-----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, AbJeLaU6h/euMDEcC/ub2R1vIzpmyocSCo6J59vTXQWZA+nyhGxaJDgostk+W7+5 7h5fMXJ3iZK7KVGFLrs2Tg== 0000950124-97-006672.txt : 19971230 0000950124-97-006672.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950124-97-006672 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 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-K405 SEC ACT: SEC FILE NUMBER: 000-07770 FILM NUMBER: 97745751 BUSINESS ADDRESS: STREET 1: 6200 ELMRIDGE RD CITY: STERLING HEIGHTS STATE: MI ZIP: 48310 BUSINESS PHONE: 8102643611 10-K405 1 FORM 10-K405 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, 1997 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 11, 1997, the aggregate market value of the Registrant's voting stock held by nonaffiliates of the Registrant was $8,509,392 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 11, 1997, there were 4,751,373 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-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio, McClain-Oklahoma and EPCO are sometimes collectively referred to as "McClain"; Galion Holding, E-Z Pack and Galion Dump Bodies are sometimes collectively referred to as "Galion"; and, unless the context otherwise requires, all references to the Company mean McClain-Michigan and all of the entities owned or controlled by McClain-Michigan. The Company's executive offices are located at 6200 Elmridge Road, Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611. PRODUCTS The Company manufactures and markets dump truck bodies and four solid waste handling equipment product lines: (1) containers; (2) compactors and baling 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 2 3 equipment accounted for approximately 75%, of the Company's consolidated net sales for the fiscal year ended September 30, 1997. Dump Truck Bodies and Hoists Galion Dump Bodies manufactures steel dump truck bodies varying in capacity from two to twenty-five cubic yards at its Winesburg, Ohio facility. McClain-Georgia and McClain-Oklahoma, under license from Galion Dump Bodies, also manufacture dump truck bodies at their Macon, Georgia and Oklahoma City, Oklahoma facilities, respectively. Dump truck bodies are assemblies which are attached to a truck's frame or chassis, to allow the truck to carry and dump solid materials such as dirt, gravel or waste materials. Hoists are the hydraulic lift mechanisms used to tilt the dump body. Trucks with a dump body and hoist are commonly seen in use as "dump trucks". The products manufactured by Galion Dump Bodies are sold under the registered trademark "Galion". The trademark registration, if not renewed, will expire in the year 2001 Containers Detachable Roll-Off Containers and Roll-Off Hoists. McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio and McClain-Oklahoma manufacture several types of detachable roll-off containers and roll-off hoists at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama, Oklahoma City, Oklahoma, and Galion, Ohio. Detachable roll-off containers vary in capacity from ten to forty-five cubic yards and are transported with their contents to recycling centers, incinerators or landfill sites. Roll-off hoists consist of frames mounted on truck chassis which are hydraulically operated to load, transport and dump roll-off containers. Roll-off hoists are advertised and sold under the trade name "MAGNA-HOIST. Intermodal, Water-Tight and Sludge Containers. The Company manufactures various types of intermodal, water-tight and sludge containers at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama, Oklahoma City, Oklahoma, and Galion, Ohio. Intermodal containers vary in capacity from nineteen cubic yards to thirty-five cubic yards and are designed for highway, railroad and marine movement of waste products. Water-tight containers vary in capacity from ten to forty cubic yards and are designed for highway movement of wet waste. Sludge containers vary in capacity from ten to thirty-five cubic yards and are designed for highway movement of slurry type waste products. Compactors and Baling Equipment The Company manufactures compactors at its Sterling Heights, Michigan facility. Compactors consist of a compaction unit and separate power source. Compaction units force deposited refuse through an opening at one end of the unit into a roll-off body coupled to the compaction unit. When the roll-off body is filled, the compactor is detached and the roll-off body is removed for dumping. The Company also manufactures unitized compaction systems consisting of a compactor and roll-off container manufactured as a single unit. Compactors are sold under the trade name "MAGNUM" and unitized compactor systems are sold under the trade name "OCTAMAG". EPCO manufactures at 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 3 4 capacity from thirty-two cubic yards to forty-three cubic yards, the rear loading truck bodies vary in capacity from eighteen cubic yards to thirty-one cubic yards, and the side loading truck bodies vary in capacity from twenty-nine cubic yards to thirty-nine cubic yards. The recycling truck bodies vary in capacity from thirty cubic yards to forty cubic yards. The products manufactured by E-Z Pack are sold under the registered trademark "E-Z Pack". Within this line, E-Z Pack sells its rear loading truck bodies under the trademarks "Goliath", "Goliath II", and "Apollo", and its front loading truck bodies under the trademark "Hercules". The side loading truck bodies and the recycling truck bodies are principally identified by the E-Z Pack name only. These trademarks will expire in the year 2001, unless renewed. The Company has several patents covering its recycling truck. Transfer Trailers 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, 1997, the Company's consolidated net sales were divided approximately 47% to distributors, 46% to solid waste handling companies, and 7% to other entities. During the fiscal year ended September 30, 1997, approximately 14.1% of the Company's total sales were made to Waste Management, Inc. No other single customer accounted for more than 10% of the Company's net sales for the fiscal years ended September 30, 1996 or 1995. 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. 4 5 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, 1997, there were approximately 277 authorized Company dealers located in numerous states and 19 authorized Company dealers, licensees and commissioned district managers in 10 foreign countries, each of which is independently owned. The Company is dependent on such dealers for a significant portion of its revenues. These dealers typically specialize in specific products and areas and, accordingly, have specific knowledge of and contacts in particular markets. The Company believes that its dealers have enhanced and will continue to enhance the scope of the Company's marketing and sales efforts and have, to a certain extent, also enabled the Company to avoid certain significant costs associated with creating a more extensive direct sales network. The Company advertises its products under trade names and under its name in trade journals and brochures. Other marketing efforts include articles in trade publications, attendance at trade shows and presentations by the Company's personnel at industry trade conferences. The Company, through Leasing, also provides both sales-type financing and operating leases. At September 30, 1997, Leasing held net lease receivables of approximately $8.2 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 5 6 from time to time in the ordinary course of business. Failure or delay by suppliers in supplying necessary raw materials to the Company could adversely affect the Company's ability to obtain and deliver its products on a timely and competitive basis. In addition, the Company has experienced price fluctuations for the raw materials that it purchases, particularly with respect to steel and aluminum. Any significant price fluctuations in the future could also have an adverse effect on the Company. The Company uses a forecasting and purchasing system to monitor the quantity and cost of necessary raw materials. Such cost controls allow the Company to minimize its operating costs by purchasing from the lowest priced suppliers the appropriate amount of raw materials in light of the Company's needs. The Company often orders raw materials in amounts in excess of its anticipated short-term needs in order to take advantage of price discounts available on large volume purchases of raw materials. To reduce its cost of raw materials, the Company has been processing coiled steel and manufacturing some of its own tubing, rather than purchasing tubing and processed sheet steel from third parties. The Company believes that it is the only manufacturer of dump truck bodies and solid waste handling equipment to process coiled steel and to operate a steel tube mill. Steel Processing Shelby Steel, a wholly-owned subsidiary of the Company, receives coiled steel and either warehouses or cuts and processes the steel at its River Rouge, Michigan facility to prescribed specifications. In addition to processing coiled steel for use by the Company, Shelby Steel also offers steel processing and warehousing services to third parties. Shelby Steel's ability to warehouse customers' steel attracts customers such as steel brokers who do not maintain facilities of their own to warehouse steel. Its steel processing and warehousing sales are generally limited to customers in the Detroit metropolitan area. Sales to third parties represented 91.8%, 89%, and 78.6% 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, 1997, 1996 and 1995, 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. 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, 6 7 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 $16.7 million and $11.5 million at September 30, 1997 and 1996, 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, 1997, 1996 and 1995, the Company had inventory of $31.0 million, $25.6 million and $31.2 million, respectively. EMPLOYEES The Company had approximately 740 employees as of December 12, 1997. 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, 2000. 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 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 7 8 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:
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. 8 9 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. This facility was reorganized, during Fiscal 1997 to manufacture dump bodies, and roll-off hoists to sell principally in the Southeast. The Company's Oklahoma facility consists of three buildings in Oklahoma City, aggregating 100,000 square feet. This facility is used to fabricate and process steel for its own use and to manufacture roll-off containers. 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 30% of capacity. The Alabama facility is currently operating at 60% capacity. The E-Z Pack portion of the Galion, Ohio facility is currently operating at 75% of capacity. The Winesburg, Ohio facility is currently operating at 90% of capacity. The Kalamazoo, Michigan facility is currently operating at 60% of capacity. The EPCO facility is currently operating at 60% 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 8 and 9 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS 9 10 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 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, 1996 First Quarter 7.00 3.375 Second Quarter 5.00 3.50 Third Quarter 6.125 3.875 Fourth Quarter 6.5 4.875
10 11 FISCAL YEAR ENDED SEPTEMBER 30, 1997 First Quarter 7.25 4.75 Second Quarter 6.75 4.625 Third Quarter 5.50 4.25 Fourth Quarter 5.0 4.25
On December 11, 1997, the last reported sales price for the Common Stock as reported by Nasdaq/NMS was $4.25. As of such date there were approximately 241 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:
================================================================================================ 1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- Gross Sales $91,329,737 $84,680,797 $82,263,202 $79,166,990 $61,794,822 Sales Net of Customer Discounts $90,061,170 $84,221,810 $81,569,427 $78,540,233 $61,536,111 Net Income $(1,703,780) $2,384,957 $2,462,755 $3,250,996 $2,110,838 Net Earnings Per Common and Common Equivalent Share,(1), (2) $(.36) $.50 $.53 $.71 $.51 AS OF SEPTEMBER 30, Working Capital ---------------------------------------------------------------- Total Assets $33,520,003 $32,371,639 $33,868,556 $21,997,601 $10,664,115 Long-Term Debt $87,185,567 $79,425,255 $73,899,197 $58,189,747 $49,562,268 Stockholders' $38,513,490 $34,217,149 $31,170,287 $18,039,869 $7,022,215 Investment $23,804,091 $25,457,255 $22,841,274 $19,359,709 $15,794,210 Weighted Average Number of Common Equivalent Shares Outstanding(1), (2) 4,729,281 4,752,050 4,657,476 4,608,137 4,104,076 Current Ratio 2.63:1 3.18:1 3.37:1 2.49:1 1.55:1 Long Term Debt to Equity 1.62:1 1.34:1 1.36:1 0.93:1 0.44:1 ================================================================================================
(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. 11 12 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, ------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Net Sales 100.00% 100.00% 100.00% 100.00% 100.00% Cost of Sales 82.74 79.65 78.35 78.12 78.13 ------ ------ ------ ------ ------ Gross Profit 17.26 20.35 21.65 21.88 21.87 Selling, General & Administrative Expenses 15.15 13.60 14.52 13.48 15.00 Restructuring and Impairment Charge 1.95 -- -- -- -- ------ ------ ------ ------ ------ Operating Profit .16 6.75 7.13 8.40 6.87 Other Expense 2.37 2.48 2.59 2.19 2.18 ------ ------ ------ ------ ------ Income (Loss) Before Income Taxes (2.21) 4.27 4.54 6.21 4.69 Income Taxes (Benefit) (.32) 1.45 1.55 2.09 1.27 ------ ------ ------ ------ ------ Net Income (Loss) (1.89)% 2.82% 2.99% 4.12% 3.42% ====== ====== ====== ====== ======
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, 1997 to year ended September 30, 1996 Net sales for the fiscal year ended September 30, 1997 increased 6.93% to $90.1 million compared to $84.2 million for the fiscal year ended September 30, 1996. This increase was primarily due to the acquisition of the Alabama facility in late fiscal 1996 which resulted in an increase in container sales of approximately $10.0 million. Sales of the Company's other products, with the exception of balers which declined approximately $1.8 million, remained essentially stable during Fiscal 1997. Gross profit as a percentage of sales declined to 17.26% for fiscal 1997 from 20.35% for Fiscal 1996, and a net loss from operations of approximately $1.7 million was generated. The decline in gross profit and the net loss from operations were due in large part to a change in the products produced at the Company's Georgia facility, the decision to close the Epco facility as a result of slumping baler sales, certain errors in the Company's pricing models which resulted in the Company setting inadequate prices for its products, and a slowdown in the capital expenditures of many of the national and regional hauling companies. 12 13 In Fiscal 1997, the Company transferred the production of its roll off containers from Georgia to Alabama and the production of its roll-off hoists from Michigan to Georgia. In addition, the Company completely redesigned its roll-off hoists. The time spent by the Company in implementing these changes combined to create a significant loss in production time at Georgia, causing a pretax loss of approximately $1.7 million at that facility. These shifts in production also created certain temporary losses in production time at both the Alabama and Michigan facilities further reducing margins. The recycled paper market remained soft throughout the year causing baler sales to slump. As a result, the Company had a pretax operating loss of approximately $0.6 million. Because of this slump in baler sales and management's projection of continued depressed future baler sales, management determined that it would be unable to profitably produce balers at the Epco facility. The Company has decided to close the Epco facility and move the baler production to one of its Ohio facilities which has excess capacity, thereby eliminating the overhead expenses related to the Epco facility. As a result of this decision, the Company recognized in Fiscal 1997 a pretax restructuring and impairment charge of approximately $1.75 million, which consisted of goodwill of $1.15 million, the write-down of leasehold improvements and other assets of $0.3 million, and costs associated with the closing of the leased facility of $0.3 million. In Fiscal 1993, Company-wide accounting and manufacturing software was installed. Initially, the Company focused on utilizing the accounting modules of the software. It was not until Fiscal 1995 that the Company began to incorporate the manufacturing modules of the software. During the phase-in of these manufacturing modules, certain cost factors related primarily to scrap and other safety margins which the Company historically used in its pricing models were overlooked causing the Company to set the prices of its goods too low. This error went undetected until the end of Fiscal 1997, at which time management performed a detailed evaluation of all pricing models and product costs, which prompted an increase in the selling prices of most of the Company's products in the range of 2% to 4%, effective December 1, 1997. The solid waste hauling industry is currently going through a period of consolidations and reorganizations. Certain regional companies have merged or acquired smaller local haulers, and the two largest hauling companies in the United States are currently undergoing reorganizations after years of rapid growth. Because of these consolidations and reorganizations, many of the national and larger regional hauling companies have reduced their capital expenditures, creating significant downward pressure on the Company's selling prices and lower margins. The Company's inventory levels increased to $31.0 million at the end of Fiscal 1997 from $25.6 million at the end of Fiscal 1996. This increase was primarily due to the Company's inability to adequately adjust its purchasing plan in response to the slowdown in capital purchases by certain national hauling companies discussed above. Selling, general and administrative expenses increased to 15.15% as a percentage of net sales during Fiscal 1997 compared to 13.60% for Fiscal 1996. This increase was attributed primarily to increased selling expenses, increased bad debt write-offs, and a more conservative product liability accrual. To strengthen its position in the market as a provider of a complete line of solid waste hauling equipment, the Company decided to increase its advertising, expand its trade show activity and hire additional sales people. The Company believes that this approach will have positive long term effects on the Company's sales as the consolidations in the solid waste hauling industry continue. The Company suffered a significant bad debt write-off related to the failure of a national trailer manufacturer and experienced certain collection problems with some of the companies involved in the consolidations in the solid waste hauling industry. The Company does not anticipate further collection problems related to these consolidations. 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 $84.2 million compared to sales of $81.7 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 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 13 14 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. LIQUIDITY AND CAPITAL RESOURCES The Company's required level of working capital during Fiscal 1997 was consistent with that of Fiscal 1996, 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 $33.5 million at September 30, 1997, compared to $32.4 million at September 30, 1996. The ratio of the Company's current assets to its current liabilities was 2.63:1 at September 30, 1997 compared to 3.18:1 at September 30, 1996. The Company's cash and short term investments totaled $2.4 million at September 30, 1997. Cash flows provided by operating activities were $1.1 million during Fiscal 1997. The Company also invested approximately $4.0 million in new machinery and equipment during Fiscal 1997. The Company's leasing subsidiary financed approximately $2.6 million of new leases in Fiscal 1997. The Company has begun preliminary negotiations with its primary lender to reduce the interest rate currently charged on its borrowed funds and to restructure the covenants in its various debt agreements. There can be no assurance that negotiations will result in more favorable debt terms to the Company. Additionally, the Company currently has set its budget for capital expenditures in Fiscal 1998 to approximately $2.0 million as compared to $4.1 million in Fiscal 1997. Despite the reduction in the Company's net income during 1997, management believes that the Company cash flow, together with the credit available to it under existing, or revised, debt facilities, will provide it with adequate cash for its working capital needs for the next 12 months. 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, 1997, the Company had borrowed approximately $19.4 million under the working capital line and $0.8 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 $10.0 million with borrowings limited to 80% of eligible lease receivables. At September 30, 1997 approximately $6.3 million had been drawn on this facility. All borrowings with Standard are secured by substantially all of the assets of the Company. In addition, the loans contain various covenants including those requiring the Company to maintain certain current ratios, levels of tangible net worth and debt ratios, and restricting the amount of capital expenditures the Company may make each year. The Company has obtained waivers from Standard for the Company's non-compliance with certain of such covenants as of September 30, 1997. The revolving credit agreements bear interest at prime and expire in March 1999, 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, 1997, approximately $5.0 million had been drawn on this facility. 14 15 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. 15 16 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) 56 Chairman of the Board, Chief Executive Officer and President 3/68 Robert W. McClain(1) 61 Senior Vice President, Assistant Secretary and Director 3/68 Raymond Elliott 63 Director 8/90 Walter J. Kirchberger 62 Director 11/95 Carl Jaworski 54 Secretary 10/72 Mark S. Mikelait 37 Treasurer 9/94
(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 a Vice President of First of America Insurance Group since October 1996. Prior to that he was President and a director of Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans Insurance Agency, Inc. since 1967. Mr. Elliott also serves as a director of the Boys and Girls Club of Troy, a charitable organization located in Troy, Michigan. WALTER J. KIRCHBERGER was elected to the Board of Directors in November 1995. Mr. Kirchberger is First Vice President - Research of PaineWebber Incorporated, and has served in such capacity for more than 25 years. He also serves as a director of Simpson Industries, Inc. CARL JAWORSKI has served as Secretary since October 1972. Mr. Jaworski was also a director and the Treasurer of the Company from October 1972 until April 1992. Mr. Jaworski also serves as Secretary and a director of Shelby Steel and Secretary of McClain-Georgia. Mr. Jaworski is the Secretary of E-Z Pack and a Vice President and Secretary of Sales. 16 17 MARK S. MIKELAIT was elected Treasurer of the Company in May 1997 and joined the company in September 1994. Prior to that time Mr. Mikelait, a CPA, was employed as a Senior Manager by Rehmann Robson, the company's independent auditors, beginning in November 1985. The Company is required to identify each person who was an officer, director or beneficial owner of more than 10% of the Company's registered equity securities during the Company's most recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. Based solely upon its review of copies of such reports received by it during or with respect to the fiscal year ended September 30, 1997, the Company believes that all officers, directors and beneficial owners of more than 10% of the Company's registered equity securities timely filed all required reports. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following tables set forth all cash compensation paid to the Chief Executive Officer of the Company and the only other executive officers whose total annual salary and bonus from the Company exceeded $100,000 during the fiscal year ended September 30, 1997. SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation - ---------------------------------------- ---------------------- Name and Fiscal Salary Options/ Principal Position Year Amount($) SARs(#) - -------------------- ------- --------- ---------- Kenneth D. McClain, 1997 $226,885 --- President/ CEO 1996 275,000 --- 1995 219,675 13.333 Robert W. McClain, 1997 $183,335 --- Senior Vice President 1996 246,832 --- 1995 216,582 6,666 Carl Jaworski 1997 $107,207 --- Secretary 1996 --- --- 1995 --- ---
17 18 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 1997 Realized Fiscal Year-End Fiscal Year-End(2) --------------------------- --------------------------- Not Not Exercisable Exercisable(1) Exercisable Exercisable ----------- -------- ----------- -------------- ----------- ----------- Kenneth D. McClain -0- -0- 26,975 8,879 $ -0- $ -0- Robert W. McClain -0- -0- 22,824 4,444 $ -0- $ -0-
(1) Stock options granted November 16, 1995 pursuant to the Company's 1989 Incentive Stock Plan (the "Incentive Plan"). Options must be exercised by November 15, 2000. Exercise price is $7.31 per share. (2) Value based on the average of the September 30, 1997 closing bid high and low price which was $4.63 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, 1997, 5,466 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 18 19 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 1,464,339(3) 30.82% Robert W. McClain 6200 Elmridge Road Sterling Heights, MI 48310 1,131,246(4) 23.81% June McClain 6200 Elmridge Road Sterling Heights, MI 48310 337,178 7.10% Lisa McClain Pfeil 6200 Elmridge Road Sterling Heights, MI 48310 310,474(5) 6.53% Raymond Elliott 290 Town Center P.O. Box 890 Troy, Michigan 48084 13,182 0.28% Walter Kirchberger 2301 West Big Beaver Rd., Suite 800 Troy, Michigan 48084 3,570 0.08% All current executive officers and directors as a group (6 persons) 2,749,163(6) 57.86%
(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 4,751,373 shares of Common Stock issued and outstanding as of December 11, 1997. 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 80,465 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 19 20 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 $560,000 in Fiscal 1997 to McClain Leasing Corporation, an entity controlled by certain officers and directors of the Company. First of America Insurance Group, Inc., an entity that employs Raymond Elliott, a director of the Company, provided insurance to the Company during Fiscal 1997. Sales from this entity to the Company aggregated approximately $1.1 million during Fiscal 1997, for which this entity 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. (2) A list of financial statement schedules required to be filed as a part of this Form 10-K is shown in the "Index to the Consolidated Financial Statements and Schedules" filed herewith. (3) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-K is shown on the "Index to Exhibits" filed herewith. 20 21 The Company filed a report on Form 8-K during September 1996 regarding its acquisition of the Demopolis, Alabama facility. 21 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 29, 1997 McCLAIN INDUSTRIES, INC. By:/s/ Kenneth D. McClain ---------------------------------- Kenneth D. McClain, President (Principal Executive Officer) And By:/s/ Mark S. Mikelait ------------------------------ Mark S. Mikelait, Treasurer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: December 29, 1997 /s/ Kenneth D. McClain ------------------------------- Kenneth D. McClain, Director Dated: December 29, 1997 /s/ Robert W. McClain ------------------------------- Robert W. McClain, Director Dated: December 29, 1997 /s/ Raymond Elliott ------------------------------- Raymond Elliott, Director Dated: December 29, 1997 /s/ Walter J. Kirchberger ------------------------------- Walter J. Kirchberger, Director 22 23 SECURITIES AND EXCHANGE COMMISSION - -------------------------------------------------------------------------------- Washington, D. C. Form 10-K For Corporations ANNUAL REPORT FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 and 1995 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES (NAME OF REGISTRANT) CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT 24 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES - -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets - September 30, 1997 and 1996 Consolidated Statements of Operations for the years ended September 30, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Investment for the years ended September 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements SCHEDULES The information required to be submitted in Schedule II - Valuation and Qualifying Accounts is included in the consolidated financial statements and notes thereto. The following schedules are omitted as not required or not applicable: I, III, IV and V 25 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' investment, and cash flows for each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. Farmington Hills, Michigan December 19, 1997 26 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND 1996 - --------------------------------------------------------------------------------
ASSETS (NOTES 8 AND 9) 1 9 9 7 1 9 9 6 ---------------- ---------------- CURRENT ASSETS Cash and cash equivalents $ 2,402,421 $ 1,065,039 Accounts receivable, net of allowance for doubtful accounts of $500,000 ($600,000 in 1996) (NOTE 4) 16,589,263 18,502,950 Inventories (NOTE 5) 31,011,766 25,577,000 Net investment in sales-type leases, current portion 2,900,000 1,910,000 Prepaid expenses 362,029 191,645 Refundable federal and state income taxes 837,638 - ---------------- ---------------- TOTAL CURRENT ASSETS 54,103,117 47,246,634 ---------------- ---------------- PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 7) 25,240,624 24,247,933 ---------------- ---------------- OTHER ASSETS Net investment in sales-type leases, net of current portion (NOTE 6) 5,348,773 3,706,350 Goodwill, net of amortization (NOTE 2) 1,704,132 3,453,772 Other 752,878 390,141 Equipment under construction 36,043 380,425 ---------------- ---------------- TOTAL OTHER ASSETS 7,841,826 7,930,688 ---------------- ---------------- TOTAL ASSETS $ 87,185,567 $ 79,425,255 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 27 - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1 9 9 7 1 9 9 6 ---------------- ---------------- CURRENT LIABILITIES Accounts payable $ 14,132,646 $ 10,547,642 Current portion of long-term debt 2,800,000 2,132,201 Accrued expenses (NOTE 10) 2,790,468 2,165,869 Accrued restructuring costs (NOTE 2) 610,000 - Deferred income (NOTE 6) 250,000 - Federal and state income taxes - 29,283 ---------------- ---------------- TOTAL CURRENT LIABILITIES 20,583,114 14,874,995 Long-term debt, net of current portion (NOTE 9) 38,513,490 34,217,149 Product liability (NOTE 16) 2,151,872 2,775,856 Deferred income taxes (NOTE 11) 2,100,000 2,100,000 ---------------- ---------------- TOTAL LIABILITIES 63,348,476 53,968,000 ---------------- ---------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT Common stock, no par value, authorized 10,000,000 shares; issued and outstanding, 4,737,622 shares (4,693,916 shares in 1996) (NOTE 15) 5,887,486 5,803,870 Retained earnings 18,453,605 20,157,385 Less amount due from officers (NOTE 13) (504,000) (504,000) ---------------- ---------------- TOTAL STOCKHOLDERS' INVESTMENT 23,837,091 25,457,255 ---------------- ---------------- $ 87,185,567 $ 79,425,255 TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT ================ ================
28 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
1 9 9 7 1 9 9 6 1 9 9 5 ------------ ------------ ------------ Net sales $ 90,061,170 $ 84,221,810 $ 81,659,427 Cost of sales 74,517,303 67,086,240 63,982,076 ------------ ------------ ------------ GROSS PROFIT 15,543,867 17,135,570 17,677,351 Selling, general and administrative expenses 13,647,757 11,450,466 11,854,579 Restructuring and impairment charges (NOTE 2) 1,755,000 - - ------------ ------------ ------------ INCOME FROM OPERATIONS 141,110 5,685,104 5,822,772 ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (3,448,867) (3,044,398) (2,478,350) Interest income 1,215,877 795,519 410,221 Other, net 101,100 178,732 (17,888) ------------ ------------ ------------ OTHER EXPENSE, NET (2,131,890) (2,070,147) (2,086,017) ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (1,990,780) 3,614,957 3,736,755 Income taxes (benefit) (NOTE 11) (287,000) 1,230,000 1,274,000 ------------ ------------ ------------ NET INCOME (LOSS) $ (1,703,780) $ 2,384,957 $ 2,462,755 ============ ============ ============ Net income (loss) per common and common equivalent shares ($0.36) $0.50 $0.53 ============ ============ ============ Weighted average common and common equivalent shares outstanding 4,729,281 4,752,050 4,657,476 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 29 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
COMMON STOCK AMOUNT ---------------------------- RETAINED DUE FROM SHARES AMOUNT EARNINGS OFFICERS TOTALS ------------- ------------- --------------- ---------------- --------------- Balance at October 1, 1994 4,447,160 $ 4,554,036 $ 15,309,673 $ (504,000) $ 19,359,709 Shares issued 4,981 19,899 - - 19,899 Shares repurchased (98) (1,089) - - (1,089) Common stock issued in connection with EPCO acquisition 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 Shares issued 137,799 378,024 - - 378,024 Shares repurchased (31,627) (147,000) - - (147,000) Net income - - 2,384,957 - 2,384,957 ------------- ------------- --------------- ---------------- --------------- Balance at September 30, 1996 4,693,916 5,803,870 20,157,385 (504,000) 25,457,255 Shares issued 56,971 157,695 - - 157,695 Shares repurchased (24,467) (136,968) - - (136,968) Common stock issued in connection with EPCO acquisition 11,202 62,889 - - 62,889 Net loss - - (1,703,780) - (1,703,780) ------------- ------------- --------------- ---------------- --------------- Balance at September 30, 1997 4,737,622 $ 5,887,486 $ 18,453,605 $ (504,000) $ 23,837,091 ============= ============= =============== ================ ===============
The accompanying notes are an integral part of these consolidated financial statements. 30 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
1 9 9 7 1 9 9 6 1 9 9 5 -------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (1,703,780) $ 2,384,957 $ 2,462,755 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization 4,893,701 2,550,935 2,179,992 Deferred income taxes - 660,000 375,000 Provision for doubtful accounts 432,511 49,400 205,000 Loss or disposal of plant and equipment 4,032 3,981 22,067 Common stock issued to directors for services 28,494 18,613 11,510 Common stock issued in connection with EPCO acquisition 62,889 - - Net changes in operating assets and liabilities which provided (used) cash, net of effects in 1996 and 1995 of business acquisitions: Accounts receivable 1,481,176 (3,987,569) (3,067,591) Inventories (5,434,766) 6,072,095 (7,721,234) Net investment in sales-type leases (2,632,423) (2,055,386) (1,684,275) Prepaid expenses and other assets (1,086,661) (300,974) (195,718) Accounts payable 3,585,004 1,357,333 (1,909,327) Accrued expenses 1,455,314 (735,656) 277,852 --------------- --------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,085,491 6,017,729 (9,043,969) --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment (4,080,499) (1,991,316) (3,995,109) Payments on liabilities assumed upon the Galion acquisition (623,984) (1,371,214) (809,902) Proceeds from sale of plant and equipment - 22,331 30,112 --------------- --------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (4,704,483) (3,340,199) (4,774,899) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 10,078,495 2,139,126 22,927,180 Repayments of long-term debt (5,114,354) (5,137,398) (9,639,955) Sale of common stock under stock option plan 129,201 359,411 8,389 Repurchase of common stock (136,968) (147,000) (1,089) --------------- --------------- --------------- Net cash provided by (used in) financing activities 4,956,374 (2,785,861) 13,294,525 --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 1,337,382 (108,331) (524,343) Cash and cash equivalents, beginning of year 1,065,039 1,173,370 1,697,713 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,402,421 $ 1,065,039 $ 1,173,370 =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. 31 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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. Principles of Consolidation The consolidated financial statements include the accounts of McClain Industries, Inc., and its wholly-owned subsidiaries (Galion Holding Company, Shelby Steel Processing Co., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain of Alabama, Inc., McClain EPCO, Inc., McClain Group Leasing, Inc., McClain Tube Company, McClain International FSC, Inc., an international sales corporation, and McClain Group Sales, Inc., a corporation owned jointly by McClain Industries, Inc. and the two operating subsidiaries of Galion Holding Company). In 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). In August 1996, McClain of Alabama, Inc. was formed and acquired a roll-off container manufacturing facility (Note 2). All significant intercompany accounts and transactions have been eliminated. Concentration Risks The Company grants trade credit to its customers in the normal course of business. No collateral is required. Concentrations of credit risk with respect to trade receivables generally are limited due to the relatively large number of customers comprising the Company's customer base and its geographic dispersion. The Company maintains reserves for potential credit losses and such losses have historically been insignificant and generally within management's expectations. Sales to a major customer aggregated $12,896,000 or approximately 14.1% of total net sales for the year ended September 30, 1997. 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. 32 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities. Deferred income taxes arise from temporary basis differences principally related to inventory, product liability, and plant and equipment. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash in the amount of $1,046,193 at September 30, 1997 is restricted in accordance with the terms of debt agreements as further discussed in Note 9. Sales-Type Leases The Company, through McClain Group Leasing, Inc., offers lease financing to certain purchasers of the Company's products. These leases meet the criteria for classification as capitalized leases and are accounted for as sales-type leases, whereby sales and gross profit are recognized at the inception of the lease. Accordingly, an investment is reflected on the accompanying balance sheets in an amount equal to the gross minimum lease payments receivable less unearned finance income. Unearned finance income is amortized in such a manner as to produce a constant periodic rate of return on the net investment in the lease. 33 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Goodwill Goodwill representing the purchase price in excess of the fair values of net assets acquired is amortized on a straight line basis. The amortization period is estimated based upon management's judgements and generally ranges from 5 to 40 years. Accumulated amortization as of September 30, 1997 and 1996 was $440,350 and $174,053, respectively. A significant portion of goodwill attributable to certain business combinations has arisen in recent years. While management believes that these costs will be recovered from the profitable operating of these businesses in the future, a change in the estimates of the applicable recovery periods or the development of unfavorable business conditions pertinent to these operations could adversely affect the Company's operating results (see Note 2). 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 and accounts payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amounts of long-term debt approximate their fair values because the interest rates are representative of, or change with, market rates. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which established new standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Early adoption is not permitted, and upon initial application, all prior period EPS data is required to be restated. The adoption of SFAS No. 128 is not expected to have a material effect on the Company's EPS amounts. 34 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Common Stock Issued to Directors for Services Common stock is issued from time to time in lieu of cash for services provided to the Company by Directors of the Company and is recorded as compensation expense generally at the fair value on the date of issuance. Revenue Recognition Sales are recorded by the Company when the products are delivered to independent distributors or other customers. Reclassifications Certain amounts reported in 1996 and 1995 have been reclassified to conform to the 1997 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. (Waste), in a business combination accounted for as a purchase. The Company paid approximately $5,700,000 in cash at the closing, which was allocated to the assets received as follows: 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 being amortized over five years. In connection with this transaction, Waste agreed to use reasonable commercial efforts to purchase annually from the Company, containers and related other manufactured products in an amount that is not less than $25,000,000 in sales per year during the five calendar years following the closing. In this event, the Company has agreed to pay to Waste up to $1,200,000 during each year. If Waste purchases less than $25,000,000 annually, the $1,200,000 amount is to be reduced in accordance with the terms of the acquisition agreement. The Company accounts for such payments as sales discounts when and as earned by Waste. For the year ended September 30, 1997 $400,480 has been recorded as sales discounts in connection with post-acquisition sales of $11,613,993 made to Waste pursuant to the agreement. 35 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 2. BUSINESS ACQUISITIONS (CONTINUED) McClain of Alabama, Inc. sales amounted to $9,300,000 during the year ended September 30, 1997. 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 per share, 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 years ended September 30, 1997 and 1996 were approximately $3,200,000 and $4,729,000, respectively. Restructuring and Impairment Charges In September 1997, the Company decided to restructure its baler operations based upon an evaluation of sales levels to date, anticipated levels of business in 1998 and beyond, and unsatisfactory operating results. The plan involves the shift of all baler production from the Company's facility in Buffalo, New York to its Winesburg, Ohio plant, the abandonment of the leased premises in Buffalo, and the transfer of moveable property and equipment to other locations. The related restructuring and impairment charge of $1,755,000 consists principally of a writeoff of goodwill of $1,145,000, the writedown of leasehold improvements and other assets of $310,000, and costs associated with the abandoned leased facilities of $300,000. After an income tax benefit of $207,000, which excludes the writeoff of goodwill not considered to be deductible, these actions reduced reported operating results by $1,548,000 or $0.33 per share. 36 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 3. SUPPLEMENTAL CASH FLOWS INFORMATION Non-cash Investing and Financing Activities During the years ended September 30, 1997, 1996 and 1995, common stock valued at $28,494, $18,613 and $11,510, respectively, was issued to non-employee directors in exchange for services rendered. During the year ended September 30, 1997, common stock valued at $62,889 was issued in accordance with the EPCO purchase agreement (Note 2). 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 9). 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 ============== Other Cash Flows Information Cash paid for interest amounted to $3,223,867 for 1997, $3,044,398 for 1996, and, $2,482,481 for 1995. Cash paid for federal income taxes amounted to $350,000 for 1997, $1,198,137 for 1996, and $945,314 for 1995. 37 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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, 1997:
1 9 9 7 1 9 9 6 1 9 9 5 ------------- -------------- ------------- Balance, beginning of year $ 600,000 $ 600,000 $ 425,800 Add provision charged against income 432,500 49,400 205,000 Less uncollectible accounts written off, net of recoveries (532,500) (49,400) (30,800) ------------- -------------- ------------- Balance, end of year $ 500,000 $ 600,000 $ 600,000 ============= ============== =============
5. INVENTORIES Inventories Inventories are stated at the lower of cost or market. The LIFO (last-in, first-out) method is utilized for certain inventories, while the FIFO (first-in, first-out) method is utilized for the remaining inventories. The major components of inventories were as follows at September 30:
1 9 9 7 1 9 9 6 ---------------- ---------------- Materials and chassis $ 17,221,766 $ 14,331,000 Work-in-process 6,664,000 6,776,000 Finished goods 7,126,000 4,470,000 ---------------- ---------------- $ 31,011,766 $ 25,577,000 ================ ================
38 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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 7 1 9 9 6 ---------------- ---------------- Gross minimum lease payments collectible in monthly installments $ 10,825,166 $ 7,575,657 Less advance lease payments and deposits received 249,737 210,705 ---------------- ---------------- Subtotal 10,575,429 7,364,952 Less unearned finance income 2,326,656 1,748,602 ---------------- ---------------- Total net investment in sales-type leases 8,248,773 5,616,350 Current portion 2,900,000 1,910,000 ---------------- ---------------- Noncurrent portion $ 5,348,773 $ 3,706,350 ================ ================
Gross minimum lease payments are collectible in the following scheduled annual amounts for the years succeeding September 30, 1997: YEAR ENDING SEPTEMBER 30 AMOUNT ------------ --------------- 1998 $ 3,595,645 1999 3,066,874 2000 2,009,331 2001 1,163,297 2002 740,282 --------------- GROSS MINIMUM AMOUNT COLLECTIBLE $ 10,575,429 =============== 39 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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 $1,212,392 and $316,486 during the years ended September 30, 1997 and 1996, respectively. 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 ------------ -------------- 1998 $ 1,175,000 1999 1,175,000 2000 1,175,000 2001 1,175,000 2002 1,173,660 -------------- GROSS MINIMUM RENTAL PAYMENTS $ 5,873,660 ============== Total residual values guaranteed by the Company under these leasing arrangements approximates $750,000 as of September 30, 1997. 40 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 7. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are recorded at cost. Depreciation for financial reporting purposes is provided primarily using the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are used for income tax purposes. Estimated useful lives range from 20 to 40 years for buildings and improvements, and 3 to 30 years for machinery and equipment and furniture, fixtures, and vehicles. Expenditures for maintenance and repairs are charged to expense are incurred, and significant betterments are capitalized. Property, plant and equipment consisted of the following amounts as of September 30:
1 9 9 7 1 9 9 6 ---------------- ---------------- Land $ 2,281,480 $ 2,233,906 Buildings and improvements 13,673,209 13,447,349 Machinery and equipment 21,584,020 18,835,127 Furniture, fixtures and vehicles 3,931,764 3,631,140 ---------------- ---------------- 41,470,473 38,147,522 Less accumulated depreciation 16,229,849 13,899,589 ---------------- ---------------- Property, plant and equipment, net $ 25,240,624 $ 24,247,933 ================ ================
41 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 8. 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:
1 9 9 7 1 9 9 6 ---------------- --------------- 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 (8.50% at September 30, 1997). $ 19,372,244 $ 15,887,347 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. 767,530 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 1999, 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 $10,000,000 and $7,500,000 in 1997 and 1996, respectively. 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 1999, at which time the Company expects to obtain a renewal upon the same or similar terms. 6,249,290 5,149,620 ---------------- --------------- Total lines of credit borrowings (NOTE 9) $ 26,389,064 $ 22,089,967 ================ ===============
42 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 9. LONG-TERM DEBT Long-term debt consisted of the following obligations as of September 30:
1 9 9 7 1 9 9 6 --------------- --------------- Promissory notes to a bank, collateralized by certain assets as disclosed in Note 8. The notes are payable in monthly installments of $160,000 plus interest at rates ranging from prime to prime plus 1/8% as published in the Wall Street Journal (effective rates of 8.50% to 8.625% at September 30, 1997), maturing at various dates through May 2002. $ 7,348,253 $ 11,425,953 Promissory notes to banks, collateralized by commercial mortgages on certain real estate, payable in monthly installments of $28,300 plus interest ranging from the bank prime rate to prime plus 1/4% (effective rates of 8.50% to 8.75% at September 30, 1997), maturing at various dates through January 2000. 2,351,173 2,833,430
43 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 9. LONG-TERM DEBT (Continued)
Industrial Revenue Bonds, collateralized by a bank letter of credit. The bonds are payable in annual installments of $525,000 through April 2007. The bonds bear interest, payable monthly, at either a fixed term, or a variable rate (effective rate of 4.2% at September 30, 1997) as determined by the bond holder. $ 5,225,000 $ - Lines of credit borrowings (Note 8) 26,389,064 22,089,967 --------------- --------------- Total debt 41,313,490 36,349,350 Less current portion 2,800,000 2,132,201 --------------- --------------- Long-term portion $ 38,513,490 $ 34,217,149 =============== ===============
Scheduled aggregate principal maturities of long-term debt for years succeeding September 30, 1997 are presented below: YEAR ENDING SEPTEMBER 30 AMOUNT ------------ ---------------- 1998 $ 2,800,000 1999 29,328,243 2000 3,769,419 2001 1,853,330 2002 908,853 Thereafter 2,653,645 ---------------- TOTAL $ 41,313,490 ================ As of September 30, 1997, the Company was in violation of certain financial covenants contained in the debt agreements. In December 1997 the Company obtained from its principal lender a written waiver of the lender's rights to accelerate repayment of the debt arising from these instances of covenant noncompliance and intends to negotiate revised covenants which are considered more compatible with current operations. Accordingly, these obligations are classified on the accompanying consolidated balance sheets based on their terms. 44 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 10. ACCRUED EXPENSES Accrued expenses included on the accompanying consolidated balance sheets consist of the following amounts at September 30:
1 9 9 7 1 9 9 6 ---------------- ---------------- Compensation $ 577,772 $ 374,385 Vacation and holiday pay 534,953 495,097 Taxes - 221,902 Insurance 514,040 307,822 Commission 622,685 159,755 Other 541,018 606,908 ---------------- ---------------- TOTAL $ 2,790,468 $ 2,165,869 ================ ================
11. INCOME TAXES The provision (benefit) for income taxes for each of the three years in the period ended September 30, 1997 consists of the following components:
1 9 9 7 1 9 9 6 1 9 9 5 ------------- --------------- -------------- Current federal provision (benefit) $ (287,000) $ 570,000 $ 899,000 Deferred provision - 660,000 375,000 ------------- --------------- -------------- TOTAL INCOME TAXES (BENEFIT) $ (287,000) $ 1,230,000 $ 1,274,000 ============= =============== ==============
The effective income tax rate on consolidated pre-tax income differs from the federal statutory rate for the following reasons:
1 9 9 7 1 9 9 6 1 9 9 5 ------------------- -------------------- -------------------- AMOUNT % AMOUNT % AMOUNT % ------------ ----- ------------- ----- -------------- ----- Provision (benefit) computed at statutory rate $ (677,000) (34) $ 1,229,000 34 $ 1,270,000 34 Nondeductible expenses 389,000 19 31,000 1 26,000 1 Other 1,000 - (30,000) (1) (22,000) (1) ------------ ----- ------------- ----- -------------- ----- $ (287,000) (15) $ 1,230,000 34 $ 1,274,000 34 ============ ===== ============= ===== ============== =====
45 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 11. INCOME TAXES (Continued) The balance of the net deferred income tax liability consists of temporary basis differences related to the following assets and liabilities as of September 30:
1 9 9 7 1 9 9 6 ---------------- ---------------- Taxable differences: Property and equipment $ 2,651,000 $ 2,081,000 Inventory 1,226,000 1,562,000 ---------------- ---------------- Gross deferred tax liabilities 3,877,000 3,643,000 ---------------- ---------------- Deductible differences: Product liability 740,000 944,000 Accounts receivable 171,000 204,000 Accrued expenses 727,000 389,000 Goodwill 82,000 - Alternative minimum tax credit 50,000 - Other 7,000 6,000 ---------------- ---------------- Gross deferred tax assets 1,777,000 1,543,000 ---------------- ---------------- NET DEFERRED INCOME TAX LIABILITY $ 2,100,000 $ 2,100,000 ================ ================
The components which comprise gross deferred taxes are predominantly noncurrent; as such, the entire related net liability is classified as noncurrent. 12. 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 $407,739 in 1997, $334,924 in 1996, and $346,368 in 1995. 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, 1997, 1996 and 1995. 46 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 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, 1997, 1996 and 1995. 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, 1997, 1996 and 1995. 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 revaluation gave effect to the fact that the shares increased in value by $504,000 from March 29, 1993, the date the definitive agreements for the transactions were executed by the parties, to August 2, 1993. The Company's principal shareholders have agreed to reimburse that amount to the Company. A letter agreement was executed calling for equal annual principal payments to be received by the Company over a five-year period beginning on September 30, 1995, plus interest at the Company's cost of funds, which approximates the prime rate. Other Raymond Elliott, a director of the Company, serves as a Vice-President of First of America Insurance Group, Inc. This entity provided insurance at a cost of approximately $1,093,000, $1,200,000 and $1,300,000 to the Company during the years ended September 30, 1997, 1996 and 1995, respectively. These entities received fees and commissions in connection with these transactions of approximately $117,000, $120,000 and $129,000, respectively. 47 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (Continued) Product Sales The Company had product sales of approximately $560,000, $660,000 and $239,000, during the years ended September 30, 1997, 1996 and 1995, respectively, to a business controlled by the President of McClain Industries, Inc. 14. STOCK BASED COMPENSATION PLANS The Company maintains the 1989 Retainer Stock Plan for Non-employee Directors and the McClain 1989 Incentive Stock Plan. Retainer Stock Plan The Retainer Stock Plan as adopted calls for reserving 133,333 shares of the Company's no par common stock and allows non-employee directors the option to receive payment of all or a portion of their directors fees in the form of shares of common stock at the fair market value of such shares on the date of issuance. For the years ended September 30, 1997, 1996 and 1995 the Company issued 5,466, 3,555 and 1,565, 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 1,333,333 shares of the Company's no par common stock for the granting of stock awards to officers and key management personnel. The awards consist of incentive stock option (ISO) or non-qualified options, stock appreciation rights (SARs) and restricted share rights, and may be granted at the following prices at the date of grant: incentive stock options must be equal to or greater than the fair market value of common stock; stock appreciation rights and restricted share rights may be issued at a price which may not be less than 50% of the price of the common stock. Shares which have been issued under this plan vest in annual installments from the date of grant, over a three year period, and expire within 5 years from the date of grant. 48 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 14. STOCK BASED COMPENSATION PLANS (Continued) The following table presents a summary of stock option activity for each of the years in the three year period ended September 30, 1997:
SHARES UNDER OPTION ---------------------------------------------- 1 9 9 7 1 9 9 6 1 9 9 5 ------------- ------------ ------------ Outstanding, beginning of year 227,896 373,251 326,000 Weighted average excercise price $ 3.67 $ 4.06 $ 3.72 Granted during the year 15,000 - 50,667 Weighted average excercise price $ 5.75 - $ 7.33 Canceled during the year - (11,111) - Weighted average excercise price - $ 2.69 - Exercised during the year (51,505) (134,244) (3,416) Weighted average excercise price $ 2.63 $ 2.68 $ 2.54 Outstanding, end of year 191,391 227,896 373,251 Weighted average excercise price $ 5.59 $ 3.67 $ 4.06 Eligible, end of year 69,915 172,117 252,166 Weighted average excercise price $ 3.24 $ 3.33 $ 2.92
The Company has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options issued pursuant to the 1989 Incentive Stock Plan. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is recorded in the accompanying consolidated statements of operations. Had stock option compensation expense been determined pursuant to the methodology provided in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the proforma effect on results of operations for the year ended September 30, 1997 would have been an increase in the Company's loss per share of less than one cent per share. 15. COMMON STOCK REPURCHASES 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, 1997, the Company repurchased 24,467 shares at prices ranging from $5.32 to $5.75 per share. During the year ended September 30, 1996, the Company repurchased 31,627 shares at prices ranging from $4.24 to $4.75 per share. 49 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 16. COMMITMENTS AND CONTINGENCIES Product Liability As a manufacturer of industrial products, the Company is occasionally subjected to various product liability claims. Such claims typically involve personal injury or wrongful death associated with the use or misuse of the Company's products. The Company is currently defending certain legal proceedings involving allegations of product liability relating to products manufactured and sold by the Company. Historically, such claims have not resulted in material losses to the Company in any one year, and the Company maintains product liability insurance in amounts believed by management to be adequate. Galion Holding Company (GHC), pursuant to an indemnification it provided to the seller in connection with GHC's July 1992 acquisition of the Galion operations, is currently defending a number of legal proceedings involving product liability claims arising out of products manufactured and sold prior to the acquisition. These claims are covered by insurance and many of these cases have been settled. 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, 1997. Environmental Matters The Company's operations are subject to extensive federal, state and local regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Inherent in manufacturing operations and in owning real estate is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs, on an ongoing basis, associated with environmental regulatory compliance in its business. Labor Union Matters Certain of the Company's hourly employees are represented by various labor unions pursuant to collective bargaining agreements which expire between September 1999 and June 2000. 50 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 16. COMMITMENTS AND CONTINGENCIES (Continued) 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. 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. 17. FOURTH QUARTER ADJUSTMENTS During the quarter ended September 30, 1997, the Company recorded various adjustments of approximately $2,500,000 principally related to the valuation of inventories and lease accounting. The aggregate effect of such adjustments was to decrease net income for the fourth quarter by approximately $1,650,000 ($0.35 per share). 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 ($0.15 per share). * * * * * * 51 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) 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)
50 52 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) 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)
51 53 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) 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)
52 54 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. (9) 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. (9) 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. (9) 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. (9) 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. (9) 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. (9) 10.52 Loan Agreement dated July 17, 1996, between Standard Federal Bank and Leasing (9) 10.53 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank and Leasing (9) 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. (9)
53 55 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. (9) 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. (9) 10.57 Security Agreement dated August 29, 1996, between Standard Federal Bank and McClain-Alabama. (9) 10.58 Master Lease Agreement dated July 15, 1995 between Fifth Third Leasing Company and Leasing. (9) 10.59 Master Lease Agreement dated May 17, 1996 between NBD Bank and Leasing. (9) 10.60 Term Note dated January 17, 1997 between Trust Company Bank of Middle Georgia and the Company 56 10.61 Amended Loan Agreement dated April 28, 1997 between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tube, McClain-Ohio, Epco and Alabama 57 10.62 Promissory Note (Line of Credit) dated April 28, 1997 between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tube, McClain-Ohio, Epco and Alabama 63 10.63 Promissory Note (Line of Credit with Term Provisions, Second Equipment Line of Credit) dated April 28, 1997 between Standard Federal Bank and the Company, McClain-Georgia, Shelby Steel, Tube, McClain-Ohio, Epco and Alabama 69 10.64 Third Amended and Restated Promissory Note (Line of Credit) dated April 28, 1997 between Standard Federal Bank and Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida 76 10.65 Promissory Note (Line of Credit) dated April 28, 1997 between Standard Federal Bank and Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida 83 10.66 Preliminary Placement Memorandum dated April 17, 1997 - The Industrial Development Board of the City of Demopolis Industrial Development Revenue Bonds Series 1997 (McClain of Alabama, Inc. Project) 90 10.67 Lease Agreement dated April 1, 1997 between the Industrial Development Board of the City of Demopolis and McClain of Alabama 139 10.68 Trust Indenture Agreement dated April 1, 1997 between the Industrial Development Board of the City of Demopolis and LaSalle National Bank 190
54 56 10.69 Bond Guaranty Agreement dated April 1, 1997 between LaSalle National Bank and McClain-Alabama 291 10.70 Mortgage, Assignment of Leases and Security Agreement dated April 1, 1997 from the Industrial Development Board of the City of Demopolis and McClain-Alabama to Standard Federal Bank 302 10.71 Standard Federal Bank Irrevocable Letter of Credit dated April 23, 1997 345 10.72 Placement Agency Agreement dated April 23, 1997 - The Industrial Development Board of the City of Demopolis Industrial Development Revenue Bond Series 1997 (McClain of Alabama, Inc. Project) 394 10.73 Remarketing Agreement dated April 23, 1997 among LaSalle National Bank, The Industrial Development Board of the City of Demopolis and McClain of Alabama, Inc. 427 21 List of Subsidiaries (9) 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 (9) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/96 55 EX-10.60 2 TERM NOTE 1 EXHIBIT 10.60 [SUNTRUST LOGO] TERM NOTE SunTrust Bank, Middle Georgia, N.A. P.O. Box 4248 Macon, Georgia 31208 Date JANUARY 17, 1997 The "Bank" referred to in this Note is SunTrust Bank, Middle Georgia, N.A., P.O. Box 4248, Macon, Georgia 31208. The obligor promises to pay to the order of Bank the principal sum of $**580,000.00**. The obligor will also pay interest from date until maturity at the Note Rate specified below. Should the obligor fail for any reason to pay this note in full on the maturity date or on the date of acceleration of payment, the obligor further promises to pay interest on the unpaid amount from such date until the date of final payment at a Default Rate equal to the Note Rate plus 4%. Should legal action or an attorney at law be utilized to collect any amount due hereunder, the obligor further promises to pay all costs of collection, including 15% of such unpaid amount as attorneys' fees. All amounts due hereunder may be paid at any office of the Bank. The Note Rate hereon shall be THE PRIME RATE OF BANK FROM TIME TO TIME IN EFFECT, PLUS .25% THE NOTE RATE SHALL CHANGE ON EACH DAY BANK CHANGES ITS PRIME RATE. If not stated above, the Note Rate in effect on the date this note is executed is 8.50%. The amount of interest accruing and payable hereunder shall be calculated by multiplying the principal balance outstanding each day by 1/360th of the Note Rate on such day and adding together the daily interest amounts. The principal and interest hereunder shall be payable as follows: THE PRINCIPAL SHALL BE PAYABLE IN 35 CONSECUTIVE MONTHLY PAYMENTS OF FOUR THOUSAND DOLLARS AND NO/100** ($4,000.00**) EACH ON THE 18TH DAY OF EACH MONTH WITH THE FIRST SUCH PAYMENT BEING DUE AND PAYABLE ON FEBRUARY 18, 1997 ACCRUED BUT UNPAID INTEREST ON THE UNPAID PRINCIPAL BALANCE SHALL BE PAYABLE MONTHLY ON THE SAME DAY AS THE PRINCIPAL PAYMENTS, WITH THE ENTIRE BALANCE OF PRINCIPAL AND INTEREST BEING DUE AND PAYABLE ON JANUARY 17, 2000. ALL PAYMENTS OF PRINCIPAL AND INTEREST SHALL BE APPLIED FIRST TO ACCRUED BUT UNPAID INTEREST WITH THE REMAINDER, IF ANY, TO PRINCIPAL. If any payment of principal or interest provided for herein remains wholly or partially unpaid for more than fifteen (15) days after such payment was due and payable, then obligor agrees to pay a late fee of five percent (5%) of such payment, not to exceed the sum of fifty dollars ($50.00). As security for the payment of this and any other liability of any obligor to the holder, direct or contingent, irrespective of the nature of such liability or the time it arises, each obligor hereby grants a security interest to the holder in all property of such obligor in or coming into the possession, control or custody of the holder, or in which the holder has or hereafter acquires a lien, security interest, or other right. Upon default, holder may, without notice, immediately take possession of and then sell or otherwise dispose of the collateral, signing any necessary documents as obligor's attorney in fact, and apply the proceeds against any liability of obligor to holder. Upon demand, each obligor will furnish such additional collateral, and execute any appropriate documents related thereto, deemed necessary by the holder for its security. Each obligor further authorizes the holder, without notice, to set-off any deposit or account and apply any indebtedness due or to become due from the holder to the obligor in satisfaction of any liability described in this paragraph, whether or not matured. The holder may, without notice, transfer or register any property constituting security for this note into its or its nominee name with or without any indication of its security interest therein. This note shall immediately mature and become due and payable, without notice or demand, upon the filing of any petition or the commencement of any proceeding by any Debtor for relief under bankruptcy or insolvency laws, or any law relating to the relief of debtors, readjustment of indebtedness, debtor reorganization, or composition or extension of debt. Furthermore, this note shall, at the option of the holder, immediately mature and become due and payable, without notice or demand, upon the happening of any one or more of the following events: (1) nonpayment on the due date of any amount due hereunder; (2) failure of any Debtor to perform any other obligation to the holder; (3) failure of any Debtor to pay when due any amount owed another creditor under a written agreement calling for the payment of money; (4) the death or declaration of incompetence of any Debtor; (5) a reasonable belief on the part of the holder that any Debtor is unable to pay his obligations when due or is otherwise insolvent; (6) the filing of any petition or the commencement of any proceeding against any Debtor for relief under bankruptcy or insolvency laws, or any law relating to the relief of debtors, readjustment of indebtedness, debtor reorganization, or composition or extension of debt which petition or proceeding is not dismissed within 60 days of the date of filing thereof; (7) the suspension of the transaction of the usual business of any Debtor, or the dissolution, liquidation or transfer to another party of a significant portion of the assets of any Debtor; (8) a reasonable belief on the part of the holder that any Debtor has made a false representation or warranty in connection with any loan by or other transaction with any lender, lessor or other creditor; (9) the issuance or filing of any levy, attachment, garnishment, or lien against the property of any Debtor which is not discharged within 15 days; (10) the failure of any Debtor to satisfy immediately any final judgment, penalty or fine imposed by a court or administrative agency of any government; (11) failure of any Debtor, after demand, to furnish financial information or to permit inspection of any books or records; (12) any other act or circumstance leading the holder to deem itself insecure. The failure or forebearance of the holder to exercise any right hereunder, or otherwise granted by law or another agreement, shall not affect or release the liability of any obligor, and shall not constitute a waiver of such right unless so stated by the holder in writing. The holder may enforce its rights against any Debtor or any property securing this note without enforcing its rights against any other Debtor, property, or indebtedness due or to become due to any Debtor. Each obligor agrees that the holder shall have no responsibility for the collection or protection of any property securing this note, and expressly consents that the holder may from time to time, without notice, extend the time for payment of this note, or any part thereof, waive its rights with respect to any property or indebtedness, and release any other Debtor from liability, without releasing such obligor from any liability to the holder. This note is governed by Georgia law. The term "obligor" means any party or other person signing this note, whether as maker, endorser or otherwise. the term "Prime Rate", if used herein, shall mean that rate of interest designated by Bank from time to time as its "Prime Rate", which rate is not necessarily the Bank's best rate. Each obligor agrees to be both jointly and severally liable hereon. The term "holder" means Bank and any subsequent transferee or endorsee hereof. The term "Debtor" means any obligor or any guarantor of this note. PRESENTMENT AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY EACH OBLIGOR ADDRESS NAME: MCCLAIN INDUSTRIES, INC. 6200 ELMRIDGE ROAD BY: /s/ Kenneth D. McClain - ---------------------------- ---------------------------------- STERLING HEIGHTS, MI 48313 Kenneth D. McClain, President - ---------------------------- ---------------------------------- - ---------------------------- - ---------------------------- NAME: - ---------------------------- ---------------------------------- - ---------------------------- - ---------------------------- ---------------------- ---------- Credit To Treasurer Check Number Center Code 5783526081 18 $ $ C. FREYERMUTH 253 - -------------- ------- -------- --------- ------------- -------------- Account Number Renewal Increase Reduction Officer Name Officer Number White - Bank Copy Yellow - Customer Copy Pink - File Copy EX-10.61 3 AMENDED LOAN AGREEMENT 1 EXHIBIT 10.61 Loan No. ____________ AMENDMENT AGREEMENT (Loan Agreement) THIS AMENDMENT AGREEMENT is made and delivered this 28th day of April, 1997, 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, "Borrowers"), whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310; 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 (collectively, "Guarantors"), whose address is 6200 Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. The Borrowers entered into an Amended and Restated Loan Agreement, dated July 17, 1996, as modified August 29, 1996 (the "Loan Agreement"), with Standard Federal, pursuant to which Standard Federal has made available to the Borrowers a line of credit, as evidenced by a Promissory Note (Line of Credit), dated July 17, 1996, as amended and renewed (the "Line of Credit Note"), and made a term loan to the Borrowers, as evidenced by a Promissory Note (Term Loan), dated July 17, 1996 (the "Term Note"), and a line of credit with term provisions, as evidenced by a Promissory Note (Line of Credit with Term Provisions), dated July 17, 1996 (the "Line of Credit with Term Note"). B. The Loan Agreement, Line of Credit Note, Term Note and Line of Credit with Term Note (together with all other documents executed in conjunction therewith being herein referred to as the "Loan Documents") are secured by a Security Agreement, dated September 15, 1994, and a Security Agreement, dated July 19, 1995 (the "Security Agreements") and an Assignment of Policy as Collateral Security, dated July 15, 1996 (the "Life Policy Assignment"), and are supported by a Guaranty, dated July 17, 1996 (the "Guaranty"), executed by the Guarantors. C. The Borrowers have requested that an additional equipment purchase line of credit be extended under the provisions of the Loan Agreement and Standard Federal and the Guarantors are agreeable thereto on the terms and conditions herein contained. 2 NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements herein contained and other good and valuable consideration, the Borrowers and Standard Federal hereby agree as follows: 1. The Borrowers are corporations in good standing under the laws of their state of incorporation. All corporate resolutions heretofore delivered to Standard Federal relative to borrowing money and granting security interests remain in full force and effect. Borrowers have duly authorized and validly executed and delivered this Amendment Agreement and such Agreement and the Loan Documents (as hereby amended) are valid and enforceable according to their terms and do not conflict with or violate Borrowers' corporate charters or by-laws or any agreements or covenants to which Borrowers are a party. 2. The Security Agreements and Life Policy Assignment are valid and enforceable in accordance with their terms. Standard Federal's security interests in the collateral described in the Security Agreements and Life Policy Assignment are valid and perfected and Borrowers are aware of no claims or interests in such collateral prior or paramount to Standard Federal's. 3. The Guaranty is valid and enforceable in accordance with its terms and the Guarantors presently have no valid and existing defense to liability thereunder. 4. The Loan Agreement is hereby modified by adding a new Section 1C thereto as follows: SECTION 1C. SECOND EQUIPMENT PURCHASE LINE OF CREDIT 1C.1 Standard Federal hereby extends to the Borrower a revolving line of credit (the "Second 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 "Second Equipment Credit Limit"). 1C.2 The Second Equipment Line of Credit herein extended shall be subject to the terms and conditions of a Promissory Note (Line of Credit with Term Provisions) (Second 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 "Second Equipment Line of Credit Note"). The Second Equipment Line of Credit shall be payable and shall bear interest as set forth in the Second Equipment Line of Credit Note. This Loan Agreement and the Second 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. 2 3 1C.3 If at any time the amount outstanding under the Second Equipment Line of Credit shall exceed the Second 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 Second Equipment Credit Limit. 1C.4 Each advance under the Second 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 Second Equipment Line of Credit only upon receipt by it in a form satisfactory to it of a true and authentic copy of the dealer invoice for the equipment purchased or to be purchased with the advance. 5. Except as herein amended, the Loan Agreement, Guaranty and other Loan Documents shall remain in full force and effect. 6. Guarantors acknowledge and consent to the amendment to the Loan Agreement herein provided and agree that the Guaranty shall continue and remain in full force and effect with respect to the Loan Documents as herein amended, and to the Second Equipment Line of Credit Note. IN WITNESS WHEREOF, the Borrowers and Standard Federal have caused this Modification Agreement to be executed as of the day and year first written above. BORROWERS: MCCLAIN INDUSTRIES, INC., a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------- 38-1867649 ------------------------------------ Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------- 3 4 58-1738825 ------------------------------------ Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------- 38-2205216 ------------------------------------ Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Secretary ------------------------------- ------------------------------------ Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Treasurer ------------------------------- ------------------------------------ Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Treasurer ------------------------------- 38- ------------------------------------ Taxpayer Identification Number 4 5 MCCLAIN OF ALABAMA, INC., a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl L. Jaworski Its: Treasurer ------------------------------- ------------------------------------ Taxpayer Identification Number GUARANTORS: GALION HOLDING COMPANY, a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: 38-3060196 McCLAIN E-Z PACK, INC., a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: ------------------------------------ GALION DUMP BODIES, INC., a Michigan corporation By: /s/ Carl L. Jaworski --------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: ------------------------------------ 5 6 McCLAIN GROUP SALES OF FLORIDA, INC., a Florida corporation By: /s/ Carl L. Jaworski --------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: 59-3241829 STANDARD FEDERAL: STANDARD FEDERAL BANK, a federal savings bank By: --------------------------------- Its: ------------------------------- 6 EX-10.62 4 PROMISSORY NOTE 1 EXHIBIT 10.62 Note No. 0250006199 ------------------ STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit) [X] Renewal $11,000,000.00 Troy , Michigan - ------------------------------ ------------------ Due Date: March 1, 1999 Dated: April 28, 1997 --------------------- ---------------------- 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 May 1, 1997. 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, dated July 17, 1996, as modified August 29, 1996, 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, dated July 15, 1996, and is supported by a Guaranty, dated July 17, 1996, executed by Galion Holding Company, a Michigan corporation, McClain E-Z Pack, Inc., a Michigan corporation, Galion Dump Bodies, Inc., a Michigan -4- 5 corporation, and McClain Group Sales of Florida, Inc., a Florida corporation. The termination date of the Line of Credit evidenced hereby, provided for in Section 1.6 of the Loan Agreement, is hereby amended and extended from the date stated in Section 1.6 of the Loan Agreement to the Due Date of this Note. 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 April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary --------------------------- 38-1867649 -------------------------------- Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary --------------------------- 58-1738825 -------------------------------- Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation April 28, 1997 By: /s/ 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 April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary --------------------------- -------------------------------- Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Treasurer --------------------------- -------------------------------- Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Treasurer --------------------------- -------------------------------- Taxpayer Identification Number MCCLAIN OF ALABAMA, INC., a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- 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-10.63 5 PROMISSORY NOTE 1 EXHIBIT 10.63 Note No. 025-0025206 ------------------- STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit with Term Provisions) (Second Equipment Line of Credit) [X] New [ ] Renewal $1,000,000.00 Troy , Michigan - ---------------------------- ------------------ Due Date: May 1, 2002 Dated: April 28, 1997 ------------------- ---------------------- 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, dated July 17, 1996, as amended August 29, 1996 and 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 May 1, 1998 (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 Second 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 June 1, 1997 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 June 1, 1998 and continuing on the same day of each consecutive month thereafter and a final payment on the Due Date in an amount equal to the then unpaid principal and accrued interest. -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, dated July 15, 1996, and is supported by a Guaranty, dated July 17, 1996, executed by 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. 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 April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 38-1867649 -------------------------------- Taxpayer Identification Number MCCLAIN OF GEORGIA, INC., a Georgia corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 58-1738825 -------------------------------- Taxpayer Identification Number -5- 6 SHELBY STEEL PROCESSING COMPANY, a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary ---------------------------- 38-2205216 -------------------------------- Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Secretary ---------------------------- -------------------------------- Taxpayer Identification Number MCCLAIN INDUSTRIES OF OHIO, INC., a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Treasurer ---------------------------- -------------------------------- Taxpayer Identification Number MCCLAIN EPCO, INC., a New York corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- Carl L. Jaworski Its: Treasurer ---------------------------- -------------------------------- Taxpayer Identification Number -6- 7 MCCLAIN OF ALABAMA, INC., a Michigan corporation April 28, 1997 By: /s/ Carl L. Jaworski - -------------------------- ----------------------------- 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 -7- EX-10.64 6 PROMISSORY NOTE 1 EXHIBIT 10.64 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, 1999 Dated: April 28, 1997 -------------------- ---------------------- 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 May 1, 1997. 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, as modified August 29, 1996, 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, dated July 15, 1996. The termination date of the Revolving Line of Credit evidenced hereby, provided for in Section 1.6 of the Loan Agreement, is hereby amended and extended from the date stated in Section 1.6 of the Loan Agreement to the Due Date of this Note. 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. -5- 6 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 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 April 28, 1997 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 April 28, 1997 By: /s/ Carl Jaworski - --------------------------- -------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ----------------------------------- -6- 7 GALION DUMP BODIES, INC., a Michigan corporation April 28, 1997 By: /s/ Carl Jaworski - --------------------------- -------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: ----------------------------------- MCCLAIN GROUP SALES OF FLORIDA, INC., formerly known as M.E.G. Equipment Sales of Florida, Inc., a Florida corporation April 28, 1997 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-10.65 7 PROMISSORY NOTE 1 EXHIBIT 10.65 Note No. 0250194514 --------------- STANDARD FEDERAL BANK PROMISSORY NOTE (Line of Credit) [X] Renewal $1,500,000.00 Troy , Michigan - --------------------------- ------------------ Due Date: March 1, 1999 Dated: April 28, 1997 ------------------ ---------------------- 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 May 1, 1997. 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, as modified August 29, 1996, 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 -2- 3 and in reduction of the principal due under this Note. If Standard Federal shall reasonably determine that the Effective Interest Rate (together with all other charges or payments related hereto that may be deemed interest) stipulated under this Note is, or may be, usurious or otherwise limited by law, the unpaid balance of this Note, with accrued interest at the highest rate permitted to be charged by stipulation in writing between Standard Federal and Borrower, at the option of Standard Federal, shall immediately become due and payable. The Borrower represents and warrants that it is duly organized, validly existing and in good standing and is duly authorized to make and perform this Note, which constitutes its valid and binding legal obligation enforceable in accordance with its terms. All financial data furnished to Standard Federal in connection with this Note fairly present the financial condition of the Borrower and its subsidiaries, if any, as of the dates thereof and there has been no material adverse change in the condition (financial or otherwise) of the Borrower since such dates. An Event of Default shall be deemed to have occurred hereunder if any indebtedness of the Borrower to Standard Federal hereunder is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of this Note, the Loan Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith, or if an Event of Default shall otherwise occur under the Loan Agreement. Upon the occurrence of any Event of Default, after the giving of any notice and the expiration of any grace, cure or notice period provided for in the Loan Agreement, if any, and if no such notice or grace, cure or notice period is so provided for in the Loan Agreement, then immediately, Standard Federal may declare the entire unpaid and outstanding principal balance hereunder and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind and may exercise any one or more of the rights and remedies provided herein or in the Loan Agreement or in any mortgage, guaranty, security agreement or other document relating hereto or by applicable law. The remedies provided for hereunder are cumulative to the remedies for collection of the amounts owing hereunder as provided by law or by the Loan Agreement, or by any mortgage, guaranty, security agreement or other document relating hereto. Nothing herein is intended, nor should it be construed, to preclude Standard Federal from pursuing any other remedy for the recovery of any other sum to which Standard Federal may be or become entitled for breach of the terms of this Note or the Loan Agreement, or any mortgage, guaranty, security agreement or other instrument relating hereto. Borrower agrees, in case of an Event of Default under the terms of this Note or under any loan agreement, security or other agreement executed in connection herewith, to pay all costs of -3- 4 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, 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, dated July 15, 1996. The -4- 5 termination date of the Demonstrator Line of Credit evidenced hereby, provided for in Section 1A.6 of the Loan Agreement, is hereby amended and extended from the date stated in Section 1.6 of the Loan Agreement to the Due Date of this Note. 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 April 28, 1997 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 April 28, 1997 By: /s/ Carl Jaworski - --------------------------- -------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ----------------------------------- -6- 7 GALION DUMP BODIES, INC., a Michigan corporation April 28, 1997 By: /s/ Carl Jaworski - --------------------------- -------------------------------- Carl Jaworski Treasurer Taxpayer Identification Number: ----------------------------------- MCCLAIN GROUP SALES OF FLORIDA, INC., formerly known as M.E.G. Equipment Sales of Florida, Inc., a Florida corporation April 28, 1997 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-10.66 8 PLACEMENT MEMORANDUM 1 EXHIBIT 10.66 NEW ISSUE-- BOOK-ENTRY ONLY RATING: STANDARD & POOR'S: AA-/A-1+ In the opinion of Bond Counsel, assuming continuing compliance by McClain of Alabama, Inc. herein referred with certain conditions imposed by the Internal Revenue Code of 1986, as amended (the "Code"), interest income on the Bonds is excludable from the gross income of the recipients thereof for federal income tax purposes, except under certain conditions as set forth herein under the caption "TAX MATTERS." The Bonds are "private activity bonds", the interest on which is an item of tax preference for purposes of the Alternative Minimum Tax on individuals and corporations under the Code. Ownership of the Bonds by certain classes of taxpayers may have certain other federal tax consequences. In the opinion of Bond Counsel, interest income on the bonds will be exempt, under existing statutes, from Alabama income taxation. See "TAX MATTERS" herein for a more complete discussion. $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 1997 (MCCLAIN OF ALABAMA, INC. PROJECT) DATED: DATE OF DELIVERY PRICE: 100% DUE: APRIL 1, 2007 The Bonds are limited obligations of the Board payable solely from the revenues and receipts derived by the Board from the leasing or sale of the Project described herein, including payments to be made under a Lease Agreement and Bond Guaranty by McClain of Alabama, Inc., a Michigan corporation (the "Company"). All Bonds other than Obligor Bonds, as defined herein, are additionally secured by an irrevocable, direct-pay letter of credit issued by Standard Federal Bank, a federal savings bank (the "Credit Obligor"). The Letter of Credit will be confirmed by LASALLE NATIONAL BANK a national banking association (the "Confirming Bank"). The Bonds shall never constitute an indebtedness of the State of Alabama or any political subdivision thereof, including the City of Demopolis, within the meaning of any constitutional provision or statutory limitation and shall never constitute nor give rise to a pecuniary liability of the State of Alabama or any political subdivision thereof, including the City of Demopolis, or a charge against the general credit or taxing powers of any of the foregoing. The letter of credit will permit the Trustee to draw thereunder for the payment when due of the principal of the Bonds other than Obligor Bonds (whether due at maturity or upon acceleration or redemption), the maximum amount of interest payable on the Bonds other than Obligor Bonds for a period of 45 days at the rate then in effect, not to exceed 12% per annum and the purchase price of Bonds other than Obligor Bonds tendered (or deemed tendered) for purchase pursuant to the optional and mandatory tender provisions with respect to the Bonds. The letter of credit will expire on May 15, 1998 (except upon the earlier occurrence of certain events). The Trust Indenture pursuant to which the Bonds are being issued provides that a substitute letter of credit may be delivered to the Trustee under certain conditions, as described herein. The Bonds are subject to redemption, mandatory tender and purchase, and optional tender and purchase, all as described herein. The Bonds will initially bear interest at the Variable Rate (as defined herein). Interest at the Variable Rate will be payable on the first business day of each month, commencing May 1, 1997, and on the day immediately following any Variable Rate Period (as defined herein). The interest rate on the Bonds may, upon request of the Company, be converted to a Term Rate (as defined herein) for a Term Rate Period (as defined herein) of 30 days, 6 months, 1 year or any multiple of 1 year. See "THE BONDS - Variable Rate" and " - Term Rate." Interest with respect to any Term Rate Period of less than 6 months shall be payable on the day immediately following the Term Rate Period. Interest with respect to any Term Rate Period of 6 months or more shall be payable semiannually (beginning 6 months after the first day of the calendar month in which such Term Rate Period began) and on the day immediately following such Term Rate Period. The Bonds will be initially issued as fully registered Bonds, in book-entry form, registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Bonds. Individual purchases of beneficial interests in the Bonds will be made through DTC's Book-Entry System. Purchasers of beneficial interests in the Bonds will not receive certificates representing their interests in the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. So long as Cede & Co. is the registered owner of the Bonds, payments of principal of and interest on the Bonds will be paid through the facilities of DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the purchasers of beneficial interests in the Bonds is the responsibility of DTC Participants, as more fully described herein. The Bonds are offered when, as and if issued, subject to the approval of legality by Bradley Arant Rose & White LLP, Birmingham, Alabama, Bond Counsel. Certain legal matters will be passed upon for the Company by its counsel, Jaffe, Raitt, Heuer & Weiss, Professional Corporation, Detroit, Michigan, for the Credit Obligor by its counsel, Bodman, Longley & Dahling LLP, Detroit, Michigan, and for the Confirming Bank by Janet M. Knutel, Assistant Counsel, ABN AMRO North America, Inc., the holding company of LaSalle National Bank. Delivery of the Bonds is expected to be made on or about April 23, 1997. LASALLE NATIONAL BANK PLACEMENT AGENT AND REMARKETING AGENT - -------------------------------------------------------------------------------- The date of this Placement Memorandum is April 23, 1997. 2 No broker, dealer, salesperson or any other person has been authorized by the Issuer, the Company or LaSalle National Bank to give any information or to make any representation other than as contained in this Placement Memorandum in connection with the offering described herein, and if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. The information set forth herein under the captions "THE ISSUER"and "LITIGATION," as the latter section relates to the Issuer, has been furnished by the Issuer, and all other information set forth herein has been obtained from the Company, Standard Federal Bank, The Depository Trust Company, and other sources (other than the Issuer) that are believed to be reliable, but the accuracy or completeness of such information is not guaranteed by, and is to not be construed as a representation by, any of them. The information and expression of opinions herein are subject to change without notice, and neither the delivery of this Placement Memorandum, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in the affairs of the Issuer, Standard Federal Bank, LaSalle National Bank or the Company since the date hereof. This Placement Memorandum does not constitute an offer of any securities, other than those described on the cover page, or an offer to sell or a solicitation of any offer to buy in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale, THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS. 3 TABLE OF CONTENTS INTRODUCTION..............................................................1 DEFINITIONS...............................................................2 THE BOARD.................................................................7 THE COMPANY...............................................................7 THE PROJECT...............................................................7 PROPOSED USES OF FUNDS....................................................7 THE BONDS.................................................................7 BOOK-ENTRY ONLY SYSTEM...................................................14 THE LEASE................................................................16 THE INDENTURE............................................................21 THE BOND GUARANTY........................................................26 THE LETTER OF CREDIT AND THE CONFIRMATION................................26 THE REIMBURSEMENT AGREEMENT..............................................30 THE MORTGAGE.............................................................31 TRUSTEE..................................................................32 REMARKETING AGENT........................................................32 RATING...................................................................32 CONTINUING INFORMATION...................................................32 TAX MATTERS..............................................................33 LEGAL MATTERS............................................................33 PLACEMENT OF THE BONDS...................................................34 LITIGATION...............................................................34 MISCELLANEOUS............................................................34 4 AUTHORIZATION............................................................36 APPENDIX A-- FORM OF APPROVING OPINION OF BOND COUNSEL..................A-1 APPENDIX B-- STANDARD FEDERAL BANK......................................B-1 APPENDIX C-- LASALLE NATIONAL BANK......................................C-1 5 PLACEMENT MEMORANDUM $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 1997 (MCCLAIN OF ALABAMA, INC. PROJECT) INTRODUCTION This Placement Memorandum is being furnished in connection with the issuance of the bonds referred to above (the "Bonds") by The Industrial Development Board of the City of Demopolis (the "Board"). The Board is a public corporation under the laws of the State of Alabama. The Bonds will be issued pursuant to Article 4, Chapter 54, Title 11 (Section 11-54-80 et seq.) of the Code of Alabama 1975 (the "Enabling Law"). The Bonds will be issued under a Trust Indenture dated as of April 1, 1997 (the "Indenture") between the Board and LaSalle National Bank, a national banking association (the "Trustee"). The Bonds will be issued for the purpose of financing the acquisition of a manufacturing plant (the "Plant"), certain real property, owned by the Board, on which the Plant is located (the "Project Site") and the acquisition and installation in the Plant and elsewhere on the Project Site of certain items of machinery, equipment and other personal property (the "Equipment"). The Project Site, the Plant and the Equipment (together, the "Project") will be leased by the Board to McClain of Alabama, Inc., a Michigan corporation (the "Company"), pursuant to a Lease Agreement dated as of April 1, 1997 (the "Lease") providing, among other things, for rental payments at times and in amounts sufficient to pay when due debt service on and the purchase price of the Bonds. Payment of debt service on the Bonds will be guaranteed by the Company pursuant to a Bond Guaranty Agreement dated as of April 1, 1997 (the "Bond Guaranty") in favor of the Trustee. As additional security for the payment of the debt service on and the purchase price of the Bonds other than Obligor Bonds, the Company will cause Standard Federal Bank, a federal savings bank (the "Credit Obligor"), to issue its irrevocable, direct-pay letter of credit (the "Letter of Credit") in favor of the Trustee. The Letter of Credit will be confirmed by LaSalle National Bank, a national banking association (the "Confirming Bank"). The Letter of Credit will be issued pursuant to a Reimbursement Agreement dated as of April 1, 1997 (the "Reimbursement Agreement") between the Company and the Credit Obligor. The Reimbursement Agreement will provide, among other things, for reimbursement to the Credit Obligor by the Company of all amounts drawn under the Letter of Credit. The Company's obligations under the Reimbursement Agreement will be secured by a Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997 (the "Mortgage") executed by the Board and the Company in favor of the Credit Obligor. THE BONDS ARE LIMITED OBLIGATIONS OF THE BOARD PAYABLE SOLELY FROM THE REVENUES AND RECEIPTS DERIVED FROM THE LEASING OR SALE OF THE PROJECT. PURCHASERS OF THE BONDS SHOULD MAKE THEIR DECISION TO INVEST IN THE BONDS SOLELY UPON THEIR ASSESSMENT OF THE CREDITWORTHINESS OF THE CREDIT OBLIGOR. NO ATTEMPT IS MADE IN THIS PLACEMENT MEMORANDUM TO DESCRIBE THE COMPANY OR ITS OPERATIONS WITH RESPECT TO THE PROJECT IN A MANNER THAT 6 WOULD ENABLE PURCHASERS OF THE BONDS TO ASSESS THE CREDITWORTHINESS OF THE COMPANY. ACCORDINGLY, IN DECIDING WHETHER TO PURCHASE THE BONDS, POTENTIAL INVESTORS SHOULD NOT RELY UPON THE ABILITY OF THE COMPANY TO MAKE THE REQUIRED PAYMENTS UNDER THE LEASE AGREEMENT OR BOND GUARANTY. ALTHOUGH THE BOARD WILL, IN THE INDENTURE, PLEDGE AND ASSIGN TO THE TRUSTEE, FOR THE BENEFIT OF THE BONDHOLDERS, THE LEASE AND THE REVENUES AND RECEIPTS TO BE DERIVED FROM THE LEASING AND SALE OF THE PROJECT, SUCH PLEDGE AND ASSIGNMENT IS SUBORDINATE TO THE RIGHTS OF THE CREDIT OBLIGOR UNDER THE MORTGAGE EXCEPT WITH RESPECT TO MONEY AND INVESTMENTS ON DEPOSIT IN THE SPECIAL FUNDS CREATED UNDER THE INDENTURE. The form of the approving opinion of bond counsel is attached hereto as Appendix A. Appendix B sets forth certain information pertaining to the Credit Obligor and Appendix C sets forth certain information pertaining to the Confirming Bank. Summary descriptions of the Indenture, the Lease, the Bond Guaranty, the Letter of Credit, the Confirmation, the Reimbursement Agreement and the Mortgage are included in this Placement Memorandum. The descriptions herein do not purport to be complete and are qualified in their entirety by reference to each specific document being described, forms of which may be obtained at the principal offices of the placement agent, LaSalle National Bank, 181 West Madison, Suite 3200, Chicago, Illinois 60602, Attention: Capital Markets Group. All such descriptions are further qualified in their entirety by reference to bankruptcy, insolvency and other similar laws and principles of equity relating to or affecting generally the enforcement of creditors' rights. Capitalized terms which are not otherwise defined herein shall be given the same meaning as set forth in the respective documents. DEFINITIONS Certain capitalized terms used frequently in this Placement Memorandum are defined in this section of the Placement Memorandum. Act of Bankruptcy means the filing of a petition in bankruptcy (or the commencement of a bankruptcy or similar proceeding) by or against the designated entity under any applicable bankruptcy, insolvency, reorganization, or similar law, now or hereafter in effect. Basic Rent means the moneys payable by the Company pursuant to the Lease to provide for the payment of the principal of and the interest and premium (if any) on, or purchase price of, the Bonds. Board means The Industrial Development Board of the City of Demopolis, an Alabama public corporation. Bond Counsel means independent counsel whose experience in matters relating to the issuance of obligations by states and their political subdivisions is nationally recognized. Bond Guaranty means the Bond Guaranty Agreement dated as of April 1, 1997, executed by the Company in favor of the Trustee. Bond Purchase Fund means the fund by that name established under the Indenture. -2- 7 Bonds means the Board's $5,225,000 Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) issued pursuant to the Indenture. Business Day means any day other than a Saturday, a Sunday or a day on which banking institutions are closed in any of the following locations: (i) the city in which the principal office of the Trustee is located, (ii) the city in which the principal office of the Remarketing Agent is located, (iii) the city in which the office of the Credit Obligor where drawings under the Letter of Credit are to be made is located, (iv) the City of New York, New York, or (v) the City of Chicago, Illinois. Code means the Internal Revenue Code of 1986, as amended from time to time. Company means McClain of Alabama, Inc., a Michigan corporation. Confirmation means the irrevocable confirmation issued by LaSalle National Bank, confirming the initial Letter of Credit issued by Standard Federal Bank and delivered to the Trustee on the Issue Date, and any substitute Confirmation issued in accordance with the provisions of the Indenture. Confirming Bank means LaSalle National Bank, a national banking association, in its capacity as issuer of the Confirmation. Construction Fund means the fund by that name established under the Indenture. Conversion Date means the first day of any Term Rate Period. Credit Obligor means Standard Federal Bank, a federal savings bank, in its capacity as issuer of the Letter of Credit. Debt Service Fund means the fund by that name established under the Indenture. Determination of Taxability means a determination that the interest income on any of the Bonds is Taxable, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following: (a) the date on which the Company determines that the interest income on any of the Bonds is Taxable by filing with the Trustee a statement to that effect; or (b) the date on which the Company shall be advised by private ruling, technical advice or any other written communication from an authorized official of the Internal Revenue Service that, based upon any filings of the Company, or upon any review or audit of the Company, or upon any other grounds whatsoever, the interest income on any of the Bonds is Taxable; or (c) the date on which the Company shall receive notice from the Trustee in writing that the Trustee has been advised (i) by any Holder of any Bonds that the Internal Revenue Service has determined that the interest income on the Bonds is Taxable or (ii) by any authorized official of the Internal Revenue Service that the interest income on any of the Bonds is Taxable; -3- 8 provided that no Determination of Taxability shall be deemed to have occurred: (1) as a result of a determination by the Company pursuant to the preceding clause (a) unless supported by a written opinion of Bond Counsel acceptable to the Trustee and the Board that the interest income on the Bonds is Taxable; or (2) as a result of the event described in the preceding clauses (b) or (c) unless and until (1) the Company has been afforded a reasonable opportunity, at its expense, to contest such determination either through its own action (if permitted by law) or by or on behalf of one or more of the holders of the Bonds and (2) such contest, if made, has been abandoned by the Company or has been finally determined by a court of competent jurisdiction from which no further appeal exists, but if such contest has not been abandoned or finally determined within three years of the event described in either of said clauses (b) and (c) which forms the basis of the Determination of Taxability in question, then such Determination of Taxability shall be deemed to have occurred three years after the date of such event. Enabling Law means Article 4, Chapter 54, Title 11 (Section 11-54-80 et seq.) of the Code of Alabama 1975. Equipment means the machinery, equipment and other personal property to be acquired and installed in the Plant and elsewhere on the Project Site which is being financed out of the proceeds of the Bonds. Federal Securities means direct obligations of, or obligations the full and timely payment of which is guaranteed by, the United States of America. Financing Documents means the Indenture, the Lease, the Bond Guaranty, the Credit Agreement and the Mortgage. Improvements means the improvements to the Plant required by the Lease to be constructed by the Company. Indenture means the Trust Indenture dated as of April 1, 1997, between the Board and the Trustee. Interest Payment Date, when used with respect to any installment of interest on the Bonds, means the date specified in the Bonds as the fixed date on which such installment of interest is due and payable. Interest Portion, when used with respect to the Letter of Credit, means the amount that may be drawn with respect to payment of accrued but unpaid interest on the Bonds, or payment of the interest portion of the purchase price of Tendered Bonds. Interim Agreement means the Interim Agreement dated as of August 1, 1996, between the Board and the Company. Lease means the Lease Agreement dated as of April 1, 1997, between the Board and the Company. Letter of Credit means the initial letter of credit issued by the Credit Obligor and delivered to the Trustee on the date of delivery of the Bonds, and, unless the context or use indicates another or different meaning or intent, includes (a) any substitute letter of credit accepted by the Trustee pursuant to the terms of the Indenture and (b) any Confirmation. Mandatory Tender means a tender of Bonds for purchase that is required by the Indenture (as described below under "THE BONDS - Mandatory Tenders"). Mandatory Tender Date means a date on which any Mandatory Tender of Bonds is required. -4- 9 Maximum Rate means the maximum rate per annum, specified in the Letter of Credit, upon which there has been calculated the amount available to be drawn on such Letter of Credit to pay interest on the Bonds. Mortgage means the Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997, executed by the Company and the Board in favor of the Credit Obligor. Obligor Bond means (i) any Pledged Bond and (ii) any Bond registered in the name of the Company. Optional Tender means a tender of Bonds for purchase at the option of the holder thereof, as permitted by the Indenture (as described below under "THE BONDS - Optional Tenders"). Optional Tender Date means any date on which Bonds are to be purchased pursuant to an Optional Tender. Plant means the manufacturing plant located on the Project Site. Pledged Bonds means Bonds purchased pursuant to the Optional or Mandatory Tender provisions of the Indenture with money drawn under the Letter of Credit and held by the Tender Agent or Trustee for the benefit of, or registered in the name of, the Credit Obligor, as pledgee. Principal Portion when used with respect to the Letter of Credit, means the amount that may be drawn under the Letter of Credit with respect to payment of the unpaid principal amount of the Bonds or payment of the principal portion of the purchase price of Tendered Bonds. Project means the Project Site, the Plant and the Equipment. Project Development Costs means the costs of acquiring the Project Site and the improvements located thereon, constructing the Improvements and acquiring and installing the Equipment, the expenses incurred by the Board in connection with the issuance and sale of the Bonds (including the initial charge of the Trustee, the fee for the issuance of the initial Letter of Credit and the fiscal, legal, printing, advertising, recording and other similar fees and expenses relating thereto), interest on the Bonds to the extent such interest constitutes a Qualified Project Cost, and all costs and expenses incurred by the Board in connection with and directly related to the planning, development and design of the Plant and the Equipment, including, without limiting the generality of the foregoing, any such costs or expenses paid by the Company or by the Board with funds advanced by the Company and for which the Company is entitled to be reimbursed under the provisions of the Interim Agreement. Project Site means the real property described in the Lease and the Indenture on which the Plant is to be constructed. Qualified Project Costs means Project Development Costs paid or reimbursed pursuant to the provisions of the Indenture to the extent that such costs (i) constitute expenditures for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation within the meaning of Section 144(a)(1) of the Internal Revenue Code of 1986, as amended, and (ii) were paid or incurred subsequent to the date that was 60 days prior to the effective date of the Interim Agreement. Rating Agency means any nationally recognized securities rating agency. -5- 10 Reimbursement Agreement means the Reimbursement Agreement dated as of April 1, 1997, between the Credit Obligor and the Company. Remarketing Agent means the person appointed as such pursuant to the Indenture. Special Funds means the Debt Service Fund, the Bond Purchase Fund, the Construction Fund and any other fund or account established under the Indenture. Stated Amount means the maximum amount available to be drawn under the Letter of Credit, as such amount may be reduced and reinstated from time to time pursuant to the provisions of the Letter of Credit. Stated Expiration Date means the date on which the Letter of Credit will, by its terms, expire unless the Letter of Credit is terminated on an earlier date in accordance with its terms. Substitute Letter of Credit means a letter of credit delivered to the Trustee in substitution for the letter of credit then held by the Trustee. Taxable, when applied to the interest income on any of the Bonds, means that, under federal tax laws and regulations issued thereunder, as such laws and regulations exist on the date of initial delivery of the Bonds or as they may thereafter be amended, the interest income on such Bond is includable in gross income of the recipient thereof for Federal income tax purposes for any reason other than the fact (and for the period) that such Bond is held by a person who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code or any successor provision. Tender Agent means the person (if any) appointed as such pursuant to the Indenture. Unless and until a Tender Agent is appointed, the Trustee shall perform all duties of the Tender Agent under the Indenture. Tender Date means any date on which Bonds are to be purchased pursuant to the Optional or Mandatory Tender provisions of the Indenture. Tendered Bonds means Bonds tendered (or deemed tendered) for purchase pursuant to the Optional or Mandatory Tender provisions of the Indenture. Term Rate means the fixed interest rate borne by the Bonds during a Term Rate Period. Term Rate Interest Payment Date means a date on which interest calculated according to the Term Rate is payable on the Bonds. Term Rate Period means a period specified by the Company during which the Bonds shall bear interest at a Term Rate. Trustee means LaSalle National Bank, a national banking association, in its capacity as trustee under the Indenture. Unsurrendered Bond means Bonds (or portions thereof) which are deemed purchased pursuant to the Optional or Mandatory Tender provisions of the Indenture, but which have not been presented to the Trustee by the holders thereof. Variable Rate means the variable interest rate borne by the Bonds during a Variable Rate Period. -6- 11 Variable Rate Interest Payment Date means a date on which interest calculated at the Variable Rate is payable on the Bonds. Variable Rate Period means a period during which the Bonds bear interest at the Variable Rate. THE BOARD The Board is a public corporation under the laws of the State of Alabama created pursuant to the Enabling Law. The Board is authorized by the Enabling Law to issue its bonds for the purposes of providing funds to pay the costs of constructing the Plant and acquiring and installing the Equipment, and to lease the Project to the Company. The Board has no taxing power. THE COMPANY The Company is a Michigan corporation with its principal offices located in the City of Demopolis, Alabama. The Company was created to acquire and operate the Project. THE PROJECT The Project consists of the financing of the acquisition, renovation and equipping of a manufacturing facility located in the City of Demopolis, Alabama, which manufactures and sells containers. The Project consists of a manufacturing facility containing approximately 103,000 square feet and related office space located on approximately 84 acres of land, and machinery and equipment used in the Company's business. PROPOSED USES OF FUNDS The Board will receive funds from the sale of the Bonds and such funds will be deposited under the Indenture and applied as described below: Acquisition of Project Site and existing plant and equipment.................... $ 3,539,750 Construction of the Improvements................................................ 78,297 Acquisition and installation of new Equipment................................... 1,502,453 Issuance expenses............................................................... 104,500 ---------------- Total uses of funds............................................................. $ 5,225,000 ================
-7- 12 THE BONDS The Bonds are secured by a pledge of payments derived by the Issuer pursuant to the Lease. All Bonds will initially bear interest at the Variable Rate. The Bonds are additionally secured by the Letter of Credit, which is backed by the Confirmation. The Bonds may be secured by a Substitute Letter of Credit pursuant to the terms of the Indenture. General Description of Bonds The Bonds will be dated as of the date of original issuance and will mature on the date set forth on the cover page of this Placement Memorandum. The Bonds will be issuable only as fully registered Bonds without coupons in denominations of $100,000 and integral multiples of $5,000 in excess thereof. The Bonds will initially bear interest at the Variable Rate. The Company may elect to have the Bonds bear interest for a Term Rate Period of 30 days, 6 months, 1 year or any multiple of 1 year at the Term Rate. No Term Rate Period designated by the Company may extend beyond the last day prior to the final maturity of the Bonds. In no event will the interest rate borne by the Bonds exceed the Maximum Rate. Interest on the Bonds at the Variable Rate will be payable on the first Business Day of each calendar month, commencing May 1, 1997, with respect to interest accrued through the last day of the immediately preceding month and on the day immediately following any Variable Rate Period with respect to interest accrued through the last day of such Variable Rate Period and will be calculated on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. Interest on the Bonds with respect to any Term Rate Period of less than 6 months will be payable on the day immediately following such Term Rate Period with respect to interest accrued through the last day of such Term Rate Period and will be calculated on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. Interest with respect to any Term Rate Period of 6 months or more will be payable (i) with respect to the interest accrued through the last day of the immediate preceding month (a) on the first day of the calendar month that is 6 months after the first day of the calendar month in which such Term Rate Period began and (b) semiannually thereafter, and (ii) with respect to interest accrued through the last day of such Term Rate Period on the day immediately following such Term Rate Period, and will be calculated on the basis of a 360-day year with 12 months of 30 days each. Payment of interest due on each interest payment date will be made by check or draft mailed on such interest payment date to the persons who are registered holders of the Bonds on the regular record date for such interest payment date, which will be (i) the day next preceding any Variable Rate Interest Payment Date or any Term Rate Interest Payment Date with respect to a Term Rate Period of less than 6 months, or (ii) the 15th day (whether or not a Business Day) next preceding any Term Rate Interest Payment Date with respect to a Term Rate Period of 6 months or more. Payment of principal (and premium, if any) on the Bonds and payment of accrued interest on the Bonds due upon redemption on any date other than an interest payment date will be made only upon surrender of the Bonds at the principal corporate trust office of the Trustee in Chicago, Illinois. The holder of any Bond in a principal amount of $100,000 or more may, upon the terms and conditions of the Indenture, request payment of debt service by wire transfer to an account of such holder maintained at a bank in the continental United States or by any other method providing for payment in same-day funds that is acceptable to the Trustee. SEE, HOWEVER, "BOOK-ENTRY ONLY SYSTEM" BELOW. LaSalle National Bank will be the Trustee under the Indenture. The Trustee is also bond registrar and paying agent. Its principal corporate trust office is located in Chicago, Illinois. -8- 13 The Trustee may, but is not required to, appoint a Tender Agent for the purpose of accepting delivery of Bonds to be purchased pursuant to the Optional or Mandatory Tender provisions of the Indenture and authenticating and delivering Bonds pursuant to the transfer and exchange provisions of the Indenture. A Tender Agent will not be appointed at the time of delivery of the Bonds to the original purchasers and will not be appointed later unless and until the Trustee elects to do so. The Board and the Company will appoint LaSalle National Bank, Chicago, Illinois, as remarketing agent (the "Remarketing Agent") under the Indenture. Source of Payment of Bonds THE BONDS ARE LIMITED OBLIGATIONS OF THE BOARD, PAYABLE SOLELY FROM THE REVENUES AND RECEIPTS DERIVED FROM THE LEASING OR SALE OF THE PROJECT. Payment of the Bonds is secured by the lien of the Indenture on the trust estate created thereunder, which consists generally of (i) an assignment of the Lease and (ii) a pledge of said revenues and receipts and money and investments held in the Special Funds. The Indenture provides in effect that all payments of debt service on and, to the extent remarketing proceeds are insufficient, the purchase price of Bonds other than Obligor Bonds will be made with money drawn under the Letter of Credit and that amounts so drawn will be credited against the Company's obligation to make rental payments with respect to debt service on and the purchase price of Bonds. THE LIEN OF THE INDENTURE ON THE TRUST ESTATE IS, EXCEPT WITH RESPECT TO MONEY AND INVESTMENTS IN THE SPECIAL FUNDS, SUBORDINATE TO THE LIEN AND SECURITY INTERESTS CREATED BY THE MORTGAGE, WHICH IS FOR THE SOLE BENEFIT AND SECURITY OF THE CREDIT OBLIGOR. The Bonds shall never constitute an indebtedness of the City of Demopolis, Alabama within the meaning of any constitutional provision or statutory limitation and shall never constitute or give rise to a pecuniary liability of said municipality or a charge against its general credit or taxing powers. Variable Rate The Bonds shall initially bear interest at the Variable Rate. The Variable Rate shall be a fluctuating rate per annum determined by the Remarketing Agent periodically during a Variable Rate Period as follows. The initial Variable Rate Period shall commence on the date of delivery of the Bonds and shall end on the following Wednesday. Thereafter, the Variable Rate shall be determined on the last Business Day immediately prior to the commencement of each Variable Rate Period and on Wednesday of each calendar week, or if any such Wednesday is not a Business Day, on the next succeeding Business Day. The Variable Rate so determined shall become effective on the day following each date of determination, and once effective shall remain in effect until and including the next determination date or, if sooner, the end of such Variable Rate Period; provided, however, that if the Remarketing Agent fails to determine the Variable Rate on any such determination date, the Variable Rate for each weekly period shall, until a determination is thereafter made by the Remarketing Agent, be determined on each determination date by the Trustee as the rate per annum equal to the J. J. Kenny index rate for high grade tax-exempt obligations having maturities of 30 days. The Variable Rate shall be determined by the Remarketing Agent and shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds equal to 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date; provided, however, that the Variable Rate may never exceed the Maximum Rate. Upon the request of any Bondholder, the Trustee shall confirm (by telephone and in writing, if so requested) the Variable Rate then in effect. -9- 14 Term Rate The Bonds shall bear interest at a Term Rate during each Term Rate Period of 30 days, 6 months, 1 year or any multiple of 1 year as provided below. The Term Rate shall be a fixed rate per annum which shall be applicable during the entire Term Rate Period and shall be determined by the Remarketing Agent as provided below. The first day of any such Term Rate Period is referred to in the Indenture as a "Conversion Date". The Company may elect that the Bonds bear interest at a Term Rate by delivery of written notice of such election to the Trustee not less than 40 days prior to the proposed Conversion Date. Such notice shall specify the first day and the last day of the Term Rate Period elected; provided, however, that (i) as a condition to the establishment of such Term Rate Period, the Company shall cause to be delivered to the Board and the Trustee an opinion of Bond Counsel stating that the establishment of such Term Rate will not cause the interest income on the Bonds to become subject to gross income for federal income tax purposes, (ii) if such election is made during a Term Rate Period, the specified Conversion Date may not be sooner than the first day immediately following the Term Rate Period then in effect, (iii) either (A) the Letter of Credit then in effect must have a Stated Expiration Date that is not earlier than the 15th day following the expiration of such Term Rate Period, provide coverage of interest on the Bonds at the Maximum Rate for a number of days not less than the sum of 15 days plus the maximum number of days between Interest Payment Dates with respect to such Term Rate Period and provide coverage of the maximum premium payable upon redemption of the Bonds, or, (B) as a condition to the establishment of such Term Rate Period, the Company shall be required to deliver to the Trustee a Substitute Letter of Credit in accordance with the provisions of the Indenture and (iv) the Term Rate Period may not extend beyond the day immediately prior to the final maturity of the Bonds. Any such election by the Company shall be irrevocable after 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date. A notice given by the Company may specify that successive Term Rate Periods of specified lengths shall be established with respect to the Bonds. If such notice is provided to the Trustee and the other requirements of the Indenture are met as of each Conversion Date, no additional notice shall be required from the Company to establish a new Term Rate on each such Conversion Date. Any such notice may be revoked prior to 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to each proposed Conversion Date, but such revocation shall be applicable only with respect to proposed Term Rate Periods commencing after the date of the notice of revocation. Not less than 20 days prior to the proposed Conversion Date, the Remarketing Agent shall determine the preliminary Term Rate for such Term Rate Period, and not less than 7 days prior to the proposed Conversion Date, the Remarketing Agent shall fix the final Term Rate, provided that the final Term Rate shall be no lower than the preliminary Term Rate previously determined. The Term Rate shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds being 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date, and assuming that the Term Rate Period began on such date; provided, however, that the Term Rate may not exceed the Maximum Rate. Notwithstanding the foregoing, a Term Rate shall not be established if (1) the Company delivers to the Trustee written notice of revocation of its election to establish the Term Rate before 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date or (2) prior to 10:00 a.m. (Detroit, Michigan time) on the Conversion Date the Trustee does not receive (a) the Substitute Letter of Credit that was to be effective on such Conversion Date -10- 15 together with the Related Documentation required under the Indenture for the delivery of a Substitute Letter of Credit and (b) the opinion of Bond Counsel required under the Indenture. If all conditions to the establishment of a Term Rate are not satisfied, the Bonds shall continue (or, if a Term Rate Period ended on the preceding day, shall begin) to bear interest at the Variable Rate from the proposed Conversion Date. Optional Tenders The holder of any Bond shall have the right to tender such Bond to the Trustee or to the Tender Agent for purchase in whole or in part (if in part, only in an authorized denomination) on any Business Day, at a purchase price equal to 100% of the principal amount of Bonds (or portions thereof) tendered plus accrued interest to the specified purchase date (herein referred to as an "Optional Tender Date"). In order to exercise such option with respect to any Bond, the holder thereof must deliver notice thereof to the Trustee, as provided below, at its principal office at least 7 days prior to the proposed Optional Tender Date. Any such notice of Optional Tender must be duly executed by the Bondholder and must specify (i) the name of the registered holder of the Bond to be tendered for purchase, (ii) the Optional Tender Date, (iii) the certificate number and principal amount of such Bond, and (iv) the principal amount of such Bond to be purchased (if such amount is less than the entire principal amount, the amount to be purchased must be in an authorized denomination). Such notice may be given to the Trustee in writing or by telephone, but no such telephonic notice shall be effective unless confirmed in writing delivered to the Trustee not more than 2 Business Days after such telephonic notice. Unless a notice of Optional Tender indicates that less than the entire principal amount of the Bond is being tendered for purchase, the holder will be deemed to have tendered the Bond in its entire principal amount for purchase. Upon delivery of a written notice of Optional Tender by any Bondholder, the election to tender shall be irrevocable and binding upon such holder and may not be withdrawn. If a written notice of Optional Tender shall have been duly given with respect to any Bond, the holder of such Bond shall deliver such Bond to the Trustee at its principal office or to the Tender Agent at its principal office at or before 12:00 noon (Detroit, Michigan time) on the Optional Tender Date, together with an instrument of assignment or transfer duly executed in blank. Any Bond for which a notice of Optional Tender has been given but which is not so delivered to the Trustee or Tender Agent (herein referred to as an "Unsurrendered Bond"), shall nevertheless be deemed to have been tendered by the holder thereof on the Optional Tender Date. If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed to be tendered for purchase on an Optional Tender Date, any Unsurrendered Bond shall be deemed to have been tendered for purchase and purchased from the holder thereof on such Optional Tender Date and the holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the Optional Tender Date. No Optional Tender of Bonds shall be permitted (i) for Pledged Bonds, or (ii) for any Bond which is deemed fully paid within the meaning of the Indenture. -11- 16 Mandatory Tenders The holder of each Bond shall be required to tender such Bond to the Trustee or Tender Agent for purchase on the following dates (each such date being referred to in the Indenture as a "Mandatory Tender Date"): (i) each proposed Conversion Date, (ii) the date immediately following the expiration of a Term Rate Period, (iii) 20 days after the Trustee receives written notice from the Credit Obligor (a) stating that an event of default, as therein defined, has occurred and is continuing under the Reimbursement Agreement, and (b) directing the Trustee to effect a Mandatory Tender of all the Bonds, (iv) on any date proposed by the Company for delivery of a Substitute Letter of Credit; provided, however, that the holder of any Bond may waive the requirement for such tender and may retain such Bond notwithstanding the substitution of the Letter of Credit by delivering written notice of such waiver and retention to the Trustee and the Remarketing Agent not less than 7 days prior to the Mandatory Tender Date, and (v) 15 days prior to the Stated Expiration Date of the Letter of Credit. If any of such dates is not a Business Day, the Mandatory Tender Date shall be deemed to be the next succeeding Business Day. Notice of a Mandatory Tender shall be given by the Trustee by registered or certified mail, mailed to the holders of all Bonds at their addresses appearing on the Bond register not less than 30 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (i), (ii) and (v) of the preceding paragraph, and not less than 15 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (iii) and (iv) of the preceding paragraph. Such notice of Mandatory Tender shall, among other things, specify the Mandatory Tender Date and the reason for such Mandatory Tender. All Bonds shall be tendered by the holders thereof for purchase at or before 11:00 a.m. (Detroit, Michigan time) on the Mandatory Tender Date, by delivering such Bonds to the Trustee at its principal office or to the Tender Agent at its principal office, together with an instrument of assignment or transfer in such form as shall be acceptable to the Trustee or Tender Agent duly executed in blank. All Bonds so to be purchased that are not delivered to the Trustee or Tender Agent on the Mandatory Tender Date ("Unsurrendered Bonds") shall nevertheless be deemed to have been tendered for purchase by the holders thereof on the Mandatory Tender Date. If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed tendered for purchase on the Mandatory Tender Date, any Unsurrendered Bond shall be deemed to be tendered for purchase and purchased from the holder thereof on such Mandatory Tender Date and the holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the relevant Mandatory Tender Date. After notice of a Mandatory Tender has been given by the Trustee, the Bonds shall be subject to Mandatory Tender notwithstanding the fact that the reasons for giving such notice cease to exist or are no longer applicable. Redemption Prior to Maturity The Bonds are subject to redemption prior to maturity as follows: Mandatory Redemption of Bonds Upon Occurrence of Determination of Taxability. The Bonds are subject to mandatory redemption in whole on any date prior to maturity in the event of a Determination of Taxability at and for a Redemption price with respect to each such Bond redeemed equal to 100% of the principal amount thereof plus accrued interest to the redemption date. If called for redemption prior to maturity upon such -12- 17 occurrence, the Bonds must be redeemed within 10 days following the Determination of Taxability. Optional Redemption of Variable Rate Bonds. The Bonds, if bearing interest at the Variable Rate, are subject to optional redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $100,000 or any larger amount that is an integral multiple of $5,000), on any date at and for a redemption price equal to the principal amount redeemed plus accrued interest to the redemption date. Extraordinary Optional Redemption of Term Rate Bonds. The Bonds, if bearing interest at the Term Rate, are subject to redemption on any date in whole at and for a redemption price with respect to each such Bond redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, but only upon receipt by the Trustee of a written certificate from the Company stating that within 120 days prior to the date of such certificate (i) the Project has been damaged or destroyed to such extent that, in the opinion of an independent engineer (as defined in the Indenture), it cannot be reasonably restored within a period of six (6) consecutive months or the Company is thereby prevented from carrying on its normal operations therein for a period of not less than twelve (12) consecutive months or the cost of restoration thereof would exceed the net insurance proceeds referable to such damage or destruction plus certain self-insurance, or (ii) title to, or the temporary use of, any part of the Project has been taken by eminent domain, and such taking or takings results or, in the opinion of an independent engineer, are likely to result in the Company being thereby prevented from carrying on its normal operations therein for a period of not less than six (6) consecutive months, or (iii) there has occurred a change in the economic availability of raw materials, operating supplies or facilities necessary for the operation of the Project or such technological or other change which in the good faith judgment of the Company renders the Project uneconomic and the Company has determined (as evidenced by a resolution of its board of directors) to discontinue the operation thereof, or (iv) as a result of changes in the Constitution of the United States of America or the Constitution of Alabama or of legislative or administrative action (whether state or federal) or by final decree or judgment or order of any court or administrative body (whether state or federal), entered after the contest thereof by the Company in good faith, the Lease has become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties thereto as expressed therein or unreasonable burdens or excessive liabilities have been imposed on the Board or the Company. In the event that the redemption of the Bonds is to be made pursuant to clauses (i), (ii) or (iii) of this subparagraph (c), such certificate of the Company shall state that as a result of such event, the Company has discontinued its operation of the Project. Optional Redemption of Term Rate Bonds. The Bonds, if bearing interest at the Term Rate, are subject to redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $5,000), on any date during the redemption periods and at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus interest accrued to the redemption date: Length of Currently Applicable Dates after which Redemption Term Rate Period is Allowed and (Expressed in Whole Years) Redemption Prices -13- 18 greater than 7.......................................... after 5 years at 102%, declining by 0.5% semiannually to 100% less than or equal to 7 and after 3 years at 102%, declining by 0.5% greater than 4.......................................... semiannually to 100% less than or equal to 4................................. not callable
Notice of Redemption Any notice of call for redemption will be given by mailing a copy of the redemption notice not less than 30 nor more than 60 days prior to the date fixed for redemption by registered or certified mail, postage prepaid, to each registered owner of each Bond (or portion thereof) to be redeemed at his address shown on the registration books. No further interest shall accrue on any Bond or portion thereof called for redemption from and after the date fixed for redemption if moneys sufficient for such redemption have been deposited with the Trustee. Registration and Exchange The Bonds are transferable only on the bond register maintained at the principal corporate trust office of the Trustee. Upon surrender of a Bond to be transferred, properly endorsed, a new Bond will be issued to the designated transferee. The Bonds will be issued in denominations of $100,000 and integral multiples of $5,000 in excess thereof and, subject to the provisions of the Indenture, may be exchanged for other Bonds of any authorized denominations and of a like aggregate principal amount, as requested by the holder surrendering the same. SEE, HOWEVER, "BOOK-ENTRY ONLY SYSTEM" below. BOOK-ENTRY ONLY SYSTEM The information in this section, "Book-Entry Only System", has been furnished by the Depository Trust Company. No representation is made by the Issuer, the Company or the Placement Agent as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the Issuer, the Company or the Placement Agent to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the Issuer, the Company nor the Trustee will have any responsibility or obligation to DTC Participants, Indirect Participants or the persons for which they act as nominees with respect to the Bonds, or for any principal, premium, if any, or interest payment thereof. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully-registered certificate will be issued for each maturity of each series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC -14- 19 holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry-only system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, the Company, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest -15- 20 to DTC is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, the Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry-only system has been obtained from sources that the Issuer, the Company, and the Placement Agent believe to be reliable, but the Issuer, the Company, and the Placement Agent take no responsibility for the accuracy thereof. THE LEASE This summary is not a complete recital of the terms of the Lease and reference is made to the Lease in its entirety. Lease Term. The term of the Lease will begin on the date of delivery of the Bonds and will continue until midnight of April 1, 2007. Basic Rent. The Lease requires the Company to make rental payments at times and in amounts sufficient to pay debt service on the Bonds when due and to pay the purchase price of Bonds tendered for purchase on any Tender Date. The Company will receive a credit against such rental payments for any amounts drawn under the Letter of Credit for such purposes. Mandatory Prepayment of Basic Rent Upon Determination of Taxability. In the event of a Determination of Taxability, the Company will promptly pay to the Trustee, as additional Basic Rent, an amount sufficient to redeem the Bonds in whole at the applicable redemption price specified under "THE BONDS - Redemption Prior to Maturity -- Mandatory Redemption of Bonds Upon Determination of Taxability". Optional Prepayment of Basic Rent. The Company may prepay such amount of Basic Rent as shall be sufficient to enable the Board to redeem the Bonds in whole or in part, in accordance with their terms, and in the event of such prepayment, the Board will cause the Basic Rent so prepaid to be applied to the redemption and retirement of Bonds, in accordance with the provisions of the Indenture, on the earliest practicable date after receipt of such prepayment. Additional Rental Payments. The Company will also pay, as additional rental, the reasonable fees, charges and disbursements of the Trustee, the Remarketing Agent and the Board. Taxes and Governmental Charges. The Company will further pay all taxes and governmental charges of any kind whatsoever that may be lawfully assessed or levied against or with respect to the Project, including, without limitation, any taxes levied upon or with respect to any part of the receipts, income or profits of the Board from the Project and any other taxes levied upon or with respect to the Project which, -16- 21 if not paid, would become a lien on the Project prior to or on a parity with the lien of the Indenture or the Mortgage, all utility and similar charges, and all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the Project. Unconditional Obligation. The obligations of the Company to make the payments required and to perform and observe the other agreements on its part contained in the Lease shall be absolute and unconditional irrespective of any defense or any rights of set-off, recoupment or counterclaim it may have against the Board. The Company will not suspend or discontinue any payments provided for, will perform and observe all of its other agreements contained in the Lease and, except as provided therein, will not terminate the Lease for any cause, including any acts or circumstances that may constitute an eviction or constructive eviction, failure of consideration or commercial frustration of purpose, destruction of or damage to the Project, or the taking by eminent domain of title to or the right to temporary use of all or any part of the Project, any change in the tax or other laws of the United States of America, the State of Alabama or any political or taxing subdivision of either thereof or any failure of the Board to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Lease. Concerning the Tax-Exempt Nature of the Interest Income on the Bonds. Pursuant to the provisions of the Internal Revenue Code of 1986 (the "Code"), the exemption of the interest income on the Bonds from gross income for federal income tax purposes is dependent upon compliance with certain provisions of the Code subsequent to the issuance of the Bonds. Among the requirements of the Code to the continued exemption of the interest income on the Bonds from gross income for federal income tax purposes are certain requirements relating to the use and expenditure of proceeds from the Bonds, restrictions on the investment of proceeds earned prior to expenditure, and the requirement that certain earnings be rebated to the United States of America. In the Lease, the Company has made certain covenants (the "Compliance Covenants") to the effect that it will comply with all conditions to and requirements for the exemption from gross income for federal income tax purposes of the interest income on the Bonds imposed by the Code. Failure to comply with the Compliance Covenants may result in the interest income on the Bonds being subject to gross income for federal income tax purposes from the date of issuance of the Bonds. Agreement to Maintain Corporate Existence. The Company will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all its assets (either in a single transaction or in a series of related transactions) and will not consolidate with or merge into another corporation or permit one or more corporations to consolidate with or merge into it; provided that the Company may, without violating the agreements contained in the Lease, do or perform any of the following: (a) It may consolidate with or merge into another corporation or permit one or more corporations to consolidate with or merge into it if the corporation surviving such merger or resulting from such consolidation, if it shall be one other than the Company, expressly assumed in writing all the obligations of the Company contained in the Lease and the Guaranty; (b) It may transfer to another corporation all or substantially all its assets as an entirety, and (if it so elects) thereafter dissolve, if the corporation to which such transfer shall be made expressly assumes in writing all the obligations of the Company contained in the Lease and the Guaranty. If, after a transfer by the Company of all or substantially all its assets to another corporation under the circumstances described in the preceding clause (b), the Company does not thereafter dissolve, it shall not have any further rights or obligations hereunder. -17- 22 Maintenance of the Project. The Company will, at its own expense, keep the Project in as reasonably safe condition as its operations permit, and keep the Plant and the other improvements located on the Project Site in reasonable repair and operating condition (reasonable wear and tear excepted), making from time to time all necessary and proper renewals thereof and repairs and replacements thereto. Improvements and Alterations. The Company may also, at its own expense, make additions, alterations, or improvements to the Project it may deem desirable for its business purposes that do not adversely affect the structural integrity of the Project and that will not impair the operating unity of the Project or substantially reduce its value. All such alterations, additions, improvements and modifications made by the Company shall become a part of the Project, provided that any personal property installed by the Company as part of the Project without expense to the Board and not constituting a part of the Equipment covered by the Lease may be removed by the Company at any time and from time to time. Removal of Equipment. In any instance where the Company determines that any item of the Equipment has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary in the operation of the Project, the Company may remove, with the consent of the Credit Obligor, such item of Equipment from the Project and sell, trade in, exchange or otherwise dispose of it, without responsibility or accountability to the Board or the Trustee therefor, provided that (a) the Company substitutes and installs on the Project Site other furniture, equipment or other personal property having equal or greater utility (but not necessarily the same value or function) in the operation of the Project, which substituted furniture, equipment or other personal property shall be free of all liens and encumbrances (other than Permitted Encumbrances as defined in the Indenture), shall be the sole property of the Board and shall be and become a part of the Equipment; or (b) in the event the item of Equipment so removed is sold, traded in, exchanged or otherwise disposed of, the Company pays into the Debt Service Fund (a) the proceeds from such sale or the scrap value thereof, (b) an amount equal to the credit received on any trade-in, or (c) in the case of a disposition to itself or any of its affiliates, an amount equal to the original cost less depreciation; provided, however, that there may be credited one time on any such payment into the Debt Service Fund an amount equal to the original cost of any equipment then installed on the Project Site that does not then constitute part of the Equipment and that is owned by the Company free and clear of all liens and encumbrances (other than Permitted Encumbrances as defined in the Indenture), less depreciation thereon in accordance with generally accepted accounting practices, but only if from and after any such credit such other equipment becomes the sole property of the Board and a part of the Equipment. No payments required to be made into the Debt Service Fund need be made until the aggregate of such payments due but not theretofore made is $500,000 or more. If at the time of the removal of any item of Equipment from the Project Site, there is then installed on the Project Site other furniture, equipment or other personal property not then constituting a part of the Equipment and if such equipment has utility in the operation of the Project equal to or greater than that of the item of Equipment removed, the Company may elect to substitute such other equipment for the item of Equipment removed without making any payment into the Debt Service Fund provided that from and after such removal such other property becomes the sole property of the Board and part of the Equipment. Any such removal and disposal shall be free and clear of the demise of the Lease and the lien of the Indenture. -18- 23 Insurance. The Company will keep the Project insured against such risks and liabilities as are customarily insured against by businesses of like size and type, including, but not limited to (a) Insurance against loss or damage to the Plant and the Equipment by fire and lightning, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in Alabama, to the extent of the full replacement value thereof; and (b) Insurance against liability for bodily injury to or death of persons and for damage to or loss of property occurring on or about the Project Site or in any way related to the operation of the Project, in the minimum amounts of $1,000,000 for death of or bodily injury to any one person, $3,000,000 for total death and bodily injury claims resulting from any one accident, and $500,000 for property damage. Damage to or Destruction of Project. If the Project is destroyed, in whole or in part, or is damaged, by fire or other casualty, and the Company does not elect to apply the insurance proceeds to the redemption of Bonds, the Company will promptly repair, rebuild or restore the property damaged or destroyed to substantially the same condition as prior to the event causing such damage or destruction. All net insurance proceeds resulting from claims for losses in excess of $500,000 shall be paid to the Trustee, provided that all losses (including those in excess of $500,000) may be adjusted by the Company. In the event the net insurance proceeds are not sufficient to pay in full the costs of such repair, rebuilding or restoration, the Company will nevertheless complete the work and pay the portion of the costs in excess of available insurance proceeds. Insurance proceeds in excess of the cost of restoration shall be paid to the Company. Condemnation. If the Project or any part thereof is taken by eminent domain proceedings, and if in the Company's opinion the efficient utilization of the Project is not impaired by such taking, the net condemnation award shall be paid to the Company. If, however, in the Company's opinion, the efficient utilization of the Project is impaired by such taking and if the Company does not elect to apply the condemnation proceeds to the redemption of Bonds, any part of the Plant taken or damaged shall be repaired, rebuilt, restored or rearranged by the Board so as to make it suitable for the Company's uses and the net condemnation award referable to such taking shall be applied thereto. If such net condemnation award is insufficient to pay all the costs of such repair, rebuilding, restoration or rearrangement, the Company will pay the deficiency. Any excess net condemnation award will be paid to the Company. The Company shall be entitled to any condemnation award or portion thereof made for damages to or takings of its own property, as well as other sums awarded as compensation for the interest of the Company in the Project. Assignment and Subletting. The Company may assign the Lease, and may sublet the Project or any part thereof, without the necessity of obtaining the consent of the Board, the Trustee or any bondholder, but the Company shall in any event continue primarily liable for payment of all rentals provided for in the Lease and for performance and observance of all other agreements on its part contained therein. Events of Default and Remedies. Under the Lease, an "event of default" or "default" shall mean any one or more of the following events: (a) The failure by the Company to pay Basic Rent when due; (b) The failure by the Company to perform and observe any other agreement on its part to be observed and performed for a period of sixty (60) days after written notice, specifying, in reasonable detail, the nature of such failure and requiring the Company to -19- 24 perform or observe the agreement or covenant with respect to which it is delinquent shall have been given to the Company by the Board or the Trustee, unless (i) the Board and the Trustee shall agree in writing to an extension of such period prior to its expiration or (ii) during such sixty (60) day period or any extension thereof the Company has commenced and is diligently pursuing corrective action, or (iii) the Company is by reason of force majeure (as defined in the Lease) at the time prevented from performing or observing the agreement or covenant with respect to which it is delinquent; (c) The dissolution or liquidation of the Company or the filing of a petition in bankruptcy (or the commencement of a bankruptcy or similar proceedings) by or against the Company under any applicable bankruptcy, insolvency, reorganization, or similar law, now or hereafter in effect, or the failure to lift or to bond (in a manner satisfactory to the Trustee), within ninety (90) days, any execution, garnishment or attachment of a size as seriously to impair its ability to carry on its operations; (d) Any warranty, representation or other statement by or on behalf of the Company contained in the Lease or in the Guaranty or in any instrument or certificate furnished in compliance with or in reference to the Lease shall have been false or misleading in any material respect when made; (e) Receipt by the Trustee of notice from the Credit Obligor that an event of default has occurred under the Reimbursement Agreement; or (f) The occurrence of an event of default under the Indenture. Whenever any event of default shall have happened and be continuing, the Board and the Trustee (or the Trustee on behalf of the Board) may take any one or more of the following remedial steps: (1) They or it may re-enter and take possession of the Project, exclude the Company from possession thereof and lease the same for the account of the Company, holding the Company liable for the rent and other payments due thereunder up to the effective date of such leasing and for the excess, if any, of the rent and other amounts payable thereunder over the rents and other amounts which are payable by the lessee under such new lease; (2) They or it may terminate the Lease, exclude the Company from possession of the Project and hold the Company liable for the balance due thereunder, in which event the rights of the Company in the Project and the use and possession thereof shall terminate; (3) They or it may declare immediately due and payable all installments of rent thereafter coming due under the Lease, provided, however, that the total amount of such rent that may be so declared immediately due and payable shall be an amount which, when added to the total of the amounts then on deposit in the Debt Service Fund, will be sufficient to pay, redeem and retire all the outstanding Bonds on the earliest practicable date thereafter on which, under their terms, they may be redeemed, including, without limitation, principal, premium, interest to mature until and on such date, expenses of redemption and Trustee's fees and charges; -20- 25 (4) They or it may have access to, and inspect, examine and make copies of, the books, records and accounts of the Company, but if and only if any of the Bonds are then outstanding; and (5) They or it may take whatever other action at law or in equity may appear to be desirable to collect the rent then due, or to enforce any obligation of the Company under the Lease. Purchase Options. The Company is granted the option by the Board to purchase the Project from the Board at any time during the Lease Term after or simultaneously with payment (or provision for payment in accordance with the Indenture) in full of the principal of and the interest and premium, if any, on the Bonds and all reasonable fees, charges and disbursements of the Trustee, accrued and to accrue until the date of such full payment, at and for a purchase price of $100 plus the reasonable costs and expenses (including reasonable attorney's fees) incurred by the Board in connection with the Company's exercise of such option. The Company is also granted the option by the Board to purchase any part of the Project Site at any time and from time to time while it is not in default under the Lease provided that the Company furnishes to the Board and the Trustee: (i) a notice in writing containing an adequate legal description of that portion of the Project Site with respect to which such option is to be exercised, a statement that the Company intends to exercise its option to purchase such portion of the Project Site on a date stated, which shall not be less than 30 nor more than 90 days from the date of such notice and a statement that the use to which the Company proposes to devote such portion of the Project Site will promote the continued industrial development of the State of Alabama, and (ii) a certificate signed by an Independent Engineer (as defined in the Lease) stating (a) that no part of the Plant or the Equipment, no other improvement (except for roads, walkways, sewer, water, oil, coal oil, gas, electric and communication lines, pipelines and other energy source conveyors and the like, which shall be specified in such certificate) and no facility designed for the control of air or water pollution or for the disposal of solid waste and necessary in the operation of the Plant are located on the portion of the Project Site with respect to which such option is exercised, and (b) that the severance of such portion of the Project Site from the Project will not impair the operating unity of the Plant or unduly restrict ingress or egress to and from the Plant. THE INDENTURE This summary is not a complete recital of the terms of the Indenture and reference is made to the Indenture in its entirety. Debt Service Fund. The Indenture establishes a Debt Service Fund, which will be held by the Trustee. The Indenture provides that the Trustee will deposit in the Debt Service Fund (i) all money drawn under the Letter of Credit for the purpose of paying debt service on the Bonds other than Obligor Bonds, (ii) all rental payments under the Lease with respect to debt service on the Bonds, (iii) all other money required to be deposited therein by the Lease or the Indenture, and (iv) any other money received by the Trustee with instructions to deposit the same in the Debt Service Fund. Money in the Debt Service Fund is to be used to pay debt service on the Bonds as the same shall become due and payable. The Trustee is instructed to draw on the Letter of Credit in order to make the payment of debt service on Bonds other than Obligor Bonds -21- 26 without making any prior claim or demand upon the Company for payment of the related rental payment, and any money that is, at the time of such draw, on deposit in the Debt Service Fund and available for payment of such debt service, shall be paid to the Credit Obligor to the extent of the amount drawn under the Letter of Credit, and any excess shall be applied to the payment of Debt Service on Obligor Bonds. Bond Purchase Fund. The Indenture establishes a Bond Purchase Fund, which will be held by the Trustee. The Indenture provides that the Trustee will deposit in the Bond Purchase Fund (i) all money drawn by the Trustee under the Letter of Credit for the purpose of paying the purchase price of Bonds other than Obligor Bonds due on any Tender Date, (ii) all rental payments under the Lease with respect to the purchase price of tendered Bonds, (iii) the proceeds of any remarketing of Bonds by the Remarketing Agent, (iv) all other money required to be deposited in the Bond Purchase Fund pursuant to the Lease or the Indenture, and (v) any other money received by the Trustee with instructions to deposit the same in the Bond Purchase Fund. Money in the Bond Purchase Fund shall be used to pay the purchase price of Bonds due on any Tender Date. The Trustee is instructed to draw on the Letter of Credit in order to pay the purchase price of any Bonds other than Obligor Bonds due on any Tender Date to the extent that remarketing proceeds are insufficient therefor without making any prior claim or demand upon the Company for payment of the related rental payment, and any money in the Bond Purchase Fund that is, at the time of such draw, available for the payment of such purchase price shall be paid to the Credit Obligor to the extent of the amount so drawn against the Letter of Credit, and any excess shall be applied to the payment of the purchase price of Obligor Bonds. Construction Fund. The Indenture establishes a Construction Fund, which will be held by the Trustee. The Indenture provides that all proceeds derived by the Issue from the sale of the Bonds will be deposited into the Construction Fund and applied to the payment of Project Development Costs. Moneys on deposit in the Construction Fund will be disbursed by the Trustee for the payment of Project Development Costs upon requisitions submitted by the Company and approved by the Credit Obligor. Investment of Special Funds. Money in the Construction Fund may be invested or reinvested in a broad range of investments by the Trustee in accordance with the instructions of the Company. Money in the Debt Service Fund and Bond Purchase Fund may be invested only in Federal Securities with a maturity not later than the earlier of (i) 30 days after the date of such investment, or (ii) the date such money will be needed for the payment of debt service on, or the purchase price of, Bonds. Encumbrances on Trust Estate. The Board covenants in the Indenture that it will not create or permit any mortgage, pledge, lien, charge or encumbrance of any kind on the trust estate prior to or on a parity of lien with the Indenture. Corporate Existence. The Indenture permits the Board to consolidate with or merge into any municipal or public corporation, or transfer its property substantially as an entirety to any municipal or public corporation, if payment of the Bonds and the performance and observance of the agreements and covenants of the Indenture are expressly assumed in writing by the surviving or successor corporation, and if such action will not result in the interest income on the Bonds becoming subject to Federal or Alabama income taxation. Supplemental Indentures without Bondholders' Consent. The Board and the Trustee may, at any time and from time to time and without the consent of the holders of any of the Bonds, enter into such Supplemental Indentures as shall not be inconsistent with the terms and provisions of the Indenture, for any one or more of the following purposes: -22- 27 (a) To add to the covenants and agreements of the Board therein contained other covenants and agreements thereafter to be observed and performed by the Board, provided that such other covenants and agreements shall not either expressly or impliedly limit or restrict any of the obligations of the Board contained in the Indenture; (b) To cure any ambiguity or to cure, correct or supplement any defect or inconsistent provision contained in the Indenture or in any Supplemental Indenture or to make any provisions with respect to matters arising under the Indenture or any Supplemental Indenture for any other purpose if such provisions are necessary or desirable and are not inconsistent with the provisions of the Indenture or any Supplemental Indenture and do not adversely affect the interests of the holders of the Bonds; or (c) To subject to the lien of the Indenture and the pledge therein contained additional property and the revenues therefrom. Supplemental Indentures Requiring Bondholders' Consent. The Board and the Trustee may, at any time and from time to time, with the written consent of the holders of a majority in principal amount of the outstanding Bonds, enter into such Supplemental Indentures as shall be deemed necessary or desirable by the Board and the Trustee for the purposes of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any Supplemental Indenture; provided that, without the written consent of the holder of each Bond affected, no reduction in the principal amount, rate of interest on, or the premium payable upon the redemption, any Bond shall be made; and provided further that without the written consent of the holders of all the Bonds, none of the following shall be permitted: (a) An extension of the maturity of any installment of principal of or interest on any Bond; (b) The creation of a lien or charge on the Project or the rentals or other receipts from the Project ranking prior to or on a parity with the pledge and assignment thereof and the lien or charge thereon contained in the Indenture; (c) The establishment of preferences or priorities as between the Bonds; or (d) A reduction in the aggregate principal amount of Bonds the holders of which are required to consent to such Supplemental Indenture. Amendment of the Lease and the Bond Guaranty. The Indenture permits the Board, with the written consent of the Trustee but without the consent of or any notice to any holder of any Bond, to amend the Lease for the purpose of (a) identifying more precisely the Equipment, and (b) curing ambiguities, defects or inconsistent provisions or making any provision with respect to matters arising under the Lease for any other purpose if such provisions are necessary and desirable, are not inconsistent with the provisions of the Lease or the Indenture and do not, in the sole judgment of the Trustee, adversely affect the interest of the holders of the Bonds. The Indenture also permits the Board or (in the case of the Bond Guaranty) the Trustee, with the written consent of the holders of a majority in principal amount of the Bonds and the Trustee, to amend the Lease to such extent as shall be deemed necessary or desirable by the Board and the Trustee, except that, without the written consent of holders of all the Bonds, no amendment shall, until the Bonds are fully paid, permit a reduction of Basic Rent or amounts guaranteed under the Bond Guaranty or any change in the due dates of Basic Rent or such amounts. -23- 28 Credit Obligor Deemed Holder of Bonds for Certain Purposes. So long as the Letter of Credit shall be in effect, and there is no default by the Credit Obligor thereunder or all of the Bonds constitute Pledged Bonds, the Credit Obligor shall be deemed to be the Holder of all the Bonds for the purpose of giving any consent to any amendment, waiver, change or modification of the Indenture or the Lease or the Bond Guaranty; provided, however, that any such amendment, change or modification of the type described in the provisos to the sentence titled "Supplemental Indentures Requiring Bondholder Consent" shall also require the consent of the actual Holders of the Bonds as therein specified. Default and Remedies. The following constitute events of default hereunder under the Indenture: (a) Failure by the Board to pay the principal of or the interest or premium, if any, on any Bond as and when the same become due as therein or in the Indenture (whether such shall become due by maturity or otherwise); (b) A default by the Company under the Lease or the Bond Guaranty and the continuance thereof after the grace period, if any, provided therein; (c) The failure by the Board to perform and observe any of the agreements and covenants on its part herein contained other than (i) its agreement to pay the principal of and the interest and premium, if any, on the Bonds, and (ii) any other agreement with respect to which its failure to perform is the result of an "event of default" by the Company under the Lease after sixty (60) days' written notice to it of such failure made by the Trustee or by the Holders of not less than twenty-five per cent (25%) in principal amount of the Bonds then outstanding and secured hereby, unless during such period or any extension thereof the Board has commenced and is diligently pursuing appropriate corrective action; (d) A failure to pay the purchase price of any Bond required to be purchased as and when the same has become due and payable; (e) Receipt by the Trustee of notice from the Credit Obligor or the Confirming Bank of the occurrence of an "Event of Default" under the Reimbursement Agreement accompanied by a demand that the principal of and the interest accrued on the Bonds be declared immediately due and payable; (f) An Act of Bankruptcy with respect to the Company or the Board; or (g) An Act of Bankruptcy with respect to the Credit Obligor or the Confirming Bank, or the wrongful dishonor or repudiation of the Letter of Credit by the Credit Obligor. Upon any default in any one of the ways defined above, the Trustee shall have the following rights and remedies: (A) Acceleration. Subject to (D) below and the provisions for waiver summarized elsewhere, upon the occurrence of (i) any event of default under subsections (b), (c) or (f) above, the Trustee may, and at the written request of the Holders of not less than twenty-five per cent (25%) in Outstanding principal amount of Bonds shall, or (ii) any event of default under subsections (a), (d), (e) or (g) above, the Trustee shall, by notice in writing delivered to the Board, the Company, the Credit Obligor, the Remarketing Agent, the Tender Agent and the Paying Agent declare the principal of all Bonds and the interest accrued thereon to the date of declaration of such acceleration immediately due and payable. -24- 29 Upon any acceleration hereunder, the Trustee shall immediately declare the payments required to be made by the Company under the Lease to be immediately due and payable in accordance with the Lease and if the Letter of Credit is in effect, shall draw moneys under the Letter of Credit for the payment of the Bonds to the fullest extent permitted by the Letter of Credit. Upon the payment by the Credit Obligor of the amount so drawn under the Letter of Credit and the payment in full of the principal of and the interest and premium, if any, on the Outstanding Bonds, the Trustee shall at the request of the Credit Obligor and after deducting all proper costs, expenses and liabilities incurred and disbursements made by the Trustee under the Indenture, pay to the Credit Obligor any amounts on deposit in the Debt Service Fund which are not required to pay the principal of and the interest and premium, if any, on the Bonds. (B) Possession of Project. The Trustee shall have the power to require the Board to surrender possession of the Project to it, and the Board shall, upon demand so to do by the Trustee, forthwith surrender to the Trustee actual possession of the Project or such part or parts thereof as the Trustee may designate, and the Trustee shall take possession thereof and may wholly exclude the Board and its agents and servants therefrom. The Trustee shall thereafter operate and manage the same by its chosen representatives with power to make, at the expense of the trust estate, such repairs, replacements, alterations, additions or improvements thereto as it may consider advisable, to collect the income therefrom and to pay all proper charges and maintenance expenses thereof, including all proper disbursements by the Trustee. (C) Other Remedies. The Trustee shall have the power to proceed with any other right or remedy independent of or in aid of the foregoing powers, as it may deem best, including the right to secure specific performance by the Board of any agreement on its part herein contained. (D) Rights of Credit Obligor. Anything in (A), (B), or (C) above to the contrary notwithstanding, so long as the Letter of Credit is in effect and the Credit Obligor has honored all proper drawings under the Letter of Credit or all Bonds constitute Pledged Bonds, without the prior written consent of the Credit Obligor, the Trustee shall not have the right to declare, either on its own or with the consent of Holders of Bonds, the principal of all Bonds or to pursue any remedy available to it under (B) or (C) above and the interest accrued thereon to become immediately due and payable as a result of the occurrence of an Event of Default under (b), (c) or (f) above, and any remedy so pursued by the Trustee where such consent is necessary shall be at the direction of the Credit Obligor. Remedies Vested in Trustee; Limitation on Bondholders' Suits. All remedies under the Indenture are vested exclusively in the Trustee for the equal and pro rata benefit of all the holders of the Bonds and (to the extent therein provided) for the benefit of the Credit Obligor, unless the Trustee refuses or neglects to act within a reasonable time after written request so to act addressed to the Trustee by the holders of at least 25% in principal amount of the outstanding Bonds, accompanied by indemnity satisfactory to the Trustee, in which event, subject to the rights of the Credit Obligor, the holder of any of the Bonds may thereupon so act in the name and behalf of the Trustee or may so act in his own name in lieu of action by or in the name and behalf of the Trustee. Except as above provided, no holder of any of the Bonds shall have the right to enforce any remedy under the Indenture, and then only for the equal and pro rata benefit of the holders of all the Bonds. Notwithstanding any other provision of the Indenture, the right of the holder of any Bond, which is absolute and unconditional, to receive payment of the principal of and the interest on such Bond on or after the due date thereof, but solely from the rentals and other receipts as therein expressed, or -25 30 to institute suit for the enforcement of such payment on or after such due date, or the obligation of the Board, which is also absolute and unconditional, to pay, but solely from said rentals or receipts, the principal of and interest on the Bonds to the respective holders thereof at the time and place in said Bonds expressed, shall not be impaired or affected without the consent of such holder. Waivers of Default. The Trustee may, with the consent of the Credit Obligor, waive any default and its consequences and rescind any declaration of maturity of principal and shall do so upon the written request of the Credit Obligor or (if no Letter of Credit is in effect and less than all the Bonds constitute Pledged Bonds) the holders of a majority in principal amount of the outstanding Bonds, subject to certain limitations in the case of a default pertaining to the payment of maturing principal or interest or the purchase price of any Bond required to be purchased. Defeasance; Satisfaction of Indenture. The Indenture provides that whenever the entire indebtedness secured by the Indenture shall have been fully paid, the Trustee shall cancel and discharge the lien of the Indenture. For purposes of the Indenture, any Bond shall be deemed to have been paid if, during any Term Rate Period, a trust for the payment of all remaining debt service on such Bond shall have been established with the Trustee and all Bonds to be retired with funds from such trust either mature or will be called for redemption on or before the day immediately following such Term Rate Period. Such trust may consist of any combination of cash and/or Federal Securities, and the anticipated income from such Federal Securities may be included in the calculation of the required deposit to such trust. If a trust for payment of the Bonds is established, the Trustee must receive an opinion of counsel experienced in bankruptcy matters stating in effect that upon the occurrence of an Act of Bankruptcy with respect to the Board or the Company, money and investments in such trust will not be subject to any preference claim under the Federal Bankruptcy Code. Duties and Limitation on Liability of Trustee. The Indenture provides that the Trustee shall not be liable thereunder except for its non-compliance with the provisions thereof, its willful misconduct or its gross negligence. The Trustee may consult Counsel on any matters connected with the Indenture and shall not be answerable for any action taken or failure to take any action in good faith on the advice of Counsel, provided that its action or inaction is not contrary to any express provision of the Indenture. The Indenture contains other broad exculpatory provisions for the benefit of the Trustee, all of which are also available to the Tender Agent. Trustee May File Claims. The Trustee may at any time file a claim in its own name for the benefit of the holders of the Bonds in any court proceeding where any such claim may be permitted or required. The holders of the Bonds are deemed to have constituted and appointed the Trustee as their irrevocable agent and attorney-in-fact for the purpose of filing any such claim, but such authorization does not include the power to agree to accept new securities of any nature in lieu of the Bonds or to alter the terms of the Bonds. Resignation and Discharge of Trustee. The Trustee may resign and be discharged of the trust created in the Indenture upon written notice specifying the effective date of such resignation, such notice to be given to the Board and the holders of the Bonds. The effective date of such resignation shall be at least 30 days after the notice is first given unless coincident with the appointment by the holders of the Bonds of a successor trustee, but no resignation shall be effective until the appointment of a successor. The Trustee may be removed at any time by written instruments signed by the holders of a majority in principal amount of the Bonds outstanding. Appointment of Successor Trustee. If the Trustee resigns, is removed or placed by governmental authority under the control of a receiver or otherwise becomes incapable of acting, a successor may be appointed by a written instrument signed by the Credit Obligor and the holders of a majority in principal amount of the Bonds then outstanding and in the interim by an instrument executed by the Board. -26- 31 Trustee Authorized to Pay Certain Claims. The Trustee may under certain circumstances (but is not required to) pay certain charges or pay for insurance on the Project. Any sums so expended by the Trustee shall bear interest at a per annum rate equal to the prime rate plus 2% and shall be entitled to priority of payment over debt service on the Bonds except with respect to moneys drawn under the Letter of Credit. THE BOND GUARANTY This summary is not a complete recital of the terms of the Bond Guaranty and reference is made to the Bond Guaranty in its entirety. In the Bond Guaranty the Company will unconditionally guarantee to the Trustee for the benefit of the holders from time to time of the Bonds (a) the full and prompt payment of the principal of the Bonds and the premium, if any, payable on redemption thereof when and as the same shall become due, whether at the stated maturity thereof, by acceleration, call for redemption or otherwise and (b) the full and prompt payment of the interest on the Bonds when and as the same shall become due. The right to enforce the Bond Guaranty is vested exclusively in the Trustee for the equal and pro rata benefit of all holders at any time of the Bonds, unless the Trustee refuses or neglects to act within a reasonable time after being requested in writing so to do by the holders of 25% in aggregate principal amount of the Bonds then outstanding and after being furnished satisfactory indemnity, in which event the holder of any of the Bonds may thereupon so act in the name and behalf of the Trustee. THE LETTER OF CREDIT AND THE CONFIRMATION This summary is not a complete recital of the terms of the Letter of Credit and the Confirmation, to which, in their entirety, reference is made for the complete provisions thereof. THE LETTER OF CREDIT General Description. The Letter of Credit will be an irrevocable obligation of the Credit Obligor. The Letter of Credit will authorize the Trustee to draw an amount not exceeding $5,302,302 (such amount, as reduced from time to time and as reinstated from time to time, as described below, being referred to in the Letter of Credit as the "Stated Amount"). Of the Stated Amount, up to $5,225,000, which is an amount equal to the principal amount of the Bonds (the "Principal Portion"), may be drawn with respect to payment of the unpaid principal amount of the Bonds or payment of the principal portion of the purchase price of Tendered Bonds and up to $77,302, which is the maximum amount of interest payable on the Bonds at the rate of 12% per annum for a period of 45 days, computed on the basis of a 365-day year (the "Interest Portion"), may be drawn with respect to payment of accrued but unpaid interest on the Bonds, or payment of the interest portion of the purchase price of Tendered Bonds. Reductions in Stated Amount and Reinstatement. Multiple drawings may be made under the Letter of Credit, provided that drawings may not, in the aggregate, exceed the Stated Amount. The Stated Amount will be reduced as follows: -27- 32 (1) Payment of drawings with respect to principal due upon maturity, redemption or acceleration of the Bonds shall reduce the Principal Portion of the Stated Amount by a like amount, without reinstatement. (2) Payment of drawings with respect to interest due on the Bonds shall reduce the Interest Portion of the Stated Amount by a like amount, subject to reinstatement as described below. (3) Payment of drawings with respect to the purchase price of Tendered Bonds shall reduce the Principal Portion of the Stated Amount, to the extent of the Principal Portion of the purchase price so drawn, and shall reduce the Interest Portion of the Stated Amount, to the extent of the Interest Portion of the purchase price so drawn, in each case subject to reinstatement as described below. (4) At any time after the principal amount of the Bonds outstanding is reduced as a result of payment of the principal of Bonds due upon maturity or redemption, the Interest Portion of the Stated Amount may be reduced by delivery to the Credit Obligor of written notice from the Trustee certifying the maximum amount of interest that would be payable on Bonds then outstanding for a period of 45 days at the rate of 12% per annum, computed on the basis of a 365-day year. Upon receipt by the Credit Obligor of such notice, the Interest Portion of the Stated Amount shall be reduced to the maximum interest coverage so certified and shall not thereafter be increased or reinstated to an amount in excess of such maximum interest coverage. At the close of business on the 10th day following a draw for payment of regularly scheduled interest due on the Bonds the Interest Portion of the Stated Amount will automatically be reinstated by the amount of such drawing unless prior to the close of business on such 10th day the Trustee shall receive written notice from the Credit Obligor that an event of default, as defined in the Reimbursement Agreement, has occurred and is continuing and directing that the principal of all the Bonds and the interest accrued thereon be declared immediately due and payable. Upon payment by the Trustee to the Credit Obligor of the amount drawn to pay the purchase price of Tendered Bonds or upon receipt by the Trustee of written notice from the Credit Obligor that it has been reimbursed for the amount of such drawing, (i) the Principal Portion shall be reinstated by the amount of the principal portion of the purchase price of such Tendered Bonds and (ii) the Interest Portion shall be reinstated by the amount of the interest portion of the purchase price of such Tendered Bonds. Termination. The Letter of Credit will terminate upon the earliest of (a) the making of the final drawing available to be made under the Letter of Credit, (b) receipt by the Credit Obligor of a certificate from the Trustee stating that the Bonds have been fully paid, or provisions for such payment have been made, in accordance with the terms of the Indenture, or that the conditions precedent to the acceptance of a Substitute Letter of Credit have been satisfied, and (c) the close of the Credit Obligor's business on May 15, 1998. If by March 15, 1998 and by each March 15 thereafter, the Trustee has not received notice from the Credit Obligor that the Stated Expiration Date of the Letter of Credit will not be extended, the then effective Stated Expiration Date shall automatically be extended by a period of one year; provided, however, that the expiration date shall not in any event be later than May 15, 2007. Substitute Letter of Credit. The Company may, at its option, provide for the delivery to the Trustee of an irrevocable letter of credit (a "Substitute Letter of Credit") in substitution for the Letter of Credit then in effect, provided that -28- 33 (1) Such Substitute Letter of Credit must be substantially in the same form and of the same tenor as the initial Letter of Credit, except that such Substitute Letter of Credit must provide for the payment of interest on the Bonds (or the interest portion of the purchase price of Bonds tendered, or deemed tendered, for purchase) at the Maximum Rate, for whichever of the following periods shall be applicable: (i) if such Substitute Letter of Credit is to be effective during a Variable Rate Period, not less than 45 days, or (ii) if such Substitute Letter of Credit is to be effective during a Term Rate Period, a number of days not less than the sum of 15 days plus the maximum number of days between Interest Payment Dates with respect to such Term Rate Period. (2) If such Substitute Letter of Credit is being delivered in connection with a conversion of the interest rate to a Term Rate, the effective date shall be not later than the Conversion Date, and the expiration date shall be no sooner than the 15th day following the expiration of the Term Rate Period commencing on the Conversion Date. (3) Such Substitute Letter of Credit must provide for payment of the maximum redemption premium payable with respect to the Bonds. (4) Such Substitute Letter of Credit must have a Stated Expiration Date that is (i) the 15th day of a calendar month and (ii) not sooner than one year after its effective date; provided, however, that any Substitute Letter of Credit that is to be substituted for an existing Letter of Credit that is effective during a Term Rate Period must have a Stated Expiration Date not sooner than the Stated Expiration Date of such existing Letter of Credit. (5) If any Rating Agency maintains a rating with respect to the Bonds at the time of delivery of such Substitute Letter of Credit to the Trustee, the Trustee must receive written evidence from each such Rating Agency to the effect that the substitution of the proposed Substitute Letter of Credit will not, by itself, result in a reduction or withdrawal of its rating then assigned to the Bonds. (6) The Trustee must receive an opinion of counsel for the issuer of such Substitute Letter of Credit stating in effect that such Substitute Letter of Credit is a valid and binding obligation of the issuer thereof. The administrative provisions of any Substitute Letter of Credit may be different from those summarized above with respect to the initial Letter of Credit. The Bonds are subject to a Mandatory Tender prior to the expiration of any Letter of Credit then in effect. See "THE BONDS - Mandatory Tenders". Upon the acceptance of a Substitute Letter of Credit by the Trustee, references in the Indenture, the Lease and the Bond Guaranty to the "Credit Obligor" shall be deemed to mean the issuer of such Substitute Letter of Credit, references to the "Reimbursement Agreement" shall be deemed to mean the instrument pursuant to which the Substitute Letter of Credit is issued, and references to the "Mortgage" shall be deemed to mean the instrument (if any) securing the Company's obligations with respect to the Substitute Letter of Credit. -29- 34 THE CONFIRMATION The Indenture contains the following provisions, among others, with respect to the Confirmation: (1) In the event that the Trustee receives a notice from the Credit Obligor to the effect that the Credit Obligor has in effect a short-term rating from Moody's Investors Service of not less than P-1 and a short-term rating from S&P of not less than A-1 (which notice shall be accompanied by evidence of the effectiveness of both such ratings and evidence to the effect that the ratings on the Bonds will not be reduced or withdrawn as a result of the termination of the Confirmation), and as a result thereof the Credit Obligor directs that the Confirmation be terminated, the Trustee shall surrender the Confirmation to the Confirming Bank 10 days after receipt of such notice. (2) There may be substituted for any Confirmation then in effect a confirmation having different terms or issued by another confirming bank, but any such substitution shall be deemed to be the delivery of a Substitute Letter of Credit. (3) Except as otherwise provided above, the extension of the expiration date of the Letter of Credit without a corresponding extension of any Confirmation then in effect shall be deemed to be the delivery of a Substitute Letter of Credit to which the provisions of the Indenture apply. The extension of the Confirmation shall not be considered the delivery of a Substitute Letter of Credit. (4) So long as the Confirmation shall be effective, in the event of an Act of Bankruptcy with respect to the Credit Obligor or in the event the Credit Obligor repudiates the Letter of Credit or wrongfully dishonors a draw made under the Letter of Credit, the Trustee shall immediately draw upon the Confirmation in accordance with its terms and the provisions of the Indenture. The Confirmation provides that it will be an irrevocable obligation of the Confirming Bank, and will be subject to reduction and reinstatement in the same manner as the Letter of Credit. The Confirmation will automatically expire on the earliest of (i) May 15, 1998, (ii) the termination of the Letter of Credit, or (iii) the surrender by the Trustee of the Confirmation; provided, however, that on each March 15, beginning March 15, 1998 (each such date being referred to as an "Extension Date"), the expiration date of the Confirmation will be extended for one year unless the Confirming Bank sends to the Trustee written notice prior to such Extension Date stating that the expiration date shall not be so extended; and provided further than the expiration date shall not in any event be later than May 15, 2007. THE REIMBURSEMENT AGREEMENT The following summarizes certain provisions of the Reimbursement Agreement between the Company and the Bank pursuant to which the Letter of Credit is issued. Reference is hereby made to the Reimbursement Agreement for the detailed provisions thereof. Reimbursement of Bank. The Reimbursement Agreement provides, among other things, for the reimbursement to the Bank of certain amounts drawn under the Letter of Credit. Under the Reimbursement Agreement, the Company is required to reimburse fully the Bank for each drawing made by the Trustee with respect to the principal, redemption or purchase price of or interest on the Bonds and premiums, if any, and all such reimbursements are to be made in accordance with the provisions of the Reimbursement Agreement. -30- 35 Fees, Commissions and Expenses. Pursuant to the Reimbursement Agreement, the Company agrees to pay to the Bank, among other things, a commission based on the amount available to be drawn under the Letter of Credit and certain expenses incurred in maintaining the Letter of Credit and in enforcing the Bank's right under the Reimbursement Agreement. Certain costs and expenses (including those which would result from a change in law, regulation or interpretation thereof) incurred by the Bank relative to the Letter of Credit or the Reimbursement Agreement will also be paid by the Company along with taxes and fees, if any, payable in connection with the execution, delivery, filing and recording required by the Reimbursement Agreement, all subject to the terms and conditions set forth in the Reimbursement Agreement. Certain Affirmative and Negative Covenants. The Company covenants in the Reimbursement Agreement, among other things, to submit to the Bank certain financial and other reports and information and notices of Events of Default under the Reimbursement Agreement; to take certain actions in connection with the construction and operation of the Project; to cause optional redemption of the Bonds according to the schedule set forth in the Reimbursement Agreement; and to comply with the provision of the credit agreement between the Company, certain related parties and the Bank, which credit agreement contains affirmative and negative covenants requiring the Company, among other things, not to (i) permit liens on its property; (ii) incur indebtedness except for certain types of indebtedness; (iii) furnish the Bank with any certificate or document that contains any untrue statement of material fact or omits to state a material fact necessary to make such document or certificate not misleading; and (iv) merge or consolidate or sell or dispose of certain assets, except as permitted in the Reimbursement Agreement. The Company also covenants, among other things, not to, without prior written consent of the Bank or as permitted by the Reimbursement Agreement, amend the Indenture and the Lease. The covenants are solely for the benefit of the Bank. The Bank may waive any such covenants or certain other provisions of the Reimbursement Agreement and may agree with the Company to amend or add other covenants or provisions without the consent of any other party. The Bondholders will have no right or obligations as a result of such covenants or provisions or any amendments or waivers thereof. Failure by the Company to comply with the covenants in the Reimbursement Agreement could result in a default under the Reimbursement Agreement and an acceleration of the principal and interest of the Bonds. Events of Default. The occurrence of any of certain events (a general summary of which follows) constitutes an Event of Default under the Reimbursement Agreement unless waived by the Bank or amended by agreement of the Bank and the Company: (1) Any representation or warranty made by the Company in the Reimbursement Agreement shall prove to have been incorrect in any material respect when made; or (2) The Company shall fail to pay when due any amount specified in the Reimbursement Agreement; or (3) The Company shall fail to perform or observe any of its obligations or covenants under, or shall fail to comply with any of the provisions of the Reimbursement Agreement and, in certain cases, continuation of such failure beyond an applicable period of cure; or (4) Any material provision of the Reimbursement Agreement shall at any time for any reason cease to be valid and binding on the Company or shall be declared to be null and void, or the validity or enforceability thereof against the Company shall be contested by the Company or any governmental agency or authority, or the Company shall deny that it has any further liability or obligation under the Reimbursement Agreement; or -31- 36 (5) An Event of Default under and as defined in the Indenture or the Credit Agreement between the Company and the Bank, regardless of whether the Credit Agreement has terminated. A DEFAULT UNDER THE REIMBURSEMENT AGREEMENT COULD RESULT IN THE ACCELERATION OF ALL PRINCIPAL AND INTEREST ON THE BONDS AND THE EXERCISE OF ALL AVAILABLE REMEDIES THEREAFTER. Indemnification of the Bank. The Company agrees in the Reimbursement Agreement to indemnify and hold the Bank harmless from certain claims, damages, losses, liabilities, costs or expenses which arise by reason of certain untrue or alleged untrue statements or omissions of certain material statements in the Placement Memorandum and in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit. There are, however, specific limitations and qualifications on the Company's duty to indemnify and hold the Bank harmless which are set forth in the Reimbursement Agreement. THE MORTGAGE This summary is not a complete recital of the terms of the Mortgage and reference is made to the Mortgage in its entirety. As security for the Company's obligations under the Reimbursement Agreement, the Board and the Company will enter into the Mortgage in favor of the Credit Obligor, whereby the Credit Obligor will be granted a lien on, and security interest in, the Project, the rights of the Board and the Company under the Lease (except for certain rights personal to the Board), money and investments in the Special Funds established under the Indenture (subject to the prior lien of the Indenture with respect to the Special Funds and provisions of the Indenture permitting the application of money in the Special Funds for the purposes and on the terms and conditions therein set forth in the Indenture), all subleases and sublease rentals with respect to the Project, and certain other property of the Company. The Mortgage secures only obligations of the Company with respect to the initial Letter of Credit; the provisions of any instrument securing the Company's obligations with respect to a Substitute Letter of Credit may be different from the Mortgage. TRUSTEE LaSalle National Bank is the Trustee under the Indenture. A successor trustee may be appointed in accordance with the terms of the Indenture. The principal corporate trust office of the Trustee is located at 135 South LaSalle Street, Suite 1825, Chicago, Illinois 60603, Attention: Corporate Trust Department. REMARKETING AGENT LaSalle National Bank is the Remarketing Agent under the Remarketing Agreement. A successor Remarketing Agent may be appointed in accordance with the terms of the Remarketing Agreement and the Indenture. The principal office of the Remarketing Agent is located at 181 West Madison Street, Suite 3200, Chicago, Illinois 60602, Attention: Capital Markets Group. -32- 37 RATING Based on the support for payment of principal, purchase price and interest provided by the Letter of Credit issued by the Credit Obligor and confirmed by the Confirming Bank, the Bonds have been rated AA-/A-1+ by Standard & Poor's ("S&P"). No application has been made to any other rating agency. Explanation of the significance of such rating may be obtained from S&P at 25 Broadway, New York, New York 10004. Such rating expresses only the view of S&P. There is no assurance that such rating will continue for any period of time or that it will not be revised or withdrawn entirely if, in the judgment of S&P, circumstances so warrant. The rating by S&P is not a recommendation to buy, sell or hold the Bonds, and such rating may be subject to revision or withdrawal at any time by such rating agency. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. CONTINUING INFORMATION The Issuer is obligated to make payments on the Bonds solely and only from moneys paid by the Company pursuant to the Lease and from payments made pursuant to the Letter of Credit. The Issuer's own current and continuing financial condition is not material to an investment in the Bonds. The Company makes no representation concerning its financial condition, the viability of the Project or any other matter relating to its credit or operating condition. In addition, no continuing disclosure will be made relating to the Company or the Project. Potential investors should look solely to the credit of the Credit Obligor and the Confirming Bank in determining whether to make an investment in the Bonds. The Company is not obligated under the Lease or otherwise, and the Issuer is not obligated under the Indenture or otherwise, to furnish the Trustee or any Bondholder or Beneficial Owner with any continuing financial or other information pertaining to the Issuer or the Company. TAX MATTERS Bradley Arant Rose & White LLP, bond counsel, if of the opinion that, under the Code, as presently construed and administered, and assuming compliance by the Company with the Compliance Covenants (see "THE LEASE - Concerning the Tax-Exempt Nature of the Interest Income on the Bonds" above), the interest income on the Bonds will be excludable from gross income of the recipient thereof for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, except with respect to any Bond, for any period during which it is held by a "substantial user" of the Project or a "related person", as those terms are used or defined in Section 147(a) of the Code, but the interest income on the Bonds will, under existing statutes, be includable in gross income of the recipient thereof for federal income tax purposes (a) in the event the limit on certain specified capital expenditures and bonds issued that is specified in Section 144(a)(4) of the Code is hereafter exceeded, or (b) in the event that Section 144(a) of the Code shall cease to be applicable to the Bonds as a result of Section 144(a)(10) of the Code. Bond counsel is further of the opinion, however, that the interest income on the Bonds will be included as an item of tax preference in alternative minimum taxable income for the purpose of computing the alternative minimum tax imposed by Section 55 of the Code and in modified alternative minimum taxable income for the purpose of computing -33- 38 the environmental tax imposed by Section 59A of the Code. Bond Counsel will express no opinion with respect to the Federal tax consequences to the recipients of the interest income on the Bonds under any provision of the Code not referred to above. Prospective purchasers of the Bonds should be aware that (i) Section 265 of the Internal Revenue Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of such financial institution's interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Internal Revenue Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by some corporations could be subject to the environmental tax imposed by Section 59A of the Internal Revenue Code, (iv) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Internal Revenue Code, (v) passive investment income, including interest on the Bonds, may be subject to federal income taxation under Section 1375 of the Internal Revenue Code for Subchapter S corporations having Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, and (vi) Section 86 of the Internal Revenue Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Bonds. Any purchaser of the Bonds who might be affected by any of these provisions of the Internal Revenue Code should consult his own tax advisor about the effect of such provisions as applied to the purchaser. Bond counsel is further of the opinion that the interest income on the Bonds is exempt from present Alabama income taxation. LEGAL MATTERS Legal matters incident to the issuance of the Bonds are subject to the approving opinion of Bradley Arant Rose & White LLP, Bond Counsel. It is anticipated that the approving opinion of Bond Counsel will be substantially in the form attached hereto as Appendix A. Bond Counsel will state in its approving opinion that it expresses no opinion with respect to the accuracy or completeness of this Placement Memorandum except for those portions hereof entitled "DEFINITIONS," "THE BOARD," "THE BONDS," "THE LEASE," "THE INDENTURE,""THE BOND GUARANTY,""THE LETTER OF CREDIT AND THE CONFIRMATION," "THE MORTGAGE," and "TAX MATTERS," which portions, in the opinion of Bond Counsel, fairly summarize the matters therein referred to. Certain legal matters will be passed upon for the Company by Jaffe, Raitt, Heuer & Weiss, Professional Corporation, Detroit, Michigan, for the Credit Obligor by Bodman, Longley & Dahling LLP, Detroit, Michigan, and for the Confirming Bank by Janet M. Knutel, Assistant Counsel, ABN AMRO North America, Inc., the holding company of LaSalle National Bank. PLACEMENT OF THE BONDS The Bonds are intended to be exempt securities under the Securities Act of 1933, as amended (the "1933 Act"), and the offer, sale and delivery of the Bonds will not require registration under the 1933 Act or qualification of the Indenture under the Trust Indenture Act of 1939, as amended. -34- 39 LaSalle National Bank, the Placement Agent, has agreed to use its best efforts to place the Bonds at a price of 100% of the aggregate principal amount thereof, subject to various conditions. The nature of the Placement Agent's obligation is such that the Placement Agent is obligated to place all of the Bonds if any are placed. The Company will pay the Placement Agent $30,000 as a placement fee in connection with the issuance and placement of the Bonds. LITIGATION There is no litigation pending in any court or, to the best knowledge of the Issuer or the Company, threatened, questioning the existence of the Issuer or the Company, respectively, or which would restrain or enjoin the issuance or delivery of the Bonds, or which materially and adversely affects the Company or the proceedings of the Issuer taken in connection with the Bonds or the pledge or application of the revenues or other funds to be derived under the Lease or which contests the powers or authority of the Issuer with respect to the foregoing. MISCELLANEOUS Summaries of documents contained herein do not purport to be complete and are expressly made subject to the exact provisions of the complete documents. For details of all terms and conditions, prospective purchasers of the Bonds are referred to the complete documents which may be reviewed during regular business hours at the office of the Placement Agent or, after the issuance of the Bonds, the Trustee. The delivery of this Placement Memorandum or any sale of the Bonds described herein shall not, under any circumstances, create an implication that there has been no change in the business affairs or financial condition of the Company, the Credit Obligor or the Confirming Bank since the date hereof. It is anticipated that a CUSIP identification number will be printed on the Bond certificate delivered to DTC, but neither the failure to print such a number on the Bond certificate (or any other Bonds if the Bonds are not then in a Book Entry System) nor any defect in printing of such numbers shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Bonds. The attached appendices are integral parts of this Placement Memorandum and must be read together with all foregoing statements. AUTHORIZATION The delivery of this Placement Memorandum has been duly authorized by the Issuer and the Company. Dated: April 23, 1997 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By: /s/ John E. Northcutt -------------------------------------- Chairman of the Board of Directors -35- 40 APPENDIX A FORM OF APPROVING OPINION OF BOND COUNSEL BRADLEY ARANT ROSE & WHITE LLP 2001 Park Place, Suite 1400 Birmingham, Alabama 35203-2736 April 23, 1997 The Industrial Development Board of the City of Demopolis Demopolis, Alabama Ladies and Gentlemen: We have examined certified copies of proceedings and other documents showing the organization under the laws of Alabama of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS (herein called the "Board"), together with copies of proceedings of the Board and other documents submitted to us pertaining to the issuance and validity of $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (herein called the "Bonds"). In rendering the opinion hereinafter expressed with respect to the exclusion of the interest income on the Bonds from gross income of the recipients thereof for federal income tax purposes, and the inapplicability of (i) the registration requirements of the Securities Act of 1933, as amended, to the Bonds, and (ii) the qualification requirements of the Trust Indenture Act of 1939, as amended, to the Indenture hereinafter referred to, we have relied, in part, upon certain representations made by McClain of Alabama, Inc. hereinafter referred to. The statements hereinafter made and the opinions hereinafter expressed are based upon our examination of said proceedings and documents and upon said representations. The documents submitted to us show as follows: (a) That the Bonds have been issued under the provisions of a Trust Indenture dated as of April 1, 1997 (herein called the "Indenture") from the Board to LaSalle National A-1 41 The Industrial Development Board of the City of Demopolis April 23, 1997 Page 2 Bank, a national banking association, as trustee (in said capacity herein called the "Trustee") with respect to the Project hereinafter referred to; (b) That the Board and McClain of Alabama, Inc., a corporation organized under the laws of the State of Michigan (herein called the "Company") have entered into a Lease Agreement dated as of April 1, 1997 (herein called the "Lease"), wherein the Board has agreed to lease to the Company certain real property, including the manufacturing plant located thereon and the machinery, equipment and other personal property to be acquired and installed on the said real property (said real property, said plant and said machinery, equipment and other personal property being herein together called the "Project") for a term extending until April 1, 2007; (c) That in the Lease, the Company has made certain covenants (herein called the "Compliance Covenants") to the effect that it will comply with certain conditions to and requirements for the continued exclusion from gross income of the recipients thereof of the interest income on the Bonds; (d) That the Company and the Trustee have entered into a Bond Guaranty Agreement dated as of April 1, 1997 (herein called the "Bond Guaranty"), under which the Company has unconditionally guaranteed to the Trustee for the benefit of the holders from time to time of the Bonds the full and prompt payment of the principal of and the interest and premium (if any) on the Bonds; (e) That Standard Federal Bank (herein called the "Credit Obligor") has issued to the Trustee an Irrevocable Letter of Credit (herein called "the Letter of Credit") with respect to the Bonds; (f) That LaSalle National Bank (herein called the "Confirming Bank") has issued to the Trustee an irrevocable confirmation of the Letter of Credit (herein called the "Confirmation") with respect to the Bonds; (g) That the Company and Credit Obligor have entered into a Reimbursement Agreement dated as of April 1, 1997 (herein called the "Reimbursement Agreement"), A-2 42 The Industrial Development Board of the City of Demopolis April 23, 1997 Page 3 pursuant to which the Company has agreed to reimburse the Credit Obligor for amounts drawn under the Letter of Credit; and (h) That the Board, the Company and the Credit Obligor have entered into a Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997 (herein called the "Mortgage"), pursuant to which the Board and the Company have mortgaged their interests in the Project and the Lease to the Credit Obligor as security for the amounts drawn under the Letter of Credit and the performance by the Company of the other obligations to the Credit Obligor under the Reimbursement Agreement. We are of the following opinion: (1) That the Board has been duly organized and is validly existing as a public corporation pursuant to the Constitution and laws of the State of Alabama and has corporate power under the laws of the State of Alabama, including particularly the provisions of Article 4 of Chapter 54 of Title 11 of the Code of Alabama 1975, as amended (herein called the "Authorizing Act") to issue the Bonds, to execute and deliver the Bonds, the Lease, the Indenture and the Mortgage and to perform its obligations under each thereof; (2) That the Authorizing Act is valid under the Constitution and laws of the State of Alabama and the Bonds have been issued in conformity with the provisions of the Authorizing Act; (3) That the Lease, the Indenture and the Mortgage have been duly authorized, executed and delivered by the Board and are valid and binding upon it and enforceable in accordance with their terms except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by usual equity principles which may limit the specific enforcement under state law of certain remedies, but which do not affect the validity of such documents and do not make inadequate other remedies available to the holders of the Bonds for the enforcement of such obligations; (4) That the Bonds have been duly authorized, sold, executed and issued, in the manner provided by the applicable provisions of the Constitution and laws of Alabama, are in due and legal form and evidence valid and binding special obligations of the Board, enforceable in accordance with their terms, A-3 43 The Industrial Development Board of the City of Demopolis April 23, 1997 Page 4 payable, as to both principal and interest, solely out of the revenues and receipts derived from the leasing or sale of the Project, as it may at any time exist; (5) That the Bonds are secured, pro rata and without preference or priority of one over another by a valid pledge of the revenues and receipts to be derived by the Board from the leasing or sale of theProject (including specifically the rentals payable to the Board by the Company under the Lease) and by the provisions of the Indenture; (6) That the Bonds are exempt from registration under the Securities Act of 1933 by virtue of the exemption afforded by Section 3(a)(2) of the said Act, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939; (7) That under presently existing law, the interest on the Bonds is exempt from income taxation by the State of Alabama; and (8) That under the Internal Revenue Code of 1986, as amended (herein called "the Code"), as presently construed and administered, and assuming continuing compliance by the Company with the Compliance Covenants, the interest income on the Bonds will be excludable from gross income of the recipients thereof for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, except, with respect to any Bond, for any period during which it is held by a "substantial user" of the Project or a "related person", as those terms are used or defined in Section 147(a) of the Code, but the interest income on the Bonds will, under existing statutes, be includable in gross income of the recipients thereof for federal income tax purposes (i) in the event the limit on certain specified capital expenditures and bonds issued that is specified in Section 144(a)(4) of the Code is hereafter exceeded, or (ii) in the event that Section 144(a) of the Code shall cease to be applicable to the Bonds as a result of provisions of Section 144(a)(10) of the Code. We call to your attention, however, that the interest income on the Bonds will be included as an item of tax preference in alternative minimum taxable income for the purpose of computing the alternative minimum tax imposed by Section 55 of the Code. We express no opinion with respect to the federal tax consequences of ownership of the Bonds under any other provision of the Code. We have been engaged primarily for the purpose of preparing certain documents and supporting certificates, reviewing the transcript of proceedings pursuant to which the Bonds have been authorized to be issued and rendering this opinion. Although we have assisted in the preparation of certain portions of the Official Statement prepared with respect to the Bonds and are of the opinion that the statements made under the captions "The Board", "The Bonds", "The Lease", "The Indenture", "The Bond A-4 44 The Industrial Development Board of the City of Demopolis April 23, 1997 Page 5 Guaranty", "The Letter of Credit and the Confirmation", "The Mortgage" and "Tax Matters" summarize the matters therein referred to, we have not been requested to check or verify, have not checked or verified and express no opinion with respect to the adequacy, accuracy, completeness or fairness of any other information contained in the Official Statement. We have been furnished with and have relied upon an opinion of Jaffe, Raitt, Heuer & Weiss, Professional Corporation, Detroit, Michigan, to the effect that the Lease has been duly authorized, executed and delivered on behalf of the Company and is valid and binding upon it. We have been furnished with and have relied upon opinions of Bodman, Longley & Dahling LLP, Detroit, Michigan, and Janet M. Knutel, Assistant Counsel, ABN AMRO North America, Inc., the holding company of LaSalle National Bank, to the effect that the Letter of Credit and the Confirmation have been duly authorized, executed and delivered on behalf of the Credit Obligor and the Confirming Bank, respectively, and are valid and binding upon them, respectively. We have not examined the title of the Board to the Project, and therefore express no opinion thereon. Yours very truly, A-5 45 APPENDIX B STANDARD FEDERAL BANK Standard Federal Bank (the "Bank") is a federally chartered savings bank founded in 1893. Standard Federal Bancorporation, Inc., a Michigan corporation ("Standard Federal") is the holding company for Standard Federal Bank. The Bank's executive offices are located in Troy, Michigan. The Bank has full-service Banking Centers and retail Home Lending Centers located in Michigan, Indiana, Illinois and Ohio. Standard Federal had consolidated assets of $15.7 billion at December 31, 1996. Based on total consolidated assets at December 31, 1996, Standard Federal is the sixth largest publicly traded savings institution in the United States and the largest savings institution headquartered in Michigan. With deposits of $11.0 billion at December 31, 1996, Standard Federal has the largest deposit base of all savings institutions headquartered in the Midwest. On November 22, 1996, ABN AMRO North America, Inc. ("ABN AMRO") and Standard Federal announced the execution of a definitive merger agreement, whereby ABN AMRO will purchase all of the outstanding shares of Standard Federal for $59.00 per share in cash. Standard Federal's net income totaled $54.2 million for the year ended December 31, 1996, compared to $119.5 million in 1995 and $119.0 million in 1994. The 1996 earnings reflect the after-tax cost of a one-time assessment, mandated by federal law, of $43.8 million, for the recapitalization of the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. Also reflected in the 1996 annual earnings is the effect of a change in accounting for goodwill which resulted in a reduction of earnings and unamortized goodwill of $43.0 million. Standard Federal Bank's Annual Report on Form 10-K, as of the close of business on December 31, 1996, as filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, is incorporated by reference in this Placement Memorandum and shall be deemed a part hereof. Standard Federal Bank will provide, without charge to any person to whom a copy of this Placement Memorandum has been delivered, upon written request of any such person, a copy of its Annual Report on Form 10-K. Written requests for such copies should be delivered to Standard Federal Bank, 2600 West Big Beaver Road, Troy, Michigan 48084, Attention: Commercial Banking Department. B-1 46 APPENDIX C LASALLE NATIONAL BANK LaSalle National Bank, with executive offices in Chicago, Illinois, is a wholly owned subsidiary and a principal asset of LaSalle National Corporation, a Delaware corporation ("LNC"). LNC is a wholly-owned subsidiary of ABN AMRO North America, Inc., a Delaware corporation, which is a wholly-owned subsidiary of ABN AMRO Holdings NV. LaSalle National Bank is a commercial bank offering a wide range of banking and trust services to its customers in the Chicago metropolitan area, throughout the United States and around the world. As of December 31, 1996, LaSalle National Bank had total assets of $13.386 billion, total deposits of $8.975 billion, total loans and lease finance assets, net of the reserve for possible credit losses, of $8.276 billion, and total equity capital of $843.589 million. LaSalle National Bank had net income for the year ended December 31, 1996, of $126.605 and for the year December 31, 1995, of $111.070 million. LaSalle National Bank's Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign offices -- Office 031, as of the close of business on December 31, 1996, as submitted to the Office of Comptroller of Currency, are incorporated by reference in this Placement Memorandum and shall be deemed a part hereof. In addition, all reports filed by LaSalle National Bank pursuant to 12 U.S.C. ss. 324 after the date of this Placement Memorandum shall be deemed to be incorporated in this Placement Memorandum by reference and shall be deemed to be a part hereof from date of filing of any such report. LaSalle National Bank will provide, without charge to any person to whom a copy of this Placement Memorandum has been delivered, upon the written request of any such person, a copy of any or all of the documents referred to above which may have been or may be included in the Placement Memorandum by reference, other than exhibits to such documents. Written requests for such copies should be delivered to LaSalle National Bank, 135 South LaSalle Street, Chicago, Illinois 60674, Attention: Commercial Lending. C-1 EX-10.67 9 LEASE AGREEMENT 1 EXHIBIT 10.67 ================================================================================ LEASE AGREEMENT between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS and MCCLAIN OF ALABAMA, INC. DATED AS OF APRIL 1, 1997 ================================================================================ Pertaining to $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS Industrial Development Revenue Bonds Series 1997 (McClain of Alabama, Inc. Project) 2 LEASE AGREEMENT TABLE OF CONTENTS
Page No. ----- ARTICLE I DEFINITIONS AND USE OF PHRASES Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Use of Phrases. . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Representations by the Board . . . . . . . . . . . . . . . . 9 Section 2.2 Representations and Warranties by the Company . . . . . . . 9 ARTICLE III DEMISING CLAUSES Section 3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IV CONSTRUCTION OF IMPROVEMENTS AND ACQUISITION OF EQUIPMENT Section 4.1 Agreement to Construct Improvements and Acquire and Install Equipment . . . . . . . . . . . . . . . . . . . . . 13 Section 4.2 Agreement to Issue the Bonds . . . . . . . . . . . . . . . . 14 Section 4.3 No Warranty of Suitability by Issuer. Company Required to Bear Certain Costs in Certain Events . . . . . . . . . . . . 14 Section 4.4 Company to Pursue Rights against Contractors, etc. . . . . . 15 ARTICLE V DURATION OF TERM AND RENTAL PROVISIONS Section 5.1 Duration of Term . . . . . . . . . . . . . . . . . . . . . . 15 Section 5.2 Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 5.3 Additional Rent - Fees and Expenses of Trustee and Remarketing Agent . . . . . . . . . . . . . . . . . . . 16
i 3 Section 5.4 Additional Rent - Board's Expenses . . . . . . . . . . . . . 17 Section 5.5 Options to Prepay Basic Rent . . . . . . . . . . . . . . . . 17 Section 5.6 Mandatory Prepayment of Basic Rent in the Event of a Determination of Taxability . . . . . . . . . . . 17 Section 5.7 Notice of Prepayment . . . . . . . . . . . . . . . . . . . . 18 Section 5.8 Redemption of Bonds With Prepayment Moneys . . . . . . . . . 18 Section 5.9 Obligation of Company Unconditional . . . . . . . . . . . . 18 ARTICLE VI MAINTENANCE, TAXES AND INSURANCE Section 6.1 Maintenance, Additions, Alterations and Improvements . . . . 19 Section 6.2 Removal of Equipment. . . . . . . . . . . . . . . . . . . . 20 Section 6.3 Taxes, Other Governmental Charges and Utility Charges . . . 23 Section 6.4 Insurance Required . . . . . . . . . . . . . . . . . . . . . 23 Section 6.5 Advances by Board or Trustee . . . . . . . . . . . . . . . . 24 ARTICLE VII PROVISIONS RESPECTING DAMAGE, DESTRUCTION AND CONDEMNATION Section 7.1 Damage and Destruction Provisions . . . . . . . . . . . . . 25 Section 7.2 Condemnation Provisions . . . . . . . . . . . . . . . . . . 26 Section 7.3 Condemnation of Right to Use of Project for Limited Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 7.4 Condemnation of Company-Owned Property . . . . . . . . . . . 27 Section 7.5 Provisions Relating to the Incurring of Certain Expenses after Bonds Paid . . . . . . . . . . . . . . . . . 27 Section 7.6 Optional Application of Net Insurance Proceeds or Net Condemnation Award . . . . . . . . . . . . . . . . . . . . 28 ARTICLE VIII PARTICULAR COVENANTS OF THE COMPANY Section 8.1 General Covenants . . . . . . . . . . . . . . . . . . . . . 28 Section 8.2 Release and Indemnification Covenants . . . . . . . . . . . 28 Section 8.3 Inspection of Project . . . . . . . . . . . . . . . . . . . 30 Section 8.4 Agreement to Maintain Corporate Existence . . . . . . . . . 30 Section 8.5 Qualification in Alabama . . . . . . . . . . . . . . . . . . 31 Section 8.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . 31 Section 8.7 Concerning the Tax-Exempt Nature of the Interest Income on the Bonds . . . . . . . . . . . . . . . . . . . . 31
ii 4 ARTICLE IX CERTAIN PROVISIONS RELATING TO ASSIGNMENT, SUBLEASING AND TO THE BONDS Section 9.1 Provisions Relating to Assignment and Subleasing by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 9.2 Assignment of Lease by Board; Required Consents to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.3 References to Bonds Ineffective After Bonds Paid . . . . . . 33 ARTICLE X EVENTS OF DEFAULT AND REMEDIES Section 10.1 Events of Default Defined . . . . . . . . . . . . . . . . . 34 Section 10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . 35 Section 10.3 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . 36 Section 10.4 Agreement to Pay Attorneys' Fees . . . . . . . . . . . . . . 36 Section 10.5 No Additional Waiver Implied by One Waiver . . . . . . . . . 37 ARTICLE XI OPTIONS Section 11.1 Option to Purchase After Payment of Bonds . . . . . . . . . 37 Section 11.2 Option to Terminate . . . . . . . . . . . . . . . . . . . . 37 Section 11.3 Option to Purchase Portions of Project Site . . . . . . . . 38 ARTICLE XII MISCELLANEOUS Section 12.1 Covenant of Quiet Enjoyment. Surrender of Project . . . . . 39 Section 12.2 Retention of Title to Project by Board. Grant of Utility Easements. Connecting Utilities . . . . . . . . . . 39 Section 12.3 Interest Rate Limitation . . . . . . . . . . . . . . . . . . 39 Section 12.4 This Lease a Net Lease . . . . . . . . . . . . . . . . . . . 39 Section 12.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.6 Certain Prior and Contemporaneous Agreements Cancelled . . . 41 Section 12.7 Limited Liability of Board . . . . . . . . . . . . . . . . . 41 Section 12.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 41 Section 12.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 12.10 Article and Section Captions . . . . . . . . . . . . . . . . 41 Section 12.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 42
Exhibit A - Description of Project Site Exhibit B - Description of the Equipment iii 5 LEASE AGREEMENT between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation organized under the laws of the State of Alabama (the "Board") and MCCLAIN OF ALABAMA, INC., a corporation organized under the laws of the State of Michigan (the "Company"), R E C I T A L S: Acting pursuant to an Interim Agreement hereinafter referred to, the Board has heretofore acquired the real property hereinafter described and the Company has commenced the construction of improvements to a manufacturing plant located thereon and the acquisition and installation in said plant and elsewhere on the said real property of certain items of machinery, equipment and other personal property for use in the operation thereof. To finance the cost of acquiring said real property, constructing said improvements and acquiring and installing said machinery, equipment and other personal property, the Board proposes to issue, at the request of the Company, $5,225,000 principal amount of its Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project). The Bonds will be issued under a Trust Indenture dated as of April 1, 1997, from the Board to LaSalle National Bank, a national banking association the principal corporate trust office of which is located in the City of Chicago, Illinois. The said Trust Indenture is being executed and delivered simultaneously with the delivery hereof, and the terms and conditions thereof, including particularly and without limitation those relating to the maturity date of the Bonds, the interest rates thereon and the provisions for prepayment thereof prior to their final maturity, are hereby made a part of this Lease Agreement as fully and completely as if set out herein. To achieve certain of the objectives hereinabove outlined, the Board and the Company have entered into this Lease Agreement. NOW, THEREFORE, THIS AGREEMENT W I T N E S S E T H: That in consideration of the respective representations and agreements herein contained, the parties hereto agree as follows: 1 6 ARTICLE I DEFINITIONS AND USE OF PHRASES SECTION 1.1 DEFINITIONS. The following words and phrases and others evidently intended as the equivalent thereof shall, in the absence of clear implication herein otherwise, be given the following respective interpretations herein: "AFFILIATE" means any person, firm or corporation controlled by, or under common control with, the Company and any person, firm or corporation controlling the Company. "AUTHORIZED BOARD REPRESENTATIVE" means the person or persons at the time designated as such by written certificate furnished to the Company and the Trustee, containing the specimen signature or signatures of such person or persons and signed on behalf of the Board by the Chairman or the Vice Chairman of the Directors. "AUTHORIZED COMPANY REPRESENTATIVE" means the person or persons at the time designated as such by written certificate furnished to the Board and the Trustee, containing the specimen signature or signatures of such person or persons and signed on behalf of the Company by the Chairman of its Board of Directors, by its President, by any Vice President, by its Secretary or by its Treasurer. "AUTHORIZING ACT" means Article 4 of Chapter 54 of Title 11 (Sections 11-54-80 to 11-54-101, inclusive) of the Code of Alabama of 1975, as amended. "BASIC RENT" means (i) the moneys payable by the Company pursuant to the provisions of Section 5.2 hereof, (ii) any other moneys payable by the Company pursuant to this Lease to provide for the payment of the principal of and the interest and premium (if any) on, or purchase price of, the Bonds (other than the aforesaid moneys payable pursuant to Section 5.2 hereof), and (iii) any other moneys payable by the Company pursuant to this Lease that are herein referred to as Basic Rent. "BOARD" means (i) The Industrial Development Board of the City of Demopolis and its successors and assigns, and (ii) any public corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party as provided in Section 8.6 of the Indenture. 2 7 "BOND COUNSEL" means Independent Counsel whose experience in matters relating to the issuance of obligations of states and their political subdivisions is nationally recognized. "BOND PAYMENT DATE" means each date (including any date fixed for redemption of Bonds) on which Debt Service is payable on the Bonds. "BOND PURCHASE FUND" means the Bond Purchase Fund created in Section 7.2 of the Indenture. "BONDS" means the Board's Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project), authorized in Article III of the Indenture to be issued in the aggregate principal amount of $5,225,000. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions are closed in any of the following locations: (i) the city in which the principal office of the Trustee is located, (ii) the city in which the principal office of the Remarketing Agent is located, (iii) the city in which the office of the Credit Obligor where drawings under the Letter of Credit are to be made is located, (iv) the City of New York, New York, or (v) the City of Chicago, Illinois. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMPANY" means the party of the second part hereto and, subject to the provisions of Section 7.4 hereof, includes its successors and assigns and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "COUNSEL" means any attorney or firm of attorneys duly admitted to practice before the highest court of one or more states of the United States of America or of the District of Columbia. "CREDIT OBLIGOR" means Standard Federal Bank, a federal savings bank and its successors and assigns, until a Substitute Letter of Credit shall have been accepted by the Trustee, and thereafter "Credit Obligor" means the issuer of the Substitute Letter of Credit. "DEBT SERVICE FUND" means the Bond Principal and Interest Fund created in Section 7.1 of the Indenture. 3 8 "DEFAULT" or "DEFAULT" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DETERMINATION OF TAXABILITY" means a determination that the interest income on any of the Bonds is Taxable, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following: (a) the date on which the Company determines that the interest income on any of the Bonds is Taxable by filing with the Trustee a statement to that effect; or (b) the date on which the Company shall be advised by private ruling, technical advice or any other written communication from an authorized official of the Internal Revenue Service that, based upon any filings of the Company, or upon any review or audit of the Company, or upon any other grounds whatsoever, the interest income on any of the Bonds is Taxable; or (c) the date on which the Company shall receive notice from the Trustee in writing that the Trustee has been advised (i) by any Holder of any Bonds that the Internal Revenue Service has determined that the interest income on the Bonds is Taxable or (ii) by any authorized official of the Internal Revenue Service that the interest income on any of the Bonds is Taxable; provided that no Determination of Taxability shall be deemed to have occurred: (1) as a result of a determination by the Company pursuant to the preceding clause (a) unless supported by a written opinion of Bond Counsel acceptable to the Trustee and the Board that the interest income on the Bonds is Taxable; or (2) as a result of the event described in the preceding clauses (b) or (c) unless and until (1) the Company has been afforded a reasonable opportunity, at its expense, to contest such determination either through its own action (if permitted by law) or by or on behalf of one or more of the Holders of the Bonds and (2) such contest, if made, has been abandoned by the Company or has been finally determined by a court of competent jurisdiction from which no further appeal exists, but if such contest has not been abandoned or finally determined within three years of the event described in either of said clauses (b) and (c) which forms the basis of the Determination of Taxability in question, then such Determination of Taxability shall be deemed to have occurred three years after the date of such event. "BOND COUNSEL" means Independent Counsel whose experience in matters relating to the issuance of obligations by states and their political subdivisions is nationally recognized. 4 9 "EQUIPMENT" means those items of machinery, equipment and other personal property that are generally described on, and are referred to as "Equipment" in, Exhibit B attached hereto and made a part hereof, and any other items of machinery, equipment and other personal property that, under the provisions hereof, are to constitute part of the Equipment. "EVENT OF DEFAULT" means any of the events described in Section 10.1 hereof. "IMPROVEMENTS" means the improvements to the Plant required by the provisions of Section 4.1 hereof to be constructed by the Company. "INDENTURE" means the Trust Indenture between the Board and LaSalle National Bank, dated as of April 1, 1997, under which (i) the Bonds are authorized to be issued, and (ii) the Board's interest in this Lease Agreement and the revenues and receipts to be derived by the Board from any leasing or sale of the Project are to be assigned as security for payment of the principal of and the interest and premium (if any) on the Bonds, as said Trust Indenture now exists and as it may hereafter be supplemented and amended. "INDEPENDENT COUNSEL" means an attorney or firm of attorneys duly admitted to practice before the highest court of one or more states of the United States of America or the District of Columbia and not employed full time by the Board, the Company, an Affiliate or the Trustee. "INDEPENDENT ENGINEER" means an independent engineer or engineering firm not employed full time by the Board, the Company or an affiliate. "INTERIM AGREEMENT" means that certain Interim Agreement dated as of August 1, 1996, between the Board and the Company. "ISSUE DATE" means the date of the initial authentication and delivery of the Bonds. "LEASE TERM" means the period beginning on the date of delivery of these presents and, subject to the provisions of this Lease Agreement, continuing until 11:59 o'clock, p.m., on April 1, 2007. 5 10 "LETTER OF CREDIT" means the initial letter of credit delivered to the Trustee on the Issue Date and, unless the context indicates otherwise, any Substitute Letter of Credit accepted by the Trustee. "LOCAL FACILITIES" means facilities of which the Company or a related person or persons (as the terms "related person" and "facilities" are used in Section 144(a)(3) of the Code) is, was or will be the principal user and which are located in Marengo County, Alabama, but outside the corporate limits of any municipality, as such limits exist on the Issue Date. "MORTGAGE" means that certain Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997, executed by the Company and the Board in favor of the Credit Obligor, including any amendments or supplements thereto, until a Substitute Letter of Credit shall have been accepted by the Trustee, and thereafter "Mortgage" means the instrument (if any) securing the Company's obligations with respect to such Substitute Letter of Credit. "MUNICIPALITY" means the City of Demopolis, Alabama, and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "NET CONDEMNATION AWARD" means the total amount awarded as compensation for any part of the Project taken under the exercise of the power of eminent domain plus damages to any part not taken, less and except (i) any portion thereof to which the Company is entitled under the provisions of Section 7.4 hereof, and (ii) all attorneys' fees and other costs and expenses incurred in the condemnation proceeding with respect to which such award was made (other than those paid directly by the Company or deducted, pursuant to the provisions of said Section 7.4, from that portion of the award to which it is entitled under the provisions thereof). "NET INSURANCE PROCEEDS" means the total insurance proceeds recovered by the Board, the Company and the Trustee on account of any damage to or destruction of the Project or any part thereof less all expenses (including reasonable attorneys' fees and any extraordinary expenses of the Trustee) incurred in the collection of such proceeds. "OUTSTANDING," when used with reference to any of the Bonds, means, at any date as of which the amount of such Bonds outstanding is to be determined, all such Bonds which have been theretofore authenticated and delivered by the Trustee under the Indenture, except (i) those of such Bonds cancelled by the Trustee because of payment at or after their respective maturities or redemption prior to their respective maturities, (ii) those of such Bonds for the payment or redemption of which provisions shall have been made with the Trustee as provided in Article XIII of the Indenture and (iii) those of such Bonds in exchange for which, or in lieu 6 11 of which, other Bonds have been authenticated and delivered under the Indenture. In determining whether the Holders of a requisite aggregate principal amount of outstanding Bonds have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions of the Indenture, Bonds which are owned by the Company or any Affiliate shall be disregarded and deemed not to be outstanding hereunder for the purpose of any such determination. "PERMITTED ENCUMBRANCES" means, as of any particular time, (a) liens for ad valorem taxes and special assessments not then delinquent, (b) this Lease Agreement and the Indenture, (c) inchoate mechanics' and materialmen's liens, (d) utility, access, drainage and other easements and rights of way, restrictions and exceptions that a licensed engineer (who may, but need not be, an employee of the Company) certifies will not materially interfere with or impair the operations being conducted in or about the Project (or, if no operations are being conducted in or about the Project, the operations for which the Project was designed or last modified), (e) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title (including zoning and other similar restrictions and regulations) as customarily exist with respect to properties similar in character to the Project and as do not, in the opinion of Counsel, in the aggregate materially impair the use of the property affected thereby for the purpose for which it was acquired or is held by the Board, (f) with respect to the Project Site, any easements, restrictions or other exceptions referred to in Exhibit A hereto and (g) the Mortgage. "PLANT" means that certain manufacturing plant located on the Project Site, as said plant may at any time exist. "PROJECT" means the Project Site, the Plant and the Equipment as they may at any time exist, and all other property and rights referred to or intended so to be in the demising clauses hereof or in any way subject to the demise hereof. "PROJECT DEVELOPMENT COSTS" means the costs of acquiring the Project Site and the improvements located thereon, constructing the Improvements and acquiring and installing the Equipment, the expenses incurred by the Board in connection with the issuance and sale of the Bonds (including the initial charge of the Trustee, the fee for the issuance of the initial Letter of Credit and the fiscal, legal, printing, advertising, recording and other similar fees and expenses relating thereto), interest on the Bonds to the extent such interest constitutes a Qualified Project Cost, and all costs and expenses incurred by the Issuer in connection with and directly related to the planning, development and design of the Improvements and the Equipment, including, without limiting the generality of the foregoing, any such costs or expenses paid by the Company or by the Board with funds advanced by the Company and for which the Company is entitled to be reimbursed under the provisions of the Interim Agreement. 7 12 "PROJECT SITE" means the real property specifically described in Exhibit A attached hereto and made a part hereof (to the extent that at the time it is subject to the demise hereof) and any other real property that under the terms hereof constitutes a part of the Project Site. "REMARKETING AGENT" means LaSalle National Bank or any successor appointed pursuant to the provisions of Section 11.7 of the Indenture. "TAXABILITY DATE" means the date that, according to a Determination of Taxability, the interest income on any of the Bonds became Taxable. "TAXABLE," when applied to the interest income on any of the Bonds, means that, under federal tax laws and regulations issued thereunder, as such laws and regulations exist on the Issue Date or as they may thereafter be amended, the interest income on such Bond is includable in gross income of the recipient thereof for Federal income tax purposes for any reason other than the fact (and for the period) that such Bond is held by a person who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code or any successor provision. "TENDER DATE" means the date on which Bonds are tendered (or deemed tendered) for purchase pursuant to the optional or mandatory tender provisions of the Indenture. "TENDERED BONDS" means Bonds tendered (or deemed tendered) for purchase pursuant to the optional or mandatory tender provisions of the Indenture. "TRUSTEE" means the Trustee at the time serving as such under the Indenture. SECTION 1.2 USE OF PHRASES. "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to this Lease Agreement as an entirety and not solely to the particular portion thereof in which any such word is used. The definitions set forth in Section 1.1 hereof include both singular and plural, unless a separate definition is included for the singular or plural, as the case may be. Whenever used herein, any pronoun shall be deemed to include both singular and plural and to cover all genders. Any percentage of Bonds, specified herein for any purpose, is to be figured on the unpaid principal amount thereof then Outstanding. 8 13 ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1 REPRESENTATIONS BY THE BOARD. The Board makes the following representations and warranties as the basis for the undertakings on its part herein contained: (a) The Board is duly incorporated under the provisions of the Authorizing Act by Certificate of Incorporation duly filed for record in the office of the Judge of Probate of Marengo County, Alabama, and is not in default under any of the provisions contained in said Certificate of Incorporation or in the laws of Alabama; (b) Under the provisions of the Authorizing Act and its Certificate of Incorporation, the Board has the power to enter into the transactions contemplated by this Lease Agreement and to carry out its obligations hereunder; (c) The Board has good and marketable title to the Project Site, subject only to Permitted Encumbrances; (d) The Project Site is located within the limits of Marengo County, Alabama, but outside the corporate limits of any incorporated municipality and outside the police jurisdiction of any incorporated municipality other than the City of Demopolis, Alabama; (e) The execution and delivery of this Lease Agreement on its part have been duly authorized by all necessary corporate action and this Lease Agreement, when executed and delivered, will constitute the legal, valid and binding agreement of the Board, enforceable in accordance with its terms subject to laws regarding bankruptcy and insolvency and other laws of general application affecting the rights and remedies of creditors. SECTION 2.2 REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company makes the following representations and warranties as the basis for the undertakings on its part herein contained: (a) The Company is a corporation organized under the laws of Michigan, is in good standing under its certificate of incorporation and the laws 9 14 of said state, is duly qualified as a foreign corporation in the State of Alabama and has power to enter into, and to perform and observe the agreements and covenants on its part contained in, this Lease Agreement; (b) Neither the execution and delivery of this Lease Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment or compliance with the terms and conditions hereof, conflict with, or result in a breach of, any of the terms, conditions or provisions of any corporate restriction or limitation or any agreement, instrument or court or other governmental order to which the Company is now a party or by which the Company is bound, or constitute a default under any of the foregoing. (c) The execution and delivery of this Lease Agreement on its part have been duly authorized by all necessary corporate action, and this Lease Agreement, when executed and delivered, will constitute the legal, valid and binding agreement of the Company enforceable in accordance with its terms, subject to laws regarding bankruptcy and insolvency and other laws of general application affecting the rights and remedies of creditors. (d) The acquisition, construction, and installation of the Project were not commenced prior to August 22, 1996 (the effective date of the Interim Agreement dated as of August 1, 1996, between the Board and the Company). (e) Not less than ninety-five percent (95%) of the proceeds derived by the Board from the sale of the Bonds will be applied for the acquisition of a "manufacturing facility" within the meaning of Section 144(b)(12)(C) of the Code and the Company presently intends to use or operate the Project as a "manufacturing facility" (as so defined) until the date on which the Bonds have been fully paid and knows of no reason why the Project will not be so operated. (f) The information furnished by the Company and used by the Board in preparing the certification pursuant to Section 148 of the Code and information statement pursuant to Section 149(e) of the Code is accurate and complete as of the date of the issuance of the Bonds. (g) On the date of the delivery of this Lease Agreement, the Company is the only principal user (as the term "principal user" is used in Section 144(a)(4)(B) of the Code) of the Project and expects to be so until the date on which the Bonds have been fully paid. 10 15 (h) Not less than ninety-five per cent (95%) of the proceeds derived by the Board from the sale of the Bonds will be applied for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation within the meaning of Section 144(a) of the Code with respect to the Project. (i) Less than 25% of the net proceeds of the Bonds will be used (directly or indirectly for the acquisition of land (or an interest therein) within the meaning of Section 147(c) of the Code. (j) The Company will expend as Project Development Costs an amount equal to at least 15% of the cost of those portions of the Plant and the Equipment the first use of which was not by the Company toward the rehabilitation of such portions within the meaning of Section 147(d) of the Code and the regulations issued thereunder. (k) There have not been issued since April 30, 1968, any bonds (as the term "bonds" is used in Section 144(a)(2) of the Code) the proceeds of which were or are to be used primarily with respect to Local Facilities. (l) The amount of all capital expenditures (as determined as provided in Section 144(a)(4)(A)(ii) of the Code) made with respect to Local Facilities during the period beginning three (3) years prior to the Issue Date, and ending on the Issue Date, was less than $1,000,000. (m) The average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the facilities being financed with the net proceeds of the Bonds, all computed in accordance with Section 147(b) of the Code (n) The aggregate face amount of all outstanding tax-exempt facility-related bonds, including the Bonds, which are required by Section 144(a)(10)(B) of the Code to be considered in determining whether there are now outstanding tax-exempt facility-related bonds attributable or allocated to the Company or any related person, under Section 144(a)(10)(A) of the Code, is, on the date of the issuance of the Bonds, less than $40,000,000. 11 16 (o) The Company has not had and will not have issued on its behalf bonds that will be treated as part of the same issue as the Bonds within the meaning of Section 1.150T-1 of the Treasury Regulations. ARTICLE III DEMISING CLAUSES SECTION 3.1 The Board hereby demises and leases to the Company, subject to Permitted Encumbrances, and the Company hereby rents from the Board, subject to Permitted Encumbrances, for and during the Lease Term, the following described properties and related rights: I The real property situated in Marengo County, Alabama, that is specifically described in Exhibit A attached hereto and made a part hereof; II The Plant and any other improvements constituting real property now or hereafter situated on the Project Site, all permits, easements, licenses, rights-of-way, contracts, leases, privileges, immunities and hereditaments pertaining or applicable to the Project Site and all fixtures now or hereafter owned by the Board and installed on the Project Site or in any other improvements now or hereafter located on the Project Site, it being the intention hereof that all property, rights and privileges hereafter acquired for use as a part of or in connection with or as an improvement to the Project Site shall be as fully covered hereby as if such property, rights and privileges were now owned by the Board and were specifically described herein; and III All items (whether or not fixtures) of machinery, equipment and other personal property that at any time, under the provisions of this Lease Agreement, constitute the Equipment, including, without limitation, the items (whether or not fixtures) of machinery, equipment and other personal property generally described in Exhibit B attached hereto and made a part hereof, excluding, however, any equipment or other personal property that, under the provisions of this Lease Agreement, is, or is to become (prior to the termination of this Lease Agreement), the sole property of the Company or third parties. 12 17 This Lease Agreement is made, however, upon and subject to the following terms and conditions, to each of which the Board and the Company hereby agree: ARTICLE IV CONSTRUCTION OF IMPROVEMENTS AND ACQUISITION OF EQUIPMENT SECTION 4.1 AGREEMENT TO CONSTRUCT IMPROVEMENTS AND ACQUIRE AND INSTALL EQUIPMENT. The Company will proceed with, and will complete as promptly as practicable, (a) the construction, wholly within the boundary lines of the Project Site, of improvements to the existing manufacturing plant located on the Project Site, substantially in accordance with plans and specifications therefor prepared by the Company, and (b) the acquisition and installation in or about the Plant and wholly within the boundary lines of the Project Site, of the Equipment, such acquisition and installation to be made substantially in accordance with written orders and directions from the Company, and will pay, solely out of the moneys on deposit in the Construction Fund and other moneys provided by the Company, the costs of such construction, acquisition and installation. The Company may, after the execution and delivery of these presents, cause such changes to be made to the aforesaid plans and specifications as it may desire and as will not result in any material change in the appearance or basic design of the Plant or in changing the character of the Plant as a part of a "project" under the provisions of the Authorizing Act. Except as provided in the preceding sentence and in subsection (a) of Section 4.3 hereof, neither the Company nor the Issuer will cause or permit any changes to be made to the aforesaid plans and specifications. The Company will promptly pay or cause to be paid, as and when due, all expenses incurred in and about said construction, acquisition and installation and all other Project Development Costs, and it will not suffer or permit any mechanics' or materialmen's liens that might be filed or otherwise claimed or established upon or against the Project or any part thereof, and which might be or become a lien thereon superior to the lien of the Mortgage, to remain unsatisfied and undischarged for a period exceeding thirty (30) days after the filing or establishment thereof; provided, however, that the Company may in good faith contest any such mechanics' or materialmen's lien claims so filed or established, and, in the event that such lien claims are so contested, may permit the mechanics' or materialmen's liens so contested to remain unsatisfied and undischarged during the period of such contest and any appeal therefrom, 13 18 irrespective of whether such period extends beyond the thirty (30) day period after the filing or establishment of such liens, unless the Company shall have furnished the facts relating to such lien contest to the Credit Obligor and the Credit Obligor shall be of the opinion that by such action the lien of the Mortgage to any part of the Project shall be materially endangered or that the Project or any part thereof shall be subject to loss or forfeiture, in which event such mechanics' or materialmen's liens shall (unless they are bonded or superseded in a manner satisfactory to the Credit Obligor) be satisfied prior to the expiration of said thirty (30) day period. The Company and the Issuer will cooperate with each other in order that the construction of the Improvements and the acquisition and installation of the Equipment may be completed as promptly as practicable. Upon the completion of the construction of the Improvements and the acquisition and installation of the Equipment, the Company will execute such instruments of conveyance as may be necessary to convey its interest in the Improvements and the Equipment to the Issuer, subject to this Lease Agreement. SECTION 4.2 AGREEMENT TO ISSUE THE BONDS. In order to provide funds for the permanent financing of the costs of constructing the Improvement and acquiring and installing the Equipment and the other Project Development Costs, the Board will, simultaneously with the delivery hereof, issue and sell the Bonds at a price approved by the Company. SECTION 4.3 NO WARRANTY OF SUITABILITY BY ISSUER. COMPANY REQUIRED TO BEAR CERTAIN COSTS IN CERTAIN EVENTS. The Company recognizes that since the plans and specifications for the Improvements will be prepared to its order and that since the items of Equipment have been and are to be selected by it, the Issuer can make no warranty, either express or implied, or offer any assurances that the Improvements or the Equipment will be suitable for the Company's purposes or needs or that the proceeds derived from the sale of the Bonds will be sufficient to pay in full all the Project Development Costs. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE ISSUER MAKES NO WARRANTIES OF MERCHANTABILITY OR FITNESS WITH RESPECT TO ANY PART OF THE PLANT OR THE EQUIPMENT. In the event said proceeds issued for such purpose are insufficient to pay all said costs, the Company (a) will cause such changes to be made to said plans and specifications as will result in the Project Development Costs not exceeding the moneys available for payment thereof derived from the sale of the Bonds (provided that such changes will not result in any material alteration in the appearance or basic design of the Plant or in altering the character of the Plant as part of a "project" under the provisions of the Authorizing Act), or 14 19 (b) will directly pay that portion of the Project Development Costs in excess of the available moneys derived from the sale of the Bonds, or (c) will pay into the Construction Fund such moneys as are necessary to provide for payment of all said costs. The Company shall not, by reason of any changes in said plans and specifications or any payment of such excess costs (whether by virtue of direct payments thereof or payments into the Construction Fund), be entitled to any reimbursement from the Issuer or to any diminution of the rental payable hereunder. SECTION 4.4 COMPANY TO PURSUE RIGHTS AGAINST CONTRACTORS, ETC. In the event of default by any contractor or subcontractor under any contract with the Company for construction of the Improvements or acquisition or installation of the Equipment, or any part of either, the Company will proceed, either separately or in conjunction with others, to exhaust all remedies the Company may have against such contractor or subcontractor so in default and against each surety (if any) for the performance of such contract. The net proceeds recovered by the Company in any such action shall be paid into the Construction Fund (or, in the event that at the time such proceeds are received by the Company the Construction Fund is closed shall be applied as excess Construction Fund moneys in accordance with the provisions of Section 6.1 of the Indenture). ARTICLE V DURATION OF TERM AND RENTAL PROVISIONS SECTION 5.1 DURATION OF TERM. The term of this Lease Agreement and of the lease herein made shall begin on the date of the delivery of this Lease Agreement and, subject to the provisions of this Lease Agreement, shall continue until 11:59 o'clock, p.m., on April 1, 2007. The Board will deliver to the Company sole and exclusive possession of the Project (or such portion or portions thereof as are then in existence) on the commencement date of the Lease Term, subject to the inspection and reserved in Section 3.3 hereof, and the Company will accept possession thereof at such time. SECTION 5.2 BASIC RENT. For and during the Lease Term, the Company will pay to the Board the following base rental for use and occupancy of the Project: 15 20 (a) on or before the last Business Day of each month, beginning in the month in which the Issue Date occurs, an amount equal to the interest, if any, that will mature on the Bonds on the first Business Day of the next succeeding month; (b) on or before the last Business Day of March, 2007, an amount equal to the principal amount of Bonds maturing on April 1, 2007; and (c) at or before 11:00 a.m. (Chicago, Illinois time) on each Tender Date with respect to the Bonds, the Company shall pay to the Trustee, for the account of the Board, an amount equal to the purchase price of Bonds tendered (or deemed tendered) for purchase on such Tender Date; provided, however, that any amount already on deposit in the Bond Purchase Fund on such Tender Date that is available for the payment of the purchase price of such Tendered Bonds shall be credited against the amount of such Basic Rent; provided, however, that there shall be credited against Basic Rent due under this section (1) any amounts drawn by the Trustee under the Letter of Credit and (2) income or profits received from the investment of money in the Debt Service Fund. The Company acknowledges that Basic Rent required by this Section have been calculated to provide amounts which will be sufficient to pay debt service on the Bonds as the same matures and comes due and to pay the purchase price of Bonds tendered or deemed tendered on each Tender Date. If on any Bond Payment Date the amount on deposit in the Debt Service Fund is not sufficient to pay debt service on the Bonds due and payable on such date, the Company shall immediately deposit the amount of such deficiency in the Debt Service Fund. If on any Tender Date the amount on deposit in the Bond Purchase Fund is not sufficient to pay the purchase price of Bonds tendered or deemed tendered on such date, the Company shall immediately deposit the amount of such deficiency in the Bond Purchase Fund. So long as any of the Bonds are Outstanding, all Basic Rent payments shall be made in Federal or other immediately available funds directly to the Trustee, or its successor as Trustee under the Indenture at its principal corporate trust office, for the account of the Board. The Board will, promptly following the designation of any successor Trustee under the Indenture, give written notice to the Company of the name and location of the principal corporate trust office of such successor Trustee, or it will cause such notice to be promptly given. In the event the due date of any installment of Basic Rent payable hereunder is not a Business Day, such installment shall be due on the next succeeding Business Day. SECTION 5.3 ADDITIONAL RENT - FEES AND EXPENSES OF TRUSTEE AND REMARKETING AGENT. In addition to the Basic Rent and all other rental payments due from the Company hereunder, the Company will also pay, as additional rent, (i) the annual fee of the Trustee for the ordinary services of the Trustee rendered and its ordinary expenses incurred 16 21 under the Indenture, (ii) the reasonable fees and charges of the Trustee as registrar, transfer agent and paying agent or tender agent with respect to the Bonds, as well as the fees and charges of any other paying agent with respect to the Bonds who shall act as such agent in accordance with the provisions of the Indenture, (iii) the reasonable fees and expenses of the Trustee in connection with the issuance of a new Bond upon the partial redemption of a Bond (including, without limitation, the expenses of printing such new Bond), (iv) the reasonable fees and expenses of the Trustee in connection with any other registration, transfer or exchange of any of the Bonds if the Trustee is not permitted by the Indenture to charge the holder of such Bonds for such fees and expenses, (v) the reasonable fees, charges and expenses of the Trustee for necessary extraordinary services rendered by it and extraordinary expenses incurred by it under the Indenture and (vi) the fees, charges and expenses of the Remarketing Agent. All such fees, charges and expenses shall be paid directly to the Trustee, for its own account upon presentation of its statements therefor, but the Company may, without creating a default hereunder, contest in good faith the necessity for any of the extraordinary services performed by the Trustee or the reasonableness of the fees, charges or expenses of the Trustee in connection therewith. SECTION 5.4 ADDITIONAL RENT - BOARD'S EXPENSES. In addition to the Basic Rent and all other rental payments due from the Company hereunder, the Company will also pay, as additional rent, the reasonable and necessary expenses, not otherwise provided for, which may be incurred by the Board, or for which the Board may in any way become liable, as a result of issuing any of the Bonds and leasing the Project to the Company, or being a party to this Lease Agreement or the Indenture; provided, however, that so long as the Company is not in default hereunder, the Company's liability under this Section 5.4 or under any other provision of this Lease Agreement obligating the Company to pay expenses of the Board or the Trustee shall not include expenses voluntarily incurred by the Board or the Trustee without prior request or approval by the Company, unless such expenses are necessary to enable the Board or the Trustee to perform its or their obligations under this Lease Agreement and the Indenture; and provided further, that the Company may, without creating a default hereunder, contest in good faith the necessity for or reasonableness of any such expenses. SECTION 5.5 OPTIONS TO PREPAY BASIC RENT. The Company shall have and is hereby granted the option to prepay Basic Rent in an amount sufficient to redeem the Bonds in whole or in part in accordance with Section 4.1(b), (c) or (d) of the Indenture, or to provide for the payment of the Bonds in accordance with Article XIII of the Indenture. Such prepayment shall be made on the date fixed for the redemption of such Bonds in accordance with Section 5.7 hereof or on any date if made to provide for payment in accordance with Article XIII of the Indenture. SECTION 5.6 MANDATORY PREPAYMENT OF BASIC RENT IN THE EVENT OF A DETERMINATION OF TAXABILITY. Upon the occurrence of a Determination of Taxability, the Company shall be obligated to prepay Basic Rent on the date fixed for the redemption of the Bonds pursuant to Section 5.7 hereof in an amount sufficient to redeem the Bonds in whole in accordance with the provisions of Section 4.1(a) of the Indenture. 17 22 SECTION 5.7 NOTICE OF PREPAYMENT. To exercise an option granted in Section 5.5 hereof or to fulfill the obligation required by Section 5.6 hereof, the Company shall give written notice to the Board and the Trustee which shall specify therein the date upon which prepayment will be made, which date shall be not less than forty-five days nor more than sixty days after the date of such notice. Notice by the Company with respect to prepayment pursuant to Section 5.6 hereof must be given within 10 days after the occurrence of a Determination of Taxability. In connection with any redemption of Bonds pursuant to Section 4.1(b), (c) or (d) of the Indenture, the said notice by the Company shall specify the principal amount of Bonds to be redeemed by the Trustee with the moneys paid to it by the Company. SECTION 5.8 REDEMPTION OF BONDS WITH PREPAYMENT MONEYS. The Board has directed the Trustee to forthwith take all steps (other than the payment of the money required to redeem the Bonds) necessary under the applicable provisions of the Indenture to effect the redemption of all or part of the then Outstanding Bonds, as may be specified by the Company, on the earliest redemption date permitted by the Indenture upon receipt by the Trustee of requests for redemption in accordance with Article IV of the Indenture. The Company agrees to and shall pay any amount required to be paid by it under the provisions of Section 5.5 and 5.6 hereof directly to the Trustee. The Trustee shall use the moneys so paid to it by the Company to redeem the Bonds (if Bonds are to be redeemed as a result of such prepayment) in accordance with the provisions of the Indenture. SECTION 5.9 OBLIGATION OF COMPANY UNCONDITIONAL. The obligation of the Company to pay the Basic Rent, to make all other payments provided for herein and to perform and observe the other agreements and covenants on its part herein contained shall be absolute and unconditional, irrespective of any rights of set-off, recoupment or counterclaim it might otherwise have against the Board or the Trustee. The Company will not suspend or discontinue any such payment or fail to perform and observe any of its other agreements and covenants contained herein or (except as expressly authorized in this Lease Agreement) terminate this Lease Agreement for any cause, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute an eviction or constructive eviction, failure of consideration or commercial frustration of purpose, or any damage to or destruction of the Project or any part thereof, or the taking by eminent domain of title to or the right to temporary use of all or any part of the Project, or any change in the tax or other laws of the United States of America, the State of Alabama or any political or taxing subdivision of either thereof, or any failure of the Board to perform and observe any agreement or covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Lease Agreement. The provisions of the preceding paragraph of this Section 5.9 shall continue in effect only so long as any part of the principal of or the interest or premium (if any) on any of 18 23 the Bonds remains unpaid. Nothing herein contained shall, however, be construed to prevent the Company, at its own cost and expense and in its own name or in the name of the Board, from prosecuting or defending any action or proceeding or taking any other action involving third persons which the Company deems reasonably necessary in order to secure or protect its rights of use and occupancy and other rights hereunder, and the Board will cooperate fully with the Company in any such action or proceeding. Without limiting the generality of the foregoing, the Company will pay directly to the Trustee on behalf of the Board, on the due dates of the principal of and the interest, and premium, if any, on the Bonds, whether at the stated maturity thereof, by acceleration, call for redemption or otherwise, such amounts as may be necessary to provide for the payment in full of the principal of and the interest and premium, if any, on the Bonds and such other amounts as may be payable to the holders of the Bonds pursuant to the provisions of this Lease Agreement and the Indenture. ARTICLE VI MAINTENANCE, TAXES AND INSURANCE SECTION 6.1 MAINTENANCE, ADDITIONS, ALTERATIONS AND IMPROVEMENTS. The Company will, at its own expense, (a) keep the Project in as reasonably safe condition as its operations permit, and (b) subject to the provisions of Section 6.2 hereof, keep the Plant, the Equipment and the other improvements located on the Project Site in reasonable repair and operating condition (reasonable wear and tear excepted), making from time to time all necessary and proper renewals thereto (including, without limitation, exterior and structural repairs, renewals and replacements). The Company may, also at its own expense, make any additions, alterations or improvements to the Project that it may deem desirable for its business purposes, that do not adversely affect the structural integrity of any building or other structure forming a part of the Project, and that will not impair the operating unity of the Plant, or change the character of the Project as a "project" under the Authorizing Act; provided that all such additions, alterations or improvements shall (1) be located wholly within the boundary lines of the Project Site, or (2) be located wholly within the boundary lines of other adjacent real property hereafter acquired by the Board, leased to the Company by the Board, and subjected to the demise of these presents and to the lien of the Indenture, or (3) be located wholly within the boundary lines of the Project Site and such other adjacent real property. 19 24 Any such adjacent real property so leased shall henceforth be considered, for purposes of this Lease Agreement, as part of the Project Site. All such additions, alterations and improvements so made by the Company shall become a part of the Project. The Company will not permit any mechanics' or other liens to stand against the Project for labor or materials furnished it in connection with any additions, alterations, improvements, repairs or renewals so made by it. The Company may, however, at its own expense and in good faith, contest any such mechanics' liens or other liens and in the event of any such contest may permit any such liens to remain unsatisfied and undischarged during the period of such contest and any appeal therefrom unless by such action the lien of the Indenture or the Mortgage to any part of the Project shall be endangered or any part of the Project shall be subject to loss or forfeiture, in either of which events such mechanics' or other liens (unless bonded or superseded in a manner satisfactory to the Trustee) shall be promptly satisfied. SECTION 6.2 REMOVAL OF EQUIPMENT. The Board and the Company recognize that after the Equipment is installed in the Plant or on the Project Site, portions thereof may become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary in the operation of the Plant, but the Company shall not (any provision hereof to the contrary notwithstanding) be under any obligation to renew, repair or replace any such inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary Equipment. However, in any instance where the Company in its sole discretion determines that any item of Equipment has become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary in the operation of the Plant, (a) the Company may, with the consent of the Credit Obligor, remove such item of Equipment from the Plant or the Project Site and (on behalf of the Board) sell, trade in, exchange or otherwise dispose of it without any responsibility or accountability to the Board or the Trustee therefor, provided that (i) the Company substitutes and installs in the Plant or on the Project Site (either by direct payment of the costs thereof or by advancing to the Board the funds necessary therefor, as hereinafter provided) other machinery or equipment having equal or greater utility (but not necessarily the same value or function) in the operation of the Plant, which such substituted machinery or equipment shall be free of all liens and encumbrances (other than Permitted Encumbrances), shall be the sole property of the Board, shall be and become a part of the Equipment subject to the demise hereof and to the lien of the Indenture and shall be held by the Company on the same terms and conditions as the items originally comprising the Equipment, and (ii) such removal and substitution do not impair the operating unity of the Plant; or (b) the Company may, with the consent of the Credit Obligor, remove such item of Equipment from the Plant or the Project Site and (on behalf of the 20 25 Board) sell, trade in, exchange or otherwise dispose of it, without any responsibility or accountability to the Board or the Trustee therefor and without being required to substitute and install in the Plant or on the Project Site other equipment in substitution therefor, provided that (i) in the case of the sale of such equipment to anyone other than itself or any of its Affiliates, or in the case of the scrapping thereof, the Company pays into the Debt Service Fund the proceeds from such sale or the scrap value thereof, respectively, (ii) in the case of the trade-in of such equipment for other property not to be installed in the Plant or on the Project Site, the Company pays into the Debt Service Fund an amount in cash equal to the credit received by it in such trade- in, or (iii) in the case of the sale of such equipment to itself or any of its Affiliates or in the case of any other disposition thereof, the Company pays into the Debt Service Fund an amount equal to the original cost thereof less depreciation at rates calculated in accordance with generally accepted accounting practices; provided, however, that (1) there may be credited on any payment that under the provisions of this subsection (b) is due to be made into the Debt Service Fund by the Company an amount not in excess of (A) the original cost of any other equipment then installed in the Plant or on the Project Site that does not then constitute part of the Equipment and is owned by the Company and that is free from all liens and encumbrances (other than the lien of the Indenture and Permitted Encumbrances), less (B) depreciation thereon at rates calculated in accordance with generally accepted accounting practices - all to the extent that such amount so credited has not theretofore been credited on payments theretofore due to be made into the Debt Service Fund pursuant to this subsection (b); and (2) from and after any such credit, such other equipment shall be and become the sole property of the Board and part of the Equipment subject to the demise hereof and to the lien of the Indenture and shall be held by the Company on the same terms and conditions as the items originally comprising the Equipment. If, at the time of the removal of any item of Equipment from the Project Site, there is then installed in the Plant or on the Project Site other equipment not then constituting part of the Equipment, and if such other equipment has utility in the operation of the Project equal to or greater than that of the item of Equipment to be removed and is free of all liens and encumbrances (other than Permitted Encumbrances), and if no part of the cost of such other equipment has been credited on a payment theretofore due to be made into the Debt Service Fund pursuant to the provisions of subsection (b) of this section, the preceding provisions of this section shall not be applicable, it being understood and agreed, however, that from and after such removal such other equipment shall be and become the sole property of the Board and part of the Equipment subject to the demise hereof and to the lien of the Indenture and shall be held by the Company on the same terms and conditions as the items originally comprising the Equipment. In furtherance of the preceding provisions of this section, the Company will 21 26 (1) pay to the Trustee such amounts as are required by the provisions of the preceding subsection (b) to be paid by the Company into the Debt Service Fund promptly after the sale, trade-in, exchange or other disposition requiring such payment, provided that no such payment need be made until the aggregate of such payments due but not theretofore made is $500,000 or more; (2) execute and deliver to the Board and the Trustee such documents as the Trustee may reasonably from time to time require to confirm the title of the Board (subject to Permitted Encumbrances) to, and the lien of the Indenture with respect to, any items of machinery and equipment that under the provisions of this section are to become a part of the Equipment; and (3) pay all reasonable costs (including reasonable counsel fees) incurred in subjecting to the demise of this Lease Agreement and the lien of the Indenture any items of machinery or equipment that under the provisions of this section are to become a part of the Equipment. The Company will not remove, or permit the removal of, any of the Equipment from the Plant or the Project Site except in accordance with the provisions of this Section 6.2. The preceding provisions of this Section 6.2 shall apply only so long as any part of the principal of or the interest or premium, if any, on any of the Bonds remains unpaid. After full payment of the principal of and the interest and premium, if any, on the Bonds, neither the Board nor the Company shall be under any obligation to renew, repair or replace any of the Equipment that may become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary in the operation of the Project, and after such full payment the Company may, if in its sole discretion any item of the Equipment has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary in the operation of the Plant, remove such item of Equipment from the Plant or the Project Site and (on behalf of the Board) sell, trade in, exchange or otherwise dispose of it, without any responsibility or accountability to the Board therefor and without being required to substitute and install in the Plant or on the Project Site other equipment in substitution therefor, and may retain any money or other consideration received by it upon any disposition of any such item of Equipment. Nothing contained herein shall prohibit the Company, at any time during which it is not in default hereunder, from removing from the Plant or the Project Site any machinery or equipment that is owned by it or leased by it from third parties and that does not constitute part of the Equipment, provided (1) that such machinery or equipment may be removed without adversely affecting the structural integrity of any building or other structure forming a part of the Plant or causing any material damage to any such building or structure or to the Project Site, or (2) that if such removal results in adversely affecting the structural integrity of any such 22 27 building or structure or in causing material damage to any such building or structure or to the Project Site, the Company promptly thereafter takes such action as is necessary to restore the structural integrity of such building or structure or to repair such damage, as the case may be. Except as otherwise provided in the preceding provisions of this Section 6.2, nothing in this Lease Agreement or in the Indenture shall be construed to grant to the Board or the Trustee any interest in any machinery or equipment owned by the Company or leased by it from third parties or to impair the right of the Company to locate such machinery or equipment in the Plant or on the Project Site or to remove the same therefrom. SECTION 6.3 TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES. The Company will pay, as the same respectively become due, (i) all taxes and governmental charges of any kind whatsoever that may lawfully be assessed or levied against or with respect to the Project or any machinery, equipment or other property installed or brought by the Company therein or thereon (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to any part of the receipts, income or profits of the Board from the Project and any other taxes levied upon or with respect to the Project which, if not paid, would become a lien on the Project prior to or on a parity with the lien of the Indenture or the Mortgage or a charge on the revenues and receipts therefrom prior to or on a parity with the charge thereon and pledge and assignment thereof to be created and made in the Indenture), (ii) all utility and other similar charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project, and (iii) all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the Project; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Company shall be obligated to pay only such installments as are required to be paid during the Lease Term. The Company may, at its own expense and in its own name and behalf or in the name and behalf of the Board, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless by such action the title of the Board to any part of the Project shall be materially endangered or the Project or any part thereof shall become subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid prior to their becoming delinquent. The Board will cooperate fully with the Company in any such contest. SECTION 6.4 INSURANCE REQUIRED. The Company will take out and continuously maintain in effect insurance with respect to the Project against such risks as are customarily insured against by businesses of like size and type, paying as the same become due all premiums with respect thereto, including, but not necessarily limited to, 23 28 (a) Insurance against loss or damage to the Plant and the Equipment by fire and lightning, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in Alabama, to the extent of the full replacement value thereof; and (b) Insurance against liability for bodily injury to or death of persons and for damage to or loss of property occurring on or about the Project Site or in any way related to the operation of the Plant, in the minimum amounts of $1,000,000 for death of or bodily injury to any one person, $3,000,000 for total death and bodily injury claims resulting from any one accident, and $500,000 for property damage. All policies evidencing the insurance required by the terms of the preceding paragraph shall be taken out and maintained in generally recognized responsible insurance companies, qualified under the laws of the State of Alabama to assume the respective risks undertaken, shall contain an agreement on the part of the insurer issuing such policy that the same shall not be cancelled, terminated or permitted to lapse by such insurer unless ten (10) days' prior written notice of such cancellation, termination or lapse in coverage shall have been given to the Trustee and may be written with deductible amounts comparable to those on similar policies carried by persons engaged in businesses of the size and type of the Company. All such insurance policies, other than those evidencing the insurance required by clause (b) of the preceding paragraph and such other policies or portions thereof as may evidence insurance against liability for injury to persons or property of others, shall name as insureds the Board, the Trustee and the Company (as their respective interests shall appear) and shall contain standard mortgage clauses providing for all losses thereunder in excess of $500,000 to be paid to the Trustee and all such losses not in excess of said sum to be paid to the Company; provided that all losses (including those in excess of $500,000) may be adjusted by the Company. All policies evidencing the insurance required to be carried by this Section 6.4 shall be deposited with the Trustee; provided, however, that in lieu thereof the Company may deposit with the Trustee a certificate or certificates of the respective insurers attesting the fact that such insurance is in force and effect. Prior to the expiration of any such policy, the Company will furnish to the Trustee evidence reasonably satisfactory to the Trustee that such policy has been renewed or replaced by another policy or that there is no necessity therefor under this Lease Agreement. Anything herein to the contrary notwithstanding, any insurance required by the provisions hereof may be evidenced by a blanket policy covering risks in addition to those hereby required to be covered, but only if appropriate allocation certificates and loss payable endorsements are furnished to the Board and the Trustee. SECTION 6.5 ADVANCES BY BOARD OR TRUSTEE. In the event the Company fails to take out or maintain the full insurance coverage required by this Lease Agreement or fails to keep the Project in as reasonably safe condition as its operating conditions permit and the Plant, the Equipment and the other improvements located on the Project Site in reasonable repair and 24 29 operating condition, the Board or the Trustee, after first notifying the Company of any such failure on its part and after the subsequent failure by the Company to take out or maintain such insurance or to take action reasonably calculated to keep the Project in as reasonably safe condition as the Company's operations permit and the Plant, the Equipment and the other improvements located on the Project Site in reasonable repair and operating condition, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same or make such repairs, renewals and replacements as may be necessary to maintain the Project in as reasonably safe condition as the Company's operations permit and the Plant, the Equipment and the other improvements located on the Project Site in reasonable repair and operating condition, respectively; and all amounts so advanced therefor by the Board or the Trustee shall become an additional obligation of the Company to the Board or to the Trustee, as the case may be, which amounts, together with interest thereon at the Base Rate (as defined in the Indenture) from the date thereof, the Company will pay. Any remedy herein vested in the Board or the Trustee for the collection of rental payments shall also be available to the Board and the Trustee for the collection of all such amounts so advanced. ARTICLE VII PROVISIONS RESPECTING DAMAGE, DESTRUCTION AND CONDEMNATION SECTION 7.1 DAMAGE AND DESTRUCTION PROVISIONS. If the Project is destroyed, in whole or in part, or is damaged, by fire or other casualty, to such extent that the loss to the Project resulting therefrom is not greater than $500,000, the Company, subject to the provisions of Section 7.6 hereof, (a) will promptly repair, rebuild or restore the property damaged or destroyed to substantially the same condition as prior to the event causing such damage or destruction, with such changes, alterations and modifications as will not impair the operating unity of the Plant or the character of the Project as a "project" under the Authorizing Act, (b) will apply for such purpose so much as may be necessary therefor of any insurance proceeds referable thereto, as well as any other moneys required therefor, and (c) may, in the event the total costs of such repair, rebuilding and restoration are less than the amount of insurance proceeds referable thereto, retain the amount by which such proceeds exceed said total costs. If the Project is destroyed, in whole or in part, or is damaged, by fire or other casualty, to such extent that the loss to the Project resulting therefrom is in excess of $500,000, the Company will promptly so notify the Trustee in writing, and the Net Insurance Proceeds shall be paid to and held by the Trustee (or, if the Bonds have been fully paid, the Company), whereupon, subject to the provisions of Section 7.6 hereof, (i) the Company will proceed, as promptly as practicable under the circumstances and under such terms, conditions and contracts as shall be approved by the Company, to repair, rebuild or restore the property damaged or 25 30 destroyed to substantially the same condition as prior to the event causing such damage or destruction, with such changes, alterations and modifications as shall be specified by the Company and as will not impair the operating unity of the Plant or the character of the Project as a "project" under the Authorizing Act, and (ii) the Trustee (or, if the Bonds have been fully paid, the Company) will apply the Net Insurance Proceeds to payment of the costs of such repair, rebuilding or restoration, either on completion thereof or as the work progresses, as may be provided in the contracts pertaining thereto. Any balance of the Net Insurance Proceeds remaining after payment of all the costs of such repair, rebuilding or restoration shall be paid to the Company. In the event said proceeds are not sufficient to pay in full the costs of such repair, rebuilding or restoration, the Company (1) will nonetheless complete the work thereof and will pay that portion of the costs thereof in excess of the amount of the Net Insurance Proceeds available therefor. The Company shall not, by reason of the payment of such excess costs be entitled to any reimbursement from the Board or to any abatement or diminution of the rental provided for herein. SECTION 7.2 CONDEMNATION PROVISIONS. If the Project or any part thereof is taken under the exercise of the power of eminent domain by any governmental authority or person, firm or corporation acting under governmental authority, the entire condemnation award (if any) referable to the Project, including any that may be recoverable by the Company, shall be paid to the Trustee (or, if the Bonds have been fully paid, to the Board) and applied as hereinafter provided: (a) If no part of the Plant is taken or damaged and if in the Company's opinion the efficient utilization of the Project is not impaired by such taking, the Net Condemnation Award referable thereto shall be paid to the Company. (b) If any part of the Plant is taken or damaged or if in the Company's opinion the efficient utilization of the Project is impaired by such taking, the Company will, subject to the provisions of Section 7.6 hereof, proceed, as promptly as practicable under the circumstances and upon such terms as shall be approved in writing by the Company, to repair, replace, rebuild or restore the Plant or to rearrange the Plant facilities so as to make the Project suitable for the Company's uses, and the Trustee (or, if the Bonds have been fully paid, the Company) will apply the Net Condemnation Award referable to such taking to payment of the costs of such replacement, repair, rebuilding, restoration or rearrangement. If the Net Condemnation Award is in excess of the costs of such replacement, repair, rebuilding, restoration or rearrangement, the excess shall be paid to the Company. If the Net Condemnation Award is not sufficient to pay all 26 31 the costs of such repair, rebuilding, restoration or rearrangement, the Company will pay the deficiency, provided that it shall not by reason of the payment of any such deficiency be entitled to any reimbursement from the Board or to any abatement or diminution of the rental provided for herein. The Board will cooperate fully with the Company in the handling and conduct of any prospective or pending condemnation proceeding with respect to the Project or any part thereof and will follow all reasonable directions given to it by the Company in connection with such proceeding. The Company shall have full and complete control of such proceedings, including (without limitations) the right to select Counsel for the Board. In no event will the Board settle, or consent to the settlement of, any prospective or pending condemnation proceeding with respect to the Project or any part thereof without the prior written consent of the Company. SECTION 7.3 CONDEMNATION OF RIGHT TO USE OF PROJECT FOR LIMITED PERIOD. If the use, for a limited period, of all or part of the Project is taken by any such eminent domain proceeding, this Lease Agreement (including, without limitation, the provisions hereof relating to the payment of Basic Rent) shall continue in full force and effect, but with the consequences specified in the remaining provisions of this Section 7.3. If the period of such taking expires on or before the expiration of the Lease Term, the Company shall be entitled to receive the entire condemnation award made therefor, whether by way of damages, rent or otherwise, and shall upon being restored to possession restore the Project as nearly as practicable to the condition existing immediately prior to such taking, with such changes, alterations and modifications as will not impair the operating unity of the Project or its character as a "project" under the Authorizing Act. If such taking occurs during the Lease Term but the period of such taking expires after the expiration of the Lease Term, the Company shall be entitled to receive the entire award. SECTION 7.4 CONDEMNATION OF COMPANY-OWNED PROPERTY. The Company shall be entitled to any condemnation award or portion thereof made for damages to or takings of its own property, as well as all other sums awarded as compensation for the interest of the Company in the part of the Project taken and as damages to the interest of the Company in any part thereof not taken, but there shall be deducted therefrom, or paid directly by the Company, all attorneys' fees and other expenses incurred in connection with the receipt of such award or sum or portion thereof. SECTION 7.5 PROVISIONS RELATING TO THE INCURRING OF CERTAIN EXPENSES AFTER BONDS PAID. The Board will not, at any time after full payment of the Bonds, incur any expenses in connection with the collection of any insurance proceeds or condemnation award with respect to the Project, or any part thereof, without the prior written consent of the Company. 27 32 SECTION 7.6 OPTIONAL APPLICATION OF NET INSURANCE PROCEEDS OR NET CONDEMNATION AWARD. The provisions of Sections 7.1 and 7.2 hereof to the contrary notwithstanding, the Company may, within sixty (60) days following the event giving rise to the receipt of any Net Insurance Proceeds or Net Condemnation Award, as the case may be, (a) elect by written notice to the Board and the Trustee, to have such proceeds or award, as the case may be, applied to the redemption of Bonds, in which event the entire Net Insurance Proceeds or Net Condemnation Award, as the case may be, shall be deposited in the Debt Service Fund and applied to such redemption on the earliest practicable redemption date thereafter, or (b) if none of the Bonds is Outstanding, elect, by written notice to the Board, to have such proceeds or award, as the case may be, returned to the Company. If either of such options is elected by the Company, there shall be no obligation on the part of the Company to cause the Project to be repaired, rebuilt or reconstituted. ARTICLE VIII PARTICULAR COVENANTS OF THE COMPANY SECTION 8.1 GENERAL COVENANTS. The Company will not do or permit anything to be done on or about the Project that will affect, impair or contravene any policies of insurance that may be carried on the Project or any part thereof against loss or damage by fire, casualty or otherwise. The Company will, in the use of the Project Site, the Plant, the Equipment and the public ways abutting the Project Site, comply with all applicable lawful requirements of all governmental bodies; provided, however, that the Company may contest to the extent it deems advisable the necessity of its compliance with any such requirements unless by such action the lien of the Indenture on any part of the Project shall be subject to loss or forfeiture. SECTION 8.2 RELEASE AND INDEMNIFICATION COVENANTS. The Company releases the Board, each director, officer, employee and agent thereof, the Trustee and the holders of the Bonds from, and will indemnify and hold the Board, each director, officer, employee and agent thereof, the Trustee and the holders of the Bonds harmless against, any and all claims, liabilities or losses of any character or nature whatsoever asserted by or on behalf of any persons, firm, corporation or governmental authority arising out of, resulting from, or in any way connected with, the Project, including, without limiting the generality of the foregoing: (a) any destruction of or damage to property or any injury to or death of any person or persons caused by or related to the Project; (b) any actions taken by the Board at the request or suggestion of the Company or any person acting for the Company (including its officers, employees and counsel, as well as bond counsel involved at the request of the Company in the issuance of the Bonds) in connection with the offering or sale of the Bonds; and 28 33 (c) any amounts assessed by governmental authorities or damages incurred by private parties on account of the failure of the Company to comply with environmental, employment or products liability laws or standards. provided, however, that the Company shall not be obligated to indemnify the Board, any director, officer, employee or agent thereof, the Trustee or the holders of the Bonds against any claim, liability or loss resulting from willful misconduct or gross negligence on the part of the Board, such director, officer, employee or agent, the Trustee or the holders of the Bonds; and provided, further, that no agent of the Board designated by the Company shall have any rights as an indemnifiable party pursuant to the provisions of this section. If any indemnifiable party (whether the Board, any of its directors, officers, employees or agents, the Trustee or the holders of the Bonds) shall be obligated to pay any claim, liability or loss, and if in accordance with all applicable provisions of this section the Company shall have a primary obligation to pay such claim, liability or loss on behalf of such indemnifiable party and may not defer discharge of its indemnity obligation hereunder until such indemnifiable party shall have first paid such claim, liability or loss and thereby incurred actual loss. The Company will also pay or reimburse all legal or other expenses reasonably incurred by any indemnifiable party in connection with the investigation or defense or any action or proceeding, whether or not resulting in liability, with respect to any claim, liability or loss in respect of which indemnity may be sought against the Company under the provisions of this section. In the event that any action or proceeding is brought against any indemnifiable party (whether the Board, any of its directors, officers, employees or agents, the Trustee or the holders of the Bonds) in respect of which indemnity may be sought against the Company under the provisions of this section, such indemnifiable party shall, as a condition of the Company's liability under the provisions of this section give written notice to the Company of such action or proceeding within a reasonable time following the commencement thereof and shall thereafter forward to the Company a copy of every summons, complaint, pleading, motion or other process received with respect to such action or proceeding. The Company may (and if so requested by such indemnifiable party, shall) at any time assume the defense of such indemnifiable party in connection with any such action or proceeding, and in such case the Company shall pay all expenses of such defense and shall have full and complete control of the conduct on the part of such party of any such action or proceeding, subject, however, to the other provisions of this section. In any action or proceeding where the Company assumes the defense of any indemnifiable party, the Company shall have the right to select counsel for such party; provided that such party may in its discretion employ its own counsel if it deems such action to be necessary, in which case the Company shall pay the fees and expenses of such other counsel in addition to the fees and expenses of such counsel selected by the Company. The Company shall not be obligated to indemnify and hold harmless any indemnifiable party for any claim, liability or loss if such indemnifiable party has agreed to a settlement of such claim, liability or loss without the Company's consent, irrespective of whether the Company had, prior to such settlement, exercised its right to assume the defense of such 29 34 indemnifiable party in connection with any such action or proceeding; provided, however, that in the event an indemnifiable party desires to settle a claim in response to a bona fide offer of settlement, if the Company is unwilling to settle the claim in accordance with the terms of such offer, then, in that event, the Company may withhold its consent to the settlement only if it establishes an escrow fund with an escrow agent acceptable to such indemnifiable party in a principal amount equal to the difference between the claimed amount for which the indemnifiable party is potentially liable and the amount of the settlement offer. Such escrow may consist of cash, direct obligations of the United States Government or obligations which are unconditionally guaranteed by the United States Government, bank certificates of deposit, bank letters of credit or any other security acceptable to such indemnifiable party. Any interest earned on the funds held in such escrow shall accrue to the benefit of the Company and shall be paid over to the Company as earned. Subject to the preceding provisions of this paragraph, the Company shall have the right to settle or compromise any claim, liability or loss for which it shall be liable under the provisions of this section upon such terms and conditions as it shall determine in the exercise of its sole discretion. SECTION 8.3 INSPECTION OF PROJECT. The Company will permit the Board, the Trustee and their duly authorized agents at all reasonable times to enter upon, examine and inspect the Project. SECTION 8.4 AGREEMENT TO MAINTAIN CORPORATE EXISTENCE. The Company will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all its assets (either in a single transaction or in a series of related transactions) and will not consolidate with or merge into another corporation or permit one or more corporations to consolidate with or merge into it; provided that the Company may, without violating the agreements contained in this section, do or perform any of the following: (a) It may consolidate with or merge into another corporation, or permit one or more corporations to consolidate with or merge into it if the corporation surviving such merger or resulting from such consolidation, if it shall be one other than the Company, expressly assumes in writing all the obligations of the Company contained in this Lease Agreement; and (b) It may transfer to another corporation all or substantially all its assets as an entirety, and (if it so elects) thereafter dissolve, if the corporation to which such transfer shall be made expressly assumes in writing all the obligations of the Company contained in this Lease Agreement. The Company will, promptly following any merger, consolidation or transfer permitted under the provisions of this Section 8.4, furnish to the Board and the Trustee fully executed or appropriately certified copies of the writing by which the Company's successor or transferee 30 35 corporation expressly assumes the obligations of the Company contained in this Lease Agreement. If, after a transfer by the Company of all or substantially all its assets to another United States Corporation under the circumstances described in the preceding clause (b) of this section, the Company does not thereafter dissolve, it shall not have any further rights or obligations hereunder. SECTION 8.5 QUALIFICATION IN ALABAMA. The Company warrants and represents that it is now duly qualified to do business as a foreign corporation in Alabama and will continuously remain so qualified during the term of the Lease Agreement. If, in accordance with the permissive provisions of Section 8.4 hereof, the Company should merge into a corporation not organized and existing under the laws of Alabama, should consolidate with one or more corporations not organized and existing under the laws of Alabama or should transfer all or substantially all its assets to a corporation not organized under the laws of Alabama, it will cause the corporation into which it merged, the corporation resulting from such consolidation or the corporation to which all or substantially all its assets were transferred, as the case may be, to qualify to do business in Alabama as a foreign corporation and to remain so qualified at all times during the remainder of the Lease Term. SECTION 8.6 FURTHER ASSURANCES. The Company will, at its own cost and expense, take all actions that may at the time and from time to time be necessary to perfect, preserve, protect and secure the interests of the Board and the Trustee, or either, in and to the Project, including, without limitation, the filing of all financing and continuation statements that may at the time be required under the Alabama Uniform Commercial Code to maintain the perfection and priority of the security interests created under this Lease Agreement and the Indenture. The Company further agrees, without in any limiting the generality of foregoing, to take any and all such actions that in the judgment of the Board or the Trustee are necessary for the perfection, preservation, protection and securing of such interests. SECTION 8.7 CONCERNING THE TAX-EXEMPT NATURE OF THE INTEREST INCOME ON THE BONDS. (a) The Company will file, or will cause to be filed, with the Internal Revenue Service all statements and reports, if any, required by the Code or rules or regulations issued thereunder, to be so filed as a condition to continue qualification of the Bonds as a small issue the interest income on which is not includable in gross income of the recipients thereof for Federal income tax purposes. (b) The Company shall at all times do and perform all acts and things permitted by law and necessary or desirable in order to assure that interest paid on the Bonds shall, for purposes of Federal income taxation, be excludable from the gross income of the holders of the Bonds, except in the event, and for the period, that any such holder is a 31 36 "substantial user" of the Project or a "related person" (within the meaning of Section 147(a) of the Code), and any and all actions of any owner or principal user of the Project or any related person (within the meaning of Section 144(a)(3) of the Code) to any such owner or principal user shall be deemed to be actions of the Company. In addition, any and all actions to be undertaken by the Company or by any other person as to which the Board or the Trustee must, pursuant to the terms hereto, consent or approve in advance shall be deemed to be the actions of the Company or such other person (and not the actions of the Board or the Trustee). (c) The Company shall deliver written notice to the Trustee of the occurrence of a Determination of Taxability immediately upon having knowledge thereof. (d) The Company shall not permit at any time or times any of the proceeds of the Bonds or any other funds to be used, directly or indirectly, to acquire any asset or obligation the acquisition of which would cause the Bonds to be "arbitrage bonds" for the purposes of Section 148 of the Code and shall remit to the United States in a timely manner all amounts due as rebate and otherwise take any action or omit to take any action that would cause the Bonds to be "arbitrage bonds" because of Section 148 of the Code. The Company shall utilize the proceeds from the sale of the Bonds so as to satisfy the reasonable expectations of the Company and the Board set forth in the Federal Tax Certificate of the Company delivered as of the Issue Date. (e) The Company shall not permit the Project to be used or occupied in any manner for compensation by the United States or an agency or instrumentality thereof, including any entity with statutory authority to borrow from the United States (in any case within the meaning of Section 149(b) of the Code) or pledge additional security for the repayment of the Bonds except for tangible property or securities the payment of which is not provided or guaranteed, in whole or in part, by the Federal Government or any agency or instrumentality thereof, unless the Company shall deliver to the Trustee an opinion of Bond Counsel in form and substance satisfactory to the Trustee to the effect that such use will not impair the exclusion of the interest income on the Bonds from Federal income taxation. ARTICLE IX CERTAIN PROVISIONS RELATING TO ASSIGNMENT, SUBLEASING AND TO THE BONDS SECTION 9.1 PROVISIONS RELATING TO ASSIGNMENT AND SUBLEASING BY COMPANY. The Company may assign this Lease Agreement and the leasehold interest created hereby, and may sublet the Project or any part thereof, without the necessity of obtaining the consent of either the Board or the Trustee; provided however, that no assignee or sublessee or anyone claiming by, through or under any such assignment or sublease shall by virtue thereof acquire 32 37 any greater rights in the Project or in any part thereof than the Company then has under this Lease Agreement, nor shall any such assignment or subleasing or any dealings or transactions between the Board or the Trustee or any sublessee or assignee in any way relieve the Company from primary liability for any of its obligations hereunder. Thus, in the event of any such assignment or subleasing, the Company shall remain primarily liable for payment of the rentals herein provided to be paid by it and for performance and observance of the other agreements and covenants on its part herein provided to be performed and observed by it. SECTION 9.2 ASSIGNMENT OF LEASE BY BOARD; REQUIRED CONSENTS TO AMENDMENTS. It is understood and agreed that in the Indenture the Board will assign its interest in and pledge any moneys receivable under this Lease Agreement to the Trustee as security for payment of the principal of and the interest and premium, if any, on the Bonds. It is further understood and agreed that the Board will in the Indenture obligate itself to follow the instructions of the Trustee or the holders of the Bonds or a certain percentage thereof in the election or pursuit of any remedies herein vested in it. Upon the assignment and pledge to the Trustee of the Board's interest in this Lease Agreement, the Trustee shall have all rights and remedies herein accorded the Board and any reference herein to the Board shall be deemed, with the necessary changes in detail, to include the Trustee, and the Trustee and the holders of the Bonds shall be deemed to be third party beneficiaries of the covenants and agreements on the part of the Company herein contained. Subsequent to the issuance of the Bonds and prior to their payment in full, the Board and the Company shall have no power to modify, alter, amend or (except as specifically authorized herein) terminate this Lease Agreement without the prior written consent of the Trustee and then only as provided in the Indenture. The Board will not, so long as the Company is not in default hereunder, amend the Indenture or any indenture supplemental thereto, and will not exercise any right voluntarily to redeem the Bonds, without the prior written consent of the Company. Without the prior written consent of the Company and the Credit Obligor, the Board will not, at any time while the Company is not in default hereunder, hereafter issue any bonds or other securities other than the Bonds, that are payable out of or secured by a pledge of the revenues and receipts derived by the Board from the leasing or sale of the Project, nor, without such consent, will the Board, at any time while the Company is not in default hereunder, hereafter place any mortgage or other encumbrance (other than the Indenture and supplemental indentures contemplated thereby) on the Project or any part thereof. SECTION 9.3 REFERENCES TO BONDS INEFFECTIVE AFTER BONDS PAID. Upon full payment of the Bonds, all references in this Lease Agreement to the Bonds and the Trustee shall be ineffective and neither the Trustee nor the holders of any of the Bonds shall thereafter have any rights hereunder. For purposes of this Lease Agreement, any of the Bonds shall be deemed fully paid if there exists, with respect thereto, the applicable conditions specified in Article XIII of the Indenture. 33 38 In the event the Bonds are fully paid prior to the final maturity thereof, the Company shall be entitled to use and occupancy of the Project from the date of such payment until 11:59 o'clock, p.m., on April 1, 2007, without the payment of any further Basic Rent but otherwise on all the same terms and conditions hereof. If after full payment of the Bonds, any moneys then remain in any of the special funds created in the Indenture, the Board (a) will cause the Trustee to pay all such moneys to the Company, and (b) hereby assigns all such moneys to the Company. ARTICLE X EVENTS OF DEFAULT AND REMEDIES SECTION 10.1 EVENTS OF DEFAULT DEFINED. The following shall be "events of default" under this Lease Agreement, and the terms "event of default" or "default" shall mean, whenever they are used in this Lease Agreement, any one or more of the following events: (a) Failure by the Company to pay, when due and payable, the Basic Rent hereinabove provided; (b) Failure by the Company to perform or observe any of its other agreements or covenants contained in this Lease Agreement, which failure shall have continued for a period of sixty (60) days after written notice specifying, in reasonable detail, the nature of such failure and requiring the Company to perform or observe the agreement or covenant with respect to which it is delinquent shall have been given to the Company by the Board or the Trustee, unless (i) the Board and the Trustee shall agree in writing to an extension of such period prior to its expiration, or (ii) during such sixty (60) day period or any extension thereof, the Company has commenced and is diligently pursuing appropriate corrective action, or (iii) the Company is by reason of force majeure at the time prevented from performing or observing the agreement or covenant with respect to which it is delinquent; (c) The dissolution or liquidation of the Company or the filing by the Company of a voluntary petition in bankruptcy, or its failure to lift, within ninety (90) days, any execution, garnishment or attachment of a size as seriously to impair its ability to carry on its operations, the commission by it of any act of bankruptcy or its adjudication as a bankrupt, an assignment by it for the benefit of creditors, the entry by it into an agreement of composition with its creditors or the approval by a court of competent jurisdiction as having been filed in good faith of a petition applicable to it in any proceeding for its reorganization instituted under the provisions of the general bankruptcy act, as amended, or 34 39 under any similar act that may hereafter be enacted; provided that the term "dissolution or liquidation of the Company," as used in this subsection (c) shall not be construed to include the termination of the existence of the Company resulting from a merger into or a consolidation with another corporation or the dissolution of the Company following a transfer of all or substantially all its assets to another corporation, under the conditions contained in Section 8.4 hereof and permitting such actions; (d) Any warranty, representation or other statement by or on behalf of the Company contained in the Lease or the Guaranty or in any instrument or certificate furnished in compliance with or reference to the Lease shall have been false or misleading in any material respect when made; (e) Receipt by the Trustee of notice from the Credit Obligor that an event of default has occurred under the Credit Agreement; or (f) An event of default under the Indenture. The term "force majeure" as used in subsection (b) of this section means acts of God or the public enemy, strikes, labor disputes, lockouts, work slowdowns or stoppages or other industrial disturbances, insurrections, riots or other civil disturbances, orders of the United States of America, the State of Alabama or any department, agency or political subdivision of either thereof, or of other civil or military authority, or partial or entire failure of public utilities. SECTION 10.2 REMEDIES ON DEFAULT. Whenever any such event of default shall have happened and be continuing, the Board and the Trustee (or the Trustee on behalf of the Board) may take any one or more of the following remedial steps: (a) They or it may re-enter and take possession of the Project, exclude the Company from possession thereof and lease the same for the account of the Company, holding the Company liable for the rent and other payments due hereunder up to the effective date of such leasing and for the excess, if any, of the rent and other amounts payable hereunder over the rents and other amounts which are payable by the lessee under such new lease; (b) They or it may terminate this Lease Agreement, exclude the Company from possession of the Project and hold the Company liable for the balance due hereunder, in which event the rights of the Company in the Project and the use and possession thereof shall terminate; 35 40 (c) They or it may declare immediately due and payable all installments of rent thereafter coming due hereunder, provided, however, that the total amount of such rent that may be so declared immediately due and payable pursuant to subparagraphs (a) and (b) of Section 5.2 hereof shall be an amount which, when added to the total of the amounts then on deposit in the Debt Service Fund and the Construction Fund, will be sufficient to pay, redeem and retire all the outstanding Bonds on the earliest practicable date thereafter on which, under their terms, they may be redeemed, including, without limitation, principal, premium, interest to mature until and on such date, expenses of redemption and Trustee's fees and charges; (d) They or it may have access to, and inspect, examine and make copies of, the books, records and accounts of the Company, but if and only if any of the Bonds are then outstanding; and (e) They or it may take whatever other action at law or in equity may appear necessary or desirable to collect the rent then due, or to enforce any obligation, covenant or agreement of the Company under this Lease Agreement. SECTION 10.3 NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Board or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Board or the Trustee to exercise any remedy reserved to it in this Article X, it shall not be necessary to give any notice, other than such notice as is herein expressly required. SECTION 10.4 AGREEMENT TO PAY ATTORNEYS' FEES. In the event that, as a result of a default or a threatened default by the Company hereunder, the Board or the Trustee should employ attorneys at law or incur other expenses in or about the collection of rent or the enforcement of any other obligation, covenant, agreement, term or condition of this Lease Agreement, the Company will, if the Board or the Trustee are successful in such efforts or if a final judgment for either is rendered by a court of competent jurisdiction, pay to the Board or to the Trustee, as the case may be, reasonable attorneys' fees and other expenses so incurred by the Board or the Trustee. 36 41 SECTION 10.5 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any agreement contained in this Lease Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Further, neither the receipt nor the acceptance of rental hereunder by the Board, or by the Trustee on its behalf, shall be deemed to be a waiver of any breach of any covenant or condition herein contained even though at the time of such receipt or acceptance there has been a breach of one or more covenants or conditions on the part of the Company herein contained and the Board or the Trustee (or both) have knowledge thereof. ARTICLE XI OPTIONS SECTION 11.1 OPTION TO PURCHASE AFTER PAYMENT OF BONDS. If the Company pays the rental herein reserved to the Board or if provision is made for payment of the Bonds in accordance with the provisions of Article XIII of the Indenture, it shall have the right and option, herein granted by the Board, to purchase the Project from the Board at any time during the Lease Term after or simultaneously with payment (or provision for payment in accordance with said section) in full of the principal of and the interest and premium (if any) on the Bonds and all reasonable fees, charges and disbursements of the Trustee, accrued and to accrue until the date of such full payment, at and for a purchase price of $100 plus the reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Board in connection with the Company's exercise of such option. To exercise any such purchase option, the Company shall notify the Board in writing not less than thirty (30) days prior to the date on which it proposes to effect such purchase and, on the date of such purchase, shall pay the aforesaid purchase price to the Board in cash or bankable funds, whereupon the Board will, by bills of sale and statutory warranty deed or other appropriate instruments, transfer and convey the Project (in its then condition, whatever that may be) to the Company, subject only to such liens, encumbrances and exceptions to which title thereto was subject when this Lease Agreement was delivered, those to the creation or suffering of which the Company consented (except for this Lease Agreement and the Indenture) and those resulting from the failure of the Company to perform or observe any of the agreements or covenants on its part herein contained. Nothing herein contained shall be construed to give the Company any right to any rebate to or refund of any rental paid by it hereunder prior to the exercise by it of the purchase option hereinabove granted, even though such rental may have been wholly or partially prepaid. SECTION 11.2 OPTION TO TERMINATE. The Company shall have the right to terminate this Lease Agreement at any time after payment in full of the principal of and interest and premium (if any) on the Bonds upon giving to the Board notice in writing not less than five (5) days prior to the day of termination. 37 42 SECTION 11.3 OPTION TO PURCHASE PORTIONS OF PROJECT SITE. The Company shall have, and is hereby granted, subject to the conditions hereinafter specified, the option to purchase from the Board any part of the Project Site at any time and from time to time while it is not in default hereunder, provided that the Company furnishes to the Board and the Trustee (a) A notice in writing containing (i) an adequate legal description of that portion of the Project Site with respect to which such option is to be exercised, (ii) a statement that the Company intends to exercise its option to purchase such portion of the Project Site on a date stated, which shall not be less than thirty (30) nor more than ninety (90) days from the date of such notice, and (iii) a statement that the use to which the Company proposes to devote such portion of the Project Site will promote the continued industrial development of the State of Alabama; and (b) A certificate signed by an Independent Engineer stating (i) that no part of the Plant or the Equipment, no other improvement (except for roads, walkways, sewer, water, oil, coal oil, gas, electric and communication lines, pipe lines and other energy source conveyors and the like, which shall be specified in such certificate) and no facility designed for the control of air or water pollution or for the disposal of solid wastes and necessary in the operation of the Plant are located on the portion of the Project Site with respect to which such option is exercised, and (ii) that the severance of such portion of the Project Site from the Project will not impair the operating unity of the Plant or unduly restrict ingress or egress to or from the Plant. Upon the receipt by the Board and the Trustee of a notice and certificate complying with the provisions of the preceding clauses (a) and (b), respectively, the Board will, without the payment to it of any additional monetary consideration, execute and deliver to the Company a statutory warranty deed conveying to the Company that portion of the Project Site with respect to which such option was exercised, subject only to such liens, encumbrances and exceptions to which title thereto was subject when this Lease Agreement was delivered, those to the creation or suffering of which the Company consented (except for this Lease Agreement and the Indenture) and those resulting from the failure of the Company to perform or observe any of the agreements or covenants on its part herein contained. From and after the consummation of any purchase effected by the Company pursuant to the provisions of this section, any reference herein to the Project Site shall be deemed to refer to the real property that immediately prior thereto constituted the Project Site, less and except that part so purchased by the Company under the provisions of this section. No purchase effected by the Company under the provisions of this section shall entitle the Company to any abatement or diminution of the rental payable hereunder. 38 43 ARTICLE XII MISCELLANEOUS SECTION 12.1 COVENANT OF QUIET ENJOYMENT. SURRENDER OF PROJECT. So long as the Company performs and observes all the covenants and agreements on its part herein contained, it shall peaceably and quietly have, hold and enjoy the Project during the Lease Term of this Lease Agreement subject to all the terms and provisions hereof. At the end of the Lease Term, as the case may be, of this Lease Agreement, or upon any prior termination of this Lease Agreement, the Company will (unless it has simultaneously purchased the Project from the Board) surrender possession of the Project peaceably and promptly to the Board in as good condition as at the commencement of the Lease Term, excepting only (a) loss by fire or other casualty, (b) alterations, changes or improvements made in accordance with the provisions of this Lease Agreement, (c) acts of governmental or condemning authorities, and (d) ordinary wear and tear. SECTION 12.2 RETENTION OF TITLE TO PROJECT BY BOARD. GRANT OF UTILITY EASEMENTS. CONNECTING UTILITIES. Without the prior written consent of the Company, the Board will not itself, at any time during which the Company is not in default hereunder, (a) except as provided in Section 8.5 of the Indenture, sell, convey or otherwise dispose of all or any part of the Project (except to the Company as hereinabove provided), (b) except as provided in Section 9.2 hereof, mortgage or otherwise encumber the Project or any part thereof, or (c) except as provided in Section 8.5 of the Indenture, dissolve or do anything that will result in the termination of its corporate existence. The Board will, however, grant such utility, access and other similar easements over, across or under the Project Site as shall be requested by the Company and as in the judgment of the Company are necessary or convenient for the efficient operation of the Project. The Company may, at its own expense and without any consent of the Board or the Trustee, connect or "tie in" utility or other similar facilities serving the Project to utility or other similar facilities serving real property adjacent to or near the Project, but only if such connection or "tie in" of utility or similar facilities will not unreasonably interfere with the use of the Project. SECTION 12.3 INTEREST RATE LIMITATION. Any interest rate specified herein for any purpose shall be deemed to be limited to the lesser of (a) the rate so specified, or (b) the highest non-usurious rate at the time permitted by the laws of Alabama. SECTION 12.4 THIS LEASE A NET LEASE. The Company recognizes and understands that it is the intention hereof that this lease be a net lease and that until the Bonds are fully paid all taxes, insurance and maintenance shall be the sole responsibility of the Company to the end that all Basic Rent be available for payment of principal and interest and premium (if any) on the Bonds. This Lease Agreement shall be construed to effectuate such intent. 39 44 SECTION 12.5 NOTICES. All notices, demands, requests and other communications hereunder shall be deemed sufficient and properly given if in writing and delivered in person to the following addresses or mailed by certified or registered mail, postage prepaid with return receipt requested, at such addresses: (a) If to the Board: The Industrial Development Board of the City of Demopolis City Hall Demopolis, Alabama 36732 (b) If to the Company: McClain of Alabama, Inc. 6200 Elmridge Sterling Heights, Michigan 48313 (c) If to the Trustee: LaSalle National Bank - Corporate Trust 135 South LaSalle Street Chicago, Illinois 60603 (d) If to the Credit Obligor: Standard Federal Bank 2600 West Beaver Road Troy, Michigan 48084 Any of the above-mentioned parties may, by like notice, designate any further or different addresses to which subsequent notices shall be sent. The Board and the Company will send a copy of each notice that either thereof gives to the other pursuant to the provisions hereof to the Trustee and to the Credit Obligor, but the failure to give a copy of such notice to the Trustee or the Credit Obligor shall not invalidate such notice or render it ineffective unless in the case of failure to give notice to the Trustee, such notice is otherwise herein expressly required. Any notice hereunder signed on behalf of the notifying party by a duly authorized attorney at law shall be valid and effective to the same extent as if signed on behalf of such party by a duly 40 45 authorized officer or employee. Any notice given hereunder shall be deemed to have been given upon receipt by the person to whom such notice is required to be given hereunder. Whenever, under the provisions hereof, any request, consent or approval of the Board or the Company is required or authorized, such request, consent or approval shall (unless otherwise expressly provided herein) be signed on behalf of the Board by an Authorized Board Representative and on behalf of the Company by an Authorized Company Representative; and each of the parties and the Trustee are authorized to act and rely upon any such requests, consents or approvals so signed. SECTION 12.6 CERTAIN PRIOR AND CONTEMPORANEOUS AGREEMENTS CANCELLED. This Lease Agreement shall completely and fully supersede all other prior or contemporaneous agreements, both written and oral, between the Board and the Company relating to the leasing of the Project. Neither the Board nor the Company shall hereafter have any rights under any such prior or contemporaneous agreement but shall look solely to this Lease Agreement for definition and determination of all their respective rights, liabilities and responsibilities respecting the leasing of the Project. SECTION 12.7 LIMITED LIABILITY OF BOARD. The Board is entering into this Lease Agreement pursuant to the authority conferred upon it in the Authorizing Act. No provision hereof shall be construed to impose a charge against the general credit of the Board or any personal or pecuniary liability upon the Board except with respect to the proper application of the proceeds to be derived from the sale of the Bonds and the revenues and receipts to be derived from any leasing or sale of the Project or any part thereof. SECTION 12.8 BINDING EFFECT. This Lease Agreement shall inure to the benefit of, and shall be binding upon, the Board, the Company, and their respective successors and assigns. SECTION 12.9 SEVERABILITY. In the event any provision or any part of a provision of this Lease Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision or part of a provision hereof. SECTION 12.10 ARTICLE AND SECTION CAPTIONS. The article and section headings and captions contained herein are included for convenience only and shall not be considered a part hereof or affect in any manner the construction or interpretation hereof. 41 46 SECTION 12.11 GOVERNING LAW. It is the intention of the parties hereto that this Lease Agreement shall in all respects be governed by the laws of the State of Alabama. IN WITNESS WHEREOF, the Board and the Company have caused this Lease Agreement to be executed in their respective corporate names, have caused their respective corporate seals to be hereunto affixed, and have caused this Lease Agreement to be attested, all by their duly authorized officers, in multiple counterparts, each of which shall be deemed an original, and have caused this Lease Agreement to be dated as of April 1, 1997. THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By ------------------------------- Its --------------------------- Attest: - ------------------------------- Its --------------------------- McCLAIN OF ALABAMA, INC. By ------------------------------- Its --------------------------- 42 47 STATE OF ALABAMA ) ) COUNTY OF MARENGO ) I, the undersigned Notary Public in and for said county in said state, hereby certify that John E. Northcutt, whose name as Chairman of the Board of Directors of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation under the laws of Alabama, 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 the within instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said public corporation. GIVEN under my hand and official seal of office, this ____ day of _______________, 1997. --------------------------------------- Notary Public [NOTARIAL SEAL] My Commission Expires: _______________ 43 48 STATE OF ) ) COUNTY OF ) I, the undersigned Notary Public in and for said county in said state, hereby certify that ______________________________, whose name as _________________________ of MCCLAIN OF ALABAMA, INC., a corporation organized under the laws of the State of Michigan, 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 the within instrument, he, 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 of office, this ____ day of _______________, 1997. --------------------------------------- Notary Public [NOTARIAL SEAL] My Commission Expires: _______________ 44 49 EXHIBIT A To That Lease Agreement between The Industrial Development Board of the City of Demopolis and McClain of Alabama, Inc. Dated as of April 1, 1997 ================================================================================ PROJECT SITE DESCRIPTION A parcel of land lying and being in Section 11, Township 17 North, 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 01 degrees 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 degrees 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 degrees 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 degrees 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 degrees 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. Continue thence north 51 degrees 55' west to the said Tombigbee River; thence southwestwardly along the southeast edge of said Tombigbee 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 along a meander line described as: from last named concrete monument run south 47 degrees 04' west a distance of 515.2 feet; thence run south 41 degrees 54' west a distance of 367.2 feet; thence run south 50 degrees 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 degrees 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: A parcel of land located in the Northeast Quarter of the Southwest Quarter (NE 1/4 of SW 1/4) and the Southeast Quarter of Northwest Quarter (SE 1/4 of NW 1/4) of Section 11, Township 17 North, Range 1 East, Marengo County, Alabama, being more particularly described as follows: 1 50 Commence at the southwest corner of the Northeast Quarter of Southwest Quarter (NE 1/4 of SW 1/4) of Section 11 and run North 01 degree 50 minutes West a distance of 651.4 feet to a point; thence turn an angle to the right and run North 40 degrees 31 minutes East a distance of 1130.83 feet to a point, said point being the northwest corner of existing Alabama Power Company substation and point of beginning of the property herein described; thence from point of beginning continue North 40 degrees 31 minutes East a distance of 150.0 feet to a point; thence turn an angle to the right and run South 49 degrees 29 minutes East a distance of 150 feet to a point; thence turn an angle to the right and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the left and run South 49 degrees 29 minutes East a distance of 115.2 feet to the northwesterly boundary line of a paved road; thence turn an angle to the right and run South 40 degrees 31 minutes West along the northwesterly margin of said road a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 115.2 feet to a point; thence turn an angle to the left and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 150 feet to the point of beginning. The foregoing property being conveyed to the Alabama Power Company by Deeds recorded October 2, 1985 in the Probate Office, Marengo County, Alabama, in Deed Book 7-U, at page 296 and Deed Book 7-U, at page 300. 2 51 EXHIBIT B To That Lease Agreement between The Industrial Development Board of the City of Demopolis and McClain of Alabama, Inc. Dated as of April 1, 1997 ================================================================================ EQUIPMENT DESCRIPTION Tool Smith - 1 Ton Air Hoist Metal Muncher Punch Press Air Compressor Fork Lift Truck General Office Furniture and Equipment Computer Monitor Emulation Board BellSouth Phone System Trailer Burn Table Crane Fork Lifts Welder Semi Truck 1 EX-10.68 10 TRUST INDENTURE 1 EXHIBIT 10.68 ================================================================================ TRUST INDENTURE between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS and LASALLE NATIONAL BANK, as Trustee DATED AS OF APRIL 1, 1997 ================================================================================ Pertaining to $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS Industrial Development Revenue Bonds Series 1997 (McClain of Alabama, Inc. Project) 2 TRUST INDENTURE TABLE OF CONTENTS
Page No. ----- ARTICLE I DEFINITIONS AND USE OF PHRASES Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Use of Phrases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE II GRANTING CLAUSES Section 2.1 Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE III THE BONDS Section 3.1 General Provisions Respecting the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.2 Variable Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.3 Term Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.4 Optional Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.5 Mandatory Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.6 Procedures for Purchase and Remarketing of Bonds; Delivery of Purchased and Remarketed Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3.7 Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 3.8 Concerning the Confirmation of the Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.9 Payments Due on Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.10 Form of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.11 Execution and Delivery of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 3.12 Application of Proceeds from Sale of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE IV REDEMPTION PROVISIONS Section 4.1 Redemption Dates and Prices of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.2 Selection of Bonds to be Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.3 Notice of Redemption. Deposit of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 4.4 Bonds Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
i 3 ARTICLE V GENERAL PROVISIONS RESPECTING THE BONDS Section 5.1 Execution of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 5.2 Authentication of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 5.3 Replacement of Mutilated, Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . . . . . . . . 42 Section 5.4 Registration, Transfer and Exchange of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 5.5 Persons Deemed Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 5.6 Payment of Principal and Interest; Interest Rights Reserved . . . . . . . . . . . . . . . . . . . . 44 Section 5.7 Source of Payment; Limited Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 5.8 Registration of Bonds in the Book-Entry Only System . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VI THE CONSTRUCTION FUND Section 6.1 Construction Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 6.2 Trustee Protected in Construction Fund Payments. Additional Evidence May Be Required . . . . . . . . 47 Section 6.3 Security for Construction Fund Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 6.4 Investment of Construction Fund Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.5 Agreement Respecting Non-Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE VII APPLICATION OF REVENUES AND CREATION OF DEBT SERVICE FUND AND BOND PURCHASE FUND Section 7.1 Debt Service Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 7.2 Bond Purchase Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.3 Money for Bond Payments to be Held in Trust; Repayment of Unclaimed Money . . . . . . . . . . . . . . 52 Section 7.4 Investment of Debt Service Fund and Bond Purchase Fund . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.5 Security for Debt Service Fund Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE VIII PARTICULAR COVENANTS OF THE BOARD Section 8.1 Payment of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.2 Priority of Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.3 Concerning the Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 8.4 Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ii 4 Section 8.5 Sale of Project Prohibited Except under Certain Conditions . . . . . . . . . . . . . . . . . . . . . 55 Section 8.6 Freedom of Project from Prior Liens. Payment of Charges . . . . . . . . . . . . . . . . . . . . . . 55 Section 8.7 Inspections by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 8.8 Recordation. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 8.9 Concerning Certain Federal Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE IX CERTAIN PROVISIONS RELATING TO THE POSSESSION, USE AND RELEASE OF THE PROJECT AND TO THE DISPOSITION OF INSURANCE PROCEEDS AND CONDEMNATION AWARDS Section 9.1 Retention of Possession of Project by Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.2 Release of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.3 Release Upon Payment of Condemnation Award to Trustee . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.4 Disposition of Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.5 Release of Certain Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE X EVENTS OF DEFAULT AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 10.1 Events of Default Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.3 Application of Moneys Received By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.4 Remedies Vested in Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 10.5 Waivers of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE XI CONCERNING THE TRUSTEE, THE REMARKETING AGENT AND THE TENDER AGENT Section 11.1 Trustee Acceptance of Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 11.2 Trustee Authorized to Pay Certain Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.3 Trustee May File Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.4 Resignation and Discharge of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.5 Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.6 Concerning Any Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.7 Remarketing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.8 Tender Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 11.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
iii 5 ARTICLE XII AUTHORIZATION OF SUPPLEMENTAL INDENTURES AND MODIFICATION OF THE LEASE AND THE GUARANTY Section 12.1 Supplemental Indentures without Bondholder Consent . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 12.2 Supplemental Indenture Requiring Bondholder Consent . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 12.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 12.4 Amendments to Lease and Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 12.5 Notices with Respect to Certain Changes in the Indenture, the Lease and the Guaranty . . . . . . . . 72 Section 12.6 Approval of Credit Obligor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 12.7 Discretion of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE XIII PAYMENT AND CANCELLATION OF THE BONDS AND SATISFACTION OF THE INDENTURE Section 13.1 Satisfaction of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 13.2 Cancellation of Paid Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 13.3 Trust for Payment of Debt Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Disclaimer of General Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 14.2 Retention of Moneys for Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 14.3 Form of Requests, etc., by Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 14.4 Limitation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 14.5 Manner of Proving Ownership of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 14.6 Interest Rate Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 14.7 Indenture Governed by Alabama Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 14.8 Notices to Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 14.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Exhibit A - Description of Project Site Exhibit B - Description of the Leased Equipment iv 6 TRUST INDENTURE between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation under the laws of Alabama (the "Board"), and LASALLE NATIONAL BANK, a national banking corporation under the laws of Alabama (the "Trustee"), R E C I T A L S The Board makes the following recitals of fact as the basis for the undertaking following: it is duly incorporated under the provisions of Article 4 of Chapter 54 of Title 11 of the Code of Alabama of 1975, as amended, by Certificate of Incorporation duly filed for record in the office of the Judge of Probate of Marengo County, Alabama; it is not in default under any of the provisions contained in its Certificate of Incorporation or in the laws of said state; by proper corporate action it has duly authorized the issuance of the Bonds hereinafter referred to; and to secure payment of the principal of and the interest and premium (if any) on said Bonds, payment of the purchase price thereof upon tenders herein provided for, and payment of amounts owing under the Credit Agreement hereinafter referred to, it has by proper corporate action duly authorized the execution and delivery of this Indenture. NOW, THEREFORE, THIS INDENTURE W I T N E S S E T H: For the aforesaid purpose and in consideration of the respective agreements herein contained, it is hereby agreed between the parties signatory hereto and the Holders of all Bonds issued hereunder (the Holders of said Bonds evidencing their consent hereto by their acceptance of the said Bonds and the parties signatory hereto evidencing their consent hereto by their execution hereof), each with each of the others, as follows (provided, that in the performance of any of the agreements of the Board herein contained, any obligation it may thereby incur for the payment of money shall not be a general debt on its part but shall be payable solely out of the revenues and receipts derived from the leasing or sale of the Project hereinafter referred to): ARTICLE I DEFINITIONS AND USE OF PHRASES SECTION 1.1 DEFINITIONS. The following words and phrases and others evidently intended as the equivalent thereof shall, in the absence of clear implication herein otherwise, be given the following respective interpretations herein: "ACT OF BANKRUPTCY" means the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the designated entity under any applicable bankruptcy, insolvency, reorganization or similar law now or hereafter in effect. 1 7 "AFFILIATE" means any person, firm or corporation controlled by, or under common control with, the Company and any person, firm or corporation controlling the Company. "AUTHORIZED DENOMINATION" means any denomination of Bonds permitted by the provisions of Section 3.1(b) hereof. "AUTHORIZED BOARD REPRESENTATIVE" means the person or persons at the time designated as such by written certificate furnished to the Company and the Trustee, containing the specimen signature or signatures of such person or persons and signed on behalf of the Board by the Chairman or the Vice Chairman of the Directors. "AUTHORIZED COMPANY REPRESENTATIVE" means the person or persons at the time designated as such by written certificate furnished to the Board and the Trustee, containing the specimen signature or signatures of such person or persons and signed on behalf of the Company by the Chairman of its Board of Directors, by its President, by any Vice President, by its Secretary or by its Treasurer. "BASIC RENT" means (i) the moneys payable by the Company pursuant to the provisions of Section 5.2 of the Lease, (ii) any other moneys payable by the Company pursuant to the Lease to provide for the payment of the principal of and the interest and premium (if any) on, or purchase price of, the Bonds (other than the aforesaid moneys payable pursuant to Section 5.2 of the Lease), and (iii) any other moneys payable by the Company pursuant to the Lease that are therein referred to as Basic Rent. "BOARD" means The Industrial Development Board of the City of Demopolis and, subject to the provisions of Section 8.6 hereof, includes its successors and assigns and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "BOND COUNSEL" means Independent Counsel whose experience in matters relating to the issuance of obligations by states and their political subdivisions is nationally recognized. "BOND PAYMENT DATE" means each date (including any date fixed for redemption or acceleration of Bonds) on which Debt Service is payable on the Bonds. "BOND PURCHASE FUND" means the Bond Purchase Fund created in to Section 7.2 hereof. "BOND REGISTER" means the registry and transfer books maintained by the Trustee pursuant to the provisions of Section 5.4 hereof. "BONDHOLDER" means the Holder of any Bond. "BONDS" means the bonds authorized to be issued in Article III hereof. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions are closed in any of the following locations: (i) the city in which the 2 8 principal office of the Trustee is located, (ii) the city in which the principal office of the Remarketing Agent is located, (iii) the city in which the office of the Credit Obligor where drawings under the Letter of Credit are to be made is located, (iv) the City of New York, New York or (v) the City of Chicago, Illinois. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COLLATERALLY SECURED" means secured by collateral meeting all of the following requirements: (a) The collateral shall be in the form of obligations described in subparagraph (a), (b) or (c) of the definition of Eligible Investments, except that the security for certificates of deposit, time deposits or other similar banking arrangements may include other marketable securities which meet S&P's "qualified investment criteria" and are eligible as security for trust funds under applicable regulations of the Comptroller of the Currency of the United States of America or under applicable state laws and regulations. (b) The collateral shall have an aggregate market value, calculated not less frequently than monthly, at least equal to the principal amount (less any portion insured by the Federal Deposit Insurance Corporation or any comparable insurance corporation chartered by the United States of America) or the repurchase price secured thereby, as the case may be. The instruments governing the issuance of and security for the Eligible Investments shall designate the person responsible for making the foregoing calculations; provided that the Trustee shall make such calculations if they are not made by the person so designated. (c) The Trustee shall have a perfected security interest in all such collateral, free and clear of the claims of third parties. Such security interests shall be perfected in such manner as may be permitted or required by applicable law, provided that if possession of the collateral is required for such perfection, the collateral shall be deposited with the Trustee, with a Federal Reserve Bank for the account of the Trustee or with a bank or trust company (other than the obligor) which is acting solely as agent for the Trustee and has a combined net capital and surplus of at least $50,000,000. "COMPANY" means McClain of Alabama, Inc., a corporation organized under the laws of the State of Michigan, and, subject to the provisions of Section 7.4 of the Lease, includes its successors and assigns and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "CONFIRMATION" means the irrevocable confirmation issued by LaSalle National Bank, confirming the initial Letter of Credit issued by Standard Federal Bank and delivered to the Trustee on the Issue Date, and any substitute Confirmation issued in accordance with the provisions of Section 3.8 hereof. 3 9 "CONFIRMING BANK" means LaSalle National Bank, its successors and assigns, until a substitute Confirmation shall have been accepted by the Trustee, and thereafter means the issuer of such substitute Confirmation. "CONVERSION DATE" means the first day of any Term Rate Period. "COUNSEL" means an attorney or firm of attorneys duly admitted to practice before the highest court of one or more states of the United States of America or of the District of Columbia. "CREDIT AGREEMENT" means that certain Reimbursement Agreement dated as of April 1, 1997, between the Credit Obligor and the Company, including any amendments or supplements to such instrument from time to time entered into pursuant to the applicable provisions thereof, until a Substitute Letter of Credit shall have been accepted by the Trustee, and thereafter "Credit Agreement" means the instrument evidencing the Company's obligations with respect to such Substitute Letter of Credit. "CREDIT OBLIGOR" means Standard Federal Bank, a federal savings bank, and its successors and assigns, until a Substitute Letter of Credit shall have been accepted by the Trustee, and thereafter "Credit Obligor" means the issuer of such Substitute Letter of Credit. "DEBT SERVICE" means the principal of and interest and premium (if any) payable on the Bonds. "DEBT SERVICE FUND" means the Bond Principal and Interest Fund created in Section 7.1 hereof. "DEFAULT" or "DEFAULT" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DETERMINATION OF TAXABILITY" means a determination that the interest income on any of the Bonds is Taxable, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following: (a) the date on which the Company determines that the interest income on any of the Bonds is Taxable by filing with the Trustee a statement to that effect; or (b) the date on which the Company shall be advised by private ruling, technical advice or any other written communication from an authorized official of the Internal Revenue Service that, based upon any filings of the Company, or upon any review or audit of the Company, or upon any other grounds whatsoever, the interest income on any of the Bonds is Taxable; or (c) the date on which the Company shall receive notice from the Trustee in writing that the Trustee has been advised (i) by any Holder of any 4 10 Bonds that the Internal Revenue Service has determined that the interest income on the Bonds is Taxable or (ii) by any authorized official of the Internal Revenue Service that the interest income on any of the Bonds is Taxable; provided that no Determination of Taxability shall be deemed to have occurred: (1) as a result of a determination by the Company pursuant to the preceding clause (a) unless supported by a written opinion of Bond Counsel acceptable to the Trustee and the Board that the interest income on the Bonds is Taxable; or (2) as a result of the event described in the preceding clauses (b) or (c) unless and until (1) the Company has been afforded a reasonable opportunity, at its expense, to contest such determination either through its own action (if permitted by law) or by or on behalf of one or more of the holders of the Bonds and (2) such contest, if made, has been abandoned by the Company or has been finally determined by a court of competent jurisdiction from which no further appeal exists, but if such contest has not been abandoned or finally determined within three years of the event described in either of said clauses (b) and (c) which forms the basis of the Determination of Taxability in question, then such Determination of Taxability shall be deemed to have occurred three years after the date of such event. "DIRECTORS" means the Board of Directors of the Board. "DTC" means The Depository Trust Company. "ELIGIBLE CERTIFICATES" means certificates of deposit issued by (a) the Trustee or (b) by any bank organized under the laws of the United States of America or any state thereof having, at the time of the acquisition by the Board of such certificates of deposit, combined capital and surplus of not less than $100,000,000. "ELIGIBLE INVESTMENTS" means any of the following that are at the time legal investments for the Board: (a) Federal Securities; (b) rights to receive the principal of or the interest on Federal Securities through (i) direct ownership, as evidenced by physical possession of such Federal Securities or unmatured interest coupons or by registration as to ownership on the books of the issuer or its duly authorized paying agent or transfer agent, or (ii) purchase of certificates or other instruments evidencing an undivided ownership interest in payments of the principal of or interest on Federal Securities; (c) debt obligations issued by agencies of or sponsored by the United States of America that are rated in any of the three highest rating categories by S&P; (d) negotiable and non-negotiable certificates of deposit, time deposits or other similar banking arrangements which are issued by banks, trust companies or savings and loan associations, provided that, unless issued by a Qualified 5 11 Financial Institution, any such certificate, deposit or other arrangement shall be continuously Collaterally Secured as to principal; (e) repurchase agreements for Eligible Investments described in subparagraph (a), (b) or (c) above with Qualified Financial Institutions or with dealers in government bonds which report to, trade with and are recognized as primary dealers by a Federal Reserve Bank and are members of the Securities Investors Protection Corporation, provided that any such agreement shall have a term of less than one year and the repurchase price payable under any such agreement shall be continuously Collaterally Secured; (f) investment agreements with Qualified Financial Institutions; (g) commercial paper rated in the highest rating category by S&P; (h) money market funds registered under the Investment Company Act of 1940 whose shares are registered under the Securities Act of 1933 and are rated in the highest rating category by S&P; (i) interest-bearing demand or time deposits or interests in money market portfolios issued by state banks or trust companies or national banking associations that are members of the Federal Deposit Insurance Corporation ("FDIC"), which deposits or interests must be (a) continuously and fully insured by FDIC and be with banks that are rated at least A-1 or AA by S&P, or (b) fully secured by Federal Securities; and (j) debt obligations of any state of the United States or any political subdivision thereof, or of any public corporation created by or agency of any such state or political subdivision that are rated in any of the two highest rating categories by S&P. "EQUIPMENT" means those items of machinery, equipment and other personal property that are generally described on, and are referred to as "Equipment" in Exhibit B attached hereto and made a part hereof and any other items of machinery, equipment and other personal property that, under the provisions hereof, are to constitute part of the Equipment. "EVENT OF DEFAULT" means any of the events described in Section 10.1 hereof. "FEDERAL SECURITIES" means (i) direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged and (ii) obligations issued by a person controlled or supervised by and acting as an instrumentality of the United States of America, the payment of the principal of, and premium, if any, and interest on which is fully guaranteed as a full faith and credit obligation of the United States of America (including any securities described in (i) or (ii) issued or held in book-entry form on the books of the Department of Treasury of the United States of America or Federal Reserve Bank), which 6 12 obligations, in either case, are not subject to redemption prior to maturity at the option of anyone other than the Holder. "GUARANTY" means that certain Bond Guaranty Agreement dated as of April 1, 1997, between the Company and the Trustee. "HOLDER," when used in conjunction with a Bond, means the person in whose name such Bond is registered on the registry books of the Trustee pertaining to the Bonds. "IMPROVEMENTS" means the improvements to the Plant required by the provisions of Section 3.1 of the Lease to be constructed by the Company. "INDENTURE" means these presents and every supplemental agreement with the Trustee in pursuance hereof. "INDENTURE INDEBTEDNESS" means all indebtedness of the Board at any time secured by the Indenture, including without limitation (i) all Debt Service on the Bonds and (ii) all reasonable and proper fees, charges and disbursements of the Trustee, the Tender Agent and the Remarketing Agent. "INDEPENDENT COUNSEL" means an attorney or firm of attorneys duly admitted to practice before the highest court of one or more states of the United States of America or the District of Columbia and not employed full time by the Board, the Company, an Affiliate or the Trustee. "INDEPENDENT ENGINEER" means an independent engineer or engineering firm not employed full time by the Board, the Company or an Affiliate. "INTEREST PAYMENT DATE" means a date on which interest on a Bond is due and payable as specified in Section 3.1(g) hereof. "INTERIM AGREEMENT" means that certain Interim Agreement dated as of August 1, 1996, between the Board and the Company. "ISSUE DATE" means the date of the initial authentication and delivery of the Bonds. "LEASE" means that certain Lease Agreement dated as of April 1, 1997, between the Board, as lessor, and the Company, as lessee, as said lease now exists or as it may be amended and supplemented. "LETTER OF CREDIT" means the initial letter of credit delivered to the Trustee on the Issue Date and any Substitute Letter of Credit, including the Confirmation. "MANDATORY TENDER" means a tender of Bonds required by the provisions of Section 3.5 hereof. 7 13 "MANDATORY TENDER DATE" means any date on which Bonds are to be purchased pursuant to a Mandatory Tender. "MAXIMUM RATE" means the maximum rate per annum, specified in the Letter of Credit, upon which there has been calculated the amount available to be drawn on the Letter of Credit to pay interest on the Bonds. "MORTGAGE" means that certain Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997, executed by the Company and the Board in favor of the Credit Obligor, including any amendments or supplements to such instrument from time to time entered into pursuant to the applicable provisions thereof, until a Substitute Letter of Credit shall have been accepted by the Trustee, and thereafter "Mortgage" means the instrument (if any) securing the Company's obligations with respect to such substitute Letter of Credit. "MUNICIPALITY" means the City of Demopolis, Alabama, and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "OBLIGOR BOND" means (i) any Pledged Bond and (ii) any Bond registered in the name of the Company. "OPTIONAL TENDER" means a tender of Bonds at the option of the Holder thereof pursuant to the provisions of Section 3.4 hereof. "OPTIONAL TENDER DATE" means any date on which Bonds are to be purchased pursuant to an Optional Tender. "OUTSTANDING," when used with reference to any of the Bonds, means, at any date as of which the amount of such Bonds outstanding is to be determined, all such Bonds which have been theretofore authenticated and delivered by the Trustee under the Indenture, except (i) those of such Bonds cancelled by the Trustee because of payment at or after their respective maturities or redemption prior to their respective maturities, (ii) those of such Bonds for the payment or redemption of which provisions shall have been made with the Trustee as provided in Article XIII hereof and (iii) those of such Bonds in exchange for which, or in lieu of which, other Bonds have been authenticated and delivered under the Indenture. In determining whether the Holders of a requisite aggregate principal amount of outstanding Bonds have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions of the Indenture, Bonds which are owned by the Company or an Affiliate shall be disregarded and deemed not to be outstanding hereunder for the purpose of any such determination. "PERMITTED ENCUMBRANCES" means, as of any particular time, (a) liens for ad valorem taxes and special assessments not then delinquent, (b) the Lease and the Indenture, (c) inchoate mechanics' and materialmen's liens, (d) utility, access, drainage and other easements and rights of way, restrictions and exceptions that a licensed engineer (who may, but need not be, an employee of the Company) certifies will not materially interfere with or impair the operations being conducted in or about the Project (or, if no operations are being conducted in or about the Project, the operations for which the Project was designed or last modified), (e) such minor 8 14 defects, irregularities, encumbrances, easements, rights-of-way and clouds on title (including zoning and other similar restrictions and regulations) as customarily exist with respect to properties similar in character to the Project and as do not, in the opinion of Counsel, in the aggregate materially impair the use of the property affected thereby for the purpose for which it was acquired or is held by the Board, (f) with respect to the Project Site, any easements, restrictions and other exceptions referred to in Exhibit A hereto and (g) the Mortgage. "PLANT" means that certain manufacturing plant located on the Project Site, as the said plant may at any time exist. "PRIME RATE" means the rate of interest publicly announced by LaSalle National Bank from time to time as its "Prime Rate." The Prime Rate is not necessarily the lowest rate charged by such bank to commercial borrowers. "PROJECT" means the Project Site, the Plant and the Equipment as they may at any time exist, and all other property and rights referred to or intended so to be in the granting clauses hereof or in any way subject to the demise of the Lease. "PROJECT DEVELOPMENT COSTS" means the costs of acquiring the Project Site and the improvements located thereon, constructing the Improvements and acquiring and installing the Equipment, the expenses incurred by the Board in connection with the issuance and sale of the Bonds (including the initial charge of the Trustee, the fee for the issuance of the initial Letter of Credit and the fiscal, legal, printing, advertising, recording and other similar fees and expenses relating thereto), interest on the Bonds to the extent such interest constitutes a Qualified Project Cost, and all costs and expenses incurred by the Issuer in connection with and directly related to the planning, development and design of the Improvements and the Equipment, including, without limiting the generality of the foregoing, any such costs or expenses paid by the Company or by the Board with funds advanced by the Company and for which the Company is entitled to be reimbursed under the provisions of the Interim Agreement. "PROJECT SITE" means the real property specifically described in Exhibit A attached hereto and made a part hereof (to the extent that at the time it is subject to the demise of the Lease) and any other real property that under the terms of the Lease constitutes a part of the Project Site. "QUALIFIED FINANCIAL INSTITUTION" means a bank, trust company, national banking association, insurance company or other financial services company or entity, whose unsecured long term debt obligations (in the case of a bank, trust company, national banking association or other financial services company or entity) or whose claims paying abilities (in the case of an insurance company) are rated in any of the three highest rating categories by S&P. "QUALIFIED PROJECT COSTS" means Project Development Costs paid or reimbursed pursuant to the provisions of the Indenture to the extent that such costs (i) constitute expenditures for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation within the meaning of Section 144(a)(1) of the Code, and (ii) were paid or incurred subsequent to the date that was 60 days prior to the effective date of the Interim Agreement (such effective date being August 22, 1996). 9 15 "RATING AGENCY" means any nationally recognized securities rating agency. "REGULAR RECORD DATE" means (a) with respect to any Variable Rate Interest Payment Date or any Term Rate Interest Payment Date for a Term Rate Period of less than 6 months the close of business on the last Business Day preceding such Interest Payment Date and (b) with respect to a Term Rate Interest Payment Date for a Term Rate Period of 6 months or more, the 15th day (whether or not a Business Day) next preceding such Interest Payment Date. "REMARKETING AGENT" means LaSalle National Bank or any successor appointed pursuant to the provisions of Section 11.7 hereof. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, its successors and assigns, and, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, with the consent of the Company. "SPECIAL FUNDS" means the Debt Service Fund, the Bond Purchase Fund and the Construction Fund. "SPECIAL RECORD DATE" means such date as may be fixed in accordance with the provisions of Section 5.6 hereof. "STATED EXPIRATION DATE" means the date on which the Letter of Credit will, by its terms, expire unless the Letter of Credit is terminated on an earlier date in accordance with its terms. "SUBSTITUTE LETTER OF CREDIT" means a letter of credit delivered to the Trustee in substitution for the letter of credit then held by the Trustee pursuant to the provisions of Section 3.7 hereof. "SUPPLEMENTAL INDENTURE" means an agreement supplemental hereto. "TAXABLE," when applied to the interest income on any of the Bonds, means that, under federal tax laws and regulations issued thereunder, as such laws and regulations exist on the date of initial delivery of the Bonds or as they may thereafter be amended, the interest income on such Bond is includable in gross income of the recipient thereof for Federal income tax purposes for any reason other than the fact (and for the period) that such Bond is held by a person who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code or any successor provision. "TENDER AGENT" means any person appointed pursuant to the provisions of Section 11.8 hereof; provided, however, that until such appointment is made the Trustee shall perform all duties of the Tender Agent hereunder. 10 16 "TENDER DATE" means an Optional Tender Date or a Mandatory Tender Date, as the case may be. "TENDERED BONDS" means Bonds tendered (or deemed tendered) for purchase pursuant to the provisions hereof respecting Optional or Mandatory Tender. "TERM RATE" means the fixed interest rate borne by the Bonds during a Term Rate Period as provided in Section 3.3 hereof. "TERM RATE INTEREST PAYMENT DATE" means a date on which interest calculated according to the Term Rate is payable on the Bonds as provided in Section 3.1(f) hereof. "TERM RATE PERIOD" means a period of 30 days, 6 months, 1 year or any multiple of 1 year specified by the Company during which the Bonds shall bear interest at a fixed rate per annum as provided in Section 3.3 hereof. "TRUSTEE" means LaSalle National Bank, in its capacity as Trustee under the Indenture, and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party. "VARIABLE RATE" means the variable interest rate borne by the Bonds during a Variable Rate Period as provided in Section 3.2 hereof. "VARIABLE RATE INTEREST PAYMENT DATE" means a date on which interest calculated at the Variable Rate is payable on the Bonds as provided in Section 3.1(f) hereof. "VARIABLE RATE PERIOD" means a period during which the Bonds bear interest at the Variable Rate as provided in Section 3.2 hereof. SECTION 1.2 USE OF PHRASES. "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to the Indenture as an entirety and not solely to the particular portion thereof in which any such word is used. The definitions set forth in Section 1.1 hereof include both singular and plural, unless a separate definition is included for the singular or plural, as the case may be. Whenever used herein, any pronoun shall be deemed to include both singular and plural and to cover all genders. Any percentage of Bonds, specified herein for any purpose, is to be figured on the unpaid principal amount thereof then Outstanding. ARTICLE II GRANTING CLAUSES SECTION 2.1 GRANTING CLAUSES. In order to secure to the Holders thereof Debt Service on the Bonds and all other Indenture Indebtedness and the performance and observance of the covenants and conditions herein and therein contained, and in consideration of purchase and acceptance of the Bonds by the Holders thereof and of the acceptance by the Trustee of the trusts 11 17 herein provided, the Board does hereby grant, bargain, sell and convey, assign, transfer and pledge to and with the Trustee the following described properties of the Board, whether the same are now owned by it or may be hereafter acquired: I All revenues and receipts derived by the Board from the leasing or sale of the Project (including, without limitation, the Basic Rent payable by the Company pursuant to the Lease), all other moneys required by the Lease or the Indenture to be deposited from time to time in any of the Special Funds, and all other moneys from time to time held by the Trustee for the benefit of the Bondholders pursuant to the Indenture, together in each case with any investments and reinvestments of such moneys and the proceeds thereof; II All right, title and interest of the Board in and to the Lease (except (i) the right to require the Company to pay certain expenses incurred by the Board as provided in Sections 5.4 and 10.4 of the Lease and (ii) the release and indemnification rights of the Board contained in Section 8.2 of the Lease), but not including, however, any of the obligations of the Board thereunder; and III Any and all moneys, rights and properties of every kind or description which may from time to time hereafter be sold, transferred, conveyed, assigned, hypothecated, endorsed, deposited, pledged, mortgaged, granted or delivered to, or deposited with, the Trustee by the Board or anyone on its part as additional security for the payment of the Bonds, or which pursuant to any of the provisions hereof or of the Lease, may come into the possession or control of the Trustee as such additional security; and the Trustee is hereby authorized to receive any and all such moneys, rights and properties as and for additional security for the payment of the Bonds and to hold and apply the same subject to the terms hereof; TO HAVE AND TO HOLD the same unto the Trustee, its successor trustees and assigns forever, subject to Permitted Encumbrances; IN TRUST, NEVERTHELESS, upon the terms and trusts herein set forth, for the equal and pro rata protection and benefit of the Holders, present and future, of the Bonds equally and ratably, without preference, priority or distinction of any over others by reason of priority in issuance or acquisition or otherwise, as if all the Bonds at any time outstanding had been executed, sold, authenticated, delivered and negotiated simultaneously with the execution and delivery hereof. AND PROVIDED, FURTHER, that money collected by the Trustee pursuant to the Letter of Credit shall be used solely for the purpose of paying Debt Service on the Bonds or the purchase price of Bonds tendered for purchase pursuant to the provisions hereof respecting Optional Tender or Mandatory Tender. PROVIDED, HOWEVER, that these presents are upon the condition that if the Board shall pay or cause to be paid the principal of and the interest and premium (if any) on all Bonds 12 18 secured hereby, or shall provide for such payment as specified in Article XIII hereof, and shall pay or cause to be paid all other sums payable by the Board hereunder, then the Indenture and the estate and rights granted hereby shall cease, determine and be void; otherwise the Indenture shall be and remain in full force and effect. ARTICLE III THE BONDS SECTION 3.1 GENERAL PROVISIONS RESPECTING THE BONDS. (a) Authorization, Principal Amount and Maturity. There is hereby authorized to be issued under the Indenture a series of Bonds designated Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project), limited in aggregate principal amount to $5,225,000. The Bonds shall be dated the date of their initial authentication and delivery and shall mature on April 1, 2007. (b) DENOMINATIONS. The Bonds shall be issuable as registered Bonds without coupons in the denomination of (i) $100,000 or any larger denomination that is an integral multiple of $5,000 during any Variable Rate Period and any Term Rate Period of less than 6 months and (ii) $5,000 or any integral multiple thereof during any Term Rate Period of 6 months or more. The Bonds shall be numbered consecutively from 1 upwards. (c) INTEREST RATES. The Bonds shall bear interest at the Variable Rate or at the Term Rate, as provided in Sections 3.2 and 3.3 hereof. The Trustee shall specify on each Bond certificate whether the interest rate then in effect is the Variable Rate or a Term Rate. If a Term Rate is in effect, the Trustee shall also specify the Term Rate and the beginning and end of the Term Rate Period. (d) COMPUTATION OF INTEREST. Interest at the Variable Rate and interest at a Term Rate for each Term Rate Period of less than 6 months shall be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. Interest at the Term Rate for each Term Rate Period of 6 months or more shall be computed on the basis of a 360-day year with 12 months of 30 days each. (e) INTEREST ON OVERDUE PRINCIPAL AND INTEREST. Interest shall be payable on overdue principal on the Bonds and (to the extent legally enforceable) on any overdue installment of interest on the Bonds calculated at the rate borne by the Bonds on the day preceding the due date of such principal or interest. (f) INTEREST PAYMENT DATES. Interest shall be payable in arrears on the following dates: (1) with respect to interest payable at the Variable Rate, (i) interest accrued through the last day of each month shall be paid on the first Business Day of the immediately succeeding month and (ii) interest accrued through the last day of any Variable Rate Period shall be paid on the day immediately following such Variable Rate Period; 13 19 (2) with respect to interest payable at a Term Rate for any Term Rate Period of less than 6 months, interest accrued through the last day of such Term Rate Period shall be paid on the day immediately following such Term Rate Period; and (3) with respect to interest payable at a Term Rate for any Term Rate Period of 6 months or more, (i) interest accrued through the last day of the immediately preceding month shall be paid (A) on the first day of the calendar month that is 6 months after the first day of the calendar month in which such Term Rate Period began and (B) semiannually thereafter, and (ii) interest accrued through the last day of such Term Rate Period shall be paid on the day immediately following such Term Rate Period. SECTION 3.2 VARIABLE RATE. (a) The Bonds shall initially bear interest at the Variable Rate which shall remain in effect until and including the day immediately prior to the earlier of (i) a Conversion Date or (ii) the final maturity of the Bonds. (b) The Variable Rate shall be a fluctuating rate per annum determined by the Remarketing Agent periodically during a Variable Rate Period as provided below in this section. (c) The Variable Rate shall be determined on the last Business Day immediately prior to the commencement of each Variable Rate Period and on Wednesday of each calendar week during such Variable Rate Period, or if any such Wednesday is not a Business Day, on the next succeeding Business Day. The Variable Rate so determined shall become effective on the day following each date of determination, and once effective shall remain in effect until and including the next determination date or, if sooner, the end of such Variable Rate Period; provided, however, that the Variable Rate effective on the date of issuance of the Bonds shall continue in effect through the determination date next following such date of issuance; and provided further, that if the Remarketing Agent fails to determine the Variable Rate on any such determination date, the Variable Rate for each weekly period shall, until a determination is thereafter made by the Remarketing Agent, be determined on each determination date by the Trustee (at the expense, if any, of the Company) as the rate per annum equal to the J. J. Kenny index rate for high grade tax-exempt obligations having maturities of 30 days. (d) The Variable Rate shall be determined by the Remarketing Agent and shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds equal to 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date; provided, however, that the Variable Rate may never exceed the Maximum Rate. On each Variable Rate determination date the Remarketing Agent shall deliver written notice of the Variable Rate so determined to the Trustee. Upon the request of any Bondholder or the Company, the Trustee shall confirm (by telephone and in writing, if so requested) the Variable Rate then in effect. 14 20 (e) The Variable Rate determined from time to time by the Remarketing Agent shall be conclusive and binding on the Board, the Company, the Trustee and the Bondholders; provided, however, that the Variable Rate may never exceed the Maximum Rate. SECTION 3.3 TERM RATE. (a) The Bonds shall bear interest at a Term Rate during each Term Rate Period of 30 days, 6 months, 1 year or any multiple of 1 year specified by the Company as provided below in this section. (b) The Term Rate shall be a fixed rate per annum which shall be applicable during the entire Term Rate Period and shall be determined by the Remarketing Agent as provided below in this section. (c) The Company may elect that the Bonds bear interest at a Term Rate by delivery of written notice of such election to the Trustee not less than 40 days prior to the proposed Conversion Date. Such notice shall specify the first day and the last day of the Term Rate Period elected; provided, however, that (i) as a condition to the establishment of a Term Rate, the Company shall cause to be delivered to the Board and the Trustee and opinion of Bond Counsel stating that the establishment of such Term Rate will not cause the interest income on the Bonds to become Taxable, (ii) if such election is made during a Term Rate Period, the specified Conversion Date may not be sooner than the first day immediately following the Term Rate Period then in effect, (iii) either (A) the Letter of Credit then in effect must have a Stated Expiration Date that is not earlier than the 15th day following the expiration of such Term Rate Period, provide coverage of interest on the Bonds at the Maximum Rate for a number of days not less than the sum of 15 days plus the maximum number of days between Interest Payment Dates with respect to such Term Rate Period and provide coverage for the payment of the maximum redemption premium payable with respect to the Bonds during such Term Rate Period, or (B) as a condition to the establishment of such Term Rate Period, the Company shall be required to deliver to the Trustee a Substitute Letter of Credit in accordance with the provisions of Section 3.7 hereof, and (iv) the Term Rate Period may not extend beyond the day immediately prior to the final maturity of the Bonds. The Trustee shall deliver a copy of such notice to the Board, the Remarketing Agent, the Tender Agent and the Credit Obligor on or before the following Business Day, and to each Holder of the Bonds not less than 30 days prior to the Conversion Date. Any such election by the Company shall be irrevocable after 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date. A notice given by the Company pursuant to this section may specify that successive Term Rate Periods of specified lengths shall be established with respect to the Bonds. If such notice is provided to the Trustee and the other requirements of this section are met as of each Conversion Date, no additional notice shall be required from the Company to establish a new Term Rate on each such Conversion Date. Any such notice may be revoked prior to 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to each proposed Conversion Date, but such revocation shall be applicable only with respect to proposed Term Rate Periods commencing after the date of the notice of revocation. (d) Not less than 20 days prior to the proposed Conversion Date, the Remarketing Agent shall determine the preliminary interest rate for such Term Rate Period (herein called the "Term Rate"), and not less than 7 days prior to the proposed Conversion Date, the Remarketing 15 21 Agent shall fix the final Term Rate, provided that the final Term Rate so determined shall be no lower than the preliminary Term Rate previously determined. The Term Rate shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds being 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date, and assuming that the Term Rate Period began on such date; provided, however, that the Term Rate may not exceed the Maximum Rate. The Remarketing Agent shall deliver written notice of the Term Rate to the Trustee on the date it is determined. The Trustee shall deliver a copy of such notice to the Board and the Company on or before the following Business Day. (e) Notwithstanding the foregoing, a Term Rate shall not be established if (i) the Company delivers to the Trustee written notice of revocation of its election to establish the Term Rate before 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date or (ii) prior to 10:00 a.m. (Detroit, Michigan time) on the Conversion Date, the Trustee does not receive (a) the Substitute Letter of Credit that was to be effective on such Conversion Date and the Related Documentation required pursuant to Section 3.7(f) hereof and (b) the opinion of Bond Counsel required pursuant to Section 3.3(c) hereof. If all conditions to the establishment of a Term Rate are not satisfied, the Bonds shall continue (or, if a Term Rate Period ended on the preceding day, shall begin) to bear interest at the Variable Rate from the proposed Conversion Date. (f) The Term Rate determined by the Remarketing Agent shall be conclusive and binding on the Board, the Company, the Trustee and the Bondholders; provided, however, that the Term Rate may never exceed the Maximum Rate. SECTION 3.4 OPTIONAL TENDERS. (a) The Holder of any Bond shall have the right to tender such Bond to the Trustee or Tender Agent for purchase in whole or in part on any Business Day during a Variable Rate Period, at a purchase price equal to 100% of the principal amount of Bonds (or portions thereof) tendered plus accrued interest to the specified purchase date. A Bond may only be tendered in part if the principal amount tendered and the principal amount to be retained by the Holder of such Bond are both in authorized denominations. In order to exercise such option with respect to any Bond, the Holder thereof must deliver notice thereof to the Trustee, as provided below in this section, at its principal office at least 7 days prior to the proposed Optional Tender Date. (b) Any such notice of Optional Tender must be duly executed by the Bondholder and must specify (i) the name of the registered Holder of the Bond to be tendered for purchase, (ii) the Optional Tender Date, (iii) the certificate number and principal amount of such Bond, and (iv) the principal amount of such Bond to be purchased (if such amount is less than the entire principal amount, the amount to be purchased and the amount to be retained must both be in authorized denominations). Such notice may be given to the Trustee in writing or by telephone, but no such telephonic notice shall be effective unless confirmed in writing delivered to the Trustee not more than 2 Business Days after such telephonic notice. 16 22 (c) Unless a notice of Optional Tender indicates that less than the entire principal amount of the Bond is being tendered for purchase, the Holder will be deemed to have tendered the Bond in its entire principal amount for purchase. (d) Not later than 3:00 p.m. (Detroit, Michigan time) on the Business Day after receipt of any such telephonic or written notice of Optional Tender the Trustee shall deliver written notice to the Tender Agent, the Remarketing Agent, the Company and the Credit Obligor specifying (i) the principal amount of Bonds for which a notice of Optional Tender has been given and (ii) the proposed Optional Tender Date therefor. (e) Upon delivery of a written notice of Optional Tender, the election to tender shall be irrevocable and binding upon such Holder and may not be withdrawn. The Trustee shall, in its sole discretion, determine whether, with respect to any Bond, the Holder thereof shall have properly exercised the option to have his Bond purchased pursuant to this section. (f) If a written notice of tender shall have been duly given with respect to any Bond, the Holder of such Bond shall deliver such Bond to the Trustee at its principal office or to the Tender Agent at its principal office at or before 11:00 a.m. (Detroit, Michigan time) on the Optional Tender Date, together with an instrument of assignment or transfer duly executed in blank (which instrument of assignment or transfer shall be in the form provided on such Bond or in such other form as shall be acceptable to the Trustee or the Tender Agent). Any Bond for which a notice of tender has been given but which is not so delivered to the Trustee or Tender Agent (an "Unsurrendered Bond") shall nevertheless be deemed to have been tendered by the Holder thereof on the Optional Tender Date. (g) On each Optional Tender Date the Trustee shall purchase, or cause to be purchased, all Bonds as to which written notices of tender for purchase have been received at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any. Funds for payment of the purchase price of such Bonds shall be drawn by the Trustee from the Bond Purchase Fund as provided in Section 7.2 hereof. (h) If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed to be tendered for purchase on an Optional Tender Date, any Unsurrendered Bonds shall be deemed to have been tendered for purchase and purchased from the Holder thereof on such Optional Tender Date and the Holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the Optional Tender Date. The Trustee shall issue a new Bond or Bonds in the same aggregate principal amount for any Unsurrendered Bonds which are not tendered for purchase on any Optional Tender Date and, upon receipt by the Trustee or Tender Agent of any such Unsurrendered Bonds from the Holders thereof, shall pay, or cause to be paid, the purchase price of such Unsurrendered Bonds to the Holders thereof and cancel such Unsurrendered Bonds. (i) Anything in this Indenture to the contrary notwithstanding, no Optional Tender of Bonds shall be permitted (i) for Pledged Bonds, or (ii) for any Bond which is deemed paid under the provisions of Article XIII hereof. 17 23 SECTION 3.5 MANDATORY TENDERS. (a) The Holder of each Bond shall be required to tender such Bond to the Trustee or Tender Agent for purchase on the following dates (each such date being herein called a "Mandatory Tender Date"): (1) each proposed Conversion Date, (2) the date immediately following the expiration of a Term Rate Period, (3) 20 days after the Trustee receives written notice from the Credit Obligor (i) stating that an event of default, as therein defined, has occurred and is continuing under the Credit Agreement, and (ii) directing the Trustee to effect a Mandatory Tender of all the Bonds, (4) on any date proposed by the Company for delivery of a Substitute Letter of Credit; provided, however, that the Holder of any Bond may waive the requirement for such tender and may retain such Bond notwithstanding the substitution of the Letter of Credit by delivering written notice of such waiver and retention to the Trustee and the Remarketing Agent not less than 7 days prior to the Mandatory Tender Date; and (5) 15 days prior to the Stated Expiration Date of the Letter of Credit. If any of such dates is not a Business Day, the Mandatory Tender Date shall be deemed to be the next succeeding Business Day. (b) Notice of a Mandatory Tender shall be given by the Trustee by registered or certified mail, mailed to the Holders of all Bonds at their addresses appearing on the Bond Register not less than 30 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (1), (2) and (5) of this section and not less than 15 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (3) and (4) of this section. Such notice of Mandatory Tender shall (1) specify the Mandatory Tender Date, (2) state the reason for the Mandatory Tender (that is, the applicable event listed in subsection (a) of this section), and (3) state that all Bonds shall be tendered by the Holder thereof to the Trustee at its principal office or to the Tender Agent at its principal office at or before 11:00 a.m. (Detroit, Michigan time) on such Mandatory Tender Date, together with an instrument of assignment or transfer duly executed in blank (which instrument of assignment or transfer shall be in such form as shall be acceptable to the Trustee or Tender Agent), and shall be purchased on the Mandatory Tender Date at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, and any Bond that is not so delivered 18 24 to the Trustee or Tender Agent shall be deemed to have been tendered for purchase by the Holder thereof on the Mandatory Tender Date. (c) All Bonds shall be tendered by the Holders thereof for purchase at or before 11:00 a.m. (Detroit, Michigan time) on the Mandatory Tender Date, by delivering such Bonds to the Trustee at its principal office or to the Tender Agent at its principal office, together with an instrument of assignment or transfer duly executed in blank (which instrument of assignment or transfer shall be in the form provided in the Bonds or such other form as shall be acceptable to the Trustee or Tender Agent). All Bonds so to be purchased that are not delivered to the Trustee or Tender Agent on the Mandatory Tender Date ("Unsurrendered Bonds") shall nevertheless be deemed to have been tendered for purchase by the Holders thereof on the Mandatory Tender Date. (d) On the Mandatory Tender Date, the Trustee shall purchase, or cause to be purchased, all Bonds at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any. Funds for payment of the purchase price of such Bonds shall be drawn by the Trustee from the Bond Purchase Fund as provided in Section 7.2 hereof. (e) If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed tendered for purchase on the Mandatory Tender Date, any Unsurrendered Bonds shall be deemed to be tendered for purchase and purchased from the Holder thereof on such Mandatory Tender Date and the Holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the relevant Mandatory Tender Date. The Trustee shall issue a new Bond or Bonds in the same aggregate principal amount for any Unsurrendered Bonds which are not tendered for purchase on any Mandatory Tender Date and, upon receipt by the Trustee or Tender Agent of any such Unsurrendered Bonds from the Holders thereof, shall pay, or cause to be paid, the purchase price of such Unsurrendered Bonds to the Holders thereof and cancel such Unsurrendered Bonds. (f) After notice of a Mandatory Tender has been given by the Trustee, the Bonds shall be subject to Mandatory Tender notwithstanding the fact that the reasons for giving such notice cease to exist or are no longer applicable. SECTION 3.6 PROCEDURES FOR PURCHASE AND REMARKETING OF BONDS; DELIVERY OF PURCHASED AND REMARKETED BONDS. (a) The Remarketing Agent will use its best efforts to remarket all Bonds tendered or deemed to be tendered for purchase pursuant to the Optional or Mandatory Tender provisions hereof, subject to the provisions of subsection (g) of this section. The Company may at any time, upon written direction to the Remarketing Agent, direct the Remarketing Agent to cease or resume the remarketing of some or all of the Bonds. (b) At or prior to 11:00 a.m. (Detroit, Michigan time) on any Tender Date (or at such other time to which the Trustee shall agree), the Remarketing Agent shall give telegraphic or telephonic notice, promptly confirmed in writing, to the Trustee specifying or confirming the names, addresses, and taxpayer identification numbers of the purchasers of, and the principal amount and denominations of, such Bonds, if any, remarketed by it pursuant to this section and 19 25 shall specify in such notice which, if any, of such purchasers is the Board, the Company or an Affiliate. The Remarketing Agent shall make appropriate settlement arrangements between the purchasers of such remarketed Bonds and the Trustee, and shall direct such purchasers by appropriate instructions to pay the purchase price of such Bonds to the Trustee at or before 11:00 a.m. (Detroit, Michigan time) on the Tender Date. The Trustee shall deposit the proceeds of any such remarketing in the Bond Purchase Fund. (c) At or before 3:30 p.m. (Detroit, Michigan time) on each Tender Date the Trustee shall pay the purchase price to each Holder of a Bond (or portion thereof) tendered for purchase. The Trustee shall pay the purchase price of each Bond tendered by check or draft mailed by the Trustee to the Holder of such Bond at his address appearing in the Bond Register or, upon the written request of such Holder accompanied by adequate instructions, by wire transfer to an account of such Holder maintained at a bank in the continental United States or by any other method providing for payment in same-day funds that is acceptable to the Trustee. The Trustee shall pay such purchase price from money on deposit in the Bond Purchase Fund; provided, that the Trustee shall not pay the purchase price of any Unsurrendered Bond, unless and until the Holder of such Unsurrendered Bond presents such Unsurrendered Bond to the Trustee or Tender Agent. All Bonds so purchased by the Trustee shall be delivered by the Trustee or Tender Agent in accordance with this section. (d) The Trustee and the Tender Agent shall hold all Bonds delivered to them pursuant to the Optional or Mandatory Tender provisions hereof in trust solely for the benefit of the respective Holders who shall have so delivered such Bonds until money representing the purchase price of such Bonds shall have been delivered to or for the account of such Holder. (e) Bonds purchased by the Trustee with money drawn under the Letter of Credit (herein referred to as "Pledged Bonds") shall be held by the Trustee or Tender Agent for the benefit of the Credit Obligor, as pledgee, subject to the following terms and conditions: (1) If, following a draw under the Letter of Credit to pay the purchase price of Tendered Bonds, the amount so drawn has been reinstated in accordance with the terms of the Letter of Credit, the Trustee shall immediately advise the Tender Agent that such Bonds shall no longer be considered "Pledged Bonds", and the Trustee shall register such Bonds as follows: (i) if such Bonds have been remarketed by the Remarketing Agent, as directed by the Remarketing Agent, or (ii) if such Bonds have not been remarketed, in the name of the Company. Bonds registered as directed by the Remarketing Agent shall be delivered by the Trustee or Tender Agent to, or upon the direction of, the Remarketing Agent. Bonds registered in the name of the Company shall be held by the Trustee or Tender Agent for the account of the Company or, upon written request of the Company, shall be delivered to the Company. (2) If the amount drawn under the Letter of Credit to pay the purchase price of Tendered Bonds has not been reinstated by the close of business on the Tender Date, then the Trustee shall register such Pledged Bonds in the name of the Credit Obligor, as pledgee. Such Pledged Bonds shall be held by the 20 26 Trustee or Tender Agent on behalf of the Credit Obligor, as pledgee, until the amount drawn under the Letter of Credit to pay the purchase price of such Tendered Bonds has been reinstated or, upon written request of the Credit Obligor, shall be delivered to the Credit Obligor. Upon receipt by the Trustee of written notice from the Credit Obligor of the reinstatement of the amount so drawn under the Letter of Credit to pay the purchase price of Tendered Bonds, the Trustee shall immediately advise the Tender Agent, whereupon such Bonds shall no longer be considered "Pledged Bonds" and shall, subject to the provisions of subsection (g) of this section, be disposed of as provided in paragraph (1) of this subsection (e). The Trustee shall give prompt notice to the Tender Agent of the reinstatement of the Letter of Credit. (f) Bonds purchased by the Trustee with money from any source other than money drawn under the Letter of Credit shall be registered as follows: (i) if such Bonds have been remarketed by the Remarketing Agent, as directed by the Remarketing Agent, or (ii) if such Bonds have not been remarketed, in the name of the Company. Bonds registered as directed by the Remarketing Agent shall be delivered by the Trustee or Tender Agent to, or upon the direction of, the Remarketing Agent. Bonds registered in the name of the Company shall be held by the Trustee or Tender Agent for the account of the Company or, upon written request of the Company, shall be delivered to the Company. (g) Any provision of this Indenture to the contrary notwithstanding, if the Bonds are purchased pursuant to the Optional or Mandatory Tender provisions of this Indenture and the Letter of Credit has expired or terminated (or will expire or terminate within 30 days), the Bonds may not be sold or remarketed unless the Letter of Credit has been extended to a date which is not sooner than one year after the date that such Bonds are remarketed, or there is delivered to the Trustee a Substitute Letter of Credit satisfying the requirements of Section 3.7 hereof (except that the Company shall not be required to give the notice required in Section 3.7(d) hereof). Bonds purchased pursuant to the provisions of Section 3.5(a)(3) hereof may not be sold or remarketed without the consent of the Credit Obligor. (h) Any Bond remarketed by the Remarketing Agent that has been called for prior redemption shall be redelivered with a copy of the redemption notice, and any Bond as to which notice of Mandatory Tender has been given shall be redelivered with a copy of the notice of Mandatory Tender. In addition, if the maturity of the Bonds has been accelerated pursuant to the provisions of Article X hereof, any Bond remarketed shall be redelivered with written notice of such acceleration. (i) Bonds purchased pursuant to the Optional Tender or Mandatory Tender provisions of this Indenture shall not, by virtue of such purchase, be deemed paid or cancelled, but shall remain Outstanding until deemed paid under the provisions of Article XIII hereof. SECTION 3.7 LETTER OF CREDIT. (a) Simultaneously with the delivery of the Bonds to the original purchasers thereof, the Board has caused the Company to deliver to the Trustee the initial Letter of Credit (the "Initial Letter of Credit"). The Initial Letter of Credit has a Stated Expiration Date of May 15,1998. 21 27 (b) The Company may at any time and from time to time deliver another irrevocable letter of credit (a "Substitute Letter of Credit") to the Trustee in substitution for the Letter of Credit then held by the Trustee (the "Existing Letter of Credit"), provided that (1) such Substitute Letter of Credit complies with the applicable conditions set forth in subsection (e) of this section and (2) simultaneously with the delivery of such Substitute Letter of Credit the Company delivers to the Trustee any related documentation required by subsection (f) of this section (the "Related Documentation"). (c) The Company may, but shall not be required to, deliver a Substitute Letter of Credit to the Trustee prior to the expiration of the Letter of Credit then in effect; provided, however, that if a Substitute Letter of Credit and the Related Documentation are not delivered to the Trustee at least 45 days prior to the Stated Expiration Date of the then Existing Letter of Credit, the Bonds shall be subject to a Mandatory Tender. (d) The Company shall deliver to the Trustee 30 days' prior written notice of its intention to deliver a Substitute Letter of Credit. (e) Each Substitute Letter of Credit delivered to the Trustee pursuant to this section must meet the following criteria: (1) such Substitute Letter of Credit must be substantially in the same form and of the same tenor as the Initial Letter of Credit, except that such Substitute Letter of Credit must provide for the payment of interest on the Bonds (or the interest portion of the purchase price of Bonds tendered, or deemed tendered, for purchase) at the Maximum Rate, for whichever of the following periods shall be applicable: (i) if such Substitute Letter of Credit is to be effective during a Variable Rate Period, not less than 45 days, or (ii) if such Substitute Letter of Credit is to be effective during a Term Rate Period, a number of days not less than the sum of 15 days plus the maximum number of days between Interest Payment Dates with respect to such Term Rate Period, (2) if such Substitute Letter of Credit is being delivered in connection with a conversion of the interest rate to a Term Rate, the effective date shall be not later than the Conversion Date, and the expiration date shall be no sooner than the 15th day following the expiration of the Term Rate Period commencing on the Conversion Date, (3) such Substitute Letter of Credit must provide for payment of the maximum redemption premium payable with respect to the Bonds, and (4) such Substitute Letter of Credit must have a Stated Expiration Date that is (i) the 15th day of a calendar month and (ii) not sooner than one year after its effective date; provided, however, that any Substitute Letter of Credit 22 28 that is to be substituted for an Existing Letter of Credit that is effective during a Term Rate Period must have a Stated Expiration Date not sooner than the Stated Expiration Date of such Existing Letter of Credit. (f) Each Substitute Letter of Credit delivered to the Trustee must be accompanied by the following (herein referred to as the "Related Documentation"), to the extent applicable: (1) if any Rating Agency maintains a rating with respect to the Bonds at the time of delivery of such Substitute Letter of Credit to the Trustee, written evidence from each such Rating Agency to the effect that the substitution of the proposed Substitute Letter of Credit will not, by itself, result in a reduction or withdrawal of its rating then assigned to the Bonds, and (2) an opinion of counsel for the issuer of such Substitute Letter of Credit stating in effect that such Substitute Letter of Credit is a valid and binding obligation of the issuer thereof. (g) At the close of business on the effective date of any Substitute Letter of Credit, the Trustee shall return the Existing Letter of Credit to the issuer thereof, provided that any draws on such Existing Letter of Credit made on or prior to such date have been honored. Any draws that, under the terms of the Indenture, are to be made on the Letter of Credit on or prior to the effective date of a Substitute Letter of Credit shall be made under the Existing Letter of Credit. Not later than the close of business on the effective date of a Substitute Letter of Credit, the Company shall deliver to the Trustee written evidence that all obligations of the Company to the issuer of the Existing Letter of Credit for reimbursement of amounts drawn thereunder have been satisfied, and upon receipt of such evidence any Pledged Bonds held by the Trustee or the Tender Agent for the benefit of the issuer of the Existing Letter of Credit shall be delivered to, or upon the order of, the Company. (h) If the Trustee accepts a Substitute Letter of Credit as herein provided, then, unless such Substitute Letter of Credit was described in a notice of Mandatory Tender, the Trustee shall send written notice of such substitution to the Bondholders. (i) If Bonds are redeemed prior to maturity, the Trustee shall take any action necessary to reduce the interest portion of the Letter of Credit to the Maximum Interest Coverage, as therein defined. (j) In the event that the Letter of Credit in effect prior to a Conversion Date is to remain in effect during the Term Rate Period commencing on such Conversion Date, all of the requirements of this section with respect to the delivery of a Substitute Letter of Credit shall be applicable to such Letter of Credit except the provisions of subsection (f) of this section. (k) The extension of the expiration date of the Letter of Credit then in effect shall not constitute the delivery of a Substitute Letter of Credit hereunder. 23 29 (l) The Letter of Credit shall be in effect so long as any portion of the principal of or the interest or premium, if any, on the Bonds is Outstanding. SECTION 3.8 CONCERNING THE CONFIRMATION OF THE LETTER OF CREDIT. (a) Simultaneously with the delivery of the Bonds to the original purchasers thereof, the Board has caused the Company to deliver to the Trustee the initial Confirmation. (b) Except as provided in this Section 3.8, all references in the Indenture to the Letter of Credit shall be deemed to include the Confirmation unless the context clearly indicates otherwise. (c) In the event that the Trustee receives a notice from the Credit Obligor to the effect that the Credit Obligor has in effect a short-term rating from Moody's Investors Service of not less than P-1 and a short-term rating from S&P of not less than A-1 (which notice shall be accompanied by evidence of the effectiveness of both such ratings and evidence to the effect that the ratings on the Bonds will not be reduced or withdrawn as a result of the termination of the Confirmation), and as a result thereof the Credit Obligor directs that the Confirmation be terminated, the Trustee shall surrender the Confirmation to the Confirming Bank 10 days after receipt of such notice. (d) There may be substituted for any Confirmation then in effect a confirmation having different terms or issued by another confirming bank, but any such substitution shall be deemed to be the delivery of a Substitute Letter of Credit and, without limiting the generality of the foregoing, Sections 3.5(a)(4) and 3.7(d), (e), (f) and (h), shall apply to such substitution. (e) Except as otherwise provided in this Section 3.8(a), the extension of the expiration date of the Letter of Credit without a corresponding extension of any Confirmation then in effect shall be deemed to be the delivery of a Substitute Letter of Credit to which the provisions of Section 3.7 hereof apply. The extension of the Confirmation shall not be considered the delivery of a Substitute Letter of Credit. (f) So long as the Confirmation shall be effective, in the event of an Act of Bankruptcy with respect to the Credit Obligor or in the event the Credit Obligor repudiates the Letter of Credit or wrongfully dishonors a draw made under the Letter of Credit pursuant to the provisions of Section 7.1 or 7.2 hereof, the Trustee shall draw upon the Confirmation in accordance with its terms and the provisions of the Indenture. (g) In the event that the Trustee receives any payment from the Credit Obligor under the Letter of Credit after the Trustee has made a drawing under the Confirmation and received payment from the Confirming Bank, the Trustee shall return any such payment received from the Confirming Bank in an amount not exceeding the lesser of such payment or the amount received from the Credit Obligor. (h) The Trustee shall hold any moneys received by virtue of a drawing under the Confirmation separate and apart from all other money and will not exercise any right to set-off or impose any lien or otherwise seek the right to obtain payment for fees or for any other 24 30 purpose but shall apply such money solely to the payment of principal of and purchase price and interest on the Bonds in accordance with the provisions of Sections 7.1 and 7.2 hereof. (i) No investment will be made of money obtained by virtue of payments made by the Confirming Bank in any investment permitted hereunder except in such Eligible Investments that may be acquired by the Trustee with money paid by virtue of a drawing under the Letter of Credit. (j) The Trustee shall not transfer the Letter of Credit to a successor Trustee without simultaneously transferring the Confirmation to such successor Trustee. SECTION 3.9 PAYMENTS DUE ON NON-BUSINESS DAYS. If any payment on the Bonds is due on a day which is not a Business Day, such payment may be made on the first succeeding day which is a Business Day with the same effect as if made on the day such payment was due. SECTION 3.10 FORM OF BONDS. The Bonds and the Trustee's certificate of authentication and the form of assignment applicable thereto shall be in substantially the form hereinafter set forth with such appropriate variations, omissions, substitutions and insertions as are permitted or required hereby and may have such letters, numbers or other marks of identification and such legends and endorsements placed thereon, as may be required to comply with any applicable laws or rules or regulations, or as may, consistent herewith, be determined by the officers executing such Bonds, as evidenced by their execution of the Bonds. 25 31 (Form of Bond) No. ____ __________ UNITED STATES OF AMERICA STATE OF ALABAMA THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS INDUSTRIAL DEVELOPMENT REVENUE BOND SERIES 1997 (McCLAIN OF ALABAMA, INC. PROJECT)
Original Maturity Issuance Date Cusip Date ---------- ----- -------- April 1, 2007
Interest Rate: This bond may bear interest at a Variable Rate or a Term Rate, as herein defined. The interest rate now in effect is __________* For value received, THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation under the laws of Alabama (herein called the "Board"), will pay to ____________________________________________, or registered assigns, in lawful money of the United States of America, solely out of the revenues and receipts hereinafter referred to, the sum of _________________________________ DOLLARS on the date specified above with interest thereon from the date hereof, or the most recent date to which interest has been paid or duly provided, until the maturity hereof at the Variable Rate or Term Rate, as hereinafter provided. Interest at the Variable Rate and interest at the Term Rate for a Term Rate Period of less than 6 months shall be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. Interest at the Term Rate for each Term Rate Period of 6 - ---------------------------- *Note: The Trustee is to insert one of the following, as appropriate: "Variable Rate" or "Term Rate of __% from _______________ until _______________." If Term Rate is appropriate, Trustee will complete the blanks as appropriate. 26 32 months or more shall be computed on the basis of a 360-day year with 12 months of 30 days each. Interest shall be payable (but solely from the source hereinafter described) on overdue principal on this bond and (to the extent legally enforceable) on any overdue installment of interest on this bond at the rate of interest last applicable to this bond when such overdue principal or interest became delinquent. Interest on this bond shall be payable in arrears on the following dates (each such date being herein called an "Interest Payment Date"): (1) with respect to interest payable at the Variable Rate, (i) interest accrued through the last day of each month shall be paid on the first Business Day of the immediately succeeding month and (ii) interest accrued through the last day of any Variable Rate Period shall be paid on the day immediately following such Variable Rate Period (each such date being herein called a "Variable Rate Interest Payment Date"); (2) with respect to interest payable at a Term Rate for any Term Rate Period of less than 6 months, interest accrued through the last day of such Term Rate Period shall be paid on the day immediately following such Term Rate Period (each such date being herein called a "Term Rate Interest Payment Date"); and (3) with respect to interest payable at a Term Rate for any Term Rate Period of 6 months or more, (i) interest accrued through the last day of the immediately preceding month shall be paid (a) on the first day of the calendar month that is 6 months after the first day of the calendar month in which such Term Rate Period began, and (b) semiannually thereafter, and (ii) interest accrued through the last day of such Term Rate Period shall be paid on the day immediately following such Term Rate Period (each such date being herein called a "Term Rate Interest Payment Date"). The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture hereinafter referred to, be paid to the person in whose name this bond is registered at the close of business on the Regular Record Date for such interest, which shall be the day next preceding any Variable Rate Interest Payment Date or any Term Rate Interest Payment Date with respect to a Term Rate Period of less than 6 months, or the 15th day (whether or not a Business Day) next preceding any Term Rate Interest Payment Date with respect to a Term Rate Period of 6 months or more. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered Holder on such Regular Record Date, and shall be paid to the person in whose name this bond is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice of such Special Record Date being given to Holders of the Bonds not less than 10 days prior to such Special Record Date. 27 33 Payment of interest on this bond due on any Interest Payment Date shall be made by check or draft mailed by the Trustee to the person entitled thereto at his address appearing in the Bond Register maintained by the Trustee. Such payments shall be deemed timely made if so mailed on the Interest Payment Date (or, if such Interest Payment Date is not a Business Day, on the Business Day next following such Interest Payment Date). Payment of the principal of (and premium, if any, on) this bond and payment of accrued interest on this bond due upon redemption on any date other than an Interest Payment Date shall be made only upon surrender of this bond at the principal office of the Trustee. Upon the terms and conditions of the Indenture the Holder of any Bond in a principal amount of not less than $1,000,000 may request that payment of Debt Service on such Bond be made by wire transfer to an account of such Holder maintained at a bank in the continental United States or by any other method providing for payment in same-day funds that is acceptable to the Trustee. All such payments shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. VARIABLE RATE The Bonds shall initially bear interest at the Variable Rate which shall remain in effect until and including the day immediately prior to the earlier of (i) a Conversion Date or (ii) the final maturity of the Bonds. Each period during which the Variable Rate is in effect is herein called a "Variable Rate Period." The Variable Rate shall be a fluctuating rate per annum determined by the Remarketing Agent periodically during a Variable Rate Period as follows. The Variable Rate shall be determined on the last Business Day immediately prior to the commencement of each Variable Rate Period and on Wednesday of each calendar week during such Variable Rate Period, or if any such Wednesday is not a Business Day, on the next succeeding Business Day. The Variable Rate so determined shall become effective on the day following each date of determination, and once effective shall remain in effect until and including the next determination date or, if sooner, the end of such Variable Rate Period; provided, however, that the Variable Rate effective on the date of issuance of the Bonds shall continue in effect through the determination date next following such date of issuance; and provided further, that if the Remarketing Agent fails to determine the Variable Rate on any such determination date, the Variable Rate for each weekly period shall, until a determination is thereafter made by the Remarketing Agent, be determined on each determination date by the Trustee (at the expense, if any, of the Company) as the rate per annum equal to the J. J. Kenny index rate for high grade tax-exempt obligations having maturities of 30 days. The Variable Rate shall be determined by the Remarketing Agent and shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds being 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date; provided, however, that the Variable Rate may never exceed the Maximum Rate. The Maximum Rate is defined in the Indenture as the maximum rate per annum, specified therein, upon which there has been calculated the amount available to be drawn on such Letter of Credit to pay interest on 28 34 the Bonds. Upon the request of any Bondholder, the Trustee shall confirm (by telephone and in writing, if so requested) the Variable Rate then in effect. LaSalle National Bank, Chicago, Illinois, has been appointed as "Remarketing Agent" pursuant to the Indenture. The Indenture permits the Company, with the consent of the Credit Obligor, to remove such Remarketing Agent and appoint a successor, subject to certain terms and conditions specified in the Indenture. TERM RATE The Bonds shall initially bear interest at the Variable Rate. In addition, the Bonds shall bear interest at a Term Rate during each Term Rate Period of 30 days, 6 months, 1 year or any multiple of 1 year specified by the Company as provided below. Each period during which a Term Rate is in effect is herein called a "Term Rate Period." The first day of any such Term Rate Period is herein called a "Conversion Date." The Term Rate shall be a fixed rate per annum which shall be applicable during the entire Term Rate Period and shall be determined by the Remarketing Agent as provided below. The Company may elect that the Bonds bear interest at a Term Rate by delivery of written notice of such election to the Trustee not less than 40 days prior to the proposed Conversion Date. Such notice shall specify the first day and the last day of the Term Rate Period elected; provided, however, that (i) as a condition to the establishment of a Term Rate, the Company shall cause to be delivered to the Board and the Trustee an opinion of Bond Counsel stating that the establishment of such Term Rate will not cause the interest income on the Bonds to become taxable, (ii) if such election is made during a Term Rate Period, the specified Conversion Date may not be sooner than the first day immediately following the Term Rate Period then in effect, (iii) either (A) the Letter of Credit then in effect must have a Stated Expiration Date that is not earlier than the 15th day following the expiration of such Term Rate Period, provide coverage of interest on the Bonds at the Maximum Rate for a number of days not less than the sum of 15 days plus the maximum number of days between Interest Payment Dates with respect to such Term Rate Period and provide coverage for the payment of the maximum redemption premium payable with respect to the Bonds during such Term Rate Period, or, (B) as a condition to the establishment of such Term Rate Period, the Company shall be required to deliver to the Trustee a Substitute Letter of Credit in accordance with the provisions of the Indenture, and (iv) the Term Rate Period may not extend beyond the day immediately prior to the final maturity of the Bonds. Any such election by the Company shall be irrevocable after 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date. A notice given by the Company may specify that successive Term Rate Periods of specified lengths shall be established with respect to the Bonds. If such notice is provided to the Trustee and the other requirements of the Indenture are met as of each Conversion Date, no additional notice shall be required from the Company to establish a new Term Rate on each such Conversion Date. Any such notice may be revoked prior to 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to each proposed Conversion Date, but such revocation shall be applicable only with respect to proposed Term Rate Periods commencing after the date of the notice of revocation. 29 35 Not less than 20 days prior to the proposed Conversion Date, the Remarketing Agent shall determine the interest rate for such Term Rate Period (herein called the "Term Rate"), and not less than 7 days prior to the proposed Conversion Date, the Remarketing Agent shall fix the final Term Rate, provided that the final Term Rate so determined shall be no lower than the preliminary Term Rate previously determined. The Term Rate shall be the interest rate that would, in the opinion of the Remarketing Agent, result in the market value of the Bonds being 100% of the principal amount thereof on the date of such determination, taking into account relevant market conditions and credit rating factors as they exist on such date, and assuming that the Term Rate Period began on such date; provided, however, that the Term Rate may not exceed the Maximum Rate. Notwithstanding the foregoing, a Term Rate shall not be established if (1) the Company delivers to the Trustee written notice of revocation of its election to establish the Term Rate before 3:00 p.m. (Detroit, Michigan time) on the last Business Day immediately prior to the proposed Conversion Date or (2) prior to 10:00 a.m. (Detroit, Michigan time) on the Conversion Date the Trustee does not receive (a) the Substitute Letter of Credit (if any) that was to be effective on such Conversion Date and the related documentation required under the Indenture in connection with the delivery of a Substitute Letter of Credit and (b) the opinion of Bond Counsel required under the Indenture. If all conditions to the establishment of a Term Rate are not satisfied, the Bonds shall continue (or, if a Term Rate Period ended on the preceding day, shall begin) to bear interest at the Variable Rate from the proposed Conversion Date. OPTIONAL TENDER The Holder of any Bond shall have the right to tender such Bond to the Trustee or to any Tender Agent appointed pursuant to the Indenture for purchase in whole or in part (if in part, only in an authorized denomination) on any Business Day during a Variable Rate Period at a purchase price equal to 100% of the principal amount of Bonds (or portions thereof) tendered plus accrued interest to the specified purchase date (an "Optional Tender Date"). A Bond may only be tendered in part if the principal amount tendered and the principal amount to be retained by the Holder of such Bond are both in authorized denominations. In order to exercise such option with respect to any Bond, the Holder thereof must deliver notice thereof to the Trustee, as provided below, at its principal office at least 7 days prior to the proposed Optional Tender Date. Any such notice of Optional Tender must be duly executed by the Bondholder and must specify (i) the name of the registered Holder of the Bond to be tendered for purchase, (ii) the Optional Tender Date, (iii) the certificate number and principal amount of such Bond, and (iv) the principal amount of such Bond to be purchased. If the amount to be purchased is less than the entire principal amount, both the amount to be purchased and the amount to be retained must 30 36 be in authorized denominations. Such notice may be given to the Trustee in writing or by telephone, but no such telephonic notice shall be effective unless confirmed in writing delivered to the Trustee not more than 2 Business Days after such telephonic notice. A form of the Optional Tender Notice may be obtained from the Trustee upon request. Unless a notice of Optional Tender indicates that less than the entire principal amount of the Bond is being tendered for purchase, the Holder will be deemed to have tendered the Bond in its entire principal amount for purchase. Upon delivery of a written notice of Optional Tender, the election to tender shall be irrevocable and binding upon such Holder and may not be withdrawn. If a written notice of Optional Tender shall have been duly given with respect to any Bond, the Holder of such Bond shall deliver such Bond to the Trustee at its principal office or to the Tender Agent at its principal office at or before 11:00 a.m. (Detroit, Michigan time) on the Optional Tender Date, together with an instrument of assignment or transfer duly executed in blank. Any Bond for which a notice of Optional Tender has been given but which is not so delivered to the Trustee or Tender Agent (an "Unsurrendered Bond") shall nevertheless be deemed to have been tendered by the Holder thereof on the Optional Tender Date. If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed to be tendered for purchase on an Optional Tender Date, any Unsurrendered Bond shall be deemed to have been tendered for purchase and purchased from the Holder thereof on such Optional Tender Date and the Holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the Optional Tender Date. Anything in this Bond or the Indenture to the contrary notwithstanding, no Optional Tender of Bonds shall be permitted (i) for Pledged Bonds, or (ii) for any Bond which is deemed Fully Paid within the meaning of the Indenture. MANDATORY TENDER The Holder of each Bond shall be required to tender such Bond to the Trustee or Tender Agent for purchase on the following dates (each such date being herein called a "Mandatory Tender Date"): (i) each proposed Conversion Date, (ii) the date immediately following the expiration of a Term Rate Period, (iii) 20 days after the Trustee receives written notice from the Credit Obligor (a) stating that an event of default, as therein defined, has occurred and is continuing under the Credit Agreement, and (b) directing the Trustee to effect a Mandatory Tender of all the Bonds, (iv) on any date proposed by the Company for delivery of a Substitute Letter of Credit; provided however, that the Holder of any Bond may waive the requirement for such tender and may retain such Bond notwithstanding the delivery of a Substitute Letter of Credit by delivering written notice of such waiver and retention to the Trustee and the Remarketing Agent not less than 7 days prior to the Mandatory Tender Date, and (v) 15 days prior to the Stated Expiration Date of the Letter of Credit. If any of such dates is not a Business Day, the Mandatory Tender Date shall be deemed to be the next succeeding Business Day. 31 37 Notice of a Mandatory Tender shall be given by the Trustee by registered or certified mail, mailed to the Holders of all Bonds at their addresses appearing on the Bond Register not less than 30 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (i), (ii) and (v) of the preceding paragraph, and not less than 15 days prior to the Mandatory Tender Date in the case of a Mandatory Tender pursuant to clauses (iii) and (iv) of the preceding paragraph. Such notice of Mandatory Tender shall, among other things, specify the Mandatory Tender Date and the reason for such Mandatory Tender. All Bonds shall be tendered by the Holders thereof for purchase at or before 11:00 a.m. (Detroit, Michigan time) on the Mandatory Tender Date, by delivering such Bonds to the Trustee at its principal office or to the Tender Agent at its principal office, together with an instrument of assignment or transfer duly executed in blank. All Bonds so to be purchased that are not delivered to the Trustee or Tender Agent on the Mandatory Tender Date ("Unsurrendered Bonds") shall nevertheless be deemed to have been tendered for purchase by the Holders thereof on the Mandatory Tender Date. If there has been irrevocably deposited in the Bond Purchase Fund an amount sufficient to pay the purchase price of all Bonds tendered or deemed tendered for purchase on the Mandatory Tender Date, any Unsurrendered Bond shall be deemed to be tendered for purchase and purchased from the Holder thereof on such Mandatory Tender Date and the Holder of any Unsurrendered Bond shall not be entitled to receive interest on such Unsurrendered Bond for any period on and after the relevant Mandatory Tender Date. After notice of a Mandatory Tender has been given by the Trustee, the Bonds shall be subject to Mandatory Tender notwithstanding the fact that the reasons for giving such notice cease to exist or are no longer applicable. This Bond is one of a duly authorized issue of bonds (herein called the "Bonds") authorized to be issued in the principal amount of $5,225,000. The principal of and the interest and premium (if any) on the Bonds are payable solely out of the revenues and receipts to be derived from the leasing or sale of certain real property owned by the Board and situated in Marengo County, Alabama, the manufacturing plant located thereon (herein called the "Plant") and certain machinery, equipment and other personal property (herein called the "Equipment") acquired and installed in and around the Plant (the said real property, the Plant and the Equipment, as they may at any time exist, being herein together called the "Project"). Payment of the principal of and the interest and premium (if any) on the Bonds is secured, pro rata and without preference or priority of one bond over another, by a valid pledge of the said revenues and receipts out of which they are payable and by a Trust Indenture dated as of April 1, 1997 (herein called the "Indenture"), from the Board to LaSalle National Bank, as trustee (herein called the "Trustee"). In connection with the issuance of the Bonds, the Board has leased the Project to McClain of Alabama, Inc., a Michigan corporation (herein, together with its successors and assigns, called the "Company"), under a Lease Agreement dated as of April 1, 1997 (herein called the "Lease"), which obligates the Company to pay rent directly to the Trustee, for the account of the Board, on such dates and in such amounts as will provide moneys sufficient to pay, when due, the principal of and the interest and premium (if any) on the Bonds and to pay the purchase price of Bonds required to be purchased on Optional or Mandatory 32 38 Tender. The Bonds are further secured by a Bond Guaranty Agreement dated as of April 1, 1997, between the Company and the Trustee pursuant to which the Company has guaranteed the full and prompt payment of the principal of and the interest and premium (if any) on the Bonds and the purchase price of Bonds required to be purchased on Optional or Mandatory Tender. As additional security for the payment of the Bonds, the Company has caused Standard Federal Bank (in its capacity as issuer of the initial Letter of Credit referred to below, herein called the "Credit Obligor") to issue an irrevocable letter of credit in favor of the Trustee in the amount of (i) the aggregate principal amount of the Bonds, to enable the Trustee to pay the principal amount of Bonds when due and to pay the principal portion of the purchase price of Bonds tendered (or deemed tendered) to the Trustee for purchase and (ii) the maximum amount of interest payable on the Bonds at the rate of 12% per annum for a period of 45 days, to enable the Trustee to pay interest on the Bonds when due and to pay the interest portion of the purchase price of Bonds tendered (or deemed tendered) to the Trustee for purchase. Subject to the terms and conditions of the Indenture, the Company may, at its option, replace such letter of credit with a substitute letter of credit. The initial letter of credit so delivered to the Trustee and any substitute letter of credit delivered to the Trustee pursuant to the Indenture are herein referred to as the "Letter of Credit." Further, the Company has caused LaSalle National Bank to issue an irrevocable confirmation of the Letter of Credit. The initial Letter of Credit will be issued by the Credit Obligor pursuant to a Reimbursement Agreement dated as of April 1, 1997 (the "Credit Agreement") between the Credit Obligor and the Company, whereby the Company will agree, among other things, to reimburse the Credit Obligor for all amounts drawn by the Trustee pursuant to the initial Letter of Credit. As security for the Company's obligations under the Credit Agreement, the Company and the Board have executed a Mortgage, Assignment of Leases and Security Agreement dated as of April 1, 1997 (the "Mortgage") in favor of the Credit Obligor, whereby the Credit Obligor will be granted a mortgage, assignment and pledge of, and security interest in, the Project, the rights of the Board and the Company under the Lease Agreement, the revenues and receipts from the Project, and certain other collateral. The lien and security interest of the Mortgage with respect to the rights of the Board in the Lease and said revenues and receipts are senior and superior to the assignment and pledge of said rights, revenues and receipts contained in the Indenture. except with respect to money and investments from time to time on deposit in, or forming a part of, the special funds created in the Indenture. Reference is hereby made to the Indenture for a description of the Project, the nature and extent of the security afforded thereby, the rights and duties of the Board and the Trustee with respect thereto and the rights of the holders of the Bonds. The Indenture provides, inter alia, (1) that in the event of default by the Board in the manner and for the time therein provided, the Trustee may, with the consent of the Credit Obligor, declare the principal of this Bond immediately due and payable, whereupon the same shall thereupon become immediately due and payable and the Trustee shall be entitled to pursue the remedies provided in the Indenture, and (2) that all remedies of the Holders of Bonds thereunder are vested exclusively in the Trustee for the equal and pro rata benefit of all the Holders of the Bonds, unless the Trustee refuses or 33 39 neglects to act within a reasonable time after written request so to act addressed to the Trustee by the Holders of twenty-five per cent (25%) in principal amount of the outstanding Bonds, accompanied by indemnity satisfactory to the Trustee, in which event the Holder of any of the Bonds may (subject to the terms of the Indenture) thereupon so act in the name and behalf of the Trustee or may so act in his own name in lieu of action by or in the name and behalf of the Trustee, but that otherwise no Holder of any of the Bonds shall have the right to enforce any remedy thereunder, and then only for the equal and pro rata benefit of the Holders of all the Bonds. The Indenture also provides that the Board and the Trustee, with the written consent of the Holders of not less than a majority in aggregate principal amount of the Bonds then outstanding under the Indenture, may at any time and from time to time amend the Indenture or any Indenture supplemental thereto, and that, so long as a Letter of Credit shall be in effect or any Bonds constitute Pledged Bonds and there is no default by the Credit Obligor thereunder, the Credit Obligor shall be deemed to be the only Holder of all the Bonds for the purpose of granting such consent; provided that no such amendment shall (a) without the consent of the Credit Obligor (if any) and the Holder of each bond affected, reduce the principal of or the rate of interest on or the premium payable upon the redemption of, any bond, or (b) without the consent of the Credit Obligor (if any) and the Holders of all the Bonds then outstanding under the Indenture, extend the maturity of any installment of principal or interest on any of the Bonds, create a lien or charge on the Project or the revenues and receipts therefrom ranking prior to the lien and charge thereon contained in the Indenture, effect a preference or priority of any bond over any other bond or reduce the aggregate principal amount of Bonds the Holders of which are required to consent to any such amendment. By acceptance of this Bond, the Holder consents to the provisions of the Indenture. Subject to the Indenture, the Bonds are issuable as registered Bonds in the denominations of $5,000 and any integral multiple thereof except that Bonds authenticated when bearing interest at the Variable Rate Mode shall be in denominations of $100,000 and any larger denomination that is an integral multiple of $5,000. Subject to the limitations provided in the Indenture and upon payment of any tax or governmental charge, if any, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations. This Bond is transferable by the registered Holder hereof or his duly authorized attorney at the principal corporate trust office of the Trustee upon surrender of this Bond, accompanied by a duly executed instrument of transfer in form and with guaranty of signature satisfactory to the Trustee, subject to such reasonable regulations as the Board or the Trustee may prescribe, and upon payment of any tax or other governmental charge incident to such transfer. Upon any transfer, a new Bond or Bonds in the same aggregate principal amount will be issued to the transferee. Except as set forth in this Bond and as otherwise provided in the Indenture, the person in whose name this Bond is registered shall be deemed the Holder hereof for all purposes, and the Board, the Tender Agent, the Remarketing Agent and the Trustee shall not be affected by any notice to the contrary. The Bonds are subject to redemption prior to maturity as follows: (a) The Bonds are subject to mandatory redemption in whole on any date prior to maturity in the event of the occurrence of a Determination of Taxability (as defined in the 34 40 Indenture) at a redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date. (b) The Bonds, if bearing interest at a Variable Rate, are subject to optional redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $100,000 or any larger amount that is an integral multiple of $5,000, with those to be redeemed to be selected by the Trustee), on any date at and for a redemption price equal to the principal amount redeemed plus accrued interest thereon to the date fixed for redemption. (c) The Bonds, if bearing interest at the Term Rate, are subject to redemption on any date in whole at and for a redemption price with respect to each such Bond redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, but only upon receipt by the Trustee of a written certificate from the Company stating that within 120 days prior to the date of such certificate (i) the Project has been damaged or destroyed to such extent that, in the opinion of an Independent Engineer (as defined in the Indenture), it cannot be reasonably restored within a period of four six (6) consecutive months or the Company is thereby prevented from carrying on its normal operations therein for a period of not less than twelve (12) consecutive months or the cost of restoration thereof would exceed the net insurance proceeds referable to such damage or destruction plus certain self-insurance, or (ii) title to, or the temporary use of, any part of the Project has been taken by eminent domain, and such taking or takings results or, in the opinion of an Independent Engineer (as defined in the Indenture), are likely to result in the Company being thereby prevented from carrying on its normal operations therein for a period of not less than six (6) consecutive months, or (iii) there has occurred a change in the economic availability of raw materials, operating supplies or facilities necessary for the operation of the Project or such technological or other change which in the good faith judgment of the Company renders the Project uneconomic and the Company has determined (as evidenced by a resolution of its board of directors) to discontinue the operation thereof, or (iv) as a result of changes in the Constitution of the United States of America or the Constitution of Alabama or of legislative or administrative action (whether state or federal) or by final decree or judgment or order of any court or administrative body (whether state or federal), entered after the contest thereof by the Company in good faith, the Lease has become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties thereto as expressed therein or unreasonable burdens or excessive liabilities have been imposed on the Board or the Company. (d) The Bonds, if bearing interest at the Term Rate, are subject to redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $5,000, with those to be redeemed to be selected by the Trustee), on any date during the redemption periods and at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus interest accrued to the redemption date: 35 41
Length of Currently Applicable Dates after which Redemption Term Rate Period is Allowed and (Expressed in Whole Years) Redemption Prices after 5 years at 102%, declining by 0.5% semiannually greater than 7 . . . . . . . . . . . . . . . . . to 100% less than or equal to 7 and after 3 years at 102%, declining by 0.5% semiannually greater than 4 . . . . . . . . . . . . . . . . . to 100% less than or equal to 4 . . . . . . . . . . . . . not callable
Any notice of redemption, identifying the Bonds or portion thereof to be redeemed, shall be given by first class mail to the registered Holder of each Bond to be redeemed in whole or in part at the address shown on the Bond Register of the Issuer not more than 60 days and not fewer than 30 days prior to the redemption date. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided funds for their redemption and any accrued interest payable on the redemption date are on deposit at the principal place of payment at that time. The Board is a public corporation organized under the provisions of Article 4 of Chapter 54 of Title 11 of the Code of Alabama of 1975, as amended, and the Bonds are authorized to be issued for purposes for which bonds are authorized to be issued under the provisions of said article. The covenants and representations herein contained or contained in the Indenture do not and shall never constitute a personal or pecuniary liability or charge against the general credit of the Board, nor shall the City of Demopolis, Alabama, in any manner be liable for payment of the principal of or the interest or premium (if any) on the Bonds or for the performance of the undertakings of the Board contained herein or in the Indenture. It is hereby certified that all conditions, actions and things required by the Constitution and laws of Alabama to exist, be performed and happen precedent to or in the issuance of this bond do exist, have been performed and have happened in due and legal form. Execution by the Trustee of the authentication certificate hereon is essential to the validity hereof and is conclusive of the due issue hereof under the Indenture. 36 42 IN WITNESS WHEREOF, the Board has caused this bond to be executed in its name and behalf with a facsimile of the signature of the Chairman of its Board of Directors, has caused a facsimile of its corporate seal to be hereunto imprinted, has caused this Bond to be attested by its Secretary, and has caused this Bond to be dated _______________, 1997. THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By -------------------------------------- Chairman of the Board of Directors Attest: - ------------------------------------------- Secretary (Form of Trustee's Authentication Certificate) The within bond is one of those described in the within-mentioned Trust Indenture. LASALLE NATIONAL BANK, Trustee By -------------------------------------- Its Authorized Officer Date of Authentication: ----------------- 37 43 (FORM OF ASSIGNMENT) FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto _____________________________________________________________ (Please print or typewrite Name and Address including Zip Code of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints _______________________________________________________________ to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated this _____ day of ____________________, ________. -------------------------------------- NOTICE: The signature to this assignment must correspond with the name as it appears on the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: - --------------------------------------------------- (Bank, Broker or Firm)* By ------------------------------------------------- (Authorized Officer) Its Medallion Number: ------------------------------ * Signature(s) must be guaranteed by an eligible guarantor institution which is a member of a recognized signature guarantee program, i.e., Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP), or New York Stock Exchange Medallion Signature Program (MSP). 38 44 SECTION 3.11 EXECUTION AND DELIVERY OF THE BONDS. The Bonds shall be forthwith executed and delivered to the Trustee and shall be authenticated and delivered by the Trustee upon receipt by the Trustee of an order signed on behalf of the Board by the Chairman or the Vice Chairman of the Directors, requesting such authentication and delivery and designating the person to receive the same or any part thereof. SECTION 3.12 APPLICATION OF PROCEEDS FROM SALE OF BONDS. The proceeds derived from the sale of the Bonds shall be paid to the Trustee and promptly thereafter deposited in the Construction Fund. ARTICLE IV REDEMPTION PROVISIONS SECTION 4.1 REDEMPTION DATES AND PRICES OF THE BONDS. The Bonds may not be called for redemption prior to maturity except as follows: (a) MANDATORY REDEMPTION OF BONDS UPON OCCURRENCE OF DETERMINATION OF TAXABILITY. The Bonds are subject to mandatory redemption in whole on any date prior to maturity in the event of a Determination of Taxability at and for a Redemption price with respect to each such Bond redeemed equal to 100% of the principal amount thereof plus accrued interest to the redemption date. If called for redemption prior to maturity upon such occurrence, the Bonds must be redeemed within the time set forth in Section 5.7 of the Lease following the Determination of Taxability. (b) OPTIONAL REDEMPTION OF VARIABLE RATE BONDS. The Bonds, if bearing interest at the Variable Rate, are subject to optional redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $100,000 or any larger amount that is an integral multiple of $5,000), on any date at and for a redemption price equal to the principal amount redeemed plus accrued interest to the redemption date. (c) EXTRAORDINARY OPTIONAL REDEMPTION OF TERM RATE BONDS. The Bonds, if bearing interest at the Term Rate, are subject to redemption on any date in whole at and for a redemption price with respect to each such Bond redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, but only upon receipt by the Trustee of a written certificate from the Company stating that within 120 days prior to the date of such certificate (i) the Project has been damaged or destroyed to such extent that, in the opinion of an Independent Engineer (as defined in the Indenture), it cannot be reasonably restored within a period of six (6) consecutive months or the Company is thereby prevented from carrying on its normal operations therein for a period of not less than twelve (12) consecutive months or the cost of restoration thereof would exceed the net insurance proceeds referable to such damage or destruction plus certain self-insurance, or (ii) title to, or the temporary use of, any part of the 39 45 Project has been taken by eminent domain, and such taking or takings results or, in the opinion of an Independent Engineer (as defined in the Indenture), are likely to result in the Company being thereby prevented from carrying on its normal operations therein for a period of not less than six (6) consecutive months, or (iii) there has occurred a change in the economic availability of raw materials, operating supplies or facilities necessary for the operation of the Project or such technological or other change which in the good faith judgment of the Company renders the Project uneconomic and the Company has determined (as evidenced by a resolution of its board of directors) to discontinue the operation thereof, or (iv) as a result of changes in the Constitution of the United States of America or the Constitution of Alabama or of legislative or administrative action (whether state or federal) or by final decree or judgment or order of any court or administrative body (whether state or federal), entered after the contest thereof by the Company in good faith, the Lease has become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties thereto as expressed therein or unreasonable burdens or excessive liabilities have been imposed on the Board or the Company. In the event that the redemption of the Bonds is to be made pursuant to clauses (i), (ii) or (iii) of this subparagraph (c), such certificate of the Company shall state that as a result of such event, the Company has discontinued its operation of the Project. (d) OPTIONAL REDEMPTION OF TERM RATE BONDS. The Bonds, if bearing interest at the Term Rate, are subject to redemption by the Board, upon the direction of the Company, in whole or in part (but if in part, only in multiples of $5,000), on any date during the redemption periods and at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus interest accrued to the redemption date:
Length of Currently Applicable Dates after which Redemption Term Rate Period is Allowed and (Expressed in Whole Years) Redemption Prices after 5 years at 102%, declining by 0.5% semiannually greater than 7 . . . . . . . . . . . . . . . . . to 100% less than or equal to 7 and after 3 years at 102%, declining by 0.5% semiannually greater than 4 . . . . . . . . . . . . . . . . . to 100% less than or equal to 4 . . . . . . . . . . . . . not callable
SECTION 4.2 SELECTION OF BONDS TO BE CALLED FOR REDEMPTION. Except as otherwise provided herein or in the Bonds, if less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption shall be selected by any method determined by the Trustee to be fair and reasonable; provided, however, that the Trustee shall first select for redemption any Bonds which are Pledged Bonds on the date of selection and then any Bonds that are Company Bonds on the date of selection and provided further that if, as stated in a certificate of the Company delivered to the Trustee, the Company shall have offered to purchase all Bonds then Outstanding and less than all of such Bonds shall have been tendered to the Company for 40 46 such purchase, the Trustee, at the direction of the Company, shall select for redemption all such Bonds which have not been so tendered. The Trustee shall treat any Bond of denomination greater than the then minimum Authorized Denomination as representing that number of separate Bonds each of the then minimum Authorized Denomination as can be obtained by dividing the actual principal amount of such Bond by the then minimum Authorized Denomination. SECTION 4.3 NOTICE OF REDEMPTION. DEPOSIT OF FUNDS. (a) When required to redeem Bonds under any provision of this Article IV, or when directed to do so by the Board, the Trustee shall cause notice of the redemption to be given by first class mail, postage prepaid, to all registered Holders of Bonds to be redeemed at their registered addresses not more than 60 days and not fewer than 30 days prior to the redemption date. Failure to mail any such notice or defect in the mailing thereof in respect of any Bond shall not affect the validity of the redemption of any other Bond. Notices of such redemptions shall also be mailed to the Remarketing Agent, the Tender Agent, the Credit Obligor and S&P (if the Bonds are at the time rated by it). Any such notice shall be given in the name of the Board, shall identify the Bonds to be redeemed (and, in the case of partial redemption of any Bonds, the respective principal amounts thereof to be redeemed), shall specify the redemption date and the redemption price and when any interest accrued to the redemption date will be payable, and shall state that on the redemption date the redemption price of the Bonds called for redemption will be payable at the principal corporate trust office of the Trustee and from that date interest will cease to accrue. The Trustee may use "CUSIP" numbers in notices of redemption as convenience to Bondholders, provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of redemption and that reliance may be placed only on the identification numbers containing the prefix established under the Indenture. (b) If at the time of mailing of notice of any optional redemption in connection with a refunding of the Bonds there shall not have been, and there is not, under subsection (c) of this section, required to be, deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional in that it is subject to the deposit of the proceeds of refunding bonds with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited. (c) On or prior to the mailing of any notice of redemption of Bonds, unless the Credit Obligor shall have otherwise consented in writing, (i) the Company shall pay, or cause to be paid, to the Trustee an amount sufficient to pay the redemption price of all of the Bonds or portions thereof which are to be so redeemed, together with interest accrued thereon to the date specified for redemption, (ii) the Trustee shall deposit such payments in the Debt Service Fund and (iii) the Trustee shall certify to the Credit Obligor the making of such payment and the deposit thereof in the Debt Service Fund. SECTION 4.4 BONDS REDEEMED IN PART. Any Bond which is to be redeemed only in part shall be surrendered at a place stated for the surrender of Bonds called for redemption in the notice provided for in Section 4.3 hereof (with due endorsement by, or a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Board shall execute and the Trustee shall 41 47 authenticate and deliver to the Holder of such Bond without service charge, a new Bond or Bonds, of any Authorized Denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. ARTICLE V GENERAL PROVISIONS RESPECTING THE BONDS SECTION 5.1 EXECUTION OF BONDS. The Bonds shall be executed on behalf of the Board by the facsimile signature of the Chairman or Vice Chairman of the Directors and a facsimile of the Board's corporate seal shall be printed or otherwise reproduced thereon and attested by the facsimile signature of the Secretary or Assistant Secretary of the Board. All such facsimile signatures shall have the same force and effect as if said Chairman or Vice Chairman and said Secretary or Assistant Secretary had manually signed each of the Bonds. If any officer of the Board who shall have executed any Bond shall cease to be such officer before the Bond so executed (by manual or facsimile signature) shall be authenticated and delivered, such signature or facsimile shall nevertheless be valid and sufficient for all purposes, as though the person who executed such Bond had not ceased to be such officer of the Board, and also any Bond may be executed on behalf of the Board by such persons as at the actual time of such execution of such Bond shall be the proper officers of the Board, although at the date of such Bond such persons may not have been officers of the Board. SECTION 5.2 AUTHENTICATION OF BONDS. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form hereinabove set forth manually executed by the Trustee shall be entitled to any right or benefit hereunder and such executed certificate of authentication shall be conclusive evidence that such Bond has been authenticated and delivered under the Indenture. Said certificate of authentication on any Bond shall be deemed to have been executed by the Trustee if signed by an authorized officer of the Trustee, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. SECTION 5.3 REPLACEMENT OF MUTILATED, LOST, STOLEN OR DESTROYED BONDS. In the event any Bond is mutilated, lost, stolen or destroyed, the Board may execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor as that mutilated, lost, stolen or destroyed; provided that (a) in the case of any such mutilated Bond, such Bond is first surrendered to the Board and the Trustee, and (b) in the case of any such lost, stolen or destroyed Bond, there is first furnished to the Board and the Trustee evidence of such loss, theft or destruction satisfactory to each of them, together with indemnity satisfactory to each of them. The Board may charge the Holder with the expense of issuing any such new Bond. SECTION 5.4 REGISTRATION, TRANSFER AND EXCHANGE OF BONDS. The Trustee shall be, and is hereby appointed as, the registrar and transfer agent of the Board and shall keep at its principal corporate trust office proper registry and transfer books in which it will note the 42 48 registration and transfer of such Bonds as are presented for those purposes, all in the manner and to the extent hereinafter specified. All Bonds shall be registered as to both principal and interest by the Trustee as registrar and transfer agent for the Board, and shall be transferable only on the transfer books of the Trustee. Upon surrender for registration of transfer of any Bond at such office, the Board shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of authorized denomination for the aggregate principal amount which the registered Holder is entitled to receive. At the option of the Holder, Bonds may be exchanged for other Bonds of any other Authorized Denomination, of a like aggregate principal amount, upon surrender of the Bonds to be exchanged at any such office or agency. Whenever any Bonds are so surrendered for exchange, the Board shall execute, and the Trustee shall authenticate and deliver, the Bonds which the Bondholder making the exchange is entitled to receive. All Bonds presented for registration of transfer, exchange, redemption or payment (if so required by the Board or the Trustee) shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Trustee, duly executed by the Holder or by his attorney duly authorized in writing. No service charge shall be made to a Bondholder for any exchange or registration of transfer of Bonds, but the Board or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. Neither the Board nor the Trustee on behalf of the Board shall be required (i) to register the transfer of or exchange any Bond during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of Bonds selected for redemption and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Bond so selected for redemption in whole or in part. New Bonds delivered upon any registration of transfer or exchange shall be valid obligations of the Board, evidencing the same debt as the Bonds surrendered, shall be secured by the Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered. SECTION 5.5 PERSONS DEEMED HOLDERS. The Board, the Trustee and the Tender Agent may deem and treat the person in whose name any Bond is registered as the absolute Holder thereof (whether or not such Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Board, the Trustee or the Tender Agent) for the purpose of receiving payment of or on account of the principal of (and premium, if any, on), and (subject to Section 5.6 hereof) interest on, such Bond, and for all other purposes, and neither the Board, the Trustee nor the Tender Agent shall be affected by any notice to the contrary. All such payments so made to any such registered Holder, or upon his 43 49 order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. SECTION 5.6 PAYMENT OF PRINCIPAL AND INTEREST; INTEREST RIGHTS RESERVED. The principal or redemption or purchase price of, and interest on, any Bond shall be payable in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. The principal or redemption price of the Bonds shall be payable at the principal office of the Trustee. Except as hereinafter provided, interest on any Bond on each Interest Payment Date in respect thereof shall be payable by check mailed by the Trustee to the address of the person entitled thereto as such address shall appear on the registry books maintained by the Trustee. At the written request of the Holder of at least $1,000,000 aggregate principal amount of Bonds received by the Trustee at least one Business Day before the corresponding Record Date, interest accrued on such Holder's Bonds will be paid by wire transfer within the United States of immediately available funds to the bank account number of such Holder specified in such request. Interest payable at maturity, earlier redemption date or purchase date shall be made upon presentation and surrender of such Bond. Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Bond is registered at the close of business on the Regular Record Date for such interest. Any interest on any Bond which is payable, but is not punctually paid or provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder of such Bond on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest shall be paid to the person in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be no more than 15 nor fewer than 10 days prior to the date of proposed payment. The Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Bondholder at his address as it appears in the Bond Register, not fewer than 10 days prior to such Special Record Date. Subject to the foregoing provisions of this section, each Bond delivered under the Indenture upon registration of transfer of or exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. SECTION 5.7 SOURCE OF PAYMENT; LIMITED OBLIGATION. The Bonds, together with premium, if any, and interest thereon, shall be limited obligations of the Board payable by the Board solely from the revenues and receipts to be derived from the leasing or sale of the Project (except to the extent paid out of moneys attributable to proceeds of the Bonds, the income from the temporary investment thereof or any payments made pursuant to and any moneys derived from the Letter of Credit) and shall be a valid claim of the respective Holders thereof only against the Debt Service Fund and other moneys held by the Trustee and such revenues and receipts, which revenues and receipts shall be used for no other purpose than to pay the principal of and the interest and premium (if any) on the Bonds, except as may be otherwise expressly 44 50 authorized in the Indenture or the Lease. The Bonds shall not constitute in any manner an obligation of the Municipality. No recourse shall be had for the payment of the principal of, premium, if any, or interest on any of the Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Indenture, against any past, present or future official, officer or employee of the Board, or any incorporator, official, officer, director or trustee of any successor corporation as such, either directly or through the Board or any successor corporation, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such incorporator, official, officer, employee, director or trustee as such is hereby expressly waived and released as a condition of and in consideration for the execution of the Indenture and the issuance of any of the Bonds. SECTION 5.8 REGISTRATION OF BONDS IN THE BOOK-ENTRY ONLY SYSTEM. (a) The provisions of this Section 5.8 shall apply with respect to any Bond registered to CEDE & CO. or any other nominee of The Depository Trust Company ("DTC") while the Book-Entry Only System is in effect and shall, during the period of their application, supersede any contrary provisions of the Indenture. The Bonds shall be issued as a single Bond in the principal amount of $5,225,000. On the date of the initial authentication and delivery of the Bonds, the Bonds shall be registered in the name of CEDE & CO., as nominee of DTC as the Holder of all the Bonds. With respect to Bonds registered in the name of CEDE & CO., as nominee of DTC, the Board, the Tender Agent and the Trustee shall have no responsibility or obligation to any Participant (which means securities brokers and dealers, banks, trust companies, clearing corporations and various other entities, some of whom, or their representatives, own DTC) or to any Beneficial Owner (which means, when used with reference to the Book-Entry Only System, the person who is considered the beneficial owner thereof pursuant to the arrangements for book entry determination of ownership applicable to DTC) with respect to the following: (i) the accuracy of the records of DTC, CEDE & CO. or any participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant, any Beneficial Owner or any other person, other than DTC, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any Participant, or any Beneficial Owner or any other person, other than DTC, of any amount with respect to the principal or purchase price of or premium, if any, or interest on the Bonds. The Trustee shall pay all principal and purchase price of and premium, if any, and interest on the Bonds only to or upon the order of DTC, and all such payments shall be valid and effective fully to satisfy and discharge the Board's obligations with respect to the principal and purchase price of and premium, if any, and interest on such Bonds to the extent of the sum so paid. No person other than DTC shall receive a Bond. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of CEDE & CO., the words "CEDE & CO." in this section shall refer to such new nominee of DTC. Upon receipt by the Board and the Trustee of written notice from DTC to the effect that DTC is unable or unwilling to discharge its responsibilities hereunder, the Trustee shall issue, transfer and exchange Bonds as requested by DTC in Authorized Denominations, and whenever DTC requests the Board and the Trustee to do so, the Board and the Trustee will cooperate with 45 51 DTC in taking appropriate action after reasonable notice to arrange for a substitute bond depository willing and able upon reasonable and customary terms to maintain custody of the Bonds registered in whatever name or names the Holders transferring or exchanging such Bonds shall designate, in accordance with this section. In the event the Board determines that it is in the best interests of the Beneficial Owners that they be able to obtain Bonds registered in the name of a Holder other than DTC, the Board may so notify DTC and the Trustee, whereupon DTC will notify the Participants, of the availability through DTC of such Bonds. In such event, upon the return by DTC of all Bonds held by DTC in the name of Cede & Co., the Trustee shall issue, transfer and exchange Bonds in Authorized Denominations as requested by DTC, and whenever DTC requests the Board and the Trustee to do so, the Trustee and the Board will cooperate with DTC in taking appropriate action after reasonable notice to make available Bonds registered in whatever name or names the Beneficial Owners transferring or exchanging Bonds shall designate, in accordance with this section. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of CEDE & CO., as nominee of DTC, all payments with respect to the principal of and premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, to DTC as provided in the Letter of Representations, the form of which is attached to this Indenture as Exhibit C. In the event that the Book-Entry Only System pursuant to this section is discontinued, the Bonds shall be issued, transferred and exchanged through DTC and its Participants to the Beneficial Owners. ARTICLE VI THE CONSTRUCTION FUND SECTION 6.1 CONSTRUCTION FUND. There is hereby created a special trust fund, the name of which shall be the "Construction Fund", for the purpose of providing funds for payment of Project Development Costs. The Trustee shall be and remain the depository, custodian and disbursing agent for the Construction Fund. The moneys in the Construction Fund shall be paid out by the Trustee from time to time for the purpose of paying Project Development Costs. Disbursement of moneys in the Construction Fund shall be made only upon receipt by the Trustee of a requisition or payment request signed by an Authorized Company Representative and approved by the Credit Obligor, (a) stating, with respect to each such payment, the amount requested to be paid, the name and address of the person, firm or corporation to whom such payment is due, and the particular Project Development Costs for which the obligation to be paid was incurred, (b) approving the payment thereby requested to be made, (c) stating that the purpose for which such payment is to be made is one for which Construction Fund moneys are herein authorized to be expended and that such payment has not formed the basis for any previous payment request from the Construction Fund and that such payment constitutes a Qualified Project Cost, (d) in the case of a request for payment of any part of the cost of constructing the Improvements (whether bills or contractors' estimates), certifying that the labor, 46 52 services or materials represented thereby are located on, or are referable to, the Project Site, (e) in the case of any request for payment of any part of the purchase price, other acquisition cost or installation cost of the Equipment, certifying that such item of Equipment is physically located on the Project Site, or that the amount so requested to be paid on account of such equipment, together with any amounts theretofore paid out of the Construction Fund on account thereof, represents no more than progress payments for such equipment which have been substantiated to the Company's satisfaction and (f) in the case of any request for payment of an amount constituting interest accrued on the Bonds (which may be made only through direct payment to the Company and only on an Interest Payment Date preceding certification of completion as provided in the next succeeding paragraph of this section and on the date of such certification), stating that the amount requested to be paid, when added to all amounts so constituting interest and theretofore paid to the Company from the Construction Fund, does not exceed the amount of interest that may be capitalized by the Company under Section 266 of the Code with respect to the Plant and the Equipment. After certification by an Authorized Company Representative (1) that the construction of the Improvements and the acquisition and installation of the Equipment therein have been completed in substantial accordance with the plans, specifications and orders therefor, and (2) that all Project Development Costs have been paid in full, the amount of any Bond Proceeds remaining in the Construction Fund shall be deposited in a special account constituting a part of the Debt Service Fund and applied by the Trustee to the redemption of such Bonds as shall be specified by the Company on the earliest practicable redemption date thereafter and, in the interim, shall be invested in a manner (as directed by the Company) that will not, in the opinion of Bond Counsel, result in any of the Bonds constituting "arbitrage bonds" within the meaning of Section 148 of the Code. If, as a result of deposits into the Construction Fund of moneys other than Bond Proceeds, any moneys remain on deposit in the Construction Fund subsequent to compliance with the provisions of the preceding sentence, such moneys shall be paid to the Credit Obligor to the extent amounts are owed to the Credit Obligor under the Credit Agreement, and otherwise such moneys shall be paid to the Company. SECTION 6.2 TRUSTEE PROTECTED IN CONSTRUCTION FUND PAYMENTS. ADDITIONAL EVIDENCE MAY BE REQUIRED. The Trustee shall be fully protected in making withdrawals and payments out of the Construction Fund for the purposes specified in Section 6.1 hereof upon presentation to it of the respective requisitions, payment requests, endorsements, approvals and certificates provided for in said section but the Trustee may in its discretion and shall, when requested in writing so to do by the Holders of not less than twenty-five percent (25%) of the Bonds then outstanding, require as a condition precedent to any withdrawal or disbursement from the Construction Fund such additional evidence as it may reasonably deem appropriate respecting the application of any moneys previously disbursed from the Construction Fund or as to the correctness of any estimate or bill presented to it for payment pursuant to the provisions of said Section 6.1. SECTION 6.3 SECURITY FOR CONSTRUCTION FUND MONEYS. The moneys at any time on deposit in the Construction Fund shall be and at all times remain impressed with a trust for the purposes specified in Section 6.1 hereof. The Trustee shall at all times keep the moneys on 47 53 deposit in the Construction Fund continuously secured, for the benefit of the Board and the Holders of the Bonds, either (a) by holding on deposit, as collateral security, Federal Securities, or other marketable securities eligible as security for the deposit of trust funds under regulation of the Comptroller of the Currency, having a market value (exclusive of accrued interest) not less than the amount of moneys on deposit in the Construction Fund, or (b) if the furnishing of security in the manner provided by the foregoing clause (a) of this section is not permitted by the then applicable law and regulation, then in such other manner as may be required or permitted by the then applicable state and federal laws and regulations respecting the security for, or granting a preference in the case of, the deposit of trust funds; provided, however, that it shall not be necessary for the Trustee so to secure any portion of the moneys on deposit in the Construction Fund that is insured by the Federal Deposit Insurance Corporation or other agency of the United States of America that may succeed to its functions; and provided, further, that it shall not be necessary for the Trustee so to secure any portion of the moneys on deposit in the Construction Fund that is at the time invested in Eligible Investments pursuant to the provisions of the next succeeding Section 6.4 hereof. SECTION 6.4 INVESTMENT OF CONSTRUCTION FUND MONEYS. As promptly as practicable following the issuance and sale of the Bonds, the Company shall direct the Trustee in writing to invest the money held in the Construction Fund in any Eligible Investments having stated maturities in such amounts and at such times as will make available from the Construction Fund cash moneys sufficient to meet the needs of the Construction Fund. In making such investments, the Trustee shall follow such written instructions as may be given to it by an Authorized Company Representative. In the event of any such investment, the securities and certificates in which such moneys are so invested, together with all income derived therefrom, shall become a part of the Construction Fund to the same extent as if they were moneys originally deposited therein. The Trustee may from time to time sell or otherwise convert any such securities or certificates into cash if in its sole discretion it deems such conversion is necessary or desirable or if such sale or conversion is necessary to provide for payment of a payment request presented to it pursuant to the provisions of the preceding Section 6.1 hereof, whereupon the net proceeds from such sale or conversion shall become a part of the Construction Fund. The Trustee shall be fully protected in making any such investment, sale or conversion in accordance with the provisions of this section. In any determination of the amount of moneys at any time forming a part of the Construction Fund, all such securities and all such certificates in which any portion of the Construction Fund is at the time so invested shall be included therein at their then market value. SECTION 6.5 AGREEMENT RESPECTING NON-ARBITRAGE. (a) In order that there will be no investment of moneys in the Construction Fund that would result in any of the Bonds being considered "arbitrage bonds" within the meaning of Section 148 of the Code, in the event that it is necessary to restrict the yield on the investment of any moneys paid to or held by the 48 54 Trustee in said fund in order to avoid any of the Bonds being considered "arbitrage bonds" within the meaning of said Section 148, the Company may issue to the Trustee a written certificate to such effect together with written instructions respecting investment of moneys in said fund, in which event the Trustee shall follow the written directions of the Company. (b) The Trustee shall not be responsible for (i) determining that any investment of moneys in the Construction Fund complies with the limitations imposed by Section 148 of the Code, including, without limitation, the provisions of Section 148(d)(3) relating to the limitation on the amount invested in non-purpose obligations with a yield higher than the yield on the Bonds, or (ii) calculating the amount of, or making payment of, any rebate due to the United States of America. ARTICLE VII APPLICATION OF REVENUES AND CREATION OF DEBT SERVICE FUND AND BOND PURCHASE FUND SECTION 7.1 DEBT SERVICE FUND. (a) There is hereby created a special trust fund, the name of which shall be the "Bond Principal and Interest Fund," for the purpose of providing for payment of the principal of and the interest (and premium, if any) on the Bonds and which shall be maintained until the principal of and the interest and premium (if any) on the Bonds have been paid in full. The Trustee shall be and remain the depository, custodian and disbursing agent for the Debt Service Fund. Moneys on deposit in the Debt Service Fund shall be used (i) to pay Debt Service on the Bonds as the same shall become due and payable or (ii) to reimburse the Credit Obligor for amounts drawn under the Letter of Credit, as provided in subsection (d) of this section. (b) There shall be deposited in the Debt Service Fund, as and when received: (1) all money drawn by the Trustee under the Letter of Credit for the purpose of paying the principal amount of the Bonds and the interest due thereon on any Bond Payment Date, (2) All Basic Rent under the Lease with respect to Debt Service on the Bonds, (3) All other money required to be deposited in the Debt Service Fund pursuant to the Lease or this Indenture, and (4) All other money received by the Trustee when accompanied by directions that such money is to be deposited in the Debt Service Fund. (c) The Board hereby authorizes and directs the Trustee to withdraw sufficient money from the Debt Service Fund to pay Debt Service on the Bonds as the same become due and payable, whether at maturity, by call for redemption, or otherwise, which authorization and 49 55 direction the Trustee hereby accepts. Funds for such payments of Debt Service on the Bonds other than Obligor Bonds shall be derived from the following sources in the order of priority indicated: (1) FIRST, money drawn by the Trustee under the Letter of Credit, and (2) SECOND, all other money on deposit in the Debt Service Fund. (d) Prior to 11:30 a.m. (Detroit, Michigan time) (or, in the event of a draw on the Confirmation required by the provisions of Section 3.8 hereof, prior to 1:45 p.m. Detroit, Michigan time) on each Bond Payment Date the Trustee shall, without making any prior claim or demand upon the Company for the payment of Basic Rent, make a draw under the Letter of Credit in an amount equal to the amount of Debt Service due on such Bond Payment Date on Bonds other than Obligor Bonds. Any such money drawn under the Letter of Credit shall be deposited and held in a separate, segregated account in the Debt Service Fund, and shall not be commingled with other money in the Debt Service Fund. If money from any source other than the Letter of Credit is, at the time of such draw, on deposit in the Debt Service Fund and available for the payment of Debt Service on Bonds other than Obligor Bonds, the Trustee shall nevertheless draw under the Letter of Credit to make such payment of Debt Service, and the money available from such other source shall, to the extent of the amount paid by the Credit Obligor against such draw, be paid to the Credit Obligor, and any excess shall be applied to the payment of Debt Service on Obligor Bonds. All money so drawn under the Letter of Credit shall be used to pay Debt Service on Bonds other than Obligor Bonds; Debt Service on Obligor Bonds shall be paid with money deposited in the Debt Service Fund from any source other than the Letter of Credit after payment to the Credit Obligor of the amount drawn under the Letter of Credit to pay debt service on Bonds other than Obligor Bonds. (e) Debt Service due on all Pledged Bonds shall be paid to the Credit Obligor. SECTION 7.2 BOND PURCHASE FUND. (a) There is hereby created a special trust fund, the name of which shall be the "Bond Purchase Fund." The Trustee shall be the custodian for the Bond Purchase Fund, and money in such Fund may be disbursed by the Trustee as hereinafter provided. Moneys on deposit in the Bond Purchase Fund shall be used (i) to pay the purchase price of Bonds due on any Tender Date or (ii) to reimburse the Credit Obligor for amounts drawn under the Letter of Credit, as provided in subsection (d) of this section. (b) There shall be deposited in the Bond Purchase Fund, as and when received: (1) all money drawn by the Trustee under the Letter of Credit for the purpose of paying the purchase price of Bonds other than Obligor Bonds due on any Tender Date, (2) all Basic Rent under the Lease with respect to the purchase price of Tendered Bonds, 50 56 (3) the proceeds of any remarketing of Bonds by the Remarketing Agent, (4) all other money required to be deposited in the Bond Purchase Fund pursuant to the Lease or this Indenture, and (5) all other money received by the Trustee when accompanied by directions that such money is to be deposited in the Bond Purchase Fund. (c) The Trustee is hereby authorized and directed to withdraw sufficient money from the Bond Purchase Fund to pay the purchase price of Bonds due on any Tender Date. Funds for such payments with respect to all Bonds other than Obligor Bonds shall be derived from the following sources in the order of priority indicated: (1) FIRST, money received by the Trustee from the remarketing of Bonds by the Remarketing Agent to anyone other than the Board, the Company or an Affiliate, (2) SECOND, money drawn by the Trustee under the Letter of Credit, and (3) THIRD, all other money on deposit in the Bond Purchase Fund. (d) Except to the extent the Trustee has received proceeds from the remarketing of Bonds by the Remarketing Agent to anyone other than the Board, the Company or an Affiliate by 11:30 a.m. (Detroit, Michigan time) on each Tender Date in accordance with the provisions of Section 3.6(b) hereof, the Trustee shall, prior to 11:30 a.m. (Detroit, Michigan time) (or, in the event of a draw on the Confirmation required by the provisions of Section 3.8 hereof, prior to 1:45 p.m. Detroit, Michigan time) on each Tender Date and without making any prior claim or demand upon the Company for Basic Rent with respect to the purchase price of Bonds, make a draw under the Letter of Credit in an amount equal to the purchase price of all Bonds other than Obligor Bonds to be purchased on such Tender Date less such remarketing proceeds then on deposit with the Trustee. Any such money drawn under the Letter of Credit shall be deposited and held in a separate, segregated account in the Bond Purchase Fund, and shall not be commingled with other money in the Bond Purchase Fund. If money from any source other than the Letter of Credit remain on deposit in the Bond Purchase Fund after payment of all Tendered Bonds, such excess from such other sources (including without limitation, proceeds of remarketing of Bonds) shall, to the extent of the amount paid by the Credit Obligor against such draw, be paid to the Credit Obligor, and any excess shall be applied to the payment of the purchase price of Obligor Bonds. All moneys so drawn under the Letter of Credit shall be used solely to pay the purchase price of Tendered Bonds other than Obligor Bonds; the purchase price of Obligor Bonds shall be paid with moneys deposited in the Bond Purchase Fund from any source other than the Letter of Credit after payment to the Credit Obligor of the amount drawn under the Letter of Credit to pay the purchase price of Bonds other than Obligor Bonds. If proceeds from the remarketing of Bonds are deposited in the Bond Purchase Fund after such Tender Date, the Trustee shall pay such proceeds to the Credit Obligor to the extent of the 51 57 amount paid by the Credit Obligor against such draw, and the excess shall be applied to the payment of the purchase price of Obligor Bonds. SECTION 7.3 MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST; REPAYMENT OF UNCLAIMED MONEY. (a) If money is on deposit in the Debt Service Fund on any Bond Payment Date sufficient to pay Debt Service on the Bonds due and payable on such date, but the Holder of any Bond that matures on such date or that is subject to redemption on such date fails to surrender such Bond to the Trustee for payment of Debt Service due and payable on such date, the Trustee shall segregate and hold in trust for the benefit of the person entitled thereto money sufficient to pay the Debt Service due and payable on such Bond on such date. Money so segregated and held in trust shall not be a part of the trust estate and shall not be invested, but shall constitute a separate trust fund for the benefit of the persons entitled to such Debt Service. (b) If money is on deposit in the Bond Purchase Fund on any Tender Date sufficient to pay the purchase price on the Bonds to be paid on such Tender Date, but the Holder of any Unsurrendered Bond fails to deliver such Bond to the Trustee or Tender Agent for payment of such purchase price on such Tender Date, the Trustee shall segregate and hold in trust for the benefit of the person entitled thereto money sufficient to pay such purchase price due and payable on such Bond on such Tender Date. Money so segregated and held in trust shall not be a part of the trust estate and shall not be invested, but shall constitute a separate trust fund for the benefit of the persons entitled to such purchase price. (c) Any money held in trust by the Trustee for the payment of Debt Service on or the purchase price of any Bond pursuant to subsections (a) and (b) of this section and remaining unclaimed for 3 years after such Debt Service has become due and payable shall be paid to the Company upon request of an Authorized Company Representative; and the Holder of such Bond shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee with respect to such trust money, and all liability of the Board with respect thereto, shall thereupon cease; provided, however, that the Trustee, before being required to make any such payment to the Company, may at the expense of the Company cause to be published once, in a newspaper of general circulation in the city where the principal office of the Trustee is located, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be paid to the Company. SECTION 7.4 INVESTMENT OF DEBT SERVICE FUND AND BOND PURCHASE FUND. (a) Any money held as part of the Debt Service Fund or the Bond Purchase Fund shall be invested in accordance with the instructions of the Company only in Federal Securities with a maturity not later than the earlier of (i) 30 days after the date of such investment, or (ii) the date such money will be needed for the payment of Debt Service on, or the purchase price of, Bonds. Any investment made with money on deposit in the Debt Service Fund or the Bond Purchase Fund shall be held by or under control of the Trustee and shall be deemed at all times a part of the special fund where such money was on deposit, and the interest and profits realized from such investment shall be credited to such Fund and any loss resulting from such investment shall be charged to such Fund. 52 58 (b) Any investment of money in the Debt Service Fund or the Bond Purchase Fund may be made by the Trustee through its own bond department, investment department or other commercial banking department providing investment services. Any certificate of deposit issued by, or other interest-bearing deposit with, the Trustee shall be deemed an investment rather than a deposit requiring security in the manner specified in Section 7.5 hereof. SECTION 7.5 SECURITY FOR DEBT SERVICE FUND MONEYS. The moneys at any time on deposit in the Debt Service Fund or the Bond Purchase Fund shall be and at all times remain impressed with a trust for the purposes for which said fund was created. The Trustee shall at all times keep the moneys on deposit in such fund continuously secured, for the benefit of the Board and the Holders of the Bonds, either (a) by holding on deposit, as collateral security, Federal Securities, or other marketable securities eligible as security for the deposit of trust funds under regulation of the Comptroller of the Currency, having a market value (exclusive of accrued interest) not less than the amount of moneys on deposit in the Debt Service Fund or the Bond Purchase Fund, as the case may be; or (b) if the furnishing of security in the manner provided in the foregoing clause (a) of this section is not permitted by the then applicable law and regulation, then in such other manner as may be required or permitted by the then applicable state and federal laws and regulations respecting the security for, or granting a preference in the case of, the deposit of trust funds; provided, however, that it shall not be necessary for the Trustee so to secure any portion of the moneys on deposit in such fund that is insured by the Federal Deposit Insurance Corporation or by any agency of the United States of America that may succeed to its functions or to secure any portion of such moneys that is invested in Eligible Investments pursuant to the provisions of Section 7.4 hereof. ARTICLE VIII PARTICULAR COVENANTS OF THE BOARD SECTION 8.1 PAYMENT OF THE BONDS. The Board will pay or will cause to be paid, out of the revenues and receipts derived from the leasing or sale of the Project, the principal of and the interest and premium, if any, on the Bonds as specified therein, and it will otherwise perform all obligations that, either expressly or by reasonable implication, are imposed on it in the Indenture, and it will not default hereunder. SECTION 8.2 PRIORITY OF PLEDGE. The pledge herein made of the revenues and receipts from any leasing or sale of the Project shall be prior and superior to any pledge thereof hereafter made for the benefit of any other securities hereafter issued or any contract hereafter made by the Board. In the event the Board should hereafter issue any other securities payable, in whole or in part, out of the revenues or receipts to be derived from the leasing or sale of the Project or for which any part of said revenues or receipts may be pledged or any part of the Project may 53 59 be mortgaged, or in the event the Board should hereafter make any contract payable, in whole or in part, out of said revenues and receipts or for which any part of said revenues and receipts may be pledged or any part of the Project may be mortgaged, the Board will, in the proceedings under which any such securities or contract are hereafter authorized, recognize the priority of the pledge of said revenues and receipts made herein for the benefit of the Bonds. The Board recognizes that in the Lease it has agreed (a) not to issue any securities, other than the Bonds, that are payable out of or secured by a pledge of the revenues and receipts derived by the Board from the leasing or sale of the Project or any part thereof, and (b) not to place any mortgage or other encumbrance (other than the Indenture or Supplemental Indentures contemplated thereby) on the Project or any part thereof, without, in either case, the prior written consent of the Company. SECTION 8.3 CONCERNING THE LEASE. The Indenture and the rights and privileges of the Trustee and the Holders of the Bonds hereunder are specifically made subject to the rights, options and privileges of the Company under the Lease, and nothing herein contained shall be construed to impair the rights, options and privileges granted to the Company by the Lease. The Board will perform and observe, or cause to be performed and observed, all agreements, covenants, terms and conditions required to be observed and performed by it in the Lease. Without relieving the Board from the consequences hereunder of any default in connection therewith, the Trustee (on behalf of the Board) may perform and observe, or cause to be performed and observed, any such agreement, covenant, term or condition, all to the end that the Board's rights under the Lease may be unimpaired and free from default. The Board will promptly notify the Trustee in writing of (a) the occurrence of any Event of Default by the Company under the Lease (as the term "Event of Default" is used and defined in the Lease), provided that the Board has knowledge of such default, and (b) the giving of any notice of default under the Lease. The Board will also promptly notify the Trustee in writing if, to the knowledge of the Board, the Company fails to perform or observe any of the agreements or covenants on its part contained in the Lease. In the event of any such occurrence of an Event of Default, any such giving of notice of default or any such failure, whether notice thereof is given to the Trustee by the Board, as aforesaid, or whether the Trustee independently has knowledge thereof, the Trustee will promptly give written notice thereof to the Company and shall in such notice expressly require the Company to perform or observe the agreement or covenant with respect to which the Company is delinquent, all to the end that if the Company does not perform or observe such agreement or covenant (or cause such agreement or covenant to be performed or observed) in the manner and within the time provided by the Lease, a default may be declared thereunder without delay. So long as the Lease shall remain in effect the Board will cause the Basic Rent payable thereunder to be paid to the Trustee as provided in the Lease. The Board will not cancel, terminate or modify, or consent to the cancellation, termination or modification of, the Lease 54 60 (except as is specifically provided, authorized or contemplated therein or herein) unless and until the principal of and the interest and premium (if any) on the Bonds shall have been paid in full or provision for such payment, as specified in Article XIII hereof, shall have been made. In the event of any such default, or in the event of a default on the part of the lessee under any other lease entered into by the Board with respect to the Project or any part thereof, the Board will exhaust or cause to be exhausted, as promptly as may be practicable, all legal remedies that it may have against the defaulting lessee to obtain compliance with the lease provisions, including payment of the rentals therein provided and performance and observance of all agreements and covenants on the part of the lessee therein contained. SECTION 8.4 WARRANTY OF TITLE. The Board warrants its title to the Project Site as being free and clear of every lien, encumbrance, trust or charge prior hereto, other than Permitted Encumbrances and warrants that it has power and authority to subject the revenues and receipts from the leasing or sale of the Project to the pledge hereof and that it has done so hereby. SECTION 8.5 SALE OF PROJECT PROHIBITED EXCEPT UNDER CERTAIN CONDITIONS. The Board will not hereafter sell or otherwise dispose of the whole or any integral part of the Project until the principal of and the interest and premium (if any) on all the Bonds have been paid in full, or unless and until provision for such payment has been made. If the laws of Alabama at the time shall permit such action to be taken, nothing contained in this section shall prevent the consolidation of the Board with, or the merger of the Board into, any public corporation having corporate authority to carry on the business of owning and leasing the Project and whose property and income are not subject to Federal or Alabama taxation, or the transfer by the Board of the Project as an entirety to the Municipality or to another public corporation whose property and income are not subject to Federal or Alabama taxation; provided that upon any such consolidation, merger or transfer the due and punctual payment of the principal of and the interest on the Bonds according to their tenor and the due and punctual performance and observance of all the agreements and conditions of the Indenture to be kept and performed by the Board shall be expressly assumed in writing by the corporation resulting from such consolidation or surviving such merger or to which the Project shall be transferred as an entirety; and provided, further, that such consolidation, merger or transfer shall not cause or result in any mortgage or other lien being affixed to or imposed on or becoming a lien on the Project or the revenues therefrom that will be prior to or on a parity with the lien of the Indenture or the pledge herein made for the benefit of the Bonds or in the interest income on the Bonds becoming subject to Federal or Alabama income taxation. Nothing contained herein shall, however, be construed to prevent the Board from granting, subject to the lien of the Indenture, the easements and other rights referred to in Section 12.2 of the Lease or from disposing of property pursuant to the provisions of Section 9.3 hereof or property released from the lien of the Indenture pursuant to the provisions of Section 9.2 hereof. SECTION 8.6 FREEDOM OF PROJECT FROM PRIOR LIENS. PAYMENT OF CHARGES. The Board will keep the Project free from all liens and encumbrances prior to or on a parity with the lien hereof (other than Permitted Encumbrances), but it may defer payment pending the bona fide contest of any claim unless the Trustee shall be of the opinion that by such action the lien of the Indenture as to any part of the Project shall be materially endangered or the Project or 55 61 any part thereof shall be subject to loss or forfeiture, in which event any such payment then due shall not be deferred. Nothing herein contained shall be construed to prevent the Board from hereafter purchasing additional property on conditional or lease sale contract or subject to vendor's lien or purchase money mortgage, and as to all property so purchased, the Indenture shall be subject and subordinate to such conditional or lease sale contract, vendor's lien or purchase money mortgage. The Board will discharge, pay or satisfactorily provide to the Trustee, or cause to be discharged, paid or provided, all liabilities, expenses and advances reasonably incurred, disbursed or made by the Trustee in the execution of the trusts hereby created (including the reasonable compensation and expenses and disbursements of its counsel and of all other persons not regularly in its employ), and it will from time to time pay to the Trustee, or cause to be paid, reasonable compensation for its services hereunder, including extra compensation for unusual or extraordinary services. All such liabilities, expenses, advances and compensation shall be secured hereby, shall be entitled to priority of payment over the principal of and the interest on the Bonds and shall bear interest until paid, at a per annum rate equal to Prime Rate plus 2% per annum, from and after thirty (30) days after the respective dates on which the Trustee makes demand for the payment thereof. SECTION 8.7 INSPECTIONS BY TRUSTEE. The Board will permit the Trustee and its duly authorized agents to inspect, at any reasonable time, any and every part of the Project and will permit the Trustee to inspect, at any reasonable time, the books and records of the Board pertaining to the Project. The Board will assist in furnishing facilities for any such inspection. SECTION 8.8 RECORDATION. FURTHER ASSURANCES. The Board will file the Indenture, and all Supplemental Indentures hereafter executed, in such public office or offices in which said documents are required by law to be filed in order to constitute constructive notice thereof and to preserve and protect fully the rights and security afforded thereby to the Trustee and the Holders of the Bonds. In addition, the Board (a) will, upon reasonable request, execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectually the purpose of the Indenture, and in particular (without in any way limiting the generality of the foregoing) to make subject to the lien hereof any property hereafter acquired as a part of the Project and to transfer to any successor trustee or trustees the assets, powers, instruments and funds held in trust hereunder and to confirm the lien of the Indenture with respect to any bonds issued hereunder, and (b) will take all actions that at the time and from time to time may be necessary (or, in the opinion of the Trustee, may be necessary) to perfect, preserve, protect and secure the interests of the Board and the Trustee, or either, in and to the Project, including, without limitation, the filing of all financing and continuation statements that may at the time be required under the Alabama Uniform Commercial Code. No failure to request such further instruments or further acts shall be deemed a waiver of any right to the execution and delivery of such instruments or the doing of such acts or be deemed to affect the interpretation of any provisions of the Indenture. SECTION 8.9 CONCERNING CERTAIN FEDERAL TAX MATTERS. The Board will not take any action that would have the result of causing the interest income on the Bonds to be includible 56 62 in gross income for purposes of Federal income taxation. Without limiting the generality of the foregoing, the Board will (a) cooperate with the Company in the observance of the Company's warranties, representations and covenants contained in Sections 2.2 and 8.7 of the Lease and (b) not take any action that is not permitted to the Company under Section 8.7(d) of the Lease. ARTICLE IX CERTAIN PROVISIONS RELATING TO THE POSSESSION, USE AND RELEASE OF THE PROJECT AND TO THE DISPOSITION OF INSURANCE PROCEEDS AND CONDEMNATION AWARDS SECTION 9.1 RETENTION OF POSSESSION OF PROJECT BY BOARD. While the Board is not in default hereunder, it may retain actual possession of the Project and may manage and lease the same, and may collect, use and enjoy the rents, revenues, income and profits thereof to such extent as is not violative of the Board's covenants herein contained or contained in the Lease. SECTION 9.2 RELEASE OF EQUIPMENT. Reference is hereby made to Section 6.2 of the Lease which permits the Company, upon compliance with the conditions therein contained, to remove items of the Equipment from the Project Site and to sell or otherwise dispose of the same free and clear of the demise of the Lease and of the lien of the Indenture. Any item of the Equipment released from the demise of the Lease in accordance with the provisions thereof shall also be released from the lien of the Indenture, and the Trustee shall at the request of the Board or the Company execute and deliver all instruments that may be necessary to confirm such release. SECTION 9.3 RELEASE UPON PAYMENT OF CONDEMNATION AWARD TO TRUSTEE. If the Project or any part thereof shall be taken through the exercise of the power of eminent domain, the entire condemnation award referable thereto shall be paid directly to the Trustee. Upon payment to the Trustee of such award, the Trustee shall, at the expense of the Board, execute and deliver to the Board or to the corporation or governmental agency successfully exercising such power of eminent domain any and all instruments that may be necessary (i) to release from the demise of the Lease all property forming part of the Project that shall be so taken and (ii) to release from the lien of the Indenture all property forming part of the Project that shall be so taken. SECTION 9.4 DISPOSITION OF INSURANCE PROCEEDS. Reference is hereby made to the Lease wherein it is provided that if the Project is destroyed, in whole or in part, or are damaged, by fire or other casualty, to such extent that the loss to the Project resulting therefrom is in excess of $500,000, then all "Net Insurance Proceeds" (as defined in the Lease) recovered by the Board, the Company and the Trustee shall be paid to and held by the Trustee in a special sub-account forming a part of the Debt Service Fund and shall thereafter be applied by the Trustee in the manner and for the purposes specified in Section 7.1 of the Lease. The Trustee hereby accepts the duties and obligations on its part specified in the Lease with respect to such 57 63 proceeds and agrees that such proceeds shall be applied in accordance with the applicable provisions of the Lease. SECTION 9.5 RELEASE OF CERTAIN REAL PROPERTY. While the Board is not to the knowledge of the Trustee in default in the payment of the principal of or the interest on any Bond outstanding hereunder or in respect of any of the covenants on the part of the Board herein contained, it may, at any time and from time to time, obtain the release of any portion of the Project Site, and the Trustee shall release the same from the lien hereof upon deposit by the Board with the Trustee of the following: (a) A notice signed by the Chairman of the Directors containing an adequate legal description of the real property requested to be released, stating that the Board is not in default under any of the provisions of the Indenture, and requesting such release; and (b) A Certificate of an Independent Engineer stating (i) that no part of the Plant or the Equipment, no other improvement (except for roads, walkways, sewer, water, gas and electric lines and the like, which shall be specified in such certificate) and no facilities designed for the control of air or water pollution or for the disposal of solid wastes and necessary in the operation of the Project are located on the real property requested to be released, and (ii) that the severance of such property from the Project will not impair the operating unity of the Project or unduly restrict ingress or egress to or from the Project. Upon compliance by the Board with the foregoing conditions the Trustee shall, at the expense of the Company, execute and deliver to the Board any and all instruments that may be necessary to release from the lien of the Indenture that portion of the Project Site with respect to which said conditions shall have been complied with. ARTICLE X EVENTS OF DEFAULT AND REMEDIES OF TRUSTEE AND BONDHOLDERS SECTION 10.1 EVENTS OF DEFAULT DEFINED. Any of the following shall constitute an event of default hereunder by the Board: (a) Failure by the Board to pay the principal of, the interest on or the premium (if any) on any Bond as and when the same become due as therein and herein provided (whether such shall become due by maturity or otherwise); (b) A default by the Company under the Lease or the Guaranty and the continuance thereof after the grace period, if any, provided therein; (c) Failure by the Board to perform and observe any of the agreements and covenants on its part herein contained other than (i) its agreement 58 64 to pay the principal of, the interest on and the premium (if any) on the Bonds, and (ii) any other agreement with respect to which its failure to perform is the result of an "event of default" by the Company under the Lease after sixty (60) days' written notice to the Board of such failure made by the Trustee or by the Holders of not less than twenty-five per cent (25%) in principal amount of the Bonds then outstanding and secured hereby, unless during such period or any extension thereof the Board has commenced and is diligently pursuing appropriate corrective action; (d) failure to pay when due the purchase price of any Bond tendered for purchase pursuant to the Optional Tender or Mandatory Tender provisions hereof; (e) receipt by the Trustee of written notice from the Credit Obligor or the Confirming Bank (i) that an event of default, as therein defined, has occurred and is continuing under the Credit Agreement and (ii) directing that the principal of all the Bonds and the interest accrued thereon be declared immediately due and payable hereunder; or (f) An Act of Bankruptcy with respect to the Company or the Board; or (g) An Act of Bankruptcy with respect to the Credit Obligor or the Confirming Bank or the wrongful dishonor or repudiation of the Letter of Credit by the Credit Obligor. SECTION 10.2 REMEDIES ON DEFAULT. Upon any default in any one of the ways defined in the preceding Section 10.1 hereof, the Trustee shall have the following rights and remedies: (a) ACCELERATION. Subject to subsection (d) of this Section 10.2 and to Section 10.5 hereof, upon the occurrence of (i) any event of default under subsections (b), (c) or (f) of Section 10.1 hereof, the Trustee may, and at the written request of the Holders of not less than twenty-five per cent (25%) in Outstanding principal amount of Bonds shall, or (ii) any event of default under subsections (a), (d), (e) or (g), of Section 10.1 hereof, the Trustee shall, by notice in writing delivered to the Board, the Company, the Credit Obligor, the Remarketing Agent and the Tender Agent declare the principal of all Bonds and the interest accrued thereon to the date of declaration of such acceleration immediately due and payable. Upon any acceleration hereunder, the Trustee shall immediately declare the payments required to be made by the Company under the Lease to be immediately due and payable in accordance with Section 10.2(c) of the Lease and if the Letter of Credit is in effect, shall draw moneys under the Letter of Credit for the payment of the Bonds to the fullest extent permitted by the Letter of Credit. Upon the payment by the Credit Obligor of the amount so drawn under the Letter of Credit and the payment in full of the principal of and the interest and premium, if any, on the Outstanding Bonds, the Trustee shall at 59 65 the request of the Credit Obligor and after deducting all proper costs, expenses and liabilities incurred and disbursements made by the Trustee hereunder, pay to the Credit Obligor any amounts on deposit in the Debt Service Fund which are not required to pay the principal of and the interest and premium, if any, on the Bonds. (b) POSSESSION OF PROJECT. The Trustee shall have the power to require the Board to surrender possession of the Project to it, and the Board shall, upon demand so to do by the Trustee, forthwith surrender to the Trustee actual possession of the Project or such part or parts thereof as the Trustee may designate, and the Trustee shall take possession thereof and may wholly exclude the Board and its agents and servants therefrom. The Trustee shall thereafter operate and manage the same by its chosen representatives with power to make, at the expense of the trust estate, such repairs, replacements, alterations, additions or improvements thereto as it may consider advisable, to collect the income therefrom and to pay all proper charges and maintenance expenses thereof, including all proper disbursements by the Trustee. (c) OTHER REMEDIES. The Trustee shall have the power to proceed with any other right or remedy independent of or in aid of the foregoing powers, as it may deem best, including the right to foreclose the Indenture by bill in equity or by proceedings at law, the right to secure specific performance by the Board of any agreement on its part herein contained, and the right to the appointment, as a matter of right and without regard to the sufficiency of the security afforded by the Project, of a receiver for all or any part of the Project and the earnings, rents and income therefrom; the rights here specified are to be cumulative to all other available rights, remedies or powers and shall not exclude any such. (d) RIGHTS OF CREDIT OBLIGOR. Anything in Section 10.2(a), (b) or (c) hereof to the contrary notwithstanding, so long as the Letter of Credit is in effect and the Credit Obligor has honored all proper drawings under the Letter of Credit or all Bonds constitute Pledged Bonds, or all Bonds have been paid by a drawing under the Letter of Credit and the Credit Obligor has not been fully reimbursed, without the prior written consent of the Credit Obligor, the Trustee shall not have the right to declare, either on its own or with the consent of Holders of Bonds, the principal of all Bonds and the interest accrued thereon to become immediately due and payable or to pursue any remedy available to it under Section 10.2(b) or (c) hereof as a result of the occurrence of an Event of Default under subsections (b), (c) or (f) of Section 10.1 hereof, and any remedy so pursued by the Trustee where such consent is necessary shall be at the direction of the Credit Obligor. SECTION 10.3 APPLICATION OF MONEYS RECEIVED BY TRUSTEE. Any moneys received by the Trustee pursuant to the provisions of this article or pursuant to any right given to it or action taken by it under the provisions of this article, together with all other funds then held by it 60 66 hereunder, shall, after payment of all proper costs, expenses and liabilities incurred and disbursements made by the Trustee hereunder, and all liens and charges on the rentals or other receipts from the Project prior hereto which in the opinion of the Trustee it is advisable to pay, be applied as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST - To the payment to the persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest, with interest on overdue installments of interest and, if the amount available shall not be sufficient to pay in full any particular installment plus said interest thereon, then to the payment ratably, according to the amounts due on such installments and with respect to said interest, to the persons entitled thereto, without any discrimination or privilege; SECOND - To the payment to the persons entitled thereto of the unpaid principal of and premium, if any, on any of the Bonds which shall have become due (other than Bonds matured or called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture), with interest on overdue installments of principal, and, if the amount available shall not be sufficient to pay in full all such principal (and premium, if any), together with such interest, then to the payment of such principal, premium (if any) and interest ratably, without any discrimination or privilege; and THIRD - The surplus, if any there be, into the Debt Service Fund, or in the event the Bonds have been fully paid, to the Credit Obligor if the Credit Agreement is still in effect; otherwise to the Board or to whomsoever may be entitled thereto, unless the Letter of Credit is in effect, in which case such surplus shall be held until all Bonds are fully paid and then applied as provided above. (b) If the principal of all the Bonds shall have become or been declared due and payable, all such moneys shall be applied as follows: FIRST - To the payment of the principal and interest then due and unpaid upon the Bonds (with interest on overdue principal and interest), without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively 61 67 for principal and interest, to the persons entitled thereto without any discrimination or privilege; provided, however, that if the principal of all the Bonds shall have been declared due and payable and if such declaration shall thereafter have been rescinded under the provisions of Section 10.5, then, subject to the provisions of this subsection (b) in the event that the principal of all the Bonds shall later become or be declared due and payable, such moneys shall be applied in accordance with the provisions of subsection (a) of this Section 10.3; and SECOND - The surplus, if any there be, to the Credit Obligor if the Credit Agreement is still in effect; otherwise to the Board or to whomsoever may be entitled thereto. Whenever moneys are to be applied pursuant to the provisions of this Section 10.3, such moneys shall be applied at such time or times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future; provided that, if all Bonds have been paid in full with funds drawn under the Letter of Credit, the Trustee will act at the direction of the Credit Obligor. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal and interest to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date and shall not be required to make payment to the Holder of any unpaid Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. In no event shall moneys drawn under the Letter of Credit be applied under this section for any purpose other than payment of debt service with respect to the Bonds. SECTION 10.4 REMEDIES VESTED IN TRUSTEE. All remedies hereunder are vested exclusively in the Trustee for the equal and pro rata benefit of all Holders of the Bonds and (to the extent herein provided) for the benefit of the Credit Obligor, unless the Trustee refuses or neglects to act within a reasonable time after written request so to act addressed to the Trustee by the Holders of twenty-five percent (25%) in principal amount of the Outstanding Bonds, accompanied by indemnity satisfactory to the Trustee, in which event, subject to the rights of the Credit Obligor under Sections 10.2 and 10.5 hereof, the Holder of any of the Bonds may thereupon so act in the name and behalf of the Trustee or may so act in his own name in lieu of action by or in the name and behalf of the Trustee. Except as above provided, no Holder of any of the Bonds shall have the right to enforce any remedy hereunder, and then only for the equal and pro rata benefit of the Holders of all the Bonds. Notwithstanding any other provision hereof, the right of the Holder of any Bond, which is absolute and unconditional, to receive payment of the principal of and the interest and premium, if any, on such Bond on or after the due date thereof, but solely from the revenues and receipts from the leasing or sale of the Project as therein and herein expressed, or to institute suit for the enforcement of such payment on or after such due date, or the obligation 62 68 of the Board, which is also absolute and unconditional, to pay, but solely from said revenues and receipts, the principal of and the interest and premium (if any) on the Bonds to the respective Holders thereof at the time and place in said Bonds expressed, shall not be impaired or affected without the consent of such Holder; provided, however, that no Bondholder shall be entitled to take any action or institute any such suit to enforce the payment of his Bonds, whether for principal, interest or premium, if and to the extent that the taking of such action or the institution or prosecution of any such suit or the entry of judgment therein would under applicable law result in a surrender, impairment, waiver or loss of the lien hereof upon the Project, or any part thereof, as security for the Bonds held by any other Bondholder. SECTION 10.5 WAIVERS OF EVENTS OF DEFAULT. The Trustee may, with the consent of the Credit Obligor, waive any Event of Default and its consequences and rescind any declaration of maturity of principal and shall do so upon the written request of the Credit Obligor or (if no Letter of Credit is in effect and less than all of the Bonds constitute Pledged Bonds) the Holders of a majority in principal amount of all outstanding Bonds; provided, however, that there shall not be waived any Event of Default pertaining to the payment when due of the principal of any Bonds at the date of maturity specified therein or of the purchase price of any Bond or of the interest or premium (if any) on any such Bonds, unless prior to such waiver or rescission, all arrears of interest on such Bonds, with interest (to the extent permitted by law) at the rate borne by such Bonds on overdue installments of interest, and all arrears of payments of principal or purchase price of such Bonds with interest at the rate borne by such Bonds on overdue principal, and all expenses of the Trustee in connection with such default then due, shall have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such Event of Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Board, the Credit Obligor, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder respectively (subject, however, to such determination), but no such waiver or rescission shall extend to any subsequent or other Event of Default, or impair any right consequent thereon; and provided further that no waiver of an Event of Default under subsection (e) of Section 10.1 hereof shall be effective unless the Trustee receives written notice from the Credit Obligor that the Letter of Credit has been reinstated. The provisions of this Section 10.5 are subject to the condition that with respect to an Event of Default under subsection (e) of Section 10.1 hereof, receipt by the Trustee of written notice from the Credit Obligor of the waiver of any Event of Default under the Credit Agreement, rescission and annulment of the consequences and reinstatement (or verification of reinstatement) of the Letter of Credit shall constitute a waiver of the corresponding Event of Default under the Indenture and a rescission and annulment of the consequences thereof. If notice of such Event of Default under the Credit Agreement shall have been given as provided herein and if the Trustee shall thereafter have received notice that such Event of Default shall have been waived, the Trustee shall promptly give notice by first class mail, postage prepaid, of such waiver, rescission or annulment to the Board, the Company, and the Credit Obligor, and shall give notice thereof by first class mail, postage prepaid, to all registered Holders of the Bonds at their addresses as they appear in the registration books kept by the Trustee. No such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon; and provided further that no waiver of an Event 63 69 of Default under subsection (e) of Section 10.1 hereof shall be effective unless the Trustee receives written notice from the Credit Obligor that the Letter of Credit has been reinstated. Anything contained herein to the contrary notwithstanding, there shall be no waiver of an Event of Default hereunder in the event that the Bonds have been accelerated pursuant to Section 10.2(a) hereof and moneys drawn under the Letter of Credit for such purposes. ARTICLE XI CONCERNING THE TRUSTEE, THE REMARKETING AGENT AND THE TENDER AGENT SECTION 11.1 TRUSTEE ACCEPTANCE OF TRUSTS. The Trustee accepts the trusts hereby created and agrees to perform the duties herein required of it subject, however, to the following conditions: (a) It shall not be liable hereunder except for its non-compliance with the provisions hereof, its willful misconduct or its gross negligence. (b) It may execute any of the trusts and powers conferred on it hereunder or perform any duty hereunder either directly or through agents and attorneys in fact who are not regularly in its employ and who are selected by it with reasonable care. (c) It may consult Counsel on any matters connected herewith and shall not be answerable for any action taken or failure to take any action in good faith on the advice of Counsel, provided that its action or inaction is not contrary to any express provision hereof. (d) It need not recognize a Holder of a Bond or Bonds as such without the satisfactory establishment of his title to such Bond or Bonds. (e) It shall not be answerable for any action taken in good faith on any notice, request, consent, certificate or other paper or document which it believes to be genuine and signed or acknowledged by the proper party. (f) Subject to the provisions of Section 10.2 hereof, it need not notice any default hereunder unless requested so to do by the Holders of twenty-five percent (25%) of the then outstanding Bonds. (g) Subject to the provisions of Section 10.2 hereof, in the Event of Default by the Board hereunder, the Trustee need not exercise any of its rights or powers specified in Section 10.2 hereof or take any action under said Section 10.2 unless requested in writing so to do by the Holders of twenty-five percent (25%) of the then outstanding Bonds; it may exercise any such rights or powers 64 70 or take any such action, if it thinks advisable, without any such request; it shall do so when so requested; provided that, subject to the last sentence of this Section 11.1(g), the furnishing of indemnity, satisfactory to the Trustee, against its prospective liabilities and expenses by the Holders requesting any action by the Trustee under said Section 10.2 shall be a condition precedent to the duty of the Trustee to take or continue any action under said Section 10.2 which in the opinion of the Trustee would involve it in any such liabilities or expenses. Whenever it has a choice of remedies under said Section 10.2 or a discretion as to details in the exercise of its powers thereunder, it must, subject to the last sentence of said Section 10.2, follow any specific directions given by the Holders of a majority of the Bonds at the time outstanding, anything therein or herein to the contrary notwithstanding, unless the observance of such directions would, in the opinion of the Trustee, unjustly prejudice the non-assenting Bondholders or the Credit Obligor. Anything herein to the contrary notwithstanding, the furnishing of indemnity shall not be a condition precedent to the obligations of the Trustee to accelerate the principal of and the interest on the Bonds upon the occurrence of an Event of Default under subsections (a), (e), (f) or (g) of Section 10.1 hereof or to draw moneys under the Letter of Credit to pay the principal of and the interest on the Bonds in accordance with the provisions of the Indenture and the Letter of Credit. (h) It shall be entitled to reasonable compensation for its services hereunder, including extra compensation for unusual or extraordinary services, provided that no such compensation shall be payable from a drawing under the Letter of Credit. (i) Any action taken by the Trustee at the request of and with the consent of the Holder of a Bond will bind all subsequent Holders of the same Bond and any Bond issued hereunder in lieu thereof. (j) It may be the Holder of Bonds as if not Trustee hereunder. (k) It shall not be liable for the proper application of any moneys other than those that may be paid to or deposited with it. (l) It shall not unreasonably withhold or delay any consent or approval required of it under the provisions hereof or of the Lease. (m) All moneys received by the Trustee to be held by it hereunder shall be held as trust funds until disbursed in the manner herein provided therefor. The Trustee shall not be liable to pay or allow interest thereon or otherwise to invest any such moneys except as specifically required herein. (n) It may make any investments permitted hereby through its own bond department, and any certificate of deposit issued by it hereunder shall be deemed investments and not deposits. 65 71 (o) It shall, upon reasonable request, advise the Board, the Company or the Credit Obligor of the amount at the time on deposit in any of the special funds herein created. (p) It shall, upon reasonable request, issue to the Board, the Company or the Credit Obligor certificates indicating whether, to the knowledge of the Trustee, the Board or the Company is in default under the provisions of the Indenture or the Lease, respectively. (q) The recitals of fact herein and in the Bonds are statements by the Board and not by the Trustee, and the Trustee is in no way responsible for the validity or security of the Bonds, the existence of any part of the Project, the value thereof, the title of the Board thereto, the security afforded hereby or the validity or priority of the lien hereof. (r) The Tender Agent shall be entitled to the same immunities with respect to their respective duties under the Indenture as the Trustee is under this Section 11.1 with respect to its duties hereunder. SECTION 11.2 TRUSTEE AUTHORIZED TO PAY CERTAIN CHARGES. Without relieving the Board from the consequences of any default in connection therewith, the Trustee may pay any charge which the failure of the Board to pay has made or will make an encumbrance or lien prior hereto on the Project, and in the event the Company shall fail to take out insurance on the Project to the extent required by the Indenture, the Trustee may take out any such insurance on the Project that the Company has failed to furnish or cause to be furnished and may pay the premiums thereon; provided that in each case (a) the Trustee first gives to the Board such notice as is reasonable under the circumstances of the Board's failure to pay such charge or the Company's failure to take out or cause to be taken out such insurance, and (b) the Board does not within such time thereafter as the Trustee deems reasonable under the circumstances pay such charge or the Company fails to take out such insurance. The Trustee, however, shall not be required to pay any such charge or take out any such insurance, and it shall not be liable in any manner for any failure to do so. All sums expended by the Trustee under the provisions of this section shall be secured by the Indenture, shall bear interest at a per annum rate equal to the Prime Rate, plus 2%, from the date of payment thereof, and shall, except with respect to moneys drawn under the Letter of Credit,be entitled to priority of payment over the principal of or the interest on any of the Bonds. The Board will reimburse the Trustee on demand for all sums so expended by the Trustee on behalf of the Board, together with interest at said rate. SECTION 11.3 TRUSTEE MAY FILE CLAIMS. The Trustee may at any time file a claim in its own name or for the benefit of the Holders of the Bonds in any court proceeding where any such claim may be permitted or required, whether such proceeding be by way of reorganization, bankruptcy, receivership or of any other nature. The Holders of the Bonds do hereby constitute and appoint the Trustee as their irrevocable agent and attorney in fact for the purpose of filing any such claim, but such authorization shall not include the power to agree to accept new securities of any nature in lieu of the Bonds or to alter the terms of the Bonds. 66 72 SECTION 11.4 RESIGNATION AND DISCHARGE OF TRUSTEE. The Trustee may resign and be discharged of the trusts hereby created upon written notice to the Board, the Company, the Bondholders, the Credit Obligor, the Remarketing Agent and the Tender Agent specifying the effective date of such resignation. The effective date of the resignation shall be at least thirty (30) days after the giving of such notice unless it be coincident with the appointment by the Holders of the Bonds of a successor Trustee as herein provided. The Trustee may at any time, with the consent of the Credit Obligor, be removed by a written instrument signed by the Holders of a majority in principal amount of the Bonds then outstanding. If the Trustee resign or be removed, it shall be reimbursed for all its proper prior expenses reasonable under the circumstances. The preceding provisions of this Section 11.4 to the contrary notwithstanding, no resignation or discharge of the Trustee shall be effective until the appointment of a successor Trustee hereunder. SECTION 11.5 APPOINTMENT OF SUCCESSOR TRUSTEE. If the Trustee resign, be removed, be placed by a court or governmental authority under the control of a receiver or other public officer or otherwise become incapable of acting, a successor may be appointed by a written instrument signed by the Credit Obligor and the Holders of a majority in principal amount of the Bonds then outstanding (which instrument shall be filed for record in the office of the Judge of Probate of the county in which the Project is located) and in the interim by an instrument executed by the Board, such interim successor Trustee to be immediately and ipso facto superseded by the one appointed as above by the said Holders. The Board shall give written notice of such interim appointment, in the event such is made, to the Company, the Bondholders, the Credit Obligor, the Remarketing Agent and the Tender Agent and when the appointment of a successor Trustee, as selected by the Holders of a majority in principal amount of the Bonds then outstanding, becomes effective, the Board shall give written notice of that fact to the Company. Any successor Trustee shall be a bank or trust company authorized to administer trusts and having, at the time of its acceptance of such appointment, combined capital and surplus of at least $100,000,000. SECTION 11.6 CONCERNING ANY SUCCESSOR TRUSTEE. Any successor Trustee shall execute and deliver to the Board an instrument accepting the trusts and shall thereupon ipso facto succeed to all the estate and title of the retiring Trustee to the Project and to its rights, powers and responsibilities hereunder and its predecessor shall pay over, assign and deliver any moneys held by it to such successor Trustee. The Board will, upon request of the successor Trustee, execute and deliver to it any instrument reasonably requested in further assurance thereof. Any such instrument so executed shall be filed for record in the office of the Judge of Probate of the county in which the Project is located. Any successor Trustee may effectively adopt the authentication certificate of a predecessor Trustee on Bonds already authenticated and not delivered, and may so deliver them; and it may effectively authenticate Bonds in its own name. SECTION 11.7 REMARKETING AGENT. (a) LaSalle National Bank is hereby appointed as "Remarketing Agent" for the Bonds, subject to the conditions set forth in this section. (b) The Remarketing Agent shall signify its acceptance of the duties and obligations imposed upon it by this Indenture by execution and delivery of an agreement satisfactory to the Trustee. 67 73 (c) The Remarketing Agent (i) shall be authorized by law to perform all the duties imposed upon it by this Indenture and (ii) shall be a bank, trust company or member of the National Association of Securities Dealers, Inc., approved by the Credit Obligor in writing (which approval shall not be unreasonably withheld) organized and doing business under the laws of the United States or any state or the District of Columbia and having a capitalization of at least $15,000,000 as shown in its most recent published annual report. (d) The Remarketing Agent may resign at any time by giving 30 days' prior written notice thereof to the Board, the Trustee, the Company and the Credit Obligor; provided, however, that no such resignation shall become effective until a successor Remarketing Agent has been appointed and has accepted its duties and obligations hereunder. (e) The Company may, with the prior written consent of the Credit Obligor, remove the Remarketing Agent at any time upon 30 days' prior written notice thereof to the Remarketing Agent, the Board and the Trustee. (f) If at any time: (1) the Remarketing Agent shall cease to be eligible under this section and shall fail to resign after written request therefor by the Trustee, or (2) the Remarketing Agent shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Remarketing Agent or of its property shall be appointed or any public officer shall take charge or control of the Remarketing Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Trustee may remove the Remarketing Agent upon 7 days' written notice thereof to the Remarketing Agent, the Credit Obligor, the Board and the Company. (g) If the Remarketing Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Remarketing Agent for any cause, the Board shall, with the prior written consent of the Company and the Credit Obligor, promptly appoint a successor Remarketing Agent. (h) The Trustee shall give notice of each resignation and each removal of the Remarketing Agent and each appointment of a successor Remarketing Agent by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Bonds as their names and addresses appear in the Bond Register. Each notice shall include the name of the successor Remarketing Agent and the address of its principal office. SECTION 11.8 TENDER AGENT. (a) The Trustee may, with the consent of the Company, appoint an agent (the "Tender Agent") to act on its behalf in the acceptance of delivery of Bonds tendered for purchase pursuant to the optional or mandatory tender provisions of this Indenture and in the authentication and delivery of Bonds pursuant to the transfer and exchange provisions of this Indenture. For all purposes of this Indenture, (i) Bonds to be purchased pursuant to the 68 74 optional or mandatory tender provisions of this Indenture may be delivered to the Tender Agent, as well as the Trustee, and (ii) the authentication and delivery of Bonds by the Tender Agent pursuant to the transfer and exchange provisions of this Indenture shall be deemed to be the authentication and delivery of Bonds "by the Trustee." (b) Any Tender Agent appointed by the Trustee shall signify its acceptance of such appointment by execution and delivery of an agreement satisfactory to the Trustee. (c) Any such Tender Agent (i) shall at all times be a commercial bank or trust company, (ii) shall at all times be a corporation organized and doing business under the laws of the United States or of any state with a combined capital and surplus of at least $50,000,000 and authorized under such laws to exercise corporate trust powers and subject to supervision and examination by federal or state authority, and (iii) shall (A) have an investment grade rating from at least one Rating Agency and from each other Rating Agency maintaining a rating with respect to such commercial bank or trust company or (B) be otherwise acceptable to S&P. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (d) Any corporation into which any Tender Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Tender Agent shall be a party, or any corporation succeeding to the corporate trust business of any Tender Agent, shall be the successor of the Tender Agent hereunder, if such successor corporation is otherwise eligible under this section, without the execution or filing of any further act on the part of the parties hereto or the Tender Agent or such successor corporation. (e) Any Tender Agent may at any time resign by giving written notice of resignation to the Trustee, the Board and the Company. The Trustee may at any time terminate the agency of any Tender Agent by giving written notice of termination to such Tender Agent, the Board and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Tender Agent shall cease to be eligible under this section, the Trustee shall promptly appoint a successor Tender Agent, shall give written notice of such appointment to the Board and the Company, and shall mail notice of such appointment to all Holders of Bonds as the names and addresses of such Holders appear on the Bond Register. (f) The Trustee agrees to pay to the Tender Agent from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments. SECTION 11.9 NOTICES. The Trustee shall, within 30 days of its receipt of written notice of the resignation or removal of the Remarketing Agent or the Tender Agent or the appointment of a successor Remarketing Agent or Tender Agent, give notice thereof by first class mail, postage prepaid, to the Holders of the Bonds. 69 75 SECTION 11.10 LIMITATION ON RESIGNATION OR REMOVAL OF TRUSTEE OR APPOINTMENT OF SUCCESSOR TRUSTEE. So long as there is a Letter of Credit on file with the Trustee and notwithstanding any of the foregoing provisions of this Article XI concerning the resignation or removal of the Trustee or the appointment of a successor trustee, no such resignation, removal or appointment shall be effective until the Credit Obligor shall have issued and delivered to the successor trustee a replacement Letter of Credit complying with the provisions of the Lease in favor of such successor trustee, whereupon the Trustee shall return the Letter of Credit then held by it to the entity which issued such Letter of Credit. ARTICLE XII AUTHORIZATION OF SUPPLEMENTAL INDENTURES AND MODIFICATION OF THE LEASE AND THE GUARANTY SECTION 12.1 SUPPLEMENTAL INDENTURES WITHOUT BONDHOLDER CONSENT. The Board and the Trustee may at any time and from time to time enter into such Supplemental Indentures (in addition to such Supplemental Indentures as are otherwise provided for herein or contemplated hereby) as shall not be inconsistent with the terms and provisions hereof, for any one or more of the following purposes: (a) To add to the covenants and agreements of the Board herein contained other covenants and agreements thereafter to be observed and performed by the Board, provided that such other covenants and agreements shall not either expressly or impliedly limit or restrict any of the obligations of the Board contained in the Indenture; (b) To cure any ambiguity or to cure, correct or supplement any defect or inconsistent provision contained in the Indenture or in any Supplemental Indenture or to make any provisions with respect to matters arising under the Indenture or any Supplemental Indenture for any other purpose if such provisions are necessary or desirable and are not inconsistent with the provisions of the Indenture or any Supplemental Indenture and do not adversely affect the interests of the Holders of the Bonds; or (c) To subject to the lien of the Indenture and the pledge herein contained additional property and the revenues therefrom. Any Supplemental Indenture entered into under the provisions of and pursuant to this section shall not require the consent of any Bondholders. SECTION 12.2 SUPPLEMENTAL INDENTURE REQUIRING BONDHOLDER CONSENT. The Board and the Trustee may, at any time and from time to time, with the written consent of the Holders of not less than a majority of the Bonds, enter into such Supplemental Indentures as shall be deemed necessary or desirable by the Board and the Trustee for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions 70 76 contained in the Indenture or in any Supplemental Indenture; provided that without the written consent of the Holder of each Bond affected, no reduction in the principal amount of or rate of interest on or premium payable upon the redemption of any Bond shall be made; and provided, further, that without the written consent of the Holders of all the Bonds none of the following shall be permitted: (a) An extension of the maturity of any installment of principal of or interest on any Bond; (b) The creation of a lien or charge on the Project or the revenues and receipts therefrom ranking prior to or on a parity with the lien and charge thereon contained herein; (c) The establishment of preferences or priorities as between the Bonds; or (d) A reduction in the aggregate principal amount of Bonds the Holders of which are required to consent to such Supplemental Indenture. Upon the execution of any Supplemental Indenture under and pursuant to the provisions of this section, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Board, the Trustee and all Holders of the Bonds then outstanding shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. SECTION 12.3 EXECUTION OF SUPPLEMENTAL INDENTURES. The Board and the Trustee recognize that under the terms of Section 9.2 of the Lease, they may not make any amendment of the Indenture or any Supplemental Indenture without the prior written consent of the Company. Subject to such consent, the Trustee is authorized to join with the Board in the execution of any Supplemental Indenture authorized under the provisions of this article and to make the further agreements and stipulations which may be contained therein, but the Trustee shall not be obligated to enter into any such Supplemental Indenture which affects its rights, duties or immunities under the Indenture. Any Supplemental Indenture executed in accordance with the provisions of this article shall thereafter form a part of the Indenture, and all the terms and conditions contained in such Supplemental Indenture as to any provisions authorized to be contained therein, shall be deemed to be a part of the terms and conditions of the Indenture for any and all purposes. SECTION 12.4 AMENDMENTS TO LEASE AND GUARANTY. The Board may, with the written consent of the Trustee but without the consent of or any notice to the Holders of any of the Bonds, (a) amend, change or modify the Lease so as to identify more precisely the Equipment, and 71 77 (b) amend, change or modify the Lease to cure any ambiguity or to cure, correct or supplement any defect or inconsistent provision contained in the Lease, or to make provision with respect to matters arising under the Lease for any other purpose if such provisions are necessary or desirable and are not inconsistent with the provisions of the Lease or the Indenture and do not, in the sole and uncontrolled judgment of the Trustee, adversely affect the interests of the Holders of the Bonds. The Board or (in the case of the Guaranty) the Trustee may, at any time and from time to time, with the written consent of the Trustee and the written consent of the Holders of not less than a majority of the Bonds, amend, change or modify the Lease or the Guaranty to such extent as shall be deemed necessary or desirable by the Board and the Trustee, provided that without the written consent of the Holders of all the Bonds, no such amendment, modification or change shall permit (i) a reduction in the amount of Basic Rent payable by the Company under the Lease, or the amounts guaranteed under the Guaranty prior to payment in full of the principal of and the interest on the Bonds, (ii) any change in the due dates of such Basic Rent payments or amounts guaranteed prior to such full payment of the Bonds, or (iii) any other change that, in the sole and uncontrolled judgment of the Trustee, might adversely affect the interests of the Holders of the Bonds. SECTION 12.5 NOTICES WITH RESPECT TO CERTAIN CHANGES IN THE INDENTURE, THE LEASE AND THE GUARANTY. If at any time the Board shall request the Trustee to enter into any Supplemental Indenture requiring the written consent of the Credit Obligor or any Bondholders or any amendment, change or modification of the Lease or the Guaranty requiring the written consent of the Credit Obligor or any Bondholders, the Trustee shall, upon being satisfactorily indemnified with respect to its prospective expenses incident thereto, cause notice of the proposed Supplemental Indenture or the proposed amendment, change or modification to be forwarded by United States registered or certified mail to the Credit Obligor and to the registered Holder of each Bond, at the address of such registered Holder as such address appears on the registry books of the Trustee pertaining to the registration of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture or the proposed amendment, modification or change and shall state that copies thereof are on file at the principal office of the Trustee for inspection by all Bondholders. If, within sixty (60) days or such longer period as shall be prescribed by the Board following the forwarding of such notice, the Holders of not less than two-thirds in aggregate principal amount of the Bonds outstanding at the time of the execution of any such Supplemental Indenture or at the time of the execution of such proposed amendment, change or modification with respect to the Lease or the Guaranty shall have consented to and approved the execution thereof as herein provided, no Holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Board from executing the same or from taking any action pursuant to the provisions thereof. SECTION 12.6 APPROVAL OF CREDIT OBLIGOR. Anything contained in this Article XII to the contrary notwithstanding, so long as the Letter of Credit shall be in effect, and there is no default by the Credit Obligor thereunder or all of the Bonds constitute Pledged Bonds, the Credit 72 78 Obligor shall be deemed to be the Holder of all the Bonds for the purpose of giving any consent to any amendment, waiver, change or modification of the Indenture or the Lease or the Guaranty; provided, however, that any such amendment, change or modification of the type described in the provisos to the first sentence of Section 12.2 hereof shall also require the consent of the actual Holders of the Bonds as therein specified. SECTION 12.7 DISCRETION OF THE TRUSTEE. In the case of any Supplemental Indenture or amendment, modification or change with respect to the Lease or the Guaranty authorized under the provisions of this Article, the Trustee shall be entitled to exercise its discretion in determining whether or not any proposed Supplemental Indenture or amendment, modification or change with respect to the Lease or the Guaranty, or any term or provision therein contained, may be entered into under the provisions of the Indenture, and the Trustee shall not be under any responsibility or liability to the Board or to any Bondholder or to anyone whomsoever for any act or thing which it may in good faith do or decline to do under and in accordance with the provisions of this Article. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an opinion of Independent Counsel acceptable to it as conclusive evidence that any such Supplemental Indenture or any such amendment, modification or change with respect to the Lease complies with the provisions of the Indenture and that it is proper for the Trustee acting under the provisions of this article to join in the execution of such Supplemental Indenture or to consent to such amendment, modification or change with respect to the Lease. ARTICLE XIII PAYMENT AND CANCELLATION OF THE BONDS AND SATISFACTION OF THE INDENTURE SECTION 13.1 SATISFACTION OF INDENTURE. When the principal or redemption price (as the case may be) of, and interest on, all Bonds issued hereunder have been paid, or provision has been made for payment of the same as described Section 13.1 hereof, together with the compensation of the Trustee and all other sums payable hereunder by the Board and the Letter of Credit has been cancelled, the right, title and interest of the Trustee shall thereupon cease and the Trustee, on demand of the Board, shall release this Indenture and shall execute such documents to evidence such release as may be reasonably required by the Board and shall turn over to the Company or to such person, body or authority as may be entitled to receive the same all balances then held by it hereunder. If payment or provision therefor is made with respect to less than all of the Bonds, the particular Bonds (or portion thereof) for which provision for payment shall have been considered made shall be selected by lot by the Trustee, and thereupon the Trustee shall take similar action for the release of this Indenture with respect to such Bonds. Notwithstanding the satisfaction of the Indenture, the Trustee shall have a continuing obligation to carry out the provisions for mandatory redemption of the Bonds as provided for in Section 4.1(a) hereof upon the occurrence of a Determination of Taxability. SECTION 13.2 CANCELLATION OF PAID BONDS. When and as the Bonds are paid, those so paid shall be forthwith cancelled by the Trustee and delivered to the Board. Likewise all 73 79 mutilated Bonds replaced by new Bonds shall forthwith be cancelled by the Trustee and delivered to the Board. SECTION 13.3 TRUST FOR PAYMENT OF DEBT SERVICE. (a) The Board may provide for the payment of any of the Bonds by establishing a trust for such purpose with the Trustee and depositing therein cash and/or Federal Securities which (assuming the due and punctual payment of the principal of and interest on such Federal Securities, but without reinvestment) will provide funds sufficient to pay the Debt Service on such Bonds as the same becomes due and payable until the maturity or redemption of such Bonds; provided, however, that (1) such Federal Securities must not be subject to redemption prior to their respective maturities at the option of the issuer of such Securities, (2) if any of such Bonds are to be redeemed prior to their respective maturities, either (i) the Trustee shall receive evidence that notice of such redemption has been given in accordance with the provisions hereof and such Bonds or (ii) the Board shall confer on the Trustee irrevocable authority for the giving of such notice on behalf of the Board, (3) such trust must be established only during a Term Rate Period and, if established during a Term Rate Period, all Bonds to be retired with funds from such trust must either mature or be called for redemption on or before the date immediately following such Term Rate Period, (4) prior to the establishment of such trust the Trustee must receive an opinion of Counsel with nationally recognized experience in bankruptcy matters stating in effect that upon the occurrence of an Act of Bankruptcy with respect to the Board or the Company, money and investments in such trust will not be subject to any preference claim under the Federal Bankruptcy Code. (5) prior to the establishment of such trust the Trustee must receive a report by an independent certified public accountant stating in effect that the principal and interest payments on the Federal Securities in such trust, without reinvestment, together with the cash initially deposited therein, will be sufficient to make the required payments from such trust. (6) prior to the establishment of such trust the Trustee must receive an opinion of Bond Counsel stating in effect that the creation of such trust will not cause any of the Bonds to become Taxable. (b) Cash and/or Federal Securities deposited with the Trustee pursuant to this section shall not be a part of the trust estate but shall constitute a separate, irrevocable trust fund for the benefit of the Holders of the Bonds to be paid from such fund. Such cash and the principal and interest payable on such Federal Securities shall be applied by the Trustee solely to the payment of Debt Service on such Bonds. 74 80 (c) The Board shall give each Rating Agency that maintains a rating with respect to the Bonds 10 days' notice of its intent to establish a trust for the payment of Bonds in accordance with this section and shall deliver to each such Rating Agency a copy of the opinions and report required by subsection (a)(4)(5) and (6) of this section. ARTICLE XIV MISCELLANEOUS PROVISIONS SECTION 14.1 DISCLAIMER OF GENERAL LIABILITY. It is hereby expressly made a condition of this Indenture that any agreements, covenants or representations herein contained or contained in the Bonds do not and shall never constitute or give rise to any personal or pecuniary liability or charge against the general credit of the Board, and in the event of a breach of any such agreement, covenant or representation, no personal or pecuniary liability or charge payable directly or indirectly from the general revenues of the Board shall arise therefrom. Nothing contained in this section, however, shall relieve the Board from the observance and performance of the several covenants and agreements on its part herein contained. SECTION 14.2 RETENTION OF MONEYS FOR PAYMENT OF BONDS. Should any of the Bonds not be presented for payment when due, whether by maturity or otherwise, the Trustee shall, subject to the provisions of any applicable escheat or other similar law, retain from any moneys transferred to it for the purpose of paying said Bonds so due, for the benefit of the Holders thereof, a sum of money sufficient to pay such Bonds when the same are presented by the Holders thereof for payment (upon which sum the Trustee shall not be required to pay interest). All liability of the Board to the Holders of such Bonds and all rights of such Holders against the Board under the Bonds or under the Indenture shall thereupon cease and determine, and the sole right of such Holders shall thereafter be against such deposit. If any Bond shall not be presented for payment within a period of three (3) years following the date when such Bond becomes due, whether by maturity or otherwise, the Trustee shall, subject to the provisions of any applicable escheat or other similar law, return to the Board any moneys theretofore held by it for payment of such Bond, and such Bond shall (subject to the defense of any applicable statute of limitation) thereafter be an unsecured obligation of the Board. SECTION 14.3 FORM OF REQUESTS, ETC., BY BONDHOLDERS. Any request, direction or other instrument required to be signed or executed by Holders of the Bonds may be in any number of concurrent instruments of similar tenor, signed, or executed in person or by agent appointed in writing. Such signature or execution may be proved by the certificate of a notary public or other officer at the time authorized to take acknowledgments to deeds to be recorded in Alabama, stating that the signer was known to him and acknowledged to him the execution thereof. SECTION 14.4 LIMITATION OF RIGHTS. Nothing herein or in the Bonds shall confer any right on anyone other than the Board, the Trustee, the Company, the Holders of the Bonds, the Credit Obligor, the Tender Agent and the Remarketing Agent. 75 81 SECTION 14.5 MANNER OF PROVING OWNERSHIP OF BONDS. The ownership at any given time of a Bond may be proved by a certificate of the Trustee stating that on the date stated the Bond described was registered on its books in the name of the stated party. SECTION 14.6 INTEREST RATE LIMITATION. Any interest rate specified herein for any purpose shall be deemed to be limited to the lesser of (a) such rate so specified, or (b) the highest non-usurious rate at the time permitted by the laws of Alabama. SECTION 14.7 INDENTURE GOVERNED BY ALABAMA LAW. It is the intention of the parties hereto that the Indenture shall in all respects be governed by the laws of the State of Alabama. SECTION 14.8 NOTICES TO RATING AGENCIES. In addition to all other notices required herein, the Trustee shall give prompt written notice to each Rating Agency that maintains a rating with respect to the Bonds of any proposed amendment of any instrument under the provisions of Article XII hereof, any Event of Default, any dishonor, repudiation, termination or extension (other than an extension occurring automatically by operation of the Letter of Credit) of the Letter of Credit, any redemption of Bonds prior to maturity, any issuance of a Substitute Letter of Credit and any appointment of a successor trustee or successor Remarketing Agent. SECTION 14.9 NOTICES. All notices, demands, requests and other communications hereunder shall be deemed sufficient and properly given if in writing and delivered in person to the following addresses or mailed by certified or registered mail, postage prepaid with return receipt requested, at such addresses: (a) If to the Board: The Industrial Development Board of the City of Demopolis City Hall Demopolis, Alabama 36732 (b) If to the Company: McClain of Alabama, Inc. 6200 Elmridge Sterling Heights, Michigan 48313 76 82 (c) If to the Trustee: LaSalle National Bank - Corporate Trust 135 South LaSalle Street Chicago, Illinois 60603 (d) If to the Credit Obligor: Standard Federal Bank 2600 West Beaver Road Troy, Michigan 48084 (e) If to the Remarketing Agent: LaSalle National Bank 181 West Madison, Suite 3200 Chicago, Illinois 60602 Any of the above-mentioned parties may, by like notice, designate any further or different addresses to which subsequent notices shall be sent. The Trustee and the Board will send a copy of each notice that either thereof gives to the other pursuant to the provisions hereof to the Company and the Credit Obligor; provided, however, that the failure of either the Board or the Trustee to send a copy of any such notice to the Company or the Credit Obligor shall not invalidate such notice or render it ineffective unless notice to the Company or the Credit Obligor, as the case may be, is otherwise expressly required herein. Any notice hereunder signed on behalf of the notifying party by a duly authorized attorney at law shall be valid and effective to the same extent as if signed on behalf of such party by a duly authorized officer or employee. Any notice given hereunder shall be deemed to have been given upon receipt by the person to whom such notice is required to be given hereunder; provided, however, that all notices to Bondholders given by the Trustee, including, without limitation, notices of redemption, shall be deemed given on the date such notices are deposited, postage prepaid, in the United States mail. IN WITNESS WHEREOF, the Board has caused this Indenture to be executed in its corporate name and behalf by the Chairman of the Directors, has caused its corporate seal to be hereunto affixed and has caused this Indenture to be attested by its Secretary, and the Trustee, to evidence its acceptance of the trusts hereby created, has caused this Indenture to be executed in its corporate name and behalf, has caused its corporate seal to be hereunto affixed and has 77 83 caused this Indenture to be attested, by its duly authorized officers, all in six (6) counterparts, each of which shall be deemed an original, and the Board and the Trustee have caused this Indenture to be dated as of April 1, 1997. THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By ----------------------------------------- Its -------------------------------------- Attest: - ------------------------------------------ Its Secretary LASALLE NATIONAL BANK, as Trustee By ----------------------------------------- Its Assistant Vice President Attest: - ------------------------------------------ Its Assistant Secretary 78 84 STATE OF ALABAMA ) : COUNTY OF MARENGO ) I, ______________________________, a Notary Public in and for said county in said state, hereby certify that JOHN E. NORTHCUTT, whose name as Chairman of the Board of Directors of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation under the laws of Alabama, 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 the within instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said public corporation. GIVEN under my hand and official seal of office, this ____ day of _______________, 1997. ------------------------------------ Notary Public [NOTARIAL SEAL] My Commission Expires: _______________ 79 85 STATE OF _______________ ) : COUNTY OF _______________ ) I, ______________________________, a Notary Public in and for said county in said state, hereby certify that Estelita Tucker, whose name as Assistant Vice President of LASALLE NATIONAL BANK, a national banking association, 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 the within instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said association. GIVEN under my hand and official seal of office, this ____ day of _______________, 1997. --------------------------------------- Notary Public [NOTARIAL SEAL] My Commission Expires: ___________ 80 86 EXHIBIT A To That Certain Trust Indenture between The Industrial Development Board of the City of Demopolis and LaSalle National Bank, Dated as of April 1, 1997 ================================================================================ PROJECT SITE DESCRIPTION A parcel of land lying and being in Section 11, Township 17 North, 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 01degrees50' 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 40degrees29' 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 51degrees55' 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 38degrees05' west a distance of 20.0 feet to a concrete monument set at the southern most corner of said cemetery; thence run north 51degrees55' 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. Continue thence north 51degrees55' west to the said Tombigbee River; thence southwestwardly along the southeast edge of said Tombigbee 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 along a meander line described as: from last named concrete monument run south 47degrees04' west a distance of 515.2 feet; thence run south 41degrees54' west a distance of 367.2 feet; thence run south 50degrees42' 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 01degrees50' 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: A parcel of land located in the Northeast Quarter of the Southwest Quarter (NE 1/4 of SW 1/4) and the Southeast Quarter of Northwest Quarter (SE 1/4 of NW 1/4) of Section 11, Township 17 North, Range 1 East, Marengo County, Alabama, being more particularly described as follows: 1 87 Commence at the southwest corner of the Northeast Quarter of Southwest Quarter (NE 1/4 of SW 1/4) of Section 11 and run North 01 degree 50 minutes West a distance of 651.4 feet to a point; thence turn an angle to the right and run North 40 degrees 31 minutes East a distance of 1130.83 feet to a point, said point being the northwest corner of existing Alabama Power Company substation and point of beginning of the property herein described; thence from point of beginning continue North 40 degrees 31 minutes East a distance of 150.0 feet to a point; thence turn an angle to the right and run South 49 degrees 29 minutes East a distance of 150 feet to a point; thence turn an angle to the right and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the left and run South 49 degrees 29 minutes East a distance of 115.2 feet to the northwesterly boundary line of a paved road; thence turn an angle to the right and run South 40 degrees 31 minutes West along the northwesterly margin of said road a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 115.2 feet to a point; thence turn an angle to the left and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 150 feet to the point of beginning. The foregoing property being conveyed to the Alabama Power Company by Deeds recorded October 2, 1985 in the Probate Office, Marengo County, Alabama, in Deed Book 7-U, at page 296 and Deed Book 7-U, at page 300. 2 88 EXHIBIT B To That Certain Trust Indenture between The Industrial Development Board of the City of Demopolis and LaSalle National Bank, Dated as of April 1, 1997 ================================================================================ EQUIPMENT DESCRIPTION Tool Smith - 1 Ton Air Hoist Metal Muncher Punch Press Air Compressor Fork Lift Truck General Office Furniture and Equipment Computer Monitor Emulation Board BellSouth Phone System Trailer Burn Table Crane Fork Lifts Welder Semi Truck 1 89 EXHIBIT C [DTC LOGO] BOOK-ENTRY-ONLY VARIABLE-RATE DEMAND OBLIGATION (VRDO) Letter of Representations [To be Completed by Issuer, Remarketing Agent, Tender Agent, Paying Agent, and Trustee] ----------------------------------------------------------- [Name of Issuer] ----------------------------------------------------------- [Name of Remarketing Agent] ----------------------------------------------------------- [Name of Tender Agent] ----------------------------------------------------------- [Name of Paying Agent] ----------------------------------------------------------- [Name of Trustee] ------------------------- [Date] Attention: Underwriting Department The Depository Trust Company 55 Water Street; 50th Floor New York, NY 10041-0099 Re: ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------- ---------------------- (Issue Description) (CUSIP) Ladies and Gentlemen: This letter sets forth our understanding with respect to certain matters relating to the above-referenced issue (the "Securities"). The Securities will be issued pursuant to a trust indenture, bond resolution, or other such document authorizing the issuance of the Securities dated _________________, 199__ (the "Document") _____________________________________("Underwriter") is distributing the Securities through The Depository Trust Company ("DTC"). 90 To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with its Rules with respect to the Securities, Issuer, Remarketing Agent, Tender Agent, Paying Agent, and Trustee make the following representations to DTC: 1. Prior to closing on the Securities on __________________, 199___, there shall be deposited with DTC one Security certificate registered in the name of DTC's nominee, Cede & Co., for each stated maturity of the Securities, the total of which represents 100% of the principal amount of such Securities. If, however, the aggregate principal amount of any maturity exceed $150 million, one certificate will be issued with respect to each $150 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount. Each Security certificate shall bear the following legend: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 2. In the event of any solicitation of consents from or voting by holders of the Securities, Trustee or Issuer shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall, to the extent possible, send notice of such record date to DTC not less than 15 calendar days in advance of such record date. If delivered by hand or sent by mail or overnight delivery, such notice shall be sent to: Supervisor; Proxy Reorganization Department The Depository Trust Company 7 Hanover Square; 23rd Floor New York, NY 10004-2695 If sent by telephone, such notice shall be sent to (212) 709-6896 or (212) 709-6897. Trustee or Issuer shall confirm DTC's receipt of such telecopy by telephoning (212) 709-6870. 3. In the event of a redemption or any other similar transaction resulting in the retirement of all Securities outstanding or a reduction in the aggregate principal amount of Securities outstanding ("full or partial redemption"), Trustee or Issuer shall send DTC a notice of such event not less than 30 days nor more than 60 days prior to the redemption date or, in the case of an advance refunding of all or part of the Securities outstanding, the date that the proceeds are deposited in escrow. In the event of a partial redemption of the outstanding Securities, Trustee or Issuer shall send a notice to DTC specifying: (a) the amount of the redemption; (b) the date such notice is to be mailed to beneficial owners or published (the "Publication Date"); and (c) whether any concurrent optional tender privilege is available. Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business two business days before the Publication Date. Trustee or Issuer shall forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission for multiple CUSIP numbers (if applicable), which shall include a manifest or list of each CUSIP number submitted in that transmission. The Publication Date shall not be less than 30 days nor more than 60 days prior to the redemption date. 91 Notices to DTC pursuant to Paragraph 3, if sent by mail or overnight delivery, shall be sent to: Supervisor; Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, NY 11530-4719 If sent by telecopy, such notices shall be sent to (516) 227-4164 or (516) 227-4190. If Trustee or Issuer does not receive a telecopy receipt from DTC confirming that the notice has been received, it should telephone (516) 227-4070. In the event that certain Securities are not subject to a partial redemption, DTC will exclude such Securities from its redemption procedures if such exclusion is requested as follows. Such request shall be in writing and shall contain: (a) certification by Trustee or Issuer that the principal amount of such Securities is not subject to the partial redemption and certification by a custodian/DTC Participant that the Participant's position on DTC's records includes such Securities; and (b) certification by Trustee or Issuer that the election to exclude such Securities from the partial redemption is authorized under the Document. Such request shall be sent to DTC's Call Notification Department in the manner indicated above to assure that such request is in DTC's possession no later than the close of business two business days before the Publication Date of the partial redemption notice. 4. For so long as the Securities have an adjustable rate of interest, Remarketing Agent shall deliver to DTC by hand or by telecopy, before the close of business on the final rate determination date preceding each interest payment date*, a written notice containing the following information: (a) "Today's" date (the final rate determination date); (b) Security CUSIP number; (c) Security description; (d) Interest record date; (e) Interest payment date; (f) Amount of the interest payment expressed in whole and fractional dollars per $1,000 of Security face amount; (g) Whether interest accrues record date to record date or payment date to payment date; and (h) The name, telephone number, and address of Remarketing Agent person responsible for determining (f) and (g) above. The name, telephone number, telecopy number (if available), and address of Remarketing Agent person initially responsible for determining (f) and (g) above at the time of issuance of the Securities will be: _________________________________________ _________________________________________ _________________________________________ _________________________________________ __________________________ * The final rate determination date for each interest payment shall occur not less than two business days prior to the interest payment date. -3- 92 If delivered by hand, such notice shall be sent to: Manager; VRDO Announcements Dividend Department The Depository Trust Company 7 Hanover Square; 22nd Floor New York, NY 10004-2695 If sent by telecopy, such notice shall be sent to (212) 709-1723 or (212) 709-1686. Remarketing Agent shall confirm DTC's receipt of such telecopy by telephoning (212) 709-1178. If the interest payment date is a moving calendar day (such as the first Wednesday or fifth business day of each month), or if optional tenders of Securities are made daily following same-day notice, Remarketing Agent shall send a copy of such notice to a service bureau designated by DTC, by hand or by telecopy, before the close of business on the final rate determination date preceding each interest payment date. Such notice initially shall be sent to: Attention: Ms. Jennifer Haynes Municipal Market Data 155 Federal Street; 4th Floor Boston, MA 02110-1715 If sent by telecopy, such notice shall be sent to (617) 426-8068. Remarketing Agent shall confirm Municipal Market Data's receipt of such telecopy by telephoning (617) 542-2277. In order to enable DTC to confirm independently the interest payment information provided by Remarketing Agent, Trustee shall deliver to DTC by noon ET on the business day next following the final rate determination date a written notice containing the following information. (a) "Today's" date (the business day next following the final rate determination date); (b) Security CUSIP number; (c) Security description; (d) Interest record date; (e) Interest payment date; (f) Amount of the interest payment expressed in whole and fractional dollars per $1,000 of Security face amount; and (g) The name, telephone number, telecopy number (if available), and address of Trustee person responsible for determining (f) above. The name, telephone number, telecopy number (if available), and address of Trustee person initially responsible for determining (f) above at the time of issuance of the Securities will be: ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -4- 93 Such notice shall be sent to Manager, VRDO Announcements, Dividend Department, as indicated above. If the interest payment date is a moving calendar day (such as the first Wednesday or fifth business day of each month), or if optional tenders of Securities are made daily following same-day notice. Trustee shall send a copy of such notice to a service bureau designated by DTC, by hand or by telecopy, by noon ET on the business day next following the final rate determination date. Such notice initially shall be sent to Municipal Market Data in the manner indicated earlier in this Paragraph. 5. Transactions in the Securities shall be eligible for same-day (Federal) funds settlement in DTC's Same-Day Funds Settlement ("SDFS") system. For so long as the Securities are Eligible Securities in the SDFS system ("SDFS Securities"): A. Interest payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns in same-day funds on each payment date (or the equivalent in accordance with existing arrangements between Paying Agent and DTC). Such payments shall be made payable to the order of Cede & Co. Absent any other existing arrangements, such payments shall be addressed as follows: Manager; Cash Receipts Dividend Department The Depository Trust Company 7 Hanover Square; 24th Floor New York, NY 10004-2695 B. Principal payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns in same-day funds on each payment date in the manner set forth in the SDFS Paying Agent Operating Procedures (a copy of which has previously been furnished to Paying Agent). Such payments shall be sent to DTC in time to be credited to DTC's account at the Federal Reserve Bank of New York ("FRBNY") no later than 10:00 a.m. (Paying Agent's local time) on the payment date or as soon as possible thereafter following Paying Agent's receipt of funds from Issuer. It is understood that unless DTC receives such payments in its FRBNY account by 2:00 p.m. (Eastern Time), it may be unable to distribute such payments that same day. The name, telephone number, telecopy number (if available), and address of Paying Agent person initially responsible for arranging such payments to DTC will be: ________________________________________ ________________________________________ ________________________________________ ________________________________________ 6. In the event that transactions in the Securities become eligible for next-day (Clearinghouse) funds settlement in DTC's Next-Day Funds Settlement ("NDFS") system, and for so long as the Securities are Eligible Securities in the NDFS system ("NDFS Securities"); -5- 94 A. Interest payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in next-day funds on each payment date (or the equivalent in accordance with existing arrangements between Paying Agent and DTC). Such payments shall be made payable to the order of Cede & Co. Absent any other existing arrangements, such payments shall be addressed as follows: Manager; Cash Receipts Dividend Department The Depository Trust Company 7 Hanover Square; 24th Floor New York, NY 10004-2695 B. Principal payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in next-day funds on each payment date (or the equivalent in accordance with existing arrangements between Paying Agent and DTC). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows: Collection Supervisor; Redemptions Reorganization Department The Depository Trust Company 7 Hanover Square; 23rd Floor New York, NY 10004-2695 7. It is understood that for so long as optional tenders of the Securities may be made daily following same-day or seven-day notice, such tenders will be effected by means of DTC's Deliver Order Procedures, DTC shall have no responsibility to distribute notices regarding such optional tenders, or to ascertain whether any such tender has been made. Except as otherwise provided herein, and in accordance with DTC's procedures for exercise of voting and consenting rights, the parties hereto acknowledge that so long as Cede & Co. is the sole record owner of the Securities it shall be entitled to all voting rights applicable to the Securities and to receive the full amount of all distributions payable with respect to the Securities. The parties acknowledge that DTC shall treat any DTC Participant (""Participant'') having Securities credited to its DTC accounts as entitled to the full benefits of ownership of such Securities even if the credits of Securities to the DTC accounts of such Participant result from failures to deliver Securities or improper deliveries of Securities by an owner of Securities subject to tender for purchase. Without limiting the generality of the preceding sentence, the parties acknowledge that DTC shall treat any Participant having Securities credited to its DTC accounts as entitled to receive distributions and voting rights, if any, with respect to the Securities and to receive certificates evidencing Securities if such certificates are to be issued in accordance with paragraphs 12 or 13 hereof. (The treatment by DTC of the effects of the crediting by it of Securities to the accounts of Participants described in the preceding two sentences shall not affect the rights of the parties hereto against any Participant.) 8. It is understood that for so long as optional tenders of the Securities may be made less frequently than daily following same-day or seven-day notice (e.g., during a monthly, quarterly, semi-annual, or annual tender period) and Cede & Co., as nominee of DTC, or its registered assigns, as the record owner of Securities, is entitled to tender the Securities, such tenders will be effected by means of DTC's Repayment Option Procedures. Under the Repayment Option Procedures, DTC will receive during the applicable tender period instructions from its Participants to tender Securities for purchase. The undersigned agree that such tenders for purchase may be made by DTC by means of a book-entry credit of such Securities to the account of Tender Agent, provided that such credit is made on or before the final day of the applicable tender period. DTC agrees that, promptly after the recording of any such book-entry credit, it will pro- -6- 95 vide to Tender Agent an Agent Put Daily Activity Report in accordance with the Repayment Option Procedures, identifying the Securities and the aggregate principal amount thereof as to which such tenders for purchase have been made. Trustee or Issuer shall send a notice to DTC regarding such optional tenders of Securities by hand or by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business two business days before the Publication Date. The Publication Date shall be not less than 15 days prior to the start of the applicable tender period. Such notice shall state whether any partial redemption of the Securities is scheduled to occur during the applicable optional tender period. If delivered by hand or sent by mail or overnight delivery, such notice shall be sent to: Supervisor; Pub Bond Unit Reorganization Department The Depository Trust Company 7 Hanover Square; 23rd Floor New York, NY 10004-2695 If sent by telecopy, such notice shall be sent to (212) 709-1093 or (212) 709-1094. Trustee or Issuer shall confirm DTC's receipt of such telecopy by telephoning (212) 709-1470. For so long as the Securities are SDFS Securities, principal payments (plus accrued interest, if any) as the result of optional tenders for purchase effected by means of DTC's Repayment Option Procedures shall be received by DTC on each purchase date in same-day funds in the manner set forth in the SDFS Paying Agent Operating Procedures. Such payments shall be sent in time to be credited to DTC's account at the FRBNY no later than 10:00 a.m. (Paying Agent's local time) on the purchase date or as soon as possible thereafter following Paving Agent's receipt of funds from Issuer. It is understood that; (a) until DTC receives such payments in its FRBNY account, the optionally tendered Securities will remain in Tender Agent's DTC account; and (b) unless DTC receives such payments in its FRBNY account by 2:00 p.m. (Eastern Time), it may be unable to distribute such payments to DTC Participants nor release the Securities to the Remarketing Agent that same day. The name, telephone number, telecopy number (if available), and address of Tender Agent person initially responsible for arranging such payments to DTC will be: _________________________________________ _________________________________________ _________________________________________ _________________________________________ For so long as the Securities are NDFS Securities, principal payments (plus accrued interest, if any) as the result of optional tenders for purchase effected by means of DTC's Repayment Option Procedures shall be received by Cede & Co., as nominee of DTC, or its registered assigns, on each purchase date in next-day funds or the equivalent in accordance with existing arrangements between Tender Agent and DTC. Such payments shall be made payable to the order of Cede & Co. and shall be addressed to Supervisor, Put Bond Unit, Reorganization Department, as indicated above. -7- 96 9. In the event of a change or proposed change in the interest rate mode of the Securities from one variable-rate mode to any other variable-rate mode, or to a fixed-rate mode, Trustee or Issuer shall send a notice to DTC of such event specifying, as applicable: (a) the name and number of the DTC Participant account to which mandatorily tendered Securities are to be delivered by DTC on the purchase date after DTC receives payment for such Securities; and (b) the first interest payment date under the new mode. Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business two business days before the Publication Date. the Publication Date shall be not less than 15 days prior to the expiration date of the period provided for security owner elections to retain Securities as discussed in paragraph 10. If delivered by hand or sent by mail or overnight delivery, such notice shall be sent to both: Manager: VRDO Eligibility Section Supervisor; Put Bond Unit Underwriting Department Reorganization Department The Depository Trust Company - and - The Depository Trust Company 55 Water Street; 50th Floor 7 Hanover Square; 23rd Floor New York, NY 10041-0099 New York, NY 10004-2695 If sent by telecopy, such notice shall be sent to both: DTC's Underwriting Department DTC's Reorganization Department at (212) 898-3726 or - and - at (212) 709-1093 or (212) 344-1531 (212) 709-1094 Trustee or Issuer shall confirm DTC's receipt of such telecopy by telephoning the Underwriting Department at (212) 898-3731 and the Reorganization Department at (212) 709-1470. All other notices regarding the interest rate on the Securities (before and after any change in the interest rate mode) shall be delivered to manager, VRDO Announcements, Dividend Department, as indicated in Paragraph 4. 10. In the event of expiration or substitution of a facility supporting the Securities (such as a letter of credit) or non-reinstatement of the amount available to pay interest on the Securities pursuant to such a facility, Trustee or Issuer shall send a notice to DTC of such event specifying, as applicable, the name and number of the DTC Participant account to which mandatorily tendered Securities are to be delivered by DTC on the purchase date after DTC receives payment for such Securities. Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business two business days before the Publication Date or, as applicable, immediately after Trustee receives notice that the Securities are subject to acceleration. The Publication Date shall be not less than 15 days prior to the expiration date of the period provided for security owner elections to retain Securities as discussed in paragraph 10. Such notice shall be sent to Supervisor, Put Bond Unit, Reorganization Department, as indicated in Paragraph 7. 11. Where the Document provides that the Securities are subject to mandatory tender except with respect to security owner elections to retain Securities, it is understood that DTC will use its Repayment Option Procedures to process such elections. Under the Repayment Option Procedures, DTC will receive instructions during the applicable election period from participants to retain Securities. DTC, on behalf of such Participants, will notify Tender Agent of the aggregate principal amount of Securities that will not be tendered and will be retained. If the mandatorily tendered Securities are to be replaced with two or more issues of Securities (the -8- 97 "Replacement Securities"), Tender Agent shall be responsible for allocating specific Replacement Securities by CUSIP number to the Participants that elected to retain Securities. In cases in which prior to a mandatory tender, certain Securities are not subject to such mandatory tender, if requested as follows DTC will exclude such Securities from its mandatory tender procedures. Such request shall be in writing and shall contain: (a) certification by Trustee or Issuer that the principal amount of such Securities is not subject to the mandatory tender and certification by a custodian/Participant that the Participant's position on DTC's records includes such Securities; and (b) certification by Trustee or Issuer that the election to exclude such Securities from the mandatory tender is authorized under the Document. Such request shall be sent to Supervisor. Put Bond Unit, Reorganization Department, in the manner indicated in paragraph 7 to assure that such request is in DTC's possession no later than the close of business two business days before the Publication Date of the mandatory tender notice. For so long as the Securities are SDFS Securities, principal payments (plus accrued interest, if any) as the result of mandatory tenders for purchase (including mandatory tenders upon change in the interest rate mode of the Securities, or upon expiration, substitution, or non-reinstatement of a facility supporting the Securities) shall be received by DTC on the purchase date in same-day funds in the manner set forth in Paragraph 7. For so long as the Securities are NDFS Securities, such principal payments shall be received by DTC on the purchase date in next-day funds in the manner set forth in Paragraph 7. 12. In the event of a redemption, acceleration, or any other similar transaction (e.g., tenders made and accepted in response to Trustee's or Issuer's invitation to tender) necessitating a reduction in aggregate principal amount of Securities outstanding or an advance refunding of part of the Securities outstanding, DTC, in its discretion: (a) may request Trustee or Issuer to issue and authenticate a new Securities certificate; or (b) may make an appropriate notation on the Security certificate indicating the date and amounts of such reduction in principal except in the case of final maturity, in which case the certificate must be presented to Trustee prior to payment. In the event of an advance refunding of part of the Securities outstanding, Trustee or Issuer shall obtain a CUSIP number from the CUSIP Service Bureau and issue and authenticate a new Security certificate for the refunded Securities. 13. In the event that Issuer determines that beneficial owners of Securities shall be able to obtain certificated Securities, Trustee or Issuer shall notify DTC of the availability of Security certificates. In such event, Issuer or Trustee shall issue, transfer, and exchange Security certificates in appropriate amounts, as required by DTC and others. 14. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Trustee or Issuer (at which time DTC will confirm with Trustee or Issuer the aggregate principal amount of Securities outstanding). Under such circumstances, at DTC's request Trustee or Issuer shall cooperate fully with DTC by taking appropriate action to make available one or more separate certificates evidencing Securities to any Participant having Securities credited to its DTC accounts. 15. Nothing herein shall be deemed to require Paying Agent to advance funds on behalf of Issuer. -9- 98 16. All notices and payment advices sent to DTC shall contain the CUSIP number of Securities. 17. DTC may direct Issuer, Remarketing Agent, Tender Agent, paying Agent, or Trustee to use any other telephone number or address as the number or address to which notices or payments of interest or principal may be sent. 18. Issuer, Remarketing Agent, Tender Agent, Paying Agent, or Trustee sending notices or requests to DTC shall have a method to verify subsequently the use of the means to deliver such notices and requests to DTC, and timeliness of receipt of them by DTC. 19. Issuer: (a) understands that DTC has no obligation to, and will not, communicate to its Participants or to any person having an interest in the Securities any information contained in the Security certificate(s); and (b) acknowledges that neither Participants nor any person having an interest in the Securities shall be deemed to have notice of the provisions of the Security certificate(s) by virtue of submission of such certificate(s) to DTC. Note: Very truly yours, - ---- Schedule A contains statements that DTC believes accurately described DTC, the method of effecting book- entry transfers of securities distributed through DTC, and certain related matters. --------------------------------- (Issuer) By: ----------------------------- (Authorized Officer's Signature) - --------------------------------- --------------------------------- (Remarketing Agent) (Tender Agent) By: ----------------------------- By: ----------------------------- (Authorized Officer's Signature) (Authorized Officer's Signature) - --------------------------------- --------------------------------- (Paying Agent) (Trustee) By: ----------------------------- By: ----------------------------- (Authorized Officer's Signature) (Authorized Officer's Signature) Received and Accepted: THE DEPOSITORY TRUST COMPANY By: ----------------------------- -10- 99 SCHEDULE A SAMPLE OFFERING DOCUMENT LANGUAGE DESCRIBING BOOK-ENTRY-ONLY ISSUANCE (Prepared by DTC--bracketed material may be applicable only to certain issues) 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully-registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $150 million, one certificate will be issued with respect to each $150 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.] 2. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "cleaning corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, cleaning corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [6. Redemption notices shall be sent to Cede & Co. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.] 7. Neither DTC nor Cede & Co. will consent or vote with respect to Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 100 8. Principal and interest payments on the Securities will be made to DTC. DTC's practice is to credit Direct participants' accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Issuer or the Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. [9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to the [Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct participant to transfer the Participant's interest in the Securities, on DTC's records, to the [Tender/Remarketing] Agent. The requirement for physical delivery of Securities in connection with a demand for purchase or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records.] 10. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to the Issuer or the Agent. Under such circumstances, in the event that a successor securities depository is not obtained. Security certificates are required to be printed and delivered. 11. The issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered. 12. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. -11- EX-10.69 11 BOND GUARANTY 1 EXHIBIT 10.69 ================================================================================ BOND GUARANTY AGREEMENT between MCCLAIN OF ALABAMA, INC. and LASALLE NATIONAL BANK DATED AS OF APRIL 1, 1997 ================================================================================ 2 BOND GUARANTY AGREEMENT between MCCLAIN OF ALABAMA, INC., a corporation organized under the laws of Michigan (herein called the "Company"), and LASALLE NATIONAL BANK, a national banking association in its capacity as trustee under the Trust Indenture to which reference is hereinafter made (said Bank being herein called the "Trustee"), R E C I T A L S Contemporaneously with the execution and delivery of this Guaranty Agreement, The Industrial Development Board of the City of Demopolis, a public corporation and instrumentality organized under the laws of the State of Alabama (herein called the "Board") will enter into a Trust Indenture dated as of April 1, 1997 (herein called the "Indenture") with the Trustee, under which the Board will issue its Industrial Revenue Bonds, McClain of Alabama, Inc. Series 1997 (herein called the "Bonds"), in the aggregate principal amount of $5,225,000. The proceeds of the Bonds will be used to finance the costs of the construction of improvements to a manufacturing plant and the acquisition and installation therein of certain items of machinery, equipment and other personal property (the real property on which said plant is located, said plant and said machinery, equipment and other personal property herein together called the "Project"), all for lease to the Company. Also contemporaneously with the execution and delivery of this Guaranty Agreement, the Board will enter into a Lease Agreement dated as of April 1, 1997 (herein called the "Lease") whereby the Board will lease the Project to the Company at and for a rental sufficient to pay the principal of and the interest (and premium, if any) on the Bonds as said principal, interest and premium, respectively, become due and to provide for the purchase of Bonds in accordance with the provisions of the Indenture. In order to induce the original purchaser of the Bonds to purchase the Bonds and in order to enhance the marketability of the Bonds to subsequent purchasers, thereby achieving a lower interest rate on the Bonds which will be reflected in a lower rental cost of the Project to the Company, the Company has entered into this Guaranty Agreement with the Trustee for the benefit of all who shall at any time be holders of any of the Bonds. NOW, THEREFORE, in consideration of the premises and of the respective agreements herein contained, it is hereby agreed among the Company, the Trustee, and the holders of all the Bonds issued under the Indenture (the holders of the Bonds evidencing their consent hereto by their acceptance of the Bonds and the Company and the Trustee evidencing their consent hereto by their execution hereof), each with each of the others, as follows: -1- 3 SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants that it is a corporation duly organized and in good standing under the laws of the State of Michigan; that it is not in violation of any provisions of its certificate of incorporation, or the laws of the State of Michigan; that it is duly qualified and in good standing as a foreign corporation in the State of Alabama; that it has power to enter into this Guaranty Agreement and has duly authorized the execution and delivery of this Guaranty Agreement by proper corporate action; and that no provision of this Guaranty Agreement violates or constitutes a default under any agreement, instrument, or indenture to which it is a party, or violates any provision of its certificate of incorporation, or contravenes any other requirement of law to which it may be subject. SECTION 2. GUARANTY OF THE BONDS. The Company hereby unconditionally guarantees to the Trustee for the benefit of the holders from time to time of the Bonds (a) the full and prompt payment of the principal of the Bonds and the premium, if any, payable on redemption thereof when and as the same shall become due, whether at the stated maturity thereof, by acceleration, call for redemption or otherwise, (b) the full and prompt payment of the interest on the Bonds when and as the same shall become due and (c) the full and prompt payment of all amounts required for the purchase of Bonds pursuant to the Indenture when and as the same shall become due. All payments by the Company on account of this Guaranty Agreement shall be paid in lawful money of the United States of America. The guarantee of the Company herein shall be for the equal and pro rata protection and benefit of the holders, present and future, of the Bonds, if, as, when and to the extent issued, equally, and ratably, without preference, priority or distinction of any over others by reason of priority in issuance or acquisition or otherwise. Each and every default in payment of the principal of, the premium, if any, payable on redemption of, or the interest on any of the Bonds, or the purchase price of any Bond shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. SECTION 3. OBLIGATIONS ABSOLUTE AND UNCONDITIONAL. The obligations of the Company under this Guaranty Agreement shall be absolute and unconditional and shall remain in full force and effect (except where a longer period is specified) until the principal of, the premium (if any) and the interest on all of the Bonds shall have been paid or provision for the payment thereof shall have been made in accordance with the terms of the Indenture, and such obligation shall not be discharged, impaired, modified or otherwise affected upon the happening from time to time of any event, including, without limitation thereto, any of the following, whether or not with notice to, or the consent of, the Company: (a) The compromise, settlement, release or termination of any or all of the obligations, covenants or agreements of the Board or the Company under the Lease or the Indenture; -2- 4 (b) The failure to give notice to the Company of the occurrence of an event of default under the terms and provisions of the Lease, the Indenture or this Guaranty Agreement; (c) The assignment, pledge or mortgaging or the purported assignment, pledge or mortgaging of all or any part of the interest of the Board in the Lease or the Project or the revenues therefrom; (d) The waiver of the payment, performance or observance by the Board or the Company of any of the obligations, covenants or agreements of either of them contained in the Lease, the Indenture or this Guaranty Agreement; (e) The extension of the time for payment of the principal of, the premium (if any) or the interest on, any of the Bonds or the extension of the time for the performance of any other obligations, covenants or agreements of the Board or the Company under the Lease, the Indenture or this Guaranty Agreement or under any renewals or extensions thereof or successor agreements thereto; (f) The modification or amendment (whether material or otherwise) of any obligation, covenant or agreement on the part of the Board or the Company contained in the Lease, the Indenture or this Guaranty Agreement; (g) Any failure, omission, delay or lack on the part of the Board or the Trustee, or any assignee or successor of either of them, to enforce, assert or exercise any right, power or remedy conferred upon the Trustee by this Guaranty Agreement or upon the Board or the Trustee by the Lease or the Indenture or any other act or acts on the part of the Board, the Trustee, or any of the holders from time to time of the Bonds; (h) The bankruptcy, insolvency, reorganization, appointment of a receiver for, or (except as otherwise permitted in the Lease, the Indenture or this Guaranty Agreement) dissolution of the Company, the Board, or the Trustee, or the entering by any or all of them into an agreement of composition with creditors, or the making by any or all of them of an assignment for the benefit of creditors; (i) The assertion of any rights of set-off, recoupment or counterclaim which the Company might otherwise have against the Board or the Trustee; -3- 5 (j) The default or failure of the Company to fully perform any of its obligations, covenants or agreements contained in the Lease; (k) The release or discharge of the Company by operation of law from the performance or observance of any obligation, covenant or agreement contained in the Lease; (l) The release or discharge of the Company by operation of law, to the extent that such release or discharge may be lawfully avoided, from the performance or observance of any obligation, covenant or agreement contained in this Guaranty Agreement; and (m) The invalidity or unenforceability of the Lease or the Indenture or of any provision of any thereof. SECTION 4. REMEDIES. In the event of a default in the payment of the principal of any of the Bonds or the premium, if any, payable on redemption thereof when and as the same shall become due, whether at the stated maturity thereof, by acceleration, call for redemption or otherwise, or in the event of a default in the payment of any interest on any of the Bonds when and as the same shall become due, or in the event of a default in the payment of the purchase price of any Bond required to be purchased pursuant to the Indenture, the Trustee may proceed directly, and if requested in writing so to do by the holders of twenty-five per cent (25%) in aggregate principal amount of the Bonds then outstanding, shall be obligated, upon the furnishing of satisfactory indemnity as hereinafter provided, to proceed directly against the Company under this Guaranty Agreement without first resorting to any other remedies which it may have and without resorting to any other security held by the Board or the Trustee. Before taking any action hereunder the Trustee may require that satisfactory indemnity be furnished by the holders of the Bonds then outstanding for the reimbursement of all expenses of the Trustee and for the protection of the Trustee against all liabilities, except liabilities which are adjudicated to have resulted from its own gross negligence or willful misconduct. SECTION 5. RIGHT OF ENFORCEMENT VESTED IN TRUSTEE. The right to enforce this Guaranty Agreement is (except to the extent otherwise specifically provided) vested exclusively in the Trustee for the equal and pro rata benefit of all holders at any time of the Bonds, unless the Trustee refuses or neglects to act within a reasonable time after being requested in writing so to do by the holders of twenty-five per cent (25%) in aggregate principal amount of the Bonds then outstanding and after being furnished satisfactory indemnity as aforesaid, in which event the holder of any of the Bonds may thereupon so act in the name and behalf of the Trustee; provided, however, that no such holder shall be entitled to take any action to enforce this Guaranty Agreement if and to the extent that the taking of such action would under applicable -4- 6 law result in a surrender, impairment, waiver or loss of the rights under this Guaranty Agreement of any other holders of any of the Bonds. Except to the extent allowed above, no holder of any of the Bonds shall have the right to enforce this Guaranty Agreement, and then only for the equal and pro rata benefit of the holders of all of the Bonds. SECTION 6. WAIVERS. The Company hereby expressly waives notice in writing or otherwise from the Trustee or from the holders at any time of the Bonds of their or any of their acceptance and reliance on this Guaranty Agreement. The obligations of the Company hereunder shall attach absolutely and unconditionally when the Lease shall have been executed and delivered by the Board and the Bonds shall have been sold and issued under the Indenture. The Company further waives, as to the enforcement of this Guaranty Agreement, all rights of exemption that it may have under the constitution and laws of the State of Alabama or any other state as to any levy on and sale of property; and it will pay all reasonable costs, expenses and fees, including any reasonable attorneys' fees, that may be incurred by the Trustee or any holder of the Bonds in enforcing, or attempting to enforce, this Guaranty Agreement following any default on the part of the Company hereunder, whether the same shall be enforced by suit or otherwise, but if and only if any such party entitled to enforce this Guaranty Agreement is successful in such efforts or a final judgment for such party is rendered by a court of competent jurisdiction. SECTION 7. COMPANY TO MAINTAIN EXISTENCE. So long as this Guaranty Agreement shall remain effective, the Company will maintain its existence and will not merge, consolidate or dispose of all or substantially all its assets (either in a single transaction or in a series of related transactions) except as permitted in the Lease. SECTION 8. DELAY NO WAIVER. No delay in the exercise of, or failure to exercise any, right, remedy or power accruing upon any default or failure in the performance of any obligation under this Guaranty Agreement shall impair any such right, remedy or power or shall be construed to be a waiver thereof, but any such right, remedy or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Trustee or any holder or former holder of a Bond to exercise any right, remedy or power reserved to it in this Guaranty Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. If the Company should default in the performance of any obligation under this Guaranty Agreement and such default should thereafter be waived by the Trustee, such waiver shall be limited to the particular default so waived. No waiver, amendment, release or modification of this Guaranty Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the Trustee. SECTION 9. NOTICES. All notices, demands, requests and other communications hereunder shall be deemed sufficient and properly given if in writing and delivered in person to the following addresses or received by certified or registered mail, postage prepaid, at such addresses: -5- 7 (a) If to the Board: The Industrial Development Board of the City of Demopolis City Hall Demopolis, Alabama 36732 (b) If to the Company: McClain of Alabama, Inc. 6200 Elmridge Sterling Heights, Michigan 48313 (c) If to the Trustee: LaSalle National Bank - Corporate Trust 135 South LaSalle Street Chicago, Illinois 60603 Any of the above-mentioned parties may, by like notice, designate any further or different addresses to which subsequent notices shall be sent. A copy of any notice given to the Board, the Company or the Trustee pursuant to the provisions of this Guaranty Agreement shall also be given to the other parties to whom notice is not herein required to be given, but the failure to give a copy of such notice to any party claiming the right to receive it pursuant to this sentence shall not invalidate such notice or render it ineffective unless notice to such party is otherwise herein expressly required. Any notice hereunder signed on behalf of the notifying party by a duly authorized attorney at law shall be valid and effective to the same extent as if signed on behalf of such party by a duly authorized officer or employee. SECTION 10. AMENDMENTS. This Guaranty Agreement may only be amended as provided in the Indenture. SECTION 11. BINDING EFFECT. This Guaranty Agreement shall be binding upon, and shall inure to the benefit of, the Company, the Trustee and the holders from time to time of the Bonds and their respective successors and assigns. SECTION 12. TERMINATION UPON PAYMENT OF BONDS. The Company's obligations hereunder shall cease and terminate upon full payment of the principal of and the interest and premium (if any) on the Bonds as provided in the Indenture. -6- 8 SECTION 13. SEVERABILITY. The provisions of this Guaranty Agreement are severable. In the event any portion, provision, section or clause hereof is held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any of the remaining portions, provisions, sections or clauses hereof. This Guaranty Agreement shall be governed exclusively by the applicable laws of the State of Alabama. -7- 9 IN WITNESS WHEREOF, the Company and the Trustee have caused this Guaranty Agreement to be executed in their respective names, the Company and the Trustee have caused their respective corporate seals to be hereunto affixed and has caused this Guaranty Agreement to be attested, all by their duly authorized officers, in six (6) counterparts, each of which shall be deemed an original, and the Company and the Trustee have caused this Guaranty Agreement to be dated as of April 1, 1997. McCLAIN OF ALABAMA, INC. By --------------------------------- Its --------------------------------- Attest: - ------------------------------------ Its Secretary LASALLE NATIONAL BANK By ------------------------------- Its Assistant Vice President Attest: - ----------------------------------- Its Assistant Secretary -8- 10 STATE OF _______________ ) : COUNTY OF _______________ ) I, the undersigned, a Notary Public in and for said county in said state, hereby certify that ______________________________, whose name as _______________________ 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 the within instrument, he, 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 of office, this _____ day of _______________, 1997. ----------------------------------------- Notary Public [NOTARIAL SEAL] My Commission Expires: ------------------- -9- 11 STATE OF _______________ ) : COUNTY OF _______________ ) I, the undersigned, a Notary Public in and for said county in said state, hereby certify that ESTELITA TUCKER, whose name as Assistant Vice President of LASALLE NATIONAL BANK, a national banking association, 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 the within instrument, she, as such officer and with full authority, executed the same voluntarily for and as the act of said association. GIVEN under my hand and official seal of office, this ____ day of _______________, 1997. ---------------------------------------- Notary Public [NOTARIAL SEAL] My Commission Expires: ------------------ -10- EX-10.70 12 MORTGAGE LEASES 1 EXHIBIT 10.70 ================================================================================ MORTGAGE, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT Dated as of April 1, 1997 from THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS and McCLAIN OF ALABAMA, INC. to LaSALLE NATIONAL BANK ================================================================================ THIS DOCUMENT WAS PREPARED BY: 2 MORTGAGE, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT THIS MORTGAGE, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT dated as of April 1, 1997 is entered into by THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS, a public corporation organized under the laws of the State of Alabama (the "Board") and McCLAIN OF ALABAMA, INC., an Alabama corporation (the "Company"), (the Board and the Company being hereinafter sometimes together referred to as the "Mortgagors"), for the benefit of LaSALLE NATIONAL BANK, a national banking association (the "Credit Obligor"). Recitals Simultaneously with the execution and delivery hereof, the Board will issue its $_________ Industrial Revenue Bonds, McClain of Alabama, Inc., Series 1997 (the "Bonds") pursuant to a Trust Indenture dated as of April 1, 1997 (the "Indenture") between the Board and LaSalle National Bank (the "Trustee"). The proceeds of the Bonds will be used to construct a manufacturing plant (the "Plant") on certain real property owned by the Board (the "Project Site") and to acquire and install in the Plant and elsewhere on the Project Site certain items of machinery, equipment and other personal property (the "Equipment"). Simultaneously with the delivery of the Bonds, the Board and the Company will enter into a Lease Agreement dated as of April 1, 1997 (the "Lease Agreement"), whereby the Board will lease the Project Site, the Plant and the Equipment (together, the "Project") to the Company and the Company will agree to pay rentals to the Board at such times and in such amounts as shall be sufficient (i) to pay when due the principal of, premium (if any), and interest ("Debt Service") on the Bonds and the purchase price of Bonds tendered for purchase pursuant to the mandatory or optional tender provisions of the Indenture and (ii) to pay certain additional amounts to the Board with respect to the Project Site. The Bonds shall be limited obligations of the Board payable solely out of the rentals payable by the Company pursuant to the Lease Agreement and any other revenues and receipts derived by the Board from the leasing or sale of the Project (the "Lease Revenues"). As security for the payment of Debt Service on the Bonds, the Company will enter into a Bond Guaranty Agreement dated as of April 1, 1997 (the "Bond Guaranty") in favor of the Trustee, whereby the Company will guarantee payment when due of Debt Service on the Bonds. As additional security for the payment of the Bonds, the Company will cause LaSalle National Bank (in its capacity as issuer of the initial Letter of Credit referred to below, herein 3 called the "Credit Obligor") to issue an irrevocable letter of credit (the "Letter of Credit') in favor of the Trustee in the amount of (i) the aggregate principal amount of the Bonds, to enable the Trustee to pay the principal amount of Bonds when due and to pay the principal portion of the purchase price of Bonds tendered (or deemed tendered) to the Trustee for purchase, (ii) interest on the Bonds for a period of 45 days at the rate of 12% per annum, to enable the Trustee to pay interest on the Bonds when due and to pay the interest portion of the purchase price of Bonds tendered (or deemed tendered) to the Trustee for purchase and (iii) 3% of the principal of the Bonds, to enable the Trustee to pay premium due upon the redemption of the Bonds under certain circumstances. The Letter of Credit will be issued by the Credit Obligor pursuant to a Credit Agreement dated as of April 1, 1997 (the "Credit Agreement") between the Credit Obligor and the Company, whereby the Company will, agree, among other things, to reimburse the Credit Obligor for all amounts drawn by the Trustee pursuant to the initial Letter of Credit. As security for the Company's obligations under the Credit Agreement, the Company and the Board shall execute this instrument in favor of the Credit Obligor, whereby the Credit Obligor will be granted a mortgage, assignment and pledge of, and security interest in, the Project, the rights of the Board and the Company under the Lease Agreement, the Lease Revenues, and certain other collateral. NOW, WHEREFORE, in consideration of the foregoing recitals and to induce the Credit Obligor to enter into the Credit Agreement and to issue the Letter of Credit, and to secure the prompt payment of all amounts due under the Credit Agreement and this Mortgage, and also to secure the full and complete performance of each and every obligation, covenant, duty and agreement of the Mortgagors contained in this Mortgage and of the Company contained in the Credit Agreement: 4 ARTICLE 1 Definitions and Other Provisions of General Application SECTION 1.1 Definitions For all purposes of this Mortgage, except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article. Singular terms shall include the plural as well as the singular and vice versa. (2) The definition in the recitals to this instrument are for convenience only and shall not affect the construction, hereof. (3) All references in this instrument to designated "articles", "sections" and other subdivisions are to the designated articles, sections and subdivisions of this instrument as originally executed. (4) The terms "herein", "hereof" and "hereunder and other words of similar import refer to this Mortgage as a whole and not to any particular article, section or other subdivision. (5) All references in this instrument to a separate instrument are to such separate instrument as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof. (6) The term "person" shall include any individual, corporation, partnership, joint venture, association, trust, unincorporated organization and any government or any agency or political subdivision thereof. Additional Rent shall mean the Rental Payments payable pursuant to Sections 5.3 and 5.4 of the Lease Agreement. Basic Rent shall mean the Rental Payments payable pursuant to Section 5.2 of the Lease Agreement. Bond Guaranty shall mean that certain Bond Guaranty Agreement dated as of April 1, 1997, executed by the Company in favor of the Trustee. 5 Bonds shall mean the $_________ aggregate principal amount of Industrial Revenue Bonds, McClain of Alabama, Inc. Series 1997 issued by the Board pursuant to the Indenture. Collateral shall mean all property and, rights mortgaged, assigned or pledged pursuant to, or otherwise subject to the lien of, this Mortgage. Condemnation Awards shall have the meaning stated in the fourth Granting Clause of Article 2. Credit Agreement shall mean that certain Credit Agreement dated as of April 1, 1997 between the Company and the Credit Obligor. Credit Obligor shall mean LaSalle National Bank, an Alabama banking corporation, and its successors and assigns. Equipmentshall have meaning stated in the third Granting Clause of Article 2. Event of Default shall have the meanings stated in Section 7.01 hereof. An Event of Default shall "exist" if an Event of Default shall have occurred and be continuing. Financing Documents shall mean the Indenture, the Lease Agreement, the Bond Guaranty, the Credit Agreement and this Mortgage. Indentureshall mean that certain Trust Indenture dated as of April 1, 1997 between the Board and the Trustee. Board shall mean The Industrial Development Board of the City of Auburn, a public corporation organized under the laws of the State of Alabama, and its successors and assigns. Lease Agreement shall mean that certain Lease Agreement dated as of April 1, 1997, between the Board and the Company. Lease Revenues shall mean all Rental Payments and all other revenues, rentals or receipts derived by the Board from the leasing or sale of the Project. 6 Letter of Creditshall mean the letter of credit with respect to the Bonds to be issued by the Credit Obligor in favor of the Trustee pursuant to the Credit Agreement. Mortgage shall mean this instrument as originally executed or as it may from time to time be supplemented, modified or amended by one or more instruments entered into pursuant to the applicable provisions hereof. Mortgagors shall mean the Board and the Company. Obligations shall mean: (i) all letter of credit commissions, fees, charges and costs becoming due and payable under the Credit Agreement in accordance with the terms thereof, (ii) all amounts becoming due and payable under the Credit Agreement in accordance with the terms thereof as reimbursement of sums paid by the Credit Obligor under the Letter of Credit; (iii) all interest becoming due and payable under the Credit Agreement in accordance with the terms thereof; (iv) all amounts becoming due and payable under the Credit Agreement in accordance with the terms thereof upon the occurrence and continuance of an event of default, as therein defined, under the Credit Agreement; (v) all amounts payable by the Company under the Credit Agreement as reimbursement of increased cost to the Credit Obligor caused by changes in laws or regulations or in the interpretation thereof; (vi) all other amounts payable by the Company under the Credit Agreement; (vii) all amounts payable by the Company under the terms of this Mortgage (including but not limited to reimbursement for advancements made by the Credit Obligor under this Mortgage) and any other security agreements, pledge agreements or other documents now or hereafter evidencing or securing the Company's performance of its obligations under the Credit Agreement; and (viii) all renewals and extensions of any or all the obligations of the Company described in the foregoing clauses (i) through (vii) (including without limitation any renewal or extension of, and any substitute for, the Letter of Credit), whether or not any renewal or extension agreement is executed in connection therewith. 7 Permitted Encumbrances shall mean (i) the Indenture; (ii) the Lease Agreement; (iii) liens for taxes, assessments and other governmental charges that are not delinquent or that are being contested in good faith by appropriate proceedings; (iv) mechanics', materialmen's or other similar liens arising in the ordinary course of business, securing obligations that are not delinquent or that are being contested in good faith by appropriate proceedings; (y) liens in respect of judgments or awards with respect to which an appeal or other proceedings for review are being prosecuted in good faith and with respect to which a stay of execution pending such appeal or proceedings for review has been secured; and (vi) restrictions, exceptions, reservations, conditions, limitations, interests and other matters that are identified in Exhibit B to this Mortgage. Personal Property and Fixtures shall mean the Equipment and all other personal property and fixtures constituting part of the Collateral. Plant means the manufacturing plant to be constructed on the Project Site out of the proceeds of the Bonds. Project shall mean (i) the Project Site, (ii) the Plant and (iii) the Equipment. Project Sitemeans the real property described in the first Granting Clause of Article 2. Rental Payments shall mean the Basic Rent and the Additional Rent. Rents shall have the meaning suited in the ninth Granting Clause of Article 2. Special Funds shall mean all funds and accounts established pursuant to the Indenture, including without limitation the Debt Service Fund, and the Bond Purchase Fund and the Construction Fund established pursuant to the Indenture. Subleasesshall have the meaning stated in the ninth Granting Clause of Article 2. Trusteeshall mean LaSalle National Bank, a national banking association, in its capacity as trustee under the Indenture, and its successors and assigns. Company shall mean McClain of Alabama, Inc., an Alabama corporation, and its successors and assigns. 8 SECTION 1.2 Effect of Headings and Table of Contents. The article and section headings herein and in the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.3 Date of Mortgage. The date of this Mortgage is intended as and for a date for the convenient identification of this Mortgage and is not intended to indicate that this Mortgage was executed and delivered on said date. SECTION 1.4 Severability Clause. If any provision in this Mortgage shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.5 Governing Law. This Mortgage shall be construed in accordance with and governed by the laws of the State of Alabama. SECTION 1.6 Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. 9 ARTICLE 2 Granting Clause The Mortgagors have bargained and sold and do hereby grant, bargain, sell and convey to the Credit Obligor, its successors and assigns, the following property and interests in property, and have granted and do hereby grant to the Credit Obligor a security interest in said property and interests in property: I. (Project Site) [Insert Property Description] II. (Equipment for Project) The personal property and fixtures described in Exhibit A attached hereto and all other personal property and fixtures acquired or to be acquired by the Board with proceeds of the Bonds or pursuant to any provision of the Lease Agreement, including all substitutions and replacements for such personal property and fixtures and the, proceeds thereof (herein referred to as the "Equipment"). III. (Company's Other Equipment) All personal property and fixtures now owned or hereafter acquired by Company, or in which the Company has or shall hereafter acquire any interest, that are located on or in the property constituting a part of the Project or that are used or useful in connection with the business of the Company conducted at the Project. IV. (Condemnation Awards) All awards or payments, including all interest thereon, together with the right to receive the same, that may be made to the Board or the Company with respect to the Collateral as a result of the exercise of the right of eminent domain, any damage to or destruction of the Collateral or any pan thereof, or any other injury to or decrease in the value of the Collateral (herein referred to as "Condemnation Awards"), and all right, title and interest of the Board or 10 the Company in and to any policies of insurance (and the proceeds thereof) with respect to any damage to or destruction of the Collateral. V. (Rental Payments With Respect to Project) All Rental Payments and all other revenues, rentals and receipts derived by the Board from the leasing or sale of the Project, except for Additional Rent payable to the Board or the Trustee; provided, however, that unless and until the Bonds are accelerated pursuant to Section 10.2(a) of the Indenture and the Credit Obligor pays the draw on the Letter of Credit made pursuant to Section 10.2(a) of the Indenture, all Rental Payments with respect to debt service on the Bonds shall be applied as provided in the Lease Agreement and the Indenture. VI. (Rights of Board Under Lease Agreement) All right, title and interest of the Board in and to the Lease Agreement (except for (i) rights of the Board to indemnification, reimbursement of expenses or Additional Rent payable to the Board, and (ii) rights of the Board to receive notices or other communications thereunder), together with all powers, privileges, options and other benefits of the Board contained in the Lease Agreement; provided, however, that nothing contained in this clause shall impair, diminish or otherwise affect the Board's obligations under the Lease Agreement or impose any such obligations on the Credit Obligor. VII. (Special Funds) Money and investments from time to time on deposit in, or forming a part of, the Special Funds (as defined in the Indenture), subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. VIII. (Leasehold Estate of Company in Project) The Company's leasehold estate and all other rights, title and interests of the Company under and pursuant to the Lease Agreement, together with all the rights, privileges and options set forth therein (including but not limited to the options set forth in Article XI of the Lease Agreement). 11 IX. (Subleases and Rents) (a) All written or oral subleases or other agreements for the use or occupancy of all or any portion of the Collateral with respect to which the Company is the sublessor and any and all extensions and renewals thereof, now or hereafter existing (collectively, the "Subleases"); (b) Any and all guaranties of performance by sublessee under the Subleases; (c) The immediate and continuing right to collect and receive all the rents, income, receipts, revenues, issues and profits now due or that may hereafter become due or to which the Company may now be or may hereafter (including during the period of redemption, if any) become entitled to demand or claim, arising or issuing from or out of the Subleases or from or out of the Collateral, or any part thereof, including but not limited to minimum rents, additional rents, percentage rents, common area maintenance charges, parking charges, tax and insurance premium contributions, liquidated damages upon default, the premium payable by any sublessee upon the exercise of any cancellation privilege provided for in any of the Subleases, and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by destruction or damage to the Collateral, together with any and all rights and claims of any kind that the Company may have against any such sublessee under the Subleases or against any sub-sublessee, or occupants of the Collateral, all such moneys, rights and claims described in this subparagraph (c) being hereinafter referred to as the "Rents"; provided, however, that so long as no Event of Default has occurred under this Mortgage, the Company shall have the right under a license granted hereby (but limited as provided in Section 8.07 below) to collect, receive and retain the Rents (but not prior to accrual thereof); and (d) Any award, dividend or other payment made hereafter to the Company in any court procedure involving any of the sublessee under the Subleases in any bankruptcy, insolvency or reorganization proceeding in any state or federal court and any and all payments made by sublessee in lieu of rent, the Company hereby appointing the Credit Obligor as their irrevocable attorney-in-fact to appear in any action and collect any such award, dividend or other payment. X. Any and all other real or personal property of every kind and nature from time to time hereafter by delivery or by writing of any kind conveyed, mortgaged, pledged, assigned or transferred to the Credit Obligor as and for additional security hereunder by the Mortgagors, or any of them, or by anyone in the behalf of, or with the written consent of, the Mortgagors, or any of them. 12 All of the property described in the foregoing Granting Clauses is herein sometimes together referred to as the "Collateral." TO HAVE AND TO HOLD the Collateral, together with all the rights, privileges and appurtenances thereunto belonging, unto the Credit Obligor, its successors and assigns, forever. 13 ARTICLE 3 Representations and Warranties To induce the Credit Obligor to enter into the Credit Agreement and to issue the Letter of Credit, the Mortgagors, jointly and severally, represent and warrant that: (1) Valid Title, etc. The Board is lawfully seized of an indefeasible estate in fee simple in and to, and good title to, the Project Site, subject to the Lease Agreement; the Company is lawfully seized of a valid leasehold estate, under the terms of the Lease Agreement, in the Project Site; the Mortgagors have a good right to sell and mortgage, and grant a security interest in, the Collateral; the Collateral is subject to no liens, encumbrances or security interests other than Permitted Encumbrances; and the Mortgagors will forever warrant and defend the title to the Collateral unto the Credit Obligor against the claims of all persons whomsoever, except those claiming under Permitted Encumbrances. It is expressly understood and agreed that, with respect to the Special Funds, the lien and security interest created by this Mortgage is junior and subordinate to the lien and security interest created by the Indenture. (2) Compliance by Board with Terms of Lease Agreement and Indenture. The Board shall comply, fully and faithfully, with all of its obligations under the Lease Agreement and Indenture. If the Board shall fail or refuse to do so, the Credit Obligor may, but shall not be required to, perform any or all of such obligations of the Board under the Lease Agreement and Indenture, including, but not limited to, the payment of any or all sums due from the Board thereunder. Any sums so paid by the Credit Obligor shall constitute part of the Obligations and shall be secured hereby. (3) Maintenance of Lien Priority. The Mortgagors shall take all steps necessary to preserve and protect the validity and priority of the liens on and security interests in the Collateral created hereby. The Mortgagors shall execute, acknowledge and deliver such additional instruments as the Credit Obligor may deem necessary in order to preserve, protect, continue, extend or maintain the lien and security interest created hereby as a lien on and security interest in the Collateral subject only to Permitted Encumbrances, except as otherwise permitted under the terms of this Mortgage. All costs and expenses incurred in connection with the protection, preservation, continuation, extension or maintaining of the liens and security interests hereby created shall be paid by the Company. 14 ARTICLE 4 Covenants of Company SECTION 4.1 Payment of Taxes and Other Assessments. The Company will pay or cause to be paid all taxes, assessments and other governmental, municipal or other public dues, charges, fines or impositions imposed or levied upon the Collateral or on the interests created by this Mortgage or with respect to the filing of this Mortgage, and any tax or excise on rents or other tax, however described, assessed or levied by any state, federal or local taxing authority as a substitute, in whole or in part, for taxes assessed or imposed on the Collateral or on the lien and other interests created by this Mortgage, and at least 10 days before said taxes, assessments and other governmental charges are due, the Company will deliver receipts therefor to the Credit Obligor or, in the case of mortgage filing privilege taxes, pay to the Credit Obligor an amount equal to the taxes. The Company may, at its own expense, in good faith contest any such taxes, assessments and other governmental charges and, in the event of any such contest, may permit the taxes, assessments or other governmental charges so contested to remain unpaid during the period of such contest and any appeal therefrom, provided that during such period enforcement of such contested items shall be effectively stayed. SECTION 4.2 Insurance. (a) The Company shall obtain and maintain insurance against liability for bodily injury and property damage and against loss or damage by fire and other hazards and casualties arising or occurring with respect to the Project and the Personal Property and Fixtures, with such limits and coverage as the Credit Obligor may from time to time require, and in any event including: (1) insurance against loss or damage to the Project, Personal Property and Fixtures by fire, lightning, water and wind, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in the State of Alabama, to the extent of the full insurable value of such property, but in any event not less than the Credit Amount (as defined in the Credit Agreement); (2) rental or business interruption insurance in amounts sufficient to pay, during any period of up to 6 months in which the Project, Personal Property and Fixtures may be damaged or destroyed, to the Credit Obligor all amounts required by this Mortgage and the Credit Agreement; (3) steam boiler, machinery and other similar insurance of the types and in amounts not less than customarily carried by persons owning or operating like properties; (4) if any part of the Project, Personal Property and Fixtures is located in a flood hazard area designated as such under the national flood insurance program, flood insurance to the extent of the maximum limit of coverage made available with respect to such property under such program; and 15 (5) insurance against liability for bodily injury to or death of persons and for damage to or loss of property occurring on or about or with respect to the Project, Personal Property and Fixtures in the minimum amount of $5,000,000 combined single limit coverage. (b) All such policies of casualty insurance shall be in such companies as shall be satisfactory to the Credit Obligor and shall name the Credit Obligor as a named insured and provide that any losses payable thereunder shall (pursuant to loss payable clauses, in form and content acceptable to the Credit Obligor, to be attached to each policy) be payable to the Credit Obligor, and provide that the insurance provided thereby, as to the interest of the Credit Obligor, shall not be invalidated by any act or neglect of the Mortgagors, nor by the commencing of any proceedings by or against any of the Mortgagors in bankruptcy, insolvency, receivership or any other proceedings for the relief of a debtor, nor by any foreclosure, repossession or other proceedings relating to the property insured, nor by any occupation of such property or the use of such property for purposes more hazardous than permitted in the policy. (c) The Company shall furnish to the Credit Obligor insurance certificates, in form and substance satisfactory to the Credit Obligor, evidencing compliance by it with the terms of this Section and, upon the request of the Credit Obligor at any time, the Company shall furnish the Credit Obligor with photostatic copies of the policies required by the terms of this Section. The Company will cause each insurer under each of the policies to agree (either by endorsement upon such policy or by letter addressed to the Credit Obligor) to give the Credit Obligor at least 10 days' prior written notice of the cancellation of such policies in whole or in part or the lapse of any coverage thereunder. (d) The Mortgagors agree that they will not take any action or fail to take any action which action or inaction would result in the invalidation of any insurance policy required hereunder. At least 10 days prior to the date the premiums on each such policy or policies shall become due and payable, the Company shall furnish to the Credit Obligor evidence of the payment of such premiums. (e) With respect to all such casualty insurance, the Credit Obligor is hereby authorized, but not required, on behalf of the Mortgagors, to collect for, adjust or compromise any losses under any such insurance policies and to apply, at its option, the loss proceeds (less expenses of collection) on the Obligations, in any order and whether or not then due, or hold such proceeds as a reserve against the Obligations, or apply such proceeds to the restoration of the property affected, or release the same to the Mortgagors; but no such application, holding in reserve or release shall cure or waive any default by the Mortgagors. In case of a sale pursuant to the foreclosure provisions hereof, or any conveyance of all or any part of the Project, Personal Property and Fixtures in extinguishment of the Obligations, complete title to all insurance policies on the Collateral and the unearned premiums with respect thereto shall pass to and vest in the purchaser or grantee of such property. 16 SECTION 4.3 Condemnation Awards. The entire proceeds of any Condemnation Award shall be paid to the Credit Obligor and, after first applying such award to the payment of all costs and expenses (including attorneys' fees) reasonably incurred by the Credit Obligor in the collection thereof, the Credit Obligor may, at its option, apply the balance to the payment of the Obligations in any order and whether or not then due, or hold such balance as a reserve against the Obligations, or apply such balance to the restoration or replacement of the Collateral, or release such balance to the Mortgagors. No such application, holding in reserve or release shall cure or waive any default of the Mortgagors. SECTION 4.4 Waste, Demolition, Alteration or Replacement. The Company will cause the Collateral and every part thereof to be maintained, preserved and kept in safe and good repair, working order and condition, will not commit or permit waste thereon, will not remove, demolish or materially alter the design or structural character of any building now or hereafter erected on the Project Site without the express prior written consent of the Credit Obligor, will comply with all laws and regulations of any governmental authority with reference to the Collateral and the manner and use of the same, and will from time to time make all necessary and proper repairs, renewals, additions and restorations thereto so that the value and efficient use thereof shall be preserved and maintained. The Company agree not to remove any of the fixtures or personal property included in the Collateral, without the express prior written consent of the Credit Obligor and unless the same is immediately replaced with like property of at least equal value and utility. SECTION 4.5 Compliance by Company with Term of Lease. The Company shall comply, fully and faithfully, with all of its obligations under the Lease Agreement, so as to keep the Lease Agreement in full force and effect. If the Company fails or refuses, to do so, the Credit Obligor may, but shall not be required to, perform any and all of such obligations of the Company under the Lease Agreement, including but not limited to the payment of any or all rent and other sums due from the Company thereunder. Any rent or other sums so paid by the Credit Obligor shall constitute part of the Obligations and shall be secured hereby. SECTION 4.6 Hazardous Materials and Related Matters. (a) The Company represents and warrants that it is currently in compliance with, and covenants and agrees that it and all other persons who manage, use, operate or occupy the Project, Personal Property and Fixtures shall comply with, all federal, soft and local laws, regulations and orders regulating health, safety and environmental matters, including without limitation air pollution, soil and water pollution and the use, generation, storage, handling or disposal of hazardous material (defined below in this Section). (b) The Company shall not generate, handle, use, store, treat, discharge, release or dispose of any hazardous material at the Project without the express written approval of the Credit Obligor. 17 (c) Credit Obligor shall have the right at any time to conduct an environmental audit of the Project, and the Company agrees to cooperate in the conduct of such audit. (d) Company agrees to indemnify and hold harmless Credit Obligor from and against all losses, liabilities, penalties, claims and other costs of any kind or of any nature (including without limitation the fees and expenses of counsel for the Credit Obligor) which may at any time be imposed upon, incurred by or asserted against Credit Obligor in connection with or arising from or out of the breach of any warranty, covenant or agreement or the inaccuracy of any representation contained in this Section. The covenant of indemnification contained in this Section shall survive the payment of the Obligations. (e) For purposes of this Section the term "hazardous material" shall mean any hazardous, toxic or dangerous waste, substance or material defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act of the United States Congress, or in any other law, regulation or order, now or hereafter in effect, of any governmental authority regulating, or imposing liability or standards of conduct relating to, any hazardous, toxic or dangerous waste, substance or material. 18 ARTICLE 5 Transfer of, or Liens on, Collateral SECTION 5.1 Prohibition Against Transfers and Liens. The Mortgagors covenant and agree that they will not, without the express prior written consent of the Credit Obligor, sell, transfer, convey or otherwise dispose of, or create, or permit or suffer to exist, any lien, security interest or other encumbrance (other than Permitted Encumbrances) on, all or any part of the Collateral (including but not limited to any leases and rents) or any interests therein, it being expressly understood and agreed that a violation by the Mortgagors or either of them of the provisions of this Article 5 shall constitute an Event of Default under this Mortgage. Any sale, transfer, conveyance, other disposition or act of creating, permitting or suffering to exist any lien, security interest or other encumbrance in violation of this Article 5 shall be null, void and of no effect. 19 ARTICLE 6 Defeasance If (i) the Company shall pay in full and discharge all the Obligations; and (ii) the Mortgagors shall then have kept and performed each and every obligation, covenant, duty, condition and agreement herein or in the Credit Agreement (or both) imposed on or agreed to by them; and (iii) the Letter of Credit shall then be terminated; then this Mortgage and the grants and conveyances contained herein shall become null and void, and the Collateral shall revert to the Mortgagors, and the entire estate, right, title and interest of the Credit Obligor shall thereupon cease; and the Credit Obligor shall, upon the request of the Mortgagors and at the cost and expense of the Company, deliver to the Mortgagors proper instruments acknowledging satisfaction of this instrument and terminating all financing statements filed in connection herewith; otherwise, this Mortgage shall remain in full force and effect. Notwithstanding anything to the contrary contained in this Article 6 or elsewhere in this Mortgage, it is expressly understood and agreed that, although there may be from time to time occasions when no Obligations shall be outstanding, this Mortgage and the lien thereof and security interests created thereby shall nevertheless remain in full force and effect, and none of the estate, right, title and interest of the Credit Obligor passing by this Mortgage shall divest nor shall the Collateral revert to the Mortgagors, so long as any one or more or all of the following circumstances exist: (1) the Credit Obligor has any obligation to issue the Letter of Credit; or (2) the Letter of Credit has been issued and is outstanding; or (3) any Obligations are outstanding. 20 ARTICLE 7 Events of Default SECTION 7.1 Events of Default. Any one or more of the following shall constitute an event of default (an "Event of Default") under this Mortgage (whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the performance, or breach, of any covenant, condition or agreement on the part of the Mortgagors contained in Sections 4.01, 4.02, 4.04 or 5.01 hereof, or (2) default in the performance, or breach, of any covenant or warranty of the Mortgagors in this Agreement (other than a covenant or warranty, a default in the performance or breach of which is elsewhere in this Section specifically dealt with), and the continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Mortgagors by the Credit Obligor a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "notice of default" hereunder; or (3) the occurrence of an event of default, as therein defined, under any other Financing Document and the expiration of the applicable grace period, if any, specified therein; or (4) the interest of the Credit Obligor in the Collateral shall become endangered by reason of the enforcement of any prior lien or encumbrance thereon (other than the lien of the Indenture with respect to the Special Funds); or (5) the lien or security interest created by this Mortgage is invalid or unenforceable as to any part of the Obligations or is invalid or unenforceable as to any part of the Collateral. 21 ARTICLE 8 Rights of Credit Obligor Upon Default SECTION 8.1 Acceleration of Indebtedness, etc. If an Event of Default exists, the Credit Obligor may notify the Trustee that an event of default, as therein defined, under the Credit Agreement has occurred and is continuing (it being understood that the occurrence of an Event of Default hereunder shall constitute an event of default under the Credit Agreement) and may, by notice to the Mortgagors, affective upon dispatch, declare all of the Obligations, including but not limited to the obligation of the Company to reimburse the Credit Obligor under the Credit Agreement, to be forthwith due and payable, whereupon all the Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Mortgagors, and the Credit Obligor may immediately enforce payment of all such amounts and exercise any or all of its rights and remedies under this Mortgage and the Credit Agreement. SECTION 8.2 Operation of Collateral by Credit Obligor. In addition to all other rights herein and in the Credit Agreement conferred on the Credit Obligor, if an Event of Default exists, the Credit Obligor (or any person, firm or corporation assigned by the Credit Obligor) may, but shall not be obligated to, enter upon and take possession of any or all of the Collateral, exclude the Mortgagors therefrom, and hold, use, administer, manage and operate the same to the extent that the Mortgagors could do so, without any liability to the Mortgagors resulting therefrom; and the Credit Obligor may collect, receive and receipt for all proceeds accruing from such operation and management, make repairs and purchase needed additional property, and exercise every power, right and privilege of the Mortgagors with respect to the Collateral. SECTION 8.3 Judicial Proceedings: Right to Receiver. If an Event of Default exists, the Credit Obligor, in lieu of or in addition to exercising the power of sale hereinafter given, may proceed by suit for a foreclosure of its lien on and security interest in the Collateral, to sue the Company for damages on account of or arising out of said default or breach, or to sue the Mortgagors or any of them for specific performance of any provision contained herein, or to enforce any other appropriate legal or equitable right or remedy, whether under this Mortgage, the Credit Agreement or otherwise. The Credit Obligor shall be entitled, as a matter or right, upon bill filed or other proper legal proceedings being commenced for the foreclosure of this Mortgage, to the appointment of any competent court or tribunal, without notice to the Mortgagors or any other party, of a receiver of the rents, issues and profits of the Collateral, with power to lease and control the Collateral and with such other powers as may be deemed necessary, subject to the rights of the Trustee under the Indenture. SECTION 8.4 Foreclosure Sale. This Mortgage shall be subject to foreclosure and may be foreclosed as now provided by law in case of past due mortgages, and the Credit Obligor shall be authorized, at its option, whether or not possession of the Collateral is taken, to sell the Collateral (or such part or parts thereof as the Credit Obligor may from time to time elm to sell) under the power of sale which is hereby given to the Credit Obligor, at public outcry, to the 22 highest bidder for cash, at the front or main door of the courthouse of the county in which the real property 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 Collateral to be sold, by publication in some newspaper published in the county or counties in which the real property to be sold is located. If there is real property to be sold in more than one county, publication shall be made in all counties where the real property to be sold is located, but if no newspaper is published in any such county, the notice shall be published in a newspaper published in an adjoining county for three successive weeks. The sale shall be hold between the hours of 1:00 a.m. and 4:00 p.m. on the day designated for the exercise of the power of sale hereunder. The Credit Obligor, its successors and assigns, may bid at any sale or sales had under the terms of the Mortgage and may Purchase the Collateral, or any part thereof, if the highest bidder therefor. The purchaser at any such sale or sales shall be under no obligation to see to the proper application of the purchase money. At any foreclosure sale any part or all of the Collateral, real, personal or mixed, may be offered for sale in parcels or en masse for one total price, the proceeds of any such sale an masse to be accounted for in one account without distinction between the items included therein or without assigning to them any proportion of such proceeds, the Mortgagors hereby waiving the application of any doctrine of marshalling or like proceeding. If the Credit Obligor, in the exercise of the power of sale herein given, elects to sell the Collateral in parts or parcels, sees thereof may be held from time to time, and the power of sale granted herein shall not be fully exercised until all of the Collateral not previously sold shall have been sold or all the Obligations shall have been paid in full. The Mortgagors hereby waive any equitable rights otherwise available to any of them with respect to marshalling of assets hereunder, so as to require separate sales of the fee estate and the leasehold estate encumbered hereby or to require the Credit Obligor to exhaust its remedies against either the fee estate or the leasehold estate before proceeding against the other; and the Mortgagors hereby expressly consent to and authorize, at the option of the Credit Obligor, the sale, either separately or together, of the fee estate and leasehold estate, or otherwise the merger, prior to sale, of the leasehold estate into the fee estate in order that the fee estate may be sold free and clear of the leasehold estate. Without in any way limiting the generality of the foregoing provisions of this Section, it is expressly agreed that the Credit Obligor may, at its option, sell the part of the Collateral described in Granting Clause VII above separately from the remainder of the Collateral. SECTION 8.5 Personal Property and Fixtures. (a) The Credit Obligor shall have and may exercise with respect to any or all personal property and fixtures included in the Collateral (the "Personal Property and Fixtures"), all rights, remedies and powers of a secured party under the Alabama Uniform Commercial Code with reference to the Personal Property and Fixtures or any other items in which a security interest has been granted herein, including without limitation the right and power to sell at public or private sale or sales or otherwise dispose of, lease or utilize the Personal Property and Fixtures and any part or parts thereof in any manner, to the fullest extent authorized or permitted under the Alabama Uniform Commercial Code after default hereunder, without regard to preservation of the Personal Property and Fixtures or its value and without the necessity of a court order. The Credit Obligor shall have, among other rights, the right to take possession of the Personal Property and Fixtures and to enter upon any premises where the same may be situated for the purpose of repossessing the same without being guilty of trespass and without liability for damages occasioned thereby and to take any action deemed appropriate or desirable by the Credit Obligor, at its option and in its sole discretion, 23 to repair, restore or otherwise prepare the Personal Property and Fixtures for sale or lease or other use or disposition. To the extent permitted by law, the Mortgagors, expressly waive any notice of sale or any other disposition of the Personal Property and Fixtures and any rights or remedies of the Credit Obligor with respect to, and the formalities prescribed by law relative to, the sale or disposition of the Personal Property and Fixtures or to the exercise of any other right or remedy of the Credit Obligor existing after default. To the extent that such notice is required and cannot be waived, the Mortgagors agree that if such notice is given to the Mortgagors in accordance with the provisions of Section 9.08 below, at least 5 days before the time of the sale or other disposition, such notice shall be deemed reasonable, and shall fully satisfy any requirement for giving said notice. (b) The Mortgagors agree that the Credit Obligor may sell or dispose of the Personal Property and Fixtures in accordance with the rights and remedies granted under this Mortgage with respect to the real property covered hereby. The Mortgagors hereby grant to the Credit Obligor the right, at its option after default by the Mortgagors, to transfer at any time to itself or its nominee the Personal Property and Fixtures or any part thereof and to receive the monies, income, proceeds and benefits attributable to the same and to hold the same as additional Collateral or to apply it on the Obligations in such order and manner as the Credit Obligor may elect. The Mortgagors covenant and agree that all recitals in any instrument transferring, assigning, leasing or making other disposition of the Personal Property and Fixtures or any part thereof shall be full proof of the matters stated therein, and no other proof shall be required to establish the legal propriety of the sale or other action taken by the Credit Obligor and that all prerequisites of sale shall be presumed conclusively to have been performed or to have occurred. SECTION 8.6 Conveyance After Sale. The Mortgagors, hereby authorize and empower the Credit Obligor or the auctioneer at any foreclosure sale had hereunder, for and in the name of the Mortgagors, to execute and deliver to the purchaser or purchasers of any of the Collateral sold at foreclosure good and sufficient deeds of conveyance or bills of sale thereto. SECTION 8.7 Rents and Subleases. (a) If an Event of Default exists, the Credit Obligor, at its option, shall have the right, power and authority to exercise and enforce any or all of the following rights and remedies with respect to Rents and Subleases): (1) to terminate the license granted to the Company in Article 2 hereof to collect the Rents, and, without taking possession, in the Credit Obligor's own name to demand, collect, receive, sue for, attach and Levy the Rents, to give proper receipts, releases and acquittances therefor, and after deducting all necessary and reasonable costs and expenses of collection, including reasonable attorney's fees, to apply the net proceeds thereof to the Obligations in such order and amounts as the Credit Obligor may choose (or hold the same in a reserve as security for the Obligations); (2) without regard to the adequacy of the security, with or without any action or proceeding, through any person or by agent, or by a receiver to be appointed by court, to enter upon, take possession of, manage and operate the Collateral or any part 24 thereof for the account of the Mortgagors, make, modify, force, cancel or accept surrender of any Sublease, remove and evict any sublessee or sub-sublessee, increase or reduce rents, decorate, clean and make repairs, and otherwise do any act or incur any cost or expenses the Credit Obligor shall deem proper to protect the security hereof, as fully and to the same extent as the Mortgagors could do if in possession, and in such event to apply any funds so collected to the operation and of the Collateral (including payment of reasonable management, brokerage and attorney's fees) and payment of the Obligations in such order and amounts as the Credit Obligor may choose (or hold the same in reserve as security for the Obligations); (3) to take whatever legal proceedings may appear necessary or desirable to enforce any obligation or covenant or agreement of the Mortgagors under this Mortgage. (b) The collection of the Rents and application thereof (or holding thereof in reserve) as aforesaid or the entry upon and taking possession of the Collateral or both shall not cure or waive any default or waive, modify or affect any notice of default under this Mortgage, or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by the Credit Obligor, once exercised, shall continue for so long as the Credit Obligor shall elect, notwithstanding that the collection and application aforesaid of the Rents may have cured the original default. If the Credit Obligor shall thereafter elect to discontinue the exercise of any such right or remedy, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent default. SECTION 8.8 Application of Proceeds. All payments then held or thereafter received by the Credit Obligor as proceeds of the Collateral, as well as any and all amounts realized by the Credit Obligor in connection with the enforcement of any right or remedy under or with respect to this Mortgage, shall be applied by the Credit Obligor as follows: (1) to reimburse the Credit Obligor for any payments made by the Credit Obligor under the Letter of Credit, to accrued but unpaid commissions, fees, costs and charges under the Credit Agreement, and to the payment of all costs and expenses of any kind then or thereafter at any time reasonably incurred by the Credit Obligor in exercising its rights under this Mortgage and under the Credit Agreement or otherwise reasonably incurred by the Credit Obligor in collecting or enforcing payment of the Obligations, as well as to the payment of any other amount then or thereafter at any time owing by the Company to the Credit Obligor under the Credit Agreement or under this Mortgage, all in such priority as among such principal, interest, costs, fees, expenses and other amounts as the Credit Obligor shall elect; (2) any balance remaining after payment in full of all amounts referred to in paragraph (1) above shall be applied by the Credit Obligor to any other Obligations then owing by the Company to the Credit Obligor; (3) any balance remaining after payment in full of all amounts referred to in paragraphs (1) and (2) above shall be held by the Credit Obligor as a cash collateral 25 reserve against the making of any payment under the Letter of Credit (if then outstanding); and (4) any balance remaining after payment in full of all amounts referred to in paragraphs (1), (2) and (3) above shall be paid by the Credit Obligor to the Mortgagors or to whoever else may then be legally entitled thereto. SECTION 8.9 Multiple Sales. The Credit Obligor shall have the option to proceed with foreclosure, either through the courts or by proceeding with foreclosure as provided for in this Mortgage, but without declaring all of the Obligations due. Any such sale may be made subject to the unmatured part of the Obligations, and such sale, if so made, shall not in any manner 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 the provisions of this Section. Several sales may be made under the provisions of this Section without exhausting the right of sale for any remaining part of the Obligations whether then matured or unmatured, the purpose hereof being to provide for a foreclosure and sale of the Collateral for any matured part of the Obligations without exhausting any power of foreclosure and the power to sell the Collateral for any other part of the Obligations, whether matured at the time or subsequently maturing. SECTION 8.10 Waiver of Appraisement Laws. The Mortgagors waive, to the fullest extent permitted by law, the benefit of all laws now existing or hereafter enacted providing for (i) any appraisement before sale of any portion of the Mortgaged property (commonly known as appraisement laws) or (ii) 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). 26 ARTICLE 9 Miscellaneous Provisions SECTION 9.1 Waiver, Election, etc. The exercise by the Credit Obligor of any option given under the terms of this Mortgage shall not be considered as a waiver of the right to exercise any other option given herein, and the filing of a suit to foreclose the lien and security interest granted by this Mortgage, either on any matured portion of the Obligations or for the whole of the Obligations, shall not be considered an election so as to preclude foreclosure under power of sale after a dismissal of the suit; nor shall the publication of notices for foreclosure preclude the prosecution of a later suit thereon. No failure or delay on the part of the Credit Obligor in exercising any right, power or remedy under this Mortgage shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder or thereunder. The remedies provided in this Mortgage and in the Credit Agreement are cumulative and not exclusive of any remedies provided by law. No amendment, modification, termination or waiver of any provisions of this Mortgage or the Credit Agreement, nor consent to any departure by the Mortgagors, therefrom, shall be effective unless the same shall be in writing and signed by an executive officer of the Credit Obligor, and then such waiver of consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Mortgagors or any of them in any case shall entitle the Mortgagors or any of them to any other or further notice or demand in similar or other circumstances. SECTION 9.2 Landlord-Tenant Relationship. Any sale of the Collateral under this Mortgage shall, without further notice, create the relationship of landlord and tenant at sufferance between the purchaser and the Mortgagors, subject to the provisions of the Lease Agreement. SECTION 9.3 Enforceability. If any provision of this Mortgage is now or at any time hereafter becomes invalid or unenforceable, the other provisions hereof shall remain in full force and effect, and the remaining provisions hereof shall be construed in favor of the Credit Obligor to effectuate the provisions hereof. SECTION 9.4 Application of Payments. If the lien or the security interest created by this Mortgage is invalid or unenforceable as to any part of the Obligations or is invalid or unenforceable as to any part of the Collateral, the unsecured or partially secured portion of the Obligations shall be completely paid prior to the payment of the remaining and secured or partially secured portion of the Obligations, and all payments made on the Obligations, whether voluntary or under foreclosure or other enforcement action or procedures, shall be considered to have been first paid on and applied to the full payment of that portion of the Obligations that is not secured or not fully secured by the hen or security interest created hereby. 27 SECTION 9.5 Advances by Credit Obligor. If the Mortgagors shall fail to comply with the provisions hereof with respect to the securing of insurance, the payment of taxes, assessments and other charges, the keeping of the Collateral in repair, or any other term or covenant herein contained, the Credit Obligor may (but shall not be required to) make advances to perform the same, and where necessary enter or take possession of the Collateral for the purpose of performing any such term or covenant. The Company agrees to repay all sums advanced upon demand, with interest from the date such advances are made, at the raw provided in Section 2.06 of the Credit Agreement (to the fullest extent permitted by applicable law), and all sums so advanced, with interest, shall be secured hereby. SECTION 9.6 Release or Extension by Credit Obligor. The Credit Obligor, without notice, may release any part of the Collateral or any person liable for the Obligations without in any way affecting the rights of the Credit Obligor hereunder as to any part of the Collateral not expressly released and may agree with any party with an interest in the Collateral to extend the time for payment of all or any part of the Obligations or to waive the prompt and full performance of any term, condition or covenant of this Mortgage or the Credit Agreement. SECTION 9.7 Partial Payments. Acceptance by the Credit Obligor of any payment of less than the amount due on the Obligations shall be deemed acceptance on account only, and the failure of the Company to pay the entire amount then due shall be and continue to constitute an Event of Default, and at any time thereafter and until the entire amount due on the Obligations has been paid, the Credit Obligor shall be entitled to exercise all rights conferred on it by the terms of this Mortgage in case of the existence of an Event of Default. SECTION 9.8 Addresses for Notices. (a) Any request, demand, authorization, direction, notice, consent, or other document provided or permitted by this Mortgage to be made upon, given or furnished to, or filed with, the Board, the Company or the Credit Obligor shall be sufficient for every purpose hereunder if in writing and (except as otherwise provided in this Mortgage) either (i) delivered personally to the party or, if such party is not an individual, to an officer, partner or other legal representative of the party to whom the same is directed at the hand delivery address specified below, or (ii) mailed by certified mail, postage prepaid and addressed as provided below. The hand delivery address and mailing address for the parties are as follows: Board Hand delivery address: The Industrial Development Board of the City of Demopolis Mailing address: 28 The Industrial Development Board of the City of Demopolis Company Hand delivery address: McClain of Alabama, Inc. Mailing address: McClain of Alabama, Inc. Credit Obligor Hand delivery address: LaSalle National Bank Mailing address: LaSalle National Bank Any of such parties may specify a different address for the receipt of such documents by mail by giving notice of the change in address to the other parties. (b) Any such notice or other document shall be deemed delivered when actually received by the party to whom directed (or, if such party is not an individual, to an officer, director or other legal representative of the party) at the address specified pursuant to this Section, or, if sent by mail, 3 days after such notice or document is deposited in the United States mail, addressed as provided above. SECTION 9.9 Construction of Mortgage. This Mortgage may be construed as a mortgage, chattel mortgage, conveyance, assignment, security agreement, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate 29 the lion hereof and security interest created hereby and the purposes and agreements herein set forth. SECTION 9.10 Limitation of Liability of Board. The covenants and agreements contained in this Mortgage do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the general credit of the Board, and in the event of a breach of any such covenant or agreement, no personal or pecuniary liability or charge payable directly or indirectly from the general assets or revenues of the Board (other than the Collateral) shall arise therefrom. Nothing contained in this Section, however, shall relieve the Board from the observance and performance of the covenants and agreements on its part contained herein. The Obligations shall never constitute an indebtedness of the City of Auburn within the meaning of any constitutional provision or statutory limitation. and shall never constitute or give rise to a pecuniary liability of the City of Demopolis or a charge against its general credit or taxing powers. 30 IN WITNESS WHEREOF, the Board and the Company have caused this instrument to be duly executed and the Board has caused its seal to be hereunto affixed and attested. THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By: --------------------------------------- Chairman of its Board of Directors [S E A L] Attest: --------------------------- Secretary McCLAIN OF ALABAMA, INC. By: ---------------------------------------- Its: --------------------------------------- [S E A L] Attest: -------------------------- Secretary 31 STATE OF ALABAMA ) __________________ COUNTY ) I, the undersigned Notary Public in and for said County in said State, hereby certify that ____________________ _______, whose name as Chairman of the Board of Directors of The Industrial Development Board of the City of Demopolis, a public 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 instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this the ___ day of __________________,1997. ------------------------------------- Notary Public [NOTARIAL SEAL] My commission expires: --------------- STATE OF ) ________________ COUNTY ) I, the undersigned Notary Public in and for said County in said State, hereby certify that ____________________ _______, whose name as _____________________________ 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 instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this the ___ day of __________________,1997. -------------------------------------- Notary Public [NOTARIAL SEAL] My commission expires: ---------------- 32 EXHIBIT "A" LEGAL DESCRIPTION A parcel of land lying and being in Section 11, Township 17 North, Range I 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 01 degrees 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 degrees 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 degrees 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 degrees 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 degrees 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. Continue thence north 51 degrees 55' west to the said Tombigbee River; thence southwestwardly along the southeast edge of said Tombigbee 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 along a meander line described as: from last named concrete monument run south 47 degrees 04' west a distance of 515.2 feet; thence run south 41 degrees 54' west a distance of 367.2 feet; thence run south 50 degrees 42' west a distance of 515.2 feet; thence run south 41 degrees 54' west a distance of 367.2 feet; thence run south 50 degrees 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 degrees 50' east and along the west boundary of said Southwest 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: A parcel of land located in the Northeast Quarter of the Southwest Quarter (NE 1/4 of SW 1/4) and the Southeast Quarter of Northwest Quarter (SE 1/4 of NW 1/4) of Section 11, Township 17 North, Range 1 East, Marengo County, Alabama, and being more particularly described as follows: Commence at the southwest corner of the Northeast Quarter of Southwest Quarter (NE 1/4 of SW 1/4) of Section 11 and run North 01 degree 50 minutes West a distance of 651.4 feet to a point; thence turn an angle to the right and run North 40 degrees 31 minutes East a distance of 1130.83 feet to a point, said point being the northwest corner of existing Alabama Power Company substation and point of beginning of the property herein described; thence from point of beginning continue North 40 degrees 31 minutes East a distance of 150.0 feet to a point; thence turn an angle to the right and run South 49 degrees 29 minutes East a distance of 150 feet to a point; thence turn an angle to the right and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the left and run South 49 degrees 29 minutes East a distance of 115.2 feet to the northwesterly boundary line of a paved road; thence turn an angle to the right and run South 40 degrees 31 minutes West along the northwesterly margin of said road a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 115.2 feet to a point; thence turn an angle to the left and run South 40 degrees 31 minutes West a distance of 50 feet to a point; thence turn an angle to the right and run North 49 degrees 29 minutes West a distance of 150 feet to the point of beginning. The foregoing property being conveyed to the Alabama Power Company by Deeds recorded October 2, 1985 in the Probate Office, Marengo County, Alabama, in Deed Book 7-U at Page 296 and Deed Book 7-U, at Page 300. EX-10.71 13 LETTER OF CONSENT 1 EXHIBIT 10.71 STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT Date: April 23, 1997 Irrevocable Letter of Credit No. 284 LaSalle National Bank, as Trustee under the Trust Indenture referred to below 135 South LaSalle Street Suite 1825 Chicago, Illinois 60603 Attention: Corporate Trust Administration Ladies and Gentlemen: 1. For the account of McClain of Alabama, Inc., a Michigan corporation (the "Company"), we hereby authorize you to draw on us at sight, as hereinafter provided, an amount not exceeding $5,302,301.37 (such amount, as reduced from time to time pursuant to paragraph 9 below and as reinstated from time to time pursuant to paragraphs 10 and 11 below, being herein called the "Stated Amount"). 2. This Letter of Credit is irrevocable and is issued to you, as Trustee under the Trust Indenture dated as of April 1, 1997 (the "Indenture"), between you and The Industrial Development Board of the City of Demopolis, an Alabama public corporation (the "Board"), pursuant to which $5,225,000 in aggregate principal amount of the Board's Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Bonds") are being issued. This Letter of Credit is issued pursuant to a Reimbursement Agreement dated as of April 1, 1997 (the "Reimbursement Agreement") between us and the Company. 3. Of the Stated Amount, up to $5,225,000, which is an amount equal to the principal amount of the Bonds (the "Principal Portion"), may be drawn with respect to payment of the unpaid principal amount of the Bonds, or payment of the principal portion of the purchase price of Bonds tendered (or deemed tendered) to you for purchase in accordance with the optional or mandatory tender provisions of the Indenture ("Tendered Bonds") and up to $77,301.37, which is an amount equal to the maximum amount of interest payable on the Bonds at the rate of 12% per annum for a period of 45 days, computed on the basis of a 365-day year (the "Interest 2 Portion"), may be drawn with respect to payment of accrued but unpaid interest on the Bonds, or payment of the interest portion of the purchase price of Tendered Bonds. This Letter of Credit does not apply to any interest that may accrue on the Bonds after the Bonds become due (whether by maturity, redemption, acceleration or otherwise). No demand for payment under this Letter of Credit may be made with respect to any Obligor Bond (as defined in the Indenture). 4. Funds under this Letter of Credit are available to you against your sight draft(s), drawn on us, stating on their face: "Drawn under Standard Federal Bank Irrevocable Letter of Credit No. 284" accompanied by your written certificate signed by your authorized officer, appropriately completed, in the form of Appendix A, B or C hereto, as indicated below. Presentation of such documents shall be made at our office located at 2600 West Big Beaver Road Troy, Michigan 48084 Attention: Dee Swanson/David Bartlett or at any other office that may be designated by us by written notice delivered to you (the office address specified above and any other office so designated by us being herein called our "Designated Office"). Presentation may be made by actual delivery or by facsimile transmission to our Designated Office at (810) 637-5003 or such other number as we shall specify by written notice to you. For purposes of this Letter of Credit, a document shall be deemed "presented" only when such document is actually received by us at our Designated Office, whether presented in person or by facsimile as provided above. You may verify our receipt of documents delivered by facsimile by telephone inquiry at (810) 643-9600, extension 6347, or at such other telephone number as we shall specify by written notice to you. If documents are presented to us by facsimile, the requirement for presentation of a draft shall be waived. 5. For drawings under the Principal Portion to pay principal of the Bonds due upon maturity, redemption or acceleration (a "Principal Drawing"), your drafts must be accompanied by your written certificate signed by your authorized officer and appropriately completed in the form of Appendix A. 6. For drawings under the Interest Due Portion to pay the interest due on the Bonds (an "Interest Drawing"), your drafts must be accompanied by your written certificate signed by your authorized officer and appropriately completed in the form of Appendix B. 7. For drawings under the Principal Portion and (if applicable) the Interest Portion to pay the purchase price of Tendered Bonds (a "Purchase Drawing"), your draft must be accompanied by your written certificate signed by your authorized officer and appropriately completed in the form of Appendix C. 2 3 8. We hereby agree that each draft drawn under and in compliance with the terms of this Letter of Credit will be duly honored by us with our own funds upon delivery of the required documentation at our Designated Office on or before the expiration date hereof. If a drawing is made by you hereunder at or prior to 11:30 a.m. (Eastern Standard time) on a business day, and provided that the documents so presented conform to the terms and conditions hereof, payment shall be made to you, or to your designee, of the amount specified, in immediately available funds, not later than 1:30 p.m. (Eastern Standard time) on the same business day. If a drawing is made by you hereunder after 11:30 a.m. (Eastern Standard time) on a business day, and provided that the documents so presented conform to the terms and conditions hereof, payment shall be made to you, or to your designee, of the amount specified, in immediately available funds, not later than 11:00 a.m. (Eastern Standard time) on the next succeeding business day. Payment under this Letter of Credit may be made by deposit of immediately available funds into a designated account that you maintain with us. As used herein "business day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the city where our Designated Office is located are closed. 9. Multiple drawings may be made hereunder, provided that drawings honored by us hereunder shall not, in the aggregate, exceed the Stated Amount. The Stated Amount shall be reduced as follows: (a) Payment by us of a Principal Drawing shall reduce the Principal Portion of the Stated Amount by the amount of such drawing, without reinstatement. (b) Payment by us of an Interest Drawing shall reduce the Interest Portion of the Stated Amount by the amount of such Drawing, subject to reinstatement as provided in paragraph 10 below. (c) Payment by us of a Purchase Drawing shall reduce the Principal Portion of the Stated Amount, to the extent of the Principal Portion of the purchase price so drawn, and shall reduce the Interest Portion of the Stated Amount, to the extent of the interest portion of the purchase price so drawn, in each case subject to reinstatement as provided in paragraph 11 below. (d) At any time after the principal amount of the Bonds outstanding is reduced as a result of payment of the principal of Bonds due upon maturity, redemption or acceleration other than as a result of a payment made pursuant to a drawing under this Letter of Credit, the Interest Portion of the Stated Amount may be reduced by delivery to us of written notice from you certifying the maximum amount of interest that would be payable on the Bonds then outstanding for a period of 45 days at the rate of 12% per annum, computed on the basis of a 365-day year (the "Maximum Interest Coverage"). Upon receipt by us of such notice from you, the Interest Portion of the Stated Amount shall be reduced to the 3 4 Maximum Interest Coverage so certified by you and shall not thereafter be increased or reinstated to an amount in excess of such Maximum Interest Coverage. Reductions of the Stated Amount as provided in this paragraph shall be effective notwithstanding the fact that the sight draft or certificate presented does not strictly comply with the terms of this Letter of Credit, contains a signature or endorsement that proves to be forged, fraudulent or otherwise insufficient, or contains an inaccurate statement, and notwithstanding any improper use made by you of the proceeds of any such draw. 10. At the close of business on the 10th day following payment by us of any Interest Drawing hereunder made in connection with a regularly scheduled interest payment, the Interest Portion of the Stated Amount will be automatically reinstated by the amount of such Interest Drawing unless prior to the close of business on the 10th day following payment of such Interest Drawing you shall receive notice from us (or the issuer of any confirmation of this Letter of Credit) (i) stating that an event of default, as defined in the Credit Agreement, has occurred and is continuing and (ii) directing that the Bonds be declared due and payable pursuant to Section 10.2(a) of the Indenture; provided, however, that the Interest Portion shall never be reinstated to an amount in excess of the Maximum Interest Coverage, as certified in the most recent notice with respect to Maximum Interest Coverage received by us pursuant to paragraph 9 above. 11. After payment by us of a Purchase Drawing with respect to any Tendered Bond or Bonds, this Letter of Credit shall be reinstated by the amount of such Drawing upon the occurrence of either of the following events: (a) Reinstatement shall occur simultaneously with payment of funds by you to us in the amount of such Drawing; or (b) Reinstatement shall occur upon receipt by you of written notice from us stating that we have been reimbursed by the Company for the amount of such Drawing. Upon any such reinstatement, the Principal Portion of the Stated Amount shall be reinstated by the amount of such Drawing related to the principal portion of the purchase price of Tendered Bonds, and the Interest Portion of the Stated Amount shall be reinstated by the amount of such Drawing related to the interest portion of the purchase price of Tendered Bonds; provided, however, that the Interest Portion shall never be reinstated to an amount in excess of the Maximum Interest Coverage. 12. Only you, as trustee under the Indenture, may make a drawing under this Letter of Credit. Upon the payment to you or your account of the amount specified in sight drafts drawn hereunder, we shall be fully discharged of our obligation under this Letter of Credit with respect to such sight drafts and we shall not thereafter be obligated to make any further payments under 4 5 this Letter of Credit in respect of such sight drafts to you or any other person who may have made or makes a demand for payment of principal or interest with respect to any Bond. 13. This Letter of Credit shall be effective immediately and shall automatically terminate upon the earliest of (a) the honoring by us of the final drawing available to be made hereunder, provided that the principal balance of the Stated Amount has been reduced to zero. (b) our receipt of a certificate in the form of Appendix D hereto appropriately completed and purportedly signed by your duly authorized officer, and (c) our close of business on May 15, 1998 (the "Expiration Date"). provided however, that on each March 15, beginning March 15, 1998 (each such date being referred to as an "Extension Date"), the Expiration Date of this Letter of Credit shall be extended for one year unless we shall send you written notice in the form of Appendix F prior to such Extension Date stating that the Expiration Date shall not be so extended; provided, further, that the Expiration Date shall not in any event be later than May 15, 2007. Upon the expiration of this Letter of Credit you shall immediately deliver the same to us for cancellation. 14. You may transfer your rights in their entirety (but not in part) to any transferee who has succeeded you as trustee under the Indenture, and such transferred rights may be successively transferred. Such transfer shall be effected upon the presentation to us (or the issuer of any confirmation of this Letter of Credit in the event we have wrongfully dishonored a drawing under this Letter of Credit, we have repudiated this Letter of Credit or we are insolvent) of this Letter of Credit accompanied by a transfer letter in the form attached hereto as Appendix E. Upon presentation of such documents to us, we shall forthwith issue an irrevocable letter of credit to your transferee with provisions consistent with this Letter of Credit or endorse the transfer on the reverse of this Letter of Credit and forward it directly to the transferee together with our customary notice of transfer. 15. This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall be deemed to be made under the laws of the State of Michigan, including Article 5 of the Uniform Commercial Code as now in effect in the State of Michigan, and shall be governed by and construed in accordance with the laws of the State of Michigan. As to any matter of conflict between the provisions of the Uniform Customs and the laws of the State of Michigan, the Uniform Customs shall govern this Letter of Credit. 5 6 16. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document (except for the Uniform Customs), instrument or agreement referred to herein (including, without limitation, the Bonds); and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificates, such sight drafts and the Uniform Customs. Very truly yours, STANDARD FEDERAL BANK By:_____________________ Name: David Bartlett Title: Vice President 6 7 APPENDIX A TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Certificate for Principal Drawing LaSalle National Bank, as trustee (the "Trustee"), hereby certifies to Standard Federal Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. 284 (the "Letter of Credit"); capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Letter of Credit) issued by the Bank in favor of the Trustee, that: (1) The Trustee is the trustee under the Indenture. (2) The Trustee is making a drawing under the Principal Portion of the Letter of Credit in the amount of $______________ to be used for the payment of unpaid principal on the Bonds due upon [maturity]*, [redemption]* or [acceleration]*. Such amount is due and payable with respect to the principal of the Bonds, or will be due and payable on the date that the Bank is required to pay [the draft(s) accompanying]** this certificate. (3) The aggregate amount [of the sight draft(s) accompanying]** this certificate that is allocable to the payment of principal of the Bonds does not exceed the amount available on the date hereof to be drawn under the Principal Portion of the Letter of Credit. (4) After the Bonds with respect to which this draw is made are retired, the aggregate principal amount of Bonds outstanding under the Indenture will be $__________________ After payment by you of this drawing and the accompanying Interest Drawings, if any, the Maximum Interest Coverage (as defined in the Letter of Credit) will be $________________. IN WITNESS WHEREOF, the Trustee has caused this certificate to be executed and delivered by its duly authorized officer on this day of , . LaSALLE NATIONAL BANK, as Trustee By:________________________ Title:_____________________ _______________________________ * Insert as applicable. ** Delete if presentation is by telecopy. 8 APPENDIX B TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Certificate for Interest Drawing LaSalle National Bank, as trustee (the "Trustee"), hereby certifies to Standard Federal Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. 284 (the "Letter of Credit"); capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Letter of Credit) issued by the Bank in favor of the Trustee, that: (1) The Trustee is the trustee under the Indenture. (2) The Trustee is making a drawing under the Interest Portion of the Letter of Credit in the amount of $______________ to be used for the payment of unpaid interest due on the Bonds relating to [acceleration] [redemption] [maturity] [a regularly scheduled interest payment]*. Such amount is due and payable with respect to interest on the Bonds, or will be due and payable on the date that the Bank is required to pay [the draft(s) accompanying]** this certificate. (3) The aggregate amount of [the sight draft(s) accompanying this certificate]** does not exceed the amount available on the date hereof to be drawn under the Interest Portion of the Letter of Credit. IN WITNESS WHEREOF, the Trustee has caused this certificate to be executed and delivered by its duly authorized officer on this ____ day of _________, _______________. LaSALLE NATIONAL BANK, as Trustee By:_______________________________ Title:____________________________ _________________________________ * Insert as applicable. ** Delete if presentation is by telecopy. 9 APPENDIX C TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Certificate for Purchase Drawing LaSalle National Bank, as trustee (the "Trustee"), hereby certifies to Standard Federal Bank (the "Bank"), with respect to Irrevocable Letter of Credit No. 284 (the "Letter of Credit"); capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Letter of Credit) issued by the Bank in favor of the Trustee, that: (1) The Trustee is the trustee under the Indenture. (2) The Trustee is making a drawing under the Letter of Credit in the amount of $ to be used to pay the purchase price of Tendered Bonds. Of the aggregate amount drawn, $ is drawn under the Interest Portion of the Letter of Credit to pay the interest portion of such purchase price and $ is drawn under the Principal Portion of the Letter of Credit to pay the principal portion of such purchase price. The aggregate amount so drawn is due and payable with respect to the purchase price of Tendered Bonds, or will be due and payable on the date that the Bank is required to pay [the draft(s) accompanying]* this certificate. (3) The aggregate amount of [the sight draft(s) accompanying]* this certificate does not exceed the amount available on the date hereof to be drawn under the Letter of Credit; the amount designated above as drawn against the Interest Portion does not exceed the amount available on the date hereof to be drawn under the Interest Portion of the Letter of Credit; and the amount designated above as drawn against the Principal Portion does not exceed the amount available on the date hereof to be drawn under the Principal Portion of the Letter of Credit. IN WITNESS WHEREOF, the Trustee has caused this certificate to be executed and delivered by its duly authorized officer on this ____ day of ________, ________________. LaSALLE NATIONAL BANK, as Trustee By:__________________________________ Title:_______________________________ _______________________________ * Delete if presentation is by telecopy. 10 APPENDIX D TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Certificate for Cancellation LaSalle National Bank, as trustee (the "Trustee"), hereby certifies to Standard Federal Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. 284 (the "Letter of Credit"); capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Letter of Credit) issued by the Bank in favor of the Trustee, that: (1) The Trustee is the trustee under the Indenture (2) The Letter of Credit is hereby delivered to the Bank for cancellation because: (a) the Bonds have been fully paid, or provision for such payment has been made, in accordance with the terms of Article 16 of the Indenture; or (b) the terms and conditions of the Indenture for the acceptance by the Trustee of a substitute letter of credit and the cancellation of the Letter of Credit have been satisfied. IN WITNESS WHEREOF, the Trustee has caused this certificate to be executed and delivered by its duly authorized officer on this ____ day of ______, ________________. LaSALLE NATIONAL BANK, as Trustee BY:___________________________________ NAME:_________________________________ TITLE:________________________________ cc: [The issuer of any confirmation of the Letter of Credit referring to the confirmation number] 11 APPENDIX E TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Transfer Letter Standard Federal Bank 2600 West Big Beaver Road Troy, Michigan 48084 Attention:____________________ Date:_________________________ Gentlemen: With reference to your Irrevocable Letter of Credit No. 284 (the "Letter of Credit"; capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Letter of Credit), we hereby transfer to [insert name and address of transferee] all right, title and interest of the undersigned in and to the Letter of Credit, including any amendments already existing or hereafter made. We hereby certify that the transferee is the successor trustee under the Indenture. Please notify the transferee of this transfer. The Letter of Credit (including amendments to this date, if any) is returned herewith, and we request that you issue a new irrevocable letter of credit in favor of the transferee with provisions consistent with the Letter of Credit, as required by the terms of the Letter of Credit. This transfer shall be void and of no effect if you fail to transfer such a letter of credit to the transferee or endorse the transfer on the reverse of the original Letter of Credit and forward the same directly to the transferee together with your customary notice of transfer. Yours very truly, LaSALLE NATIONAL BANK, as Trustee By:__________________________________ Title:_______________________________ cc: [The issuer of any confirmation of this Letter of Credit referring to the confirmation number] 12 APPENDIX F TO STANDARD FEDERAL BANK IRREVOCABLE LETTER OF CREDIT NO. 284 Notice of Non-Extension LaSalle National Bank, as Trustee 135 South LaSalle Street Suite 1825 Chicago, Illinois 60603 Attention: Corporate Trust Administration Ladies and Gentlemen: Standard Federal Bank hereby notifies you that the Expiration Date of our Letter of Credit No. 284 ("Letter of Credit") will not be extended past _____, ________________. This notice is being given pursuant to paragraph 13 of the Letter of Credit. Yours very truly, STANDARD FEDERAL BANK By:_______________________________ Title:____________________________ cc: [Issuer of any confirmation of the Letter of Credit referring to the confirmation number] 13 IRREVOCABLE CONFIRMATION NO. 9200101378 Date of Issue: April 23, 1997 Stated Expiration Date: May 15, 1998 To: LaSalle National Bank, as Trustee 135 South LaSalle Street Suite 1825 Chicago, Illinois 60603 Attention: Corporate Trust Department Ladies and Gentlemen: At the request of Standard Federal Bank ("SFB") we hereby issue this Confirmation to you, LaSalle National Bank, as Trustee under the Trust Indenture dated as of April 1, 1997 between you and The Industrial Development Board of the City of Demopolis ("Issuer") (together with any amendments or supplements thereto, the "Indenture"), for the benefit of the holders of the Issuer's Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project)(the "Bonds"), and we hereby confirm SFB's Irrevocable Letter of Credit No. 284, issued on April 23, 1997 (the "Letter of Credit"), in your favor as security for the payment of principal of, interest on, and the purchase price of the Bonds. Our confirmation herein is provided in favor of you, as Trustee for the benefit of the holders of the Bonds. Drawings under this Confirmation may be made by you as Trustee under the Indenture to the extent provided herein. This Confirmation is for the maximum amount of $5,302,301.37 subject to reduction and reinstatement as provided in the Letter of Credit (the "Stated Amount"). The Stated Amount will, subject to reduction and reinstatement as aforesaid, at all times during the term of this Confirmation, be an amount equal to the outstanding principal balance of the Bonds plus an amount equal to 45 days accrued interest on the principal balance at an interest rate of twelve percent (12%) per annum. All drawings under this Confirmation will be paid with our own funds. Up to the Stated Amount shall be available upon presentation by you of a draft or drafts (each of which drafts shall have been signed by a duly authorized officer of the Trustee(and which shall be indicated "Drawn under the Standard Federal Bank Irrevocable Letter of Credit No. 284 and LaSalle National Bank Confirmation No. 9200101378" accompanied by a Certificate (also so signed) in the form set forth in Exhibit A hereto. All documents presented to us in connection with any demand for payment hereunder, as well as all notices and other communications to us in respect of this Confirmation, shall be in writing and addressed and presented to us on or prior to the expiration date of this Confirmation at our office located at: 200 West Monroe, Suite 100, Chicago, Illinois 60606, Attention: 1 14 International Banking Department, and shall make specific reference to this Confirmation by number. Such documents, notices and other communications shall be personally delivered to us, or may be sent to us by telecopy to such office (Telecopier Number 312-904-6303) (and if by telecopy, the original documents need not be presented). We confirm to the Trustee that we will honor a draft or drafts under and in compliance with the terms of this Confirmation if presented on a Business Day at our address stated above in accordance herewith, together with payment instructions from the Trustee, prior to the expiration date of this Confirmation. For purposes of this Confirmation, a "Business Day" shall mean any other than a Saturday, a Sunday or a day on which banking institutions in Chicago, Illinois are closed. Funds under this Confirmation are available to the Trustee against a draft referring thereon to the number of this Confirmation and accompanied by a written and completed certificate signed by the Trustee in the form of Exhibit A attached hereto, together with a copy of the documents presented under SFB's Irrevocable Letter of Credit No. 284. If we receive any drafts from the Trustee at our office referred to above, all in strict conformity with the terms and conditions of this Confirmation, no later than 1:45 p.m. (Eastern Standard time), on a Business Day prior to the termination hereof, we will honor the same no later than 3:30 p.m. (Eastern Standard time), on the same day in accordance with the payment instructions of the Trustee. If we receive any of the drafts and certificates of the Trustee at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 1:45 p.m. (Eastern Standard time), on a Business Day prior to the termination hereof, we will honor the same no later than 11:00 a.m. (Eastern Standard time) on the next succeeding Business Day in accordance with the payment instructions of the Trustee. This Confirmation shall automatically expire upon the earliest of (a) May 15, 1998, (b) the termination of the Letter of Credit or (c) your surrender to us of this Confirmation; provided however, that on each March 15, beginning March 15, 1998 (each such date being referred to as an "Extension Date"), the expiration date of this Confirmation shall be extended for one year unless we shall send you written notice prior to such Extension Date stating that the expiration date shall not be so extended; provided, further, that the expiration date shall not in any event be later than May 15, 2007. Upon the expiration of this Confirmation you shall immediately deliver the same to us for cancellation. Except as set forth in the Exhibits and drafts referred to herein which are hereby incorporated by reference, this Confirmation sets forth in full the terms of our undertaking and this undertaking shall not in any way be modified, amended, amplified or limited by reference to any document (except the Uniform Customs, as defined below), instrument or agreement referred to herein (including, without limitation, the Bonds) or in which this Confirmation is referred to; and any such reference shall not be deemed to incorporate therein by reference any document, instrument or agreement except for such Exhibits, such drafts and the Uniform Customs. 2 15 This Confirmation is transferable in its entirety to any transferee who is acceptable to us whom you certify to us as has succeeded you as Trustee and as beneficiary of the Letter of Credit, and may be successively transferred. In addition, the Trustee may transfer its beneficial rights hereunder to any transferee whom the Trustee certifies to us has succeeded it as Trustee for the Bonds, and may be successively transferred. Transfer of this Confirmation to such transferee shall be effected by the presentation to us of this Confirmation accompanied by a certificate in substantially the form of Exhibit B attached hereto. Upon such presentation we shall forthwith transfer the same to the transferee by endorsing the transfer on the reverse of this Confirmation and forwarding the same directly to the transferee together with our customary notice of transfer or, if so requested by the transferee, issue a confirmation to the transferee with provisions therein consistent with this Confirmation. This Confirmation is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500 (the "Uniform Customs"). This Confirmation shall be governed by the laws of the State of Illinois, including the Uniform Commercial Code as in effect in the State of Illinois. As to any matter of conflict between the provisions of the Uniform Customs and the laws of the State of Illinois, the Uniform Customs shall govern this Confirmation. Very truly yours, LASALLE NATIONAL BANK By:_______________________________ Name: Title:________________________ By:_______________________________ Name: Title:________________________ 3 16 EXHIBIT A TO THE IRREVOCABLE CONFIRMATION NO. 9200101378 OF LASALLE NATIONAL BANK CERTIFICATE The undersigned is the incumbent Trustee for the benefit of the holders of the outstanding Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Bonds"), issued by The Industrial Development Board of the City of Demopolis (the "Issuer"), which Bonds were issued under the Trust Indenture dated April 1, 1997 between the Issuer and the Trustee (together with any amendments or supplements thereto, the "Indenture"). As such Trustee, the undersigned is the beneficiary of Irrevocable Letter of Credit No. 284 (the "SFB Letter of Credit"), issued on April 23, 1997, by Standard Federal Bank ("SFB"). 1. The undersigned is making a drawing under the Irrevocable Confirmation No. 9200101378 (the "Confirmation") of LaSalle National Bank. 2. [The undersigned has timely presented document(s) in the amount of $_____________ to SFB under and in full compliance with the terms of the SFB Letter of Credit, which draft has been wrongfully dishonored by SFB.] [SFB has repudiated the Letter of Credit] [SFB is insolvent]* 3. The attached is a copy of the document(s) presented to SFB described in Paragraph 2 above. 4. The amount of the draft which accompanies this Certificate was computed in accordance with the provisions of the Bonds and the Indenture. 5. The drawing under the SFB Letter of Credit was made in accordance with the terms of the Resolution. 6. The amount hereby demanded does not exceed the amount available to be drawn under the SFB Letter of Credit for this drawing. _________________________ *Insert as applicable. 17 IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of________________,________. LASALLE NATIONAL BANK, as Trustee By:_______________________________ Name: Title: B-2 18 EXHIBIT B TO THE IRREVOCABLE CONFIRMATION NO. 9200101378 OF LASALLE NATIONAL BANK [FORM OF TRANSFER CERTIFICATE] INSTRUCTION TO TRANSFER LaSalle National Bank 200 West Monroe Suite 1100 Chicago, Illinois 60606 Attention: ___________________________ Re: Your Irrevocable Confirmation No. 9200101378 Ladies and Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to: __________________________ [Name of Transferee] __________________________ [Address] all rights of the undersigned beneficiary to draw under the above-referenced Confirmation (the "Confirmation"). The transferee has succeeded the undersigned as Trustee under the Indenture and as beneficiary under SFB's Letter of Credit (as such terms are defined in the Confirmation). By this transfer, all rights of the undersigned beneficiary in the Confirmation are transferred to the transferee and the transferee shall hereafter have the sole rights as beneficiary thereof, provided, however, that no right shall be deemed to have been transferred to the transferee until such transfer complies with the requirements of the Confirmation pertaining to transfers. 19 The Confirmation is returned herewith and in accordance therewith we ask that this transfer be effective and that you transfer the Confirmation to our transferee by endorsing the transfer on the reverse of the original Confirmation and forwarding the same directly to the transferee together with your customary notice of transfer or that, if so requested by the transferee, you issue a new irrevocable confirmation in favor of the transferee with provisions consistent with the Confirmation. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of___________________,______. LASALLE NATIONAL BANK, as Trustee By:_______________________________________ Name: Title: C-2 20 IRREVOCABLE CONFIRMATION NO. 9200101378 Date of Issue: April 23, 1997 Stated Expiration Date: May 15, 1998 To: LaSalle National Bank, as Trustee 135 South LaSalle Street Suite 1825 Chicago, Illinois 60603 Attention: Corporate Trust Department Ladies and Gentlemen: At the request of Standard Federal Bank ("SFB") we hereby issue this Confirmation to you, LaSalle National Bank, as Trustee under the Trust Indenture dated as of April 1, 1997 between you and The Industrial Development Board of the City of Demopolis ("Issuer") (together with any amendments or supplements thereto, the "Indenture"), for the benefit of the holders of the Issuer's Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project)(the "Bonds"), and we hereby confirm SFB's Irrevocable Letter of Credit No. 284, issued on April 23, 1997 (the "Letter of Credit"), in your favor as security for the payment of principal of, interest on, and the purchase price of the Bonds. Our confirmation herein is provided in favor of you, as Trustee for the benefit of the holders of the Bonds. Drawings under this Confirmation may be made by you as Trustee under the Indenture to the extent provided herein. This Confirmation is for the maximum amount of $5,302,301.37 subject to reduction and reinstatement as provided in the Letter of Credit (the "Stated Amount"). The Stated Amount will, subject to reduction and reinstatement as aforesaid, at all times during the term of this Confirmation, be an amount equal to the outstanding principal balance of the Bonds plus an amount equal to 45 days accrued interest on the principal balance at an interest rate of twelve percent (12%) per annum. All drawings under this Confirmation will be paid with our own funds. Up to the Stated Amount shall be available upon presentation by you of a draft or drafts (each of which drafts shall have been signed by a duly authorized officer of the Trustee(and which shall be indicated "Drawn under the Standard Federal Bank Irrevocable Letter of Credit No. 284 and LaSalle National Bank Confirmation No. 9200101378" accompanied by a Certificate (also so signed) in the form set forth in Exhibit A hereto. All documents presented to us in connection with any demand for payment hereunder, as well as all notices and other communications to us in respect of this Confirmation, shall be in writing and addressed and presented to us on or prior to the expiration date of this Confirmation at our office located at: 200 West Monroe, Suite 100, Chicago, Illinois 60606, Attention: 21 International Banking Department, and shall make specific reference to this Confirmation by number. Such documents, notices and other communications shall be personally delivered to us, or may be sent to us by telecopy to such office (Telecopier Number 312-904-6303) (and if by telecopy, the original documents need not be presented). We confirm to the Trustee that we will honor a draft or drafts under and in compliance with the terms of this Confirmation if presented on a Business Day at our address stated above in accordance herewith, together with payment instructions from the Trustee, prior to the expiration date of this Confirmation. For purposes of this Confirmation, a "Business Day" shall mean any other than a Saturday, a Sunday or a day on which banking institutions in Chicago, Illinois are closed. Funds under this Confirmation are available to the Trustee against a draft referring thereon to the number of this Confirmation and accompanied by a written and completed certificate signed by the Trustee in the form of Exhibit A attached hereto, together with a copy of the documents presented under SFB's Irrevocable Letter of Credit No. 284. If we receive any drafts from the Trustee at our office referred to above, all in strict conformity with the terms and conditions of this Confirmation, no later than 1:45 p.m. (Eastern Standard time), on a Business Day prior to the termination hereof, we will honor the same no later than 3:30 p.m. (Eastern Standard time), on the same day in accordance with the payment instructions of the Trustee. If we receive any of the drafts and certificates of the Trustee at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 1:45 p.m. (Eastern Standard time), on a Business Day prior to the termination hereof, we will honor the same no later than 11:00 a.m. (Eastern Standard time) on the next succeeding Business Day in accordance with the payment instructions of the Trustee. This Confirmation shall automatically expire upon the earliest of (a) May 15, 1998, (b) the termination of the Letter of Credit or (C) your surrender to us of this Confirmation; provided however, that on each March 15, beginning March 15, 1998 (each such date being referred to as an "Extension Date"), the expiration date of this Confirmation shall be extended for one year unless we shall send you written notice prior to such Extension Date stating that the expiration date shall not be so extended; provided, further, that the expiration date shall not in any event be later than May 15, 2007. Upon the expiration of this Confirmation you shall immediately deliver the same to us for cancellation. Except as set forth in the Exhibits and drafts referred to herein which are hereby incorporated by reference, this Confirmation sets forth in full the terms of our undertaking and this undertaking shall not in any way be modified, amended, amplified or limited by reference to any document (except the Uniform Customs, as defined below), instrument or agreement referred to herein (including, without limitation, the Bonds) or in which this Confirmation is referred to; and any such reference shall not be deemed to incorporate therein by reference any document, instrument or agreement except for such Exhibits, such drafts and the Uniform Customs. 2 22 This Confirmation is transferable in its entirety to any transferee who is acceptable to us whom you certify to us as has succeeded you as Trustee and as beneficiary of the Letter of Credit, and may be successively transferred. In addition, the Trustee may transfer its beneficial rights hereunder to any transferee whom the Trustee certifies to us has succeeded it as Trustee for the Bonds, and may be successively transferred. Transfer of this Confirmation to such transferee shall be effected by the presentation to us of this Confirmation accompanied by a certificate in substantially the form of Exhibit B attached hereto. Upon such presentation we shall forthwith transfer the same to the transferee by endorsing the transfer on the reverse of this Confirmation and forwarding the same directly to the transferee together with our customary notice of transfer or, if so requested by the transferee, issue a confirmation to the transferee with provisions therein consistent with this Confirmation. This Confirmation is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500 (the "Uniform Customs"). This Confirmation shall be governed by the laws of the State of Illinois, including the Uniform Commercial Code as in effect in the State of Illinois. As to any matter of conflict between the provisions of the Uniform Customs and the laws of the State of Illinois, the Uniform Customs shall govern this Confirmation. Very truly yours, LASALLE NATIONAL BANK By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 3 23 EXHIBIT A TO THE IRREVOCABLE CONFIRMATION NO. 9200101378 OF LASALLE NATIONAL BANK CERTIFICATE The undersigned is the incumbent Trustee for the benefit of the holders of the outstanding Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Bonds"), issued by The Industrial Development Board of the City of Demopolis (the "Issuer"), which Bonds were issued under the Trust Indenture dated April 1, 1997 between the Issuer and the Trustee (together with any amendments or supplements thereto, the "Indenture"). As such Trustee, the undersigned is the beneficiary of Irrevocable Letter of Credit No. 284 (the "SFB Letter of Credit"), issued on April 23, 1997, by Standard Federal Bank ("SFB"). 1. The undersigned is making a drawing under the Irrevocable Confirmation No. 9200101378 (the "Confirmation") of LaSalle National Bank. 2. [The undersigned has timely presented document(s) in the amount of $ to SFB under and in full compliance with the terms of the SFB Letter of Credit, which draft has been wrongfully dishonored by SFB.] [SFB has repudiated the Letter of Credit] [SFB is insolvent]* 3. The attached is a copy of the document(s) presented to SFB described in Paragraph 2 above. 4. The amount of the draft which accompanies this Certificate was computed in accordance with the provisions of the Bonds and the Indenture. 5. The drawing under the SFB Letter of Credit was made in accordance with the terms of the Resolution. 6. The amount hereby demanded does not exceed the amount available to be drawn under the SFB Letter of Credit for this drawing. - ----------------- *Insert as applicable. 24 IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this day of _______ ,__ . LASALLE NATIONAL BANK, as Trustee By: ---------------------------------- Name: Title: B-2 25 EXHIBIT B TO THE IRREVOCABLE CONFIRMATION NO. 9200101378 OF LASALLE NATIONAL BANK [FORM OF TRANSFER CERTIFICATE] INSTRUCTION TO TRANSFER LaSalle National Bank 200 West Monroe Suite 1100 Chicago, Illinois 60606 Attention: ------------------------------------- Re: Your Irrevocable Confirmation No. 9200101378 Ladies and Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to: ------------------------------ [Name of Transferee] ------------------------------ [Address] all rights of the undersigned beneficiary to draw under the above-referenced Confirmation (the "Confirmation"). The transferee has succeeded the undersigned as Trustee under the Indenture and as beneficiary under SFB's Letter of Credit (as such terms are defined in the Confirmation). By this transfer, all rights of the undersigned beneficiary in the Confirmation are transferred to the transferee and the transferee shall hereafter have the sole rights as beneficiary thereof, provided, however, that no right shall be deemed to have been transferred to the transferee until such transfer complies with the requirements of the Confirmation pertaining to transfers. 26 The Confirmation is returned herewith and in accordance therewith we ask that this transfer be effective and that you transfer the Confirmation to our transferee by endorsing the transfer on the reverse of the original Confirmation and forwarding the same directly to the transferee together with your customary notice of transfer or that, if so requested by the transferee, you issue a new irrevocable confirmation in favor of the transferee with provisions consistent with the Confirmation. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this day of ______________, __. LASALLE NATIONAL BANK, as Trustee By: ------------------------------------- Name: Title: C-2 27 EXHIBIT "C" All mortgages, security agreements, guaranties and other collateral documents now or in the future executed and delivered to Bank by Obligor or any guarantors in connection with the Bonds or any other credit facilities from the Bank to the Obligor or any of the guarantors. 28 GENERAL CERTIFICATE OF AN OFFICER OF LASALLE NATIONAL BANK The undersigned officer of LaSalle National Bank (the "Bank") does hereby certify and represent that: 1. The Bank is a national banking association duly organized and validly existing under the laws of the United States of America. The Bank has full power to execute and deliver and to carry out and perform its obligations under Confirmation No. 9200101378 (the "Confirmation") issued by the Bank to LaSalle National Bank, as Trustee, including the making of payments thereunder. 2. The statements contained under the caption "The Confirmation" in the Placement Memorandum dated April 23, 1997 relating to the $5,225,000 The Industrial Development Board of the City of Demopolis Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Placement Memorandum") are fair and accurate summaries of the provisions of the agreements referred to therein. 3. The information and statements relating to the Bank contained in the Placement Memorandum, including, without limitation, Appendix C thereto, as of its date, and on the date hereof, do not and will not contain any untrue statement of a material fact. 4. There has been no material adverse change in the general affairs or in the financial condition or net assets of the Bank as a whole, as shown in the Preliminary Placement Memorandum and to the Placement Memorandum. Dated as of April 23, 1997 LASALLE NATIONAL BANK By: --------------------------- Its: -------------------------- 29 EXECUTION COPY REIMBURSEMENT AGREEMENT REIMBURSEMENT AGREEMENT (the "Agreement") dated as of April 1, 1997 (the "Execution Date") by and between McClain of Alabama, Inc., a Michigan corporation, whose address is 6200 Elmridge, Sterling Heights, Michigan 48310 (the "Obligor") and STANDARD FEDERAL BANK, a federal savings bank, with an office located at 2600 West Big Beaver Rd., Troy, Michigan 48084 (the "Bank"). WITNESSETH: WHEREAS, The Industrial Development Board of the City of Demopolis ("Issuer") has issued its $5,225,000 Industrial Development Revenue Bonds ("Bonds") to finance a part of the cost of the acquisition of, construction of and equipping of an industrial facility located in Demopolis, Alabama (the "Project"). The Bonds are being issued pursuant to a Trust Indenture dated as of April 1, 1997 (the "Indenture"), naming LaSalle National Bank, as trustee (the "Trustee"), and WHEREAS, in order to induce the purchasers of the Bonds (the "Bond Purchasers") to purchase the Bond, the Obligor has requested that the Bank issue an irrevocable letter of credit (such letter of credit and any successor letter of credit as described in Section 2 of this Agreement being herein called the "Letter of Credit") in an amount not to exceed $5,302,301.37 (such amount being herein called the "Letter of Credit Amount") to secure payment of the principal and purchase price of, and interest on, the Bonds; NOW, THEREFORE, in consideration of the premises, the Obligor and the Bank hereby agree as follows: SECTION 1. Reimbursement and Other Payments. (a) The Obligor hereby agrees with the Bank as follows: (i) to pay the Bank, following payment by the Bank of any draft presented under a Letter of Credit, and on the same day on which such draft is so paid, a sum (and interest on such sum as provided in clause (ii) below) equal to the amount so paid under the Letter of Credit; (ii) to pay the Bank, interest on any and all amounts 30 remaining unpaid by the Obligor hereunder, at any time from the date any such amount becomes payable until payment in full, payable on demand, at a fluctuating interest rate per annum (computed on the basis of a 360 day year for the actual number of days elapsed) as shall be in effect from time to time, which rate per annum shall be equal to three percent (3%) above the Wall Street Journal Prime Rate, provided that such fluctuating interest rate shall in no event be higher than the maximum rate permitted by law and, in addition, upon demand by the Bank any and all reasonable expenses including but not limited to legal expenses incurred by the Bank in enforcing any rights under this Agreement. 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 publication of the Wall Street Journal Prime Rate is discontinued during the term hereof, then the interest rate under this Agreement 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 the Bank's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. It is understood and agreed by the Obligor that the interest rate under this Agreement shall be determined by reference to the "Wall Street Journal Prime Rate" and not by reference to the actual rate of interest charged by an 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. (b) In addition, the Obligor hereby agrees to pay to the Bank a commission with respect to the Letter of Credit, computed (on the basis of a year of 360 days for the actual number of days elapsed) at the rate of 1% per annum on the Letter of Credit Amount (or, in the event, and effective the first date on which an annual payment of the Letter of Credit commission is due following the date of any reduction in the maximum amount available under the Letter of Credit in accordance with the terms thereof, on such smaller amount to which the maximum amount available under the Letter of Credit may have been so reduced from time to time) from and including the date of issuance of the Letter of Credit to but excluding the last 2 31 day a drawing is available under the Letter of Credit (the "Expiration Date"), payable annually in advance on the fifteenth day of April of each year until the Expiration Date; provided, that the first installment shall be payable on the date of issuance of the Letter of Credit for the period from and including such date of issuance until April 15, 1998. If the Expiration Date occurs on a day prior to the date to which a commission has been prepaid under this Section 1(b), the Bank agrees to repay, promptly after the Expiration Date, such portion of such commission as is allocable to the period from and including the Expiration Date until the day to which such commission has been prepaid; provided, that during such time as an Event of Default (as defined herein) shall have occurred and be continuing, the Bank shall not be obligated to repay any portion of such commission. (c) If any change in any law or regulation or in the interpretation or implementation thereof by any court or administrative or governmental authority charged with the administration thereof (including, without limitation, a change in a requirement that affects the manner in which the Bank allocates capital resources to its commitments, including its obligations hereunder and under the Letter of Credit) shall either (i) impose, modify or deem applicable any reserve, special deposit, limitation or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, the Bank or (ii) impose upon, modify, require, make or deem applicable to the Bank any increased capital requirement or similar requirement (including, without limitation, a new requirement that affects the manner in which the Bank allocates capital resources to its commitments including its obligations hereunder or under the Letter of Credit) or (iii) impose on the Bank any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in clause (i), (ii) or (iii) above shall be an increase in the cost to the Bank of issuing or maintaining the Letter of Credit or reduce the rate of return on capital, as a consequence of the issuing or maintaining the Letter of Credit or performing the Bank's obligations hereunder, to a level below that which the Bank would have achieved but for such events; (which increase in cost or decreased benefit shall be determined by the Bank's reasonable allocation of the aggregate of such cost increases or reduced benefits resulting from such events), then, upon demand by the Bank, the Obligor, shall immediately pay to the Bank, from time to time as specified by the Bank, additional 3 32 amounts which shall be sufficient to compensate the Bank for such increased cost or decreased benefit, together with interest on each such amount commencing ten (10) days after the date such compensation is demanded until payment in full thereof at the rate provided in subsection (a)(ii) above. A certificate as to such increased cost or decreased benefit incurred by the Bank as a result of any event mentioned in clause (i), (ii) or (iii) above, submitted by the Bank to the Obligor, shall be rebuttably presumed correct as to the amount thereof absent fraud or demonstrable mistake in calculation. (d) In addition, in the event that a successor Trustee is appointed pursuant to the Indenture, the Obligor agrees to pay the Bank a commission equal to $1,500 for transferring the Letter of Credit to the successor Trustee, plus any out-of-pocket expenses incurred by the Bank in connection with such transfer. Both such commission and such expenses shall be paid within 10 days of delivery of a bill. (e) In addition, the Obligor agrees to pay the Bank a Letter of Credit draw processing fee of $100 for each draft under the Letter of Credit submitted by the Trustee to the Bank, said fee to be due and payable on the date a draft is submitted by the Trustee to the Bank. (f) In addition, the Obligor agrees to pay to the Bank on the date of execution of this Agreement a closing fee in the amount of $13,000. (g) All payments by the Obligor to the Bank hereunder shall be made in lawful money of the United States and in immediately available funds at the Bank's office at 2600 West Big Beaver Road, Michigan 48084, or such other office of the Bank as may be designated from time to time by written notice to the Company by the Bank. All such payments may be charged when due to Obligor's account no. 106-4000169 maintained with Bank (or any other deposit or other accounts of Obligor with Bank); provided, however, this authorization shall not affect Obligor's obligation to pay, when due, any indebtedness hereunder whether or not account balances are sufficient to pay amounts due. SECTION 2. Issuance of Letter of Credit. On or before April 24, 1997, upon written notice from the Obligor to the Bank 4 33 and subject to the satisfaction of the conditions precedent specified in Section 3 below, the Bank will issue the Letter of Credit in substantially the form of Exhibit A hereto, in favor of the Trustee and expiring no later than May 15, 1998. The Obligor hereby requests that the Bank issue the Letter of Credit in the form attached as Exhibit A. SECTION 3. Conditions Precedent to the Issuance of the Letter of Credit. The obligation of the Bank to issue the Letter of Credit is subject to the satisfaction of the following conditions precedent: (a) On or before the date of issuance of the Letter of Credit, the Obligor shall have paid to the Bank the commission payable on such date of issuance under Section 1(b) above. (b) On or before the date of issuance of the Letter of Credit, the Bank shall have received the following, each dated contemporaneous with the date of issuance of the Letter of Credit and in form and substance satisfactory to the Bank: (i) Certified copies of resolutions of the Board of Directors of the Obligor approving this Agreement, the form and content of the Letter of Credit and the other matters and documents contemplated hereby. (ii) A Certificate of the Secretary or an Assistant Secretary of the Obligor, certifying the names and true signatures and incumbency of the members of the Obligor, authorized to sign this Agreement and any amendments to the Letter of Credit, and the other documents to be delivered by it hereunder. (iii) Certified copies of the Articles of Incorporation of the Obligor and certificates of good standing for the Obligor from each jurisdiction in which its conduct or activities require it to be licensed to do business. (iv) A certified copy of the Obligor's Bylaws duly certified by the Secretary or an Assistant Secretary of the Obligor. 5 34 (v) A favorable opinion of Jaffe, Raitt, Heuer & Weiss, Professional Corporation, counsel for the Obligor, in form and substance satisfactory to the Bank. (vi) A favorable opinion of Bradley Arant Rose & White LLP as Bond Counsel, in form and substance satisfactory to the Bank. (vii) A favorable opinion of Bodman, Longley & Dahling LLP, as counsel for the Bank, in form and substance satisfactory to the Bank. (viii) An executed copy of the Indenture (or a copy thereof certified as to authenticity by the Trustee) (ix) An executed copy of the Lease Agreement dated as of April 1, 1997 between the Obligor and the Issuer ("Lease Agreement"). (x) Counterpart originals of the guarantees, security agreements and other documents constituting the Collateral Documents (as defined in Section 9 of this Agreement) together with evidence of such recordings, filings of financing statements or of other actions necessary or desirable to establish the priority of lien in the security as the Bank may require. (xi) A copy of the preliminary Private Placement Memorandum and the final Private Placement Memorandum (together with the documents incorporated therein by reference, herein called the "Private Placement Memorandum") of the Issuer relating to the Bonds. (xii) An executed original of that certain Pledge and Security Agreement dated as of the Execution Date between the Obligor, the Bank and the Trustee. (xiii) Such other documents, instruments, approvals (and, if requested by the Bank, certified duplicates of executed copies thereof) or opinions as the Bank may reasonably request. 6 35 (c) The following statements shall be true and correct on and as of the date of issuance of the Letter of Credit, and the Bank shall have received a certificate signed by a duly authorized officer of the Obligor, dated the date of such issuance, stating that: (i) the representations and warranties contained in Section 5 of this Agreement are correct on and as of the date of such issuance as though made on and as of such date; and (ii) no event has occurred which constitutes an Event of Default (as defined in Section 8 hereof) or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both, nor will the issuance of the Letter of Credit give rise to the occurrence of an Event of Default. (d) On or before the day of the issuance of the Letter of Credit: (i) the Issuer and the Trustee shall have duly authorized and executed the Indenture and the Indenture shall continue to be in full force and effect; (ii) the Obligor shall have duly authorized and executed the Collateral Documents and the Collateral Documents shall continue to be in full force and effect; (iii) the Bonds, the Indenture, the Lease Agreement, the Collateral Documents, the Pledge and Security Agreement and any other agreement or instrument relating to any of the foregoing (the "Operative Documents") shall be in form and substance satisfactory to the Bank. SECTION 4. Obligations Absolute. The payment obligations of the Obligor under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances, either alleged or established: (a) any lack of validity or enforceability of the Operative Documents; 7 36 (b) any amendment or waiver of or any consent to departure from or in connection with the Operative Documents, including any substitution, exchange or release of collateral with respect to any of the Operative Documents; (c) the existence of any claim, set-off, defense or other right which the Obligor may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any persons or entities for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other person or entity, whether in connection with this Agreement, the Operative Documents, the transactions contemplated herein or therein or any unrelated transaction; (d) any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (e) payment by the Bank under the Letter of Credit against presentation of a draft or certificate which does not comply with the terms of the Letter of Credit; (f) any failure, omission, delay or lack on the part of the Bank or any party to any of the Operative Documents to enforce, assert or exercise any right, power or remedy conferred upon the Bank or any such party under this Agreement or any of the Operative Documents, or any other acts or omissions on the part of the Bank or any such party; (g) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of the Obligor or the Issuer; the receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment or other similar proceedings affecting the Obligor or the Issuer or any of the assets of either of them, or any allegation or contest of the validity of this Agreement or any of the Operative Documents, in any such proceedings; (h) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, and any other 8 37 event or action that would, in the absence of this clause, result in the release or discharge by operation of law of the Obligor from the performance or observance of any obligation, covenant or agreement contained in this Agreement. No setoff, counterclaim, reduction or diminution of any obligation, or any defense of any kind or nature which the Obligor has or may have against the Issuer or the Trustee shall be available hereunder to the Obligor against the Bank. SECTION 5. Representations and Warranties. The Obligor represents and warrants as of the Execution Date, as follows: (a) The Obligor is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan. (b) The execution, delivery and performance by the Obligor of this Agreement, the Lease Agreement, the Pledge and Security Agreement and the Collateral Documents, as the case may be, are within the Obligor's corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) the Articles of Incorporation or Bylaws of the Obligor, (ii) any law, order, rule or regulation applicable to the Obligor, (iii) any contract or agreement to which the Obligor is a party or by which it is bound and does not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant to the Collateral Documents, this Agreement, the Indenture or the Pledge and Security Agreement) upon or with respect to any of its properties. (c) All registration with, authorizations by, or approvals of any governmental body required to be obtained by the Obligor for its execution, delivery and performance of this Agreement, the Pledge and Security Agreement and the Collateral Documents have been obtained and remain in full force and effect. (d) This Agreement, the Pledge and Security Agreement and the Collateral Documents are legal, valid and binding obligations of the Obligor, enforceable against it in accordance with their respective terms, except as affecting 9 38 enforceability may be subject, to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally (e) There is not pending or, to the knowledge of the Obligor, threatened any action or proceeding before any court, governmental agency or arbitrator against or affecting the Obligor which, if determined adversely to the Obligor, would materially and adversely affect the financial condition or operations of the Obligor. (f) No representation or warranty of the Obligor contained in this Agreement or in any of the Collateral Documents, and no statement contained in any certificate, schedule, list, financial statement or other instrument furnished to the Bank by or on behalf of the Obligor contains, or will contain, any untrue statement of a material fact, or omits, or will omit, to state a material fact necessary to make the statements contained herein or therein not misleading in any material respect when made. The representations and warranties set forth in the Loan Agreement dated August 29, 1996 between the Obligor, certain related parties and the Bank ("Credit Agreement") are incorporated herein by reference as continuing representations and warranties of the Obligor. SECTION 6. Affirmative Covenants. So long as a drawing is available under the Letter of Credit, the Obligor will, unless the Bank gives its prior consent in writing: (a) Comply with Covenants. Comply with all covenants contained in the Credit Agreement (as the same may be amended or modified from time to time), as if explicitly set forth herein in their entirety. The provisions of the Credit Agreement as incorporated herein by reference in accordance with the foregoing, shall remain in full force and effect, notwithstanding any termination of the Credit Agreement after the date hereof. (b) Reporting Requirements. Furnish to the Bank the following: 10 39 (i) as soon as possible after becoming aware of the occurrence of each Event of Default or each event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, a written statement from the chief financial officer (or in such officer's absence, a responsible senior officer) of the Obligor setting forth details of such Event of Default or event and the action which the Obligor has taken or proposes to take with respect thereto; (ii) such other information respecting the business, properties, or the financial condition or operations of the Obligor as the Bank may from time to time reasonably request. (c) Optional Redemption of Bonds. The Obligor shall cause the Bonds to be optionally redeemed at the times and in the amounts set forth in Exhibit "B" attached hereto. On the first day of each month (beginning May 1, 1997), the Obligor shall pay to the Bank for deposit to a cash collateral account one twelfth of the annual redemption payment next coming due, which moneys shall be used to reimburse the Bank for payments by the Bank of drafts submitted by the Trustee under the Letter of Credit. SECTION 7. Negative Covenants of the Obligor. So long as a drawing is available under the Letter of Credit, the Obligor agrees that it will not: (a) Amendment of Indenture or Lease Agreement. Enter into or agree to any amendment, change or modification of, or any waiver of any provision of, the Indenture or the Lease Agreement. (b) Misrepresentation. Furnish the Bank with any certificate or other document that contains any untrue statement of a material fact or omits to state a material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished. 11 40 SECTION 8. Events of Default. (a) The occurrence of any of the following events shall be an "Event of Default" hereunder unless waived by the Bank pursuant to Section 10 hereof: (i) Any representation or warranty made by the Obligor pursuant to Section 5 hereof shall prove to have been incorrect in any material respect when made; or (ii) The Obligor shall fail to pay when due any amount specified in Section 1 hereof; or (iii) The Obligor shall fail to perform or observe any of its obligations or covenants under, or shall fail to comply with any of the provisions of Section 6(a) and such failure continues beyond the applicable notice and cure period, if any, provided for such failure under the terms of the Credit Agreement; or (iv) The Obligor shall fail to perform or observe any of its obligations or covenants under, or shall fail to comply with any of the provisions of Section 6(b)(i) or Section 6(c) which continues for ten (10) days; or (v) The Obligor shall fail to perform or observe any other term, covenant or agreement herein contained, or the Obligor shall fail to perform or observe any term, count or agreement in any other agreement with the Bank to which it may be a party and such failure shall continue unremedied for a period of thirty (30) days after the date on which written notice thereof shall be given by the Bank to the Obligor; or (vi) Any material provision of this Agreement or any guaranty given in connection herewith shall at any time for any reason cease to be valid and binding on the Obligor or any guarantor, as applicable, or shall be declared to be null and void, or the validity or enforceability thereof against the Obligor or any guarantor, as applicable shall be contested by the Obligor or any governmental agency or authority, or the Obligor or any guarantor, as applicable, shall deny that it has any or further liability or obligation under this Agreement or the guaranty, as applicable; or 12 41 (vii) An Event of Default under and as defined in the Indenture or the Credit Agreement (regardless of whether the Credit Agreement has terminated) shall have occurred and be continuing without the same being cured or waived pursuant to the terms thereof. (b) If any of the Events of Default specified in subsection (a) above shall have occurred and be continuing, in addition to the Bank's other remedies available under the Indenture, the Pledge and Security Agreement, the Collateral Documents, or such other documents executed in connection herewith, or any other remedy available at law or in equity, then the Bank may, at any time and in its sole discretion, but shall not be obligated to, terminate its commitment to issue the Letter of Credit or, if the Letter of Credit shall have been issued, may elect to give notice to the Trustee pursuant to the Indenture thereby requiring the Trustee to declare the principal of all Bonds then outstanding and the interest accrued thereon and any premium thereon and thereby owing to be immediately due and payable and/or require the Obligor to deliver cash collateral to the Bank in the amount equal to the maximum amount that may be available to be drawn at any time under the Letter of Credit. SECTION 9. Collateral Security. To secure full and timely performance of the Obligor's covenants set out in this Agreement and to secure the repayment of all other moneys owing by the Obligor to the Bank whensoever arising and whether associated with this Agreement or otherwise the Obligor has delivered or caused to be delivered to the Bank the documents described in attached Exhibit "C" (herein collectively called the "Collateral Documents"). SECTION 10. Amendments, Waivers, Etc. No amendments or waiver of any provision of this Agreement nor consent to any departure by the Obligor therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and the Obligor, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, waiver or consent with respect to any provision of this Agreement shall affect any other provision of this Agreement. 13 42 SECTION 11. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and mailed or delivered as follows: if to the Obligor: 6200 Elmridge Sterling Heights, Michigan 48310 Attention: Carl Jaworski if to the Bank: Standard Federal Bank 2600 West Big Beaver Road Troy, Michigan 48084 Attention: David Bartlett if to the Trustee: LaSalle National Bank 135 South LaSalle Street Suite 1825 Chicago, Illinois 60603 Attention: Corporate Trust Department or as to any party or the Trustee, at such other address as shall be designated by such party or the Trustee, as the case may be, in a written notice to the other party and the Trustee or the parties, as the case may be. All such notices and other communications shall, when mailed, be effective on the date of deposit in the mails, addressed as aforesaid. SECTION 12. No Waiver; Remedies. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and exclusive of any remedies provided by law. SECTION 13. Indemnification. The Obligor hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which 14 43 the Bank may incur (or which may be claimed against the Bank by any person or entity whatsoever) : (i) by reason of any untrue statement or alleged untrue statement of fact contained in the Private Placement Memorandum or any amendment or supplement thereto or the Preliminary Private Placement Memorandum, in the Sections entitled "The Obligor and the Project, "Uses of Proceeds," "Reimbursement Agreement" and "Pledge and Security Agreement" insofar as the aforesaid Sections provide summary descriptions of the matters contained therein in the Private Placement Memorandum or any amendment or supplement thereto or the Preliminary Private Placement Memorandum, or the omission or alleged omission to state therein facts necessary to make such statements, in the light of the circumstances under which they were made, not misleading; provided, however, that, the Obligor shall not be required to indemnify the Bank with respect to information concerning the Bank in the Private Placement Memorandum or in the Preliminary Private Placement Memorandum under the Section entitled "Letter of Credit Bank" (the "Bank Information") which is finally determined to contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements in the Bank Information, in the light of the circumstances under which they were made, not misleading; or (ii) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit; provided, however, that the Obligor shall not be required to indemnify the Bank pursuant to this clause (ii) for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (a) the willful misconduct or gross negligence of the Bank or (b) the Bank's willful or grossly negligent failure to pay under the Letter of Credit after the presentation to it by the Trustee of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. Nothing in this Section 13 is intended, nor shall be deemed, to limit the Obligor's reimbursement obligation contained in Section 1 hereof. 15 44 SECTION 14. Continuing Obligation. This Agreement is a continuing obligation and shall (i) be binding upon the Obligor, its successors and assigns, and (ii) inure to the benefit of and be binding upon and be enforceable by the Bank and its successors, transferees and assigns; provided, however, that the Obligor may not assign all or any part of this Agreement without the prior written consent of the Bank. The Obligor's warranties and representations made in Section 5 of this Agreement shall survive the delivery and performance of all documents and agreements contemplated by this Agreement. SECTION 15. Transfer of Letter of Credit. The Letter of Credit first issued by the Bank pursuant to Section 2 hereof may be transferred and each successor Letter of Credit may be successively transferred, all in accordance with the terms of such first Letter of Credit. SECTION 16. Liability of the Bank. The Obligor assumes all risks of the acts or omissions of the Trustee and any beneficiary or transferee of the Letter of Credit with respect to its use of the Letter of Credit. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee and any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereof, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Bank in good faith made against presentation of documents which do not comply fully with the terms of the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except only that the Obligor shall have a claim against the Bank, and the Bank shall be liable to the Obligor, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Obligor which the Obligor proves were caused by (i) the Bank's willful misconduct or gross negligence, (ii) the Bank's willful, grossly negligent or bad faith failure to pay under the Letter of Credit after the presentation to it by the Trustee or a successor trustee under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit or (iii) the Bank's bad faith payment under the Letter of Credit after presentation to it by the Trustee or a successor trustee under the Indenture of a sight draft and 16 45 certificate which do not comply fully with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 17. Costs, Expenses and Taxes. The Obligor agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration of this Agreement, any other documents which may be delivered in connection with this Agreement and any transfer of the Letter of Credit including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank, with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement and all costs and expenses, if any, in connection with the enforcement of this Agreement and such other documents which may be delivered in connection with this Agreement, including, but not limited to the Collateral Documents. In addition, the Obligor shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement and such other documents and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 18. Disbursements. The Trustee shall be authorized to disburse the proceeds of the Bonds pursuant to the terms of the Indenture upon presentation by the Obligor of a requisition certificate conforming to the requirements therefor set forth in the Lease Agreement and herein, including endorsement of each requisition certificate by the Bank. The Obligor acknowledges and agrees that the Bank shall only be required to execute requisition certificates and thereby authorize disbursements to the Obligor (a) provided that no Event of Default has occurred under this Agreement, the Pledge and Security Agreement or the Collateral Documents and no event which with notice and/or the passage of time would become an Event of Default under this Agreement, the Pledge and Security Agreement or the Collateral Documents has occurred, (b) provided that the Project shall not have been materially damaged by fire or other casualty, or if so damaged the Obligor has 17 46 complied with all insurance requirements under the Loan Agreement and hereunder, and (c) disbursement of no more than eighty five percent (85%) of the costs of machinery and equipment (excluding installation, taxes, engineering, delivery and other soft costs). All such calculations shall be performed by the Bank or its agent using a methodology satisfactory to the Bank in its sole discretion. SECTION 19. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 20. Waiver of Jury Trial. The Obligor and the Bank hereby irrevocably waive the right to trial by jury with respect to any and all actions or proceedings at any time in which Obligor and the Bank are parties arising out of this Agreement or the other documents contemplated hereby. SECTION 21. Jurisdiction. Obligor hereby irrevocably submits to the non-exclusive jurisdiction of any United States Federal or Michigan state court sitting in Detroit in any action or proceeding arising out of or relating to this Agreement or the Letter of Credit and the Obligor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal or Michigan state court. The Obligor irrevocably consents to the service of any and all process in any such action or proceeding brought in any court in or of the State of Michigan by the delivery of copies of such process to the Obligor at its address specified in Section 10 hereof or by certified mail directed to such address. SECTION 22. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Michigan. SECTION 23. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 18 47 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. In the Presence of: MCCLAIN OF ALABAMA, INC. By: - ------------------------- ---------------------------- Its: Secretary STANDARD FEDERAL BANK By: - ------------------------- ---------------------------- Its: Vice President 19 48 EXHIBIT "B" Obligor shall optionally redeem Bonds in the following amounts on April 1 of each year beginning April 1, 1998.
December 1 Amount of Redemption ---------- -------------------- 1998 $525,000 1999* $525,000 2000* $525,000 2001* $525,000 2002* $525,000 2003* $525,000 2004* $525,000 2005* $525,000 2006* $525,000 2007* $500,000
* These dates are for informational purposes only and will apply only if the Bank extends the expiration date of the Letter of Credit. There is no commitment or obligation on the part of the Bank to extend the expiration date of the Letter of Credit. 20 49 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of April 1, 1997, made by McClain of Alabama, Inc., a Michigan corporation (the "Pledgor"), LaSalle National Bank, which is Trustee under the Indenture (as hereinafter defined) and as custodian hereunder (the "Agent") and Standard Federal Bank, a federal savings bank (the "Bank") pursuant to the Reimbursement Agreement dated as of April 1, 1997, between the Pledgor and the Bank (hereinafter, as the same may from time to time be amended or supplemented, called the "Reimbursement Agreement"): W I T E S S E T H: WHEREAS, The Industrial Development Board of the City of Demopolis has issued its Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Bonds") under the Trust Indenture dated as of April 1, 1997 (the "Indenture"), between the Pledgor and LaSalle National Bank, as Trustee; WHEREAS, the Indenture requires the Pledgor under the circumstances provided therein to purchase Bonds duly tendered for purchase by the holders thereof and to register the Bonds so purchased in the name of the Pledgor in accordance with the Indenture (the "Tendered Bonds"); WHEREAS, in the Indenture the Issuer and the Trustee have agreed to certain remarketing provisions for the Bonds pursuant to which LaSalle National Bank or its successor remarketing agent (the "Remarketing Agent") has agreed to the remarketing of certain Bonds; WHEREAS, in connection with the issuance of the Bonds, the Pledgor has agreed to enter into the Reimbursement Agreement in order to cause the Bank to issue an irrevocable letter of credit in favor of the Trustee (the "Letter of Credit") which may be used, inter alia, to pay all or a portion of the purchase price of the Tendered Bonds in the event the same are not remarketed prior to the date for purchase of the Tendered Bonds (any of such Tendered Bonds so purchased from a draw under the Letter of Credit being hereinafter referred to as the "Pledged Bonds"); WHEREAS, it is a condition precedent to the obligation of the Bank to enter into the Reimbursement Agreement and to issue the Letter of Credit that the Pledgor and the Agent shall have executed and delivered this Agreement to the Bank; 50 NOW, THEREFORE, in consideration of the premises and in order to induce the Bank to enter into the Reimbursement Agreement and issue the Letter of Credit and for other good and valuable consideration, receipt of which is hereby acknowledged, the Pledgor and Agent hereby agree with the Bank as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Reimbursement Agreement shall have such defined meanings when used herein. 2. Pledge. The Pledgor hereby pledges, assigns, hypothecates, transfers, and delivers to the Bank or its designee all its right, title and interest in the Pledged Bonds as the same may be from time to time delivered to the Agent, by the holders thereof or by the Remarketing Agent and held by the Agent as agent for the Bank, and hereby grants to the Bank, a first lien on, and security interest in, its right, title and interest in and to the Pledged Bonds, together with all payments of principal, premium and interest thereon and all proceeds thereof, including without limitation remarketing proceeds (collectively, the "Collateral"), as collateral security for (a) the prompt and complete payment of all amounts payable to the Bank under the Reimbursement Agreement, (b) performance and observance of all covenants, terms and conditions upon which the Letter of Credit is issued, including without limitation the covenants, terms and conditions set forth in the Reimbursement Agreement, and (c) the performance of the covenants herein contained and any monies expended by the Bank in connection therewith (collectively, the "Obligations"). 3. Payments on the Pledged Bonds. Payments received by the Agent in respect of the Pledged Bonds shall be held by the Agent in trust for the benefit of the Bank, and the Agent shall pay the same forthwith to the Bank. Upon receipt by the Bank, such amounts shall be credited against the Obligations. 4. Release of Pledged Bonds. Upon reinstatement of the amount available under the Letter of Credit to be drawn under a Purchase Drawing following payment by the Bank of a Purchase Draft under the Letter of Credit (which would occur following repayment to the Bank of all amounts owed by the Pledgor to the Bank in connection with payment by the Bank of such Purchase Drawing or upon satisfaction of such other requirements as may be agreed to by Pledgor and the Bank), the Agent automatically shall release and deliver to the Pledgor or its designee Pledged Bonds in a principal amount up to but not exceeding the amount by which the stated amount of the Letter of Credit shall have been so increased; 2 51 provided, however, that in any event, if all existing and future liabilities and obligations of Pledgor to the Bank under the Reimbursement Agreement are fully paid and fully secured, all Pledged Bonds shall be released and delivered to the Pledgor or its designee. The foregoing notwithstanding, all Pledged Bonds shall be released and delivered to the Trustee for cancellation at maturity. Pledged Bonds which have been held by the Agent for a period of 30 days and have not been remarketed or sold thereupon shall be released and delivered to the Trustee for cancellation. 5. Rights of the Bank. The Bank shall not be liable for failure to collect the Obligations or for failure to realize upon any collateral security or guarantee therefor, or any part thereof, or for any delay in so doing nor shall the Bank be under any obligation to take any action whatsoever with regard thereto. If an Event of Default under the Reimbursement Agreement has occurred and is continuing, the Bank may thereafter without notice exercise all rights, privileges or options pertaining to any Pledged Bonds as if it were the absolute owner thereof, upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but the Bank shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 6. Remedies. In the event that any portion of the Obligations has been declared due and payable the Bank without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Bank's offices, or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right to the Bank, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, 3 52 after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorney's fees and legal expenses, to the payment in whole or in part of the Obligations in such order as the Bank may elect, the Pledgor remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by the Bank of any other amount required by any provision of law, including, without limitation, Section 9504(1)(c) of the Uniform Commercial Code of the State of Michigan, and after expiration of the Letter of Credit, need the Bank account for the surplus, if any, to the Pledgor. The Bank agrees to give the Pledgor, the Agent and the Issuer not less than ten days' written notice of the time and place of any public sale and of the time after which a private sale or other intended disposition is to take place. The Pledgor agrees that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Bank shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of Michigan. The Pledgor further agrees to waive and agrees not to assert any rights or privileges which it may acquire under Section 9112 of the Uniform Commercial Code and the Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay all amounts to which the Bank is entitled, and the fees of any attorneys employed by the Bank to collect such deficiency. 7. Representations, Warranties and Covenants of the Pledgor. The Pledgor represents and warrants that: (a) on the date of delivery to the Bank or its designee of any Pledged Bonds in accordance with Section 2 hereof, neither the Issuer, the Remarketing Agent nor the Agent will have any right, title or interest in and to the Pledged Bonds; (b) it has, and on the date of delivery to the Bank or its designee of any Pledged Bonds will have, full power, authority and legal right to pledge all of its right, title and interest in and to the Pledged Bonds pursuant to this Agreement; (c) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms; (d) no consent of any other party 4 53 (including, without limitation, any creditors of the Pledgor) and no consent, license, permit, approval or authorization of exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, domestic or foreign, is required to be obtained by the Pledgor in connection with the execution, delivery or performance of this Agreement; (e) the execution, delivery and performance of this Agreement will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the charter documents of the Pledgor or of any securities issued by the Pledgor, or of any mortgage, indenture, lease, contract, or other agreement, instrument or undertaking to which the Pledgor is a party or which purports to be binding upon the Pledgor or upon any of its assets and will not result in the creation or imposition of any lien, charge or encumbrance on or security interest in any of the assets of the Pledgor except as contemplated by this Agreement; and (f) the pledge, assignment and delivery of such Pledged Bonds pursuant to this Agreement will create a valid first lien on, and a first perfected security interest in, all right, title or interest of the Pledgor in or to such Pledged Bonds, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Pledgor which would include the Pledged Bonds. The Pledgor covenants and agrees that it will defend the Bank's right, title and security interest in and to the Pledged Bonds and the proceeds thereof against the claims and demands of all persons whomsoever; and covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Bank as Collateral hereunder and will likewise defend the Bank's right thereto and security interest therein. 8. No Disposition. etc. Except as otherwise provided in the Remarketing Agreement with respect to Pledged Bonds sold to or by the Remarketing Agent, the Pledgor agrees that it will not, without the prior written consent of the Bank sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. 5 54 9. Sale of Collateral. (a) The Pledgor recognizes that the Bank may be unable to effect a public sale of any or all of the Pledged Bonds by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Bank shall be under no obligation to delay a sale of any of the Pledged Bonds for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the issuer would agree to do so. (b) The Pledgor further agrees to do or cause to be done all such other acts and things (except to cause the Pledged Bonds to be registered) as may be necessary to make such sale or sales of any portion or all of the Pledged Bonds valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. 10. Further Assurances. The Pledgor agrees that at any time and from time to time upon the written request of the Bank, it will execute and deliver such further documents and do such further acts and things as the Bank may reasonably request in order to effect the purposes of this Agreement. 11. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. No Waiver; Cumulative Remedies. The Bank shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder and no waiver shall be valid 6 55 unless in writing, signed by the Bank, and then only to the extent therein set forth. A waiver by the Bank of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Bank would otherwise have on any future occasion. No failure to exercise nor any delay in exercising on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law. 13. Waivers, Amendments; Applicable Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by all parties hereto. This Agreement and all obligations of the Pledgor hereunder shall be binding upon the successors and assigns of the Pledgor, and shall, together with the rights and remedies of the Bank hereunder, inure to the benefit of the Bank and its successors and assigns. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Michigan. 14. Fees and Expenses. Pledgor agrees to pay and reimburse the Agent and the Bank for and indemnify and hold them harmless against all costs, expenses, taxes and fees (including reasonable attorneys' fees and disbursements) and any liability incurred in connection with the administration and enforcement of this Agreement. Such undertaking of Pledgor shall survive the termination of this Agreement. 15. Termination. This Agreement shall terminate upon the expiration of the Letter of Credit and payment in full and the performance and satisfaction of all Obligations, and upon such termination the Bank and the Trustee shall assign, transfer and deliver without recourse and without warranty the Collateral to Pledgor (and any property received in respect thereof) as has not theretofore been sold or otherwise applied pursuant to the provisions of this Agreement. 16. Waiver. The Bank hereby agrees to waive any and all claims, liabilities and causes of action against the Agent which may arise by reason of or in connection with any and all of the Agent's obligations, duties and responsibilities set forth in this 7 56 Pledge Agreement, including but not limited to holding the Pledged Bonds and any payments with respect thereto as agent for the Bank and the release and delivery of the Pledged Bonds to the Pledgor or its designee; provided, however, that the Bank shall not be required to waive any claim, liability or cause of action against the Agent to the extent, but only to the extent, arising as a result of the willful and wrongful failure or willful and wrongful misconduct or gross negligence of the Agent. 17. Captions/Counterparts. Captions in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. This Agreement may be executed in any number of counterparts and if so executed shall be read and interpreted as a single agreement. IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Agreement or have caused this Agreement to be duly executed and delivered by their duly authorized officers on the day and year first above written. MCCLAIN OF ALABAMA, INC. By: ---------------------------------------- Its: Secretary LASALLE NATIONAL BANK, AS AGENT By: ---------------------------------------- Its: STANDARD FEDERAL BANK By: ---------------------------------------- Its: Vice President 8 57 GUARANTY THIS GUARANTY, is made this 23rd day of April by Galion Holding Company, a Michigan corporation; McClain E-Z Pack, Inc., a Michigan corporation; Galion Dump Bodies, Inc., a Michigan corporation; 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 of Ohio, Inc., a Michigan corporation; McClain Epco, Inc., a New York corporation; and McClain Group Sales of Florida, Inc., a Florida corporation, whose address is 6200 Elmridge, Sterling Heights, Michigan 48310 (collectively, "Guarantor"), to and with Standard Federal Bank, a federal savings bank ("Standard Federal"). WITNESSETH: WHEREAS, McClain of Alabama, Inc., a Michigan corporation ("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 and thereby Borrower may from time to time be indebted to Standard Federal; and WHEREAS, Standard Federal is unwilling to make loans, advances or extend other financial accommodations to or otherwise do business with Borrower unless Guarantor unconditionally guarantees payment of all present and future indebtedness and obligations of Borrower to Standard Federal; and WHEREAS, Guarantor will directly benefit from Standard Federal's making of loans advances or extending other financial accommodations to or otherwise doing business with Borrower. NOW, THEREFORE, in order to induce Standard Federal to make loans, advances or extend other financial accommodations to and otherwise do business with Borrower and for other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, Guarantor hereby covenants and agrees with Standard Federal as follows: 58 SECTION 1. GUARANTY. 1.1 Guarantor hereby irrevocably and unconditionally guarantees to Standard Federal and its successors and assigns: (a) the full and prompt payment and performance when due of the Indebtedness, as hereinafter defined; and (b) the payment, compliance with and performance of all other obligations, covenants, representations and warranties of every kind, nature and description in accordance with all instruments and documents executed by the Borrower in favor of Standard Federal, whether now owing or existing or heretofore or hereafter created or arising, regardless of whether such obligations, covenants, representations or warranties are held to be unenforceable, void or of no effect against the Borrower and including without limitation, those under any loan agreement and/or promissory note executed and delivered by Borrower to Standard Federal, and any extensions, modifications or renewals thereof. The term "Indebtedness" shall mean all principal, interest, attorneys' fees, commitment fees, liabilities for costs and expenses and all other indebtedness, obligations and liabilities under and in accordance with the terms of all instruments and documents executed by Borrower in favor of Standard Federal, whether direct or indirect, absolute or contingent and whether now owing or existing or heretofore or hereafter created or arising, and regardless of whether such indebtedness, obligations or liabilities are held to be unenforceable, void or of no effect against the Borrower, and all costs, expenses and fees, including reasonable attorneys' fees, arising in connection with the collection or enforcement of any or all amounts, indebtedness, obligations and liabilities of Borrower to Standard Federal, as described above, regardless of whether the Borrower is held to be liable for such amounts. Guarantor acknowledges and agrees that any indebtedness of the Borrower to Standard Federal as evidenced by any promissory note may be extended or renewed upon maturity at the sole discretion of Standard Federal and that the Indebtedness as defined herein, the payment of which is hereby guaranteed, shall include, without limitation, all indebtedness and other obligations as extended or renewed and as may be evidenced by any renewal promissory note. 1.2 This is an irrevocable, unconditional and absolute guaranty of payment, and not of collection, and the undersigned agrees that its liability on this Guaranty shall be immediate and Standard Federal may have immediate recourse against the undersigned for full and immediate payment of the Indebtedness at any time after the Indebtedness or any part thereof, has not been paid when due (whether by acceleration or otherwise) or the Borrower has 2 59 defaulted or otherwise failed to perform when due any of its obligations, covenants, representations or warranties to Standard Federal. SECTION 2. LIABILITY OF GUARANTOR, 2.1 The liability of Guarantor on this Guaranty shall not be contingent upon the exercise or enforcement by Standard Federal of whatever remedies it may have against the Borrower or others, or the enforcement of any lien or realization upon any security or collateral Standard Federal may at any time possess. Any one or more successive and/or concurrent actions may be brought hereon against Guarantor either in the same action, if any, brought against Borrower or in separate actions, as often as Standard Federal, in it sole discretion, may deem advisable. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Standard Federal's right to proceed in any other form of action or proceeding or against other parties unless Standard Federal has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Standard Federal against Borrower under any document or instrument evidencing or securing the Indebtedness shall serve to diminish the liability of Guarantor, except to the extent Standard Federal realizes payment by such action or proceeding, notwithstanding the effect of any such action or proceeding upon Guarantor's right of subrogation against Borrower. Receipt by Standard Federal of payment or payments with knowledge of the breach of any provision with respect to any of the Indebtedness shall not, as to the Guarantor, be deemed a waiver of such breach. All rights, powers and remedies of Standard Federal hereunder and under any other agreement now or at any time hereafter in force between Standard Federal and the Guarantor shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Standard Federal by law. 2.2 Guarantor agrees that its liability hereunder is absolute and unconditional and that Standard Federal shall not be obligated (although it may do so at its sole option) before being entitled to direct recourse against Guarantor to take any steps, whatsoever to preserve, protect, accept, perfect Standard Federal's interest in, foreclose upon or realize on collateral security, if any, for the payment of the Indebtedness or any other guaranty of the 3 60 Indebtedness or in any other respect exercise any diligence whatever in collecting or attempting to collect the Indebtedness by any means. 2.3 The liability of the Guarantor shall in no way be affected or impaired by: (a) any amendment, alteration, extension, renewal, waiver, indulgence or other modification of the Indebtedness; (b) any settlement or compromise in connection with the Indebtedness; (c) any subordination of payments under the Indebtedness to any other debt or claim; (d) any substitution, exchange, release or other disposition of all or any part of the Indebtedness; (e) any failure,, delay, neglect, act or omission by Standard Federal to act in connection with the Indebtedness; (f) any advances for the purpose of performing any covenant or agreement of the Borrower, or curing any breach; (g) the filing by or against Borrower of bankruptcy, insolvency, reorganization or other debtor's relief afforded Borrower pursuant to the present or future provisions of the Bankruptcy Code or any other state or federal statute or by the decision of any court; or (h) any other matter whether similar or dissimilar to the foregoing. The obligations of Guarantor are unconditional, notwithstanding any defect in the genuineness, validity, regularity or enforceability of the Indebtedness or any other circumstances whether or not referred to herein, which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. 2.4 The Guarantor hereby waives each and every defense which, under principles of guaranty or suretyship law or otherwise, would otherwise operate to impair or diminish the liability of Guarantor hereunder, including, without limitation: (a) notice of acceptance of this Guaranty and of creations of Indebtedness of Borrower to Standard Federal; (b) any subrogation to the rights of Standard Federal against Borrower until the Indebtedness has been paid in full; (c) presentment and demand for payment of any Indebtedness of Borrower; (d) protest, notice or protest, and notice of dishonor or default to the Guarantor or to any other party with respect to any of the Indebtedness; (e) all other notices to which the Guarantor might otherwise be entitled; (f) any demand for payment under this Guaranty; (g) any defense arising by reason of any disability or other defense of Borrower by reason of the cessation from any cause whatsoever of the liability of the Borrower; (h) any rights to extension, composition or otherwise under the Bankruptcy Code or any amendments thereof, or under any state or other federal 4 61 statute; and (i) any right or claim or claim of right to cause a marshalling of Borrower's assets. No notice to or demand on the Guarantor shall be deemed to be a waiver of the obligation of the Guarantor or of the right of Standard Federal to take further action without notice or demand as provided herein; nor in any event shall any modification or waiver of the provisions of this Guaranty be effective unless in writing nor shall any such waiver be applicable except in the specific instance for which given. SECTION 3. WARRANTIES AND REPRESENTATIONS. 3.1 Guarantor represents, warrants and covenants to Standard Federal that, as of the date of this Guaranty: the fair salable value of Guarantor's assets exceeds its liabilities, including the liability undertaken pursuant to this Guaranty; Guarantor is meeting its current liabilities as they mature; any financial statements of Guarantor furnished Standard Federal are true and correct and include in the footnotes thereto all contingent liabilities of Guarantor: since the date of said financial statements there has been no material adverse change in the financial condition of Guarantor; there are not now pending any material court or administrative proceedings or undischarged judgments against Guarantor and no federal or state tax liens have been filed or threatened against Guarantor, nor is Guarantor in default or claimed default under any agreement for borrowed money. 3.2 Guarantor agrees to immediately give Standard Federal written notice of any material adverse change in its financial condition, including but not limited to litigation commenced (where the amount claimed exceeds $100,000 individually or in the aggregate), tax liens filed, default claimed under its indebtedness for borrowed money or bankruptcy proceedings commenced by or against Guarantor. Guarantor agrees to deliver, timely to Standard Federal, annual financial statements for the preceding fiscal year; and at such reasonable times as Standard Federal requests to furnish its current financial statements to Standard Federal and permit Standard Federal or its representatives to inspect at Guarantor's offices, its financial records and properties and make extracts therefrom in order to evaluate the financial condition of Guarantor. Guarantor is fully aware of the financial condition of the Borrower. Guarantor delivers this Guaranty based solely upon its own independent investigation and in no part upon any representation or statement of Standard Federal with respect thereto. Guarantor is in a position to and hereby assumes full responsibility for 5 62 obtaining any additional information concerning Borrower's financial condition as Guarantor may deem material to its obligations hereunder; and Guarantor is not relying upon nor expecting Standard Federal to furnish it any information in Standard Federal's possession concerning Borrower's financial condition. SECTION 4. MISCELLANEOUS. 4.1 This Guaranty shall inure to the benefit of Standard Federal and its successors and assigns, including each and every holder or owner of any of the indebtedness guaranteed hereby. In the event that there shall be more than one such holder or owner, this Guaranty shall be deemed a separate contract with each such holder and owner. In the event that any person other than Standard Federal shall become a holder or owner of any of the Indebtedness, each reference to Standard Federal hereunder shall be construed as if it referred to each such holder or owner. 4.2 This Guaranty shall be binding upon Guarantor and its successors and assigns. Guarantor agrees that recourse may be had against its earnings and separate property for all of Guarantor's obligations under this Guaranty. 4.3 The liability of each Guarantor executing this Guaranty shall be joint and several and the term "Guarantor" shall mean each and all such guarantors. 4.4 This Guaranty and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the laws of the State of Michigan. 4.5 THIS GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO STANDARD FEDERAL BY GUARANTOR, JOINTLY AND SEVERALLY, WITHOUT ANY DURESS OR COERCION, AND AFTER GUARANTOR, JOINTLY AND SEVERALLY, HAS EITHER CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY TO DO SO, AND GUARANTOR, JOINTLY AND SEVERALLY, HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS GUARANTY. 6 63 IN WITNESS WHEREOF, this Guaranty was executed and delivered by the undersigned on the day and year first above written. WITNESSES: GUARANTOR: GALION HOLDING COMPANY, a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Assistant Secretary Taxpayer Identification Number: 38-3060196 McCLAIN E-Z PACK, INC., a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- GALION DUMP BODIES, INC., a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- SHELBY STEEL PROCESSING COMPANY, a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: 59-3241829 McCLAIN GROUP SALES OF FLORIDA, INC., a Florida corporation 7 64 - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: 59-3241829 McCLAIN INDUSTRIES, INC., a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- McCLAIN OF GEORGIA, INC., a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- McCLAIN TUBE COMPANY, a Michigan corporation - -------------------------------- By: ---------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- McCLAIN OF OHIO, INC., an Ohio corporation - -------------------------------- By: --------------------------------------- Carl Jaworski Assistant Secretary Taxpayer Identification Number: ------------------------------- McCLAIN EPCO COMPANY, a New York corporation - -------------------------------- By: --------------------------------------- Carl Jaworski Secretary Taxpayer Identification Number: ------------------------------- STANDARD FEDERAL BANK, a federal savings bank 2600 W. Big Beaver Road Troy, Michigan 48084 8 EX-10.72 14 PLACEMENT AGENCY AGREEMENT 1 EXHIBIT 10.72 PLACEMENT AGENCY AGREEMENT April 23,1997 $5,225,000 THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS INDUSTRIAL DEVELOPMENT REVENUE BONDS SERIES 1997 (McCLAIN OF ALABAMA, INC. PROJECT) The Industrial Development Board of the City of Demopolis Demopolis, Alabama Ladies and Gentlemen: The undersigned placement agent (the "Placement Agent") offers to enter into this Placement Agency Agreement (the "Agreement") with you, for the placement by us and the execution and delivery by The Industrial Development Board of the City of Demopolis (the "Issuer") of the Bonds specified below. This offer is made subject to acceptance by the Issuer and approval by McClain of Alabama, Inc. (the "Company") prior to 12:00 p.m., Central Daylight Savings Time, on the date hereof, and upon such acceptance this Agreement shall be in full force and effect in accordance with its terms and shall be binding upon the Issuer, the Placement Agent and the Company. All terms not defined herein shall have the meanings set forth in the Placement Memorandum (defined below), or if not set forth therein, as set forth in the Indenture (defined below). 1. Upon the terms and conditions herein, the Placement Agent will use its best efforts to arrange for the placement of, and the Issuer will deliver to the Placement Agent, all (but not less than all) of the $5,225,000 aggregate principal amount of the Issuer's Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc., Project) (the "Bonds"), as more fully described in the Placement Memorandum, at a price of 100% of par, for a placement fee, payable by the Company, in an amount equal to $30,000 as compensation for the placement of the Bonds. 2 In addition, the Company is responsible for paying all other costs associated with the issuance and placement of the Bonds, including the fees and expenses of counsel to the Placement Agent and the Credit Obligor (as defined below), to the extent that they are not paid from Bond proceeds. 2. The Bonds shall be as described in, and shall be secured under and pursuant to, the Trust Indenture, dated as of April 1, 1997 (the "Indenture"), between the Issuer and LaSalle National Bank, as trustee (the "Trustee"), substantially in the form previously submitted to the Placement Agent, with only such changes therein as shall be mutually agreed upon by the Trustee, the Company, the Issuer and the Placement Agent. The Bonds are secured by a manufacturing facility (the "Project") to be located on certain real property in the City of Demopolis, Alabama, and leased to the Company pursuant to the Lease Agreement between the Issuer and the Company, dated as of April 1, 1997 (the "Lease Agreement"). The Bonds are further secured by a letter of credit (the "Letter of Credit"), dated the date of issuance of the Bonds, issued by Standard Federal Bank (the "Credit Obligor"), pursuant to the Reimbursement Agreement (the "Reimbursement Agreement"), dated as of April 23, 1997 among the Company and the Credit Obligor, which Letter of Credit is confirmed by LaSalle National Bank, as confirming bank (the "Confirming Bank"). 3. The Issuer and the Company shall deliver or cause to be delivered to the Placement Agent promptly after their acceptance hereof, two copies of the Placement Memorandum, dated April 23, 1997 relating to the Bonds. The Placement Memorandum, in its preliminary and final form, including the cover page, the appendices thereto and all information incorporated therein, with only such amendments, supplements or changes therein as shall have been accepted by us, is hereinafter referred to as the "Placement Memorandum." The Company has authorized the use of copies of the Placement Memorandum, the Indenture and the Lease Agreement and the Remarketing Agreement among the Issuer, the Company and LaSalle National Bank, as described in the Placement Memorandum, in connection with the placement of the Bonds. The Placement Agent agrees that it will not confirm the placement of any Bonds unless the confirmation of such placement is accompanied or preceded by the delivery of a copy of the Placement Memorandum. 4. The Issuer, subject to the limitations provided herein, represents and warrants to and agrees with the Placement Agent as follows with respect to the Bonds: (a) The Issuer is a political subdivision and a body political and corporate and public instrumentality of the State, created and existing under the Act. (b) The Issuer is authorized under the laws of the State to (i) issue the Bonds for the purposes for which they are to be issued as set forth in the Placement Memorandum; (ii) use the proceeds of the Bonds to acquire, construct and equip the Project; (iii) enter into the Indenture, the Lease Agreement, this Agreement and the Remarketing Agreement; and (iv) pledge and assign to the Trustee the payments to be made by the Company under the Lease Agreement and the Issuer's rights under the Lease Agreement that are pledged or assigned as security for the payment of the principal of, premium, if any, and interest on the Bonds. -2- 3 (c) The Issuer has full power and authority to consummate the transactions contemplated on its part by the Bonds, the Placement Memorandum, the Indenture, the Lease Agreement, this Agreement and the Remarketing Agreement. (d) The information relating to the Issuer contained under the caption "THE BOARD" in the Placement Memorandum does not, as of the date hereof, and will not, as of the Closing Date (as hereinafter defined), contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (e) The Issuer has duly authorized and approved the execution and delivery of this Agreement. (f) Prior to the Closing (as hereinafter defined), the Issuer shall have duly authorized all necessary action to be taken by it for (i) the issuance and sale of the Bonds and the use of the proceeds of the Bonds to finance the costs of the Project on the terms and for the purposes set forth herein and in the Placement Memorandum and (ii) the approval, execution, delivery and/or receipt, as the case may be, by the Issuer of the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement, the Bonds, the Placement Memorandum and any and all such other agreements and documents as may be required to be approved, executed, delivered and/or received by the Issuer in order to carry out, give effect to, and consummate the transactions contemplated hereby and by the Placement Memorandum. (g) The Issuer shall, on or before the Closing Date, execute and deliver the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement and the Bonds and shall approve and authorize the use of the Placement Memorandum. (h) The Bonds, when issued, delivered and paid for as provided herein and in the Indenture will have been duly authorized and issued and will constitute valid and binding limited obligations of the Issuer enforceable in accordance with their terms and entitled to the benefits and security of the Indenture and the Lease Agreement, subject in each instance to any applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws and laws affecting the enforcement of creditors' rights generally or relating to a public body such as the Issuer as from time to time in effect, and further subject to the availability of equitable remedies. The Bonds do not pledge the credit of the Issuer, the State or any political subdivision or agency thereof nor shall there be a charge against the general revenues of such entities or of the Issuer or a lien against any of their property except as specifically provided in the Indenture. The Bonds shall be limited obligations of the Issuer and no taxes are required to be levied for the payment of the principal of, premium, if any, and interest on the Bonds; such principal of, premium, if any, and interest on the Bonds being payable (except to the extent otherwise provided in the Indenture) solely out of moneys to be received by the Issuer as payments under the Lease Agreement that are pledged under -3- 4 the Indenture and any other amounts derived from the Lease Agreement, from specified amounts on deposit with the Trustee under the Indenture and from amounts available from draws on the Letter of Credit and the income from the temporary investment of any of the foregoing. (i) This Agreement is and, when executed and delivered, each of the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement will be, assuming the due and valid authorization, execution and delivery of such documents by the other parties thereto, the legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their respective terms, subject to any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and subject to the availability of equitable remedies, and to the qualification that enforcement of the indemnification provisions of this Agreement may be limited by federal or state securities laws. (j) Except as may be set forth in the Placement Memorandum, there is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending in which summons has been served or, to the best knowledge of the Issuer, threatened against or affecting the Issuer wherein an unfavorable decision, ruling or finding would adversely affect (i) the corporate existence of the Issuer or the right of the members of the Issuer to their offices or the right of the officers of the Issuer to their respective offices, (ii) the validity of or the Issuer's power to engage in the transactions contemplated hereby or by the Placement Memorandum, (iii) the validity of the proceedings taken by the Issuer for the approval, adoption, authorization, execution, delivery, receipt and performance, as the case may be, of the Bonds, the Placement Memorandum, the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement, or any agreement or any instrument to which the Issuer is a party and which is used or contemplated for use in the consummation of the transactions contemplated hereby or by the Placement Memorandum, (iv) the validity or enforceability of the Bonds, the Placement Memorandum, the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement, or any agreement or instrument to which the Issuer is a party and which is used or contemplated for use in the consummation of the transactions contemplated herein or in the Placement Memorandum or (v) the federal tax-exempt status of the interest on the Bonds or the amounts to be received by the Issuer pursuant to the Lease Agreement. (k) The execution and delivery by the Issuer of the Bonds, the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement and the other documents contemplated hereby or by the Placement Memorandum, and compliance with their respective provisions, the approval and delivery by the Issuer of the Placement Memorandum, and the assignment of the Lease Agreement, including the specified rights of the Issuer under the Lease Agreement, to the Trustee, do not and will not conflict with, or constitute on the part of the Issuer a breach of, or a default under, any existing law, court or -4- 5 administrative regulation, decree, order, agreement, indenture, mortgage or lease to which the Issuer is a party or by which the Issuer or any of its property is or may be bound. (l) A public hearing was held with respect to the Bonds on April 7, 1997 and the approval of the "applicable representative" has or will be obtained prior to the Closing, all as described in Section 147(f) of the Code. (m) The resolution of the Issuer, adopted April 17, 1997, approving and authorizing the execution and delivery of the Indenture, the Lease Agreement, this Agreement, the Remarketing Agreement and the Bonds and the use and distribution of the Placement Memorandum, was duly adopted at a meeting of the members of the Issuer that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout. (n) The Issuer will furnish such information, execute such instruments and take such other action in cooperation with the Placement Agent and Placement Agent's counsel as they may reasonably request (i) in any endeavor to qualify the Bonds for offering and sale under the securities or "blue sky" laws or other securities laws or regulations of such jurisdictions of the United States as the Placement Agent may request, (ii) for the application for exemption from such qualification, (iii) for the Placement Agent's determination of their eligibility for investment under the laws of such jurisdictions as the Placement Agent designates and (iv) to provide for the continuance of such qualifications or exemptions in effect for so long as required for the distribution of the Bonds; provided, however, that the Issuer shall not be required by the foregoing to consent to jurisdiction in any state other than the State and shall not be deemed to have made any representation with regard to securities or "blue sky" laws or other securities laws of the United States. The Issuer shall not be obligated to pay any expenses or costs (including legal fees) incurred in connection with such qualification. (o) Any certificate signed by an authorized officer of the Issuer and delivered to the Placement Agent shall be deemed a representation and warranty by the Issuer to the Placement Agent as to the statements made therein. (p) Other than as disclosed in the Placement Memorandum and as required under Section 147(f) of the Code, no further authorization, approval, consent or other order of any governmental authority or agency, or of any other entity or person(s) is required for the valid authorization, execution and delivery by the Issuer of the Bonds and the other documents contemplated thereby or the authorization and delivery of the Placement Memorandum. (q) Neither the corporate existence or territorial jurisdiction of the Issuer nor the title of the officers or members of the governing body of the Issuer to their respective offices or membership are being contested and no authority or proceeding for the issuance of the Bonds has been repealed, revoked or rescinded. -5- 6 Under no circumstances will any obligation, covenant, representation or warranty of the Issuer created by or arising out of this Agreement or out of the Bonds, or the resolution authorizing the Bonds, be or become an indebtedness of the Issuer, the State or any political subdivision of the State or be a charge against the general credit or taxing power of the Issuer or the State or any political subdivision of the State or give rise to a pecuniary liability of the Issuer, or on the part of any member, officer, employee or agent of the Issuer, the State or any political subdivision of the State, but shall be payable solely out of the revenues and other funds pledged under the Indenture. 5. The Company represents and warrants to and agrees with the Issuer and the Placement Agent as follows with respect to the Bonds: (a) The Company has full power and authority to own its properties and to conduct its business as now being conducted. (b) The information relating to the Company contained in the Placement Memorandum on the cover page and under the captions "THE COMPANY" and "THE PROJECT" are, as of date hereof, and will be, as of the Closing Date, true and correct in all material respects for the purposes for which their use is or was authorized; and such sections do not, and as of the Closing Date will not, include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made in such sections in light of the circumstances under which they are or were made, not misleading. Neither this Agreement nor any other document, certificate or written statement furnished to the Placement Agent or the Issuer pursuant to this Agreement or the Lease Agreement by or relating to the Company contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, under the circumstances under which they are or were made, not misleading. (c) Subsequent to the respective dates as of which information was given to the Placement Agent and except as set forth in or contemplated by the Placement Memorandum, no event has occurred which has affected or may affect materially and adversely the business, properties, operations or financial condition of the Company. (d) Neither the execution and delivery of the Lease Agreement, the Reimbursement Agreement, the Remarketing Agreement, and this Agreement nor the approval and distribution of the Placement Memorandum and compliance by the Company with the provisions on the Company's part contained therein nor the consummation of any other of the transactions contemplated hereby or thereby, nor the fulfillment of the terms hereof or thereof, conflicts with or constitutes a breach of or default under nor contravenes any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Company is a party or to which the Company is otherwise subject, nor does any such execution, delivery, approval, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the -6- 7 Company under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, deed of trust, resolution, agreement or other instrument, except as provided by the Indenture, the Lease Agreement or the Reimbursement Agreement or the other documents executed in connection therewith. (e) To the best of the Company's knowledge and belief, the Company is not in breach of or default in any material respect under any applicable law or administrative regulation or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Company is a party or to which the Company is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument. (f) There is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending or threatened against the Company wherein an adverse decision, ruling or finding would (i) result in any material and adverse change in the condition (financial or otherwise), business or prospects of the Company which would materially and adversely affect the properties of the Company, and which has not been disclosed in the Placement Memorandum (ii) materially and adversely affect the transactions contemplated by this Agreement, or (iii) materially and adversely affect the validity or enforceability against the Company of the Lease Agreement, the Reimbursement Agreement, the Remarketing Agreement or this Agreement. (g) The Company has the full power and authority to execute and deliver and to perform its obligations under the Lease Agreement, the Reimbursement Agreement, the Remarketing Agreement, and this Agreement and to engage in the transactions contemplated thereby and by the Placement Memorandum relating to the offer and sale of the Bonds. The Lease Agreement, the Reimbursement Agreement, the Remarketing Agreement and this Agreement have been duly authorized and, when executed and delivered by the respective parties hereto and thereto, will constitute legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors' rights and general principles of equity, and except as the indemnification provisions hereof may be limited by applicable securities laws or public policy. (h) The application to the Issuer and the completed questionnaires, if any, supplied by the Company to the Issuer, Bond Counsel and/or the Placement Agent or its counsel with respect to the Project to be financed with the proceeds of the Bonds are true, correct and complete in all material respects for the purposes for which supplied. (i) No consent, approval, authorization or other action by any governmental or regulatory authority that has not been obtained is or will be required by the Company for the issuance and sale of the Bonds or the consummation of the other transactions contemplated -7- 8 by the Remarketing Agreement, this Agreement and the Placement Memorandum, except for such licenses, certificates, approvals, variances or permits which may be necessary for the construction or operation of the Project and for which the Company has applied (or for which the Company will apply in the ordinary course of business) and expects to receive, and except as may be required under the state securities or "blue sky" laws in connection with the placement of the Bonds by the Placement Agent. (j) The Company authorizes the use by the Placement Agent of the Placement Memorandum (including the Appendices thereto and all information incorporated therein by reference), the Lease Agreement, the Reimbursement Agreement, and this Agreement and the information therein and herein in connection with the placement of the Bonds. (k) The Company will not take or omit to take any action which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to that provided in the Indenture, and the Lease Agreement. (l) The Company will deliver all opinions, certificates, letters and other instruments and documents reasonably required by the Lease Agreement, the Reimbursement Agreement, the Remarketing Agreement and this Agreement. (m) Any certificate of the Company delivered to the Placement Agent shall be deemed a representation and warranty by the Company to the Placement Agent as to the statements made therein. (n) The Company will furnish such information, execute such instruments and take such other action in cooperation with the Issuer and the Placement Agent as may be required to qualify the Bonds for offering and sale under the "blue sky" or other securities laws of such jurisdictions as the Placement Agent may designate; provided, however, that the Company shall not be obligated to accept, or consent to accept, service of process, or to appoint an agent to accept service of process, outside the State of Alabama or any other state in which the Company is qualified to do business; (o) The representations, warranties, agreements and indemnities contained herein shall survive the Closing and any investigation made by or on behalf of the Issuer or the Placement Agent or any such director, officer or any such controlling person as to any matters described in or related to the transactions contemplated hereby and by the Placement Memorandum, the Indenture, the Reimbursement Agreement, the Lease Agreement and the Remarketing Agreement. 6. The Company shall indemnify the Issuer and the Placement Agent and shall hold them harmless as follows: -8- 9 (a) The Company shall pay and indemnify and hold harmless the Issuer and any person who "controls" the Issuer within the meaning of Section 15 of the Securities Act of 1993, as amended, and any member, officer, director, trustee, official, employee and agent of the Issuer, and each person, if any, who has the power, directly or indirectly, to direct or cause the direction of the management and policies of the Issuer pursuant to the Act or the Issuer's regulations or bylaws (each an "Issuer Indemnified Party", and collectively, the "Issuer Indemnified Parties") from any loss, claim, damage, tax, penalty or expense (including reasonable attorneys' fees and expenses), or liability of any nature due to any and all suits, actions, legal or administrative proceedings, or claims arising or resulting from or in any way connected with: (i) the financing of the Project or the installation, operation, use, or maintenance of the properties of the Company, (ii) any act, failure to act, or misrepresentation by any person in connection with the issuance, sale, delivery or remarketing of the Bonds, or (iii) any act, failure to act, or misrepresentation by the Issuer in connection with this Agreement or any other document involving the Issuer in this matter. If any suit, action or proceeding is brought against any of the Issuer Indemnified Parties, that suit, action or proceeding shall be defended by counsel to the Issuer or the Company, as the Issuer shall determine. If the defense is by counsel to the Issuer, the Company shall indemnify the Issuer Indemnified Parties for the reasonable cost of that defense including reasonable attorneys' fees and expenses. If the Issuer determines that the Company shall defend the Issuer or any Issuer Indemnified Parties, the Company shall immediately assume the defense at its own cost. Neither the Issuer nor the Company shall be liable for any settlement of any proceeding made without each of their consent (which consent shall not be unreasonably withheld). (b) The Company shall indemnify and hold harmless the Placement Agent and any person who "controls" the Placement Agent within the meaning of Section 15 of the Securities Act of 1933, as amended, and any officer, director, official, employee and agent of the Placement Agent (each an "Agent Indemnified Party" and collectively, the "Agent Indemnified Parties") from any loss, claim, damage, tax, penalty, or expense (including reasonable attorneys' fees and expenses), or liability of any nature due to any and all suits, actions, legal or administrative proceedings, or claims arising or resulting from, or in any way connected with: (i) the financing of the Project or the installation, operation, use, or maintenance of the properties of the Company, (ii) any act, failure to act, or misrepresentation by the Company or any director, officer, employee, agent, or independent contractor of the Company in connection with the issuance, sale, delivery or remarketing of the Bonds, or (iii) any act, failure to act, or misrepresentation by the Issuer or the Placement Agent in connection with this Agreement or any other document involving the Issuer or the Placement Agent in this matter (except to the extent any such act, failure to act or misrepresentation by the Placement Agent or any director, officer, employee, agent, or independent contractor of the Placement Agent involved the gross negligence or willful misconduct of the Placement Agent or any of its directors, officers, employees, agents or independent contractors); provided, however, that no such indemnification shall be extended to the Placement Agent in connection with any matter to the extent that the Placement Agent -9- 10 is required to indemnify the Company or the Company Indemnified Parties (as defined in Section 7(b) hereof) therefor pursuant to Section 7(b) of this Agreement. In case any claim shall be made or any action shall be brought against one or more of the Agent Indemnified Parties, the Agent Indemnified Parties seeking indemnity hereunder shall promptly notify the Company in writing, and the Company shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to the Placement Agent, the payment of all expenses and the right to negotiate and consent to settlement. If any of the Agent Indemnified Parties is advised in an opinion of counsel that there may be legal defenses available to it which are adverse to or in conflict with those available to the Company, or that the defense of such Agent Indemnified Party should be handled by separate counsel, the Company shall not have the right to assume the defense of such Agent Indemnified Party, but shall be responsible for the reasonable fees and expenses of counsel retained by the Agent Indemnified Party in assuming its own defense, and provided also that if the Company shall have failed to assume the defense of such action or to retain counsel reasonably satisfactory to the Company, within a reasonable time after written notice of the commencement of such action, the fees and expenses of counsel retained by the Agent Indemnified Parties shall be paid by the Company. Notwithstanding and in addition to any of the foregoing, any one or more of the Agent Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Agent Indemnified Parties, unless the employment of such counsel had been specifically authorized, in writing, by the Company. The Company shall not be liable for any settlement of any such action effected without its written consent, but if settled with the consent of the Company or if there is a final judgment for the plaintiff in any such action with or without consent, the Company shall indemnify and hold harmless the Agent Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. (c) The Company shall also indemnify the Issuer Indemnified Parties and the Agent Indemnified Parties for all reasonable costs and expenses, including reasonable attorneys' fees and expenses, incurred in: (i) enforcing any obligation of the Company under this Agreement or any related agreement, (ii) taking any action requested by the Company, (iii) taking any action required by this Agreement or any related agreement, or (iv) taking any action considered necessary by the Issuer or the Placement Agent and which is authorized by this Agreement or any related agreement. (d) Any provision of this Agreement or any other instrument or document executed and delivered in connection therewith to the contrary notwithstanding, the Issuer retains the right to (i) enforce any applicable federal or state law or regulation pertaining to the Issuer and (ii) enforce any rights accorded the Issuer by federal or state law or regulation, and nothing in this Agreement shall be construed as an express or implied waiver thereof. (e) The indemnity provided herein is not intended to supersede any indemnity to which the Issuer is entitled to under the Lease Agreement. Any indemnity provided herein -10- 11 is in addition to any other indemnification provided by the Company to the Indemnified Parties. 7. The Placement Agent shall indemnify the Issuer and the Company and shall hold them harmless as follows: (a) The Placement Agent shall indemnify, defend and hold harmless the Issuer and the Issuer Indemnified Parties to the fullest extent permitted by law, from and against any and all losses, claims, damages, demands, liabilities, costs or expenses, including reasonable attorneys' fees and expenses related thereto, (i) arising out of or based upon an untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in the Placement Memorandum or arising out of or based upon the omission or alleged omission of the Placement Agent to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue or misleading statement or alleged untrue or misleading statement or omission or alleged omission was made in the Placement Memorandum in reliance upon and in conformity with information furnished to the Issuer or the Company in writing by the Placement Agent, including, without limitation, the information therein describing the Placement Agent or its activities with respect to the Bonds, contained under the caption "PLACEMENT OF THE BONDS" and (ii) to the extent of the aggregate amount paid in settlement of any litigation commenced or threatened arising from a claim based upon any such untrue statement or omission, if such settlement is effected with the written consent of the Placement Agent and (iii) as a result of, or in connection with, the violation of federal or state securities laws by the Placement Agent in its sale of the Bonds to the purchasers thereof. (b) The Placement Agent shall indemnify, defend and hold harmless the Company, its directors, officers and each person, if any, who has the power, directly or indirectly, to direct or cause the direction of the management and policies of the Company (each a "Company Indemnified Party," and collectively, the "Company Indemnified Parties") to the fullest extent permitted by law, from and against any and all losses, claims, damages, demands, liabilities, costs or expenses, including reasonable attorneys' fees and expenses related thereto, (i) arising out of or based upon an untrue statement or alleged misleading statement of a material fact contained in the Placement Memorandum or arising out of or based upon the omission or alleged omission of the Placement Agent to make the statement therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue or misleading statement or alleged untrue or misleading statement or omission or alleged omission was made in the Placement Memorandum in reliance upon and in conformity with information furnished to the Company or the Issuer in writing by the Placement Agent, including, without limitation, the information therein describing the Placement Agent or its activities with respect to the Bonds, contained under the caption "PLACEMENT OF THE BONDS" and (ii) to the extent of the aggregate amount paid in settlement of any litigation commenced or threatened arising -11- 12 from a claim based upon any such untrue statement or omission, if such settlement is effected with the written consent of the Placement Agent. (c) The Placement Agent shall indemnify, defend and hold harmless the Issuer Indemnified Parties and the Company Indemnified Parties to the fullest extent permitted by law from and against any and all losses, claims, damages, demands, liabilities, costs or expenses (including reasonable attorneys' fees and expenses) caused by (i) the failure of the Placement Agent to comply with the registration or qualification requirements applicable to the Placement Agent or the Bonds under any securities or "blue sky" laws of any state in which such registration or qualification is required and (ii) the violation of any applicable federal or state securities laws in connection with the sale of the Bonds. (d) In case any claim shall be made or any action shall be brought against one or more of the Issuer Indemnified Parties or the Company Indemnified Parties based upon information furnished in writing to the Issuer or the Company by the Placement Agent, describing therein the Placement Agent or its activities with respect to the Bonds or pursuant to the preceding paragraph, the Issuer Indemnified Parties or the Company Indemnified Parties seeking indemnity shall promptly notify the Placement Agent in writing, and the Placement Agent shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to the Issuer and the Company, the payment of all expenses and the right to negotiate and consent to settlement. If any of the Issuer Indemnified Parties or the Company Indemnified Parties is advised in an opinion of counsel that there may be legal defenses available to it which are adverse to or in conflict with those available to the Placement Agent, or that the defense of such Issuer Indemnified Party or Company Indemnified Party should be handled by separate counsel, the Placement Agent shall not have the right to assume the defense of such Issuer Indemnified Party or Company Indemnified Party, but shall be responsible for the reasonable fees and expenses of counsel retained by the Issuer Indemnified Party and/or Company Indemnified Party in assuming its own defense, and provided also that if the Placement Agent shall have failed to assume the defense of such action or to retain counsel reasonably satisfactory to the Issuer or the Company, as the case may be, within a reasonable time after written notice of the commencement of such action, the fees and expenses of counsel retained by the Issuer Indemnified Parties and/or the Company Indemnified Parties, as the case may be, shall be paid by the Placement Agent. Notwithstanding and in addition to any of the foregoing, any one or more of the Issuer Indemnified Parties and/or the Company Indemnified Parties, as the case may be, shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Issuer Indemnified Parties and/or the Company Indemnified Parties, as the case may be, unless the employment of such counsel had been specifically authorized, in writing, by the Placement Agent. The Placement Agent shall not be liable for any settlement of any such action effected without its written consent, but if settled with the consent of the Placement Agent or if there is a final judgment for the plaintiff in any such action with or without consent based on the preceding paragraph, the Placement Agent shall indemnify and -12- 13 hold harmless the Issuer Indemnified Parties and the Company Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. 8. The Company further agrees as follows: (a) The Company approves and ratifies the use by the Placement Agent prior to the date hereof of a Preliminary Placement Memorandum (the "Preliminary Placement Memorandum") in connection with the offering of the Bonds. (b) The Company ratifies, confirms and consents to the use of the Preliminary Placement Memorandum, drafts of the Preliminary Placement Memorandum and the Placement Memorandum by counsel to the Placement Agent in obtaining necessary qualification, exemption, determination or continuation of any of the foregoing under applicable securities laws. (c) The Company approves the form of and authorizes the Placement Agent to prepare, use and distribute the Placement Memorandum in the final form in connection with the placement and sale of the Bonds. (d) The Company shall provide to the Placement Agent, on the date hereof, sufficient copies of the Placement Memorandum to enable the Placement Agent to comply with the requirements of SEC Rule 15c2-12(b)(4), Rule G-32 of the Municipal Securities Rulemaking Board and with other applicable legal requirements. (e) No amendment or supplement to the Placement Memorandum shall be made without the written approval of the Placement Agent. If, during the period from the date of this Agreement to and including the date which is 90 days following the End of the Underwriting Period for the Bonds (as such term is hereinafter defined) an event occurs affecting the Company of which the Company has knowledge and which might or would cause the Placement Memorandum to contain any untrue statement of a material fact or omit to state a material fact necessary to be stated therein for the purpose for which it is to be used or to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect, the Company will notify the Placement Agent and the Issuer, and if in the opinion of the Placement Agent such event requires an amendment or supplement to the Placement Memorandum, the Company will amend or supplement the Placement Memorandum in a form and in a manner approved by the Placement Agent and the Issuer and furnish to the Placement Agent and the Issuer (i) a reasonable number of copies of the amendment or supplement and (ii) if such notification shall be subsequent to the date of the Closing, such legal opinions, certificates, instruments and other documents as the Placement Agent may reasonably deem necessary to evidence the truth and accuracy of such amendment or supplement. The cost of providing any amendment or supplement during the period prior to and including the date which is 90 days following the End of the Underwriting Period for the Bonds shall be paid by the Company. -13- 14 (f) As used herein, "End of the Underwriting Period" for the Bonds shall mean the date on which the End of the Underwriting Period for the Bonds has occurred under SEC Rule 15c2-12; provided, however, that the Placement Agent shall be entitled to treat the Closing Date as the End of the Underwriting Period for the Bonds. 9. By 11:00 a.m., Central Daylight Savings Time, on April 23, 1997 (the "Closing Date"), the certificates, opinions, commitments and other documents required by Section 10 hereof shall be executed and delivered and payment of such fees as are called for herein shall be made (such execution, delivery and payment, together, being referred to as the "Closing"). The Closing shall take place at the offices of Bodman, Longley & Dahling LLP, Detroit, Michigan, or such other location as may be agreed upon by the Issuer, the Company and the Placement Agent. At least two (2) business days prior to the Closing Date, the Issuer will deliver the Bonds to the Placement Agent in definitive form duly executed (or, at the option of the Placement Agent, in book entry form under the book entry system maintained by The Depository Trust Company), together with the other documents herein mentioned, and the Placement Agent will accept such delivery and facilitate the payment of the purchase price of the Bonds in federal funds. 10. The obligations of the Placement Agent hereunder shall be subject to the performance by the Issuer and the Company of their respective obligations to be performed hereunder at and prior to the Closing, to the accuracy in all material respects, in the reasonable judgment of the Placement Agent, of the representations and warranties of the Issuer and the Company herein as of the date hereof and as of the Closing and, in the reasonable discretion of the Placement Agent, to the following conditions, including the delivery by the Issuer and the Company, as the case may be, of the Closing Documents (hereinafter defined) enumerated herein, in each case in form and substance reasonably satisfactory to the Placement Agent's counsel, as of the Closing: (a) At the time of the Closing, (i) the resolution authorizing the Bonds, the Indenture, the Lease Agreement, the Reimbursement Agreement, the Letter of Credit, the confirmation of the Letter of Credit, this Agreement and the Remarketing Agreement shall be in full force and effect in the form heretofore approved by the Issuer, the Company, the Credit Obligor, the Confirming Bank and the Trustee, as the case may be, and none of the foregoing documents shall have been amended, repealed, modified or supplemented from the forms thereof as of the date hereof, or as may have been approved in writing by the Placement Agent and (ii) the Issuer and the Company shall have duly adopted and there shall be in full force and effect such other resolutions as, in the opinion of Bond Counsel and the Placement Agent's counsel, are necessary and appropriate in connection with the transactions contemplated hereby and by the Placement Memorandum. (b) At or prior to the Closing, the Issuer shall have duly executed and delivered, and the Trustee shall have authenticated, the Bonds, and at the time of the Closing the proceeds derived from the sale of the Bonds shall be deposited and applied for the purposes described in the Placement Memorandum and as provided in the Indenture. -14- 15 (c) At or prior to the Closing, the Placement Agent shall have received the following documents (the "Closing Documents"): (i) the unqualified approving opinion of Bond Counsel, dated the Closing Date, and the supplemental opinion of Bond Counsel, dated the Closing Date and addressed to the Placement Agent and the Issuer in substantially the form and substance satisfactory to each of them; (ii) [reserved]; (iii) the opinion of counsel to the Company, dated the Closing Date and addressed to the Issuer, the Trustee, the Placement Agent and the Credit Obligor, in substantially the form and substance satisfactory to each of them; (iv) the opinion of counsel to the Credit Obligor, dated the Closing Date, and addressed to the Issuer, the Company, the Trustee, the Placement Agent and Bond Counsel, in form and substance reasonably satisfactory to the Placement Agent; (v) the opinion of counsel to the Confirming Bank, dated the Closing Date, and addressed to the Issuer, the Company, the Trustee, the Placement Agent and Bond Counsel, in form and substance reasonably satisfactory to the Placement Agent; (vi) a certificate, dated the Closing Date, of the Issuer executed on its behalf by an authorized officer thereof to the effect that (A) the representations and warranties of the Issuer contained herein are true and correct in all respects on and as of the Closing Date with the same effect as if made on the Closing Date, (B) the Issuer has complied with all agreements and conditions of this Agreement to be performed or satisfied by the Issuer at or prior to the Closing Date and (C) no event affecting the Issuer has occurred since the date of the Placement Memorandum (as amended or supplemented to date) which should be disclosed in the Placement Memorandum for the purposes for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (vii) a certificate, dated the Closing Date, of the Company executed on its behalf by an authorized representative thereof to the effect that (A) the representations and warranties of the Company contained herein are true and correct in all respects on and as of Closing Date with the same effect as if made on the Closing Date, (B) the Company has complied with all agreements and conditions of this Agreement to be performed or satisfied by the Company at or prior to the Closing Date and (C) no event affecting the Company has occurred since the date of -15- 16 the Placement Memorandum (as amended or supplemented to date) which should be disclosed in the Placement Memorandum for the purposes for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (viii) copies of the preliminary and final Placement Memorandum, in a quantity as reasonably determined by the Placement Agent, duly executed by or on behalf of the Issuer; (ix) a copy of all resolutions duly adopted by the Company authorizing or approving the execution and delivery of the documents required to be executed and delivered by the Company or approving, as necessary, the forms of the Indenture and the Bonds, certified by an authorized representative of the Company; (x) good standing certificates for the Company issued by the Secretary of the State of Michigan and the Secretary of the State of Alabama; (xi) evidence that Standard & Poor's has issued a rating for the Bonds that is not lower than AA-/A-1+ and that such rating is in effect at the Closing Date and is not then being reviewed; (xii) a certificate of the Trustee, in form and substance satisfactory to the Placement Agent, the Company and the Issuer, to the effect that all moneys and securities delivered to the Trustee under and pursuant to the Indenture have been duly deposited to the credit of the appropriate funds established under or in accordance with the Indenture or otherwise applied as provided in the Indenture and that the Trustee has no knowledge of any default under the Indenture; (xiii) copies of all closing documents (not otherwise specified for delivery hereunder) identified for delivery in the most recent closing list for the Closing provided by Bond Counsel, duly executed, if applicable, by the respective parties thereto; and (xiv) such additional legal opinions, certificates, proceedings, instruments and other documents as counsel to the Placement Agent, Bond Counsel and the Issuer may reasonably request to evidence compliance by the Issuer and the Company with legal requirements, the truth and accuracy, as of the time of the Closing, of the respective representations and warranties of the Company and the Issuer herein and the due performance or satisfaction by the Issuer and the Company at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the Issuer and the Company or as otherwise may be deemed necessary by such counsel in connection with the issuance of the Bonds. -16- 17 (d) If the Issuer or the Company shall be unable to satisfy the conditions to the obligations of the Placement Agent contained in this Agreement, or if the obligations of the Placement Agent hereunder may be terminated for any reason permitted by this Agreement, then this Agreement may be terminated by the Placement Agent and if so terminated neither the Placement Agent nor the Company or the Issuer shall be under any obligations hereunder; provided, however, that the respective obligations to pay expenses, as provided in Section 13 hereof, and the respective indemnification obligations contained in Section 6 hereof, shall continue in full force and effect. 11. For a period of 90 days after the Closing (a) the Issuer will not adopt any amendment of or supplement to the Placement Memorandum to which the Placement Agent shall object in writing or which shall be disapproved by counsel for the Placement Agent and (b) if any event relating to or affecting the Issuer and the Company shall occur as a result of which it is necessary, in the opinion of counsel to the Placement Agent, to amend or supplement the Placement Memorandum in order to make the Placement Memorandum not misleading in light of the circumstances existing at the time it is delivered to the initial purchasers of the Bonds, the Issuer and the Company will forthwith prepare and furnish to the Placement Agent a reasonable number of copies of an amendment of or supplement to the Placement Memorandum (in form and substance satisfactory to counsel for the Placement Agent and at the Company's expense) which will amend or supplement the Placement Memorandum so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Placement Memorandum is delivered to the initial purchasers of the Bonds, not misleading. For purposes of this Section, the Issuer and the Company will each furnish such information with respect to themselves as the Placement Agent may from time to time request. 12. The Placement Agent shall have the right to cancel its obligations to place the Bonds if, between the date hereof and the Closing Date: (a) legislation shall be enacted, or actively considered for enactment, by the Congress or recommended by the President of the United States to the Congress for passage, or favorably reported for passage to either house of the Congress by any committee of such house to which such legislation has been referred for consideration, a decision by a court of the United States or the United States Tax Court shall be rendered, or a ruling, regulation or official statement by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other agency or department of the United States shall be made or proposed to be made which has the purpose or effect, directly or indirectly, of imposing federal income taxes upon revenues or other income to be derived by the Issuer under the Lease Agreement, or upon interest on the Bonds; (b) any other action or event shall have transpired which has the purpose or effect, directly or indirectly, of materially and adversely affecting the federal income tax consequences of any of the transactions contemplated hereby or by the Placement -17- 18 Memorandum, and, in the reasonable opinion of the Placement Agent, such action or event pertaining to the federal income tax consequences referenced above materially and adversely affects the market for the Bonds or the sale, at the contemplated offering price by the Placement Agent, of the Bonds; (c) legislation shall be enacted or actively considered for enactment by the Congress, with an effective date on or prior to the Closing Date, or a decision by a court of the United States shall be rendered, or a ruling or regulation by the Securities and Exchange Commission or other governmental agency having jurisdiction over the subject matter shall be made, the effect of which is that (i) the Bonds are not exempt from the registration, qualification or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or (ii) the Indenture is not exempt from the registration, qualification or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; (d) a stop order, ruling or regulation by the Securities and Exchange Commission shall be issued or made, the effect of which is that the issuance, offering or sale of the Bonds, as contemplated hereby or by the Placement Memorandum, is in violation of any provision of the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; (e) there shall occur any outbreak of hostilities or any national or international calamity or crisis or a financial crisis the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Placement Agent, would materially and adversely affect the market for the Bonds or the sale, at the contemplated offering price by the Placement Agent, of the Bonds; (f) a general suspension of trading on the New York Stock Exchange is in force, the effect of which on the financial markets of the United States in the reasonable judgment of the Placement Agent, as such as would materially and adversely affect the market for the Bonds or the sale, at the contemplated offering price, by the Placement Agent, of the Bonds; (g) a general banking moratorium is declared by federal or state (including specifically Illinois and New York) authorities, the effect of which on the financial markets of the United States in the reasonable judgment of the Placement Agent, as such as would materially adversely affect the market for the Bonds or the sale, at the contemplated offering price by the Placement Agent, of the Bonds; (h) there occurs any material adverse change in the affairs, operations or financial conditions of the Company except as set forth in or contemplated by the Placement Memorandum; -18- 19 (i) the Placement Memorandum is not executed, approved and delivered as provided herein; (j) any rating of the Confirming Bank or the Bonds by a national rating agency shall be withdrawn or downgraded; (k) in the reasonable judgment of the Placement Agent, the market price of the Bonds, or the market price generally of obligations of the general character of the Bonds, might be adversely affected because (i) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange, or (ii) the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Bonds or similar obligations, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Placement Agent; or (l) other than disclosed in the Placement Memorandum, any litigation shall be instituted, pending or threatened to restrain or enjoin the issuance, sale or delivery of the Bonds or in any way protesting or affecting any authority for or the validity of the Bonds, the resolution of the Issuer authorizing the Bonds, the Indenture, the Agreement, the Remarketing Agreement, the Letter of Credit, the confirmation of the Letter of Credit, or the existence or powers of the Issuer or the Company. 13. Whether or not the transactions contemplated by this Agreement are consummated, all expenses and costs of the Issuer incident to the performance of its obligations in connection with the authorization, issuance and delivery of the Bonds to the Placement Agent, shall be paid by the Company. 14. Any notice or other communication to be given under this Agreement shall be given by mail or courier delivery or by facsimile transmission as follows: If to the Company: McClain Industries, Inc. 6200 Elmridge Road Sterling Heights, MI 48310 P.O. Box 180913 Utica, MI 48318 Attention: Mr. Carl Jaworski Telephone: (810) 264-3611 Facsimile number: (810) 264-7191 -19- 20 If to the Issuer: The Industrial Development Board of the City of Demopolis City Hall Demopolis, Alabama 36732 Attention: Telephone: Telecopier: If to the Placement Agent: LaSalle National Bank 181 West Madison Street Suite 3203 Chicago, Illinois 60602-4510 Attention: Capital Markets Group Telephone number: 312-904-7047 Facsimile number: 312-904-8167 All notices or communications hereunder by any party shall be given and served upon each other party. 15. The approval of the Placement Agent when required hereunder or the determination of satisfaction as to any document referred to herein shall be in writing signed by the Placement Agent and delivered to the party requesting such approval or determination of satisfaction. 16. This Agreement is made solely for the benefit of the Issuer, the Company and the Placement Agent and no other person shall acquire or have any rights hereunder or by virtue hereof except as otherwise provided in Sections 6 and 7 hereof. All representations, warranties and agreements of authority in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Placement Agent and shall survive the delivery of and payment for the Bonds. The covenants and the agreements of each of the respective parties hereto shall survive the delivery of and payment for the Bonds and shall remain in full force and effect thereafter. 17. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, and such counterparts shall together constitute but one and the same instrument. 18. This Agreement shall be governed exclusively by and construed in accordance with the internal laws of the State of Illinois applicable to contracts to be wholly performed therein. -20- 21 Very truly yours, LASALLE NATIONAL BANK, as Placement Agent By: ------------------------------------- Title: ---------------------------------- Accepted: THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By: ------------------------------------- Title: ---------------------------------- Approved: MCCLAIN OF ALABAMA, INC. By: ------------------------------------- Carl Jaworski Title: Secretary -21- EX-10.73 15 REMARKETING AGREEMENT 1 EXHIBIT 10.73 REMARKETING AGREEMENT This Remarketing Agreement made and entered into as of April 23, 1997 among LaSalle National Bank, a national banking corporation (the "Remarketing Agent"), The Industrial Development Board of the City of Demopolis, a public corporation under the laws of Alabama (the "Issuer"), and McClain of Alabama, Inc., a Michigan corporation ("Company"). WITNESSETH: WHEREAS, the Issuer has authorized the issuance of its $5,225,000 The Industrial Development Board of the City of Demopolis Industrial Development Revenue Bonds, Series 1997 (McClain of Alabama, Inc. Project) (the "Bonds") to finance the acquisition, construction and equipping of a manufacturing facility that will be leased by the Issuer to the Company pursuant to the Lease Agreement, dated as of April 1, 1997 by and between the Issuer and the Company (the "Lease Agreement"); and WHEREAS, the Bonds are subject to purchase upon optional and mandatory tender upon notice and delivery, pursuant to the provisions of the Trust Indenture, dated as of April 1, 1997 (the "Indenture"), by and between the Issuer and LaSalle National Bank, a national banking corporation as trustee (the "Trustee"); and WHEREAS, LaSalle National Bank, as placement agent (the "Placement Agent"), has agreed to arrange for the placement of the Bonds upon the initial delivery thereof pursuant to the terms of a Placement Agency Agreement, dated as of April 23, 1997 among the Placement Agent, the Company and the Issuer; and WHEREAS, the Company and the Issuer desire that the Remarketing Agent provide a mechanism for remarketing the Bonds according to the terms and subject to the conditions described herein and in the Indenture; NOW, THEREFORE, for and in consideration of the covenants herein made, and subject to the conditions herein set forth, the parties agree as follows: 1. Definitions. All capitalized terms not defined herein shall have the meanings ascribed to them in the Indenture unless a different meaning clearly appears from the context. 2. Appointment, Resignation and Removal of Remarketing Agent, Responsibilities of Remarketing Agent. (a) In reliance upon the representations and agreements but subject to the terms and conditions contained in the Indenture and in this Agreement, the Company and the Issuer appoint the Remarketing Agent, and the Remarketing Agent accepts appointment, as exclusive Remarketing Agent in connection with the remarketing of the Bonds from time to 2 time in the secondary market subsequent to the initial offering, issuance and delivery of the Bonds. (b) The Indenture sets forth rights of, and duties and obligations imposed on, the Remarketing Agent in connection with the remarketing of the Bonds. The parties hereto agree that the provisions of the Indenture relating to the Remarketing Agent shall be incorporated herein by reference and be made a part hereof as if fully set forth herein, and the Remarketing Agent accepts such duties and obligations imposed pursuant to the Indenture. (c) The Remarketing Agent will keep such books and records as shall be consistent with prudent industry practice and will summarize (i) the principal amount of the Bonds, if any, remarketed by it pursuant to this Agreement and the Indenture, and (ii) the interest rate on the Bonds for each Variable Rate Period and Term Rate Period determined pursuant to and in accordance with the Indenture and deliver such summary on a monthly basis to the Company, the Issuer and Standard Federal Bank, as issuer of the Initial Letter of Credit (the "Credit Obligor"). (d) The Remarketing Agent may at any time resign and be discharged of the duties and obligations created hereby and by the Indenture by notifying the Issuer, the Trustee, the Tender Agent, if any, the Credit Obligor and the Company at least 30 days before the effective date of such resignation. The Company, with the consent of the Credit Obligor and the Issuer, may remove the Remarketing Agent, and upon the removal or resignation of the Remarketing Agent may, with the consent of the Credit Obligor and the Issuer, appoint a successor by notifying the Remarketing Agent and the Trustee. No removal or resignation shall be effective until a successor Remarketing Agent has delivered an acceptance of its appointment to the Trustee. Any such successor Remarketing Agent, upon its appointment pursuant to the terms and conditions hereof, and those contained in the Indenture, shall succeed to and become vested with all the rights, powers, privileges and duties of the former Remarketing Agent. Notwithstanding the foregoing, the Remarketing Agent may resign and be discharged of its duties and obligations hereunder and under the Indenture by notifying the Issuer, the Trustee, the Tender Agent, if any, the Credit Obligor and the Company, and such resignation shall take immediate effect without the appointment of a successor Remarketing Agent, if an Event of Default has occurred and is continuing under the Indenture or the Company fails to pay the fees and expenses of the Remarketing Agent in the amounts and at the time provided in Section 6 hereof. Notwithstanding the foregoing, no termination shall affect the rights and obligations of the parties regarding Bonds with respect to which the Remarketing Agent is obligated to use its best efforts to remarket the Bonds pursuant to Section 3(d) hereof or which theretofore otherwise have been remarketed by the Remarketing Agent. (e) The Remarketing Agent's responsibilities hereunder will include (i) soliciting purchases of Bonds by institutional investors that customarily purchase tax-exempt securities in large denominations at market rates, (ii) effecting and processing such purchases, (iii) -2- 3 causing the distribution of any written disclosure materials, as shall have been approved and paid for by the Company, to prospective purchasers in connection with the remarketing of the Bonds, and (iv) performing such other related functions as may be requested by the Issuer and the Company and agreed to by the Remarketing Agent. The Remarketing Agent will furnish copies of the foregoing disclosure materials to the Issuer, the Company and the Trustee upon their written request therefor. The Remarketing Agent may purchase Bonds but shall be under no obligation to purchase Bonds remarketed pursuant to this Agreement. Upon a repurchase of Bonds and prior to their remarketing, the Remarketing Agent will be entitled to all rights of a Bondholder. If, during and prior to such time as the Placement Memorandum, dated April 23, 1997, relating to the Bonds (the "Placement Memorandum") (including the Preliminary Placement Memorandum circulated in connection with the placement of the Bonds) is used in connection with the placement of the Bonds, any event known to the Company relating to or affecting the Company, the Issuer, the Credit Obligor, or the Bonds shall occur, the result of which is that the Placement Memorandum would include a misstatement of a material fact, or would omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, the Company will promptly notify the Remarketing Agent in writing of the circumstances and details of such event. The Company and the Issuer will cooperate with the Remarketing Agent in the preparation of any additional disclosure statement or marketing materials (a "Disclosure Statement") that the Remarketing Agent determines are necessary or desirable in connection with the remarketing of the Bonds or which the Remarketing Agent determines should be provided to owners of the Bonds. The Company and the Remarketing Agent acknowledge that certain remarketings of the Bonds may be subject to the requirements of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 15c2-12"). The Company agrees, in the event Rule 15c2-12 is applicable to any remarketing of Bonds hereunder, to take such actions as are necessary at the time to enable the Remarketing Agent to comply with the provisions of Rule 15c2-12. The Company shall furnish to the Issuer and the Remarketing Agent a Disclosure Statement at such times and in such quantities as are necessary to enable the Issuer and the Remarketing Agent to comply with Rule 15c2-12, if applicable. If the Company fails to perform its obligations under this Section, the Remarketing Agent may immediately cease remarketing efforts. (f) The Remarketing Agent agrees that, so long as this Agreement remains in effect, it will be available to consult with the Company and the Issuer on a timely basis with respect to the determination of the interest rate on the Bonds, all in the manner contemplated by the Indenture and with respect to all other matters relating to its responsibilities under this Agreement. In addition, the Remarketing Agent will furnish the Issuer and the Company with information as to the prices at which such Bonds are placed, as the Issuer and the Company -3- 4 may from time to time reasonably request. The Remarketing Agent shall not be liable for any action taken or omitted to be taken pursuant to this Agreement, except for its own gross negligence or willful misconduct or that of its agents which have been so appointed in writing by the Remarketing Agent. (g) The Remarketing Agent may, if it elects to do so in its sole discretion, purchase, as principal, any Bonds rendered to it, but it will not in any event be obligated to do so, and, if it purchases Bonds tendered to it, it will have the same rights under the Indenture as any other holder of such Bonds. 3. Representations, Warranties, Covenants and Agreements of the Remarketing Agent. The Remarketing Agent, by its acceptance hereof, represents, warrants, covenants and agrees with the Issuer as follows: (a) The Remarketing Agent has a capitalization of at least $15,000,000 as shown in its most recent published annual report. (b) The Remarketing Agent is authorized by law to perform the duties imposed upon it by the Indenture and has full power and authority to take all actions required or permitted to be taken by the Remarketing Agent by or under, and to perform and observe the covenants and agreements on its part contained in this Agreement. (c) The Remarketing Agent shall determine the interest rate of the Bonds, all in accordance with Article III of the Indenture. (d) The Remarketing Agent shall use its best efforts to remarket or place the Bonds pursuant to the Indenture and this Agreement, unless there has occurred an Event of Default under the Indenture. (e) The Remarketing Agent will not remarket any tendered Bonds if the Credit Obligor notifies the Remarketing Agent that the Letter of Credit or any Substitute Letter of Credit, if drawn upon, has not been reinstated to an amount equal to the principal amount of Bonds Outstanding together with at least 45 days' accrued interest thereon. 4. Representations, Warranties, Covenants and Agreements of the Company. The Company, by its acceptance hereof, represents, warrants, covenants and agrees with the Remarketing Agent as follows: (a) The Company has the requisite power and authority to take all actions required or permitted to be taken by the Company by or under, and to perform and observe the covenants and agreements on its part contained in, this Agreement and any other instrument or agreement relating thereto to which the Company is a party. -4- 5 (b) The Company has, as of the date hereof, duly taken all action necessary to be taken by it prior to such date, for (i) the execution, delivery and performance of this Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the transactions contemplated by the foregoing documents and (ii) the carrying out, giving effect to, consummation and performance of, the transactions and obligations contemplated hereby and by the Placement Memorandum. (c) This Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, when executed and delivered by the parties hereto and thereto, constitutes or will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors' rights generally. (d) The execution and delivery of this Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, the compliance with the terms, conditions or provisions hereof and thereof, and the consummation of the transactions herein and therein contemplated do not upon the date of execution and delivery hereof and thereof, and will not, (i) violate any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to the Company which violation would have a material adverse effect on the Company, except under the federal securities or state securities or blue sky laws in connection with the placement of the Bonds by the Placement Agent pursuant to the Placement Agency Agreement or the remarketing of the Bonds by the Remarketing Agent pursuant to this Agreement, or (ii) result in a breach of any of the terms, conditions or provisions of, or constitute default under, any mortgage, indenture, agreement or instrument to which the Company is a party or by which it or any of its property is bound. (e) All authorizations, consents and approvals of, notices to, registrations or filings with, or actions in respect to any governmental body, agency or other instrumentality or court required in connection with the execution, delivery and performance by the Company of this Agreement and any other agreement or instrument to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, have been obtained, given or taken and are in full force and effect, except for such licenses, certificates, approvals, ordinances or permits which may be necessary for the use of the proceeds of the Bonds or described in the Placement Memorandum and for which the Company has applied or will apply and which it expects to receive and except as may be required under the state securities or blue sky laws in connection with the placement of the Bonds by the Placement Agent pursuant to the -5- 6 Placement Agency Agreement or the remarketing of the Bonds by the Remarketing Agent pursuant to this Agreement. (f) Except as disclosed by the Company to the Placement Agent and described in the Placement Memorandum or any supplement thereto delivered to the Remarketing Agent, there is no action, suit, investigation, proceeding, or arbitration, at law or in equity or before or by any foreign or domestic court or other governmental entity, pending or, to the knowledge of the Company, threatened against or affecting the Company wherein an unfavorable decision, ruling or finding could have a material adverse effect on the transactions contemplated by this Agreement or by the Placement Memorandum, or which would materially and adversely affect the validity or enforceability of or the authority or ability of the Company to perform its obligations under, this Agreement or any other agreement or instrument to which the Company is a party and which is used or contemplated for use in consummation of the transactions contemplated by this Agreement or the Placement Memorandum. (g) The Company is not in default under any indenture or other agreement or instrument governing outstanding indebtedness to which the Company is a party or by which it is bound, which default would have a material adverse effect on the transactions contemplated by this Agreement or by the Placement Memorandum, nor has any event occurred which with notice or the passage of time or both would constitute such a default under any such document. (h) The Company will cooperate with the Remarketing Agent in the qualification of the Bonds for placement and the determination of the eligibility of the Bonds for investment under the laws of such jurisdictions as the Remarketing Agent shall designate and will use its best efforts to continue any such qualification in effect so long as required for the distribution of the Bonds by the Remarketing Agent, provided that the Company shall not be required to qualify to do business in any jurisdiction where it is not so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (i) The Company has no knowledge or reason to believe that any information relating to the Company contained in the Placement Memorandum, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. (j) The Company shall, consistent with the terms of the Indenture, if the Remarketing Agent deems it advisable as a means of facilitating its performance under this Agreement, cooperate with the Issuer and the Remarketing Agent in connection with maintaining the rating of the Bonds from Standard & Poor's. -6- 7 5. Conditions of the Remarketing Agent's Obligations. The obligations of the Remarketing Agent under this Agreement have been undertaken in reliance on, and shall be subject to, the due performance by the Company of its obligations and agreements to be performed hereunder and to the accuracy of and compliance with the respective representations, warranties, covenants and agreements of the Company contained herein, in each case on and as of the date of delivery of this Agreement and on and as of each date on which Bonds are to be placed pursuant to this Agreement. The obligations of the Remarketing Agent to remarket the Bonds pursuant to this Agreement are also subject, in the discretion of the Remarketing Agent, to the following further conditions: (a) The Letter of Credit or any Substitute Letter of Credit, covering the aggregate principal amount of originally issued Bonds Outstanding and at least 45 days' accrued interest thereon calculated at an interest rate of 12% based on a 365/366 day year, shall be in full force and effect and shall not have been amended, modified or supplemented in any way which would materially and adversely affect the Bonds and there shall be in full force and effect such additional resolutions, agreements, certificates (including such certificates as may be required by regulations of the Internal Revenue Service in order to establish the tax-exempt character of interest on the Bonds) and opinions as shall be reasonably necessary to effect the transactions contemplated by this Agreement, which resolutions, agreements, certificates and opinions, at the request of the Remarketing Agent, shall be satisfactory in form and substance to the Remarketing Agent; (b) The representations, warranties, covenants and agreements of the Company made herein and in the Placement Agency Agreement and of the Issuer made in the Placement Agency Agreement shall be true and correct in all material respects; (c) The Company shall have complied with the second and third paragraphs of Section 2(e) hereof required in connection with any remarketing of the Bonds; and (d) No Event of Default (as such term is defined in the Indenture) shall have occurred and be continuing and no event shall have occurred and be continuing which, with the passage of time or giving of notice or both, would constitute such an Event of Default. 6. Payment of Fees and Expenses. In consideration for the services to be performed by the Remarketing Agent under this Agreement, the Company shall pay to the Remarketing Agent: (a) a fee (the "Remarketing Fee") which is determined as follows: the principal amount of the Bonds Outstanding as of the later of the Closing Date or on each January 1 following the Closing Date (each, a "Calculation Date") multiplied by 0.125% and the result thereof is multiplied by a fraction the numerator of which is the number of actual days elapsed since the Closing Date or the most recent Calculation Date, whichever is later, and the current Calculation Date and the denominator is 365 days. The Remarketing Fee, as determined on the Closing Date or a subsequent Calculation Date, shall be payable in advance to the Remarketing Agent on the Closing Date and each subsequent Calculation Date thereafter; and -7- 8 (b) with respect to all other Bonds, a remarketing fee which will be agreed upon by the Remarketing Agent and the Company at the time of remarketing of such Bonds. The Remarketing Agent will not be entitled to such compensation for any period after this Agreement is terminated except for a pro rata portion of the fee in respect of the year in which such termination occurs. The Company shall pay to the Remarketing Agent on demand all reasonable costs, expenses and attorney's fees incurred by the Remarketing Agent in connection with actions initiated by the Remarketing Agent to enforce this Agreement in which the Remarketing Agent prevails. The Company shall make all such payments directly to the person or entity to whom or to which they are due. 7. Indemnification. (a) The Company shall indemnify and hold harmless the Remarketing Agent and the Issuer and their directors, officers, members, employees, agents and each person, if any, who controls the Remarketing Agent or the Issuer, respectively, within the meaning of Section 15 of the Securities Act of 1933, as amended (the "Securities Act") (such persons being herein sometimes collectively referred to as the "Indemnified Persons" and individually, an "Indemnified Person"), from any losses, claims, damages or liabilities to which any Indemnified Person may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon (i) an allegation or determination that the Bonds or the obligations of the Company under the Lease Agreement or the Reimbursement Agreement or the obligations of the Credit Obligor under the Letter of Credit or any Substitute Letter of Credit should have been registered under the Securities Act or the Indenture should have been qualified under the Trust Indenture Act of 1939, as amended; provided, however, that the provisions of this subsection (i) shall not be applicable to the Remarketing Agent or any related Indemnified Person if the Remarketing Agent is also the Placement Agent, (ii) any untrue statement or alleged untrue statement of a material fact relating to the Company contained in the Placement Memorandum or any Disclosure Statement provided pursuant to Section 2(e) hereof or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse each Indemnified Person for any legal or other expenses reasonably incurred by such Indemnified Person in investigating, defending or preparing to defend any such action or claim. The indemnity agreement in this paragraph shall be in addition to any liability which the Company may otherwise have to any Indemnified Person. (b) Promptly after receipt by an Indemnified Person under paragraph (a) of this Section of notice of the commencement of any action, such Indemnified Person shall, if a claim in respect thereof is to be made against the Company under such paragraph, notify the Company in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Person, and such Indemnified Person shall notify the Company of the commencement thereof, the Company shall be entitled to participate in and, to the extent that it wishes, to assume the defense thereof, with counsel satisfactory to such Indemnified Person, -8- 9 and after notice from the Company to such Indemnified Person of its election so to assume the defense thereof, the Company shall not be liable to such Indemnified Person under such paragraph for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of any investigation; provided, however, that if the named parties to any such action (including any impleaded parties) include both the Remarketing Agent (or its partners, officers, employees or agents or any person so controlling the Remarketing Agent) and the Company, and the Remarketing Agent (or such partners, officers, employees or agents or such person so controlling the Remarketing Agent) shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, the Remarketing Agent (or such partners, officers, employees or agents or such person so controlling the Remarketing Agent) shall have the right to select, separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Remarketing Agent (or such partners, officers, employees or agents or such person so controlling the Remarketing Agent); provided further, however, that the Company shall not, in connection with any one such action, or separate but substantially similar or related actions arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any point in time for the Remarketing Agent and partners, officers, employees and agents and all persons so controlling the Remarketing Agent. (c) The Company shall not be liable for any settlement of any such action effected without its consent by any Indemnified Person, but if settled with the consent of the Company or if there be a final judgment for the plaintiff in any such action against the Company or any Indemnified Person, with or without the consent of the Company, the Company shall indemnify and hold harmless such Indemnified Person to the extent provided in this Agreement. (d) The Remarketing Agent shall indemnify and hold harmless the Company and the directors, officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act (such persons being herein sometimes collectively referred to as the "Company Indemnified Persons" and individually, a "Company Indemnified Person"), from any losses, claims, damages or liabilities to which any Company Indemnified Person may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Placement Memorandum or any Disclosure Statement provided pursuant to Section 2(e) hereof or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that such untrue or misleading statement or alleged untrue or misleading statement or omission or alleged omission was made in the Placement Memorandum or such Disclosure Statement or in such amendment or supplement thereto in reliance upon and in conformity with information furnished to the Company in writing by the Remarketing Agent. The -9- 10 Remarketing Agent shall reimburse each Company Indemnified Person for any legal or other expenses reasonably incurred by such Company Indemnified Person in investigating, defending, or preparing to defend any such action or claim. The indemnity agreement in this paragraph shall be in addition to any liability which the Remarketing Agent may otherwise have to any Company Indemnified Person. (e) Promptly after receipt by a Company Indemnified Person under paragraph (d) of this Section of notice of the commencement of any action, such Company Indemnified Person shall, if a claim for indemnification in respect thereof is to be made against the Remarketing Agent under this paragraph, notify the Remarketing Agent of the commencement thereof, and the Remarketing Agent shall promptly assume the defense thereof, including the employment of legal counsel reasonably satisfactory to the Company, the payment of all expenses, and the right to negotiate and consent to settlement. If the Remarketing Agent assumes the defense of such claim, the Remarketing Agent shall not be liable to any Company Indemnified Person under such paragraph for any legal or other expense subsequently incurred by such Company Indemnified Person in connection with the defense thereof; provided, however, that if the named parties to any such action (including any impleaded parties) include both any Company Indemnified Person and the Remarketing Agent, and the Company Indemnified Person shall have reasonably concluded, based upon the advice of legal counsel, that there may be one or more legal defenses available to it which are different from or additional to those available to the Remarketing Agent, and that as a result thereof such counsel has advised such Company Indemnified Person that employment of the same legal counsel may involve a conflict of interest, the Company Indemnified Person shall have the right to select separate counsel to assume such legal defense and to otherwise participate in the defense of such action on behalf of the Company Indemnified Person; provided further, however, that the Remarketing Agent shall not, in connection with any one such action, or separate but substantially similar or related actions arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any point in time for the Company and other Company Indemnified Persons. (f) The Remarketing Agent shall not be liable for any settlement of any such action effected without its consent by any Company Indemnified Person, but if settled with the consent of the Remarketing Agent or if there is a final judgment for the plaintiff in any such action against any Company Indemnified Person, with or without the consent of the Remarketing Agent, the Remarketing Agent shall indemnify and hold harmless such Company Indemnified Person to the extent provided in this Agreement. (g) The indemnity agreements contained in this Section 7 shall remain in full force and effect, regardless of any investigation made by or on behalf of the Remarketing Agent and the Company, and shall survive the termination or cancellation of this Agreement. -10- 11 8. Nature of the Remarketing Agent's Obligations. Without limiting the foregoing, the Remarketing Agent is expressly authorized and directed to honor its obligations under and in compliance with the terms of this Agreement without regard to, and without any duty on its part to inquire into, the existence of any disputes or controversies between the Company, the Trustee, the Credit Obligor or any other person or the respective rights, duties or liabilities of any of them, or whether the facts or occurrences represented in any of the documents presented under this Agreement are true and correct. Furthermore, the Company fully understands and agrees that the Remarketing Agent's sole obligation to the Company shall be limited to honoring its obligations under and in compliance with the terms of this Agreement. 9. Intention of Parties. It is the express intention of the parties hereto that neither the determination of any interest rate on the Bonds nor any placement, tender or transfer of any Bond, as herein provided, shall constitute or be construed to be the extinguishment of any Bond or the indebtedness represented thereby or the reissuance of any Bonds. 10. Registration of Letter of Credit. If the blue sky or securities laws of any state or other jurisdiction requires the registration or qualification of the Letter of Credit or any Substitute Letter of Credit, the Remarketing Agent shall not offer or place any Bonds in or into such state or other jurisdiction. 11. Miscellaneous. (a) Except as otherwise specifically provided in this Agreement, all notices, demands and formal actions under this Agreement shall be in writing and mailed or delivered by courier or facsimile transmission to: The Remarketing Agent: LaSalle National Bank 181 West Madison Street, Suite 3203 Chicago, Illinois 60602-4510 Attention: Capital Markets Group Telephone: (312) 904-7047 Facsimile number: (312) 904-8167 -11- 12 The Company: McClain Industries, Inc. 6200 Elmridge Road Sterling Heights, MI 48310 P.O. Box 180913 Utica, MI 48318 Attention: Mr. Carl Jaworski Telephone: (810) 264-3611 Facsimile number: (810) 264-7191 The Issuer: The Industrial Development Board of the City of Demopolis City Hall Demopolis, Alabama 36732 Attention: Telephone: Telecopier: Each of the above-named addressees may by notice given under this Agreement, designate other addresses to which subsequent notices, requests, reports or other communications shall be directed. (b) This Agreement will inure to the benefit of and be binding upon the Remarketing Agent and the Company and their respective successors and assigns. The terms "successors" and assigns" shall not include any purchaser of any of the Bonds merely because of such purchase. (c) All of the representations, warranties and covenants of the Company, the Issuer and the Remarketing Agent in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Remarketing Agent, the Issuer or the Company or (ii) delivery of and any payment for any Bonds. (d) Section headings have been inserted in this Agreement as a matter of convenience for reference only, and such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement. (e) This Agreement shall be governed exclusively by and construed in accordance with the internal laws of the State of Illinois applicable to contracts to be wholly performed therein. (f) This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, and such counterparts shall together constitute but one and the same instrument. -12- 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above. McCLAIN OF ALABAMA, INC. By: ??? ------------------------------------------ Title: Secretary --------------------------------------- LASALLE NATIONAL BANK, as Remarketing Agent By: Thomas Boland ------------------------------------------ Title: Vice President --------------------------------------- THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DEMOPOLIS By: John E. Northcutt (?) ------------------------------------------ Title: Chairman of the Board of Directors -13- EX-27 16 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 2,402,421 0 16,589,263 0 31,011,766 54,103,117 41,470,473 16,229,849 87,185,567 20,583,114 0 0 0 5,383,486 18,453,605 87,185,567 90,061,170 90,061,170 74,517,303 74,517,303 0 0 3,448,867 (1,990,780) (287,000) (1,703,780) 0 0 0 (1,703,780) (.36) 0
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