quality Leasing Company, a Michigan corporation, are each wholly-owned subsidiaries of McClain Industries, Inc., a Michigan corporation, and have no subsidiaries. McClain Group Leasing Corporation, a Michigan corporation, and Galion Holding Company, a Michigan corporation, are also wholly-owned subsidiaries 9 10 of McClain Industries, Inc. McClain Industries, Inc. also holds one-third of the outstanding capital stock of M.E.G. Equipment Sales, Inc., Michigan corporation, of which M.E.G. Equipment Sales of Florida, Inc., a Florida corporation, is a wholly-owned subsidiary. McClain Industries, Inc., as of the date of this Loan Agreement, owns no other subsidiaries. 2.11 None of the proceeds of the Line of Credit, the Term Loan or the Equipment Line of Credit will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U or G. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Borrower nor any person acting on behalf of Borrower has taken or will take any action which might cause the Line of Credit Note, the Term Note, the Equipment Line of Credit Note or any of the other documents executed in conjunction therewith, including this Agreement, to violate Regulations U or G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin stock" except for that described in the financial statements provided to Standard Federal and, as of the date hereof, the aggregate value of all "margin stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of all of the value of all of Borrower's and its subsidiaries', if any, assets. 2.12 Except as disclosed in the environmental reports listed in attached Schedule 2.12, copies of which the Borrower has furnished to Standard Federal, neither the Borrower nor, to the best of Borrower's knowledge after due inquiry, any other person or entity, has caused or permitted any waste, oil, pesticides, or any substance or material of any kind which is currently known or suspected to be toxic or hazardous, including but not limited to any substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to as "Hazardous Material") to be discharged, dispersed, released, disposed of, or allowed to escape on, under or at any property owned, occupied or operated by any Borrower in violation of any Hazardous Materials Laws (as hereinafter defined), nor has any property owned, occupied or operated by any Borrower, or any part thereof, ever been used by the Borrower or, to the best of Bor- 10 11 rower's knowledge after due inquiry, any prior owner or any other person, as a dump, storage or disposal site for any Hazardous Material, nor has there occurred any other violation of the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Material ("Hazardous Materials Laws") with respect to any property owned, occupied or operated by any Borrower. No asbestos or asbestos-containing materials have been installed, used, incorporated into, or disposed of on any property owned, occupied or operated by any Borrower. No polychlorinated biphenyls ("PCBs") are located on or in any property owned, occupied or operated by any Borrower, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device or form. All underground storage tanks located on any property owned, occupied or operated by any Borrower have been installed and are being operated in full compliance with all applicable Hazardous Materials Laws. The Borrower: (a) has not received any notice of any release, threatened release, escape, seepage, leakage, spillage, discharge or emission of any Hazardous Materials in, under or upon any property owned, occupied or operated by any Borrower or of any violation of any Hazardous Materials Law, and (b) does not know of any basis for any such notice or violation. 2.13 No "reportable event," as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is continuing with respect to any employee pension and/or profit sharing benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted proceedings to terminate any such employee pension and/or profit sharing plan or to appoint a trustee to administer such plan. The Borrower has maintained and funded and caused each of its subsidiaries, if any, to maintain and fund all employee pension and/or profit sharing plans in accordance with their terms and with all applicable provisions of ERISA. Neither the Borrower nor any duly appointed administrator of any employee pension and/or profit sharing plan: (a) has incurred any liability to PBGC with respect to any such plan other than for premiums not yet due or payable, (b) has instituted or intends to institute proceedings to terminate any such plan under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA). 2.14 There is no material fact that the Borrower has not disclosed to Standard Federal which could have a material adverse effect on the properties, business, prospects or condition (financial or otherwise) of the Borrower or any of its subsidiaries. For purposes of this Section 2.14, a "material adverse effect" means any circumstance or event which (a) could 11 12 have any adverse effect whatsoever upon the validity, performance or enforceability of any material provision of the Loan Documents, (b) is or might be material and adverse to the financial condition or business operations of the Borrower or any subsidiary, (c) could impair the ability of the Borrower to fulfill its obligations under the Loan Documents, or (d) causes an Event of Default or any event which, with notice or lapse of time or both, could become an Event of Default. Neither the financial statements referred to in Section 2.5 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower in connection with the negotiations of this Loan Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein, under the circumstances in which they were made, from being misleading. 2.15 Each request for an advance under the Line of Credit shall constitute, without the necessity of specifically containing a written statement, a representation and warranty by Borrower that no Event of Default exists and that all representations and warranties contained in this Section 2 or in any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note, the Term Note, the Equipment Line of Credit Note or this Agreement are true and correct at and as of the time the advance is to be made. SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER 3.1 Prior to Standard Federal's disbursement of any advances under the Line of Credit or the Equipment Line of Credit, or closing of the Term Loan, the Borrower shall; (a) furnish to Standard Federal, if Standard Federal so requires, certified copies of its Articles of Incorporation, Bylaws and Certificate of Good Standing, which Articles of Incorporation and Good Standing Certificate are to be certified by the appropriate official of the Borrower's state of incorporation; (b) furnish to Standard Federal if Standard Federal so requires a statement of the Borrower and the chief financial officer of Borrower certifying that they are unaware of the occurrence of an Event of Default or of any event which with notice and/or the passage of time could become an Event of Default; and (c) furnish Standard Federal such other instruments, documents, opinions or certificates as Standard Federal or its counsel shall reasonably require. All actions, proceedings, instruments and documents required or requested hereunder shall be satisfactory to and approved by Standard Federal and/or its counsel prior to the disbursement of advances under the Line of Credit or the Equipment Line of Credit or closing of the Term Loan. 3.2 From the date hereof until all amounts owing under the Line of Credit, the Term Loan and the Equipment Line of Credit are paid in full and all obligations under the Line of Credit Note, the Term Note, the Equipment Line of Credit Note, this Agreement and 12 13 all other documents executed in connection with the Line of Credit, the Term Loan and the Equipment Line of Credit are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees it will: 3.2(a) Furnish to Standard Federal as soon as available and, in any event, within 120 days after the close of each fiscal year of the Borrower, or, in the event the Borrower obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of the Borrower as of the close of such fiscal year, containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal year prepared in accordance with generally accepted accounting principles and in a manner consistent with prior such statements containing an analysis of sources and uses of funds and such other comments and financial details as are usually included in similar reports. Such statements shall be accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by Borrower) of independent certified public accountants selected by Borrower and acceptable to Standard Federal as to the fairness of the statements included in the report and to the effect that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances. 3.2(b) Furnish to Standard Federal as soon as available and, in any event, within 90 days after the close of each quarter of each fiscal year, or, in the event the Borrower obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of the Borrower as of the close of such fiscal period containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officer of the Borrower as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of accounts receivable, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the agings thereof and the payment, write-off or other disposition of former accounts receivable the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably 13 14 require. Borrower will further specifically disclose any facts known to Borrower which facts would tend to render doubtful the collectibility of any account receivable disclosed in such statements or which would indicate that the existence or amount of such account is disputed by the debtor thereon. 3.2(d) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of accounts payable, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower, showing the agings thereof and such other information and data as Standard Federal may reasonably require. 3.2(e) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of inventory of the Borrower, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the method of reporting and all additions to and dispositions of inventory since the previous inventory report and such other information and data as Standard Federal may reasonably require. 3.2(f) Furnish to Standard Federal, promptly after sending, filing or publishing the same, copies of all proxy statements, financial statements and reports that the Borrower sends to its public shareholders and copies of all regular, periodic and special reports and all registration statements and amendments thereto that the Borrower files with the Securities and Exchange Commission or any other governmental authority and any Exchange, and copies of all press releases issued by Borrower. 3.2(g) Promptly inform Standard Federal of the occurrence of any Event of Default or of any event (including without limitation any pending or threatened litigation or other proceedings before any governmental body or agency) which could have a materially adverse effect upon the Borrower's business, properties, financial condition or ability to comply with its obligations hereunder or under the Line of Credit Note, the Term Note or the Equipment Line of Credit Note. 3.2(h) Furnish such other information as Standard Federal may reasonably request and permit Standard Federal and its agents, attorneys and employees to inspect all of the books, records and properties of the Borrower at any reasonable time. 3.2(i) Maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses, and provide Standard Federal evidence of such insurance upon request; policies of casualty insurance shall contain a customary mortgagee clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all other insurance shall contain a 14 15 customary loss payable clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all insurance policies shall provide that no cancellation, reduction in amount, change in coverage or expiration thereof shall be effective until at least 30 days prior written notice has been given by the insurer to Standard Federal; and pay when due all taxes, assessments, fees and similar charges of every kind and nature lawfully assessed upon the Borrower and/or its property, except to the extent being contested in good faith; and in the event the Borrower fails to maintain such insurance or to pay promptly any taxes or charges when due, then and in such event Standard Federal, in its sole discretion, may, but shall not be required to, pay the same and any amounts expended by Standard Federal for such purpose shall become a part of the Line of Credit and shall bear interest at the rate applicable to the outstanding principal balance owing under the Line of Credit Note. 3.2(j) Preserve and keep in full force and effect its own and its material, operating subsidiaries' (if any) corporate existence in good standing and maintain voting control in its present controlling shareholder(s); keep current all filings of assumed name certificates for each name under which and each county in which the Borrower does business and promptly inform Standard Federal of any assumed names under which it does business which were not used by the Borrower on the date of this Agreement; continue to conduct and operate its business substantially as presently conducted and operated in accordance with all applicable laws and regulations; maintain and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair and condition; pay its indebtedness and obligations when due under normal terms and maintain proper books of record and account, and; otherwise remain in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets, except to the extent noncompliance is immaterial and would not have a material adverse effect on Borrower. 3.2(k) Maintain on a consolidated statement basis "Tangible Net Worth" of not less than the amounts specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Minimum "Tangible Fiscal Year-End Net Worth" --------------- ----------- 09/30/96 $21,000,000 09/30/97 $23,000,000 15 16 "Tangible Net Worth" shall mean total assets less trademarks, franchises, copyrights, licenses, goodwill, similar intangible assets and all liabilities (excluding debt subordinated to Standard Federal upon terms and conditions acceptable to Standard Federal) of the Borrower. 3.2(l) Maintain on a consolidated statement basis the ratio of "Current Assets" to "Current Liabilities" of not less than the ratios specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Fiscal Year-End Minimum Current Ratio --------------- --------------------- 09/30/96 2.35 to 1.00 09/30/97 2.40 to 1.00 "Current Assets" shall include all assets considered current in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied, less all amounts due Borrower from any of its directors, officers, employees, its shareholders, or any company controlled by any of its shareholders. "Current Liabilities" shall include all liabilities considered current in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied. 3.2(m) On a consolidated statement basis maintain the ratio of "Liabilities" to "Tangible Net Worth" of not more than the ratios specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Fiscal Year-End Maximum Liabilities-to-Worth Ratio --------------- ---------------------------------- 09/30/96 2.55 to 1.00 09/30/97 2.45 to 1.00 "Liabilities" shall mean all liabilities of the Borrower and its consolidated subsidiaries, if any, as defined in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied. "Tangible Net Worth" shall mean total assets less trademarks, franchises, copyrights, licenses, goodwill, similar intangible assets and all liabilities (excluding debt subordinated to Standard Federal upon terms and conditions acceptable to Standard Federal) of the Borrower. 3.2(n) On a consolidated statement basis, maintain an Interest Coverage Ratio of not less than 2.00 to 1.00 as of the end of each quarter of each fiscal year. The "Interest Coverage Ratio" shall be 16 17 defined as the ratio of the Borrower's net income, plus interest charges, income and other taxes and amortization and depreciation for the period of four consecutive quarters ending with the quarter at the end of which the Interest Coverage Ratio is being measured to all interest expense of the Borrower for such period, as determined in accordance with generally accepted accounting principles. 3.2(o) On a consolidated statement basis, maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00 as of the end of each quarter of each fiscal year. The "Fixed Charge Coverage Ratio" shall be defined as the ratio of the Borrower's net income, plus amortization and depreciation for the period of four consecutive quarters ending with the quarter at the end of which the Fixed Charge Coverage Ratio is being measured to current maturities of long term debt, as determined in accordance with generally accepted accounting principles. 3.2(p) At all times meet and cause each of its subsidiaries, if any, to meet the minimum funding requirements of ERISA with respect to all employee pension and/or profit sharing plans subject to ERISA and, with respect to any such employee benefit plan, promptly notify Standard Federal in writing of any reportable event, as defined in ERISA, or any proposed termination (voluntary or otherwise) which could give rise to material termination liability within the meaning of ERISA Section 4062. 3.3 The Borrower will not make any change in its accounting policies or financial reporting practices and procedures, except changes in accounting policies which are required or permitted by generally accepted accounting principles and changes in financial reporting practices and procedures which are required or permitted by generally accepted accounting principles. 3.4 The Borrower shall use the monies loaned hereunder only for the purpose(s) set forth in the preamble hereto. 3.5 The Borrower shall allow Standard Federal's participant in the Line of Credit, the Term Loan and the Equipment Line of Credit and staff or independent accountants or auditors selected by Standard Federal's participant to conduct a full audit of the Borrower's financial statements and its books and records twice during the first year of the term of the Line of Credit, the Term Loan and the Equipment Line of Credit and once in each of the second and third years of the term of the Line of Credit, the Term Loan and the Equipment Line of Credit. Standard Federal's participant shall schedule such audits during normal business hours of the Borrower and shall provide Borrower not less than two (2) business days notice of the commencement of each audit. The Borrower shall make adequate facilities available on its premises at Borrower's expense to enable Standard Federal's participant to conduct the audits herein described and shall make available all of 17 18 its books, records and other documents and information as may be reasonably requested to facilitate the audits. The Borrower agrees to pay to Standard Federal's participant an audit fee of $3,000.00 plus travel expenses for each audit so conducted by the participant. SECTION 4. NEGATIVE COVENANTS 4.1 From the date hereof until all amounts owing under the Line of Credit, the Term Loan and the Equipment Line of Credit are paid in full and all obligations under the Line of Credit Note, the Term Note and the Equipment Line of Credit Note, this Agreement and all other documents executed in connection with the Line of Credit, the Term Loan and the Equipment Line of Credit are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees that it will not do and will not permit any subsidiary, if any, to do any of the following without the prior written approval of Standard Federal: 4.1(a) Create, incur, assume or permit to exist (a) any mortgage, pledge, security interest, lien or charge of any kind upon any of its property or assets whether now owned or hereafter acquired other than in favor of Standard Federal, except as required or permitted by Standard Federal, or (b) any indebtedness or liability for borrowed money, except indebtedness to Standard Federal or indebtedness subordinated to the prior payment in full of the Borrower's indebtedness to Standard Federal which is approved in writing by Standard Federal, except as otherwise required or permitted in writing by Standard Federal. 4.1(b) Make loans, advances or extensions of credit to any Entity (which in this Agreement means any individual, partnership, corporation or other legal entity), other than a parent or subsidiary of the Borrower, in excess of $100,000.00 in principal amount, except for sales on open account and in ordinary course of business; or guarantee or in any way become responsible for obligations of any other Entity except by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; or subordinate any indebtedness due it from an Entity to indebtedness of any other creditor of such Entity. 4.1(c) Sell, lease or transfer, during any fiscal year, except inventory in the ordinary course of business, any substantial portion of its assets; or consolidate with or merge into any other Entity, or permit another to merge into it; or acquire by lease or purchase all or substantially all the business or assets of any Entity; or enter into any lease-back arrangement with any Entity. 4.1(d) Acquire or expend for, by lease, purchase or otherwise, during any fiscal year, fixed assets in excess of $4,500,000. 18 19 SECTION 5. SECURITY 5.1 In order to secure: (1) the full and timely performance of the Borrower's covenants set forth herein and in the Line of Credit Note, the Term Note and the Equipment Line of Credit Note, (2) the repayment of any and all indebtedness of the Borrower to Standard Federal arising pursuant to the Line of Credit Note, the Term Note, the Equipment Line of Credit Note (including any renewals or substitutions thereof), this Agreement and any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note, the Term Note, the Equipment Line of Credit Note or this Agreement, and (3) all other indebtedness and liabilities of the Borrower to Standard Federal arising under this Agreement, the Line of Credit Note, the Term Note or the Equipment Line of Credit Note, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising: 5.1(a) The Borrower hereby grants unto Standard Federal a security interest in the following property and the proceeds thereof: (i) any and all securities or other property received by the Borrower with respect to, on account of or in exchange for any item of Collateral; (ii) all stock and/or liquidating dividends (whether the same be in the form of cash or other property) paid upon, on account of or with respect to any item of Collateral; and (iii) all bank deposits, instruments, negotiable documents, chattel paper and any and all other property of the Borrower of any kind whatsoever which shall at any time be in the possession or under the control of Standard Federal; and 5.1(b) The Borrower has granted to Standard Federal a security interest of first priority in all personal property of the Borrower as provided in a certain Security Agreement dated September 15, 1994 from the Borrower to Standard Federal, the provisions of which are hereby incorporated herein by reference; and 5.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard Federal as collateral security a life insurance policy on the life of Kenneth D. McClain in the face amount of $2,000,000.00 (herein, together with the property described in Sections 5.1(a) (i), (ii) and (iii) and 5.1(b) above, referred to as the "Collateral" or "item(s) of Collateral"). 5.2 The Borrower shall execute and deliver to Standard Federal any and all documents (including financing statements) as Standard Federal may require to insure the perfection and priority of its liens and security interests in the Collateral and furnish, if Standard Federal so requires, proof of hazard insurance policies, in accordance with Section 3.2(g) above, relating to the Collateral. 19 20 SECTION 6. EVENTS OF DEFAULT The occurrence of any of the events enumerated in Sections 6.1 to 6.11 below shall constitute an Event of Default for purposes of this Agreement: 6.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to Standard Federal on the Line of Credit, the Term Loan and the Equipment Line of Credit is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of the Line of Credit Note, the Term Note, the Equipment Line of Credit Note, this Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith. 6.2 MISREPRESENTATION. If any warranty or representation made by or for the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note in connection with the loan(s) evidenced thereby, or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note shall prove to be false, inaccurate or misleading in any material respect. 6.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If the Borrower shall fail to perform any of its obligations and covenants under Section 3 of this Agreement, or shall fail to comply with any of the other provisions of this Agreement, other than under Section 4 hereof, or the Line of Credit Note, the Term Note, the Equipment Line of Credit Note, or any other agreement with Standard Federal to which it may be a party, other than the payment of principal and interest. 6.4 NONCOMPLIANCE WITH NEGATIVE COVENANTS. If the Borrower shall fail to perform any of its obligations and covenants described in Section 4 of this Agreement. 6.5 BUSINESS SUSPENSION. If the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note shall voluntarily suspend transaction of its business. 6.6 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note: (a) makes a general assignment for the benefit of creditors; (b) shall file a voluntary petition in bankruptcy or for a reorganization to effect a plan or other arrangement with creditors; or shall file an answer to a creditor's petition or other petition against Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note for relief in bankruptcy or for a 20 21 reorganization which answer admits the material allegations thereof; or if any order for relief shall be entered by any court of bankruptcy jurisdiction with respect to the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note, or if bankruptcy, reorganization or liquidation proceedings are instituted against Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note and remain undismissed for 60 days; (c) has entered against it any order by any court approving a plan for the reorganization of the Borrower or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note or any other plan or arrangement with creditors of the Borrower or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note; (d) shall apply for or permit the appointment of a receiver, trustee or custodian for any substantial portion of the Borrower's and/or any endorser's or guarantor's properties or assets; or (e) becomes unable to meet its debts as they mature or becomes insolvent. 6.7 JUDGMENTS AND WRITS. If there shall be entered against the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note one or more judgments or decrees which are not insured against or satisfied or appealed from and bonded within the time or times limited by applicable rules of procedure for appeal as of right or if a writ of attachment or garnishment against the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note shall be issued and levied in an action claiming $100,000.00 or more and not released, bonded or appealed from within 30 days after the levy thereof. 6.8 MERGER. If the Borrower shall merge or consolidate with another entity. 6.9 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling portion of its voting stock or a substantial portion of its assets comes under the practical, beneficial or effective control of any person or persons other than those having such control as of the date of execution of the Line of Credit Note, the Term Note and the Equipment Line of Credit Note, whether by reason of merger, consolidation, sale or purchase of stock or assets or otherwise, if any such change of control, in the sole and absolute discretion of Standard Federal, adversely impacts upon the ability of the Borrower to carry on its business as theretofore conducted. 6.10 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note shall default in the due payment of any material indebtedness to whomsoever owed, or shall default in the observance or performance of any material term, covenant or condition in any mortgage, security agreement, guaranty, 21 22 instrument, lease or agreement to which the Borrower and/or any endorser or guarantor of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note is a party. 6.11 REPORTABLE EVENT. If there shall occur any "reportable event", as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto, which is determined to constitute grounds for termination by the Pension Benefit Guaranty Corporation of any employee pension benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such plan and such reportable event is not corrected and such determination is not revoked within 30 days after notice thereof has been given to the plan administrator or the Borrower; or the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate any such employee benefit pension plan or to appoint a trustee to administer such plan; or the appointment of a trustee by the appropriate United States District Court to administer any such employee benefit pension plan. SECTION 7. REMEDIES UPON EVENT OF DEFAULT 7.1 Upon the occurrence of any Event of Default described in Sections 6.2, 6.3 or 6.10 hereof which is not cured or waived in writing by Standard Federal within 15 days after written notice to the Borrower of such default; or upon the occurrence of any Event of Default described in Section 6.1 which continues unremedied for 10 days, or upon the occurrence of any Event of Default described in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.11, Standard Federal's commitment to lend hereunder, if any, shall terminate and Standard Federal may, without notice, declare the entire unpaid and outstanding principal balance of the Line of Credit, the Term Loan and the Equipment Line of Credit and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind, all of which are hereby expressly waived by Borrower, and thereupon Standard Federal shall have and may exercise any one or more of the rights and remedies provided herein or in the Line of Credit Note, the Term Note or the Equipment Line of Credit Note or in any mortgage, guaranty, security agreement or other document relating hereto or granted secured parties under the Michigan Uniform Commercial Code, including the right to take possession of and dispose of the Collateral, or otherwise provided by applicable law, and to offset against the Line of Credit, the Term Loan and the Equipment Line of Credit any amount owing by Standard Federal to the Borrower. SECTION 8. MISCELLANEOUS. 8.1 No default shall be waived by Standard Federal except in writing and a waiver of any default shall not be a waiver of any other default or of the same default on a future occasion. No 22 23 single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise hereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 8.2 No forbearance on the part of Standard Federal in enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder shall constitute a waiver of any of the terms of this Agreement or of any such right. 8.3 This Agreement shall be construed in accordance with the law of the State of Michigan. 8.4 All covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing hereunder and shall be deemed to have been relied upon by Standard Federal. All statements contained in any certificate or other document delivered to Standard Federal at any time by or on behalf of the Borrower pursuant hereto shall constitute representations and warranties by the Borrower. 8.5 The Borrower agrees that it will pay all costs and expenses incurred by Standard Federal in enforcing Standard Federal's rights under this Agreement and the documents contemplated hereby, including without limitation any and all reasonable fees and disbursements of legal counsel to Standard Federal. 8.6 This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of Standard Federal. 8.7 If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any or all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or sections contained in this Agreement, shall not affect the remaining portions of this Agreement, or any part thereof. 23 24 SECTION 9. ADDITIONAL PROVISIONS 9.1 In addition to the terms, covenants and conditions set forth above, the parties hereto hereby agree as follows: 9.1(a) Borrower shall cause Galion Holding Company, a Michigan corporation, to execute and deliver to Standard Federal an unlimited payment guaranty of the obligations of Borrower under the Line of Credit, the Term Loan and the Equipment Line of Credit in form and substance acceptable to Standard Federal. IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this Loan Agreement to be executed as of the day and year first written above. BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation By: Carl L. Jaworski - ------------------------- --------------------------- Carl L. Jaworski Its: Secretary -------------------- 38-1867649 ------------------------------ Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation By: Carl L. Jaworski - ------------------------- --------------------------- Carl L. Jaworski Its: Secretary -------------------- 58-1738825 ------------------------------ Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation By: Carl L. Jaworski - ------------------------- --------------------------- Carl L. Jaworski Its: Secretary -------------------- 38-2205216 ------------------------------ Taxpayer Identification Number 24 25 MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation By: Carl L. Jaworski - ------------------------- --------------------------- Carl L. Jaworski Its: Secretary -------------------- ------------------------------ Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation By: Carl L. Jaworski - ------------------------- -------------------------- Carl L. Jaworski Its: Treasurer -------------------- ------------------------------ Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation By: Carl L. Jaworski - ------------------------- --------------------------- Carl L. Jaworski Its: Treasurer -------------------- 38- ------------------------------ Taxpayer Identification Number STANDARD FEDERAL BANK, a federal savings bank By: David J. Bartlett --------------------------- David J. Bartlett Its: Vice President -------------------- 25 EX-10.47 3 EXHIBIT 10.47 1 EXHIBIT 10.47 Note No. 0250006199 STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit) [X] Renewal $11,000,000.00 Troy , Michigan - ------------------------------------------------ ---------------- Due Date: March 1, 1998 Dated: July 17, 1996 - ------------------------------------------------ ---------------- FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided herein, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of Eleven Million and 00/100 Dollars ($11,000,000.00) or such lesser amount as may from time to time be outstanding by reason of having been advanced hereunder, plus interest as hereinafter provided on all amounts from time to time outstanding hereunder, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower 2 or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. Accrued interest shall be payable on the first day of each month beginning on August 1, 1996. This Note is given as evidence of any and all indebtedness of the Borrower to Standard Federal arising as a result of advances or other credit which may be made under this Note from time to time in accordance with the provisions of an Amended and Restated Loan Agreement of even date herewith, by and between Standard Federal and the Borrower (the "Loan Agreement"). Any and all indebtedness may be repaid by the Borrower in whole or in part from time to time prior to the Due Date. Standard Federal shall, from time to time prior to the Due Date, make advances to Borrower hereunder upon request therefor by Borrower, provided that, upon giving effect to such advance: (a) no Event of Default (as hereinafter defined) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; (b) all representations and warranties of Borrower theretofore made are true and correct; (c) Standard Federal shall not have previously or concurrently declared all amounts owing hereunder to be immediately due and payable; (d) the amount requested shall not cause the total amount outstanding hereunder to exceed the Credit Limit, as defined in the Loan Agreement; and (e) all other requirements for the making of advances provided for in the Loan Agreement have been satisfied. The principal amount of indebtedness owing pursuant to this Note shall change from time to time, decreasing in an amount equal to any and all payments of principal made by the Borrower and increasing by an amount equal to any and all advances made by Standard Federal to the Borrower pursuant to the terms hereof, and the books and records of Standard Federal shall be conclusive evidence of the amount of principal and interest owing hereunder at any time. All payments made hereunder shall be applied first against costs and expenses required to be paid hereunder, then against accrued interest to the extent thereof and the balance shall be applied against the outstanding principal amount hereof. Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard -2- 3 Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other -3- 4 liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to the Loan Agreement and is secured by a Security Agreement, dated September 15, 1994, and by a Security Agreement, dated July 19, 1995, and by an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this -4- 5 Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ------------------------------ ---------------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 38-1867649 ------------------------------------- Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ---------------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 58-1738825 ------------------------------------- Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation David J. Bartlett ----------------------------- By: Carl L. Jaworski ---------------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 38-2205216 ------------------------------------- Taxpayer Identification Number -5- 6 MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Secretary ----------------------------- -------------------------------------- Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer ----------------------------- -------------------------------------- Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer -------------------------------------- Taxpayer Identification Number Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -6- EX-10.48 4 EXHIBIT 10.48 1 EXHIBIT 10.48 Note No. 0250024109 STANDARD FEDERAL BANK PROMISSORY NOTE (Term Loan) $3,465,888.23 Troy , Michigan ------------------------------- --------------------------- Due Date: October 1, 2001 Dated: July 17, 1996 ------------------------------- --------------------------- FOR VALUE RECEIVED, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of Three Million Four Hundred Sixty Five Thousand Eight Hundred Eighty Eight and 00/100 Dollars ($3,465,888.23), plus interest on all amounts from time to time outstanding hereunder, as hereinafter provided, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. 2 Principal and interest shall be paid in consecutive monthly payments of principal in the amount of $56,481.00 each, plus interest accrued to the due date of each payment, commencing on August 1, 1996, and continuing on the same day of each consecutive month thereafter and a final payment on the Due Date in an amount equal to the then unpaid principal and accrued interest. All payments required to be paid hereunder shall first be applied to costs and expenses required to be paid hereunder, then to accrued interest hereunder and the balance shall be applied against the principal. This Note may be prepaid, in full or in part, at any time, without the payment of any prepayment fee or penalty. All partial prepayments shall be applied against the last accruing installment or amount due under this Note; and no prepayments shall affect the obligation of the undersigned to continue the regular installments hereinbefore mentioned, until the entire unpaid principal and accrued interest has been paid in full. Borrower understands that the installment payments of principal provided for herein are not sufficient to fully amortize the outstanding principal balance of this Note by the Due Date and that the final payment due on the Due Date will be a balloon payment of all then outstanding principal and accrued interest. Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof -2- 3 and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default -3- 4 hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to an Amended and Restated Loan Agreement of even date herewith (the "Loan Agreement"), and is secured by a Security Agreement, dated September 15, 1994, and by a Security Agreement, dated July 19, 1995, and by an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. -4- 5 BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ------------------------------ 38-1867649 --------------------------------------- Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ------------------------------ 58-1738825 --------------------------------------- Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ------------------------------ 38-2205216 --------------------------------------- Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ------------------------------ --------------------------------------- Taxpayer Identification Number -5- 6 MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer ----------------------------- -------------------------------------- Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer ----------------------------- -------------------------------------- Taxpayer Identification Number Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -6- EX-10.49 5 EXHIBIT 10.49 1 EXHIBIT 10.49 Note No. 0250024076 STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit with Term Provisions) [X] New [ ] Renewal $1,000,000.00 Troy , Michigan - ----------------------------- ---------------- Due Date: July 1, 2001 Dated: July 17, 1996 ----------------------------- ---------------- FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided herein, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of One Million and 00/100 Dollars ($1,000,000.00) or such lesser amount as may from time to time be outstanding by reason of having been advanced hereunder in accordance with the provisions of an Amended and Restated Loan Agreement of even date herewith (the "Loan Agreement"), plus interest as hereinafter provided on all amounts from time to time outstanding hereunder, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. 2 It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. This Note is given as evidence of any and all indebtedness of the Borrower to Standard Federal arising as a result of advances or other credit which may be made under this Note from time to time to and until July 1, 1997 (the "Term Date"). Any and all indebtedness may be repaid by the Borrower in whole or in part from time to time prior to the Term Date. Standard Federal shall, from time to time prior to the Term Date, make advances to Borrower hereunder upon request therefor by Borrower, made in accordance with the requirements of the Loan Agreement, provided that upon giving effect to such advance no Event of Default (as hereinafter defined) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made and that all representations and warranties of Borrower theretofore made are true and correct and that Standard Federal shall not have previously or concurrently declared all amounts owing hereunder to be immediately due and payable and that the amount requested shall not cause the total amount outstanding hereunder to exceed the Equipment Credit Limit as defined in the Loan Agreement. The principal amount of indebtedness owing pursuant to this Note shall change from time to time, decreasing in an amount equal to any and all payments of principal made by the Borrower prior to the Due Date and increasing by an amount equal to any and all advances made by Standard Federal to the Borrower pursuant to the terms hereof, and the books and records of Standard Federal shall be conclusive evidence of the amount of principal and interest owing hereunder at any time. All payments made hereunder shall be applied first against costs and expenses required to be paid hereunder, then against accrued interest to the extent thereof and the balance shall be applied against the outstanding principal amount hereof. Accrued interest shall be payable on the 1st day of each month beginning on August 1, 1996 through and including the Term Date. From and after the Term Date, Standard Federal shall make no further advances hereunder and the outstanding principal balance hereunder as of the Term Date, with interest, shall be repaid in consecutive monthly payments of principal, each in the amount determined by dividing the outstanding principal balance hereunder as of the Term Date by 48, plus interest accrued to the due date of each such payment, commencing on August 1, 1997 and continuing on the same day of each consecutive month thereafter and a final payment on the Due Date in an amount equal to the then unpaid principal and accrued interest. -2- 3 Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by -3- 4 the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or -4- 5 any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to the Loan Agreement and is secured by a Security Agreement, dated September 15, 1994, and by a Security Agreement, dated July 19, 1995, and by an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ----------------------------- 38-1867649 --------------------------------------- Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ------------------------------------ Carl L. Jaworski Its: Secretary ----------------------------- 58-1738825 --------------------------------------- Taxpayer Identification Number -5- 6 SHELBY STEEL PROCESSING COMPANY, a Michigan corporation David J. Bartlett By: Carl L. Jaworski ---------------------------- --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------------ 38-2205216 ------------------------------------ Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation David J. Bartlett By: Carl L. Jaworski ---------------------------- --------------------------------- Carl L. Jaworski Its: Secretary -------------------------- ------------------------------------ Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer ------------------------------- -------------------------------------- Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation David J. Bartlett By: Carl L. Jaworski ----------------------------- ----------------------------------- Carl L. Jaworski Its: Treasurer ------------------------------- -------------------------------------- Taxpayer Identification Number Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -6- EX-10.50 6 EXHIBIT 10.50 1 EXHIBIT 10.50 Note No. 0250012691 -------------- STANDARD FEDERAL BANK THIRD AMENDED AND RESTATED PROMISSORY NOTE (Line of Credit) [X] Renewal $10,000,000.00 Troy, Michigan - ------------------------------------------- ---------------- Due Date: March 1, 1998 Dated: July 17, 1996 - ------------------------------------------- ---------------- FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided herein, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00) or such lesser amount as may from time to time be outstanding by reason of having been advanced hereunder, plus interest as hereinafter provided on all amounts from time to time outstanding hereunder, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street 2 Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. Accrued interest shall be payable on the first day of each month beginning on August 1, 1996. This Note is given as evidence of any and all indebtedness of the Borrower to Standard Federal arising as a result of advances or other credit which may be made under this Note from time to time in accordance with the provisions of a First Amended and Restated Loan Agreement, dated October 2, 1995, by and between Standard Federal and the Borrower (the "Loan Agreement"). Any and all indebtedness may be repaid by the Borrower in whole or in part from time to time prior to the Due Date. Standard Federal shall, from time to time prior to the Due Date, make advances to Borrower hereunder upon request therefor by Borrower, provided that, upon giving effect to such advance: (a) no Event of Default (as hereinafter defined) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; (b) all representations and warranties of Borrower theretofore made are true and correct; (c) Standard Federal shall not have previously or concurrently declared all amounts owing hereunder to be immediately due and payable; (d) the amount requested shall not cause the total amount outstanding hereunder to exceed the Credit Limit, as defined in the Loan Agreement; and (e) all other requirements for the making of advances provided for in the Loan Agreement have been satisfied. The principal amount of indebtedness owing pursuant to this Note shall change from time to time, decreasing in an amount equal to any and all payments of principal made by the Borrower and increasing by an amount equal to any and all advances made by Standard Federal to the Borrower pursuant to the terms hereof, and the books and records of Standard Federal shall be conclusive evidence of the amount of principal and interest owing hereunder at any time. All payments made hereunder shall be applied first against costs and expenses required to be paid hereunder, then against accrued interest to the extent thereof and the balance shall be applied against the outstanding principal amount hereof. Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any -2- 3 and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other -3- 4 agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to the Loan Agreement, is secured by a Security Agreement, dated September 15, 1994, by a Security Agreement, dated June 22, 1995, and by two Open-End Commercial Mortgages and Assignments of Lease and Rentals, dated June 29, 1993, as amended September 15, 1994, February 6, 1995, -4- 5 February 16, 1995, May 5, 1995 and June 22, 1995, and is supported by a Guaranty executed by McClain Industries, Inc., a Michigan corporation, dated May 5, 1995, and secured by an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. WAIVER OF JURY TRIAL. THE BORROWER AND STANDARD FEDERAL, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT STANDARD FEDERAL'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY RELATED INSTRUMENT OR AGREEMENT. NEITHER THE BORROWER NOR STANDARD FEDERAL SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE BORROWER OR STANDARD FEDERAL EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. Confession of Judgment: The Borrower irrevocably authorizes any attorney-at-law to appear for the Borrower in any court of record in Crawford County, Ohio (which the Borrower acknowledges to be the place where this note was made), or any other state or jurisdiction wherein the Borrower may then reside, to (i) waive the issuing and service of process, (ii) confess judgment against the Borrower in favor of the holder of this Note for the amount then due, together with costs of suit, (iii) release all errors, and (iv) waive all rights of appeal. The Borrower consents to the jurisdiction and venue of that court. The undersigned has executed this Note in Galion, Ohio, as of the date and year first above written. This Note shall be governed by and construed in accordance with the law of the State of Ohio. WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY -5- 6 GOODS, FAILURE ON THE CREDITOR'S PART TO COMPLY WITH ANY AGREEMENT WITH THE BORROWER, OR ANY OTHER CAUSE. Each of the undersigned Borrowers acknowledge, represent and agree that they will all be using the funds representing the proceeds of the loan evidenced hereby and that they will all be receiving a substantial portion of such funds. At the request of the undersigned Borrowers, Standard Federal has structured the credit facility evidenced by this Note in order to allow all of the undersigned Borrowers access to the facility, and each will derive a substantial benefit therefrom. The Borrowers hereby appoint Galion Holding Company as the disbursing agent for all of them to make requests for disbursements hereunder, to receive the proceeds of all advances hereunder and to disburse those proceeds to each of the undersigned as the undersigned may deem necessary or convenient. Witnesses: BORROWER: GALION HOLDING COMPANY, a Michigan corporation David J. Bartlett By: /s/ Carl Jaworski - ----------------- ----------------------------- Carl Jaworski Secretary Taxpayer Identification Number: 38-3060196 MCCLAIN E-Z PACK, INC., formerly known as Galion Solid Waste Equipment, Inc., a Michigan corporation David J. Bartlett By: /s/ Carl Jaworski - ------------------- ----------------------------- Carl Jaworski Secretary Taxpayer Identification Number: --------------------------------- GALION DUMP BODIES, INC., a Michigan corporation David J. Bartlett By: /s/ Carl Jaworski - ------------------- ----------------------------- Carl Jaworski Treasurer -6- 7 Taxpayer Identification Number: --------------------------------- MCCLAIN GROUP SALES OF FLORIDA, INC., formerly known as M.E.G. Equipment Sales of Florida, Inc., a Florida corporation David J. Bartlett By: /s/ Carl Jaworski - ----------------------- ------------------------------ Carl Jaworski Secretary Taxpayer Identification Number: 59-3241829 Address: 6200 Elmridge Sterling Heights, MI 48318 Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -7- EX-10.51 7 EXHIBIT 10.51 1 EXHIBIT 10.51 Note No. 0250194514 ------------ STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit) [X] Renewal $1,500,000.00 Troy, Michigan - ------------------------ ---------------- Due Date: March 1, 1998 Dated: - ------------------------ ---------------- FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided herein, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) or such lesser amount as may from time to time be outstanding by reason of having been advanced hereunder, plus interest as hereinafter provided on all amounts from time to time outstanding hereunder, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower 2 or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. Accrued interest shall be payable on the first day of each month beginning on August 1, 1996. This Note is given as evidence of any and all indebtedness of the Borrower to Standard Federal arising as a result of advances or other credit which may be made under this Note from time to time in accordance with the provisions of a First Amended and Restated Loan Agreement, dated October 2, 1995, by and between Standard Federal and the Borrower (the "Loan Agreement"). Any and all indebtedness may be repaid by the Borrower in whole or in part from time to time prior to the Due Date. Standard Federal shall, from time to time prior to the Due Date, make advances to Borrower hereunder upon request therefor by Borrower, provided that, upon giving effect to such advance: (a) no Event of Default (as hereinafter defined) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; (b) all representations and warranties of Borrower theretofore made are true and correct; (c) Standard Federal shall not have previously or concurrently declared all amounts owing hereunder to be immediately due and payable; (d) the amount requested shall not cause the total amount outstanding hereunder to exceed the Demonstrator Credit Limit, as defined in the Loan Agreement; and (e) all other requirements for the making of advances provided for in the Loan Agreement have been satisfied. The principal amount of indebtedness owing pursuant to this Note shall change from time to time, decreasing in an amount equal to any and all payments of principal made by the Borrower and increasing by an amount equal to any and all advances made by Standard Federal to the Borrower pursuant to the terms hereof, and the books and records of Standard Federal shall be conclusive evidence of the amount of principal and interest owing hereunder at any time. All payments made hereunder shall be applied first against costs and expenses required to be paid hereunder, then against accrued interest to the extent thereof and the balance shall be applied against the outstanding principal amount hereof. Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard -2- 3 Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other -3- 4 liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to the Loan Agreement, is secured by a Security Agreement, dated September 15, 1994, and by a Security Agreement, dated June 22, 1995, and is supported by a Guaranty executed by McClain Industries, Inc., a Michigan corporation, dated May 5, 1995, and secured by an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the -4- 5 transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. WAIVER OF JURY TRIAL. THE BORROWER AND STANDARD FEDERAL, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT STANDARD FEDERAL'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY RELATED INSTRUMENT OR AGREEMENT. NEITHER THE BORROWER NOR STANDARD FEDERAL SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE BORROWER OR STANDARD FEDERAL EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. Confession of Judgment: The Borrower irrevocably authorizes any attorney-at-law to appear for the Borrower in any court of record in Crawford County, Ohio (which the Borrower acknowledges to be the place where this note was made), or any other state or jurisdiction wherein the Borrower may then reside, to (i) waive the issuing and service of process, (ii) confess judgment against the Borrower in favor of the holder of this Note for the amount then due, together with costs of suit, (iii) release all errors, and (iv) waive all rights of appeal. The Borrower consents to the jurisdiction and venue of that court. The undersigned has executed this Note in Galion, Ohio, as of the date and year first above written. This Note shall be governed by and construed in accordance with the law of the State of Ohio. WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON THE CREDITOR'S PART TO COMPLY WITH ANY AGREEMENT WITH THE BORROWER, OR ANY OTHER CAUSE. Each of the undersigned Borrowers acknowledge, represent and agree that they will all be using the funds representing the -5- 6 proceeds of the loan evidenced hereby and that they will all be receiving a substantial portion of such funds. At the request of the undersigned Borrowers, Standard Federal has structured the credit facility evidenced by this Note in order to allow all of the undersigned Borrowers access to the facility, and each will derive a substantial benefit therefrom. The Borrowers hereby appoint Galion Holding Company as the disbursing agent for all of them to make requests for disbursements hereunder, to receive the proceeds of all advances hereunder and to disburse those proceeds to each of the undersigned as the undersigned may deem necessary or convenient. Witnesses: BORROWER: GALION HOLDING COMPANY, a Michigan corporation David J. Bartlett By: /s/ Carl Jaworski - ---------------------- ----------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: 38-3060196 MCCLAIN E-Z PACK, INC., formerly known as Galion Solid Waste Equipment, Inc., a Michigan corporation David J. Bartlett By: /s/ Carl Jaworski - ---------------------- ---------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------------- GALION DUMP BODIES, INC., a Michigan corporation David J. Bartlett By:/s/ Carl Jaworski - ---------------------- ---------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: ------------------------------------- -6- 7 MCCLAIN GROUP SALES OF FLORIDA, INC., formerly known as M.E.G. Equipment Sales of Florida, Inc., a Florida corporation David J. Bartlett By: /s/ Carl Jaworski - ---------------------- ---------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: 59-3241829 Address: 6200 Elmridge Sterling Heights, MI 48318 Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -7- EX-10.52 8 EXHIBIT 10.52 1 EXHIBIT 10.52 LOAN AGREEMENT BETWEEN STANDARD FEDERAL BANK AND MCCLAIN GROUP LEASING, INC. THIS LOAN AGREEMENT is made and delivered this 17th day of, July 1996, by and between McClain Group Leasing, Inc., a Michigan corporation ("Borrower"), whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. The Borrower has requested a revolving line of credit loan in the principal amount of $7,500,000.00 for the purpose of financing equipment leases on the terms and conditions herein provided. B. Standard Federal is willing to supply such financing subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in reliance upon the representations herein provided and in consideration of the premises and the mutual promises herein contained, the Borrower and Standard Federal hereby agree as follows: SECTION 1. EQUIPMENT LEASE LINE OF CREDIT 1.1 Standard Federal hereby extends to the Borrower a revolving line of credit loan (the "Line of Credit"), which shall not exceed at any one time outstanding the Credit Limit as hereafter defined. The term "Credit Limit" shall mean the lesser of: (a) Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00), or (b) an amount equal to 80% of Eligible Lease Receivables. The term "Eligible Lease Receivables" shall mean lease receivables which are less than 90 days old and are not doubtful as to collectibility or disputed as to existence or amount or subject to offset, contra-indebtedness or return, exclusive of discounts and rebates, and are otherwise acceptable to Standard Federal in its sole discretion, and may include up to $690,000.00 in lease receivables from Galion Holding Company but shall not otherwise be intra-company or owing from any affiliated or related company or other entity, as such lease receivables are disclosed in the statements timely furnished to Standard Federal pursuant to Section 3 below. 2 1.2 The Borrower shall be obligated to repay all advances made hereunder with respect to any lease which becomes 90 days or more delinquent and such repayment shall be due and payable 15 days after the lease receivable statement which discloses such delinquency is timely furnished to Standard Federal pursuant to Section 3 below. 1.3 The Line of Credit herein extended shall be subject to the terms and conditions of a Promissory Note (Line of Credit) of even date herewith and all renewals and amendments thereof (the "Line of Credit Note"). The Line of Credit shall be payable and shall bear interest as set forth in the Line of Credit Note. This Loan Agreement and the Line of Credit Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. 1.4 Standard Federal shall, from time to time during the term hereof, make advances to Borrower under the Line of Credit upon request therefor by Borrower, provided that upon giving effect to such advance no Event of Default (as defined in the Line of Credit Note or this Agreement) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; and provided further that upon giving effect to such advance and at the time the advance is to be made all of the representations and warranties of Borrower contained in this Agreement and all other documents executed in connection with the Line of Credit are true and correct in all material respects; and provided further that at the time the advance is to be made Standard Federal shall not have previously or concurrently declared all amounts owing under the Line of Credit Note to be immediately due and payable; and provided further the amount requested shall not cause the total amount outstanding under the Line of Credit to exceed the Credit Limit. 1.5 If at any time the amount outstanding under the Line of Credit shall exceed the Credit Limit, Borrower shall, on demand, forthwith pay to Standard Federal such sums as are necessary to reduce the amount outstanding to an amount not greater than the Credit Limit. 1.6 Borrower shall pay to Standard Federal, on the first day of each month, commencing on the first payment date after the date hereof, and continuing on the same day of each consecutive month thereafter until the termination of the Line of Credit and all sums owing for principal and interest with respect to the Line of Credit are paid in full, an Unused Line Fee in the amount of 0.25% per annum of the amount available for draw but not advanced from time to time on the Line of Credit ("Unused Line"). The amount of the Unused Line Fee payable on the first day of each month will be determined by multiplying the average daily balance of the Unused Line for the calendar month which ends one month prior to the due date of such Unused Line Fee by .020833%. 2 3 1.7 In all events, unless earlier terminated, the Line of Credit shall terminate March 31, 1998. Upon termination, Borrower shall forthwith pay to Standard Federal all sums owing for principal and interest with respect to the Line of Credit. SECTION 1A. CONDITIONS TO OPENING LINE OF CREDIT 1A.1 The following are conditions precedent to the obligation of Standard to opening the Line of Credit hereunder: 1A.1(a) The Borrower shall have delivered or shall have had delivered to Standard Federal, in form and substance satisfactory to Standard Federal and its counsel, each of the following: a. A duly executed copy of this Loan Agreement; b. A duly executed copy of the Line of Credit Note and such other loan documents as Standard Federal shall require to evidence and document the Line of Credit (the "Loan Documents"); c. Such credit applications, financial statements, authorizations, and such information concerning the Borrower and its business, operations, and condition (financial and otherwise) as Standard Federal may reasonably request; d. Certified copies of resolutions of the Board of Directors of the Borrower approving the execution and delivery of the Loan Documents required hereunder; e. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents required hereunder; f. Copies of the Articles of Incorporation of the Borrower, certified by the Secretary of State of Michigan as of a recent date; g. Copies of the Articles of Incorporation and Bylaws of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as of the date of this Agreement as being accurate and complete; h. Certificate of good standing of the Borrower from the Secretary of State of Michigan as of a recent date; i. Certificates of authority and good standing of the Borrower for each state in which the Borrower is qualified to do business; j. A certificate of compliance of the chief financial officer or treasurer of the Borrower in form satisfactory to Standard Federal dated as of the date of this Agreement; k. Such certificates, binders or other evidence of all insurance required of the Borrower under this Loan Agreement as Standard Federal may reasonably require; and l. Acknowledgement copies of all UCC-1 financing statements filed with respect to the Collateral accompanied by a 3 4 search report showing such financing statements as duly filed and evidencing that the security interest of Standard Federal in the Collateral is prior to all other security interests of record. 1A.1(b) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings, or registrations) required to be done and performed and to have happened precedent to the execution, delivery, and performance of the Loan Documents required hereunder and to constitute the same legal, valid, and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. 1A.1(c) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to Standard Federal and its counsel and all fees and charges, including recording and filing fees, shall have been paid as required hereunder. 1A.2 As conditions precedent to Standard Federal's obligation to fund any request for an advance under the Line of Credit, at and as of the date of the funding thereof; a. The representations and warranties of the Borrower contained in the Loan Documents shall be accurate and complete in all respects as if made on and as of such date; b. The Borrower shall have paid all fees and expenses, including any recording fees and charges, required hereunder; c. There shall not have occurred an Event of Default or any event which with the passage of time of the giving of notice or both would constitute an Event of Default; and d. Following the making of such loan or advance, the aggregate principal amount outstanding will not exceed the limitations described in Section 1. SECTION 2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to Standard Federal that as of the date of acceptance of this Agreement, as of the time any advance is to be made hereunder and, unless expressly provided otherwise herein or agreed to by a writing signed by Standard Federal, at all times any amounts are outstanding hereunder: 2.1 The Borrower and each of its subsidiaries, if any, are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation; the Borrower and each of its subsidiaries (if any) have the legal power and 4 5 authority to own their properties and assets and to carry out their business as now being conducted and each is qualified to do business in the state of its incorporation and in every jurisdiction where the nature of its business or the property owned or operated by it makes such qualification necessary and is otherwise in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets; the Borrower has the legal power and authority to execute and perform this Agreement, to borrow money in accordance with its terms, to execute and deliver the Line of Credit Note and other documents contemplated hereby, to grant to Standard Federal security interests in the Collateral, as hereby contemplated, and to do any and all other things required of it hereunder; and this Agreement, the Line of Credit Note and all other documents contemplated hereby, when executed by the Borrower's duly authorized officers will constitute its valid and binding legal obligations enforceable in accordance with their terms. 2.2 The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution and delivery of the Line of Credit Note and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action, (b) do not require governmental approval or the approval of any person not a party to this Agreement, (c) will not result (with or without notice and/or the passage of time) in any conflict with or breach or violation of or default under, any provision of law, the Articles of Incorporation or Bylaws of the Borrower or any indenture, agreement or other instrument to which the Borrower is a party, or by which it or any of its properties or assets are bound, and (d) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower other than in favor of Standard Federal and as contemplated hereby. 2.3 There is not pending or, to the best of the knowledge of the Borrower, threatened, any litigation, proceeding or governmental investigation which could materially and adversely affect the business of the Borrower or its subsidiaries, if any, or its ability to perform its covenants hereunder. 2.4 Borrower has good and marketable title to its properties given as security as herein described, and, except for liens in favor of Standard Federal, liens for taxes not delinquent or being contested in good faith and liens created in connection with worker's compensation, unemployment insurance and social security, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety and appeal bonds, and other obligations of like nature made in the ordinary course of business, none of the Borrower's or any of its subsidiaries' (if any) assets are subject to any mortgage, pledge, lien, security interest, or other 5 6 encumbrance of any kind or character except as have been disclosed to Standard Federal in writing. The Borrower owns all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from any material restrictions, that are necessary for the operation of its business as presently conducted. 2.5 All financial data which has been or shall hereafter be furnished to Standard Federal for the purposes of, or in connection with, this Agreement, including particularly, but without limitation, the audited consolidated financial statements of McClain Industries, Inc. and the Form 10-Q's filed with the Securities and Exchange Commission by McClain Industries, Inc. pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and the transactions contemplated hereby has been and/or shall be prepared in accordance with generally accepted accounting principles consistently applied, and does or will fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the periods, for which the same is furnished to Standard Federal. 2.6 There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower or its subsidiaries (if any) since the date of the latest financial statements provided to Standard Federal and there are no material debts, liabilities or obligations (absolute or contingent) of the Borrower except as reflected in such financial statements (or in the notes thereto). 2.7 The Borrower is not in default in the repayment of any indebtedness for money borrowed by it nor has there occurred any event which, with or without notice or the passage of time or both, would constitute a default by the Borrower under any agreement or instrument pertaining to any indebtedness for money borrowed by it. 2.8 Borrower has filed all reports and tax returns required by governmental authority to be filed by it prior to the date hereof and Borrower has received no notice that such reports or returns have been rejected, declared insufficient, or otherwise challenged by such governmental authority. 2.9 The principal officers of the Borrower ("Principal Officers") are as follows: Chairman of the Board Kenneth D. McClain ------------------ President Peter Beale ------------------ Secretary Carl L. Jaworski ------------------ 6 7 2.10 The Borrower is a wholly-owned subsidiaries of McClain Industries, Inc., a Michigan corporation, and has no subsidiaries. 2.11 None of the proceeds of the Line of Credit will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U or G. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Borrower nor any person acting on behalf of Borrower has taken or will take any action which might cause the Line of Credit Note or any of the other documents executed in conjunction therewith, including this Agreement, to violate Regulations U or G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin stock" except for that described in the financial statements provided to Standard Federal and, as of the date hereof, the aggregate value of all "margin stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of all of the value of all of Borrower's and its subsidiaries', if any, assets. 2.12 Neither the Borrower nor, to the best of Borrower's knowledge after due inquiry, any other person or entity, has caused or permitted any waste, oil, pesticides, or any substance or material of any kind which is currently known or suspected to be toxic or hazardous, including but not limited to any substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to as "Hazardous Material") to be discharged, dispersed, released, disposed of, or allowed to escape on, under or at any property owned, occupied or operated by any Borrower in violation of any Hazardous Materials Laws (as hereinafter defined), nor has any property owned, occupied or operated by any Borrower, or any part thereof, ever been used by the Borrower or, to the best of Borrower's knowledge after due inquiry, any prior owner or any other person, as a dump, storage or disposal site for any Hazardous Material, nor has there occurred any other violation of the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Material ("Hazardous Materials Laws") with respect to any property owned, occupied or operated by any Borrower. No asbestos or asbestos-containing materials have been installed, used, incorporated into, or disposed of on any property 7 8 owned, occupied or operated by any Borrower. No polychlorinated biphenyls ("PCBs") are located on or in any property owned, occupied or operated by any Borrower, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device or form. All underground storage tanks located on any property owned, occupied or operated by any Borrower have been installed and are being operated in full compliance with all applicable Hazardous Materials Laws. The Borrower: (a) has not received any notice of any release, threatened release, escape, seepage, leakage, spillage, discharge or emission of any Hazardous Materials in, under or upon any property owned, occupied or operated by any Borrower or of any violation of any Hazardous Materials Law, and (b) does not know of any basis for any such notice or violation. 2.13 No "reportable event," as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is continuing with respect to any employee pension and/or profit sharing benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted proceedings to terminate any such employee pension and/or profit sharing plan or to appoint a trustee to administer such plan. The Borrower has maintained and funded and caused each of its subsidiaries, if any, to maintain and fund all employee pension and/or profit sharing plans in accordance with their terms and with all applicable provisions of ERISA. Neither the Borrower nor any duly appointed administrator of any employee pension and/or profit sharing plan: (a) has incurred any liability to PBGC with respect to any such plan other than for premiums not yet due or payable, (b) has instituted or intends to institute proceedings to terminate any such plan under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA). 2.14 There is no material fact that the Borrower has not disclosed to Standard Federal which could have a material adverse effect on the properties, business, prospects or condition (financial or otherwise) of the Borrower or any of its subsidiaries. For purposes of this Section 2.14, a "material adverse effect" means any circumstance or event which (a) could have any adverse effect whatsoever upon the validity, performance or enforceability of any material provision of the Loan Documents, (b) is or might be material and adverse to the financial condition or business operations of the Borrower or any subsidiary, (c) could impair the ability of the Borrower to fulfill its obligations under the Loan Documents, or (d) causes an Event of Default or any event which, with notice or lapse of time or both, could become an Event of Default. Neither the financial statements referred to in Section 2.5 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower in connection with the negotiations of this Loan Agreement, contains any untrue statement 8 9 of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein, under the circumstances in which they were made, from being misleading. 2.15 Each request for an advance under the Line of Credit shall constitute, without the necessity of specifically containing a written statement, a representation and warranty by Borrower that no Event of Default exists and that all representations and warranties contained in this Section 2 or in any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note or this Agreement are true and correct at and as of the time the advance is to be made. SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER 3.1 Prior to Standard Federal's disbursement of any advances under the Line of Credit, the Borrower shall; (a) furnish to Standard Federal, if Standard Federal so requires, certified copies of its Articles of Incorporation, Bylaws and Certificate of Good Standing, which Articles of Incorporation and Good Standing Certificate are to be certified by the appropriate official of the Borrower's state of incorporation; (b) furnish to Standard Federal if Standard Federal so requires a statement of the Borrower and the chief financial officer of Borrower certifying that they are unaware of the occurrence of an Event of Default or of any event which with notice and/or the passage of time could become an Event of Default; and (c) furnish Standard Federal such other instruments, documents, opinions or certificates as Standard Federal or its counsel shall reasonably require. All actions, proceedings, instruments and documents required or requested hereunder shall be satisfactory to and approved by Standard Federal and/or its counsel prior to the disbursement of advances under the Line of Credit. 3.2 From the date hereof until all amounts owing under the Line of Credit are paid in full and all obligations under the Line of Credit Note, this Agreement and all other documents executed in connection with the Line of Credit are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees it will: 3.2(a) Furnish to Standard Federal as soon as available and, in any event, within 120 days after the close of each fiscal year of McClain Industries, Inc., a Michigan corporation ("McClain"), or, in the event McClain obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of McClain as of the close of such fiscal year, containing a consolidated balance sheet of McClain and its subsidiaries,and statements of income and cash flows of McClain and its subsidiaries for such fiscal year prepared in accordance with generally accepted accounting principles and in a manner consistent with prior such statements containing an analysis of sources and 9 10 uses of funds and such other comments and financial details as are usually included in similar reports. Such statements shall be accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by McClain) of independent certified public accountants selected by McClain and acceptable to Standard Federal as to the fairness of the statements included in the report and to the effect that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances. 3.2(b) Furnish to Standard Federal as soon as available and, in any event, within 90 days after the close of each fiscal year, detailed financial statements of the Borrower as of the close of such fiscal period containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officer of the Borrower as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of lease receivables, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the agings thereof and the payment, write-off or other disposition of former lease receivables the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably require. Borrower will further specifically disclose any facts known to Borrower which facts would tend to render doubtful the collectibility of any lease receivable disclosed in such statements or which would indicate that the existence or amount of such receivable is disputed by the lessee thereon. 3.2(d) Promptly inform Standard Federal of the occurrence of any Event of Default or of any event (including without limitation any pending or threatened litigation or other proceedings before any governmental body or agency) which could have a materially adverse effect upon the Borrower's business, properties, financial condition or ability to comply with its obligations hereunder or under the Line of Credit Note. 3.2(e) Furnish such other information as Standard Federal may reasonably request and permit Standard Federal and its agents, attorneys and employees to inspect all of the books, records and properties of the Borrower at any reasonable time. 10 11 3.2(f) Maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses, and provide Standard Federal evidence of such insurance upon request; policies of casualty insurance shall contain a customary mortgagee clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all other insurance shall contain a customary loss payable clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all insurance policies shall provide that no cancellation, reduction in amount, change in coverage or expiration thereof shall be effective until at least 30 days prior written notice has been given by the insurer to Standard Federal; and pay when due all taxes, assessments, fees and similar charges of every kind and nature lawfully assessed upon the Borrower and/or its property, except to the extent being contested in good faith; and in the event the Borrower fails to maintain such insurance or to pay promptly any taxes or charges when due, then and in such event Standard Federal, in its sole discretion, may, but shall not be required to, pay the same and any amounts expended by Standard Federal for such purpose shall become a part of the Line of Credit and shall bear interest at the rate applicable to the outstanding principal balance owing under the Line of Credit Note. 3.2(g) Preserve and keep in full force and effect its own and its material, operating subsidiaries' (if any) corporate existence in good standing and maintain voting control in its present controlling shareholder(s); keep current all filings of assumed name certificates for each name under which and each county in which the Borrower does business and promptly inform Standard Federal of any assumed names under which it does business which were not used by the Borrower on the date of this Agreement; continue to conduct and operate its business substantially as presently conducted and operated in accordance with all applicable laws and regulations; maintain and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair and condition; pay its indebtedness and obligations when due under normal terms and maintain proper books of record and account, and; otherwise remain in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets, except to the extent noncompliance is immaterial and would not have a material adverse effect on Borrower. 3.2(h) At all times meet and cause each of its subsidiaries, if any, to meet the minimum funding requirements of ERISA with respect to all employee pension and/or profit sharing plans subject to ERISA and, with respect to any such employee benefit plan, promptly notify Standard Federal in writing of any reportable event, as defined in ERISA, or any proposed termination (voluntary or 11 12 otherwise) which could give rise to material termination liability within the meaning of ERISA Section 4062. 3.3 The Borrower will not make any change in its accounting policies or financial reporting practices and procedures, except changes in accounting policies which are required or permitted by generally accepted accounting principles and changes in financial reporting practices and procedures which are required or permitted by generally accepted accounting principles. 3.4 The Borrower shall use the monies loaned hereunder only for the purpose(s) set forth in the preamble hereto. SECTION 4. SECURITY 4.1 In order to secure: (1) the full and timely performance of the Borrower's covenants set forth herein and in the Line of Credit Note, (2) the repayment of any and all indebtedness of the Borrower to Standard Federal arising pursuant to the Line of Credit Note (including any renewals or substitutions thereof), this Agreement and any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note or this Agreement, and (3) all other indebtedness and liabilities of the Borrower to Standard Federal arising under this Agreement or the Line of Credit Note, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising: 4.1(a) The Borrower hereby grants unto Standard Federal a security interest in the following property and the proceeds thereof: (i) any and all securities or other property received by the Borrower with respect to, on account of or in exchange for any item of Collateral; (ii) all stock and/or liquidating dividends (whether the same be in the form of cash or other property) paid upon, on account of or with respect to any item of Collateral; and (iii) all bank deposits, instruments, negotiable documents, chattel paper and any and all other property of the Borrower of any kind whatsoever which shall at any time be in the possession or under the control of Standard Federal; 4.1(b) The Borrower will grant to Standard Federal a security interest of first priority in certain equipment leases and the equipment described therein as provided in an Assignment of Equipment Leases and Security Agreement of even date herewith from the Borrower to Standard Federal, and all schedules thereto, the provisions of which are hereby incorporated herein by reference; and 4.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard Federal as collateral security a life insurance policy on the life of Kenneth D. McClain in the face amount of $2,000,000.00 (herein, together with the property described in 12 13 Sections 4.1(a) (i), (ii) and (iii) and 4.1(b) above, referred to as the "Collateral" or "item(s) of Collateral"). 4.2 The Borrower shall execute and deliver to Standard Federal any and all documents (including financing statements) as Standard Federal may require to insure the perfection and priority of its liens and security interests in the Collateral and furnish, if Standard Federal so requires, proof of hazard insurance policies, in accordance with Section 3.2(g) above, relating to the Collateral. SECTION 5. EVENTS OF DEFAULT The occurrence of any of the events enumerated in Sections 5.1 to 5.10 below shall constitute an Event of Default for purposes of this Agreement: 5.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to Standard Federal on the Line of Credit is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of the Line of Credit Note, this Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith. 5.2 MISREPRESENTATION. If any warranty or representation made by or for the Borrower and/or any endorser or guarantor of the Line of Credit Note in connection with the loan(s) evidenced thereby, or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower and/or any endorser or guarantor of the Line of Credit Note shall prove to be false, inaccurate or misleading in any material respect. 5.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If the Borrower shall fail to perform any of its obligations and covenants under Section 3 of this Agreement, or shall fail to comply with any of the other provisions of this Agreement or the Line of Credit Note or any other agreement with Standard Federal to which it may be a party, other than the payment of principal and interest. 5.4 BUSINESS SUSPENSION. If the Borrower and/or any endorser or guarantor of the Line of Credit Note shall voluntarily suspend transaction of its business. 5.5 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of the Line of Credit Note: (a) makes a general assignment for the benefit of creditors; (b) shall file a voluntary petition in bankruptcy or for a reorganization to effect a plan or other arrangement with creditors; or shall file an answer to a creditor's petition or other petition against Borrower and/or any endorser or guarantor of the Line of Credit Note for relief in 13 14 bankruptcy or for a reorganization which answer admits the material allegations thereof; or if any order for relief shall be entered by any court of bankruptcy jurisdiction with respect to the Borrower and/or any endorser or guarantor of the Line of Credit Note, or if bankruptcy, reorganization or liquidation proceedings are instituted against Borrower and/or any endorser or guarantor of the Line of Credit Note and remain undismissed for 60 days; (c) has entered against it any order by any court approving a plan for the reorganization of the Borrower or any endorser or guarantor of the Line of Credit Note or any other plan or arrangement with creditors of the Borrower or any endorser or guarantor of the Line of Credit Note; (d) shall apply for or permit the appointment of a receiver, trustee or custodian for any substantial portion of the Borrower's and/or any endorser's or guarantor's properties or assets; or (e) becomes unable to meet its debts as they mature or becomes insolvent. 5.6 JUDGMENTS AND WRITS. If there shall be entered against the Borrower and/or any endorser or guarantor of the Line of Credit Note one or more judgments or decrees which are not insured against or satisfied or appealed from and bonded within the time or times limited by applicable rules of procedure for appeal as of right or if a writ of attachment or garnishment against the Borrower and/or any endorser or guarantor of the Line of Credit Note shall be issued and levied in an action claiming $100,000.00 or more and not released, bonded or appealed from within 30 days after the levy thereof. 5.7 MERGER. If the Borrower shall merge or consolidate with another entity. 5.8 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling portion of its voting stock or a substantial portion of its assets comes under the practical, beneficial or effective control of any person or persons other than those having such control as of the date of execution of the Line of Credit Note, whether by reason of merger, consolidation, sale or purchase of stock or assets or otherwise, if any such change of control, in the sole and absolute discretion of Standard Federal, adversely impacts upon the ability of the Borrower to carry on its business as theretofore conducted. 5.9 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of the Line of Credit Note shall default in the due payment of any material indebtedness to whomsoever owed, or shall default in the observance or performance of any material term, covenant or condition in any mortgage, security agreement, guaranty, instrument, lease or agreement to which the Borrower and/or any endorser or guarantor of the Line of Credit Note is a party. 14 15 5.10 REPORTABLE EVENT. If there shall occur any "reportable event", as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto, which is determined to constitute grounds for termination by the Pension Benefit Guaranty Corporation of any employee pension benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such plan and such reportable event is not corrected and such determination is not revoked within 30 days after notice thereof has been given to the plan administrator or the Borrower; or the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate any such employee benefit pension plan or to appoint a trustee to administer such plan; or the appointment of a trustee by the appropriate United States District Court to administer any such employee benefit pension plan. SECTION 6. REMEDIES UPON EVENT OF DEFAULT 6.1 Upon the occurrence of any Event of Default described in Sections 5.2, 5.3 or 5.9 hereof which is not cured or waived in writing by Standard Federal within 15 days after written notice to the Borrower of such default; or upon the occurrence of any Event of Default described in Section 5.1 which continues unremedied for 10 days, or upon the occurrence of any Event of Default described in Sections 5.4, 5.5, 5.6, 5.7, 5.8 or 5.10, Standard Federal's commitment to lend hereunder, if any, shall terminate and Standard Federal may, without notice, declare the entire unpaid and outstanding principal balance of the Line of Credit and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind, all of which are hereby expressly waived by Borrower, and thereupon Standard Federal shall have and may exercise any one or more of the rights and remedies provided herein or in the Line of Credit Note or in any mortgage, guaranty, security agreement or other document relating hereto or granted secured parties under the Michigan Uniform Commercial Code, including the right to take possession of and dispose of the Collateral, or otherwise provided by applicable law, and to offset against the Line of Credit any amount owing by Standard Federal to the Borrower. SECTION 7. MISCELLANEOUS. 7.1 No default shall be waived by Standard Federal except in writing and a waiver of any default shall not be a waiver of any other default or of the same default on a future occasion. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise hereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 15 16 7.2 No forbearance on the part of Standard Federal in enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder shall constitute a waiver of any of the terms of this Agreement or of any such right. 7.3 This Agreement shall be construed in accordance with the law of the State of Michigan. 7.4 All covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing hereunder and shall be deemed to have been relied upon by Standard Federal. All statements contained in any certificate or other document delivered to Standard Federal at any time by or on behalf of the Borrower pursuant hereto shall constitute representations and warranties by the Borrower. 7.5 The Borrower agrees that it will pay all costs and expenses incurred by Standard Federal in enforcing Standard Federal's rights under this Agreement and the documents contemplated hereby, including without limitation any and all reasonable fees and disbursements of legal counsel to Standard Federal. 7.6 This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of Standard Federal. 7.7 If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any or all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or sections contained in this Agreement, shall not affect the remaining portions of this Agreement, or any part thereof. SECTION 8. ADDITIONAL PROVISIONS 8.1 In addition to the terms, covenants and conditions set forth above, the parties hereto hereby agree as follows: 16 17 8.1(a) Borrower shall cause McClain to execute and deliver to Standard Federal an unlimited payment guaranty of the obligations of Borrower under the Line of Credit in form and substance acceptable to Standard Federal. IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this Loan Agreement to be executed as of the day and year first written above. BORROWER: MCCLAIN GROUP LEASING, INC., a Michigan corporation - -------------------------- By: /s/ Peter Beale ------------------------------------ Peter Beale Its: President ----------------------------- 38-2969462 ---------------------------------------- Taxpayer Identification Number STANDARD FEDERAL: STANDARD FEDERAL BANK, a federal savings bank By: David J. Bartlett --------------------------- Its: Vice President --------------------------- 17 EX-10.53 9 EXHIBIT 10.53 1 EXHIBIT 10.53 Note No. 0250024084 ------------------ STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit) [X] New $7,500,000.00 Troy, Michigan - ---------------------------------------- ---------------- Due Date: March 31, 1998 Dated: ---------------------------------------- ---------------- FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided herein, the undersigned ("Borrower") promises to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00) or such lesser amount as may from time to time be outstanding by reason of having been advanced hereunder, plus interest as hereinafter provided on all amounts from time to time outstanding hereunder, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower or borrowers and shall automatically increase or decrease when and 2 to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. Accrued interest shall be payable on the first day of each month beginning on August 1, 1996. This Note is given as evidence of any and all indebtedness of the Borrower to Standard Federal arising as a result of advances or other credit which may be made under this Note from time to time in accordance with the provisions of a Loan Agreement of even date herewith, by and between Standard Federal and the Borrower (the "Loan Agreement"). Any and all indebtedness may be repaid by the Borrower in whole or in part from time to time prior to the Due Date. Standard Federal shall, from time to time prior to the Due Date, make advances to Borrower hereunder upon request therefor by Borrower, provided that, upon giving effect to such advance: (a) no Event of Default (as hereinafter defined) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; (b) all representations and warranties of Borrower theretofore made are true and correct; (c) Standard Federal shall not have previously or concurrently declared all amounts owing hereunder to be immediately due and payable; (d) the amount requested shall not cause the total amount outstanding hereunder to exceed the Credit Limit, as defined in the Loan Agreement; and (e) all other requirements for the making of advances provided for in the Loan Agreement have been satisfied. The principal amount of indebtedness owing pursuant to this Note shall change from time to time, decreasing in an amount equal to any and all payments of principal made by the Borrower and increasing by an amount equal to any and all advances made by Standard Federal to the Borrower pursuant to the terms hereof, and the books and records of Standard Federal shall be conclusive evidence of the amount of principal and interest owing hereunder at any time. All payments made hereunder shall be applied first against costs and expenses required to be paid hereunder, then against accrued interest to the extent thereof and the balance shall be applied against the outstanding principal amount hereof. Nothing herein contained, nor any transaction relating thereto, or hereto, shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that -2- 3 may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal -3- 4 expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non-payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to the Loan Agreement and is secured by an Assignment of Equipment Lease and Security Agreement, of even date herewith, and all schedules thereto, and an Assignment of Policy as Collateral Security, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. -4- 5 Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. BORROWER: MCCLAIN GROUP LEASING, INC., a Michigan corporation David J. Bartlett - ------------------------ By: Peter Beale ----------------------------------- Peter Beale Its: President ----------------------- 38-2969462 --------------------------------------- Taxpayer Identification Number Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -5- EX-10.54 10 EXHIBIT 10.54 1 EXHIBIT 10.54 LOAN AGREEMENT BETWEEN STANDARD FEDERAL BANK AND MCCLAIN INDUSTRIES, INC., MCCLAIN OF GEORGIA, INC., SHELBY STEEL PROCESSING COMPANY, MCCLAIN TUBE COMPANY D/B/A QUALITY TUBE, MCCLAIN INDUSTRIES OF OHIO, INC., MCCLAIN EPCO, INC. AND MCCLAIN OF ALABAMA, INC. THIS LOAN AGREEMENT is made and delivered this 29th day of August 29, 1996, by and between McClain Industries, Inc., a Michigan corporation, McClain of Georgia, Inc., a Georgia corporation, Shelby Steel Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan corporation, McClain Epco, Inc., a New York corporation, and McClain of Alabama, Inc., a Michigan corporation (collectively, "Borrower"), whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. The Borrower has requested a term loan in the principal amount of $5,300,000.00, and Standard Federal is willing to supply such financing subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in reliance upon the representations herein provided and in consideration of the premises and the mutual promises herein contained, the Borrower and Standard Federal hereby agree as follows: SECTION 1. TERM LOAN 1.1 Standard Federal hereby extends to the Borrower a term loan (the "Term Loan") in the principal amount of Five Million Three Hundred Thousand and 00/100 Dollars ($5,300,000.00). 1.2 The Term Loan herein extended shall be subject to the terms and conditions of a Promissory Note (Term Loan) of even date herewith and all renewals and amendments thereof (the "Note"). The Term Loan shall be payable and shall bear interest as set forth in the Note. This Loan Agreement and the Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. 2 SECTION 1A. CONDITIONS TO MAKING LOANS 1A.1 The following are conditions precedent to the obligation of Standard to make the Term Loan hereunder: 1A.1(a) The Borrower shall have delivered or shall have had delivered to Standard Federal, in form and substance satisfactory to Standard Federal and its counsel, each of the following: a. A duly executed copy of this Loan Agreement; b. A duly executed copy of the Note and such other loan documents as Standard Federal shall require to evidence and document the Term Loan (the "Loan Documents"); c. Such credit applications, financial statements, authorizations, and such information concerning the Borrower and its business, operations, and condition (financial and otherwise) as Standard Federal may reasonably request; d. Certified copies of resolutions of the Boards of Directors of the Borrower approving the execution and delivery of the Loan Documents required hereunder; e. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents required hereunder; f. Copies of each of the Articles of Incorporation of the Borrower, certified by the Secretary of State of Michigan as of a recent date; g. Copies of each of the Articles of Incorporation and Bylaws of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as of the date of this Agreement as being accurate and complete; h. Certificate of good standing of the Borrower from the Secretary of State of Michigan as of a recent date; i. Certificates of authority and good standing of the Borrower for each state in which the Borrower is qualified to do business; j. A certificate of compliance of the chief financial officer or treasurer of the Borrower in form satisfactory to Standard Federal dated as of the date of this Agreement; k. Such certificates, binders or other evidence of all insurance required of the Borrower under this Loan Agreement as Standard Federal may reasonably require; and l. Acknowledgement copies of all UCC-1 financing statements filed with respect to the Collateral accompanied by a search report showing such financing statements as duly filed and evidencing that the security interest of Standard Federal in the Collateral is prior to all other security interests of record. 2 3 1A.1(b) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings, or registrations) required to be done and performed and to have happened precedent to the execution, delivery, and performance of the Loan Documents required hereunder and to constitute the same legal, valid, and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. 1A.1(c) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to Standard Federal and its counsel and all fees and charges, including recording and filing fees, shall have been paid as required hereunder. 1A.2 As conditions precedent to Standard Federal's obligation to make the Term Loan: a. The representations and warranties of the Borrower contained in the Loan Documents shall be accurate and complete in all respects as if made on and as of such date; b. The Borrower shall have paid all fees and expenses, including any recording fees and charges, required hereunder; and c. There shall not have occurred an Event of Default or any event which with the passage of time of the giving of notice or both would constitute an Event of Default. SECTION 2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to Standard Federal that as of the date of acceptance of this Agreement, as of the time any advance is to be made hereunder and, unless expressly provided otherwise herein or agreed to by a writing signed by Standard Federal, at all times any amounts are outstanding hereunder: 2.1 The Borrower and each of its subsidiaries, if any, are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation; the Borrower and each of its subsidiaries (if any) have the legal power and authority to own their properties and assets and to carry out their business as now being conducted and each is qualified to do business in the state of its incorporation and in every jurisdiction where the nature of its business or the property owned or operated by it makes such qualification necessary and is otherwise in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets; the Borrower has the legal power and authority to 3 4 execute and perform this Agreement, to borrow money in accordance with its terms, to execute and deliver the Note and other documents contemplated hereby, to grant to Standard Federal mortgages and security interests in the Collateral, as hereby contemplated, and to do any and all other things required of it hereunder; and this Agreement, the Note and all other documents contemplated hereby, when executed by the Borrower's duly authorized officers will constitute its valid and binding legal obligations enforceable in accordance with their terms. 2.2 The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution and delivery of the Note and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action, (b) do not require governmental approval or the approval of any person not a party to this Agreement, (c) will not result (with or without notice and/or the passage of time) in any conflict with or breach or violation of or default under, any provision of law, the Articles of Incorporation or Bylaws of the Borrower or any indenture, agreement or other instrument to which the Borrower is a party, or by which it or any of its properties or assets are bound, and (d) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower other than in favor of Standard Federal and as contemplated hereby. 2.3 There is not pending or, to the best of the knowledge of the Borrower, threatened, any litigation, proceeding or governmental investigation which could materially and adversely affect the business of the Borrower or its subsidiaries, if any, or its ability to perform its covenants hereunder. 2.4 Borrower has good and marketable title to its properties given as security as herein described, and, except for liens in favor of Standard Federal, liens for taxes not delinquent or being contested in good faith and liens created in connection with worker's compensation, unemployment insurance and social security, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety and appeal bonds, and other obligations of like nature made in the ordinary course of business, none of the Borrower's or any of its subsidiaries' (if any) assets are subject to any mortgage, pledge, lien, security interest, or other encumbrance of any kind or character except as have been disclosed to Standard Federal in writing. The Borrower owns all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from any material restrictions, that are necessary for the operation of its business as presently conducted. 2.5 All financial data which has been or shall hereafter be furnished to Standard Federal for the purposes of, or in connection 4 5 with, this Agreement, including particularly, but without limitation, the audited consolidated financial statements of McClain Industries, Inc. and the Form 10-Q's filed with the Securities and Exchange Commission by McClain Industries, Inc. pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and the transactions contemplated hereby has been and/or shall be prepared in accordance with generally accepted accounting principles consistently applied, and does or will fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the periods, for which the same is furnished to Standard Federal. 2.6 There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower or its subsidiaries (if any) since the date of the latest financial statements provided to Standard Federal and there are no material debts, liabilities or obligations (absolute or contingent) of the Borrower except as reflected in such financial statements (or in the notes thereto). 2.7 The Borrower is not in default in the repayment of any indebtedness for money borrowed by it nor has there occurred any event which, with or without notice or the passage of time or both, would constitute a default by the Borrower under any agreement or instrument pertaining to any indebtedness for money borrowed by it. 2.8 Borrower has filed all reports and tax returns required by governmental authority to be filed by it prior to the date hereof and Borrower has received no notice that such reports or returns have been rejected, declared insufficient, or otherwise challenged by such governmental authority. 2.9 The principal officers of the Borrower ("Principal Officers") are as follows: McClain Industries, Inc.: Chairman of the Board Kenneth D. McClain -------------------- Senior Vice President Robert W. McClain -------------------- Secretary Carl L. Jaworski -------------------- McClain of Georgia, Inc.: President Kenneth D. McClain -------------------- Senior Vice President Robert W. McClain -------------------- Secretary Carl L. Jaworski -------------------- 5 6 Shelby Steel Processing Company: President Robert W. McClain -------------------- Vice President Kenneth D. McClain -------------------- Secretary Carl L. Jaworski -------------------- McClain Tube Company d/b/a Quality Tube: President Kenneth D. McClain -------------------- Secretary Carl L. Jaworski -------------------- McClain Industries of Ohio, Inc.: President Kenneth D. McClain -------------------- Vice President Robert W. McClain -------------------- Secretary Margaret Bruce -------------------- McClain Epco, Inc.: President Kenneth D. McClain -------------------- Vice President Robert W. McClain -------------------- Secretary Margaret Bruce -------------------- McClain of Alabama, Inc.: President Kenneth D. McClain -------------------- Secretary Carl L. Jaworski -------------------- 2.10 McClain of Georgia, Inc., a Georgia corporation, Shelby Steel Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan corporation, McClain Epco, Inc., a New York corporation, McClain of Alabama, Inc., a Michigan corporation, and Southfield Quality Leasing Company, a Michigan corporation, are each wholly-owned subsidiaries of McClain Industries, Inc., a Michigan corporation, and have no subsidiaries. McClain Group Leasing Corporation, a Michigan corporation, and Galion Holding Company, a Michigan corporation, are also wholly-owned subsidiaries of McClain Industries, Inc. McClain Industries, Inc. also holds one-third of the outstanding capital stock of M.E.G. Equipment Sales, Inc., Michigan corporation, of which M.E.G. Equipment Sales of Florida, Inc., a Florida corporation, is a wholly-owned subsidiary. McClain Industries, Inc., as of the date of this Loan Agreement, owns no other subsidiaries. 6 7 2.11 None of the proceeds of the Term Loan will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U or G. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Borrower nor any person acting on behalf of Borrower has taken or will take any action which might cause the Note or any of the other documents executed in conjunction therewith, including this Agreement, to violate Regulations U or G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin stock" except for that described in the financial statements provided to Standard Federal and, as of the date hereof, the aggregate value of all "margin stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of all of the value of all of Borrower's and its subsidiaries', if any, assets. 2.12 Except as disclosed in the environmental report(s), copies of which the Borrower has furnished to Standard Federal, neither the Borrower nor, to the best of Borrower's knowledge after due inquiry, any other person or entity, has caused or permitted any waste, oil, pesticides, or any substance or material of any kind which is currently known or suspected to be toxic or hazardous, including but not limited to any substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to as "Hazardous Material") to be discharged, dispersed, released, disposed of, or allowed to escape on, under or at any property owned, occupied or operated by any Borrower in violation of any Hazardous Materials Laws (as hereinafter defined), nor has any property owned, occupied or operated by any Borrower, or any part thereof, ever been used by the Borrower or, to the best of Borrower's knowledge after due inquiry, any prior owner or any other person, as a dump, storage or disposal site for any Hazardous Material, nor has there occurred any other violation of the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Material ("Hazardous Materials Laws") with respect to any property owned, occupied or operated by any Borrower. No asbestos or asbestos-containing materials have been installed, used, incorporated into, or disposed of on any property owned, occupied or operated by any Borrower. No polychlorinated biphenyls ("PCBs") are located on or in any property owned, 7 8 occupied or operated by any Borrower, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device or form. All underground storage tanks located on any property owned, occupied or operated by any Borrower have been installed and are being operated in full compliance with all applicable Hazardous Materials Laws. The Borrower: (a) has not received any notice of any release, threatened release, escape, seepage, leakage, spillage, discharge or emission of any Hazardous Materials in, under or upon any property owned, occupied or operated by any Borrower or of any violation of any Hazardous Materials Law, and (b) does not know of any basis for any such notice or violation. 2.13 No "reportable event," as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is continuing with respect to any employee pension and/or profit sharing benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted proceedings to terminate any such employee pension and/or profit sharing plan or to appoint a trustee to administer such plan. The Borrower has maintained and funded and caused each of its subsidiaries, if any, to maintain and fund all employee pension and/or profit sharing plans in accordance with their terms and with all applicable provisions of ERISA. Neither the Borrower nor any duly appointed administrator of any employee pension and/or profit sharing plan: (a) has incurred any liability to PBGC with respect to any such plan other than for premiums not yet due or payable, (b) has instituted or intends to institute proceedings to terminate any such plan under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA). 2.14 There is no material fact that the Borrower has not disclosed to Standard Federal which could have a material adverse effect on the properties, business, prospects or condition (financial or otherwise) of the Borrower or any of its subsidiaries. For purposes of this Section 2.14, a "material adverse effect" means any circumstance or event which (a) could have any adverse effect whatsoever upon the validity, performance or enforceability of any material provision of the Loan Documents, (b) is or might be material and adverse to the financial condition or business operations of the Borrower or any subsidiary, (c) could impair the ability of the Borrower to fulfill its obligations under the Loan Documents, or (d) causes an Event of Default or any event which, with notice or lapse of time or both, could become an Event of Default. Neither the financial statements referred to in Section 2.5 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower in connection with the negotiations of this Loan Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to 8 9 keep the statements contained herein or therein, under the circumstances in which they were made, from being misleading. SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER 3.1 Prior to closing of the Term Loan, the Borrower shall; (a) furnish to Standard Federal, if Standard Federal so requires, certified copies of its Articles of Incorporation, Bylaws and Certificate of Good Standing, which Articles of Incorporation and Good Standing Certificate are to be certified by the appropriate official of the Borrower's state of incorporation; (b) furnish to Standard Federal if Standard Federal so requires a statement of the Borrower and the chief financial officer of Borrower certifying that they are unaware of the occurrence of an Event of Default or of any event which with notice and/or the passage of time could become an Event of Default; and (c) furnish Standard Federal such other instruments, documents, opinions or certificates as Standard Federal or its counsel shall reasonably require. All actions, proceedings, instruments and documents required or requested hereunder shall be satisfactory to and approved by Standard Federal and/or its counsel prior to closing of the Term Loan. 3.2 From the date hereof until all amounts owing under the Term Loan are paid in full and all obligations under the Note, this Agreement and all other documents executed in connection with the Term Loan are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees it will: 3.2(a) Furnish to Standard Federal as soon as available and, in any event, within 120 days after the close of each fiscal year of the Borrower, or, in the event the Borrower obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of the Borrower as of the close of such fiscal year, containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal year prepared in accordance with generally accepted accounting principles and in a manner consistent with prior such statements containing an analysis of sources and uses of funds and such other comments and financial details as are usually included in similar reports. Such statements shall be accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by Borrower) of independent certified public accountants selected by Borrower and acceptable to Standard Federal as to the fairness of the statements included in the report and to the effect that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances. 9 10 3.2(b) Furnish to Standard Federal as soon as available and, in any event, within 90 days after the close of each quarter of each fiscal year, or, in the event the Borrower obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of the Borrower as of the close of such fiscal period containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officer of the Borrower as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of accounts receivable, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the agings thereof and the payment, write-off or other disposition of former accounts receivable the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably require. Borrower will further specifically disclose any facts known to Borrower which facts would tend to render doubtful the collectibility of any account receivable disclosed in such statements or which would indicate that the existence or amount of such account is disputed by the debtor thereon. 3.2(d) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of accounts payable, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower, showing the agings thereof and such other information and data as Standard Federal may reasonably require. 3.2(e) Furnish to Standard Federal, within a reasonable time not to exceed 20 days after the end of each calendar month, a statement of inventory of the Borrower, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the method of reporting and all additions to and dispositions of inventory since the previous inventory report and such other information and data as Standard Federal may reasonably require. 3.2(f) Furnish to Standard Federal, promptly after sending, filing or publishing the same, copies of all proxy statements, financial statements and reports that the Borrower sends to its public shareholders and copies of all regular, periodic and special reports and all registration statements and amendments thereto that the Borrower files with the Securities and Exchange Commission or 10 11 any other governmental authority and any Exchange, and copies of all press releases issued by Borrower. 3.2(g) Promptly inform Standard Federal of the occurrence of any Event of Default or of any event (including without limitation any pending or threatened litigation or other proceedings before any governmental body or agency) which could have a materially adverse effect upon the Borrower's business, properties, financial condition or ability to comply with its obligations hereunder or under the Note. 3.2(h) Furnish such other information as Standard Federal may reasonably request and permit Standard Federal and its agents, attorneys and employees to inspect all of the books, records and properties of the Borrower at any reasonable time. 3.2(i) Maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses, and provide Standard Federal evidence of such insurance upon request, or maintain adequate self-insurance programs which are reasonably satisfactory to Standard Federal; policies of casualty insurance shall contain a customary mortgagee clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all other insurance shall contain a customary loss payable clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all insurance policies shall provide that no cancellation, reduction in amount, change in coverage or expiration thereof shall be effective until at least 30 days prior written notice has been given by the insurer to Standard Federal; and pay when due all taxes, assessments, fees and similar charges of every kind and nature lawfully assessed upon the Borrower and/or its property, except to the extent being contested in good faith; and in the event the Borrower fails to maintain such insurance or to pay promptly any taxes or charges when due, then and in such event Standard Federal, in its sole discretion, may, but shall not be required to, pay the same and any amounts expended by Standard Federal for such purpose shall be due and payable in full immediately and shall bear interest at the rate applicable to the outstanding principal balance owing under the Note. 3.2(j) Preserve and keep in full force and effect its own and its material, operating subsidiaries' (if any) corporate existence in good standing and maintain voting control in its present controlling shareholder(s); keep current all filings of assumed name certificates for each name under which and each county in which the Borrower does business and promptly inform Standard Federal of any assumed names under which it does business which were not used by the Borrower on the date of this Agreement; continue to conduct and operate its business substantially as presently conducted and operated in accordance with all applicable laws and regulations; maintain and protect all franchises and trade 11 12 names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair and condition; pay its indebtedness and obligations when due under normal terms and maintain proper books of record and account, and; otherwise remain in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets, except to the extent noncompliance is immaterial and would not have a material adverse effect on Borrower. 3.2(k) Maintain on a consolidated statement basis "Tangible Net Worth" of not less than the amounts specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Minimum "Tangible Fiscal Year-End Net Worth" --------------- -------------- 09/30/96 $21,000,000 09/30/97 $23,000,000 "Tangible Net Worth" shall mean total assets less trademarks, franchises, copyrights, licenses, goodwill, similar intangible assets and all liabilities (excluding debt subordinated to Standard Federal upon terms and conditions acceptable to Standard Federal) of the Borrower. 3.2(l) Maintain on a consolidated statement basis the ratio of "Current Assets" to "Current Liabilities" of not less than the ratios specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Fiscal Year-End Minimum Current Ratio --------------- --------------------- 09/30/96 2.35 to 1.00 09/30/97 2.40 to 1.00 "Current Assets" shall include all assets considered current in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied, less all amounts due Borrower from any of its directors, officers, employees, its shareholders, or any company controlled by any of its shareholders. "Current Liabilities" shall include all liabilities considered current in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied. 3.2(m) On a consolidated statement basis maintain the ratio of "Liabilities" to "Tangible Net Worth" of not more than the ratios 12 13 specified below as of the end of each fiscal quarter during the fiscal years ending on the dates specified below: Fiscal Year-End Maximum Liabilities-to-Worth Ratio --------------- ---------------------------------- 09/30/96 2.85 to 1.00 09/30/97 2.75 to 1.00 "Liabilities" shall mean all liabilities of the Borrower and its consolidated subsidiaries, if any, as defined in accordance with generally accepted accounting principles as in effect as of the date of this Agreement, consistently applied. "Tangible Net Worth" shall mean total assets less trademarks, franchises, copyrights, licenses, goodwill, similar intangible assets and all liabilities (excluding debt subordinated to Standard Federal upon terms and conditions acceptable to Standard Federal) of the Borrower. 3.2(n) On a consolidated statement basis, maintain an Interest Coverage Ratio of not less than 2.00 to 1.00 as of the end of each quarter of each fiscal year. The "Interest Coverage Ratio" shall be defined as the ratio of the Borrower's net income, plus interest charges, income and other taxes and amortization and depreciation for the period of four consecutive quarters ending with the quarter at the end of which the Interest Coverage Ratio is being measured to all interest expense of the Borrower for such period, as determined in accordance with generally accepted accounting principles. 3.2(o) On a consolidated statement basis, maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00 as of the end of each quarter of each fiscal year. The "Fixed Charge Coverage Ratio" shall be defined as the ratio of the Borrower's net income, plus amortization and depreciation for the period of four consecutive quarters ending with the quarter at the end of which the Fixed Charge Coverage Ratio is being measured to current maturities of long term debt, as determined in accordance with generally accepted accounting principles. 3.2(p) At all times meet and cause each of its subsidiaries, if any, to meet the minimum funding requirements of ERISA with respect to all employee pension and/or profit sharing plans subject to ERISA and, with respect to any such employee benefit plan, promptly notify Standard Federal in writing of any reportable event, as defined in ERISA, or any proposed termination (voluntary or otherwise) which could give rise to material termination liability within the meaning of ERISA Section 4062. 3.3 The Borrower will not make any change in its accounting policies or financial reporting practices and procedures, except 13 14 changes in accounting policies which are required or permitted by generally accepted accounting principles and changes in financial reporting practices and procedures which are required or permitted by generally accepted accounting principles. 3.4 The Borrower shall use the monies loaned hereunder only for the purpose(s) set forth in the preamble hereto. 3.5 The Borrower shall allow Standard Federal's participant in the Term Loan and staff or independent accountants or auditors selected by Standard Federal's participant to conduct a full audit of the Borrower's financial statements and its books and records twice during the first year of the term of the Term Loan and once in each of the second and third years of the term of the Term Loan. Standard Federal's participant shall schedule such audits during normal business hours of the Borrower and shall provide Borrower not less than two (2) business days notice of the commencement of each audit. The Borrower shall make adequate facilities available on its premises at Borrower's expense to enable Standard Federal's participant to conduct the audits herein described and shall make available all of its books, records and other documents and information as may be reasonably requested to facilitate the audits. The Borrower agrees to pay to Standard Federal's participant an audit fee of $3,000.00 plus travel expenses for each audit so conducted by the participant. SECTION 4. NEGATIVE COVENANTS 4.1 From the date hereof until all amounts owing under the Term Loan are paid in full and all obligations under the Note, this Agreement and all other documents executed in connection with the Term Loan are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees that it will not do and will not permit any subsidiary, if any, to do any of the following without the prior written approval of Standard Federal: 4.1(a) Create, incur, assume or permit to exist (a) any mortgage, pledge, security interest, lien or charge of any kind upon any of its property or assets whether now owned or hereafter acquired other than in favor of Standard Federal, except as required or permitted by Standard Federal, or (b) any indebtedness or liability for borrowed money, except indebtedness to Standard Federal or indebtedness subordinated to the prior payment in full of the Borrower's indebtedness to Standard Federal which is approved in writing by Standard Federal, except as otherwise required or permitted in writing by Standard Federal. 4.1(b) Make loans, advances or extensions of credit to any Entity (which in this Agreement means any individual, partnership, corporation or other legal entity), other than a parent or subsidiary of the Borrower, in excess of $100,000.00 in principal 14 15 amount, except for sales on open account and in ordinary course of business; or guarantee or in any way become responsible for obligations of any other Entity except by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; or subordinate any indebtedness due it from an Entity to indebtedness of any other creditor of such Entity. 4.1(c) Sell, lease or transfer, during any fiscal year, except inventory in the ordinary course of business, any substantial portion of its assets; or consolidate with or merge into any other Entity, or permit another to merge into it; or acquire by lease or purchase all or substantially all the business or assets of any Entity; or enter into any lease-back arrangement with any Entity. 4.1(d) Acquire or expend for, by lease, purchase or otherwise, during any fiscal year, fixed assets in excess of $4,500,000. SECTION 5. SECURITY 5.1 In order to secure: (1) the full and timely performance of the Borrower's covenants set forth herein and in the Note, (2) the repayment of any and all indebtedness of the Borrower to Standard Federal arising pursuant to the Note (including any renewals or substitutions thereof), this Agreement and any mortgage, guaranty, security agreement or other document given to secure or relating to the Note or this Agreement, and (3) all other indebtedness and liabilities of the Borrower to Standard Federal arising under this Agreement, the Note, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising: 5.1(a) The Borrower hereby grants unto Standard Federal a security interest in the following property and the proceeds thereof: (i) any and all securities or other property received by the Borrower with respect to, on account of or in exchange for any item of Collateral; (ii) all stock and/or liquidating dividends (whether the same be in the form of cash or other property) paid upon, on account of or with respect to any item of Collateral; and (iii) all bank deposits, instruments, negotiable documents, chattel paper and any and all other property of the Borrower of any kind whatsoever which shall at any time be in the possession or under the control of Standard Federal; and 5.1(b) The Borrower has granted to Standard Federal a security interest of first priority in all personal property of the Borrower as provided in a certain Security Agreement dated September 15, 1994, and a Security Agreement dated July 19, 1995, and a mortgage of even date herewith, from the Borrower to Standard Federal, the provisions of which are hereby incorporated herein by reference; and 15 16 5.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard Federal as collateral security a life insurance policy on the life of Kenneth D. McClain in the face amount of $2,000,000.00 (herein, together with the property described in Sections 5.1(a) (i), (ii) and (iii) and 5.1(b) above, referred to as the "Collateral" or "item(s) of Collateral"). 5.2 The Borrower shall execute and deliver to Standard Federal any and all documents (including financing statements) as Standard Federal may require to insure the perfection and priority of its liens and security interests in the Collateral and furnish, if Standard Federal so requires, proof of hazard insurance policies, in accordance with Section 3.2(g) above, relating to the Collateral. SECTION 6. EVENTS OF DEFAULT The occurrence of any of the events enumerated in Sections 6.1 to 6.11 below shall constitute an Event of Default for purposes of this Agreement: 6.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to Standard Federal on the Term Loan is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of the Note, this Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith. 6.2 MISREPRESENTATION. If any warranty or representation made by or for the Borrower and/or any endorser or guarantor of the Note in connection with the loan(s) evidenced thereby, or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower and/or any endorser or guarantor of the Note shall prove to be false, inaccurate or misleading in any material respect. 6.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If the Borrower shall fail to perform any of its obligations and covenants under Section 3 of this Agreement, or shall fail to comply with any of the other provisions of this Agreement, other than under Section 4 hereof, or the Note, or any other agreement with Standard Federal to which it may be a party, other than the payment of principal and interest. 6.4 NONCOMPLIANCE WITH NEGATIVE COVENANTS. If the Borrower shall fail to perform any of its obligations and covenants described in Section 4 of this Agreement. 6.5 BUSINESS SUSPENSION. If the Borrower and/or any endorser or guarantor of the Note shall voluntarily suspend transaction of its business. 16 17 6.6 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of the Note: (a) makes a general assignment for the benefit of creditors; (b) shall file a voluntary petition in bankruptcy or for a reorganization to effect a plan or other arrangement with creditors; or shall file an answer to a creditor's petition or other petition against Borrower and/or any endorser or guarantor of the Note for relief in bankruptcy or for a reorganization which answer admits the material allegations thereof; or if any order for relief shall be entered by any court of bankruptcy jurisdiction with respect to the Borrower and/or any endorser or guarantor of the Note, or if bankruptcy, reorganization or liquidation proceedings are instituted against Borrower and/or any endorser or guarantor of the Note and remain undismissed for 60 days; (c) has entered against it any order by any court approving a plan for the reorganization of the Borrower or any endorser or guarantor of the Note or any other plan or arrangement with creditors of the Borrower or any endorser or guarantor of the Note; (d) shall apply for or permit the appointment of a receiver, trustee or custodian for any substantial portion of the Borrower's and/or any endorser's or guarantor's properties or assets; or (e) becomes unable to meet its debts as they mature or becomes insolvent. 6.7 JUDGMENTS AND WRITS. If there shall be entered against the Borrower and/or any endorser or guarantor of the Note one or more judgments or decrees which are not insured against or satisfied or appealed from and bonded within the time or times limited by applicable rules of procedure for appeal as of right or if a writ of attachment or garnishment against the Borrower and/or any endorser or guarantor of the Note shall be issued and levied in an action claiming $100,000.00 or more and not released, bonded or appealed from within 30 days after the levy thereof. 6.8 MERGER. If the Borrower shall merge or consolidate with another entity. 6.9 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling portion of its voting stock or a substantial portion of its assets comes under the practical, beneficial or effective control of any person or persons other than those having such control as of the date of execution of the Note, whether by reason of merger, consolidation, sale or purchase of stock or assets or otherwise, if any such change of control, in the sole and absolute discretion of Standard Federal, adversely impacts upon the ability of the Borrower to carry on its business as theretofore conducted. 6.10 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of the Note shall default in the due payment of any material indebtedness to whomsoever owed, or shall default in the observance or performance of any material term, covenant or condition in any mortgage, security agreement, guaranty, 17 18 instrument, lease or agreement to which the Borrower and/or any endorser or guarantor of the Note is a party. 6.11 REPORTABLE EVENT. If there shall occur any "reportable event", as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto, which is determined to constitute grounds for termination by the Pension Benefit Guaranty Corporation of any employee pension benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such plan and such reportable event is not corrected and such determination is not revoked within 30 days after notice thereof has been given to the plan administrator or the Borrower; or the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate any such employee benefit pension plan or to appoint a trustee to administer such plan; or the appointment of a trustee by the appropriate United States District Court to administer any such employee benefit pension plan. SECTION 7. REMEDIES UPON EVENT OF DEFAULT 7.1 Upon the occurrence of any Event of Default described in Sections 6.2, 6.3 or 6.10 hereof which is not cured or waived in writing by Standard Federal within 15 days after written notice to the Borrower of such default; or upon the occurrence of any Event of Default described in Section 6.1 which continues unremedied for 10 days, or upon the occurrence of any Event of Default described in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.11, Standard Federal's commitment to lend hereunder, if any, shall terminate and Standard Federal may, without notice, declare the entire unpaid and outstanding principal balance of the Term Loan and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind, all of which are hereby expressly waived by Borrower, and thereupon Standard Federal shall have and may exercise any one or more of the rights and remedies provided herein or in the Note or in any mortgage, guaranty, security agreement or other document relating hereto or granted secured parties under the Michigan Uniform Commercial Code, including the right to take possession of and dispose of the Collateral, or otherwise provided by applicable law, and to offset against the Term Loan any amount owing by Standard Federal to the Borrower. SECTION 8. MISCELLANEOUS. 8.1 No default shall be waived by Standard Federal except in writing and a waiver of any default shall not be a waiver of any other default or of the same default on a future occasion. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise hereof, shall preclude 18 19 other or further exercise of the rights of the parties to this Agreement. 8.2 No forbearance on the part of Standard Federal in enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder shall constitute a waiver of any of the terms of this Agreement or of any such right. 8.3 This Agreement shall be construed in accordance with the law of the State of Michigan. 8.4 All covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing hereunder and shall be deemed to have been relied upon by Standard Federal. All statements contained in any certificate or other document delivered to Standard Federal at any time by or on behalf of the Borrower pursuant hereto shall constitute representations and warranties by the Borrower. 8.5 The Borrower agrees that it will pay all costs and expenses incurred by Standard Federal in enforcing Standard Federal's rights under this Agreement and the documents contemplated hereby, including without limitation any and all reasonable fees and disbursements of legal counsel to Standard Federal. 8.6 This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of Standard Federal. 8.7 If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any or all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or sections contained in this Agreement, shall not affect the remaining portions of this Agreement, or any part thereof. 19 20 SECTION 9. ADDITIONAL PROVISIONS 9.1 In addition to the terms, covenants and conditions set forth above, the parties hereto hereby agree as follows: 9.1(a) Borrower shall cause Galion Holding Company, a Michigan corporation; McClain E-Z Pack, Inc., a Michigan corporation; Galion Dump Bodies, Inc., a Michigan corporation; and McClain Group Sales of Florida, Inc., a Florida corporation, to execute and deliver to Standard Federal an unlimited payment guaranty of the obligations of Borrower under the Term Loan in form and substance acceptable to Standard Federal. IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this Loan Agreement to be executed as of the day and year first written above. BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation /s/ Robert J. Gordon - ----------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon ------------------------------- Carl L. Jaworski Its: Secretary ----------------------- 38-1867649 Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation /s/ Robert J. Gordon - ---------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon --------------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 58-1738825 ------------------------------------- Taxpayer Identification Number 20 21 SHELBY STEEL PROCESSING COMPANY, a Michigan corporation /s/ Robert J. Gordon - --------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon --------------------------------- Carl L. Jaworski Its: Secretary ------------------------- 38-2205216 ------------------------------------ Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation /s/ Robert J. Gordon - --------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------------ Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation /s/ Robert J. Gordon - --------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon --------------------------------- Carl L. Jaworski Its: Treasurer Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation /s/ Robert J. Gordon - --------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon --------------------------------- Carl L. Jaworski Its: Treasurer 38- ------------------------------------ Taxpayer Identification Number 21 22 MCCLAIN OF ALABAMA, INC., a Michigan corporation /s/ Robert J. Gordon - -------------------------- By: /s/ Carl L. Jaworski Robert J. Gordon ----------------------------- Carl L. Jaworski Its: Treasurer --------------------- 63-1176560 --------------------------------- Taxpayer Identification Number STANDARD FEDERAL BANK, a federal savings bank By: David J. Bartlett ------------------------------- Its: Vice President --------------------------- 22 EX-10.55 11 EXHIBIT 10.55 1 EXHIBIT 10.55 SF106000.MCA Note No. 0250024274 ---------- STANDARD FEDERAL BANK PROMISSORY NOTE (Term Loan) $5,300,000.00 Troy, Michigan Due Date: March 1, 2002 Dated: August 29, 1996 FOR VALUE RECEIVED, the undersigned, jointly and severally (collectively, "Borrower"), promise to pay to the order of Standard Federal Bank, a federal savings bank ("Standard Federal"), at its office set forth below, or at such other place as Standard Federal may designate in writing, the principal sum of Five Million Three Hundred Thousand and 00/100 Dollars ($5,300,000.00), plus interest on all amounts from time to time outstanding hereunder, as hereinafter provided, all in lawful money of the United States of America. The principal outstanding under this Note from time to time shall bear interest ("Effective Interest Rate"), on a basis of a year of 360 days for the actual number of days amounts are outstanding hereunder, at a rate per annum equal to One-Eighth of One percent (0.125%) in excess of the Wall Street Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the Effective Interest Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. If, in such event, Standard Federal selects an index which, in the Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full without penalty or premium. Until such prepayment has been received by Standard Federal, the index selected by Standard Federal shall apply for all purposes of this Note. It is understood and agreed by Borrower that the Effective Interest Rate shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by any particular bank to any particular borrower or borrowers and shall automatically increase or decrease when and to the extent that the Wall Street Journal Prime Rate shall have been increased or decreased. 2 Accrued interest only shall be due and payable on the first day of each month, commencing on October 1, 1996 and continuing on the same day of each consecutive month thereafter, through and including February 1, 1997. Commencing March 1, 1997, and continuing on the same day of each consecutive month thereafter, monthly payments of principal in the amount of $88,333.00 each, plus interest accrued to the due date of each payment, shall be due and payable. In addition to the monthly payments of principal and interest provided for above, the Borrower shall be required to make additional principal payments, which shall be due and payable on February 1, 1998 and February 1, 1999. The additional principal payment due February 1, 1998 shall be in the amount of the lesser of: (a) Six Hundred Thousand and 00/100 Dollars ($600,000.00), or (b) Fifty percent (50.0%) of the Excess Cash Flow, as hereinafter defined, for the Borrower's fiscal year ending September 30, 1997. The additional principal payment due February 1, 1999 shall be in the amount of the lesser of: (a) Six Hundred Thousand and 00/100 Dollars ($600,000.00), or (b) Fifty percent (50.0%) of the Excess Cash Flow, as hereinafter defined, for the Borrower's fiscal year ending September 30, 1998. The term "Excess Cash Flow" shall mean the Borrower's net income, plus depreciation and amortization expense, less fixed payments and unfinanced capital expenditures, all as reflected in the Borrower's annual audited financial statement, which the Borrower is required to furnish to Standard Federal as provided in the Loan Agreement hereinafter described, for the applicable fiscal year. A final payment shall be due and payable on the Due Date in an amount equal to the then unpaid principal and accrued interest. All payments required to be paid hereunder shall first be applied to costs and expenses required to be paid hereunder, then to accrued interest hereunder and the balance shall be applied against the principal. This Note may be prepaid, in full or in part, at any time, without the payment of any prepayment fee or penalty. All partial prepayments shall be applied against the last accruing installment or amount due under this Note; and no prepayments shall affect the obligation of the undersigned to continue the regular installments hereinbefore mentioned, until the entire unpaid principal and accrued interest has been paid in full. Borrower understands that the installment payments of principal provided for herein are not sufficient to fully amortize the outstanding principal balance of this Note by the Due Date and that the final payment due on the Due Date will be a balloon payment of all then outstanding principal and accrued interest. shall be construed or so operate as to require the Borrower to pay, or charge, interest at a greater rate than the maximum allowed by the applicable law relating to this Note. Should any interest, or other charges, charged, paid or payable by the Borrower in connection with this Note, or any other document delivered in connection herewith, result in the charging, -2- 3 compensation, payment or earning of interest in excess of the maximum allowed by applicable law, then any and all such excess shall be and the same is hereby waived by Standard Federal, and any and all such excess paid shall be automatically credited against and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. -3- 4 Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of Standard Federal for collection of the Note and all other liabilities of Borrower to Standard Federal and enforcement of rights hereunder, including reasonable attorney fees and legal expenses including participation in Bankruptcy proceedings. During any period(s) this Note is in default, or after the Due Date, or after acceleration of maturity, the outstanding principal amount hereof shall bear interest at a rate equal to two percent (2.0%) per annum greater than the interest rate otherwise charged hereunder. If any required payment is not made within ten (10) days after the date it is due, then, at the option of Standard Federal, a late charge of not more than four cents ($.04) for each dollar of the payment so overdue may be charged. In addition to any other security interests granted to Standard Federal, Borrower hereby grants Standard Federal a security interest in all of Borrower's bank deposits, instruments, negotiable documents, and chattel paper which at any time are in the possession or control of Standard Federal. After the occurrence of an Event of Default hereunder, Standard Federal may hold and apply at any time its own indebtedness or liability to Borrower in payment of any indebtedness hereunder. Acceptance by Standard Federal of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. Upon any Event of Default, neither the failure of Standard Federal promptly to exercise its right to declare the outstanding principal and accrued unpaid interest hereunder to be immediately due and payable, nor the failure of Standard Federal to demand strict performance of any other obligation of the Borrower or any other person who may be liable hereunder shall constitute a waiver of any such rights, nor a waiver of such rights in connection with any future default on the part of the Borrower or any other person who may be liable hereunder. Borrower and all endorsers and guarantors hereof, hereby jointly and severally waive presentment for payment, demand, notice of non- payment, notice of protest or protest of this Note, diligence in collection or bringing suit, and hereby consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by Standard Federal with respect to payment or any other provisions of this Note, and to the release of any collateral or any part thereof, with or without substitution. The liability of the Borrower shall be absolute and unconditional, without regard to the liability of any other party hereto. This Note is executed pursuant to a Loan Agreement of even date herewith (the "Loan Agreement"), and is secured by a Security Agreement, dated September 15, 1994, and by a Security Agreement, -4- 5 dated July 19, 1995, and by an Assignment of Policy as Collateral Security, dated August 16, 1996, and by a Security Agreement and a Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, of even date herewith. Reference is hereby made to such documents for additional terms relating to the transaction giving rise to this Note, the security given for this Note and additional terms and conditions under which this Note matures, may be accelerated or prepaid. Advances hereunder may be requested by telephone, in writing or in any other manner acceptable to Standard Federal. Borrower understands and agrees that any telephone conversation with Standard Federal may be recorded for accuracy. BORROWER: MCCLAIN INDUSTRIES, INC., a Michigan corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Secretary -------------------- 38-1867649 ------------------------------ Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Secretary -------------------- 58-1738825 ------------------------------ Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Secretary -------------------- 38-2205216 ------------------------------ Taxpayer Identification Number -5- 6 MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Secretary -------------------- ------------------------------ Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Treasurer -------------------- ------------------------------ Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Treasurer -------------------- ------------------------------ Taxpayer Identification Number MCCLAIN OF ALABAMA, INC., a Michigan corporation Robert J. Gordon By: Carl L. Jaworski - -------------------------- --------------------------- Robert J. Gordon Carl L. Jaworski Its: Treasurer -------------------- 63-1176560 ------------------------------ Taxpayer Identification Number Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -6- EX-10.56 12 EXHIBIT 10.56 1 EXHIBIT 10.56 COMMERCIAL MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT THIS MORTGAGE is made this 29th day of August, 1996, by MCCLAIN OF ALABAMA, INC., a Michigan corporation ("Borrower"), whose address is 6200 Elmridge, Sterling Heights, Michigan 48310, to Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. Borrower is justly indebted to Standard Federal in the principal amount of Eight Million Seven Hundred Nine Thousand Four Hundred Seven Dollars ($8,709,407), together with interest thereon in accordance with a Promissory Note (Term Loan) in the principal amount of $5,300,000 from Borrower to Standard Federal of even date herewith, and a Promissory Note (Term Loan) in the original principal amount of $3,578,852.00, dated July 17, 1996, on which the current outstanding principal balance as of the date hereof is $3,409,407,the liability under which (as well as other indebtedness) the Borrower has assumed pursuant to a Loan Modification and Assumption Agreement of even date herewith (the foregoing promissory notes are herein collectively referred to as the "Note"). Notwithstanding anything to the contrary contained herein: (1) the maximum principal amount of indebtedness secured by this Mortgage shall not exceed $2,000,000.00 (the "Maximum Principal Amount"); (2) the Maximum Principal Amount of indebtedness secured by this Mortgage shall be deemed to be the first principal indebtedness to be advanced and the last principal indebtedness to be repaid; (3) the security afforded by this Mortgage for the indebtedness shall not be reduced by any payments or other sums applied to the reduction of indebtedness so long as the total amount of outstanding principal indebtedness exceeds the Maximum Principal Amount, and thereafter shall be reduced only to the extent that any payments and other sums are actually applied by Standard Federal to reduce the outstanding principal indebtedness to an amount less than the Maximum Principal Amount; and (4) the limitation contained in this paragraph shall only pertain to the principal indebtedness secured by this Mortgage, and shall not be construed as limiting the amount of interest, fees, expenses, indemnified amounts, or other indebtedness (except principal indebtedness) secured hereby. THEREFORE, in order to secure payment of the principal and interest of such indebtedness according to the terms of the Note, and all other amounts payable by Borrower thereunder, and any and all extensions and renewals thereof, however evidenced, and the performance of the covenants and conditions hereof, Borrower does hereby grant, bargain, sell, assign and convey to Standard Federal, its successors and assigns forever, certain real property owned by Borrower and situated in the State of Alabama, as more particularly described in Exhibit "A" attached hereto (the "premises"), together 2 with (1) all the estate, title, interest and rights of Borrower in and to the premises and all buildings and improvements of every kind and description now or hereafter placed upon the premises or any part thereof, (2) all heretofore or hereafter vacated alleys and streets abutting the premises, (3) all furniture, fixtures, equipment and appliances, regardless of their character as personal property, including, but not limited to, all lighting, heating, cooling, ventilating, air conditioning, plumbing, sprinkling, communicating and electrical systems, and machinery, appliances, fixtures and equipment pertaining thereto, awnings, stoves, refrigerators, dishwashers, disposals, incinerators, carpeting and drapes, and all other furniture, fixtures, equipment and appliances of every type, nature and description, owned by Borrower and now or at any time hereafter related to, affixed to, attached to, placed upon or used in any way in connection with the use, occupancy or operation of the premises (except leased equipment and trade fixtures which, in either case, are readily removable without damaging or reducing the value or utility of the premises or the improvements thereto), all of which furniture, fixtures, equipment and appliances shall be deemed to be a part of the premises and covered by the lien hereof, and (4) all of the rents, profits, and leases thereof and the tenements, hereditaments, easements, privileges and appurtenances thereto. (Any reference herein to the "Project" shall be deemed to apply to the above described premises and to such buildings, fixtures, furniture, equipment and appliances, and to the rents, profits and leases thereof, and to such tenements, hereditaments, easements, privileges and appurtenances, unless the context shall require otherwise.) To have and to hold the Project, with all of the tenements, hereditaments, easements, appurtenances and other rights and privileges thereunto belonging or in any manner now or hereafter appertaining thereto, for the use and benefit of and unto Standard Federal its successors and assigns upon the conditions hereinafter set forth. Borrower does hereby covenant, promise and agree to and with Standard Federal, which covenants, promises and agreements shall, to the extent permitted by law, be deemed to run with the land, as follows: 1. Covenant to Pay Indebtedness. Borrower shall pay the principal and interest of Borrower's indebtedness to Standard Federal according to the terms of the Note and shall pay the indebtedness to Standard Federal according to the terms of any future advances secured by this Mortgage and shall pay all other amounts provided herein. 2. Covenant of Title. At the time of the execution and delivery of this Mortgage, Borrower is well and truly seized of the Project in fee simple, free of all easements, liens and encumbrances whatever (other than those easements of record as of -2- 3 the date hereof and the rights of the public in any part of the Project used or taken for road purposes), and will forever warrant and defend the title to the Project unto Standard Federal, it successors and assigns, against any and all other claims whatever, and the lien created hereby is and will be kept as a first lien upon the Project and every part thereof, subject only to the foregoing exceptions. 3. Taxes and Assessments. Until the debt secured hereby is fully satisfied, Borrower will pay all taxes, assessments and all other charges and encumbrances levied on the Project before any penalty for nonpayment attaches thereto, and will deliver to Standard Federal, upon request, official receipts showing such payment. Borrower also shall pay when due all taxes, assessments and other charges and encumbrances that may be levied upon or on account of this Mortgage or the indebtedness secured hereby or upon the interest or estate in the Project created or represented by this Mortgage, whether levied against Standard Federal or otherwise. In the event payment by Borrower of any tax referred to in the foregoing sentence would result in the payment of interest in excess of the rate permitted by law, then Borrower shall have no obligation to pay the portion of such tax which would result in the payment of such excess; provided, however, in such event, at any time after the enactment of a law providing for such tax, Standard Federal, at its option, may declare the entire principal balance of the indebtedness secured hereby, together with all interest thereon, to be due and payable immediately, without notice. 4. Insurance. Until the debt secured hereby is fully satisfied, Borrower will keep the Project continuously insured against loss by fire, windstorm and other hazards, casualties and contingencies, including vandalism and malicious mischief, in such amounts and for such periods as may be required by Standard Federal. Borrower shall pay promptly when due all premiums for such insurance and deliver to Standard Federal, without request, receipts showing such payment. All insurance shall be carried in companies approved by Standard Federal and the policies and renewals thereof shall be held by, and pledged to, Standard Federal (unless Standard Federal shall direct or permit otherwise) as additional security hereunder, and shall have attached thereto a mortgagee clause acceptable to Standard Federal, making all loss or losses under such policies payable to Standard Federal, its successors and assigns, as its or their interest may appear. In the event of loss or damage to the Project, Borrower shall give immediate notice in writing by mail to Standard Federal, who may make proof of loss if not made promptly by Borrower. In the event the amount of the loss is $ 200,000.00 or less, the insurance proceeds shall be released to the Borrower, upon request by the Borrower. Borrower shall be obligated to use such proceeds to restore or repair the Project unless Standard Federal otherwise specifies in writing. -3- 4 In the event the amount of the loss is greater than $ 200,000.00, each insurance company concerned is hereby authorized and directed upon request by Standard Federal, to make payment for such loss, to the extent of the indebtedness hereby secured, directly to Standard Federal instead of to Borrower and Standard Federal jointly. Provided there has occurred no Event of Default hereunder nor any event which with notice or the passage of time or both would become an Event of Default hereunder and further provided that Standard Federal shall reasonably determine that sufficient funds are available from insurance proceeds and any funds to be provided by Borrower to repair or restore the Project within a reasonable time and that such repair or restoration is economically feasible, Standard Federal agrees, upon request by the Borrower, to apply the insurance proceeds to repair or restore the Project, after reimbursement of all costs and expenses of Standard Federal in collecting such proceeds, subject to the following terms and conditions: (a) Standard Federal shall retain all insurance proceeds in an escrow account bearing interest at pass book rates to be disbursed to pay the costs of repair or restoration in accordance with procedures reasonably established by Standard Federal. (b) All plans and specifications for repair or restoration shall be approved by Standard Federal prior to the commencement of any repair or restoration, which approval shall not be unreasonably withheld or delayed. (c) All repair or restoration shall be done by or under the direction of Borrower, shall be in accordance with the approved plans and specifications, shall be in a workmanlike manner free from all defects, shall be in compliance with all statutes, ordinances, rules and regulations applicable thereto and shall be completed free of all construction liens except those being contested in good faith by appropriate proceedings and with respect to which Borrower shall have provided Standard Federal satisfactory security. (d) Standard Federal shall have the right, at Borrower's expense, to inspect all repairs and restoration and, if Standard Federal reasonably determines that any work or materials are not in conformity with the approved plans and specifications or other requirements of sub-paragraph (c) above, to stop the work and order replacement or correction thereof by Borrower. (e) Standard Federal shall not be obligated to make disbursements more frequently than monthly and the remaining undisbursed proceeds shall always be sufficient to meet the total estimated remaining costs to complete the repair or restoration plus 10% of such costs. -4- 5 (f) All insurance proceeds in excess of the amounts necessary to repair or restore the Project may be applied, at Standard Federal's option, to the outstanding principal balance under the Note (without penalty for prepayment), to fulfill any other covenant herein or any other obligation of Borrower to Standard Federal, or released to Borrower. In the event all of the conditions to the use of the insurance proceeds to repair or restore the Project which are outlined above are not satisfied, Standard Federal, at its option, may apply the insurance proceeds or any part thereof, first, toward reimbursement of all costs and expenses of Standard Federal in collecting such proceeds, and then, to the outstanding principal balance under the Note (without any penalty for prepayment), to fulfill any other covenant herein or any other obligation of Borrower to Standard Federal, or to the restoration or repair of the Project. Application by Standard Federal of any insurance proceeds to the outstanding principal balance under the Note shall not excuse Borrower from making the regularly scheduled payments due thereunder, nor shall such application extend or reduce the amount of such payments. In the event of foreclosure of this Mortgage or other transfer of title to the Project in extinguishment of the indebtedness secured hereby, all right, title and interest of Borrower in and to any insurance policies then in force shall pass to the purchaser or grantee and Borrower hereby appoints Standard Federal its attorney-in-fact, in Borrower's name, to assign and transfer all such policies and proceeds to such purchaser or grantee. 5. Standard Federal's Right to Make Expenditures. Should an Event of Default occur hereunder as a result of Borrower's failure to pay any taxes or assessments or procure and maintain insurance or make necessary repairs to the Project, Standard Federal may pay such taxes and assessments, effect such insurance and make such repairs, and the monies so paid by it shall be a further lien on the Project, payable forthwith, with interest at the default rate set forth in the Note. Standard Federal may make advances pursuant to this paragraph or to paragraph 7 without curing the Event of Default and without waiving Standard Federal's right of foreclosure or any other right or remedy of Standard Federal under this Mortgage. The exercise of the right to make advances pursuant to this paragraph shall be optional with Standard Federal and not obligatory and Standard Federal shall not be liable in any case for failure to exercise such right or for failure to continue exercising such right once having exercised it. Borrower's failure to pay taxes and/or assessments assessed against the Project, or any installment thereof, or any insurance premium upon policies covering the Project or any part thereof, shall constitute waste (although the meaning of the term "waste" shall not necessarily be limited to such nonpayment), and shall entitle Standard Federal to all remedies provided for therein. Borrower further agrees to and -5- 6 does hereby consent to the appointment of a receiver under such statute, should Standard Federal elect to seek such relief thereunder. 6. Escrow for Taxes and Insurance. Standard Federal, after the occurrence of an Event of Default, shall be entitled to require Borrower to pay to Standard Federal monthly such amounts as Standard Federal from time to time estimates as necessary to create and maintain a reserve fund from which to pay before the same become due all taxes, assessments and other charges and encumbrances levied on the Project and premiums for insurance as are herein covenanted to be paid by Borrower and when such taxes, assessments and other charges and encumbrances and insurance premiums become due and payable, Standard Federal shall pay the same to the extent funds are available from the reserve fund; provided, however, that Standard Federal shall have no liability for any failure to so pay taxes, assessments and other charges and encumbrances or insurance premiums for any reason whatsoever. In the event that sufficient funds have not been deposited as aforesaid to cover the amount of such taxes, assessments and other charges and encumbrances and insurance premiums when the same become due and payable, Borrower shall forthwith upon request by Standard Federal pay such balance to Standard Federal. Standard Federal shall not be required to pay Borrower any interest or earnings whatever on the funds held by Standard Federal for the payment of such taxes, assessments and other charges and encumbrances or for the payment of insurance premiums, or on any other funds deposited with Standard Federal in connection with this Mortgage. Upon the occurrence of an Event of Default under this Mortgage, any of such monies then remaining on deposit with Standard Federal may be applied against the indebtedness hereby secured immediately upon or at any time after the occurrence of an Event of Default, and without notice to Borrower. Further, Standard Federal may make payments from any of such monies on deposit with Standard Federal for taxes, assessments, other charges or encumbrances or insurance premiums on or with respect to the Project notwithstanding that subsequent owners of the Project may benefit thereby. 7. Waste and Inspection and Repair. Borrower will abstain from and will not suffer the commission of waste on the Project and will keep the buildings, improvements, fixtures, equipment and appliances now or hereafter thereon in good repair and will make replacements thereto as and when the same become necessary. Borrower will comply promptly with all laws, ordinances, regulations and orders of all public authorities having jurisdiction over the Project relating to the use, occupancy and maintenance thereof, and shall upon request promptly submit to Standard Federal evidence of such compliance. Nothing herein shall be deemed to prohibit Borrower from contesting the enforceability or applicability of any law, ordinance, regulation or order; provided, however, that Standard Federal, in its sole discretion, may require -6- 7 that Borrower comply with any such law, ordinance, regulation or order during the pendency of any such contest and all appeals therefrom. In the event the Project or any part thereof, in the sole reasonable judgment of Standard Federal, requires inspection, repair, care or attention of any kind or nature not theretofore provided by Borrower within 30 days after notice thereof from Standard Federal to Borrower, or within such longer time as may be necessary if the repair, care or attention is of a kind which cannot be completed in 30 days, provided that Borrower undertakes the repair, care or attention within 30 days after notice thereof from Standard Federal and thereafter diligently pursues the completion of same within a reasonable time, Standard Federal may (without being obligated to do so) enter or cause entry to be made upon the Project and inspect, repair, and/or maintain the same as Standard Federal may deem necessary or advisable, and may (without being obligated to do so) make such expenditures and outlays of money as Standard Federal may deem appropriate for the preservation of the Project. All expenditures and outlays of money made by Standard Federal pursuant hereto shall be secured hereby, shall be payable forthwith, and shall bear interest at the default rate provided in the Note. Standard Federal shall have the right at any time, and from time to time, to enter the Project for the purpose of inspecting the same. Borrower will not permit the Project or any portion thereof to be used for any unlawful purpose. No building or other improvement on any part of the Project shall be removed, demolished or materially altered without the prior written consent of Standard Federal, except that Borrower shall have the right, without such consent, to remove and dispose of, free from the lien of this Mortgage, such personalty and equipment as from time to time may become worn out or obsolete, provided that (a) simultaneously with or prior to such removal, any such equipment shall be replaced with other new equipment of like kind and quality, free from any security interest, lien or encumbrances, and by such removal and replacement, Borrower shall be deemed to have subjected the replacement equipment to the lien of this Mortgage; and (b) any net cash proceeds received from such disposition shall be promptly paid over to Standard Federal to be applied to the outstanding principal balance under the Note, without any charge for prepayment. 8. Events of Default. The occurrences listed below shall be deemed Events of Default hereunder and shall entitle Standard Federal, at its option and without notice except where required by law and as otherwise provided herein, to exercise any one or any combination of remedies described in paragraph 9 or otherwise available to Standard Federal: (a) If any indebtedness of the Borrower to Standard Federal is not paid within 10 days after the date due, regardless of whether such indebtedness has arisen pursuant to the terms of the Note, or any loan agreement, promissory note, -7- 8 mortgage, security agreement, guaranty, instrument or other agreement or otherwise. (b) If any warranty or representation made by or for the Borrower and/or any endorser or guarantor of the Note ("Guarantor") in connection with the loan(s) evidenced thereby, or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower and/or any Guarantor shall prove to be false, inaccurate or misleading in any material respect, and such default is not cured within 15 days after written notice to the Borrower of such default. (c) If the Borrower and/or any Guarantor shall fail to perform any obligation or covenant hereunder, or shall fail to comply with any of the provisions of the Note or of any loan agreement or other agreement with Standard Federal to which it may be a party, and such failure is not cured within 15 days after written notice to the Borrower of such failure. (d) If any other Event of Default shall occur under the Note. (e) If foreclosure or other proceedings to enforce any second mortgage or any junior security interest, lien or encumbrance of any kind upon the Project or any portion thereof are instituted and are not dismissed, or insured against or bonded over in a manner reasonably acceptable to Standard Federal within ninety (90) days. (f) If Borrower fails to substantially comply with all of the material terms, covenants and provisions of any and all leases or other agreements, documents or restrictions that now encumber, affect or pertain to the Project or any portion thereof. 9. Remedies. Immediately upon the occurrence of an Event of Default defined in paragraph 8, Standard Federal shall have the option, in addition to and not in lieu of or substitution for, all other rights and remedies provided by law, to do any or all of the following: (a) Without notice except as expressly required by law, to declare the principal sum secured by this Mortgage, with all interest thereon and all other sums secured hereby, to be immediately due and payable, and if the same is not paid on demand, at Standard Federal's option, to bring suit therefor; to demand payment of and if the same is not paid on demand, to bring suit for any delinquent installment payment under the Note or otherwise; to take any and all steps and institute any and all other proceedings that Standard Federal deems -8- 9 necessary to enforce the indebtedness and obligations secured hereby and to protect the lien of this Mortgage. (b) Upon the occurrence of any Event of Default arising out of the existence of any lien upon the Project, Standard Federal shall have the right (without being obligated to do so or to continue to do so), without notice to Borrower, to advance on and for the account of Borrower such sums as Standard Federal in its sole discretion deems necessary to cure such Event of Default or to induce the holder of any such lien to forbear from exercising its rights thereunder. The repayment of all such advances, with interest thereon at the default rate set forth in the Note from the date of each such advance, shall be secured hereby and shall be immediately due and payable without demand. (c) Judicial Proceedings: Right to Receiver. If an Event of Default exists, Standard Federal, in lieu of or in addition to exercising the power of sale hereinafter given, may proceed by suit to foreclose its Lien on the Project, to sue the Borrower for damages on account of said default, for specific performance of any provision contained herein, or to enforce any other appropriate legal or equitable right or remedy. Standard Federal shall be entitled, as a matter of right (upon bill filed or other proper legal proceedings being commenced for the foreclosure of this Mortgage, to the extent required by law), to the appointment by any competent court or tribunal, without notice to the Borrower or any other party, of a receiver of the rents, issues, profits and revenues of the Project, with power to lease and control the Project and with such other powers as may be deemed necessary. (d) Power of Sale. If an Event of Default exists, this Mortgage shall be subject to foreclosure and may be foreclosed as now provided by law in case of past-due mortgages, and Standard Federal shall be authorized, at its option, whether or not possession of the Project is taken, to sell the Project (or such part or parts thereof as Standard Federal may from time to time elect to sell) under the power of sale which is hereby given to Standard Federal, at public outcry, to the highest bidder for cash, at the front or main door of the courthouse of the county in which the premises to be sold, or a substantial and material part thereof, is located, after first giving notice by publication once a week for three successive weeks of the time, place and terms of such sale, together with a description of the Project to be sold, by publication in some newspaper published in the county or counties in which the premises to be sold is located. If there is premises to be sold in more than one county, publication shall be made in all counties where the premises to be sold is located, but if no newspaper is published in any such county, the notice shall be published in a newspaper -9- 10 published in an adjoining county for three successive weeks. The sale shall be held between the hours of 11:00 a.m. and 4:00 p.m. on the day designated for the exercise of the power of sale hereunder. Standard Federal may bid at any sale held under this Montage and may purchase the Project, or any part thereof, if the highest bidder therefor. The purchaser at any such sale shall be under no obligation to see to the proper application of the purchase money. At any sale all or any part of the Project, real, personal or mixed, may be offered for sale in parcels or en masse for one total price, and the proceeds of any such sale en masse shall be accounted for in one account without distinction between the items included therein and without assigning to them any proportion of such proceeds, the Borrower hereby waiving the application of any doctrine of marshalling or like proceeding. In case Standard Federal, in the exercise of the power of sale herein given, elects to sell the Project in parts or parcels, sales thereof may be held from time to time, and the power of sale granted herein shall not be fully exercised until all of the Project not previously sold shall have been sold or all the obligations secured by this Mortgage shall have been paid in full and this Mortgage shall have been terminated as provided herein. (e) Personal Property and Fixtures. If an Event or Default exists, Standard Federal shall have with respect to the personal property at the Project all rights and remedies of a secured party under the Alabama Uniform Commercial Code, including the right to sell it at public or private sale or otherwise dispose of, lease or use it, without regard to preservation of the personal property or its value and without thenecessity of a court order. At Standard Federal's request, theBorrower shall assemble the personal property and make it available to Standard Federal at any place designated by Standard Federal. To the extent permitted by law, the Borrower expressly waives notice and any other formalities prescribed by law with respect to any sale or other disposition of the personal property or exercise of any other right or remedy upon default. The borrower agrees that Standard Federal may sell or dispose of both the premises and the personal property in accordance with the rights and remedies granted under this Mortgage with respect to premises. (f) Rents and Leases. If an Event of Default exists, Standard Federal, at its option, shall have the right, power and authority to terminate the license granted to the Borrower in this Montage to collect the rents, profits, issues and revenues of the Project, whether paid or accruing before or after the filing of any petition by or against the Borrower under the federal Bankruptcy Code, and, without taking possession, in Standard Federal's own name to demand, collect, receive, sue for, attach and levy all of such rents, profits, -10- 11 issues and revenues, to give proper receipts, releases and acquittances therefor, and to apply the proceeds thereof as set forth in sub-paragraph (h) hereof. (g) Foreclosure Deeds. To the extent permitted by applicable law, the Borrower hereby authorizes and empowers Standard Federal or the auctioneer at any foreclosure sale had hereunder, for and in the name of the Borrower, to execute and deliver to the purchaser or purchasers of any of the Project sold at foreclosure good and sufficient deeds of conveyance or bills of sale thereto. (h) Order of Application of Proceeds. All payments received by Standard Federal as proceeds of any of the Project, as well as any and all amounts realized by Standard Federal in connection with the enforcement of any right or remedy under this Montage, shall be applied by Standard Federal as follows: a. to the payment of all expenses incident to the exercise of any remedies under this Mortgage, including attorneys' fees and disbursements as provided in the Note, appraisal fees, environmental site assessment fees, title search fees and foreclosure notice costs, b. to the payment in full of any of the obligations that are then due and payable (including principal, accrued interest and all other sums accrued hereby) in such order as Standard Federal may elect in its sole discretion, c. to a cash collateral reserve fund to be held by Standard Federal in an amount equal to, and as security for, any of the obligations that are not then due and payable, and d. the remainder, if any, shall be paid to the Borrower or such other persons as may be entitled thereto by law, after deducting therefrom the cost of ascertaining their identity. (i) Multiple Sales. If an Event of Default exists, Standard Federal shall have the option to proceed with foreclosure, either through the courts or by power of sale as provided for in this Mortgage, but without declaring the whole obligations secured hereby due. Any such sale may be made subject to the unmatured part of such obligations, and such sale, if so made, shall not affect the unmatured part of the obligations, but as to such unmatured part of the obligations this Mortgage shall remain in full force and effect as though no sale had been made under this subparagraph. Several sales may be made hereunder without exhausting the right of sale for any remaining part of the obligations secured hereby, whether then matured or unmatured, the purpose hereof being to provide for a foreclosure and sale of the Project for any matured part of the obligations without exhausting the power of foreclosure and the power to sell the Project for any other part of the obligations, whether matured at the time or subsequently maturing. -11- 12 (j) Waiver of Certain Laws. The Borrower waives, to the fullest extent permitted by law, the benefit of all laws now existing or hereafter enacted providing for any appraisement before sale of any portion of the Project (commonly known as appraisement laws), or any extension of time for the enforcement of the collection of the obligations or any creation or extension of a period of redemption from any sale made in collecting the obligations (commonly known as stay laws and redemption laws). The Borrower also waives any and all rights the Borrower may have to a hearing before any governmental authority prior to the exercise by Standard Federal of any of its rights or remedies under the Note and applicable law. (k) Prerequisites of Sales. In case of any sale of the Project as authorized by this paragraph, all prerequisites to the sale shall be presumed to have been performed, and in any conveyance given hereunder all statements of facts, or other recitals therein made, as to the nonpayment of any of the obligations or as to the advertisement of sale, or the time, place and manner of sale, or as to any other fact or thing, shall be taken in all courts of law or equity as rebuttable presumptive evidence that the facts so stated or recited are true. (l) Foreclosure Reports. Procure mortgage foreclosure or title reports. Borrower covenants to pay forthwith to Standard Federal all sums paid for such purposes with interest at the default rate provided for in the Note, and such sums and the interest thereon shall constitute a further lien upon the Project. (m) Appraisals, etc. Procure appraisals, environmental audits and such other investigations or analyses of the Project as Standard Federal may determine to be required by regulatory or accounting rules, procedures or practices or to otherwise be prudent or necessary. Borrower shall grant Standard Federal free and unrestricted access to the Project for such purposes. Borrower covenants to pay forthwith to Standard Federal all sums paid for such purposes with interest at the default rate provided for in the Note, and such sums and the interest thereon shall constitute a further lien upon the Project. (n) Possession. To enter into peaceful possession of the Project and/or to receive the rent, income and profits therefrom, and to apply the same in accordance with paragraph 17 hereof. In the event of any sale of the Project by foreclosure, through suit in equity, by publication or otherwise, the proceeds of any such sale shall be applied in the following order of -12- 13 priority: (1) to all expenses incurred for the collection of Borrower's indebtedness and the foreclosure of the Mortgage, including reasonable attorneys' fees as are permitted by law; (2) to all sums expended or incurred by Standard Federal directly or indirectly in carrying out the covenants and agreements of Borrower under this Mortgage, together with interest thereon; (3) to all interest accrued under the Note; (4) to the principal balance of the Note and the principal balance of any other indebtedness due from Borrower to Standard Federal; and (5) the surplus, if any, shall be paid to Borrower, unless a court of competent jurisdiction decrees otherwise. 10. Costs of Legal Proceedings. The Borrower shall pay Standard Federal a reasonable attorney's fee in addition to all other legal costs in case Standard Federal shall become a party, either as plaintiff or defendant, to any legal proceedings in relation to the Project or the lien created hereby, which sums shall be secured hereby and shall be payable forthwith at the default rate set forth in the Note. 11. Eminent Domain. In the event the entire Project is taken under the power of eminent domain, the entire award or payment in lieu of condemnation, to the full extent of the amount secured hereby, shall be paid to Standard Federal. Standard Federal shall apply such award or payment, first, toward reimbursement of all of Standard Federal's costs and expenses incurred in connection with collecting such award or payment, and then, at Standard Federal's option, to the outstanding principal balance under the Note (without any penalty for prepayment), to fulfill any other covenant herein or to any other obligation of Borrower to Standard Federal. In the event of a partial taking of the Project under the power of eminent domain, the entire award or payment in lieu of condemnation, to the full extent of the amount secured hereby, shall be paid over to Standard Federal. Provided there has occurred no Event of Default hereunder, nor any event which with notice or the passage of time or both would become an Event of Default hereunder, and Standard Federal shall reasonably determine that sufficient funds are available from the award or payment and any funds to be provided by Borrower to repair or restore the remaining portion of the Project within a reasonable time and that such repair or restoration is economically feasible, Standard Federal agrees, upon request by the Borrower, to apply the award or payment to repair or restore the remaining portion of the Project, after reimbursement of all costs and expenses of Standard Federal in collecting the award or payment, subject to the following terms and conditions: (a) Standard Federal shall retain the award or payment in an escrow account bearing interest at pass book rates to be disbursed to pay the costs of repair or restoration in -13- 14 accordance with procedures reasonably established by Standard Federal. (b) All plans and specifications for repair or restoration shall be approved by Standard Federal prior to the commencement of any repair or restoration, which approval shall not be unreasonably withheld or delayed. (c) All repair or restoration shall be done by or under the direction of Borrower, shall be in accordance with the approved plans and specifications, shall be in a workmanlike manner free from all defects, shall be in compliance with all statutes, ordinances, rules and regulations applicable thereto and shall be completed free of all construction liens except those being contested in good faith by appropriate proceedings and with respect to which Borrower shall have provided Standard Federal satisfactory security. (d) Standard Federal shall have the right, at Borrower's expense, to inspect all repairs and restoration and, if Standard Federal reasonably determines that any work or materials are not in conformity with the approved plans and specifications or other requirements of sub-paragraph (c) above, to stop the work and order replacement or correction thereof by Borrower. (e) Standard Federal shall not be obligated to make disbursements more frequently than monthly and the remaining undisbursed proceeds shall always be sufficient to meet the total estimated remaining costs to complete the repair or restoration plus 10% of such costs. (f) All proceeds of the award or payment in excess of the amounts necessary to repair or restore the Project may be applied, at Standard Federal's option, to the outstanding principal balance under the Note (without penalty for prepayment), to fulfill any other covenant herein or any other obligation of Borrower to Standard Federal, or released to Borrower. In the event all of the conditions to the use of the award or payment to repair or restore the Project which are outlined above are not satisfied, Standard Federal, at its option, may apply the award or payment or any part thereof, first, toward reimbursement of all costs and expenses of Standard Federal in collecting such award or payment, and then, to the outstanding principal balance under the Note (without any penalty for prepayment), to fulfill any other covenant herein or any other obligation of Borrower to Standard Federal, or to the restoration or repair of the Project. Application by Standard Federal of any condemnation award or payment or portion thereof to the outstanding principal balance -14- 15 under the Note shall not excuse Borrower from making the regularly scheduled payments due thereunder, nor shall such application extend or reduce the amount of such payments. Standard Federal is hereby empowered in the name of Borrower to receive, and give acquittance for, any such award or payment, whether it is joint or several; provided, however, that Standard Federal shall not be held responsible for failure to collect any such award or payment, regardless of the cause of such failure. 12. Books and Records. The Borrower covenants and agrees to furnish to Standard Federal promptly certificates of occupancy and such other books, records, documents, information and statements pertaining to the Borrower, the Project and its operations and any guarantor(s) as Standard Federal may request. All books, records and other information provided by Borrower hereunder shall be in a form that is acceptable to Standard Federal and all costs of providing the same shall be borne entirely by Borrower. 13. Secondary Financing. Borrower will not, without the prior written consent of Standard Federal, mortgage or pledge the Project or any part thereof as security for any other loan or obligation of Borrower. If any such mortgage or pledge is entered into without the prior written consent of Standard Federal, the entire indebtedness secured hereby, may, at the option of Standard Federal, be declared immediately due and payable without notice. Further, Borrower also shall pay any and all other obligations, liabilities or debts which may become liens, security interests, or encumbrances upon or charges against the Project for any repairs or improvements that are now or may hereafter be made thereon, and shall not, without Standard Federal's prior written consent, permit any lien, security interest, encumbrance or charge of any kind to accrue and remain outstanding against the Project or any part thereof, or any improvements thereon, irrespective of whether such lien, security interest, encumbrance or charge is junior to the lien of this Mortgage. Notwithstanding the foregoing, if any personal property by way of additions, replacements or substitutions is hereafter purchased and installed, affixed or placed by Borrower on the Project under a security agreement, the lien or title of which is superior to the lien created by this Mortgage, all the right, title and interest of Borrower in and to any and all such personal property, together with the benefit of any deposits or payments made thereon by Borrower, shall nevertheless be and are hereby assigned to Standard Federal and are covered by the lien of this Mortgage. 14. Payment Upon Acceleration Subject to Any Prepayment Penalty. Upon the occurrence of an Event of Default by Borrower hereunder and following the acceleration of maturity as provided in paragraph 9 hereof, a tender of payment of the amount necessary to satisfy the entire indebtedness secured hereby, made at any time prior to the foreclosure sale by Borrower, or by anyone in behalf of the Borrower, shall constitute an evasion of the payment terms -15- 16 of the Note and shall be deemed to be a voluntary prepayment thereunder, and any such payment, to the extent permitted by law, will therefore include the premium required under the prepayment privilege, if any, contained in the Note. 15. Security Agreement and Financing Statements. Borrower shall execute, acknowledge and deliver any and all such further conveyances, documents, mortgages and assurances as Standard Federal may reasonably require for accomplishing the purposes hereof, including financing statements required by Standard Federal to protect its interest under the provisions of the Uniform Commercial Code, as amended, forthwith upon the written request of Standard Federal. Upon any failure of Borrower to do so, Standard Federal may execute, record, file, re- record and refile any and all such documents for and in the name of Borrower, and Borrower hereby irrevocably appoints Standard Federal as agent and attorney-in-fact of Borrower for the foregoing purposes. This instrument is intended by the parties to be, and shall be construed as, a security agreement, as that term is defined and used in Article Nine of the Uniform Commercial Code, as amended, and shall grant to Standard Federal a security interest in that portion of the Project with respect to which a security interest can be granted under Article Nine of the Uniform Commercial Code, as amended, which security interest shall include a security interest in all personalty owned by Borrower, whether now owned or subsequently acquired, which is or in the future may be physically located on or affixed to the Project described in Exhibit "A" hereto, regardless of whether such personalty consists of fixtures under applicable law, a security interest in the proceeds and products of the proceeds of all insurance policies now or hereafter covering all or any part of such collateral. For purposes of Article Nine of the Uniform Commercial Code, (a) Borrower herein is the "debtor", (b) Standard Federal herein is the "secured party", (c) information concerning the security interest created hereby may be obtained from Standard Federal at its address set forth on page 1 hereof, and (d) Borrower's mailing address is that set forth on page 1 hereof. This Mortgage shall also be effective as a financing statement filed as a fixture filing for purposes of Article 9 of the Uniform Commercial Code. The fixture filing covers all goods that are or are to become affixed to the premises. The goods are described by item or type on pages 1 and 2 of this Mortgage. This Mortgage is signed by the debtor (Borrower) also as a fixture filing. The real estate to which the goods are or to be affixed is described in Exhibit A. The Borrower is a record owner of the real estate. 16. Assignment of Contracts and Agreements. Borrower hereby assigns to Standard Federal, as further security for the indebtedness secured hereby, Borrower's interest in all agreements, contracts (including contracts for the lease or sale of the Project or any portion thereof), licenses and permits affecting the -16- 17 Project. Such assignment shall not be construed as a consent by Standard Federal to any agreement, contract, license, or permit so assigned, or to impose upon Standard Federal any obligations with respect thereto. Borrower shall not cancel or amend any of the agreements, contracts, licenses and permits hereby assigned (nor permit any of the same to terminate if they are necessary or desirable for the operation of the Project), except in the ordinary course of business, without first obtaining, on each occasion, the written approval of Standard Federal. This paragraph shall not be applicable to any agreement, contract, license or permit that terminates if it is assigned without the consent of any party thereto (other than Borrower) or issuer thereof, unless such consent has been obtained or this assignment is ratified by such party or issuer; nor shall this paragraph be construed as a present assignment of any agreement, contract, license or permit that Borrower is required by law to hold in order to operate the Project for the purposes intended. 17. Absolute Assignment of Leases and Rents. In further consideration of Standard Federal making the loans evidenced by the Note and as additional security for the payment of the indebtedness evidenced by the Note, including interest thereon, and the performance of all of Borrower's obligations hereunder or secured hereby, and under any other document executed simultaneously or in connection herewith, Borrower does hereby grant, bargain, sell, assign, transfer and set over unto Standard Federal all the rents, profits and income under all leases or occupancy agreements or arrangements, however evidenced or denominated, upon or affecting the Project (including any extensions, amendments or renewals thereof), whether such rents, profits and income are due or are to become due, including all such leases in existence or coming into existence during the period this Mortgage is in effect. This assignment shall run with the land until this Mortgage is discharged in full and be good and valid as against Borrower and those claiming by, under or through Borrower, from the date of recording of this Mortgage. This assignment shall continue to be operative during the foreclosure or any other proceedings taken to enforce this Mortgage. In the event of a foreclosure sale which results in a deficiency, this assignment shall stand as security during the redemption period for the payment of such deficiency. This assignment is an absolute assignment of the rents, profits and income, as described beforesaid, but shall not be construed as obligating Standard Federal to perform any of the covenants or undertakings required to be performed by Borrower in any leases. Borrower covenants and agrees not to cancel, accept a surrender of, modify or alter (orally or in writing), reduce the rental under or consent to the assignment or subletting of the lessee's interest in, any lease affecting the Project, except in the ordinary course of business and on commercially reasonable terms, or to make any other assignment, pledge or other disposition of such leases, or any of them, or of the rents, issues and profits -17- 18 derived from the use of the mortgaged premises. Any of the above acts, if done without the written consent of Standard Federal, shall be null and void. Borrower warrants and represents that all leases or copies of leases which have been delivered to Standard Federal are in full force and effect and there are no defaults existing thereunder, and that Borrower has not: (a) executed any prior assignments presently subsisting of any leases or rentals pertaining to the Project, (b) performed any acts or executed any other instruments which might prevent or limit Standard Federal's operating under any of the terms and conditions of this Mortgage, (c) executed or granted any modification whatever of any lease pertaining to the Project which has not been disclosed to Standard Federal, or (d) subordinated any lease to the lien of this Mortgage, except on terms acceptable to Standard Federal. Until the occurrence of an Event of Default hereunder, Borrower may receive, collect and enjoy the rents and income from the Project. Upon the occurrence of an Event of Default under this Mortgage, Standard Federal shall be entitled to, at its option, to enter upon the Project, or any part thereof, by its officers, agents, or employees, and: (a) collect the rents and income from the Project as long as an Event of Default exists and during the pendency of any foreclosure proceedings and, if there is a deficiency, during any redemption period, (b) rent or lease the Project or any portion thereof upon such terms and for such time as it may deem best, (c) operate or maintain the Project, (d) maintain proceedings to recover rents or possession of the Project from any tenant or trespasser, and apply the net proceeds of such rent and income, after payment of all proper charges and expenses, to the following purposes: (1) payment of all of the costs and expenses incurred by Standard Federal in exercising its rights under this paragraph; (2) payment of interest and principal due under the Note; (3) payment of all other sums secured hereby; (4) payment of expenses of preserving the Project, including taxes and insurance premiums. Notwithstanding the foregoing, Standard Federal, in its sole discretion, may change the priorities set forth above for the application of the net proceeds of such rent and income. The Borrower hereby authorizes Standard Federal in general to perform all acts necessary for the operation and maintenance of the Project in the same manner and to the same extent that the Borrower might reasonably so act. Standard Federal shall only be accountable for money actually received by it pursuant to the assignment contained in this paragraph. Such entry and taking possession of the Project, or any part thereof, by Standard Federal, may be made by actual entry and possession, or by written notice served personally upon or sent by certified mail to the last address of the Borrower appearing on the records of Standard Federal, as Standard Federal may elect, and no further authorization or notice shall be required. BORROWER HEREBY WAIVES ANY RIGHT TO NOTICE, OTHER THAN THE NOTICE PROVIDED ABOVE AND WAIVES ANY RIGHT TO ANY HEARING -18- 19 JUDICIAL OR OTHERWISE PRIOR TO STANDARD FEDERAL EXERCISING ITS RIGHTS UNDER THE ASSIGNMENT CONTAINED IN THIS PARAGRAPH. Standard Federal and its duly authorized agents shall be entitled to enter the Project for the purpose of delivering any and all such notices and other communications to the tenants and occupiers thereof or to take such other steps as shall be necessary or desirable in Standard Federal's discretion to exercise its rights hereunder, and Standard Federal and its agents shall have absolutely no liability to Borrower arising therefrom, except for gross negligence or willful misconduct. Standard Federal shall not, however, be obligated to give any tenant or occupier of the Project any notice by personal delivery and Standard Federal may, in its sole discretion, deliver all such notices and communications by ordinary first-class U.S. mail, postage prepaid, or otherwise. The Borrower irrevocably consents that any lessee or lessees under any leases covering the Project, upon demand and notice from Standard Federal of Borrower's default under the Note or this Mortgage, shall pay all rents, issues and profits under such leases to Standard Federal without any obligation upon any such lessee or lessees for the determination of the actual existence of any default. In the event that Borrower obstructs Standard Federal in its efforts to collect the rents and income from the Project, or after requested by Standard Federal, unreasonably refuses, fails or neglects to assist Standard Federal in collecting such rent and income, Standard Federal shall be entitled to the appointment of a receiver of the Project and of the income, rents and profits therefrom, with such powers as the court making such appointment may confer. The Borrower covenants and agrees to perform and discharge each and every obligation, covenant, and agreement required to be performed by the landlord under all leases covering the Project, and should the Borrower fail so to do, then Standard Federal, but without obligation to do so, and without releasing the Borrower from any obligation hereof, may make or do the same in such manner and to such extent as Standard Federal may deem necessary to protect the security hereof. Nothing herein contained shall be construed to bind Standard Federal to perform any of the terms and provisions contained in the leases, or otherwise to impose any obligation upon Standard Federal. Any default by the Borrower in the performance of any of the obligations contained in this paragraph, which is not cured within 30 days after notice thereof from Standard Federal to Borrower, or, if the default is of a kind which cannot be cured within 30 days, if Borrower fails to undertake the cure of such default within 30 days after notice thereof from Standard Federal to Borrower and thereafter diligently pursue such cure and complete it within a reasonable time, shall constitute and be deemed to be a default under the terms of this -19- 20 Mortgage entitling Standard Federal to exercise the rights and remedies provided by this Mortgage. Standard Federal shall at no time have any obligation whatever to attempt to collect rent from any tenant or occupier of the Project notwithstanding that such tenants and occupiers may not be paying rent to either Borrower or to Standard Federal. Further, Standard Federal shall at no time have any obligation whatever to enforce any other obligations owed by tenants or occupiers of the Project to Borrower. No action taken by Standard Federal under this Mortgage shall put Standard Federal in the position of a "mortgagee in possession." Borrower shall at no time collect advance rent under any lease upon, affecting or pertaining to the Project or any part thereof in excess of one month (other than as a security deposit) and Standard Federal shall not be bound in any respect by any rent prepayment made or received in violation of the terms hereof. Standard Federal shall have the right to assign the Borrower's right, title and interest in all leases covering the Project to any subsequent holder of this Mortgage or the Note, and to assign the same to any person acquiring title to the Project through foreclosure or otherwise. 18. Environmental Representations and Indemnity. The Borrower represents and warrants to Standard Federal: (a) Neither the Borrower nor, to the best of Borrower's knowledge after due inquiry, any prior owner of the Project or any other person has caused or permitted any waste, oil, pesticides, or any substance or material of any kind which is currently known or suspected to be toxic or hazardous, including but not limited to any substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to as "Hazardous Material") to be discharged, dispersed, released, stored, treated, generated, disposed of, or allowed to escape on, under or at the Project, nor has the Project, or any part thereof ever been used by the Borrower or, to the best of Borrower's knowledge after due inquiry, any prior owner of the Project or any other person, as a dump, storage or disposal site for any Hazardous Material. (b) To the best of Borrower's knowledge, no asbestos or asbestos-containing materials have been installed, used, incorporated into, or disposed of on the Project. (c) To the best of Borrower's knowledge, no polychlorinated biphenyls ("PCBs") are located on or in the Project, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device or form. -20- 21 (d) To the best of Borrower's knowledge, no underground storage tanks are located on the Project or were located on the Project and subsequently removed or filled. (e) The Borrower (1) has not received any notice of any release or threatened release of any Hazardous Materials in, under or upon the Project or of any violation of any environmental or ecological protection laws or regulations with respect to the Project, and (2) does not know of any basis for any such notice or violation with respect to the Project. Borrower hereby indemnifies Standard Federal and agrees to hold Standard Federal harmless from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever paid, incurred or suffered by, or asserted against, Standard Federal for, with respect to, or as a direct or indirect result of (a) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from, the Project of any Hazardous Material, including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims, asserted or arising under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Material, the costs of any required or necessary clean-up or detoxification of the Project, the costs of the preparation of any clean-up or closure plans and reasonable attorney's fees and costs, or (b) the presence of any asbestos on the Project (including, without limitation, the cost of removal) regardless of whether or not caused by, or within the control of, Borrower. 19. Due on Sale. Standard Federal in making the loan secured by this Mortgage is relying upon the integrity of Borrower and its undertaking to maintain the Project. If Borrower should (a) sell, transfer, convey or assign the Project, or any right, title or interest therein, whether legal or equitable, whether voluntarily or involuntarily, by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest (other than leases to tenants) with a term greater than three years, lease option contract or any other method of conveyance of real property interests; or (b) cause, permit or suffer any change in the current ownership or management of the Borrower; or (c) cause, permit or suffer any change in the current management and control of the Project or in the degree of control Borrower exercises or is empowered to exercise over the decisions affecting the ownership and operation of the Project as of the date hereof, then, and in any such event, Standard Federal shall have the right at its sole option thereafter to declare all sums secured hereby and then unpaid to be due and payable forthwith although the period limited for the payment thereof shall not then have expired, -21- 22 anything contained to the contrary hereinbefore notwithstanding, and thereupon to exercise all of its rights and remedies under this Mortgage. If the ownership of the Project, or any part thereof, becomes vested in a person other than the Borrower (with or without Standard Federal's consent), Standard Federal may deal with such successor or successors in interest with reference to this Mortgage, and the indebtedness hereby secured, in the same manner as with the Borrower, without in any manner vitiating, releasing or discharging the Borrower's liability hereunder or upon the indebtedness hereby secured. No sale of the Project and no forbearance or extensions by Standard Federal of the time for payment of the indebtedness hereby secured or the performance of the covenants and agreements herein provided shall in any way operate to release, discharge, modify, change or affect the lien of this Mortgage or the liability of Borrower on the Note or for the performance hereof, either in whole or in part, and the Borrower shall at all times continue primarily liable on the indebtedness secured hereby until this Mortgage is fully discharged or Borrower is formally released by an instrument in writing duly executed by Standard Federal. 20. Binding Effect. Until this Mortgage is discharged in full, all of the covenants and conditions hereof shall run with the land and shall be binding upon the successors and assigns of Borrower, and shall inure to the benefit of the successors and assigns of Standard Federal. Any reference herein to "Borrower" or "Standard Federal" shall include their respective successors and assigns. 21. Notices. All notices, demands and requests required or permitted to be given to Borrower hereunder or by law shall be deemed delivered when deposited in the United States mail, with full postage prepaid thereon, addressed to Borrower at the last address of Borrower on the records of Standard Federal. 22. No Waiver. No waiver by Standard Federal of any right or remedy granted hereunder shall affect or extend to any other right or remedy of Standard Federal hereunder, nor affect the subsequent exercise of the same right or remedy by Standard Federal for any further or subsequent Event of Default by Borrower hereunder, and all such rights and remedies of Standard Federal hereunder are cumulative. Time is of the essence. 23. Severability. If any provision(s) hereof are in conflict with any statute or rule of law or are otherwise unenforceable for any reason whatever, then such provision(s) shall be deemed null and void to the extent of such conflict or unenforceability, but shall be deemed separable from and shall not invalidate any other provisions of this Mortgage. 24. Pronouns. If more than one person joins in the execution hereof, or is of the feminine sex, or a corporation, the pronoun -22- 23 and relative words herein used shall be read as if in plural, feminine or neuter, respectively. 25. Defeasance. This Mortgage is made upon the condition that if (a) all of the indebtedness of the Borrower secured hereunder, including all future advances and other future indebtedness, obligations and liabilities included therein are paid in full, and (b) the Borrower reimburses Standard Federal for any amounts Standard Federal has paid in respect of liens, impositions, prior mortgages, insurance premiums, repairing or maintaining the Project, performing the Borrower's obligations under any lease related to the Project, performing the Borrower's obligations under environmental matters, and any other advancements hereunder, and interest thereon, and (c) the Borrower fulfills all of the Borrower's other obligations under this Mortgage, and (d) Standard Federal has no obligations to extend any further credit to or for the account of the Borrower that is secured by this Mortgage, and (e) any other conditions set forth in paragraph 26 hereof are fulfilled, this conveyance shall be null and void upon the filing by Standard Federal of the written instrument of termination described in Paragraph 26 hereof. 26. Termination. This Mortgage and Standard Federal's liens under this Mortgage in the Project will not be terminated until a written mortgage satisfaction instrument executed by one of Standard Federal's officers is filed for record in the county in which the premises is located. Except as otherwise expressly provided in this Mortgage, no satisfaction of this Montage shall in any way affect or impair the representations, warranties, agreements or other obligations of the Borrower or the powers, rights and remedies of Standard Federal under this Mortgage with respect to any transaction or event occurring prior to such satisfaction, all of which shall survive such satisfaction. Even if any of the obligations owing to Standard Federal at any one time should be paid in full this Mortgage will continue to secure any obligations that might later be owed to Standard Federal until such mortgage satisfaction instrument has been executed and recorded. In no event shall Standard Federal be obligated to satisfy its liens under this Mortgage or return or release any of the Project to the Borrower (a) until the payment in full or all obligations then outstanding, (b) if Standard Federal is obligated to extend credit to the Borrower, (c) if any contingent obligation of the Borrower to Standard Federal remains outstanding or (d) until the expiration of any period for avoiding or setting aside any payment to Standard Federal remains outstanding or (d) until the expiration of any period for avoiding or setting aside any payment to Standard Federal under bankruptcy or insolvency laws. 27. Assignments. Standard Federal shall have the right to assign (in whole or in part), transfer or sell participation in its rights under this Mortgage without limitation. Any assignee or -23- 24 transferee shall be entitled to all the benefits afforded Standard Federal under this Mortgage. IN WITNESS WHEREOF, this Mortgage was executed and delivered by the undersigned on the day and year first above written. WITNESSES: BORROWER: MCCLAIN OF ALABAMA, INC., a Michigan corporation By: - ------------------------- -------------------------------- Carl L. Jaworski Its: Secretary/Treasurer - ------------------------- -------------------------- STATE OF MICHIGAN ) ) ss COUNTY OF OAKLAND ) I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that Carl L. Jaworski, whose name as Secretary/Treasurer of McClain of Alabama, Inc., a Michigan corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of said instruments, he/she, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal this 29th day of August, 1996 ----------------------------------- Notary Public, --------------------- County, Michigan My commission expires: -------------- THIS INSTRUMENT PREPARED BY AND WHEN RECORDED RETURN TO: Daniel C. Watson, Esq. Standard Federal Bank, a federal savings bank 2600 West Big Beaver Road Troy, Michigan 48084 -24- 25 "EXHIBIT A" LEGAL DESCRIPTION A partel of land lying and being in Section 11. Township 17 North, Range 1 East. Range 1 East, Marengo County, Alabama, containing 88.1 acres more or less, and being more particularly described as follows: Commence at the southwest corner of the Northeast Quarter of the Southwest Quarter of said Section 11; thence run north Q1'50' west along the west boundary of said Northeast Quarter of Southwest Quarter a distance of 82.6 feet to a concrete monument set to mark the point of beginning; thence run north 40'29' east parallel to and 350 feet perpendicular from the centerline of the existing runway No.4 of the Demopolis Airport a distance of 3,245.9 feet to a concrete monument set 600 feet perpendicular from the centerline of existing runway No.13 of the said Demopolis Airport; thence run north 51'55' west and parallel to said runway No. 13 a distance of 1,568.8 feet to a concrete monument set on the southeast boundary of a cemetery; thence run south 38'05' west a distance of 20.0 feet to a concrete monument set at the southern most corner of said cemetery; thence run north 51'55' west along the southwest boundary of said cemetery a distance of 43.2 feet to a concrete monument set near the left bank of the Tombigbee River; thence southwestwardly along the southeast edge of said Tombinee River to the point of intersection of said river and the west boundary of the Southeast Quarter of the Northwest Quarter of Section 11, said course follows generally among amender line described as; from last named concrete monument run south 47'04' est a distance of 515.2 feet; thence run south 50'42' west a distance of 370.0 feet to a concrete monument found on the said west boundary of the Southeast Quarter of the Northwest Quarter near the left bank of said river; thence run south 01'50' east and along the west boundary of said Southeast Quarter of Northwest Quarter and Northeast Quarter of Southwest Quarter a distance of 2,590.2 feet to the point of beginning. LESS AND EXCEPT THE FOLLOWING DESCRIBED TRACT HERETOFORE CONVEYED TO ALABAMA POWER COMPANY AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: EX-10.57 13 EXHIBIT 10.57 1 EXHIBIT 10.57 SECURITY AGREEMENT THIS AGREEMENT made and delivered this 29th day of August, 1996, by and between McClain of Alabama, Inc., a Michigan corporation, whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310 (collectively, "Borrower") and Standard Federal Bank, a federal savings bank ("Standard Federal"). WITNESSETH: WHEREAS, the Borrower may from time to time request loans, advances or other financial accommodations from Standard Federal and Standard Federal may, in its discretion, honor such requests in whole or part; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and Standard Federal hereby agree as follows: SECTION L. GRANT OF SECURITY INTEREST. 1.1 Borrower hereby grants to Standard Federal a continuing security interest in the property and interests in property described in Section 2.1 below (hereinafter referred to as the "Collateral") to secure the payment of all loans and advances including any renewals or extensions thereof from Standard Federal to Borrower and all obligations of any and every kind and nature heretofore, now or hereafter owing from Borrower to Standard Federal, however incurred or evidenced, whether primary, secondary, contingent or otherwise, whether arising under this Agreement, under any other security agreement(s), promissory note(s), guarantee(s), mortgage(s), lease(s), instrument(s), document(s), contract(s), letter(s) of credit or similar agreement(s) heretofore, now or hereafter executed by Borrower and delivered to Standard Federal, or by oral agreement or by operation of law plus all interest, costs, expenses and reasonable attorney fees which may be made or incurred by Standard Federal in the disbursement, administration or collection of such obligations and in the protection, maintenance and liquidation of the Collateral (hereinafter collectively called "Liabilities"). 1.2 All statements of account rendered by Standard Federal to Borrower relating to Borrower's Liabilities, including all statements of principal, interest, expenses and costs owing by Borrower to Standard Federal, shall be presumed correct and accurate and shall constitute an account stated between Borrower and Standard Federal unless within thirty (30) days after mailing thereof to Borrower, Borrower shall deliver to Standard Federal by registered or certified mail addressed to Standard Federal at its principal place of business, written objection thereto specifying the error or errors, if any, contained in any such statement. 2 1.3 This Agreement shall be and become effective when, and continue in effect as long as, any Liabilities of Borrower to Standard Federal are outstanding and unpaid. Borrower will not sell, assign, transfer, pledge, alienate or otherwise dispose of or encumber any Collateral to any third party while this Agreement is in effect without the written consent of Standard Federal. SECTION 2. COLLATERAL. 2.l The Collateral covered by this Agreement is all the Borrower's property described below, which it now owns or shall hereafter acquire or create immediately upon the acquisition or creation thereof, and includes, but is not limited to, any items listed on any schedule or list attached hereto: Accounts, etc. All Accounts, Chattel Paper, Documents, Instruments, General Intangibles, including any right to any refund of taxes paid before or after the date of this Agreement to any governmental entity. Equipment. All Equipment including without limitation all machinery, furnishings, furniture and vehicles, together with all accessions, parts, attachments, accessories, tools, dies or appurtenances thereto or intended for use in connection therewith and all substitutions, betterments and replacements thereof and additions thereto. Inventory, etc. All Inventory and Goods (other than Equipment), including without limitation raw materials, work in process, finished goods, tangible property, stock in trade, wares and merchandise held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in a business, including goods whose sale, lease or other disposition has given rise to any Accounts and any Goods which may have been returned to or repossessed or stopped in transit by the Borrower. Proceeds. Proceeds (whether Cash Proceeds or Noncash Proceeds) of the Collateral, including without limitation proceeds of insurance payable by reason of loss or damage to the Collateral and of eminent domain or condemnation awards and all products of and accessions to the Collateral and all Deposit Accounts or other sums at any time credited by or due from Standard Federal to Borrower and all policies and certificates of insurance, Accounts, Chattel Paper, Documents, Instruments, General Intangibles, Goods, Deposit Accounts, Money, Checks, Cash Proceeds and Noncash Proceeds (whether or not the same are Collateral or Proceeds thereof hereunder) in which Borrower has an interest which are now or are at any time hereafter in the possession or under the control of Standard Federal or in transit by mail or carrier to or from Standard Federal or in possession of or under the control of -2- 3 any third party acting on Standard Federal's behalf without regard to whether Standard Federal received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise or whether Standard Federal has conditionally released the same (excluding, nevertheless, any of the foregoing assets of the Borrower which are now or any time hereafter in possession or control of Standard Federal under any written trust agreement wherein Standard Federal is trustee and Borrower is trustor). 2.2 The Collateral is kept and maintained at the Borrower's address above and at the following addresses: __________________________________________________________ __________________________________________________________ __________________________________________________________ 2.3 All records pertaining to Accounts are kept and maintained at the Borrower's address above and at the following addresses: __________________________________________________________ __________________________________________________________ __________________________________________________________ 2.4 Borrower will give to Standard Federal prompt written notice of any new address at which the Collateral is kept or maintained upon any change in location of the Collateral or records pertaining to Accounts. SECTION 3. PERFECTION OF SECURITY INTEREST. 3.1 Borrower shall execute and deliver to Standard Federal concurrently with Borrower's execution of this Agreement and at any time or times hereafter at the request of Standard Federal and pay the cost of filing or recording same in all public offices deemed necessary by Standard Federal, all financing statements, continuation financing statements, assignments, certificates of title, applications for vehicle titles, affidavits, reports, notices, schedules of Accounts, designations of Inventory, letters of authority and all other documents that Standard Federal may reasonably request in form satisfactory to Standard Federal to perfect and maintain Standard Federal's security interests in the Collateral. In order to fully consummate all of the transactions contemplated hereunder, Borrower shall make appropriate entries on its books and records disclosing Standard Federal's security interests in the Collateral. -3- 4 SECTION 4. WARRANTIES. 4.1 Borrower warrants and agrees that while any of the Liabilities remain unperformed and unpaid: 4.1(a) Borrower is the owner of the Collateral free and clear of all liens or security interests, except Standard Federal's security interest, and all Chattel Paper constituting Collateral evidences a perfected security interest in the goods covered by it free from all other liens and security interests, and no financing statements, other than that of Standard Federal, are on file covering the Collateral or any of it, and if Inventory is represented or covered by documents of title, Borrower is the owner of the documents free of all liens and security interests other than Standard Federal's security interest and warehousemen's charges, if any, not delinquent; 4.1(b) The address of Borrower's principal office is as set forth above; the addresses of Borrower's other places of business where Collateral and account records are now or may in the future be located, if any, are set forth in Sections 2.2 and 2.3 above and Borrower's business locations shall not be changed without the prior written consent of Standard Federal; Borrower further warrants that the Collateral, wherever located, is covered by this Agreement; 4.1(c) The Collateral will not be used, nor will Borrower permit the Collateral to be used, for any unlawful purpose, whatever; 4.1(d) Borrower will neither change its name, form of business entity nor address of its principal office or the office where account records are maintained without giving written notice to Standard Federal thereof at least ten (10) days prior to the effective date of such change, and Borrower agrees that all documents, instruments, and agreements demanded by Standard Federal in response to such change shall be prepared, filed, and recorded at Borrower's expense prior to the effective date of such change; 4.1(e) Each Account, Chattel Paper and General Intangible constituting Collateral is genuine and enforceable against the account debtor according to its terms, and it, and the transaction out of which it arose, comply with all applicable laws and regulations, the amount represented by Borrower to Standard Federal as owing by each account debtor is the amount actually owing and is not subject to setoff, credit, allowance or adjustment except any discount for prompt payment, nor has any account debtor returned the goods or disputed his liability, there has been no default according to the terms of any such Collateral, and no step has been taken to foreclose the security interest it evidences or to otherwise enforce its payment; -4- 5 4.1(f) Borrower shall at all times maintain the Collateral in first-class condition and repair; 4.1(g) The execution and delivery of this Agreement and any instruments evidencing Liabilities will not violate nor constitute a breach of Borrower's Articles of Incorporation, By-Laws, Partnership Agreement, or any agreement or restriction of any type whatsoever to which Borrower is a party or is subject; 4.1(h) All financial statements and information relating to Borrower delivered or to be delivered by Borrower to Standard Federal are true and correct and prepared in accordance with generally accepted accounting principles, and there has been no material adverse change in the financial condition of Borrower since the submission of any such financial information to Standard Federal; 4.1(i) There are no actions or proceedings which are threatened or pending against Borrower which might result in any material adverse change in Borrower's financial condition or which might materially affect any of Borrower's assets; 4.1(j) Borrower has duly filed all federal, state, and other governmental tax returns which Borrower is required by law to file, and will continue to file same during such time as any of the Liabilities hereunder remain owing to Standard Federal, and all such taxes required to be paid have been paid, in full; and 4.1(k) Borrower will indemnify and hold Standard Federal harmless against claims of any persons or entities not a party to this Agreement concerning disputes arising over the Collateral. SECTION 5. INSURANCE, TAXES, ETC. 5.1 Borrower shall: 5.1(a) Pay promptly all taxes, levies, assessments, judgments, and charges of any kind upon or relating to the Collateral, to Borrower's business, and to Borrower's ownership or use of any of its assets, income, or gross receipts; 5.1(b) At its own expense, keep and maintain all of the Collateral fully insured against loss or damage by fire, theft, explosion and other risks in such amounts, with such companies, under such policies and in such form as shall be satisfactory to Standard Federal, which policies shall expressly provide that loss thereunder shall be payable to Standard Federal as its interest may appear. Standard Federal shall have a security interest in the proceeds of such insurance. Prior to the occurrence of an Event of Default, any proceeds of insurance may be used, at Borrower's option, to repair or replace the property damaged or applied upon the Liabilities. After the occurrence of an Event of Default, all -5- 6 insurance proceeds shall be delivered to Standard Federal, who may apply any such proceeds which may be received by it toward payment of Borrower's Liabilities, whether or not due, in such order of application as Standard Federal may determine; and 5.1(c) Maintain at its own expense public liability and property damage insurance in such amounts, with such companies, under such policies and in such form as shall be satisfactory to Standard Federal, and, upon Standard Federal's request, shall furnish Standard Federal with such policies and evidence of payment of premiums thereon. 5.2 If Borrower at any time hereafter should fail to obtain or maintain any of the policies required above or pay any premium in whole or in part relating thereto, or shall fail to pay any such tax, assessment, levy, or charge or to discharge any such lien, claim, or encumbrance, then Standard Federal, without waiving or releasing any obligation or default of Borrower hereunder, may at any time hereafter (but shall be under no obligation to do so) make such payment or obtain such discharge or obtain and maintain such policies of insurance and pay such premiums, and take such action with respect thereto as Standard Federal deems advisable. All sums so disbursed by Standard Federal, including reasonable attorney fees, court costs, expenses, and other charges relating thereto, shall be part of Borrower's Liabilities, secured hereby, and payable upon demand together with interest at the highest rate payable in connection with any of the Liabilities from the date when advanced until paid. SECTION 6. SALE, COLLECTIONS, ETC. 6.1 If Accounts are Collateral hereunder, Standard Federal authorizes and permits Borrower to collect Accounts from debtors. This privilege may be terminated by Standard Federal at any time after the occurrence of an Event of Default hereunder, whereupon Standard Federal shall be vested with full title to the Accounts, and Standard Federal thereupon shall be entitled to and have all of the ownership, title, rights, securities and guarantees of Borrower in respect thereto, and in respect to the property evidenced thereby, including the right of stoppage in transit, and Standard Federal may notify any debtor or debtors of the assignment of Accounts and collect the same. All Account debtors of the Borrower shall be entitled to rely upon notice from Standard Federal that an Event of Default has occurred hereunder and shall have no duty of inquiry as to the accuracy thereof or any other obligation with respect thereto. The Borrower hereby fully and forever releases all such Account debtors from any and all claims or liabilities which the Borrower may claim to arise as a result of an Account debtor relying upon and honoring a notice from Standard Federal that an Event of Default has occurred and that all payments on Accounts are thereafter to be collected by Standard Federal. Thereafter Borrower will receive all payments on Account as agent -6- 7 of and for Standard Federal and will transmit to Standard Federal, on the day of receipt thereof, all original checks, drafts, acceptances, notes and other evidence of payment received in payment of or on account of Accounts, including all cash moneys similarly received by Borrower. Until such delivery, Borrower shall keep all such remittances separate and apart from Borrower's own funds, capable of identification as the property of Standard Federal, and shall hold the same in trust for Standard Federal. All items or accounts which are delivered by Borrower to Standard Federal on account of partial or full payment or otherwise as proceeds of any of the Collateral shall be deposited to the credit of a deposit account (herein called the "Collateral Deposit Account") of Borrower with Standard Federal, as security for payment of the Liabilities. Borrower shall have no right to withdraw any funds deposited in the Collateral Deposit Account. Standard Federal may from time to time, at its discretion, and shall upon request of Borrower made not more than once in a week, apply all or any of the then balance, representing collected funds in the Collateral Deposit Account, toward payment of the Liabilities, whether or not then due, in such order of application as Standard Federal may determine, and Standard Federal may, from time to time, in its discretion, release all or any of such balance to Borrower. Borrower, if in default in the performance of any of the provisions of this Agreement, upon demand, will open all mail only in the presence of a representative of Standard Federal, who may take therefrom any remittance on Accounts in which Standard Federal shall have a security interest. Standard Federal or its representatives is authorized to endorse, in the name of Borrower, any item howsoever received by Standard Federal, representing any payment on or other proceeds of any of the Collateral, and may endorse or sign the name of Borrower to Accounts, invoices, assignments, financing statements, notices to debtors, bills of lading, storage receipts, or other instruments or documents in respect to Accounts or the property covered thereby requested by Standard Federal. Borrower will promptly give Standard Federal copies of all Accounts, to be accompanied by such information and by such documents or copies thereof as Standard Federal may require. Borrower will maintain such records with respect to Accounts and the conduct and operation of its business as Standard Federal may request, and will furnish Standard Federal all information with respect to Accounts and the conduct and operation of its business, including balance sheets, operating statements and other financial information, as Standard Federal may request. 6.2 If Inventory is Collateral hereunder, until such time as Standard Federal shall notify Borrower of the revocation of such power and authority, which notice may not be given unless and until an Event of Default shall have occurred hereunder, Borrower (a) may only in the ordinary course of its business, at its own expense, sell, lease or furnish under contracts of service any of the inventory normally held by Borrower for such purpose; (b) may use and consume any raw materials, work in process or materials, the -7- 8 use and consumption of which is necessary in order to carry on Borrower's business; and (c) will at its own expense, endeavor to collect, as and when due, all accounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as Standard Federal may reasonably request or, in the absence of such request, as Borrower may deem advisable. A sale in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt. SECTION 7. INFORMATION. 7.1 Borrower shall permit Standard Federal or its agents upon reasonable request to have access to, and to inspect, all the Collateral (and Borrower's other assets, if any) and may from time to time verify Accounts, inspect, check, make copies of, or extracts from the books, records, and files of Borrower, and Borrower will make same available at any time for such purposes. In addition, Borrower shall promptly supply Standard Federal with financial and such other information concerning its affairs and assets as Standard Federal may request from time to time. SECTION 8. DEFAULT AND REMEDIES UPON DEFAULT. 8.1 The occurrence of any of the following shall constitute an Event of Default hereunder: (a) If the Borrower shall fail to pay when due any of the Liabilities; (b) If any warranty or representation made by or for the Borrower or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower shall prove to be false, inaccurate or misleading in any material respect; (c) If an event of default shall occur under any promissory note secured hereby or if the Borrower shall fail to perform any obligation or covenant hereunder, or shall fail to comply with any of the provisions of any loan agreement or other agreement with Standard Federal, (d) If the Borrower or any other party liable on any of the Liabilities: (i) shall voluntarily suspend transaction of its business, (ii) shall make a general assignment for the benefit of creditors, (iii) shall file a voluntary petition in bankruptcy or for a reorganization to effect a plan or other arrangement with creditors, or shall file an answer to a creditor's petition or other petition for relief in bankruptcy or for a reorganization which answer admits the material allegations thereof, or if any order for relief shall be entered by any court of bankruptcy jurisdiction with respect to it or shall have instituted against it bankruptcy, reorganization or liquidation proceedings which remain undismissed for 60 days, (iv) shall have entered against it any order by any court approving a plan of reorganization or any other plan or arrangement with creditors, (v) shall apply for or permit the appointment of a receiver, trustee or custodian for any substantial portion of its assets, or (vi) shall become unable to meet its debts as they mature or insolvent; (e) If a judgment shall be entered against the Borrower which is not insured against -8- 9 or satisfied or appealed from and bonded within the time or times limited by applicable rules of procedure for appeal as of right or if a writ of attachment or garnishment shall be issued and levied on any of the Deposit Account(s); (f) If the Borrower shall dissolve or shall merge or consolidate with any other entity. 8.2 Upon the occurrence of any Event of Default, any and all of the Liabilities may (notwithstanding any provisions thereof and unless otherwise provided in any loan agreement executed in conjunction herewith), at the option of Standard Federal, and without demand or notice of any kind, be declared and thereupon shall immediately become due and payable and Standard Federal may exercise from time to time any rights and remedies including the right to immediate possession of the Collateral available to it under applicable law. Standard Federal may directly contact third parties and enforce against them all rights which arise with respect to the Collateral and to which Borrower or Standard Federal would be entitled. Standard Federal shall have the right to hold any property then in, upon or in any way affiliated to said Collateral at the time of repossession even though not covered by this Security Agreement until return is demanded in writing by the Borrower. Borrower agrees, in case of Default, to assemble at its expense all the Collateral at a convenient place acceptable to Standard Federal and to pay all costs of Standard Federal of collection of the Liabilities, and enforcement of rights hereunder, including reasonable attorney fees and legal expenses, including participation in Bankruptcy proceedings, and expense of locating the Collateral and expenses of any repairs to any realty or other property to which any of the Collateral may be affixed or be a part. If any notification of intended disposition of any of the Collateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if sent at least seven (7) days before such disposition, postage pre-paid, addressed to the Borrower either at the address shown above or at any other address of the Borrower appearing on the records of Standard Federal. Borrower acknowledges that Standard Federal may be unable to effect a public sale of all or any portion of the Collateral because of certain legal and/or practical restrictions and provisions which may be applicable to the Collateral and, therefore, may be compelled to resort to one or more private sales to a restricted group of offerees and purchasers. Borrower consents to any such private sale so made even though at places and upon terms less favorable than if the Collateral were sold at public sale. Borrower waives the right to jury trial in any proceeding instituted with respect to the Collateral. Out of the net proceeds from sale or disposition of the Collateral, Standard Federal shall retain all Indebtedness then owing to it and the actual cost of collection (including reasonable attorney fees) and shall tender any excess to Borrower or its successors or assigns. If the Collateral shall be insufficient to pay the entire Indebtedness, Borrower shall pay to Standard Federal the resulting deficiency upon demand. Borrower expressly waives any and all claims of any -9- 10 nature, kind or description which it has or may hereafter have against Standard Federal or its representatives, by reason of taking, selling or collecting any portion of the Collateral. Borrower consents to releases of the Collateral at any time (including prior to default) and to sales of the Collateral in groups, parcels or portions, or as an entirety, as Standard Federal shall deem appropriate. Borrower expressly absolves Standard Federal from any loss or decline in market value of any Collateral by reason of delay in the enforcement or assertion or nonenforcement of any rights or remedies under this Agreement. 8.3 Borrower agrees that Standard Federal shall, in the event of any default, have the right to peacefully retake any of the collateral. Borrower waives any right it may have in such instance to a judicial hearing prior to such retaking. SECTION 9. GENERAL. 9.1 Time shall be deemed of the very essence of this Agreement. Except as otherwise defined in this Agreement, all terms in this Agreement shall have the meanings provided by the Uniform Commercial Code. Standard Federal shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if it takes such action for that purpose as Borrower requests in writing, but failure of Standard Federal to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and failure of Standard Federal to preserve or protect any rights with respect to such Collateral against any prior parties or to do any act with respect to the preservation of such Collateral not so requested by Borrower shall not be deemed a failure to exercise reasonable care in the custody and preservation of such Collateral. 9.2 Any delay on the part of Standard Federal in exercising any power, privilege or right hereunder, or under any other instrument executed by Borrower to Standard Federal in connection herewith shall not operate as a waiver thereof, and no single or partial exercise thereof, or the exercise of any other power, privilege or right shall preclude other or further exercise thereof, or the exercise of any other power, privilege or right. The waiver of Standard Federal of any default by Borrower shall not constitute a waiver of any subsequent defaults, but shall be restricted to the default so waived. All rights, remedies and powers of Standard Federal hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all rights, remedies, and powers given hereunder or in or by any other instruments, or by the Uniform Commercial Code, or any laws now existing or hereafter enacted. 9.3 This Agreement shall be construed in accordance with the laws of the State of Alabama. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective -10- 11 and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. The rights and privileges of Standard Federal hereunder shall inure to the benefit of its successors and assigns, and this Agreement shall be binding on all heirs, personal representatives, assigns and successors of Borrower. Borrower hereby expressly authorizes and appoints Standard Federal to act as its attorney-in-fact for the sole purpose of executing any and all financing statements or other documents deemed necessary to perfect the security interest herein contemplated. 9.4 The Borrower acknowledges that this is the entire Agreement between the parties except to the extent that writings signed by the party to be charged are specifically incorporated herein by reference either in this Agreement or in such writings, and acknowledges receipt of a true and complete copy of this Agreement. IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this Security Agreement to be executed as of the day and year first written above. STANDARD FEDERAL BANK, a federal BORROWER: savings bank 2600 West Big Beaver Road MCCLAIN OF ALABAMA,INC., a Troy, Michigan 48084 Michigan corporation By: David J. Bartlett By: /s/ Carl L. Jaworski ------------------------------ ------------------------- David J. Bartlett Carl L. Jaworski Its: Vice President Its: Secretary -------------------------- --------------------- -11- 12 STATE OF MICHIGAN ) ) ss COUNTY OF OAKLAND ) I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that David J. Bartlett, whose name as Vice President of Standard Federal Bank, a federal savings bank, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of said instruments, he/she, as such officer and with full authority, executed the same voluntarily for and as the act of said bank. Given under my hand and official seal this 29th day of August, 1996 Dolores J. Swanson --------------------------------------- Notary Public, Dolores J. Swanson Notary Public, Oakland County, MI My commission expires: Aug 30 1998 County, Michigan My commission expires: STATE OF MICHIGAN ) ) ss COUNTY OF OAKLAND ) I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that Carl L. Jaworski, whose name as Secretary/Treasurer of McClain of Alabama, Inc., a Michigan corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of said instruments, he/she, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal this 29th day of August, 1996 Dolores J. Swanson --------------------------------------- Notary Public, Dolores J. Swanson Notary Public, Oakland County, MI My commission expires: Aug 30 1998 County, Michigan My commission expires: -12- EX-10.58 14 EXHIBIT 10.58 1 EXHIBIT 10.58 EQUIPMENT LEASE This Equipment Lease entered into as of July 15, 1995, by and between The Fifth Third Leasing Company ("Lessor"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, an Ohio corporation, and Prime Leasing Corporation ("Lessee"), PO Box 180913, Utica, MI 48318, a Michigan Corporation. TERMS AND CONDITIONS OF LEASE: In consideration of the premises and of the rentals and the covenants hereinafter mentioned to be kept and performed by Lessee, Lessor hereby leases the equipment (including all replacement parts, repairs, additions and accessories thereto) listed on Schedule A attached hereto on the date hereof or as attached hereto at any time in the future or listed or described in any other document which refers to and incorporates the terms of this Agreement (collectively "Equipment"), upon the following terms and conditions: Section 1. Acquisition and Lease of Equipment. (a) Lessor will, subject to the terms of this Lease, purchase the Equipment set forth in Schedule A and simultaneously lease such Equipment to Lessee. The approximate purchase price for each unit of Equipment is as set forth in Schedule A. Lessee shall provide a security deposit (the "Security Deposit") in the amount, if any, specified in Schedule A to be paid to Lessor prior to the commencement of the Lease. Lessee acknowledges either: (i) that Lessee has approved any written Supply Contract (as defined by the uniform version of the Uniform Commercial Code (UCC) Section 2A-103 (y) as approved by the American Law Institute on the date of this Lease) covering the Equipment purchased from the "Supplier" (as defined by UCC Section 2A-103(x)) thereof for lease to Lessee; or (ii) that Lessor has informed or advised Lessee, in writing, either previously or by this Lease of the following: (1) the identity of the Supplier; (2) that the Lessee may have rights under the Supply Contract; and (3) that the Lessee may contact the supplier for a description of any such rights Lessee may have under the Supply Contract. (b) Lessor hereby authorizes Lessee to accept delivery of the Equipment from the manufacturer. Upon delivery and installation of each item of Equipment, if such Equipment is in good working order, and complies with the specifications of the purchase order, Lessee shall execute and deliver to Lessor a Certificate of Acceptance in form acceptable to Lessor. Lessor shall be under no obligation to purchase the Equipment until it has received the Acceptance Certificate executed by Lessee. (c) Lessor shall be under no obligation to purchase any item of Equipment if there shall exist an Event of Default or any condition, event or act which with notice or lapse of time or both would become an Event of Default, which has not been remedied or waived. 1 2 Section 2. Term and Rent. (a) The term of this Lease shall begin on the Effective Date specified in Schedule A and shall continue for the term specified in Schedule A unless earlier terminated pursuant to the terms hereof. Notwithstanding the Effective Date set forth above, the Effective Date will be extended until the date the Equipment is delivered to Lessee's location specified above and accepted by Lessee. The term of this Lease for all Equipment shall be automatically extended for successive monthly periods until terminated by either party giving to the other not less than ninety (90) days prior written notice of termination. Any such termination shall be effective only on the last day of the term specified in Schedule A or any successive period. (b) As rent for the Equipment, Lessee agree to pay to Lessor the rent specified in Schedule A. All payments provided for in this Lease shall be made to the Lessor at the address of the Lessor set forth above, or at such other place as the Lessor, or its assigns, shall specify in writing. The rent specified in Schedule A shall be adjusted for any errors, increase or decrease in the purchase price of the Equipment. The payment of the rent specified in Schedule A also shall be secured by any presently existing or hereafter acquired property pledged to Lessor or any affiliate of Fifth Third Bancorp for any indebtedness of Lessee owed to Lessor and all affiliates of Fifth Third Bancorp, whether direct or contingent, due or to become due; provided, however, that this provision shall not apply to a "consumer credit transaction" as defined in Title I, Consumer Credit Protection Act 15 U.S.C.A. Sections 1601 et. seq., as amended or any applicable state statute containing similar provisions. (c) This Lease is a net lease and Lessee acknowledges and agrees that Lessee's obligation to make all payments hereunder, and the rights of Lessor in and to all such payments, shall be absolute and unconditional and shall not be subject to any abatement of rent or reduction thereof, including but not limited to, abatements or reductions due to any present or future claims of Lessee against Lessor, the manufacturer of the Equipment, or any party under common ownership or affiliated with Lessor, by reason of any defect in the Equipment, the condition, design, operation or fitness for use thereof, or by reason of any failure of Lessor to perform any of its obligations hereunder, or by reason of any other cause. It is the intention of the parties hereto that the rent payable by Lessee hereunder shall continue to be payable in all events and in the manner and at the times herein provided unless the obligation to pay shall be terminated pursuant to the provisions of this Lease. Section 3. Tax Indemnification. (a) The terms of this Lease, including payment amounts, have been made in reliance on the fact that Lessor, its successors and assigns, shall be entitled to such deductions, credits and other benefits (the "Tax Benefits") as are provided to an owner of property, to the extent permitted under applicable law and provisions of the Internal Revenue Code of 1986 (the "Code"), including but not limited to depreciation and amortization deductions allowable under Sections 167, 168 and 169 of the Code and any amendments or additions thereto relating to the leased property (the "Deductions"). (b) If the Lessor or its successor or assigns shall lose, during the term of this Lease, its right to claim all or any part of such Tax Benefits or Deductions or any part of such Tax Benefits or Deduction is disallowed, the rental set forth in Schedule A shall be increased by an amount which, in the reasonable opinion of Lessor, will cause Lessor's total net return (after all taxes) to be equal to the net return which Lessor would have received had such Tax Benefits or Deductions not been disallowed. (c) In the event Lessor's claim of all or any part of such Tax Benefits or Deductions with respect to the Equipment is disallowed or lost after the term of the Lease, Lessee shall pay Lessor a lump sum which, in the reasonable opinion of Lessor will cause Lessor's total net return (after all taxes) to be equal to the net return Lessor would have received had such Tax Benefits or Deductions not been disallowed. 2 3 (d) In the event that this Lease is, for any reason, canceled or prepaid prior to the expiration of its term the Lessee agrees to pay to Lessor, in addition to all other amounts payable under this Lease, a lump sum amount which, in the reasonable opinion of Lessor, will cause Lessor's net return (when combined with all other payments, hereunder but excluding any prepayment penalties and after all taxes) to be equal to the net return Lessor would have received had this Lease not been terminated prior to the expiration of its term. (e) The rent shall not be so increased (or the lump sum payment shall not be due) if and to the extent that the Lessor shall have lost the right to claim such a Tax Benefit or Deduction as a direct result of any one of the following events: (i) a casualty occurrence with respect to the Equipment if Lessee shall have paid the Lessor pursuant to the provisions of Section 13 hereof; (ii) the failure of Lessor to claim the Tax Benefit or Deduction on its income tax return for the appropriate year; or (iii) the failure of Lessor to have sufficient tax liability to fully use such Tax Benefits or Deductions. (f) Lessee agrees that neither it nor any corporation controlled by it, in control of it, or under common control with it, directly or indirectly, will at any time take any action or file any returns or other documents inconsistent with the foregoing and that each of such corporations will file such returns, take such action and execute such documents as may be reasonable and necessary to facilitate accomplishment of the intent thereof. Lessee agrees to copy and make available for inspection and copying by Lessor such records as will enable Lessor to determine whether it is entitled to the benefit of any amortization or depreciation deduction or tax credit which may be available from time to time with respect to this Equipment. (g) If, under any circumstances or for any reason whatsoever, except for acts of the Lessor, (i) Lessor shall become liable for additional tax as a result of Lessee having added an attachment or made an alteration to the Equipment which would increase the productivity or capability of the Equipment so as to violate the provisions of Rev. Proc. 75-21, 1975-1 C.B. 715, as modified by Rev. Proc. 79-48, 1979-2 C.B. 529 (and as either or both may hereafter be modified or superseded); (ii) the statutory full-year marginal Federal tax rate for corporations with a December 31 tax year-end is different than the statutory tax rate in effect on the date of this Lease; or (iii) Lessor shall not have or shall lose the right to claim, or there shall be disallowed or recaptured all or any portion of the Federal tax depreciation deductions with respect to any item of Equipment based on depreciation of the Lessor's full cost of such item of Equipment and computed on the basis of a method of depreciation provided by the Code as Lessor in its complete discretion may select; then Lessee agrees to pay Lessor upon demand an amount which, after deduction of all taxes required to be paid by Lessor in respect of the receipt thereof under the laws of any federal, state or local government or taxing authority of the United States or of any taxing authority or government subsidiary of any foreign country, shall be equal to the sum of (1) an amount equal to the additional income taxes which would be paid or payable by Lessor in consequence of the failure to obtain the benefit of a depreciation deduction calculated under the assumption that Lessor's income is taxed at the highest applicable rate (without regard to the actual taxes paid by Lessor), and (2) any interest and/or penalty which may be assessed in connection with any of the foregoing. (h) The provisions of this Section 3 shall survive the expiration or earlier termination of this Lease. 3 4 Section 4. Acceptance, Use and Maintenance of Equipment. (a) Lessor hereby authorizes Lessee to accept delivery of the Equipment from the manufacturer. Upon delivery and installation of each item of Equipment, if such Equipment is in good working order, Lessee shall execute and deliver to Lessor a Certificate of Acceptance in a form acceptable to Lessor. (b) Lessor shall have no obligation and assumes no liability for any matter relating to the ordering, manufacture, shipment, installation, erection, testing, adjusting or servicing of any item of Equipment, or for any failure or delay in obtaining or delivering any item of Equipment. Lessee shall provide and maintain a suitable installation environment for each item of Equipment with all appropriate utilities, wiring and other facilities prescribed or recommended by the appropriate manufacturer's installation and operating manuals. (c) Lessee shall cause the Equipment to be operated by competent employees and in accordance with the manufacturer's operating manuals and shall pay all expenses of operating the Equipment. The Equipment shall be maintained at the location(s) specified in Schedule A and shall not be removed from such location(s) without the written consent of the Lessor. Lessor will have the right, from time to time during reasonable business hours, to enter upon the Lessee's premises or any other premises where the Equipment may be located, for the purpose of confirming the existence, location, condition or proper maintenance of the Equipment. (d) Lessee, at its own cost and expense, shall keep all Equipment in good repair, condition and working order and shall furnish all parts, mechanisms, devices and servicing required therefor. All such parts, mechanisms, and devices shall immediately become the property of Lessor and part of the Equipment for all purposes. (e) Lessee shall comply with and confirm to all laws, ordinances and regulations, present or future, in any way relating to the possession, use or maintenance of the Equipment throughout the term of this Lease. (f) Lessee shall pay or satisfy and discharge any and all claims against, through or under Lessee and its successors and assigns, which, if unpaid, might constitute or become a lien or a charge upon any of the Equipment, and any liens or charges which may be levied against or imposed upon the Equipment as a result of the failure of Lessee to perform or observe any of its covenants or agreements under this Lease and any other liens or charges which arise by virtue of claims against, through or under any other party other than Lessor, but Lessee shall not be required to pay or discharge any such claims so long as it shall, in good faith and by appropriate legal proceedings contest the validity thereof in any reasonable manner which will not, in the reasonable opinion of Lessor, affect or endanger the interest of Lessor or other rights of any assignee under this Lease hereof in and to the Equipment or diminish the value thereof. Lessee's obligations under this Section shall survive the termination of this Lease. Section 5. No Agency. Lessee acknowledges and agrees that neither the manufacturer, the supplier, nor any salesman, representative, or other agent of the manufacturer or supplier, is an agent of Lessor. No salesman, representative or agent of the manufacturer or supplier is authorized to waive or alter any term or condition of this Lease and no representation as to the Equipment or any other matter by the manufacturer or supplier shall in any way affect Lessee's duty to pay rent and perform its obligations as set forth in this Lease. Section 6. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT: LESSOR IS NOT THE MANUFACTURER OF THE EQUIPMENT NOR THE MANUFACTURER'S AGENT NOR A DEALER THEREIN; THE EQUIPMENT IS OF A SIZE, DESIGN, CAPACITY, DESCRIPTION AND MANUFACTURE SELECTED BY LESSEE; LESSEE IS SATISFIED THAT THE EQUIPMENT IS SUITABLE AND FIT FOR ITS PURPOSES; AND LESSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE DESIGN, OPERATION OR CONDITION, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN THE EQUIPMENT LEASED HEREUNDER, AND LESSOR MAKES NO WARRANTY OF 4 5 MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, IT BEING AGREED THAT ALL SUCH RISKS AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE AND THE BENEFITS OF ANY AND ALL IMPLIED WARRANTIES OF LESSOR ARE HEREBY WAIVED BY LESSEE. LESSOR SHALL NOT BE RESPONSIBLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. Lessor agrees that Lessee shall be entitled to the benefit of any manufacturer's warranties on the Equipment to the extent permitted by applicable law. Section 7. Identification; Personal Property. No right, title or interest in the Equipment shall pass to Lessee other than the right to maintain possession and use of the Equipment for the full Lease Term. Lessor may require plates or markings to be conspicuously affixed to or placed on the Equipment indicating Lessor is the owner. However, if any item of Equipment leased hereunder is to be operated by the public, such plates or markings need not be placed in a conspicuous part of the Equipment. The Equipment is, and shall at all times be and remain, personal property even though the Equipment or any part thereof may hereafter become affixed or attached to real property. Section 8. Quiet Enjoyment. So long as Lessee is in compliance with the terms of this Lease: (a) Lessee's right of quiet enjoyment of the Equipment shall not be impaired by the Lessor or anyone claiming through the Lessor; and (b) Lessor shall not create any liens or encumbrances upon the Equipment other than liens arising out of claims contested in good faith by Lessor which will not in the reasonable opinion of Lessor affect or endanger the interest of Lessee under this Lease. Section 9. Assignment. (a) LESSEE AGREES NOT TO SELL, ASSIGN, SUBLET, PLEDGE, HYPOTHECATE, OR OTHERWISE ENCUMBER, SUFFER A LIEN UPON OR AGAINST ANY INTEREST IN THIS AGREEMENT OR THE EQUIPMENT LEASED HEREUNDER. (b) Lessor may assign, pledge, or in any other way transfer this Lease either in whole or in part, without notice to Lessee. Should this Lease or any interest therein be assigned or should the rentals hereunder be assigned, no breach or default of this Lease by Lessor to its assignee shall excuse performance by Lessee of any provision hereof. Upon receipt of notice of assignment of this Lease or the rentals due hereunder, if so directed by Lessor, Lessee shall pay the rentals hereunder as they become due to any assignee without any set-offs, counterclaims or defense thereto. Section 10. Fees - Taxes. Lessee agrees to pay and to indemnify and hold Lessor harmless from all license and registration fee and all assessments, taxes and impositions of whatever nature including income, franchise, sales, use, property, excise and other taxes now or hereinafter imposed by any governmental body or agency upon the Equipment, or the use thereof, including all interest and penalties, but excluding any income taxes payable by Lessor on the receipt of income under this Lease. Section 11. Limitation of Liability; Indemnification. (a) Lessee agrees that Lessor shall not be responsible for any loss or damage to Lessee, its customers or anyone else, caused by any failure or defect of the Equipment, or otherwise. 5 6 (b) Lessee hereby assumes liability for, and hereby agrees to indemnify, protect, save and keep harmless Lessor, its successors and assigns, from and against any and all claims, liabilities, judgments, suits, obligations, losses, damages, expenses, penalties, and disbursements (including reasonable attorneys' fees and expenses) of any kind and nature arising from or pertaining to the use, possession, operation, manufacture, purchase, financing, ownership, delivery, rejection, nondelivery, transportation, storage maintenance, repair return or other disposition of the Equipment including but not limited to liabilities resulting from strict liability in tort or a breach of any law, regulation or ordinance of any Federal, State or Local Government Agency. Section 12. Return of Equipment. Upon the expiration of the term of this Lease, unless the Equipment is sold to the Lessee, Lessee will at its own cost and expense deliver possession of the Equipment to Lessor at a location designated by the Lessor free and clear of all liens, charges, encumbrances, and rights of others, in good working order and repair (except for ordinary wear and tear resulting from proper use) and in the condition required hereby. Section 13. Casualty Loss. Lessee hereby assumes and shall bear the risk of loss, damage to or theft of the Equipment from any and every cause whatsoever, whether or not insured. No loss or damage to the Equipment or any part thereof shall impair any obligation of Lessee under this Lease which shall continue in full force and effect. In the event that any item of Equipment shall become damaged, worn out, destroyed, lost or stolen, or if any item of the Equipment is requisitioned or taken by any governmental authority under the power of eminent domain or otherwise, Lessee shall promptly notify Lessor thereof and at the option of Lessor, Lessee shall: (a) Place the same in good repair, condition and working order; or (b) Replace the same with like property in good repair, condition and working order which property shall be thereupon conveyed to Lessor free, clear and unencumbered and thereupon be subject to this Lease; or (c) On the Rental Payment date next following the date the Equipment becomes damaged, worn out, destroyed, lost or stolen, pay Lessor in cash all of the following: (i) all amounts then owed by Lessee to Lessor under this Lease; (ii) an amount equal to Two percent (2%) of the actual costs of said Equipment; and (iii) the unpaid balance of the total rent for the initial term of this Lease attributable to such Equipment. Upon Lessor's receipt of such payment, Lessee shall be entitled to whatever interest Lessor may have in such Equipment, in its then condition and location "AS IS" and "WHERE IS", without warranty express or implied. Section 14. Insurance. (a) Lessee at its expense will provide and maintain fire and extended coverage insurance against loss, theft, damage or destruction of the Equipment in an amount not less than 100% of the insurable value of the Equipment on a replacement cost basis as determined by Lessor. Each policy will provide expressly that such insurance, as to Lessor and its assigns, will not be invalidated by any act, omission or neglect of Lessee and will provide expressly for at least thirty (30) days prior written notice to Lessor of alteration or cancellation. The proceeds of such insurance will be applied first to any unpaid obligations of Lessee under this Lease arising prior to the receipt of the proceeds and then toward the restoration or repair of the Equipment or if Lessor 6 7 determines that any item of Equipment is lost, stolen, destroyed, or damaged beyond repair toward payment of the amounts required by Section 13 above. Any excess proceeds remaining thereafter will be paid to Lessee, provided Lessee is not then in default under this Lease. (b) Lessee at its expense will carry public liability, property damage and, if required by Lessor, collision insurance with respect to the Equipment and the use thereof in amounts satisfactory to Lessor. Each such policy of insurance will name Lessor as an additional insured thereon. (c) All policies relating to the insurance referred to in Subsections 14(a) and (b) above, will be in such form and with such companies as are satisfactory to Lessor and will name Lessor as an additional insured and as an additional loss payee. Lessee will furnish Lessor proof of such insurance. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make claim for, adjust, settle, receive payment of and execute and endorse all documents, checks or drafts for loss or damage under any such insurance policy. (d) If Lessee fails to procure, maintain and pay for such fire and extended coverage insurance or any such public liability, property damage or collision insurance required by Lessor, Lessor will have the right, but not the duty, to obtain such insurance on behalf of and at the expense of Lessee. In the event Lessor does obtain and pay for such insurance, Lessee will reimburse Lessor for the costs thereof no later than the date of the next scheduled rental payment under this Lease. Section 15. Right of Lessor to Perform. If the Lessee shall fail to comply with any of its covenants herein contained, the Lessor (or, in the case of an assignment by the Lessor pursuant to Section 9(b) hereof, as assignee), may, but shall not be obligated to, make advances to perform the same and to take all such action as may be necessary to obtain such performance. Any payment so made by any such party and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection therewith shall be immediately due and payable by the Lessee to the party making the same, as additional rent hereunder. Section 16. Events of Default. Any of the following events shall constitute an Event of Default: (a) The nonpayment by Lessee for ten (10) days of any rent or other amount provided for herein after the same is due and payable; (b) The failure of Lessee to observe, keep or perform any other provisions of this Lease required to be observed, kept or performed by Lessee, which failure is not cured ten (10) days after notice thereof by Lessor; (c) The failure of Lessee to make any payment when due, or to observe or perform any covenant or agreement contained in, or the occurrence of a default or Event of Default under any agreement evidencing, guarantying or securing any other indebtedness or obligation of Lessee to Lessor, The Fifth Third Bank, or any affiliate of Fifth Third Bancorp of any kind or nature; (d) The making of any representation or warranty by Lessee herein or in any agreement, document or certificate delivered to Lessor in connection herewith, or any financial statement furnished by Lessee to Lessor which, at any time, proves to be incorrect in any material respect; (e) Lessee's making an assignment for the benefit of creditors or committing any other affirmative act of insolvency or bankruptcy, filing a petition in bankruptcy or for arrangement or reorganization or having such a petition filed against it if such petition is not dismissed or withdrawn within thirty (30) days; (f) The attachment of a substantial part of the property of Lessee or appointment of a receiver for Lessee or any substantial part of Lessee's property; 7 8 (g) Lessee ceases to do business as a going concern, or if there is a change in the ownership of Lessee which changes the identity of any person or persons having, directly or indirectly, more than 10% of either the legal or beneficial ownership of Lessee; (h) There shall occur, in Lessor's reasonable opinion, a deterioration in the financial strength of the Lessee or any event occurs which might, in Lessor's opinion, have an adverse effect on the Equipment or on Lessee's financial condition, operations or prospects; (i) Any guarantor of Lessee's obligations hereunder denies his or its obligations to guarantee any obligations then existing or attempts to limit or terminate his or its obligations to guaranty the Lessee's obligations hereunder. Lessee also agrees, upon any responsible officer of Lessee becoming aware of any condition which constituted or constitutes an Event of Default under this Lease or which, after notice or lapse of time, or both, would constitute such an Event of Default, to promptly furnish to Lessor written notice specifying such condition and the nature and status thereof. For purposes of this Section, a "responsible officer" shall mean, with respect to the subject matter of any covenant, agreement or obligation of Lessee contained in this Lease, any corporate officer of Lessee who, in the normal performance of his operational responsibilities, would or should have knowledge of such matter and the requirements of this Lease with respect thereto. Section 17. Remedies. Upon the occurrence of any Event of Default, and so long as the same shall be continuing, Lessor shall have the right to declare this Lease in default without notice to Lessee. Such declaration shall apply to all schedules then in effect hereunder. Upon the making of any such declaration, Lessor shall have the right to exercise any one or more of the following remedies: (a) To take possession of any and all items of Equipment without further demand or notice wherever they may be located without any court order or process of law (but if Lessor applies for a court order or the issuance of legal process, Lessee waives any prior notice of the making of this application or the issuance of such order of legal process) and Lessee hereby waives any and all damages occasioned by such taking of possession; any such taking of possession shall not constitute termination of this Lease as to any or all of Equipment unless Lessor expressly so notified Lessee in writing; (b) To terminate this Lease as to any or all items of Equipment without prejudice to Lessor's rights in respect to obligations then accrued and remaining unsatisfied; (c) To recover from Lessee (and Lessee agrees to pay in cash the following): (i) all amounts then owed by Lessee to Lessor under this Lease; (ii) the unpaid balance of the total rent for the initial term of this Lease attributable to said Equipment. (iii) an amount equal to N/A (N/A%) of the actual cost of said Equipment; and (iv) an amount equal to 10% of the original cost of the Equipment as liquidated damages and not as a penalty. 8 9 (d) To sell any or all of the Equipment in public or private sale, in bulk or in parcels, for cash or on credit without having the Equipment present at the place of sale and to recover from Lessee all costs of taking possession, storing, repairing, and selling the Equipment (and Lessor may use Lessee's premises for any or all of the foregoing without liability for rent, costs, or damages or otherwise) or to otherwise dispose, hold, use, operate, lease to others or keep idle such Equipment all as Lessor in its sole discretion may determine and to apply the proceeds of any such action: (i) to all costs, charges and expenses incurred in taking, removing, holding, operating, repairing, and selling, leasing or otherwise disposing of the Equipment; then (ii) to the amounts set forth in Section (c) (i), (ii), and (iii) and (iv) above provided that Lessee shall pay any deficiency due Lessor; and (iii) any surplus shall be retained by Lessor; (e) To pursue any other remedy provided for by status or otherwise available at law or in equity. Notwithstanding any repossession, or other action which Lessor may take, the Lessee shall be and remain liable for the full performance of all obligations on the part of Lessee to be performed under this Lease to the extent not paid or performed by Lessee. All such remedies are cumulative and may be exercised concurrently or separately. In addition to the foregoing, Lessee shall pay Lessor all costs and expenses, including reasonable attorneys' fees and fees of collection agencies incurred by Lessor in exercising any of its rights and remedies hereunder. Section 18. Repayment of Other Amounts. In addition to any other right granted to Lessor hereunder to terminate this Lease, Lessor shall have the right to terminate this Lease and collect all amounts due hereunder (including any lump sum or other tax payments provided in Section 3 hereof) if Lessee, whether at the direction or request of the Lessor or any affiliate of Lessor, The Fifth Third Bank, or The Fifth Third Bancorp, repays all or substantially all other amounts and obligations owed by Lessee to the Lessor or any affiliate of the Lessor, The Fifth Third Bank or The Fifth Third Bancorp. Section 19. Further Assurances. Lessee will, upon request of Lessor, at Lessee's sole cost and expense, do and perform any other act and will execute, acknowledge, deliver, file, record and deposit (and will re-file, re-register, re-record, and re-deposit whenever required) any and all further instruments required by law or Lessor including, without limitation, financing statements or other documents needed for the protection of Lessor's interest. Section 20. Notices. Any notices and demands required to be given hereunder shall be in writing and may be delivered personally or mailed by certified mail, return receipt requested, to the respective addresses of the parties above set forth, or to such other address as either party may hereinafter indicate by written notice, as provided in this section. Section 21. Financial Statements. Within sixty (60) days after the end of each fiscal quarter and within ninety (90) days after the end of each fiscal year of Lessee during the term of this Lease, Lessee shall deliver to Lessor yearly Balance Sheets, Profit and Loss Statements and Source and Application of Funds of Lessee certified by the independent public accountants of Lessee or if unaudited, certified to be true and correct by the chief financial officer of Lessee. Section 22. Filings. Power of Attorney. Lessee will execute and deliver to Lessor at Lessor's request all financing statements, continuation statements, and other documents that Lessor may reasonably request, in form satisfactory to Lessor, to perfect and maintain Lessor's interest in the Equipment and to fully consummate all 9 10 transactions contemplated under this Agreement. Lessee hereby irrevocably makes, constitutes and appoints Lessor (or any of Lessor's officers, employees or agents designated by Lessor) as Lessee's true and lawful attorney with power to sign the name of Lessee on any such documents. This power, being coupled with an interest, is irrevocable until all obligations of Lessee to Lessor have been fully satisfied. Section 23. Late Payments. Interest at the rate of 5% per month or the maximum rate permitted by law, whichever is less, shall accrue on the amount of any payment not made when due hereunder from the date thereof until payment is made, and Lessee shall pay such interest to Lessor, on demand. Section 24. Entire Agreement. THIS LEASE AND ASSOCIATED SCHEDULES CONSTITUTES THE ENTIRE AGREEMENT BETWEEN LESSOR AND LESSEE AND EXCLUSIVELY AND COMPLETELY STATES THE RIGHTS OF LESSOR AND LESSEE WITH RESPECT TO THE LEASING OF THE EQUIPMENT AND SUPERSEDES ALL PRIOR AGREEMENTS, ORAL OR WRITTEN, WITH RESPECT THERETO AND ANY COURSE OF DEALING OF THE PARTIES HERETO. Section 25. Finance Lease. The Lessor and Lessee hereby agree that this Lease is a "finance lease" as that term is defined in Section 1310.01(A)(7) of the Ohio Revised Code and that Lessor shall be treated as a finance lessor entitled to the benefits and releases from liability accorded to a finance lessor under the Uniform Commercial Code. Section 26. Miscellaneous. (a) This Lease shall inure to the benefit of and be binding upon the successors and assigns of the respective parties hereto provided, however, that nothing contained in this section shall impair any of the provisions prohibiting assignment without the consent of Lessor; (b) Any provision of this Lease which is unenforceable in any jurisdiction shall not render unenforceable such provision in any other jurisdiction and shall not invalidate the remaining provision of this Lease. (c) This Lease shall be governed by and construed under the laws of Ohio without regard to its conflicts of laws provisions. (d) All covenants of Lessee herein shall survive the expiration or termination of this Lease to the extent required for their full observance and performance. (e) No delay or omission to exercise any right, power or remedy accruing to Lessor upon any breach or default of Lessee hereunder shall impair any such right, power or remedy nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein or of any similar breach or default thereafter occurring, nor shall any waiver of any single breach of default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of Lessor of any breach or default under this Lease must be in writing specifically set forth. (f) Lessee agrees that the state and federal courts in the county of Lessor's principal place of business or any other court in which Lessor initiates proceedings have exclusive jurisdiction over all matters arising out of this Agreement and that service of process in any such proceeding shall be effective if mailed to Lessee at its address described in the first paragraph of this Lease. LESSOR AND LESSEE HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. 10 EX-10.59 15 EXHIBIT 10.59 1 EXHIBIT 10.59 MASTER LEASE (MOTOR VEHICLE) This Master Lease Agreement ("Master Lease") is dated 5-17-96, between NBD Bank ("Lessor"), and McClain Group Leasing, Inc. ("Lessee"). Lessee wants from time to time to lease from Lessor personal property to be described in one or more schedules ("Schedule") of leased equipment. Lessor is willing to lease such personal property to Lessee at the rent, for the term and upon the conditions stated. Any Schedules executed by Lessor and Lessee which are identified as being a part of this Master Lease, shall be deemed to incorporate by reference all the terms of this Master Lease except as provided in the Schedule. In the event of a conflict between this Master Lease and any Schedule, the provisions of such Schedule shall control. 1. EQUIPMENT LEASED AND TERM. This Master Lease shall cover such personal property as is described in any Schedule (the "Equipment") executed by the parties. Lessor leases to Lessee and Lessee hires and takes from Lessor, subject to the conditions of this Master Lease, the Equipment described in any Schedule. The term for any item of Equipment shall be for the period as set forth in the Schedule ("Initial Lease Term"). 2. RENT. The rent for each item of Equipment shall be payable as, and in the amount, shown on the Schedule. 3. PURCHASE AND ACCEPTANCE. Lessee requests Lessor to acquire all scheduled Equipment pursuant to an assignment of Lessee's purchase order(s) for the Equipment. Delivery of each item of Equipment shall be deemed complete upon the acceptance date ("Acceptance Date") stated in the Schedule. Lessor shall not be liable for loss or damage or for the delay or failure of any supplier of the Equipment ("Seller") to deliver any item of Equipment. THE LESSEE REPRESENTS THAT LESSEE HAS SELECTED BOTH THE EQUIPMENT LISTED IN ANY SCHEDULE AND THE SELLER BEFORE HAVING REQUESTED LESSOR TO ACQUIRE THE EQUIPMENT FOR LEASING TO LESSEE. 4. NON-CANCELABLE LEASE. THIS MASTER LEASE IS NON-CANCELABLE. When Lessee signs and delivers a Certificate of Acceptance for the Equipment, its obligations to pay all rent and other amounts for the Initial Lease Term and to perform as required under this Master Lease are unconditional, irrevocable and independent except as provided in a certain credit agreement dated 5-17-96 between the Lessor, as Bank, and the Lessee, as Borrower. These obligations are not subject to cancellation, termination, modification, repudiation, excuse or substitution by Lessee. Lessee is not entitled to any abatement, reduction, offset, defense or counterclaim with respect to these obligations for any reason whatsoever, whether arising out of default or other claims against Lessor, the Seller or the manufacturer of the Equipment, defects in or damage to the Equipment, its loss or destruction. 5. DISCLAIMER OF WARRANTIES BY LESSOR; RIGHTS OF LESSEE. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS-IS". UNDER NO CIRCUMSTANCES SHALL LESSOR BE RESPONSIBLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS MASTER LEASE AND/OR THE EQUIPMENT. LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO LESSOR BY THE SELLER IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT. LESSEE MAY COMMUNICATE WITH THE SELLER AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF THOSE RIGHTS, PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. 6. CLAIMS AGAINST SELLER; SELLER NOT AN AGENT OF LESSOR. If the Equipment is not properly installed, does not operate as represented or warranted by the Seller or is unsatisfactory for any reason, Lessee shall make any claim for same solely against the Seller and shall nevertheless pay Lessor all rent payable under this Master Lease. Lessor agrees to assign to Lessee, solely for the purpose of making and prosecuting any such claim, any rights it may have against the Seller for breach of warranty or representation regarding the Equipment. Notwithstanding any fees that must be paid to Seller or any agent of Seller, Lessee understands and agrees that neither the Seller nor any agent or employee of the Seller is an agent or employee of the Lessor and that neither the Seller nor its agent or employee is authorized to waive or alter any term or condition of this Master Lease. 7. TITLE; LOCATION OF THE EQUIPMENT; EQUIPMENT IS PERSONAL PROPERTY; TERMINATION. Title to the Equipment is in the Lessor and under no circumstances shall pass to Lessee. Lessor agrees that the Equipment is motor vehicles, primarily operating in the United States. Lessee shall provide Lessor, immediately upon request during the term of the Master Lease, a written report of Equipment locations. LESSEE FURTHER COVENANTS AND AGREES THAT THE EQUIPMENT IS, AND WILL AT ALL TIMES BE AND REMAIN, PERSONAL PROPERTY. 2 Upon Termination of the Initial Lease Term of any Schedule, the Equipment shall be disposed of in accordance with the terms of Rider A of this Master Lease. 8. NO ASSIGNMENT BY LESSEE; ASSIGNMENT BY LESSOR. THIS MASTER LEASE SHALL NOT BE ASSIGNED BY LESSEE, NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Lessor may sell or assign all or part of its right, title and interest in this Master Lease, any item of Equipment and/or any Schedule and in any monies to become due to the Lessor. The assignee shall not be liable for or be required to perform any of Lessor's obligations to Lessee. All assigned rental payments shall be paid directly to assignee, upon written notice to Lessee of such assignment. Lessee's performance of all its obligations shall not be subject to any defense, counterclaim or setoff which the Lessee may have against Lessor. Lessee agrees that it will not assert any such defenses, setoffs, counterclaims or claims against the assignee. 9. CASUALTY AND LIABILITY INSURANCE; RISK OF LOSS; DAMAGE OR DESTRUCTION. Lessee shall keep all Equipment insured against loss by fire, theft and all other hazards (comprehensive coverage) in such amounts as Lessor reasonably requires but not less than the casualty value ("Casualty Value") for such item indicated in the Casualty Value Table attached to the applicable Schedule. Lessee appoints Lessor Lessee's attorney in fact to endorse any loss payment or returned premium check and to make any claim under such insurance. Lessee shall also insure the Lessor and Lessee with respect to liability for personal injuries in amounts of at least $1,000,000 per individual, $3,000,000 per occurrence; and $1,000,000 per occurrence for damage to or loss of use of property resulting from the ownership, use and operations of the Equipment and against risks customarily insured against by the Lessee for equipment owned by it. All policies shall be endorsed with Lessor as a loss payee and additional insured and shall provide that the interest of Lessor shall not be invalidated by any act of Lessee. Evidence of insurance must be delivered to Lessor within 30 days after any Acceptance Date. In the event of loss, destruction or theft of, or damage to, any of the Equipment, Lessee will immediately notify Lessor. If Lessee defaults in obtaining any insurance, Lessor may but is not required to, place such insurance. Any premiums paid by Lessor shall be additional rent payable on demand with interest at the highest legal rate from the date of payment. At Lessor's sole option, such amounts together with interest may be added to the lease balance to be paid by Lessee as additional monthly rent. Lessee assumes and shall bear all risks of loss of, damage to or destruction of each item of Equipment, whether partial or complete. Except as provided in this Section 9, no such event shall relieve the Lessee of its obligation to pay the full rental payable for such item. If any item of Equipment is destroyed, damaged beyond economical repair, lost or stolen, or taken by governmental action for a stated period extending beyond the Initial Lease Term for such item (an "Event of Loss"), Lessee must promptly notify Lessor and any assignee and pay to Lessor or the assignee, as the case may be, on the next rent payment date following the Event of Loss the Casualty Value of the item of Equipment. Upon such payment and provided no Event of Default as defined in Section 12 has occurred, Lessee's obligation to pay rent for such item of Equipment will cease and Lessee will be entitled to receive any insurance proceeds or other recovery received by the Lessor or assignee in connection with the Event of Loss. 10. REPAIRS; USE; ALTERATIONS; ATTACHMENTS. Lessee, at its own expense, shall keep the Equipment maintained in good repair, condition, working order, and in accordance with the manufacturer's recommended maintenance procedures and specifications, shall use the Equipment lawfully; and shall not alter the Equipment without the Lessor's prior written consent. Lessee shall take no action which would void the manufacturer's warranty on the Equipment. All items which become attached to or a part of the Equipment become the property of Lessor. 11. LIENS AND TAXES. Lessee at its expense shall keep the Equipment free and clear of all levies and liens. Lessee agrees to comply with all laws, regulations and orders relating to this Lease and to pay when due, all license fees, assessments and sales, use, property, excise, federal highway use, ad valorem, ton mileage and other taxes now or later imposed by any governmental body or agency upon any Equipment, or the use of the Equipment, exclusive, however, of any taxes based on the net income of Lessor. Lessee shall pay all such taxes directly to the respective taxing authorities except for the sales tax on rental payments. Any fees, taxes or other charges paid by Lessor after ten (10) days notice to and upon failure of Lessee to make such payments, shall at Lessor's option, become immediately due if Lessee shall not have previously notified Lessor in writing of its good faith contest of such taxes. 12. DEFAULT. Any of the following shall constitute an event of default ("Event of Default") by Lessee: (a) Lessee fails to pay when due any scheduled rent or other amount required by this Master Lease and such failure continues for a period five (5) days; (b) Lessee breaches any covenant of this Master Lease or fails to promptly perform any of its terms or conditions and such failure continues for a period (30) days; (c) Lessee makes an assignment for the benefit of creditors; (d) a petition is filed by or against Lessee in bankruptcy or for the appointment of a receiver; (e) dissolution or suspension of Lessee's usual business; (f) Lessee makes a bulk transfer or bulk sale of any assets; (g) any material representation, warranty, or signature made by Lessee in this Master Lease or related document is incorrect, fraudulent or breached; or (h) Lessee defaults under the terms of any agreement or instrument relating to any lease or debt for borrowed money such that the lessor accelerates the rent or the creditor declares the debt due before its maturity. Lessee agrees to give Lessor prompt notice upon the occurrence of an Event of Default. 3 13. LESSOR'S REMEDIES UPON DEFAULT BY LESSEE. Upon the occurrence of an Event of Default, Lessor, without further notice, and in addition to any remedy provided by law, may (i) recover from Lessee the Casualty Value of the Equipment together with any unpaid rent and (ii) regardless of whether such amounts are paid, take possession of any items of Equipment and at Lessor's option sell or lease at public auction or by private sale or otherwise dispose of such items of Equipment. If Lessee has paid the Casualty Value, all unpaid rent and all other amounts owing under this Master Lease and any items of Equipment have been taken from Lessee, the proceeds of any reletting or sale (less all costs and expenses including reasonable attorneys' fee) shall be paid to the Lessee. Regardless of any sale or lease of the Equipment or any payment of the Casualty Value, Lessee will remain liable to Lessor for all damages as provided by law and for all costs and expenses caused by Lessee's breach, including court costs and reasonable attorneys' fees (whether attributable to Lessor's in-house counsel or outside counsel). These costs and expenses shall include, without limitation, any costs or expenses incurred by Lessor in any bankruptcy, reorganization, insolvency or other similar proceeding. 14. LATE CHARGES. Without limiting Lessor's remedies above, if Lessee fails to pay any amount of rental or other payment for a period of ten days after its due date, Lessee agrees to pay Lessor a late charge of 5% of each such payment or installment with a minimum late charge of $25.00. This late charge shall be reassessed in each subsequent month that the rental or other payment remains unpaid. 15. FINANCING STATEMENTS. The Lessor is authorized to file a financing statement in accordance with the Uniform Commercial Code signed by Lessee or by Lessor, as Lessee's attorney in fact. 16. JURISDICTION; VENUE; SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MICHIGAN. LESSEE CONSENTS TO THE JURISDICTION OF THE COURTS OF MICHIGAN AND TO VENUE IN THE COURTS OF THE COUNTY OF OAKLAND. No provision which may be construed as unenforceable shall in any way invalidate any other provision, all of which shall remain in full force and effect. 17. WARRANTIES BY LESSEE. Lessee warrants and represents that: (a) the Equipment is being leased for business purposes; (b) all signatures are genuine; and (c) the person signing the Master Lease is authorized to do so. If Lessee is other than a natural person, it further represents that (a) it is duly organized, existing and in good standing pursuant to the laws under which it is organized; and (b) the execution and delivery of this Master Lease and the performance of the obligations it imposes are within its powers and have been duly authorized by all necessary action of its governing body and do not contravene the terms of its articles of incorporation or organization, its bylaws or any partnership, operating or other agreement governing its affairs: 18. INDEMNITY BY LESSEE. LESSEE AGREES TO INDEMNIFY AND HOLD LESSOR OR ANY ASSIGNEE HARMLESS FROM ANY AND ALL CLAIMS, ACTIONS, PROCEEDINGS, EXPENSES, DAMAGES AND LIABILITIES, INCLUDING ATTORNEYS' FEES, ARISING OUT OF OR IN ANY MANNER PERTAINING TO THE EQUIPMENT OR THIS MASTER LEASE INCLUDING, WITHOUT LIMITATION, THE OWNERSHIP, SELECTION, POSSESSION, PURCHASE, DELIVERY, INSTALLATION, LEASING, OPERATION, USE, CONTROL, MAINTENANCE AND RETURN OF THE EQUIPMENT AND THE RECOVERY OF CLAIMS UNDER INSURANCE POLICIES. Lessee acknowledges that the Equipment is owned by Lessor ("Owner"). It is the intent of Owner/Lessor and Lessee that this Lease constitute a true lease for Federal income tax purposes so that, for the purpose of determining its liability for Federal income taxes, Owner shall be entitled to the tax benefits as are provided by the Internal Revenue Code of 1986, as amended, (the "Code") to an owner of personal property. In addition notwithstanding any other provision of this Master Lease, if as to any Equipment, the modified accelerated cost recovery system or depreciation deductions allowed under the Code shall be lost, disallowed, eliminated, reduced, recaptured or otherwise unavailable to Lessor for any reason, then Lessee shall pay to Lessor as additional rent within 30 days after such a loss an amount equal to the sum of (i) the additional federal, state, local and foreign income or any other taxes payable as a result of such loss, disallowance, elimination, reduction, recapture or unavailability of accelerated cost recovery or depreciation deductions plus (ii) the amount of any interest, penalties or additions to tax payable by the Lessor as a result of such additional tax. The indemnities given and liabilities assumed by the Lessee pursuant to this Section 18 shall continue in full force and effect notwithstanding the expiration or other termination of this Master Lease. 19. NOTICES. Notice from one party to another relating to this Master Lease shall be deemed effective if made in writing (including telecommunications) and delivered to the recipient's address, telex number or telecopier number set forth under its name below. 4 20. LABELS AFFIXED TO EQUIPMENT. Lessor shall have the right, but not the obligation, to attach or require Lessee to attach ownership identification labels to the Equipment. Lessee agrees not to remove any such labels. 21. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses, including reasonable attorneys' fees, incurred by Lessor in enforcing any terms of, or in protecting Lessor's interests under, this Master Lease. 22. PERFORMANCE BY LESSOR. If the Lessee fails to promptly perform any of its obligations under this Master Lease, Lessor may, at its option, perform such act or make such payment which the Lessor deems necessary. All sums paid or incurred by Lessor including reasonable attorneys fees shall be immediately due and payable by Lessee, without demand, and shall bear interest at the lesser of one and one-half percent (1-1/2%) per month or the highest rate permissible by law. 23. ENTIRE AGREEMENT. This Master Lease and subsequent Schedules constitute the entire agreement of the parties. Neither party relies on any other statements, understandings, representations or assurances, the same, if any having been merged into this agreement. This agreement cannot be modified except by a writing signed by each party. This agreement inures to the benefit of the heirs, executors, administrators, successors and assigns of the parties. 25. WAIVER. No delay on the part of Lessor in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by Lessor of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver by Lessor of any default shall be effective unless in writing and signed by Lessor, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion. 25. FINANCIAL REPORTS. Upon request by Lessor, Lessee will promptly furnish to Lessor all financial reports deemed necessary by Lessor. 26. WAIVER OF JURY TRIAL. Lessor and Lessee, after consulting or having had the opportunity to consult with counsel, knowingly, voluntarily and intentionally waive any right either of them may have to a trial by jury in any litigation based upon or arising out of this Master Lease, or any related agreement, or any course of conduct, dealing or statements (whether oral or written). These provisions shall not be deemed to have been modified in any respect or relinquished by either Lessor or Lessee except by a written instrument executed by both of them. THIS MASTER LEASE AGREEMENT THE UNDERSIGNED (AND IF SHALL NOT BE BINDING ON LESSOR MORE THAN ONE, JOINTLY UNTIL IT HAS BEEN ACCEPTED AND AND SEVERALLY) AGREE TO EXECUTED BY AN OFFICER OF LESSOR. TO ALL TERMS AND CONDITIONS ABOVE WHICH ARE PART OF THIS MASTER LEASE AGREEMENT. Accepted by Lessor: NBD Bank Lessee: McClain Group Leasing, Inc. By: Andrew P. Sabath By: ----------------------- ----------------------- Title: 2nd VP Title: --------------------- --------------------- Date: 5-17-96 By: ---------------------- ----------------------- Title: --------------------- Date: --------------------- Address For Notices: Address For Notices: 39555 Orchard Hill Place Drive ___________________________ Suite #340 ___________________________ Novi, MI 48375 ___________________________ Fax No.: (810) 349-3893 Fax No.: __________________ 5 [NDB LETTERHEAD] ANDREW P. SABATH Second Vice President July 25, 1995 Mr. Jim Zabinski Treasurer McClain Industries, Inc. 6200 Elmridge Sterling Heights, MI 48310 Dear Mr. Zabinski: NBD Bank is pleased to provide the following lease facility for Prime Leasing, Inc. The terms and conditions of the facility are outlined below. Lessee... Prime Leasing Corporation Lessor... NBD Bank (NBD) Guarantor/Source... McClain Industries, Inc. Equipment... E-Z Pack Hercules, E-Z Pack Goliath, Magna-Hoist Tilt Frame and Aluminum Closed Top Walking Floor Transfer Hauler Equipment Cost... Up to a maximum of $5,000,000 Delivery and Lease Commencement Date... On or before June 30, 1996 TRACTORS: Payments... Monthly in advance Base Lease Term... Sixty (60) months 6 [NBD LOGO] -2- Rental Rates... 1st Quarter (January 1 through March 31) .01690 of actual equipment cost 2nd Quarter (April 1 through June 30) .01679 of actual equipment cost 3rd Quarter (July 1 through September 30) .01670 of actual equipment cost 4th Quarter (October 1 through December 31) .01661 of actual equipment cost Rental Adjustment: The rental rate quoted above will be adjusted by .0000052 for each basis point increase or decrease, or prorated portion thereof, in the yield of the Treasury Note rate indicated below. The rental rate will continue to be subject to adjustment until the Lessor has been notified that the Equipment has been delivered and accepted by the Lessee. Upon such notification, the Lessor will fix the rate and prepare the necessary documentation for execution by the Lessee. The Treasury note rate will be the average yield of 3 year U.S. Treasury Notes (as published in federal Reserve Statistical Release H.15 [519] from the complete one week period immediately preceding the date of closing. At the time of this proposal, the average yield for the prior week is 5.73%. Terminal Rental 20% Split/TRAC Adjustment Clause... Lessee at risk for last 12%; Lessor at risk for first 8%. Depreciation... Five (5) year MACRS for the account of the Lessor. Interim Rents... It is assumed the acceptance date of the equipment and commencement date of the Lease will be the same therefore, no Interim Rents are expected. If there are Interim Rents, the rate will be the prime rate of NBD. Net Lease... Prime Leasing Corporation will be responsible for all expenses incurred in connection with the Equipment and the Lease. NBD will make no warranties of any kind with respect to the Equipment. Prime Leasing Corporation shall have all risks of loss. Insurance... Prime Leasing Corporation will provide physical damage insurance and liability insurance with endorsements and in amounts acceptable to NBD prior to the delivery of the equipment. NBD will be named as additional insured under the casualty coverage and under the Prime Leasing Corporation comprehensive coverage. 7 [NBD LOGO] -3- Taxes... Prime Leasing Corporation will pay all taxes associated with the possession, control and operation of the Equipment, including but not limited to sales and use tax on lease payments, if required and personal property tax (excludes any taxes based on NBD's net income). Titling Fees... It is assumed that Prime Leasing Corporation/McClain Industries, Inc. will title the vehicles, therefore no fees will be required. Material Adverse Change... There will not have occurred, prior to the initial Funding Date, in the opinion of Lessor, any material adverse change in the financial position or in the circumstances involving the nature of Lessee's or Guarantor's business. Jim, we are pleased to provide this facility for your company. I hope the terms and conditions are acceptable to you. As you requested, I am also sending you a copy of our lease documents for your review. If you have any questions or require further information, please feel free to call. Sincerely, NBD Bank Andrew P. Sabath Andrew P. Sabath cc: N. Warriner EX-21 16 EXHIBIT 21 1 EXHIBIT 21 SIGNIFICANT SUBSIDIARIES McClain of Ohio, Inc., a Michigan corporation Galion Holding, Inc., a Michigan corporation 208 EX-27 17 EXHIBIT 27
5 YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1,065,039 0 18,502,950 0 25,577,000 47,246,634 38,147,522 13,899,589 79,425,255 14,874,995 0 0 0 5,803,870 19,653,385 79,425,255 84,680,797 84,680,797 66,959,726 66,959,726 11,273,491 0 3,044,398 3,614,957 1,230,000 2,384,957 0 0 0 2,384,957 .50 0
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