-----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, CFbybtU4c4ipsFIXd/STGkl4KP3TulMmjQM5Au7J9YJuXaR8Zi5/2WmcV3t2MtYi V8mR7txqqmwzQhlJRyhVLw== 0000950009-96-000555.txt : 19961231 0000950009-96-000555.hdr.sgml : 19961231 ACCESSION NUMBER: 0000950009-96-000555 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECOM GENERAL CORP CENTRAL INDEX KEY: 0000790375 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 870410875 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14299 FILM NUMBER: 96686970 BUSINESS ADDRESS: STREET 1: 46035 GRAND RIVER AVENUE CITY: NOVI STATE: MI ZIP: 48374 BUSINESS PHONE: 8103059410 MAIL ADDRESS: STREET 1: 46035 GRAND RIVER CITY: NOVI STATE: MI ZIP: 48374 10-K 1 FORM 10-K *WITHOUT* ITEM 405 BOX CHECKED FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1996 Commission file number 0-14299 SECOM GENERAL CORPORATION (exact name of registrant as specified in its charter) DELAWARE 87-0410875 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 26600 HEYN DRIVE, NOVI, MICHIGAN 48376-0705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (810) 305-9410 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None (Title of class and name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, par value $.10 per share (Title of class) 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 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 the Registrant's knowledge, in a definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] As of December 24, 1996, 5,342,200 shares of the Registrant's Common Stock were outstanding and the aggregate market value of such Common Stock held by non-affiliates (based on the closing price on that date as reported on the NASDAQ National Market System) was approximately $13,355,500. DOCUMENTS INCORPORATED BY REFERENCE Part III - incorporated by reference from the Registrant's Proxy Statement for its Annual Meeting to be held in March 1997. TABLE OF CONTENTS PART I Page ---- Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 16 Item 13. Certain Relationships and Related Transactions 17 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 PART I Item 1. Business General Secom General Corporation, a Delaware corporation (the "Company"), is a holding company with the following wholly-owned operating subsidiaries: Metal Parts Forming Segment: * Uniflow Corporation ("Uniflow") acquired in 1991 Tooling Segment: * Form Flow, Inc. ("Form Flow") acquired in 1987 * L & H Die, Inc. ("L & H") acquired in 1987 * Micanol, Inc. ("Micanol") acquired in 1990 * Triple Technologies, Inc. ("Triple"), formerly known as Triple Tool, acquired in 1991 In May 1995, Triple's operations were downsized and relocated to a Form Flow facility. Triple's continuing business activity was absorbed into Form Flow. Effective November 1, 1996, the Company acquired the Milford, Michigan machining business of the VarityKelsey-Hayes Corporation ("VKH"), a business unit of Lucas-Varity Corporation (NYSE:LAV). The business was renamed Milford Manufacturing Corporation ("MMC"), and constitutes a third segment for the Company -- Production Machining. In connection with the acquisition, the Company also entered into a five year supply agreement for the manufacture and sale of various brake valve parts to VKH. See Management's Discussion and Analysis. The Company's corporate address is 26600 Heyn Drive, Novi, Michigan 48374; its telephone number is (810) 305-9410 and its facsimile number is (810) 347-9952. Except as otherwise indicated by the context, any reference to "the Company" shall mean the Company and its subsidiaries. The Company's fiscal year-end is September 30. Principal Customers, Backlog and Seasonality In 1996, one of the Company's customers accounted for 11% of consolidated revenues. Sales of the Company's parts, tooling and services are not considered seasonal. The Company believes that its backlog, due to the nature of its respective businesses, is not necessarily indicative of the level of its present or future sales. - 3 - SEGMENT REVIEW Metal Parts Forming Segment General The Metal Parts Forming Segment is comprised of the Company's Uniflow unit, which primarily manufactures automotive and truck parts from steel bar, coil and tubing using cold forging and forming machines and various types of secondary machining, such as threadrolling and piercing equipment. Sales and Competition Uniflow's fiscal 1996 sales were comprised as follows: 32.8% wheel studs for heavy and light duty trucks (original equipment manufacturers or "OEM" and service part manufacturers or "aftermarket"); 24.9% automobile ball joint suspension housings (OEM and aftermarket); 23.6% transmission gear housings (OEM); and 18.7% miscellaneous cold headed and cold forged parts (OEM). While Uniflow operates in competitive markets, management believes that Uniflow's extensive tooling inventory gives it a competitive advantage in retaining certain reorders from the same customers. Although Uniflow is aggressively seeking sales of new parts, most of its business base remains reorders of the same customer specific parts. Uniflow's sales backlog usually covers a period of approximately three months of work. As such, the backlog is not necessarily indicative of Uniflow's sales performance beyond that time period. Management expects Uniflow's sales mix to change in 1997 and thereafter, as it focuses on larger OEM sales orders. See Management's Discussion and Analysis set forth in Item 7. Uniflow's sales are concentrated with a few customers, as five customers comprised 75% of revenue for the fiscal year ended September 30, 1996. If Uniflow were to lose a significant customer, management believes that it could replace that business within an estimated timeframe of 6 to 18 months, although its gross profit margin would likely be adversely affected. Manufacturing and Engineering Uniflow manufactures parts from steel bar, coil and tubing using cut-off machines, cold forging hydraulic presses, cold heading machines, CNC turning centers, threadrollers, broaching and piercing machines. Although part production can involve up to 14 different production steps, primary equipment consists of the cold forging presses and cold forming (header) machines, which form the parts into their general size and shape. The forging presses complete one operation at a time, while the header machines complete up to five operations in succession. After parts are forged or formed, they are routed to various secondary machining operations for finishing, such as CNC turning, threadrolling, piercing and drilling. External steps completed by outside processors typically include specialized machining, heat-treating, annealing and plating. Production order turnaround time can vary from 4 to 12 weeks, depending on engineering requirements, lead times from outside vendors and the production backlog. Uniflow's tooling department makes and repairs some of the perishable tooling used in production, while the Company's Tooling Segment also supplies Uniflow with some of its production tooling. The engineering staff offers tool design and production development services to customers for new or modified parts. Employees As of September 30, 1996, Uniflow employed a total of 170 full-time employees compared to 153 in the prior year, as follows: 151 direct and indirect labor (including factory floor supervision), 6 engineering, 2 sales, 7 office and 4 management. - 4 - Tooling Segment General The Company's Tooling Segment ("Tooling Operations" or "Tooling Units") is comprised of three wholly-owned operating subsidiaries, which are Form Flow, L & H and Micanol. In May 1995, the Company significantly reduced the size of its Triple operation by selling off certain equipment. Triple's remaining operations were transferred to the Company's Form Flow unit, although certain equipment was moved to the other subsidiaries. The continuing Triple business activity has been absorbed into Form Flow. For further discussion about Triple, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 2 to the financial statements set forth in Item 8. The Tooling Operations manufacture close tolerance tooling for the hot and cold metal forming industry. Hot and cold metal forming companies typically make metal parts from steel coil that is automatically fed through various stations on a "header forming" machine. A header machine cuts off a piece of steel coil and moves it through each die station progressively, using tool inserts to form the part. Tool life is dependent on the type of material used to make the part and the size and shape of the part, among other things. As part of its sales and service, the Tooling Unit's design and development staff will advise customers about tooling issues and other engineering matters related to the production of hot and cold formed parts. While tool orders typically take 4 to 10 weeks to complete, design and development orders can span over a period of months. Sales and Competition The Tooling Segment's customers manufacture items such as industrial fasteners, hand tools, electronic components, automotive parts, tubing, aircraft parts, consumer items and munitions as well as a wide array of OEM assembly parts. The Tooling Unit's customers include OEM and aftermarket suppliers and are mostly related to the automotive industry. Continuing customer relations are important as significant revenue is derived from tooling reorders. The Tooling Segment operates in fragmented markets with numerous competitors. Management believes its success is based on (1) the quality and durability of the tooling, (2) the ability to fulfill delivery commitments, and (3) price competitiveness. The Tooling Unit's design and engineering services allow it to compete for tool development work; management believes these services provide the Company a significant advantage in attracting new customer business. The Tooling Segment sells principally to customers in the United States. Manufacturing and Engineering All tooling orders are manufactured to customer specifications as indicated on a tool drawing. Tools are made from bar stock steel or carbide blanks and generally are routed through a production sequence that includes cutting, turning (CNC/lathe work), heat treating, grinding, polishing and coating. Form Flow, L & H and Micanol have separate plant facilities. Design and engineering services are located at a Form Flow facility, and are offered by all three of the Tooling Units. - 5 - Employees As of September 30, 1996, the Tooling Segment employed a total of 158 full-time employees compared to 175 in the prior year, as follows: 132 direct and indirect labor (including factory floor supervision), 5 engineering, 4 sales, 11 office and 6 management. Item 2. Properties The Company's corporate offices are located at 26600 Heyn Drive, Novi, Michigan. The subsidiaries operate in the following facilities, all of which are owned by the Company: 1) Form Flow is located in two 12,600 square foot adjacent buildings on approximately four acres of land at 6901 and 6999 Cogswell in Romulus, Michigan 48174. The 6999 Cogswell facility was acquired by the Company in December 1995. Its telephone number is 313-729-3100. 2) L & H is located in a 12,600 square foot building on approximately two acres of land at 38200 Ecorse Road, Romulus, Michigan 48174 and its telephone number is 313-722-8011. 3) Micanol is located in a 12,400 square foot building on approximately two acres of land at 46001 Grand River Avenue, Novi, Michigan 48374 and its telephone number is 810-347-1230. 4) Uniflow is located in three buildings on approximately eight acres of land in Novi, Michigan 48374: (1) 30,300 square feet at 26600 Heyn Drive, (2) 16,700 square feet at 46035 Grand River Avenue and (3) 32,000 square feet at 46009 Grand River Avenue. Its telephone number is 810-348-9370. 5) MMC is located on 6.6 acres of land in an 81,500 square foot building at 101 Oak St., Milford, Michigan 48381. Its telephone number is 810-685-1573. Item 3. Legal Proceedings. The Company is involved in various legal proceedings arising in the normal course of business. In the opinion of management (based on the opinion of counsel) the outcome of such litigation will not have a material adverse effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. No items were submitted to a vote of the Company's stockholders during its fourth fiscal quarter. - 6 - PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock (trading symbol "SECM") has traded on NASDAQ since June 1987 and the NASDAQ National Market System (NMS) since January 1992. The following table sets forth (for the respective period indicated) the high and low trade for the common stock as reported by NASDAQ. Trade prices do not include retail markups, markdowns or commissions.
High Low Quarter Ended Trade Trade ------------- ----- ----- 12/31/94 3.00 2.00 3/31/95 2.62 1.62 6/30/95 2.50 1.62 9/30/95 4.09 2.25 12/30/95 3.37 2.50 3/31/96 3.37 1.75 6/30/96 3.44 1.87 9/30/96 3.12 2.00
On September 30, 1996 there were approximately 1,000 nominees/persons of record that held the Company's common stock. Of those listed of record, approximately 2 million shares were held by brokers and nominees representing an undetermined number of beneficial stockholders. Owners of common stock are entitled to receive dividends declared by the Board of Directors out of funds legally available therefor. The Company has never paid a cash dividend and does not anticipate paying cash dividends in the foreseeable future. Its policy is to retain earnings so it can provide funds for operations and expansion of its business. In addition, the Company's bank loan agreement prohibits the payment of cash dividends without written consent from the lender. In August 1996, Manubusiness Opportunities, Inc. ("MOI") exercised its third and final warrant of 500,000 shares. The Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated the market trading value at the exercise date. For further discussions about MOI, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 6 to the financial statements set forth in Item 8. In June 1991 and in May 1992, the Company issued 10% common stock dividends to stockholders of record as of May 14, 1991 and May 1, 1992, respectively. Item 6. Selected Financial Data See page 34 for selected financial data as of September 30, 1996, 1995, 1994, 1993 and 1992 and for the years then ended as required by this Item. This information should be read in conjunction with the financial statements and the footnotes thereto referred to in Item 14(a)(1) of this Form 10-K. - 7 - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in the Form 10-K. Overview The Company posted net income of $41,000 (one cent per share) on sales of $30,877,000 in 1996 compared to net income of $1,204,000 (28 cents per share) on sales of $36,276,000 in 1995. The decline in net income in 1996 from the prior year was primarily due to the continued difficulty in turning around the Company's Uniflow unit (see segment review below). Although Uniflow was able to secure various long-term sales orders during 1996 that are scheduled to ramp up in 1997 and 1998, overall sales declined in 1996 from 1995. Although sales decreased, operating expenses increased (as a percentage of sales), resulting in a loss in 1996 at Uniflow. The Company's Tooling Segment sales were lower primarily related to the downsizing of Triple Tool, which was absorbed into Form Flow's operation in late fiscal 1995. The Tooling Segment posted another profitable year, although net income was slightly lower than 1995. Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the VarityKelsey-Hayes' ("VKH") Milford, Michigan machining operation and its continuing business. Assets acquired were (1) machinery and equipment, with an estimated fair market value of $2.5 million, (2) real estate and building, with an estimated fair market value of $1.3 million, and inventories valued at approximately $1 million, as well as various environmental indemnifications and supply commitments with values yet undetermined. In exchange for the assets acquired, the Company paid approximately $5 million in consideration, as follows: (1) $1.2 million cash at closing, (2) the assumption of certain employee pension and retiree health care obligations, preliminarily estimated at $3 million and, (3) approximately $800,000 for additional inventories and equipment added to the location before the transaction closing. The Milford operation was renamed Milford Manufacturing Corporation ("MMC") and constitutes a third Secom business segment -- Production Machining. The Company anticipates the unit to be profitable in fiscal 1997 with sales expected to exceed $12 million. The Company's other two business segments are Metal Parts Forming (Uniflow) and Tooling (Form Flow, L & H and Micanol). Results of Operations Metal Parts Forming Segment Chart of three year comparative operating results (in thousands):
1996 1995 1994 ------------------- ------------------- ------------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales $ 14,748 100.0 $ 17,630 100.0 $ 16,052 100.0 Gross profit 1,197 8.1 2,226 12.6 1,533 9.6 Operating expense 1,898 12.9 1,951 11.1 1,356 8.4 Operating profit (loss) (701) (4.8) 275 1.6 177 1.1
- 8 - The Metal Parts Forming Segment is comprised of the Company's Uniflow unit. Uniflow currently manufactures suspension ball-joint housings, truck wheel fasteners, transmission shaft parts and a variety of OEM cold-formed and forged parts. Customers are primarily automotive and trucking-related original equipment manufacturers ("OEM") and service part manufacturers ("after-market"). Net sales decreased 16.3% in 1996 from 1995, and increased 9.8% in 1995 from 1994. The sales decrease in 1996 from 1995 primarily reflects (1) lower order volume for Uniflow's after-market truck wheel studs and suspension ball joint housings and, (2) additional sales in the prior year from deliveries made on a significant past-due sales backlog of approximately $1 million. The decrease in Uniflow's after-market component parts business is attributable to an overall slowness in the trucking after-market business, the loss of certain business by Uniflow's customers and the resourcing of various parts to competitors. Management does not anticipate further deterioration in 1997 after-market related sales. To replace the lower sales, management has been seeking new business for its cold forging press and cold forming header production capacity. Through those efforts, Uniflow secured an order to supply starter motor shafts for six years; shipments of $700,000 are expected in fiscal 1997, $2.5 million in 1998 and approximately $5 million annually for the remainder of this six year contract. The parts will be formed on Uniflow's National FX85 parts former and machined at the Company's newly acquired MMC unit. Uniflow also has tentatively received an order to manufacture transmission shaft parts, with shipments anticipated to start in early 1997; sales over $1.3 million are expected in fiscal 1997 and could exceed $8 million in 1998. Sales of airbag housings, for which first shipments were made in August 1996, are expected to exceed $1.5 million in 1997. Gross profit on sales was 8.1% in 1996, 12.6% in 1995 and 9.6% in 1994. The 1996 decline in gross profit reflects the lower sales volume and less efficient production. Management is in the process of implementing various operating techniques designed to improve Uniflow's manufacturing efficiency and gross profit. In particular, management is emphasizing improvements in production planning and preparation to reduce production costs. Management is also in the early stages of implementing a quality system in compliance with QS 9000 and a computerized information system that will provide on-line shop floor production and financial data. Incremental sales increases that are expected to commence throughout fiscal 1997 should improve the gross profit. Operating expense as a percentage of sales was 12.9% in 1996, 11.1% in 1995 and 8.4% in 1994. The percentage fluctuation was largely due to the varying sales level. Actual operating overhead expense in 1996 was $1.9 million, down from $1.95 million in 1995. In 1995, operating expense increased from 1994 level of $1.36 million, due primarily to increased engineering, product quality expense and the direct allocation of certain administrative expenses previously shown as unallocated corporate expense. Management does not expect its operating expense level to change significantly in 1997 from 1996. Uniflow's profit (loss) from operations was ($701,000) (-4.8% of sales) in 1996, $275,000 (1.6% of sales) in 1995 and $177,000 (1.1% of sales) in 1994. The profit decrease in 1996 from 1995 reflects the lower sales volume and higher costs of production. The profit increase in 1995 from 1994 primarily reflects the higher sales level. Management expects Uniflow's operating profit to improve with sales increases and with the implementation of production efficiencies. - 9 - Tooling Segment Chart of three year comparable operating results (in thousands):
1996 1995 1994 ---------------- ----------------- ----------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales (1) $18,166 100.0 $20,659 100.0 $19,143 100.0 Gross profit 4,317 23.8 4,902 23.7 4,841 25.3 Operating expense 2,325 12.8 2,445 11.8 1,833 9.6 Operating profit (loss) 1,992 11.0 2,457 11.9 3,008 15.7 (1) Before elimination of intercompany sales.
The Tooling Segment is comprised of the Form Flow, L & H and Micanol units. The Triple unit was downsized and absorbed into Form Flow's operation in June 1995. The Tooling Units sell tools and dies for use in the production of hot and cold formed metal parts. Net sales decreased 12.1% in 1996 compared to 1995 and increased 7.9% in 1995 compared to 1994. The 1996 sales decrease from 1995 is primarily due to the downsizing of Triple Tool, which posted sales of $1.79 million in 1995, and lower sales at Micanol in 1996, resulting from lower order demand from some of its customers. The 1995 sales increase over 1994 was the result of higher sales at Form Flow, L & H and Micanol, although Triple recorded lower sales. Gross profit on sales was 23.8% in 1996, 23.7% in 1995 and 25.3% in 1994. The 1996 gross profit percentage was comparable with 1995, while the decline in percentage in 1995 from 1994 primarily reflected unfavorable operating results at the Triple unit. Operating expense as a percentage of sales was 12.8% in 1996, 11.8% in 1995 and 9.6% in 1994. The increases in 1996 and 1995 reflect higher personnel expense and the direct allocation of certain expenses previously unallocated at the corporate level. The Tooling Segment's operating profit was $1,992,000 (11.0% of sales) in 1996, $2,457,000 (11.9% of sales) in 1995 and $3,008,000 (15.7% of sales) in 1994. The decline in operating profit in 1996 from 1995 principally resulted from lower profits at Form Flow, L & H and Micanol, offset by the reduction of Triple's operating loss. In the previous year, Form Flow realized higher profits on various special tooling development projects from certain customers. The decline in operating profit in 1995 from 1994 was principally related to lower sales volume from various higher margin customer accounts. Management is seeking to maintain higher machine utilization and higher value added tooling orders to improve its gross margin and operating profit. - 10 - Corporate Expenses Unallocated corporate overhead was $712,000 in 1996, $858,000 in 1995 and $1,620,000 in 1994. The reductions in unallocated corporate expense in 1996 and 1995 from 1994 reflect the direct allocation of certain expenses that relate to the respective operating units, as well as lower insurance and other administrative costs. Interest Expense, Miscellaneous Income and Income Taxes Interest expense was $848,000 in 1996, $1,138,000 in 1995 and $953,000 in 1994. The decline in interest expense in 1996 from 1995 resulted from lower average borrowing and lower average interest rates for the year. Lower borrowings resulted in part from the exercise of stock warrants that provided $2 million of equity to the Company and refinancing certain of its debt agreements. Interest expense increased in 1995 from 1994 primarily due to increased borrowing for the additions of capital equipment. Other income (expense) was $15,000 in 1996, ($8,000) in 1995 and $386,000 in 1994. The income in 1994 reflected settlement of debts at less than recorded values associated with Tri-Tec. Income tax expense (benefit) was $18,000 in 1996, ($373,000) in 1995 and $61,000 in 1994. The income tax benefit in 1995 was the result of the utilization of net operating loss carryforwards against taxable income and the reversal of portions of the valuation allowance in anticipation of future use of net operating loss carryforwards. Financial Condition The Company's working capital position, $4,908,000 at September 30, 1996, improved significantly during 1996 from $1,129,000 at September 30, 1995. The working capital increase primarily resulted from (1) a refinancing of long-term debt, as excess proceeds of approximately $2.35 million from new long-term debt were used to reduce short-term borrowings and (2) the exercise of stock purchase warrants that provided $2 million in additional equity, proceeds of which were also used to reduce short-term borrowings. Scheduled debt payments due in fiscal 1997 total approximately $2.1 million and management believes that internally generated cash from operations and amounts available on bank lines of credit will provide sufficient cash flow to cover the scheduled debt payments as well as fund continuing working capital requirements. Cash flows for 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994 ---- ---- ---- Cash flows from operating activities ......... $ 1,838,000 $ 1,772,000 $ 356,000 Cash flows used in investing activities ...... (4,918,000) (494,000) (589,000) Cash flows from (used in) financing activities 7,475,000 (1,274,000) 93,000
- 11 - Cash flows from operating activities Cash flows provided by operating activities were $1,969,000 in 1996 before changes in working capital items and discontinued operations, compared to $2,697,000 in 1995 and $3,030,000 in 1994. Working capital items used $290,000 in 1996, as inventories rose $1.2 million, partially offset by lower accounts receivable and higher accrued liabilities. Inventories in 1996 rose principally at Uniflow, largely in connection with the timing of customer orders. In 1995, working capital items used $882,000, primarily the result of higher accounts receivable and prepaid items, along with lower accounts payable. In 1994, working capital items used $2,984,000, primarily associated with higher Tooling inventories and reduced trade payables. Cash flows used in investing activities In 1996, the Company made capital expenditures that totaled $5,479,100, primarily for machinery at Uniflow associated with the manufacture of starter motor shaft parts. In this regard, the Company has committed to the acquisition of approximately $4 million of capital equipment. The equipment is scheduled for delivery and installation in mid 1997. In 1995, capital expenditures were $1,359,000, principally for a refurbished hydraulic press dedicated for airbag housing production and Form Flow's expansion of its die repair business, which included the acquisition of a new facility and additional grinding equipment. In 1994, capital expenditures of $908,000 were primarily for production tooling at Uniflow and miscellaneous equipment at the other units. The Company received $301,000 in 1996, $863,000 in 1995 and $149,000 in 1994, from the disposals of machinery and equipment. The disposals for all three years principally relate to the reduction of equipment base at the Triple unit. Cash flows from financing activities Cash flows provided by (used in) financing activities were $7,475,000 in 1996, ($1,274,000) in 1995 and $93,000 in 1994. In 1996, the Company completed a major debt refinancing of its existing assets and secured $7 million in industrial development bond financing to fund new equipment purchases associated with new sales orders. The 1996 refinancing included a $5 million note with a bank finance company due in six years; a real estate mortgage of $2.88 million due in 15 years; and a $6 million collateralized bank line of credit, of which $4 million is a committed revolver that expires in 1999. The refinancing provided excess cash of approximately $2.35 million, which was used to reduce borrowings on the bank line of credit. Also in 1996, the Company received $1.87 million and reduced accrued interest by $132,000 through the exercise of two stock warrants, which resulted in the issuance of 1 million shares of common stock. In 1996, scheduled principal debt payments totaled $1.4 million, compared to scheduled payments of $1.7 million in 1995 and $1.3 million in 1994. Also, in 1995 the Company extinguished a $1 million note payable in connection with the exercise of a stock warrant. - 12 - Item 8. Financial Statements and Supplementary Data. See Item 14(a)(1) for a list of the financial statements included in this Form 10-K. Refer to page 38 of this Form 10-K for the supplementary quarterly financial data required by this Item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None - 13 - PART III The information called for by this Part is incorporated by reference from the Registrant's proxy statement for its Annual Meeting to be held in March 1997. The Company's proxy statement will be filed with the Securities and Exchange Commission in January 1997. - 14 - PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements and Financial Statement Schedule. Page ---- Independent Auditors' Report............................... 23 Consolidated Balance Sheets as of September 30, 1996 and 1995................................................ 24 Consolidated Statements of Operations for the Years Ended September 30, 1996, 1995 and 1994....................... 25 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1996, 1995 and 1994........... 26 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994....................... 27 Notes to Consolidated Financial Statements................. 28-35 Schedule II - Valuation and Qualifying Accounts............ 38 Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or the notes thereto. (b) Reports filed on Form 8-K. The Company filed a report on Form 8-K dated December 20, 1996 to report the move of its corporate office to 26600 Heyn Drive, Novi, Michigan 48376-0705. The Company filed a report on Form 8-K dated November 15, 1996 to report the Company's acquisition of certain assets and assuming certain liabilities of the VarityKelsey-Hayes' Milford, Michigan machining operation and its continuing business. (c) Exhibits. See the Exhibit Index on the following page. - 15 - Exhibit Description Page* - ------- ----------- ----- 2.1 Asset Purchase Agreement between VarityKelsey-Hayes Corporation and Milford Acquisition Corporation. 2.1* 3.1 Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on August 25, 1987. 3.1* 3.2 Amendment to Articles of Incorporation filed on August 31, 1990. 3.2* 3.3 Certificate of Merger between the Company and Secom General Corporation, a Utah corporation filed with the Secretary of State of Delaware in December 1987. 3.2* 3.4 Certificate of Designation of Rights of the Class A Preferred Stock filed with the Secretary of State of Delaware in December 1987. 3.3* 3.5 Amendment to Articles of Incorporation filed on December 17, 1991. 3.5* 3.6 Bylaws of the Company. 3.4* 4.1 List of instruments defining the right of security holders. 4.1* 4.3 Nonqualified Stock Option Agreement dated November 23, 1993 between Secom General Corporation as grantor and Manubusiness Opportunities, Inc. as grantee. 4.2* 4.4 Proxy Agreement dated November 23, 1993 between Roy A. McKnight, Larry McKnight, John Cocke and Manubusiness Opportunities, Inc. 4.3* 10.1 Machined Valve Products Supply Agreement E-1 10.2 Amended and Restated Revolving Credit and Loan Agreement between Secom General Corporation, Uniflow Corporation, Miconol, Inc., L&H Die, Inc. and Form Flow, Inc. E-13 10.3 Master Equipment Lease Agreement between Secom General Corporation and KeyCorp Leasing Ltd. E-83 10.4 Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing between Secom General Corporation and Metlife Capital Financial Corporation E-107 10.5 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer and Secom General Corporation as Borrower dated June 1, 1996 E-131 10.6 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer, and Secom General Corporation, as Borrower dated as of Sept. 1, 1996 E-174 10.7 1991 Nonqualified Stock Option Plan 10.27* 10.8 Form of Stock Option Agreement for Options granted under the 1991 Non-qualified Stock Option Plan 10.28* - 16 - 10.9 Subordination Agreement dated December 15, 1993 between Larry McKnight as junior lender and NBD Bank, N.A. as senior lender. 10.17* 22. Subsidiaries of the Registrant E-219 23. Consent of Deloitte & Touche LLP E-220 27. Financial Data Schedule E-221 - ------------ * See the footnotes on page 18 to locate these exhibits. - 17 - All exhibits that have page numbers followed by an * are incorporated by reference from the filings set forth below. The numbers set forth as page numbers for those exhibits are the exhibit numbers those documents were given in those other filings. All other exhibits are included in this Form 10-K at the page numbers shown. * Incorporated by reference from the Company's Current Report on Form 8-K dated November 15, 1996. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1987. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1990. * Incorporated by reference from the Company's Current Report on Form 8-K dated September 13, 1991. * Incorporated by reference from the Company's Registration Statement on Form S-4 (File No. 33-40865) that was declared effective on November 20, 1991. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1991. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1992. * Incorporated by reference from the Company's Current Report on Form 8-K dated December 15, 1993. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1993. - 18 - SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SECOM GENERAL CORPORATION Dated: December 27, 1996 By: /s/ Robert A. Clemente ------------------------------- Robert A. Clemente Chairman, President and CEO 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. Signature Title Date --------- ----- ---- Principal Executive Officer: /s/ Robert A. Clemente - ------------------------------ Chairman, President December 27, 1996 Robert A. Clemente CEO and Director Principal Financial and Accounting Officer: /s/ David J. Marczak - ------------------------------ Chief Financial Officer, December 27, 1996 David J. Marczak Secretary, Treasurer and Director - ------------------------------ Director December , 1996 Gregory Adamczyk - ------------------------------ Director December , 1996 Rocco Pollifrone /s/ Orville K. Thompson - ------------------------------ Director December 27, 1996 Orville K. Thompson /s/ Richard Thompson - ------------------------------ Director December 27, 1996 Richard Thompson - 19 - INDEPENDENT AUDITORS' REPORT Stockholders and Board of Directors Secom General Corporation Novi, Michigan We have audited the accompanying consolidated balance sheets of Secom General Corporation and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(1) of Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Secom General Corporation and subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /s/ Deloitte & Touche LLP December 23, 1996 Detroit, Michigan - 20 - SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 - ---------------------------- ASSETS 1996 1995 ---- ---- CURRENT ASSETS: Cash ......................................... $ 319,600 $ 13,700 Receivables: Trade (net of allowances of $21,000 and $93,500) ................................ 4,130,700 4,484,800 Other ...................................... 33,200 320,600 Inventories (Note 3) ......................... 5,170,500 3,935,700 Prepaids and other ........................... 547,400 727,800 Deferred tax assets (Note 10) ................ 569,800 542,700 ----------- ----------- Total current assets ................ 10,771,200 10,025,300 CASH RESTRICTED FOR EQUIPMENT (Note 12) ........ 4,089,000 PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .... 17,758,600 14,583,600 INTANGIBLE ASSET (Note 1) ...................... 1,994,100 2,071,300 OTHER ASSETS ................................... 341,600 266,900 ----------- ----------- TOTAL ASSETS ................................... $34,954,500 $26,947,100 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations (Note 5) ................................. $ 2,121,400 $ 5,633,400 Trade accounts payable ....................... 2,856,800 2,065,500 Accrued liabilities .......................... 884,800 1,197,100 ----------- ----------- Total current liabilities ........... 5,863,000 8,896,000 LONG-TERM OBLIGATIONS (Note 5) ................. 13,724,300 4,621,700 DEFERRED TAX LIABILITIES (Note 10) ............. 1,331,300 1,518,900 ----------- ----------- Total liabilities ................... 20,918,600 15,036,600 STOCKHOLDERS' EQUITY (Notes 8 and 9): Common stock, $.10 par value, 10,000,000 shares authorized; outstanding: 1996, 5,342,200 shares; 1995, 4,276,200 shares.... 534,200 427,600 Additional paid-in capital ................... 18,457,100 16,478,900 Accumulated deficit .......................... (4,955,400) (4,996,000) ----------- ----------- Total stockholders' equity .......... 14,035,900 11,910,500 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $34,954,500 $26,947,100 =========== =========== See notes to consolidated financial statements.
-21- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- NET SALES ..................................... $30,877,100 $36,276,200 $32,570,900 COST OF SALES ................................. 25,064,900 29,016,100 26,048,200 ----------- ----------- ----------- GROSS PROFIT .................................. 5,812,200 7,260,100 6,522,700 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 4,920,700 5,282,300 4,801,500 ----------- ----------- ----------- INCOME FROM OPERATIONS ........................ 891,500 1,977,800 1,721,200 OTHER INCOME (EXPENSE): Interest .................................... (847,600) (1,137,800) (952,500) Other, net .................................. 14,600 (8,400) 385,600 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES .................... 58,500 831,600 1,154,300 INCOME TAX BENEFIT (EXPENSE) (Note 10) ........ (17,900) 372,700 (60,800) ----------- ----------- ----------- NET INCOME .................................... $ 40,600 $ 1,204,300 $ 1,093,500 =========== =========== =========== NET INCOME PER COMMON SHARE ................... $ 0.01 $ 0.28 $ 0.29 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) .................................... 4,874,600 4,284,200 3,795,200 =========== =========== =========== See notes to consolidated financial statements.
-22- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - ----------------------------------------------- Common Stock Additional ---------------------- Paid-in Accumulated Shares Amount Capital Deficit Total ------ ------ --------- ----------- ----- BALANCE, OCTOBER 1, 1994 ........................... 2,900,900 $ 290,100 $15,578,000 $(7,293,800) $ 8,574,300 Stock issued for settlement of stock guarantees .. 711,900 71,200 (85,500) (14,300) Issuances to 401(k) plan (employer match and employee elections) ........................ 37,700 3,800 79,400 83,200 Private placements ............................... 50,000 5,000 95,000 100,000 Net income ....................................... 1,093,500 1,093,500 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1994 ........................ 3,700,500 370,100 15,666,900 (6,200,300) 9,836,700 Exercise of stock warrant ........................ 500,000 50,000 950,000 1,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 42,300 4,200 79,900 84,100 Issuances for compensation ....................... 41,800 4,100 79,500 83,600 Stock repurchases, net ........................... (8,400) (800) (31,000) (31,800) Note issued for settlement of stock guarantee .... (266,400) (266,400) Net income ....................................... 1,204,300 1,204,300 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1995 ........................ 4,276,200 427,600 16,478,900 (4,996,000) 11,910,500 Exercise of stock warrants ....................... 1,000,000 100,000 1,900,000 2,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 35,700 3,600 77,600 81,200 Stock issued for note receivable ................. 25,000 2,500 35,000 37,500 Stock repurchases, net ........................... (14,300) (1,400) (32,500) (33,900) Stock issued for settlement of stock guarantees ..................................... 19,600 1,900 (1,900) Net income ....................................... 40,600 40,600 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1996 ........................ 5,342,200 $ 534,200 $18,457,100 $(4,955,400) $ 14,035,900 ========= ========= =========== =========== ============ See notes to consolidated financial statements.
-23- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 40,600 $ 1,204,300 $ 1,093,500 Adjustments to reconcile income from operations to net cash provided by operations: Depreciation and amortization ...................... 1,983,900 1,858,600 1,983,700 Provision for (benefit from) deferred taxes ........ (214,700) (521,900) 60,800 Increase (decrease) in allowance for ............... (72,500) 17,000 (228,800) doubtful accounts (Gain) loss on sales of assets ..................... 115,800 (319,500) 14,100 Stock issuances to 401(k) plan ..................... 32,000 64,700 107,000 Write-off of intangibles ........................... 84,200 309,700 Stock issuances for compensation ................... 83,600 Changes in assets and liabilities that provided (used) cash, net of effects of acquisitions and discontinued operations: Trade and other receivables ...................... 512,500 (298,400) (105,300) Inventories ...................................... (1,234,800) 134,300 (1,412,200) Prepaids and other ............................... (36,000) (193,700) 30,300 Other assets ..................................... (192,000) 78,300 (18,000) Trade accounts payable ........................... 842,000 (491,400) (984,400) Accrued liabilities .............................. (181,800) (111,300) (196,900) Other liabilities ................................ (297,200) Net cash provided by (used in) discontinued operations ...................................... 158,600 (42,300) 309,400 ----------- ----------- ----------- Net cash provided by operating activities ... 1,837,800 1,772,000 356,000 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment ............................... 301,000 863,000 149,300 Collections on notes receivable ...................... 259,800 2,300 20,600 Capital expenditures ................................. (5,479,100) (1,359,200) (907,900) Net cash provided by discontinued operations ......... 149,200 ----------- ----------- ----------- Net cash used in investing activities ........ (4,918,300) (493,900) (588,800) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in bank line of credit .................... (3,603,600) 210,600 44,900 Proceeds from long-term obligations and use of restricted cash ........................... 8,205,500 273,100 2,469,400 Proceeds from refinancing of long-term obligations ... 7,887,500 Proceeds from issuances of stock ..................... 1,918,800 61,700 Payments on long-term obligations due to refinancing . (5,535,800) Retirements of common stock .......................... (33,900) (12,500) Payments on long-term obligations .................... (1,314,600) (1,634,000) (1,065,000) Refund of restricted cash to bondholders ............. (700,000) Payments on capital lease obligations ................ (48,500) (110,900) (234,400) Net cash used in discontinued operations ............. (483,400) ----------- ----------- ----------- Net cash (used in) provided by financing activities ............................... 7,475,400 (1,273,700) 93,200 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH .... 4,394,900 4,400 (139,600) CASH AND RESTRICTED CASH, BEGINNING OF PERIOD .......... 13,700 9,300 148,900 ----------- ----------- ----------- CASH AND RESTRICTED CASH, END OF PERIOD ................ $ 4,408,600 $ 13,700 $ 9,300 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest ............... $ 902,900 $ 1,104,800 $ 965,200 =========== =========== =========== Cash paid during the year for income taxes ........... $ 153,600 $ 120,000 =========== =========== See notes to consolidated financial statements.
-24- SECOM GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business - Secom General Corporation (the "Company") is a publicly-traded holding company with four wholly-owned subsidiaries supplying the automotive, truck, construction and consumer markets. The Company operates in the following two business segments: Tooling: Form Flow, Inc. ("Form Flow") L&H Die, Inc. ("L&H Die") Micanol, Inc. ("Micanol") Metal Parts Forming - Uniflow Corporation ("Uniflow") Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. Inventories are stated at the lower of cost or market, as determined under the first-in, first-out method. Property, Plant and Equipment are recorded at cost. The Company capitalizes, as additions, expenditures which extend the useful life or increase the value of related assets. Maintenance and repairs are charged to operating expense as incurred. Expenditures for repairs and maintenance for the three years ended September 30, 1996 were $433,700, $408,400 and $535,900, respectively. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Intangible Asset consisting of goodwill (cost in excess of net assets acquired) is amortized on a straight-line basis over primarily 40 years. The carrying value of goodwill is evaluated periodically in relation to the operating performance of the underlying business and assets. Management has evaluated the carrying value of the goodwill and has determined at September 30, 1996 that remaining amounts are not impaired. Accumulated amortization was $662,700 and $585,400 as of September 30, 1996 and 1995, respectively. Income Taxes - Deferred income tax assets and liabilities are computed annually for differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Earnings per Share of common stock is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares consist primarily of the warrants and options to purchase common stock outstanding during the periods presented. Revenue Recognition - Revenues are recognized upon completion of services related to customer products. -25- Significant Customer - The Company has one customer which comprises 11% of total revenues. Use of Estimates - The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Standards - Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued in March 1995. The Statement is effective for fiscal years beginning after December 15, 1995, and requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. This Statement, which is effective for fiscal years beginning after December 15, 1995, establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. Noncash Transactions - The Company entered into the following noncash investing and financing transactions for the following years ended September 30 (in thousands):
1996 1995 1994 ---- ---- ---- Cancellation of accrued interest/note payable in exchange for exercise of stock warrant.... $ 132 $1,000 Common stock issued for services or for reduction of other obligations............... 32 148 $107 Stock issued for note receivable................ 37 Notes receivable issued for sale of Triple Tool equipment............................... 249 Note payable issued for settlement of stock guarantee.................................... 266 Note receivable and assumption of obligations from sale of Tri-Tec subsidiary.............. 1,191
Reclassifications - Certain amounts in the 1995 financial statements have been reclassified to conform with the presentation for 1996. 2. DISCONTINUED AND DOWNSIZED OPERATIONS In the quarter ended September 30, 1993, the Company adopted a formal plan to discontinue operations of its Plastic Molded Products Segment, Tri-Tec. In the first quarter of 1994, Tri-Tec's inventories and machinery and equipment were sold for cash and notes receivable and the assumption of certain capital lease obligations. At September 30, 1995 the Company was relieved as an obligor or guarantor on leases assumed by the buyer of Tri-Tec. -26- In the third fiscal quarter of 1995, the Company completed its downsizing of Triple Technologies (formerly "Triple Tool") by the sale of $725,800 (net book value) of equipment and the leasing of $342,000 (net book value) of equipment. The Company recorded a net gain of $2,500 on this transaction after writing down goodwill in the amount of $310,000 in connection with the downsizing. In June 1995, Triple Technologies' remaining operations, primarily electro-diode machining (EDM), contracts and the related equipment (net book value $341,000) were transferred to Form Flow. For the years ended September 30, 1996, 1995, and 1994, sales from Triple Technologies were $30,400, $1,559,000 and $2,500,000, respectively, and operating losses were $102,000, $399,000 and $50,200, respectively. 3. INVENTORIES Inventories at September 30 consist of (in thousands):
1996 1995 ---- ---- Raw materials ........... $ 949 $ 372 Work-in-process ......... 2,394 1,797 Finished goods .......... 1,828 1,767 ------ ------ Total ................... $5,171 $3,936 ====== ======
4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment at September 30 consist of (in thousands):
1996 1995 Life ---- ---- ---- Machinery and equipment ............. $ 18,192 $ 14,629 2 to 20 years Building and improvements ........... 5,154 4,714 3 to 30 years Land and improvements ............... 572 540 N/A Furniture and fixtures .............. 685 478 3 to 7 years Vehicles ............................ 168 215 3 years Construction-in-progress and deposits 538 236 N/A -------- -------- Total .................... 25,309 20,812 Less accumulated depreciation ....... (7,550) (6,228) -------- -------- Total ............................... $ 17,759 $ 14,584 ======== ========
-27- 5. LONG-TERM OBLIGATIONS Long-term obligations at September 30 consists of (in thousands):
1996 1995 ---- ---- Bank line of credit (a) ...................... $ 172 $ 3,776 Real estate mortgage notes (b) ............... 3,609 1,888 Michigan Strategic Fund Limited Obligation Revenue Bonds (c) ......................... 6,896 2,500 Equipment term notes (d) ..................... 4,778 1,176 Other notes payable (e) ...................... 390 811 Equipment capital leases ..................... 104 -------- -------- Total ............................. 15,845 10,255 Less current obligations ..................... (2,121) (5,633) -------- -------- Long-term obligations ........................ $ 13,724 $ 4,622 ======== ========
(a) In July 1996, the Company entered into an amended and restated revolving credit and loan agreement with a bank, which is for a three year period and permits borrowings of up to $4 million under a revolving credit note and up to $2 million under a line of credit note. At September 30, 1996, $172,000 was outstanding under the revolving credit note and no amounts were outstanding under the line of credit note. The interest is at prime or the 30 day LIBOR rate plus 215 basis points. This agreement replaced an existing agreement in which interest was at prime plus 1/2%. The revolving credit and loan agreement is collateralized by accounts receivable and inventory while borrowings are limited to stated percentages of accounts receivable and inventory. Under each note, interest is payable monthly and any unpaid principal is due July 1999. The agreement prohibits the payment of cash dividends and requires the Company to maintain specific financial covenants including minimum tangible equity, working capital, and cash flow. The Company was in compliance with all financial covenants at September 30, 1996. (b) During 1996, the Company refinanced its existing mortgage loans to obtain new mortgage loans requiring monthly installments of principal and interest. Interest on a $2.88 million mortgage note is 8.25% per annum and is collateralized by land and buildings with a net book value of $3,729,100, while interest on a $775,000 mortgage note is prime and is collateralized by land and building with a net book value of $987,200. Interest under the previous agreements was payable at prime plus 2% per annum. These agreements mature in fiscal 1999 and 2011. Principal payments are due as follows: 1997, $164,600; 1998, $173,500; 1999, $183,200; 2000, $193,200; 2001, $660,200 and thereafter, $2,234,800. (c) In June and September 1996, the Michigan Strategic Fund sold $3,000,000 and $4,000,000, respectively, of its Limited Obligation Revenue Bonds and the bondholders then loaned the proceeds to the Company for the purchase of equipment. The bonds require monthly interest and principal payments through September 1, 2002. The Bonds bear interest at the rates of 6.15% and 5.99%, respectively, and are collateralized by equipment and cash with a net book value of approximately $7,000,000. Principal payments due are as follows: 1997, $1,004,600, 1998, $1,066,500, 1999, $1,133,000, 2000, $1,203,400, 2001, $1,278,700 and thereafter, $1,209,600. The bonds outstanding at September 30, 1995, were repaid in their entirety during fiscal 1996. Interest was at approximately 2% below the prime rate. -28- (d) The equipment term note is collateralized by equipment with a net book value of $9,902,200. Interest rate is the 30 day LIBOR plus 215 basis points (approximately 7.55% at September 30, 1996). Principal payments due are as follows: 1997, $691,800, 1998, $746,500, 1999, $805,500, 2000, $868,700, 2001, $937,800 and thereafter, $727,400. The equipment term notes outstanding at September 30, 1995 were repaid in their entirety during fiscal 1996. Interest was at prime rate plus 2%. (e) Interest rates on other notes payable range from 4.9% to 12%. At September 30, 1996, the balance includes $119,900 in trade installment notes collateralized by specific equipment. Maturity dates range from 1997 to 2000. Principal payments due are: 1997, $253,400; 1998, $55,400; 1999, $68,000, and 2000, $13,100. The prime rate at September 30, 1996 and 1995 was 8.25% and 8.75%, respectively. Principal payments on long-term obligations for the next five years are as follows (in thousands): 1997...................... $2,121 1998...................... 2,042 1999...................... 2,190 2000...................... 2,278 2001...................... 2,877 Thereafter................ 4,165
6. RELATED PARTY TRANSACTIONS In December 1993, the Company issued a $1,000,000 subordinated note payable, maturing December 1, 1995 and requiring payment of interest only, at the prime rate plus 3% to Manubusiness Opportunities, Inc. (MOI), an entity controlled by three directors of the Company. Payment of principal was due at maturity. MOI also received warrants and options to purchase 1.7 million shares of common stock, as follows: 500,000 shares expiring in November 1994 with an exercise price of $2 per share, 500,000 shares expiring in November 1995 with an exercise price of $2 per share, and 500,000 shares expiring in November 1996 with an exercise price of $3 per share and 200,000 options expiring in 1998 with an exercise price of $2.63 per share. In November 1994, MOI exercised its first warrant to acquire 500,000 shares of common stock in exchange for the cancellation of the $1,000,000 note. In November 1995, MOI exercised its second warrant to acquire 500,000 shares of common stock in exchange for a payment of $1,000,000. In August 1996, MOI exercised its third and final warrant of 500,000 shares. In conjunction with this exercise, the Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated market value at the new measurement date. Upon exercise, the Company received approximately $868,000 in cash and canceled accrued interest due to MOI of approximately $132,000. Included in accrued liabilities at September 30, 1995, is $125,000 of interest on the above note payable. 7. LEASES The Company leased one manufacturing facility under a noncancelable operating leases. Rental expense for continuing operations was $10,500, $36,000 and $106,000 for the years ended September 30, 1996, 1995 and 1994, respectively. During fiscal 1996, the Company purchased the leased plant facility. -29- Machinery and equipment includes assets under capital leases having a total cost of $438,700 and accumulated amortization of $156,700 at September 30, 1995. During 1996, this machinery and equipment was purchased and the Company no longer has any equipment under capital lease agreements. Annual payments due under noncancelable operating leases are as follows (in thousands): 1997...................... $ 45 1998...................... 45 1999...................... 45 2000...................... 45 2001...................... 45 Thereafter................ 45 ------ Total..................... $ 270 ======
8. STOCK OPTIONS AND COMMON STOCK GUARANTEES In 1991, the Board of Directors (the "Board") adopted a nonqualified stock option plan (the "1991 Plan"). The 1991 Plan authorizes the Board to grant options to purchase a maximum of 400,000 shares of common stock to employees, at not less than the fair market value at the date of grant. The options vest at various dates as described in the related option agreement and expire 10 years from the date of grant. At September 30, 1996, 131,200 shares were exercisable under the Plan. Transactions under the 1991 Plan are summarized as follows:
Shares Price ------ ----- Options outstanding September 30, 1994 .. 178,750 $2.62 - $3.00 Options terminated ...................... (16,250) 2.62 ------- Options outstanding September 30, 1995 .. 162,500 2.62 - 3.00 Options granted ......................... 272,000 1.94 Options terminated ...................... (58,500) 2.62 - 2.75 ------- Options outstanding September 30, 1996 .. 376,000 $1.94 - $3.00 =======
During the year ended September 30, 1996, 175,000 options exercisable at $1.94 were issued to an officer of the Company outside of the 1991 Plan. At September 30, 1996, 17,500 of these options were exercisable and the remaining options vest ratably over a five year period. These options expire 10 years from the date of grant. -30- The Company is contingently liable under stock price guarantees issued in connection with 1991 private stock placements. Under the agreements the holder is entitled to the shortfall between the amount realized from sale of the shares during the guarantee period and the guaranteed price of the share. At September 30, 1996, the Company had approximately 13,000 shares remaining that are subject to guarantees with a maximum guarantee amount of approximately $96,000. 9. EMPLOYEE BENEFIT PLAN The Company maintains a defined contribution 401(k) plan to which it contributes stock on a discretionary basis. The cost of the stock contributed to the Plan resulted in a charge to expense of $123,000, $116,000 and $107,000 for the years ended September 30, 1996, 1995 and 1994, respectively. 10. INCOME TAXES The provision for income taxes consists of the following for the years ended September 30:
1996 1995 1994 ---- ---- ---- Current (expense) .............. $(232,600) $(149,200) Deferred benefit (expense) ..... 214,700 521,900 $(60,800) --------- --------- -------- Income tax benefit (expense) ... $ (17,900) $ 372,700 $(60,800) ========= ========= ========
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
September 30 ------------------------- 1996 1995 ---- ---- Deferred tax assets: Alternative minimum tax carryforwards .... $ 272,900 $ 137,200 Tax credit carryforwards ................. 108,400 108,400 Secom net operating loss carryforward .... 45,200 Net operating loss carryforwards of acquired companies .................... 397,700 544,500 Reserves ................................. 206,600 159,100 Other .................................... 52,900 17,000 ----------- ----------- Total deferred tax assets ....... 1,038,500 1,011,400 Less valuation allowance ................... (468,700) (468,700) ----------- ----------- Net deferred tax assets ......... 569,800 542,700 Current portion ............................ 569,800 542,700 ----------- ----------- Long-term portion .......................... None None =========== =========== Deferred tax liabilities: Depreciation ............................. $ 462,400 $ 488,100 Book and tax basis differences from business combinations ................. 830,100 988,200 Other .................................... 38,800 42,600 ----------- ----------- Total deferred tax liabilities .. 1,331,300 1,518,900 Current portion ............................ None None =========== =========== Long-term portion .......................... $ 1,331,300 $ 1,518,900 =========== ===========
-31- During 1996 and 1995, certain tax benefits from net operating losses and temporary differences creating deferred tax assets have been reserved with a valuation allowance due to their uncertainty of realization. Remaining net operating loss carryforwards as of September 30, 1996 are available for offset against future taxable earnings through the year 2007, subject to annual limitations as set forth in the Internal Revenue Code. A reconciliation of the Company's statutory income tax provision computed on pre-tax income to the recorded income tax provision for the year ended September 30 is as follows:
1996 1995 1994 ---- ---- ---- Statutory income tax liability ............ $(20,200) $(283,300) $(430,000) Change in valuation allowance ............. 766,000 30,000 Nondeductible goodwill amortization ....... (26,300) (128,000) (23,000) Book and tax basis differences from business combinations .................. 71,100 40,000 383,000 Nondeductible other expenses .............. (42,500) (22,000) (20,800) -------- --------- --------- Income tax benefit (expense) .............. $(17,900) $ 372,700 $ (60,800) ======== ========= =========
11. CONTINGENCIES The Company is involved in certain legal proceedings arising in the normal course of business. In the opinion of management, based on the opinion of counsel, the outcome of such litigation will not have a material adverse effect on the Company's consolidated financial position or results of operations. 12. CASH RESTRICTED FOR EQUIPMENT The cash restricted for equipment was received from the Michigan Strategic Fund bondholders (see Note 5) to purchase equipment for future production requirements. The Company has contractually agreed to purchase the equipment and anticipates accepting delivery of such equipment in the 1997 fiscal year. 13. SUBSEQUENT EVENT Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the Varity Kelsey-Hayes Corporation's Milford, Michigan machining business. The acquisition was accounted for as a purchase and the results of operations will be included in the Company's financial statements beginning as of the acquisition date. The unit has been renamed "Milford Manufacturing Corporation." -32- 14. SEGMENT INFORMATION The following is the business segment information applicable to continuing operations (in thousands):
Metal Eliminations Parts and Forming Tooling Corporate Consolidated ------- ------- ------------ ------------ September 30, 1996: Net sales ............... $14,748 $18,136 $(2,007) $30,877 Income from operations .. (701) 2,093 (501) 891 Identifiable assets ..... 12,920 7,211 14,823 34,954 Depreciation and amortization ......... 1,098 671 215 1,984 Capital expenditures .... 1,803 163 3,513 5,479 September 30, 1995: Net sales ............... $17,630 $20,659 $(2,013) $36,276 Income from operations .. 275 2,457 (754) 1,978 Identifiable assets ..... 14,444 8,852 3,651 26,947 Depreciation and amortization ......... 1,151 671 37 1,859 Capital expenditures .... 592 751 16 1,359 September 30, 1994: Net sales ............... $16,052 $19,143 $(2,624) $32,571 Income from operations .. 177 3,008 (1,464) 1,721 Identifiable assets ..... 15,856 8,119 3,851 27,826 Depreciation and amortization ......... 1,273 598 113 1,984 Capital expenditures .... 570 330 8 908
****** -33- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED) - ------------------------------------------
Year Ended September 30 -------------------------------------------------- 1996 1995 1994 1993 1992 (In thousands; except per share amounts) INCOME STATEMENT DATA NET SALES ........................................ $30,877 $36,276 $32,571 $29,356 $27,574 INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES ............................ 58 831 1,154 (13) 295 INCOME TAX BENEFIT (EXPENSE) ..................... (17) 373 (61) (80) ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 41 1,204 1,093 (13) 215 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES ............................ (3,640) 38 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .............................. 41 1,204 1,093 (3,653) 253 CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES .................... 379 ------- ------- ------- ------- ------- NET INCOME (LOSS) ................................ $ 41 $ 1,204 $ 1,093 $(3,653) $ 632 ======= ======= ======= ======= ======= BALANCE SHEET DATA TOTAL ASSETS ..................................... $34,954 $26,947 $27,826 $31,291 $33,924 LONG-TERM OBLIGATIONS ............................ 13,724 4,622 7,089 7,123 10,519 STOCKHOLDERS' EQUITY ............................. 14,036 11,910 9,837 8,574 12,011 COMMON STOCK SHARES OUTSTANDING (1) .............. 5,342 4,276 3,701 2,901 2,821 EARNINGS (LOSS) PER COMMON SHARE (1): Continuing operations .......................... $ 0.01 $ 0.28 $ 0.29 $ 0.08 Discontinued operations ........................ $ (1.27) 0.01 Change in method of accounting for income taxes. 0.14 ------- ------- ------- ------- ------- NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.01 $ 0.28 $ 0.29 $ (1.27) $ 0.23 ======= ======= ======= ======= ======= EQUITY PER COMMON SHARE .......................... 2.63 2.79 2.66 2.96 4.26 CURRENT RATIO .................................... 1.84 1.13 1.02 0.82 0.96 LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 0.98 0.39 0.72 0.83 0.88 (1) Restated for the 10% stock dividends distributed in 1992.
-34- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ---------------------------------------------
Quarter Ended ----------------------------------------------------------------------------- 1996 1995 ------------------------------------- ------------------------------------ September June March December September June March December 1996 1996 1996 1995 1995 1995 1995 1994 --------- ---- ----- -------- --------- ---- ----- -------- (In thousands; except per share amounts) NET SALES............... $7,834 $8,254 $7,529 $7,260 $8,200 $9,915 $9,863 $8,298 GROSS PROFIT............ 1,139 1,806 1,494 1,373 1,566 2,338 2,193 1,163 INCOME (LOSS) BEFORE INCOME TAXES.......... (221) 52 163 65 171 545 424 (308) INCOME TAX BENEFIT (EXPENSE)............. 77 (12) (61) (22) 255 80 (48) 85 ------ ------ ------ ------ ------ ------ ------ ------ NET INCOME (LOSS)....... $ (144) $ 40 $ 102 $ 43 $ 426 $ 625 $ 376 $ (223) ====== ====== ====== ====== ====== ====== ====== ====== EARNINGS (LOSS) PER COMMON SHARE-- Net income (loss)....... $(0.03) $ 0.01 $ 0.02 $ 0.01 $ 0.10 $ 0.14 $ 0.09 $(0.05) ====== ====== ====== ====== ====== ====== ====== ====== PRICE RANGE OF COMMON STOCK: High bid.............. $ 3.12 $ 3.44 $ 3.37 $ 3.37 $ 4.09 $ 2.50 $ 2.62 $ 3.00 Low bid............... 2.00 1.87 1.75 2.50 2.25 1.62 1.62 2.00
-35- SECOM GENERAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - -----------------------------------------------
Column B Column C Column D Column E ----------------- --------------- ------------ ----------- Balance at Charged to Cost Deductions-- Balance at Column A Beginning of Year and Expenses Write Offs End of Year Description Allowance for doubtful accounts: Year ended September 30, 1994 ......... $ 307,600 $ 9,400 $238,200 $ 78,800 Year ended September 30, 1995 ......... 78,800 127,500 112,800 93,500 Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000 Inventory reserve: Year ended September 30, 1994 ......... 179,500 7,500 126,000 61,000 Year ended September 30, 1995 ......... 61,000 15,000 76,000 Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500 Deferred tax asset valuation allowance: Year ended September 30, 1994 ......... 1,265,000 30,000 1,235,000 Year ended September 30, 1995 ......... 1,235,000 766,300 468,700 Year ended September 30, 1996 ......... 468,700 468,700 -36-
EX-10.1 2 EXHIBIT 10.1 MACHINED VALVE PRODUCTS SUPPLY AGREEMENT THIS MACHINED VALVE PRODUCTS SUPPLY AGREEMENT ("Agreement") for the purchase and sale of machined valve products is made this 31st day of October, 1996, by and between MILFORD ACQUISITION, INC., a Michigan corporation ("Milford") and KELSEY-HAYES COMPANY, A Delaware corporation d/b/a Varity Kelsey-Hayes ("Kelsey"). WHEREAS, Milford desires to manufacture, sell and deliver to Kelsey 100% of Kelsey's requirements of Machined Fluid Valve Products ("Products") as listed on attached Schedule A for use in manufacturing fluid valve bodies; and WHEREAS, Kelsey desires to purchase 100% of its requirements of Products from Milford. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. Purchase and Sale of Products. 1.1 During the term of this Agreement and subject to its terms and conditions, Milford shall manufacture, sell and deliver to Kelsey and Kelsey shall purchase and accept from Milford 100% of Kelsey's requirements of Products. This Agreement applies to the current design level of the Products described in Schedule A and any engineering changes made to the Products through Kelsey's normal engineering change request system. 1.2 This Agreement provides the general terms and conditions applicable to all purchases of Products by Kelsey from Milford and is intended to secure the timely and adequate supply of Products to Kelsey from Milford. 1.3 In the event that a license is required for Milford to manufacture the Products, and only in such event, during the term of this Agreement, Kelsey shall grant Milford a non-exclusive, royalty free, license under any patents, copyrights, trade secrets or other proprietary rights of Kelsey which are necessary for Milford to manufacture, for sale to Kelsey only, the Products. 2. Term. 2.1 This Agreement shall be for a term commencing on the date of execution hereof and ending October 31, 2001, unless earlier terminated pursuant to the terms and conditions herein. 3. Order and Delivery. 3.1 Except as otherwise attached hereto with respect to the Products, Kelsey shall order all Products being purchased hereunder pursuant to a standard Kelsey purchase order ("Purchase Order"), a copy of which is attached hereto as Schedule B. The form of the Purchase Order may be amended from time to time by Kelsey, in its sole discretion, provided notice of said amendment is given to Milford at least (10) days prior to the effective date of the amendment. Any such amendments to the Purchase Order shall become a part hereof; provided, however, in the event of a conflict between the terms of this Agreement and the Purchase Order, as it may be now or hereafter amended, the terms of this Agreement shall control. Notwithstanding the above, the terms of the Purchase Order, as it may be amended, shall be construed, to the extent possible, as consistent with the terms and conditions set forth in this Agreement and as cumulative; provided however, that if such construction is unreasonable, the terms and conditions of this Agreement shall control. 3.2 The Purchase Order shall include the reasonable terms of delivery and acceptance including the date of order, description of Products, specifications, place of delivery and terms of payment. 3.3 Milford shall timely deliver Products in accordance with Kelsey's "Release Schedules" provided to Milford in conjunction with the Purchase Orders and shall ship in accordance with Kelsey's shipping instructions; provided normally accepted lead times are given. 3.4 Subject to the obligations set forth in Section 9.1, Kelsey's obligation to purchase Products from Milford is conditioned on Kelsey's continued use of the Products in manufacturing fluid valve bodies. If the current design of any of the Products becomes obsolete to Kelsey during the term of this Agreement or Kelsey terminates its production of fluid valve bodies, Kelsey will have no further obligation to purchase such Products under this Agreement. 4. Price. 4.1 All Products shall be sold by Milford to Kelsey at the price as set forth on attached Schedule A, except as modified below. 4.2. The prices set forth on Schedule A were established using an aluminum baseline price of $1.337 per pound for aluminum extrusion as of June 11, 1996. The aluminum baseline price will be adjusted on November 1, 1996 and quarterly thereafter based upon any changes in the price of extruded aluminum as established on the first day of each quarter. Any adjustment to the aluminum baseline price will cause a corresponding adjustment to the price of the Products (based upon weight and purchased material costs). 2 4.2a The ZWAL valve body was priced at $13.00 per unit in the Milford Sales Prospectus. The pricing assumed a direct material cost of $6.50 per unit. The pricing from Milford to Kelsey will be adjusted quarterly, beginning November 1, 1996 based on the change in the price of casting (direct material cost), currently sourced from Bone Aluminum. Any change in the direct material cost shall cause a corresponding adjustment to the price of the ZWAL products. 4.3 Notwithstanding Section 4.2, the price for the Twin Prop shall be $5.75 per unit for the term of this Agreement. 4.4 Milford and Kelsey agree to jointly pursue cost savings and a competitive price for the Products while maintaining a high quality standard. Milford and Kelsey shall actively pursue development of new technology and improvements to the design of the Products, the method of manufacture (excluding bargaining unit contract modifications), materials, packaging or transportation. Milford shall notify Kelsey of any cost savings which result from such changes and provided Kelsey agrees to such changes, the price of Products will be reduced so that each party shares equally in the cost savings. 4.5 Kelsey shall be responsible for all increased costs occasioned by changes in the design of the Products requested by Kelsey and the price of the Products will be increased accordingly. 4.6 Any price adjustments made in accordance with this Section 4 shall be evidenced by the issuance by Kelsey of a Purchase Order Change Notice setting forth the adjusted price for Products, and the date upon which such adjustment becomes effective. 4.7 Kelsey shall utilize its best efforts to arrange for the purchase of aluminum by Milford through Kelsey's aluminum purchasing program, currently with Reynolds Aluminum, upon the same terms as Kelsey purchases aluminum. 5. Payment Terms. 5.1 The terms of payment for Products will be net 30 prox. 6. Quality Commitment. 6.1 Milford will comply with Kelsey's General Quality Standards for Suppliers (GQS) and have a pro-active quality assurance organization in place which possesses the technical competence and testing equipment necessary to properly control the manufacturing process. 6.2 The parties acknowledge that the Milford Plant is not currently complying 3 with GQS nor does it posses the appropriate testing equipment or adequately apply statistical process control techniques in its operation. Milford will use good faith efforts to promptly improve operations as it relates to these various standards, processes and techniques. 6.3 Milford will use statistical process control techniques and actively participate in Kelsey's T.O.P.S. and Error-Free Launch Programs. 6.4 Milford will obtain QS 9000 certification by December 31, 1997. Such certification must be made by a third party certified registrar not affiliated with Milford. 6.5 Capacity verification forms for each part number supplied must be on file with Kelsey, and the forms must be updated on a yearly basis. All capacity planning volumes (CPV) must be met on a two shift x 9.5 hours x 5 day x 48 week/year standard. 7. Inspection. 7.1 All Products shall be subject to inspection and if non-conforming may be rejected by Kelsey within a reasonable time after receipt. 7.2 If Kelsey finds any shortage or excess in quantity of Products or finds any Products to be non-conforming, Kelsey shall immediately advise Milford thereof and the following shall occur: a. If non-conforming Products are delivered, Kelsey shall be entitled: (i) to charge Milford for storage and handling; (ii) to return the Products to Milford at Milford's expense; or (iii) at Milford's request, to dispose of the Products without liability of Kelsey to Milford. Payment for non-conforming Products by Kelsey shall not constitute an acceptance thereof, limit or impair Kelsey's right to assert any legal or equitable remedy, or relieve Milford from responsibility for latent defects. b. If Products are delivered in excess of those set forth in the applicable Purchase Order or Release Schedule, then Kelsey may, at its option, receive only the quantity authorized and return the excess Products to Milford at Milford's sole cost and expense or receive the entire quantity of Products and charge Milford for any additional expenses, losses or costs related thereto, including storage costs. Kelsey shall provide to Milford reasonable documentation to support any such costs and expenses. c. If Products are delivered in quantities less than those set forth in the applicable Purchase Order or Release Schedule, then, Milford shall 4 immediately deliver the shortfall in quantity of Products at the time and place designated by Kelsey. d. If, as a direct result of a shortfall in quantity or the delivery of non-conforming Products by Milford to Kelsey, Kelsey is unable to meet its contractual or other obligations to its customers, Milford shall be responsible for any and all costs, expenses, penalties or damages which are imposed or assessed against Kelsey by said customer or otherwise. 7.3 If non-conforming Products are rejected, Kelsey shall promptly notify Milford of such condition and may request that replacement Products be immediately shipped to Kelsey at Milford's expenses. At its option, Kelsey may correct any defects in such Products and charge Milford for all reasonable costs and expenses incurred in correcting such defects. All non-conforming Products not otherwise accepted by Kelsey shall be handled in accordance with Section 7.2a above. 8. Warranties. 8.1 Milford expressly warrants that all Products sold hereunder shall be free from defects in materials and workmanship; that all Products will be manufactured in accordance with applicable federal, state and local laws, regulations and ordinances; and that the Products will be manufactured in conformity with the specifications of Kelsey for use in the manufacture of fluid valve bodies. The parties acknowledge that Milford shall have no responsibility or liability related to the specifications or design of the Products. 8.2 Milford shalt reimburse Kelsey for all damages and costs reasonably incurred by Kelsey as a result of Milford's breach of any warranty set forth herein, including: (a) costs incurred as a consequence of returning, disposing of, repairing or replacing any Products which fail to comply with Milford's warranty; (b) damages and costs arising, from claims of personal injury or property damage caused by defective Products. 8.3 Milford shalt defend, indemnify and hold Kelsey harmless from and against any and all claims howsoever arising, whether sounding in tort contract, warranty, or otherwise, and all reasonable expenses, including without limitation, attorney fees and court costs, arising after the date hereof and resulting from any injury to or death to any person, or any damage to property, caused by defects in Milford's manufacture of the Products delivered hereunder. Milford shall further indemnify and hold Kelsey harmless from the actual withdrawal and recall costs and expenses incurred by Kelsey due directly to defects in Milford's manufacture of Products. 8.4 Kelsey shall give Milford notice of all claims, including proposed recalls, which will allow Milford to participate in all phases of the investigation and handling of 5 such claims or recalls. Milford and Kelsey shall consult with each other on each claim to reach a mutually acceptable decision respecting liability. 9. Volume Commitment. 9.1 Subject to Section 9.2, Kelsey agrees to purchase from Milford products and services totaling at least Ten Million ($10,000.000) Dollars during the period from November 1, 1996 through October 31, 1997. The purchases to be used to compute the above volume commitment will include the Products as well as any other products and services purchased by Kelsey from Milford during such year whether or not such products and services are of the type and nature contemplated on the date hereof. 9.2 The above volume commitment (in the case of the purchase of "Products") is based upon the prices of the Products established utilizing the metal baseline price of $1.337 per pound for aluminum extrusion as of June 11, 1996, and the unit price for the Twin Prop of $5.75; the unit price for the ZWAL of $13.00 and the unit price for the EBC5-H of $28.57. 9.3 To determine whether or not the volume commitment described in Section 9.1 above has been met, the following calculation will be made for each type of Product sold during the year: Number of units sold the price per unit based and shipped during the year x upon the prices in Schedule A The product of each such calculation will then be added together and combined with the total sales of other products purchased and shipped and services received compared to the volume commitment for the year. 9.4 In the event that Kelsey fails to make sufficient purchases during the first year of this Agreement, Kelsey shall, within (60) days following the end of such year, pay to Milford twenty-five (25%) percent of any such shortfall. There shall be no volume commitment by Kelsey after the first year of the term of this Agreement as it may be adjusted under Section 9.5. 9.5 In the event of a strike by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"), or the Canadian Auto Workers ("CAW") in the Fall of 1996 against Chrysler Corporation, Ford Motor Company, or General Motors Corporation, which substantially affects the sale of Products by Milford to Kelsey, the one (1) year period set forth in Section 9.1 shall be extended for the purpose of determining whether the volume commitment has been met, by the number of business days of the strike. The extension set forth herein shall apply to the determination of the volume commitment only and shall not otherwise extend the term of this Agreement. 6 10. Termination. 10.1 If either party shall become bankrupt or insolvent, or if a receiver or similar official is appointed for all or substantially all of its assets, the other party may terminate this Agreement by giving ten (10) days written notice to such party. 10.2 Except as provided in Sections 10.3 and 10.4 hereof,in the event that Milford fails to comply with any material term of this Agreement or the terms of the Purchase Orders, Kelsey shall give to Milford specific notice with a thirty (30) day right to cure; thereafter, if Milford fails to cure within the third (30) day period, Kelsey may immediately cancel this Agreement in whole or in part. 10.3 In the event that Milford fails to meet the quality specifications for the Products as described in Sections 6 and 8 hereof, then upon written notice having been received from Kelsey, Milford shall provide to Kelsey a written proposal giving Kelsey adequate assurance that Milford will eliminate the production of non-conforming Products within a reasonable period of time and will meet all quality specifications for such Products on future deliveries. In the event that Milford fails to deliver to Kelsey an acceptable proposal, within thirty (30) days of notice having been received from Kelsey or subsequently fails to conform to the requirements of its written proposal, then Kelsey may by written notice to Milford, cancel in whole or in part this Agreement or any Purchase Order or part thereof issued pursuant hereto. Notwithstanding the above, no written proposal shall be required under this Section 10.3 unless Milford delivers to Kelsey non-conforming Products in excess of .5% of the total amount of Products delivered in any thirty (30) day period during the term of this Agreement. 10.4 In the event that in excess of 1.5% of the Products delivered to Kelsey during any thirty (30) day period are not timely delivered, then, upon written notice having been received from Kelsey, Milford shall provide to Kelsey a written proposal giving Kelsey adequate assurance that Milford will eliminate the delinquent deliveries within a reasonable period of time and will meet all future deliveries on a timely basis. In the event that Milford fails to deliver an acceptable proposal, within thirty (30) days of notice having been received from Kelsey, or subsequently fails to conform to the requirements of its written proposal, then Kelsey may, by written notice to Milford, cancel in whole or in part this Agreement or any Purchase Order or part thereof issued pursuant hereto. 11. Force Majeure. 11.1 If either party hereto is rendered unable, wholly or in part by "force majeure" to carry out its obligations under this Agreement, it is agreed that upon such party's giving written notice and full particulars of such "force majeure" to the other party, then the obligations of the party giving notice, so far as they are affected by such "force majeure," shall be suspended during the continuance of any inability so caused, but for no longer 7 period, provided that such cause is, as far as possible, remedied with all reasonable dispatch. 11.2 The term "force majeure" as employed herein shall mean any cause not reasonably within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. Such term shall include, but not be limited to: strike, lockout or other industrial disturbance; natural disasters, such as storm, flood, fire, lightning, explosion, or earthquake; war, riots, or insurrection; epidemics or quarantine; and unavailability or delay in delivery of materials, supplies or equipment. 11.3 Milford will notify Kelsey of each dispute with Milford's work force and each dispute with a supplier that reasonably might affect Milford's ability to manufacture and supply in accordance with this Agreement. Prior to any labor disruption or the expiration of any labor contract, Milford, at its expense, will fabricate and locate in an accessible area a finished inventory of Products at the latest design level in quantities sufficient to fulfill Milford's obligation to Kelsey for a minimum of thirty (30) days after work stoppage. 12. Delivery. 12.1 Milford acknowledges that it has been informed that Kelsey intends to use the Products purchased from Milford under this Agreement to manufacture certain products which Kelsey is required to deliver to third parties at specified intervals. Kelsey is relying upon Milford to timely deliver the Products in strict compliance with the terms of this Agreement. In view of the foregoing, Milford agrees to comply with all of the provisions hereof regarding the time and quantities for the delivery of the Products to Kelsey and shall be responsible for any failure under Section 7.2d. 12.2 THE OBLIGATION OF MILFORD TO DELIVER THE PRODUCTS UNDER THE TERMS OF THIS AGREEMENT IS IMPORTANT TO KELSEY AND DISAGREEMENTS WITH RESPECT TO PRICE ADJUSTMENTS SHALL NOT RELIEVE MILFORD OF THE OBLIGATION TO DELIVER PRODUCTS TO KELSEY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. Milford shall use its best efforts to continue to timely deliver the Products to Kelsey in spite of any failure of the parties to agree upon any price adjustments which may arise hereunder. Milford's sole remedy with regards to all such disputes or disagreements shall be limited to the arbitration procedure as provide in Section 16 hereof. 12.3 Pending any price adjustment and/or resolution of such price dispute or disagreement, Kelsey shall continue to promptly pay to Milford all amounts due to Milford for Products sold hereunder at the then current price, in accordance with the provisions of Section 4 hereof, subject to adjustment. The difference between the price paid by Kelsey and the adjusted price shall be promptly paid by Kelsey or credited to Kelsey, as the case may be, together with interest at the rate of ten (10%) percent per annum, following a final 8 determination of the adjusted price. 13. New Business. 13.1 Subject to any prior commitments or restrictions binding upon Kelsey, in the event new products of the same basic manufacturing process are required by Kelsey to replace the Products, or for new products, Milford will be considered a preferred third party supplier and be given an opportunity to quote those products in accordance with Kelsey's standard bidding procedures. 13.2 Subject to the due diligence investigation and approval of Kelsey's supply management and subject to any prior commitments or restrictions binding on Kelsey: (i) Kelsey will designate "Form Flow" and "L & H Die," affiliated companies of Milford, as preferred third party suppliers, and they will be given the opportunity to quote any non-direct sourced cold heading tooling business required by Kelsey in accordance with Kelsey's standard bidding procedures; and (ii) Kelsey will designate "Uniflow," an affiliated company of Milford, as a preferred third party supplier of Kelsey and Uniflow will be given an opportunity to quote any new non-direct sourced cold heading, extrusion and machining business required by Kelsey in accordance with Kelsey's standard bidding procedures. 13.3 The status of Milford and its affiliates as preferred third party suppliers of Kelsey and the right to bid granted hereunder shall not, nor shall it be construed to, restrict Kelsey from manufacturing any products on its own or give Milford a right of first refusal to manufacture any products. 13.4 The decision to accept Milford, "Form Flow" or "L & H Die" as a third party supplier of products shall be within the sole and absolute discretion of Kelsey. In choosing a supplier or deciding whether to direct source the supply of any products, Kelsey may consider a number of factors, including but not limited to the ability of any such supplier to meet the price, quality, delivery and other requirements of Kelsey. The past performance of Milford and its affiliates as a supplier to Kelsey may also be considered in any decision to award them future business. 14. Tooling. 14.1 Kelsey will be responsible, at it sole cost and expense, to purchase any tooling required for the ZWAL and EBC5-H Projects. Such tooling will be the sole and exclusive property of Kelsey. Milford shall be responsible, at its sole cost and expense, to purchase any capital equipment required for the ZWAL and EBC5-H Projects. The cost and scope of the ZWAL and EBC5-H Projects will be mutually agreed upon by the parties. 9 15. Management Fee. 15.1 Kelsey shall, upon execution of this Agreement, pay to Milford a Management Fee of One Million ($1,000,000) Dollars. The Management fee, among other things, is in lieu of a product price increase on current product for the initial contract year. 16. Arbitration. 16.1 Any dispute between the parties shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in the Detroit metropolitan area and judgement upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The parties acknowledge that time is of the essence in connection with resolving any price adjustment dispute and that the parties will cooperate with each other to promptly arbitrate any such matters. The arbitrator shall award the prevailing party all costs, attorneys' fees and other out of pocket expenses relating to the dispute incurred by such party. 17. Confidentiality. 17.1 Kelsey and Milford agree to hold as strictly confidential between each other the terms of this Agreement, to make no public disclosure thereof except as required by law; and to limit private disclosure on a need to know basis only to their employees, directors and consultants; provided, however, that Kelsey and Milford further agree that should disclosure of the terms hereof become legally required by court or administrative order the disclosure may be made, but the party so disclosing must give the other party reasonable notice prior to such disclosure. 18. Notice. 18.1 All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if mailed first class, postage prepaid, registered or certified mail, or via confirmed telefacsimile, if available, as follows: IF TO MILFORD MILFORD ACQUISITION, INC. 401 S. Woodward Ave., Suite 400 Birmingham, Michigan 48009 WITH A COPY TO ANTHONY VESPA Hardy, Lewis and Page 401 S. Woodward Ave., Suite 400 Birmingham, Michigan 48009 10 IF TO KELSEY Kelsey-Hayes Company Tech Center Drive Livonia, Michigan 48150 Attention: Director of Supply Management WITH A COPY TO Michael F. Golab Butzel Long 32270 Telegraph Road, #200 Birmingham, Michigan 48025-2457 19. Miscellaneous. 19.1 This Agreement may not be assigned, either in whole or in part, by either party without the prior written consent of the other party. 19.2 This Agreement contains the entire Agreement between the parties with respect to the subject matter hereof, and the prior representations, promises or conditions in connection with or in respect to the subject hereof that are not incorporated herein are not binding upon either of the parties. 19.3 The invalidity, illegality or unenforceability of any one or more of the provisions of this Agreement shall in no way effect or impair the validity, legality or enforceability of the remaining provisions hereof, which shall remain in full force and effect. 19.4 Although Kelsey and Milford will work together to develop a strong, mutually beneficial relationship, Kelsey and Milford will remain independent contracting parties and this Agreement is not intended, nor shall it create any partnership or joint venture between the parties, nor make either party the agent or legal representative of the other for any purpose whatsoever, nor does it grant either party any authority to assume or to create any obligation on behalf of or in the name of the other party, unless otherwise agreed upon by the parties and specified in any Purchase Orders entered into by the parties. 19.5 The rights and remedies reserved to the parties in this Agreement shall be cumulative, and additional to all other or further remedies provided in law or equity. 19.6 This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. 19.7 This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed through their duly authorized representatives. MILFORD ACQUISITION, INC. By:/s/ David S. Marczak -------------------- Its:Chief Financial Officer ----------------------- KELSEY-HAYES COMPANY By:/s/ Bruce Harvey ---------------- Its:VP Operational Audit -------------------- 12 EX-10.2 3 Exhibit 10.2 SECOM GENERAL CORPORATION UNIFLOW CORPORATION MICANOL, INC. L&H DIE, INC. FORM FLOW, INC. $4,000,000 Committed Facility $2,000,000 Uncommitted Facility and $775,000 Term Loan AMENDED AND RESTATED REVOLVING CREDIT AND LOAN AGREEMENT Dated as of June 30, 1996 --------- NBD BANK TABLE OF CONTENTS PAGE INTRODUCTION....................................................... 1 ARTICLE I. DEFINITIONS............................................. 1 1.1 Certain Definitions...................................... 1 1.2 Certain Rules of Construction............................ 11 1.3 Acknowledgment and Restatement of Credit................. 12 ARTICLE II. THE CREDIT FACILITIES.................................. 12 2.1 Revolving Loans.......................................... 12 2.2 Termination and Reduction of the Commitment.............. 14 2.3 Letters of Credit........................................ 14 2.4 Term Loan ............................................... 16 2.5 NBD Records and Determinations .......................... 16 ARTICLE III. THE LOANS ............................................ 16 3.1 Types of Loans .......................................... 16 3.2 Requests for Loans ...................................... 16 3.3 Conversion of Loans; Procedures.......................... 17 3.4 Procedures at End of Loan Period......................... 17 3.5 Requests for Negotiated Rate Loans ...................... 18 3.6 Conditions for Initial Loans............................. 18 3.7 Further Conditions for Disbursement ..................... 20 ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS...................... 21 4.1 Principal Payments....................................... 21 4.2 Interest Payments........................................ 21 4.3 Payment Method and Related Matters....................... 22 4.4 No Setoff or Deduction................................... 22 4.5 Payment on Non-Business Day; Payment Computations........ 22 4.6 Additional Costs ........................................ 23 4.7 Illegality and Impossibility ............................ 24 4.8 Indemnity................................................ 24 ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................... 25 5.1 Corporate Existence and Power............................ 25 5.2 Corporate Authority...................................... 25 5.3 Binding Effect .......................................... 25 5.4 Subsidiaries ............................................ 25 5.5 Litigation .............................................. 25 5.6 Financial Condition ..................................... 25 5.7 Use of Loans ............................................ 26 i PAGE 5.8 Consents, Etc............................................ 26 5.9 Taxes ................................................... 26 5.10 Title to Properties...................................... 26 5.11 Compliance with Governmental Regulations ................ 26 5.12 ERISA ................................................... 26 5.13 Environmental Matters.................................... 27 5.14 Investment Company Act................................... 27 5.15 Disclosure .............................................. 27 ARTICLE VI. COVENANTS.............................................. 28 6.1 Affirmative Covenants.................................... 28 6.2 Negative Covenants....................................... 31 ARTICLE VII. DEFAULT............................................... 33 7.1 Events of Default........................................ 33 7.2 Remedies ................................................ 35 ARTICLE VIII. MISCELLANEOUS ....................................... 36 8.1 Amendments............................................... 36 8.2 Notices ................................................. 36 8.3 No Waiver By Conduct; Remedies Cumulative ............... 37 8.4 Reliance on and Survival of Various Provisions .......... 37 8.5 Expenses; Indemnification ............................... 37 8.6 Successors and Assigns .................................. 38 8.7 Participations .......................................... 38 8.9 Counterparts ............................................ 38 8.10 Governing Law ........................................... 38 8.11 Table of Contents and Headings........................... 39 8.12 Construction of Certain Provisions ...................... 39 8.13 Integration and Severability............................. 39 8.14 Independence of Covenants................................ 39 8.16 Interest Rate Limitation ................................ 39 8.17 Limitation of Liability ................................. 40 8.18 Waiver of Jury Trial..................................... 40 ii EXHIBITS Exhibit 2.1(a) Revolving Credit Note Exhibit 2.1(b) Line of Credit note Exhibit 2.4 Term Note Exhibit 3.2 Request for Revolving Loan Exhibit 3.5 Request for Negotiated Rate Loan Exhibit 3.6(e) Guaranty Agreement Exhibit 3.6(f) Security Agreement SCHEDULES Schedule 5.4 Subsidiaries Schedule 5.5 Litigation Schedule 5.6 Financial Statements Schedule 5.13 Environmental Matters iii REVOLVING CREDIT AND LOAN AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AND LOAN AGREEMENT (this "Agreement"), dated as of June 30, 1996, is by and between Secom General Corporation, Inc., a Delaware corporation (the "Company") whose address is 46035 Grand River Avenue, Novi, MI 48374, Uniflow Corporation, a Michigan corporation ("Uniflow"), whose address is 26600 Heyn Drive, Novi, Michigan 48450; Micanol, Inc., a Michigan corporation ("Micanol") whose address is P.O. Box 881, 46001 Grand River, Novi, Michigan 48376; L&H Die, Inc., a Michigan corporation ("L&H"), whose address is 38200 Ecorse Road, Romulus, Michigan 48174; and Form Flow, Inc., a Michigan corporation ("Form Flow"), whose address is 6901 Cogswell, Romulus, Michigan 48174, as borrowers, and NBD Bank, a Michigan banking corporation ("NBD"), formerly NBD Bank, N.A. The Company, Uniflow, Micanol, L&H and Form Flow are collectively referred to as the "Borrowers" and individually as a "Borrower." INTRODUCTION WHEREAS, Uniflow, Micanol, L&H and Form Flow are wholly owned Subsidiaries of the Company and receive substantial benefit from the Company and each other, including without limitation, accounting and administrative services, research and development, marketing and sales assistance. WHEREAS, NBD has provided a discretionary authorization of up to $5,000,000 to the Borrowers under the terms of an Amended and Restated Credit Agreement dated December 15, 1993, as amended by (i) the First Amendment to Amended and Restated Credit Agreement dated July 19, 1994, (ii) the letter dated August 19, 1994 from NBD to Secom, (iii) the Third Amendment to Amended and Restated Loan Agreement dated December 28, 1994, (iv) the Fourth Amendment to Amended and Restated Loan Agreement dated February 17, 1995, (v) the Fifth Amendment to Amended and Restated Loan Agreement dated December 1, 1995 and (vi) the Sixth Amendment to Amended and Restated Loan Agreement dated December 27, 1995 ("Existing Loan Agreement"), and has provided various other financial accommodations to the Company and its Subsidiaries, including a term loan secured by certain real estate and various equipment leases and letters of credit. WHEREAS, the Borrowers desire to obtain (i) a revolving credit facility in the aggregate principal amount of up to $4,000,000 and (ii) a discretionary $2,000,000 authorization, including a subfacility of up to $ 1,000,000 for the issuance of letters of credit, issued by NBD, in order to provide funds for the working capital and other corporate purposes of the Borrowers and NBD is willing to establish such credit facilities in favor of the Borrowers on the terms and conditions herein set forth. Therefore, the parties agree as follows: ARTICLE I. DEFINITIONS 1.1 Certain Definitions. In addition to the terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings: "Adjusted LIBO Rate" means, for any Loan Period and the applicable LIBOR Loan, the per annum rate of interest equal to the sum of (a) 2.15% plus (b) the per annum rate (rounded upwards, if necessary, to the nearest one-hundredth of one percent (1/100%)) determined by dividing (i) the LIBO Rate for such Loan Period, by (ii) an amount equal to one minus the stated maximum rate (expressed as a decimal) of all reserve requirements (including any basic, marginal, emergency, supplemental, special or other reserves) that is specified from time to time during a Loan Period by the Board of Governors of the Federal Reserve System (or any successor agency), for determining the maximum reserve requirement with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a member bank of such System, without benefit or credit for prorations, exemptions or offsets which might otherwise be available to NBD from time to time under Regulation D. "Affiliate", when used with respect to any person, means any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. "Applicable Rate" means, with respect to Revolving Loans, the Floating Rate, the Adjusted LIBO Rate or the Negotiated Rate, as applicable. "Authorization Amount" means the amount available to the Borrowers, in NBD's sole discretion, under Section 2.1(b), which shall not in any event exceed $2,000,000. "Borrowing Base" means the sum of the following: (a) 80% of the book value of Eligible Accounts Receivable as reflected on the most recent Borrowing Base Certificate delivered pursuant to Section 6.1(d)(iv); and (b) 25% of the lower of cost or market value of Eligible Inventory, as reflected on the most recent Borrowing Base Certificate delivered pursuant to Section 6.1(d)(iv). "Business Day" means a day other than a Saturday, Sunday or other day on which NBD is not open to the public for carrying on substantially all of its banking functions; provided, however, that, for purposes of determining the LIBO Rate or an applicable Loan Period, references to Business Day shall include only those days on which dealings in Dollar deposits are carried out by U.S. financing institutions in the London interbank market. 2 "Capital Expenditures" means, for any period, the additions to property, plant and equipment and other capital expenditures of the Loan Parties for such period, as the same are or should be set forth on the Combined financial statements of the Loan Parties in accordance with GAAP. "Capital Lease" of any person means any lease which, in accordance with GAAP, is or should be capitalized on the books of such person. "Cash Equivalents" means, as to any person, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than 12 months from the date of acquisition, (b) time deposits and certificates of deposit of any commercial bank with a long term unsecured debt rating of a least A or its equivalent from Standard & Poor's Rating Group or at least A-2 or its equivalent from Moody's Investors Service, Inc. with maturities of not more than six months from the date of acquisition by such person, (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (b) above, (d) commercial paper issued by any person incorporated in the United States, which commercial paper is rated at least A1 or the equivalent thereof by Standard & Poor's Ratings Group or at least P1 or the equivalent thereof by Moody's Investors Service, Inc. or at least F1 or the equivalent thereof by Fitch Investor Services, Inc. and in each case maturing not more than 180 days after the date of issuance by such person, and (e) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (d) above. "Cash Flow Coverage Ratio" means the relationship, expressed as a numerical ratio, which (i) Net Cash Flow of the Loan Parties, determined on a Combined basis bears to (ii) Fixed Charges of the Loan Parties, determined on a Combined basis, to be calculated as of the end of each fiscal quarter of the Company for the four consecutive fiscal quarters then ending. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder. "Combined" or "combined" means, when used with reference to any financial term in this Agreement, the aggregate for the Loan Parties of the amounts signified by such term for all such persons determined on a combined basis in accordance with GAAP. "Commitment" means the commitment of NBD to make Revolving Loans pursuant to Section 2.1 (a) in the initial amount of $4,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Contingent Liabilities" of any person means, as of any date, all obligations of such person or of others for which such person is contingently liable, as obligor, guarantor, surety or in any other capacity, or in respect of which obligations such person assures a creditor against loss or 3 agrees to take any action to prevent any such loss (other than endorsements of negotiable instruments for collection in the ordinary course of business), including all reimbursement obligations of such person in respect of any letters of credit, surety bonds or similar obligations and all obligations of such person to advance funds to, or to purchase assets, property or services from, any other person in order to maintain the financial condition of such other person. "Current Ratio" means the relationship, expressed as a numerical ratio, which (i) the amount of current assets of the Loan Parties, determined on a Combined basis, which would be properly classified as a current asset under GAAP, bears to (ii) the amount of current liabilities of the Loan Parties, determined on a Combined basis, which would be properly classified as a current liability under GAAP. "Default" means any of the events or conditions described in Section 7.1 which might become an Event of Default with notice or lapse of time or both. "Default Rate" means the rate per annum which is two percent (2%) per annum in excess of the Applicable Rate. "Dollars" and "$" means the lawful money of the United States of America. "Effective Date" means June 30, 1996. "Eligible Accounts Receivable" means each account, or portion of an account, owing to any of the Loan Parties which meets the following specifications: (a) it arose from a bona fide sale of goods, or performance of services, in the ordinary course of business, such goods having been delivered or shipped to, or such services have been provided to, the account debtor and the appropriate Loan Party has genuine contracts, purchase orders, invoices and shipping documents or receipts, and the goods have not been returned; (b) has been outstanding for no more than 90 days from the date of shipment, delivery, or performance; (c) it is owned by the appropriate Loan Party, free and clear of any Lien, other than the Lien created in favor of the Bank; (d) it is enforceable against the account debtor for the amount included in the Borrowing Base; it is in compliance with applicable laws and regulations; the portion included in the Borrowing Base is not subject to any set-off, credit allowance or adjustment (except discounts for prompt payment reflected in the computation thereof); and the account debtor has not returned the goods or disputed liability with respect to such account; 4 (e) no Loan Party has notice or knowledge of any fact or occurrence which could reasonably be expected to impair the credit worthiness of the account debtor; (f) the account debtor is not an Affiliate of any of the Loan Parties, nor is it the United States of America, or any agency thereof; (g) the account debtor is organized under the laws of and has its principal place of business in the United States or any state thereof; and (h) the Bank has not notified the Loan Parties that the Bank believes, in its sole discretion, that such account does not have realizable value. "Eligible Inventory" means finished goods, work-in-progress or raw material inventory of any of the Loan Parties which meets the following specifications: (a) it is owned by the appropriate Loan Party free and clear of any Lien other than the Lien created in favor of the Bank; (b) it is in good and saleable condition and does not consist of damaged, obsolete or slow-moving inventory; and (c) the Bank has not notified the Loan Party that the Bank believes, in its sole discretion, that such inventory does not have realizable value. "Environmental Laws" means any and all Governmental Regulations concerning the protection of, or regulating the discharge of substances into, the environment, including the Governmental Regulations specified in the definition of Hazardous Materials. "ERISA" means the Employee Retirement Income Securities Act of 1974, as amended from time to time, and the regulations thereunder. "ERISA Affiliate" means, with respect to any person, any trade or business (whether or not incorporated) which, together with such person or any Subsidiary of such person, would be treated as a single employer under Section 414 of the Code. "Event of Default" means any of the events or conditions described in Section 7.1. "Existing Loan Documents" means the Existing Loan Agreements, Existing Notes and the Continuing Security Agreements executed by the respective Borrowers prior to the date hereof. "Existing Notes" means the Fourth Amended and Restated Master Demand Business Loan Note, dated as of December 27, 1995, from the Borrowers and the Inactive Affiliates to NBD, in the original principal amount of $4,500,000, and the Existing Term Note, described in Section 2.4. 5 "Event of Default" means any of the events or conditions described in Section 7.1. "Fixed Charges" means principal, interest and capital lease payments of the Loan Parties on a combined basis. "Fixed Rate Loan" means any LIBOR Loan or Negotiated Rate Loan. "Floating Rate" means the per annum rate equal to the Prime Rate in effect from time to time. "Floating Rate Loan" means any Revolving Loan which bears interest at or by reference to the Floating Rate. "Funding Date" means any Business Day designated by the Company as a day on which (a) a new Revolving Loan is to be made, (b) a Floating Rate Loan is to be converted to a Fixed Rate Loan, or (c) a Loan Period is to be renewed or extended, each in accordance with the terms and conditions of this Agreement. "GAAP" means generally accepted accounting principles applied on a basis consistent with those reflected in the financial statements listed in Schedule 5.6. "Governmental Regulations" means any and all laws, statutes, ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders, awards and standards, or any similar requirement, of the government of the United States, the government of the United Kingdom or any foreign government or any state, province, municipality or other political subdivision thereof or therein or any court, agency, instrumentality, regulatory authority or commission of any of the foregoing. "Hazardous Materials" means asbestos-containing materials, mono- or polychlorinated biphenyls, urea formaldehyde products, radon, radioactive materials and any "hazardous substance", "hazardous waste", "pollutant", "toxic pollutant", "oil" or "contaminant" as used in, or defined pursuant to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 USC ss.ss.9601 et seq., and 40 CFR ss.ss.302.1 et seq.; the Federal Clean Air Act, as amended, 42 USC ss.ss.7401 et seq., and regulations thereunder; the Resource Conservation and Recovery Act, 42 USC ss.ss.6901 et seq., as amended, and regulations thereunder; the Federal Water Pollution Control Act, 33 USC ss.ss.1251 et seq., as amended, and regulations thereunder; 40 CFR ss.ss.116.1 et seq. and ss.ss.129.1 et seq.; and any other substance, waste, pollutant, contaminant or material, including petroleum products and derivatives, the use, transport, disposal, storage, treatment, recycling, handling, release, threatened release, or emission of which is regulated or governed by any Environmental Laws. 6 "Inactive Affiliates" means Triple Technologies, Inc. (formerly known as Triple Tool, Inc.), a Michigan corporation, Tri-Tec Plastics Corporation, a Michigan corporation, and Secom Information Products Company. "Indebtedness" of any person means (a) all obligations of such person for borrowed money, (b) all obligations of such person as lessee under any Capital Lease, (c) all obligations which are secured by any Lien existing on any asset or property of such person whether or not the obligation secured thereby shall have been assumed by such person, (d) the unpaid purchase price for goods, property or services acquired by such person, except for trade accounts payable arising in the ordinary course of business that are not past due, (e) all obligations of such person to purchase goods, property or services where payment therefor is required regardless of whether delivery of such goods or property or the performance of such services is ever made or tendered (generally referred to as "take or pay contracts"), (f) all liabilities of such person in respect of unfunded benefit liabilities (determined in accordance with Section 4001 (a)(18) of ERISA) under any Plan of such person or of any ERISA Affiliate, (g) all obligations of such person in respect of any interest rate or currency swap, rate cap or other similar transaction (valued in an amount equal to the highest termination payment, if any, that would be payable by such person upon termination for any reason on the date of determination), and (h) all Contingent Liabilities of such person. "Investment" means (a) any transfer or delivery of cash, stock or other property or value by such Person in exchange for Indebtedness, stock or any other security of another Person; (b) any loan, advance or capital contribution to or in any other Person; (c) any guaranty, creation or assumption of any liability or obligation of any other Person; and (d) any investment in any fixed property or fixed assets other than fixed properties and fixed assets acquired and used in the ordinary course of the business of that Person. "L/C Documents" means the L/C and all applications and other documents which NBD may require in connection with any issuance of an L/C by NBD hereunder, as originally executed or as they may from time to time be supplemented, modified, amended renewed or extended. "L/Cs" means the letters of credit issued by NBD on behalf of any Loan Party pursuant to Section 2.3, and any amendments, restatements, replacements, extensions or renewals thereof. "L/C Sublimit" means the maximum amount of L/Cs which may be outstanding at any time, which amount shall initially be $1,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "LIBO Rate" means, for any LIBOR Loan and the related Loan Period, the per annum rate of interest quoted by NBD as the rate at which deposits in U.S. Dollars for the applicable Loan Period commencing on the first day of such Loan Period (a "Rate Setting Date") and in an aggregate amount comparable to the principal amount of such LIBOR Loan, were being offered by first class banks in the London interbank market, at approximately 11:00 a.m., London time, on the Rate Setting Date. 7 "LIBOR Loan" means any Revolving Loan which bears interest at or by reference to the Adjusted LIBO Rate. "Lien" means any pledge, assignment, hypothecation, mortgage, security interest, deposit arrangement, option, conditional sale or title retaining contract, sale and leaseback transaction, financing statement filing, lessor's or lessee's interest under any lease, subordination of any claim or right, or any other type of lien, charge, encumbrance, preferential arrangement or other claim or right. "Loan Documents" means this Agreement, the Note, the Guaranty Agreements, the L/C Documents, the Mortgage, the Security Agreements and all other agreements, documents or instruments now or hereafter executed by or on behalf of any of the Loan Parties and delivered to NBD in connection with this Agreement. "Loan Parties" means the Borrowers and any Affiliate of a Borrower that has executed and delivered to the Bank an unlimited continuing guaranty of the Borrowers' obligations to the Bank and a Security Agreement, substantially similar to Exhibits 3.6(e) and 3.6(f). "Loan Period" means, (i) with respect to each Negotiated Rate Loan, the period commencing on the Funding Date for such Negotiated Rate Loan and ending 1, 2, 3, 6 or 12 months thereafter, as specified by the Borrowers in the related notice under Section 3.2, and (ii) with respect to each LIBOR Loan, the period commencing on the Funding Date for such LIBOR Loan and ending 1, 2, 3, 6 or 12 months thereafter, as specified by the Borrowers in the related notice under Section 3.2; provided, however, that with respect to LIBOR Loans: (a) any Loan Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Loan Period shall end on the next preceding Business Day; (b) any Loan Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Loan Period) shall, subject to clause (c) below, end on the last Business Day of a calendar month; and (c) any Loan Period which would otherwise end after the Termination Date shall end on the Termination Date. "Loans" means (i) the Revolving Loans made by NBD to the Borrowers pursuant to Section 2.1, in each case evidenced by the Revolving Notes, and (ii) the Term Loan made by NBD to the Company as described in Section 2.4. 8 "Material Adverse Event" means any event, occurrence or state of facts which has or could have a material adverse effect on the business, properties, assets, operations, condition (financial or otherwise) or prospects of any Loan Party. "Mortgage" means that certain Amended and Restated Mortgage, dated as of December 6, 1995, between the Company and NBD, recorded at Liber 28485, Page 10 of the Register of Deeds Office for Wayne County, Michigan, as the same may be amended and restated from time to time. "Multiemployer Plan" means any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA or Section 414(f) of the Code. "NBD Collateral" means the assets, rights, revenues, or property, real, personal or mixed of any Loan Party in which NBD has at the time of determination been granted a security interest or mortgage, whether now owned or hereafter acquired. "Negotiated Rate" means a per annum interest rate established by NBD upon request by the Borrowers for a Negotiated Rate Loan. "Negotiated Rate Loan" means any Revolving Loan which bears interest at a Negotiated Rate. "Net Cash Flow" means income before federal income taxes, plus amortization, depreciation and interest, on a combined basis for all Loan Parties. "Notes" means the Revolving Notes and Term Note, together with any amendments, restatements, replacements or renewals thereof. "Obligations" means the principal of and interest on the Loans, the aggregate amount of outstanding L/Cs and all other indebtedness, obligations and liabilities of any of the Loan Parties to NBD, including those under, arising out of or in connection with this Agreement or any other Loan Document (including indemnities, fees and expenses), whether now existing or hereafter incurred, direct or indirect, absolute or contingent, matured or unmatured, joint or several, whether for principal, interest, reimbursement obligations, fees, expenses or otherwise, and the due performance and compliance with the terms and conditions of this Agreement and the other Loan Documents by any Loan Party. "Payment Date" means the first Business Day of each month, commencing August 1, 1996. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means the Liens permitted by Section 6.2(e). 9 "Person" or "person" includes an individual, a corporation, an association, a partnership, a trust or estate, a joint stock company, an unincorporated organization, a joint venture, a trade or business (whether or not incorporated), a government (foreign or domestic) and any agency or political subdivision thereof, or any other entity. "Plan" means, with respect to any person, any pension plan (other than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum funding standards of Section 412 of the Code which has been established or maintained by such person, any Subsidiary of such person or any ERISA Affiliate, or by any other person if such person, any Subsidiary of such person or any ERISA Affiliate could have liability with respect to such pension plan. "Prime Rate" means the prime rate of interest as announced by NBD at its principal office at Detroit, Michigan, as in effect from time to time, which rate may not be the lowest rate charged by NBD to any of its customers, which Prime Rate shall change simultaneously with any change in such announced rate. "Prohibited Transaction" means any transaction involving any Plan which is proscribed by Section 406 of ERISA or Section 4975 of the Code. "Property" means any real or personal property in which any Loan Party has an interest or right of possession. "Purchase Money Liens" means Liens securing purchase money Indebtedness incurred in connection with the acquisition of capital assets by any Loan Party in the ordinary course of business; provided that (a) such Liens do not extend to or cover assets or properties other than those purchased in connection with the purchase in which such Indebtedness was incurred and (b) the obligation secured by any such Lien so created shall not exceed 100% of the cost of the property including transportation and installation costs, covered thereby. "Reportable Event" means a reportable event as described in Section 4043(b) of ERISA including those events as to which the 30-day notice period is waived under Part 2615 of the regulations promulgated by the PBGC under ERISA. "Restricted Payments" means any dividend (other than dividends payable solely in capital stock of such person) or returns of capital to any shareholder of such person, or any other distribution, payment or delivery of property or cash to any of such person's shareholder's or any redemption, retirement, purchase or other acquisition of capital stock of such person. "Revolving Loan" means a loan made by NBD to the Borrowers pursuant to Section 2.1. "Revolving Notes" means the Revolving Credit Note and Line of Credit Note of the Borrowers evidencing the Revolving Loans, in substantially the form of Exhibit 2.1(a) and Exhibit 2.1(b), together with any amendments, restatements, replacements or renewals thereof. 10 "Subordinated Debt" means indebtedness of a Borrower owing to Manubusiness Opportunities, Inc. or Larry McKnight, and any other debt to which NBD has consented to in writing and for which NBD has received a subordination agreement on terms and conditions acceptable to NBD. "Subsidiary" of any person means any other person (whether now existing or hereafter organized or acquired) in which (other than directors' qualifying shares required by law) at least a majority of the securities or other ownership interests of each class having ordinary voting power or analogous right (other than securities or other ownership interests which at the time as of which any determination is being made, are owned, have such power or right only by reason of the happening of a contingency), beneficially and of record, by such person or by one or more of the other Subsidiaries of such person or by any combination thereof. "Tangible Capital Funds" means Tangible Net Worth plus deferred tax liabilities and Subordinated Debt. "Tangible Net Worth" means: (i) the amount of all assets which, under GAAP, would appear on the combined balance sheet of the Loan Parties, but excluding intangible items such as deferred tax assets, goodwill, treasury shares, patents, trademarks, research and development expenses and the like; less, (ii) the amount of all liabilities (excluding deferred tax liabilities) which, under GAAP, would appear on the combined balance sheet of the Loan Parties. "Termination Date" means the earlier to occur of (a) the third anniversary of the Effective Date, and (b) the date on which NBD's obligations shall be terminated pursuant to Section 7.2. "Term Note" means the Amended and Restated Term Note of the Company evidencing the term loan described in Section 2.4, in substantially the form of Exhibit 2.4, together with any amendments, restatements, replacements or renewals thereof. "Total Liabilities" means the total of all liabilities of the Loan Parties which would appear as liabilities on a Combined balance sheet of the Loan Parties, determined in accordance with GAAP. "Total Liabilities to Tangible Capital Funds Ratio" means the relationship, expressed as a numerical ratio, which (i) Total Liabilities bears to (ii) Tangible Capital Funds, determined for the Loan Parties on a Combined basis. "Type of Loan" has the meaning set forth in Section 3.1. 11 1.2 Certain Rules of Construction. For purposes of this Agreement: (a) Certain References. The words "herein," "hereof" and "hereunder," and words of similar import, refer to this Agreement as a whole and not to any particular provision of this Agreement, and references to Articles, Sections, Exhibits or Schedules, and similar references, are to Articles or Sections of, or Exhibits or Schedules to, this Agreement unless otherwise specified. (b) General Rules. Unless the context otherwise requires: (i) the singular includes the plural, and vice versa; (ii) all definitions and references to an agreement, instrument or document shall mean such agreement, instrument or document together with all exhibits and schedules thereto and any and all amendments, supplements or modifications thereto as the same may be in effect at the time such definition or reference is applicable for any purpose; (iii) all references to any party shall include such party's successors and permitted assigns; (iv) the term "including" means including, without limitation; and (v) reasonable attorneys' fees shall include allocated costs of in-house counsel. (c) Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement shall have the meanings given to them in accordance with GAAP, all computations made pursuant to this Agreement shall be made in accordance with GAAP, and all financial statements shall be prepared in accordance with GAAP. 1.3 Acknowledgment and Restatement of Credit. (a) Acknowledgment. By executing this Agreement, NBD and the Borrowers acknowledge and agree that as of June 30, 1996, the Indebtedness owed to NBD under the Existing Loan Agreement by the Borrowers is in the aggregate principal sum of $2,278,572.87 plus four outstanding letters of credit in the aggregate face amount of $728,282 (the "Existing Indebtedness"). All borrowing on June 30, 1996 shall be deemed to be advanced under this Agreement as Floating Rate Loans. The Borrowers further acknowledge and agree that, as of the Effective Date, all Existing Indebtedness is and shall be owed to NBD without offset, deduction, counterclaim or any other defense or claim whatsoever. (b) Effect of Restatement. The parties acknowledge and agree that this Agreement and the other Loan Agreement amend, modify and restate the Existing Indebtedness to NBD under the Existing Loan Documents and the execution and delivery of this Agreement or any of the Loan Documents shall not constitute (i) a novation or (ii) a waiver or release of any Default or Event of Default based on any facts or events occurring or existing prior to the date hereof and unknown to NBD prior to the date hereof. Upon the Effective Date, all Existing Indebtedness shall constitute Obligations hereunder and all outstanding loans under a line of credit advanced under the Existing Loan Agreement shall be deemed Floating Rate Loans under Section 2. 1(a) of this Agreement. 12 ARTICLE II. THE CREDIT FACILITIES 2.1 Revolving Loans. (a) Revolving Loan Commitment. Subject to the terms and conditions of this Agreement, NBD agrees to make Revolving Loans to the Borrowers, jointly and severally, on a revolving basis from the Effective Date and before the Termination Date as the Borrowers may from time to time request from NBD; provided, however, that the aggregate principal amount of all Revolving Loans which NBD shall be committed to make at any time shall not, when added to the principal balance of the Revolving Loans outstanding at such time plus the aggregate face amount of all outstanding L/Cs, exceed (i) the Borrowing Base at such time; or (ii) the Commitment at such time. The Revolving Loans shall be evidenced by a Revolving Note of the Borrowers in substantially the form of Exhibit 2.1(a). The Revolving Note advanced under this Section 2.1(a) shall be dated the Effective Date and stated to mature on the Termination Date. Interest shall accrue on the unpaid principal balance of the Revolving Loans from time to time outstanding under this Section 2.1(a) at the Applicable Rate(s) and shall be payable in accordance with Section 4.2. Within the limits of the Commitment and subject to the other terms and conditions of this Agreement, the Revolving Loans may be borrowed, repaid and reborrowed prior to the Termination Date. Although the Revolving Note shall be expressed to be payable in the maximum amount of the Commitment, the Borrowers shall be obligated to pay only the unpaid balance of the Revolving Loans together with interest thereon and other amounts due in connection therewith as provided herein and in the Revolving Note. The proceeds of Revolving Loans shall be used by the Borrowers for working capital or other general corporate purposes of the Loan Parties. (b) Revolving Loan Authorization. Subject to the terms and conditions of this Agreement, NBD may, in its sole discretion make Revolving Loans to the Borrowers, jointly and severally, on a revolving basis from the Effective Date and before the Termination Date as the Borrowers may from time to time request from NBD; provided, however, that the aggregate principal amount of all Revolving Loans which NBD outstanding hereunder shall not at any time exceed the Authorization Amount; provided, further, that the aggregate principal amount of all Revolving Loans which NBD shall make pursuant to Section 2.1(a) and Section 2.1(b) at any time shall not, when added to the principal balance of the Revolving Loans outstanding at such time plus the aggregate face amount of all outstanding L/Cs, exceed (i) the Borrowing Base at such time; or (ii) the Commitment plus the Authorization Amount at such time. The Revolving Loans advanced under this Section 2.1(b) shall be evidenced by a Line of Credit Note of the Company in substantially the form of Exhibit 2.1(b). The Line of Credit Note shall be dated the Effective Date and stated to mature on the Termination Date. Interest shall accrue on the unpaid principal balance of the Revolving Loans from time to time outstanding under this Section 2.1(b) at the Applicable Rate(s) and shall be payable in accordance with Section 4.2. Subject to the other terms and conditions of this Agreement, and subject to NBD's sole discretion, the Revolving Loans may be borrowed, repaid and reborrowed prior to the Termination Date. Although the Line of Credit Note shall be expressed to be payable in the maximum amount of $2,000,000, the Borrowers shall be obligated to pay only the unpaid balance of the Revolving 13 Loans together with interest thereon and other amounts due in connection therewith as provided herein and in the Line of Credit Note. The proceeds of Revolving Loans shall be used by the Borrowers for working capital or other general corporate purposes of the Loan Parties. (c) Commitment Fee. The Borrowers agree to pay to NBD a commitment fee computed at the rate of 1/4% per annum on the average daily unused portion of the Commitment. Such commitment fee shall accrue from and after the Effective Date, shall be calculated on a daily basis during the applicable period and shall be due and payable quarterly in arrears, beginning on September 30, 1996 and on each December 31, March 31, June 30 and September 30 thereafter through the Termination Date with any accrued but unpaid commitment fee due on the Termination Date. All outstanding standby L/Cs will be considered usage under Section 2.1(a). Revolving Loans shall first be deemed to be outstanding under Section 2.1(a) and any remaining Revolving Loan in excess of the Commitment minus the face amount of outstanding standby L/Cs will be deemed to be outstanding under Section 2.1(b). 2.2 Termination and Reduction of the Commitment. The Borrowers will have the right to terminate or reduce the Commitment at any time and from time to time, in which case the Commitment will be terminated or permanently reduced by the amount so specified, as the case may be; provided, however, that (a) the Borrowers shall give notice of such termination or reduction to NBD at least five Business Days in advance thereof, specifying the amount and effective date thereof, (b) each partial reduction of the Commitment shall be in a minimum amount of $1,000,000 and in an integral multiple of $100,000, (c) no such termination or reduction shall be permitted with respect to any portion of the Commitment as to which a request for a Revolving Loan or a L/C is then pending, (d) the entire Commitment may not be terminated if any Revolving Loans are then outstanding and may not be reduced below the sum of the principal amount of Revolving Loans then outstanding plus the aggregate amount of all then outstanding L/Cs. The Commitment or any portion thereof so terminated or reduced pursuant to this Section 2.2 may not be reinstated. 2.3 Letters of Credit. (a) Issuance of L/Cs. Provided there is sufficient availability under Commitment and if requested by the Borrowers (with no less than three Business Days prior written application in such form as requested by NBD), NBD shall issue for the account of any Borrower standby or commercial letters of credit, upon the following conditions: (i) Total Amount. The total face amount of L/Cs outstanding at any time shall not exceed an amount equal to the lesser, at such time, of (A) the L/C Sublimit or (B) $4,000,000 minus the sum of (1) aggregate principal balance of all Revolving Loans then outstanding under Section 2.1(a) and (2) the aggregate face of all outstanding L/Cs. (ii) Expiry. The expiry date of any L/C shall not exceed a maximum of 12 months from the date of issuance, provided, however, that any L/Cs outstanding on 14 the Termination Date will be (A) secured by cash or other collateral satisfactory to NBD, or (B) replaced as of the Termination Date under conditions which cause such outstanding L/Cs to be canceled. (iii) Fees. The Borrowers will be charged a $150 issuance fee for each standby L/C issued pursuant to this Section 2.3. Any outstanding standby will accrue a commission at a per annum rate of 1.00% of the face amount of such L/C, payable quarterly in advance at time of issuance. (iv) Documentation. The Borrowers shall execute standard documentation as requested by NBD with respect to the issuance of each L/C. (v) Conditions Met. On the date of issuance, all of the conditions precedent specified in Sections 3.6 and 3.7 have been satisfied. (b) Obligations Unconditional. The obligation of the Borrowers to pay to NBD the amount of any L/C shall be absolute, unconditional and irrevocable and shall remain in full force and effect until all Obligations of the Borrowers shall have been satisfied, and the Obligations with respect to each L/C shall not be affected, modified or impaired upon the happening of any event, including, without limitation, any of the following, whether or not with notice to, or the consent of, the Borrowers: (i) Any lack of validity or enforceability of any L/C or any other L/C Document or to any transaction related in any way to such L/C; (ii) Any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to any of the L/C Documents; (iii) The existence of any claim, cutoff, defense or other right which any Loan Party may have at any time against any beneficiary or any transferee of any L/C (or any persons for whom any such beneficiary or any such transferee may be acting), NBD or any other person or entity, whether in connection with any of the L/C Documents, the transactions contemplated herein or therein or any unrelated transactions; (iv) Any draft or other statement or document presented under any L/C proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) Payment by NBD to the beneficiary under any L/C against presentation of documents which do not strictly comply with the terms of the L/C, including failure of any documents to bear any reference or adequate reference to such L/C; 15 (vi) Any failure, omission, delay or lack on the part of NBD or any party to any of the L/C Documents to enforce, assert or exercise any right, power or remedy conferred upon NBD or any such party under this Agreement or any of the L/C Documents, or any other acts or omissions on the part of NBD or any such party; and (vii) Any other event or circumstance that would, in the absence of this clause, result in the release or discharge by operation of law or otherwise of the Loan Parties from the performance or observance of any obligation, covenant or agreement contained in this Section 2.3. (c) Repayment. The Borrowers agree, jointly and severally, to pay to NBD, on the day on which any L/C shall come due, the face amount of such L/C and all expenses paid or incurred by NBD relative thereto. Unless the Borrowers shall have made such payment to NBD on such day (including by borrowing the amount thereof with the proceeds of a Fixed Rate Loan), NBD shall be deemed to have disbursed to the Borrowers and the Borrowers shall be deemed to have elected to satisfy its repayment obligation by a Floating Rate Loan in an amount equal to the amount due with respect to such L/C. Such Floating Rate Loan shall be disbursed notwithstanding any failure to satisfy any conditions for disbursement of any Loan set forth in Section 3.7 and, to the extent of such Loan, the repayment obligation of the Borrowers with respect to such L/C under this subsection shall be deemed satisfied. 2.4 Term Loan. Simultaneously with the execution of this Agreement, the Bank will amend and restate the obligations of the Company to the Bank under the Amended and Restated Installment Business Loan Note, dated on or about December 6, 1995, in the original principal amount of $800,000 (the "Existing Term Note") pursuant to the terms of the Amended and Restated Term Note given by the Company in substantially the form of Exhibit 2.4, dated the Effective Date. The Term Note amends and restates, but does not repay, the indebtedness outstanding under the Existing Term Note. 2.5 NBD Records and Determinations. NBD is hereby authorized by the Borrowers to note on NBD's books and records, the date, amount and Applicable Rate of each Revolving Loan, the amount of each payment or prepayment thereon and such other information as appropriate, which books and records shall constitute prima facie evidence of the information so noted. Notwithstanding the foregoing, the failure of NBD to record, or any error in recording, any such information shall not relieve the Borrowers of their obligation to repay the outstanding principal amount of the Loans, the L/Cs, all accrued interest thereon and other amounts payable with respect thereto in accordance with the terms of the Note, the L/C Documents, and this Agreement. NBD's determinations of the Applicable Rates, the Default Rate, the fees any indemnity payment or other amounts payable under this Agreement shall be presumed correct. 16 ARTICLE III. THE LOANS 3.1 Types of Loans. Each Revolving Loan may be an LIBOR Loan, a Negotiated Rate Loan or a Floating Rate Loan (each being herein called a "Type of Loan"), as established pursuant to Sections 3.2, 3.3 or 3.4. The principal amount of each Negotiated Rate Loan shall be at least $500,000 or a higher integral multiple of $100,000. The principal amount of each LIBOR Loan shall be at least $1,000,000, or a higher integral multiple of $100,000. Except for Loans which exhaust the entire remaining amount of the Commitment and Authorized Amount, the principal amount of each Floating Rate Loan shall be at least $25,000 or a higher integral multiple of $25,000. 3.2 Requests for Loans. The Borrowers shall give NBD notice of each proposed Loan: (a) in the case of a Floating Rate Loan, not later than 3:00 p.m., Detroit time, on the proposed Funding Date of such Floating Rate Loan; (b) in the case of a Negotiated Rate Loan, not later than 3:00 p.m., Detroit time on the proposed Funding Date of such Negotiated Rate Loan; and (c) in the case of a LIBOR Loan, not later than 11:00 a.m., Detroit time, on the day which is three Business Days in advance of the proposed Funding Date of such LIBOR Loan. Each of the Borrowers hereby authorizes the Company to request loans and to otherwise give and receive notices regarding the Loans and this Agreement on each Borrower's behalf. Any notice received after the hour specified above, shall be deemed to be notice given prior to such hour, on the next succeeding Business Day. Each such request shall be effective upon receipt by NBD, shall be in writing or by telephone to be promptly confirmed in writing (in either case, to be in the form of Exhibit 3.2 for Floating Rate Loans, and LIBOR Loans, and in the form of Exhibit 3.5 for Negotiated Rate Loans), shall specify whether the request is for a new Revolving Loan, the Applicable Rate of the requested Loan, the Funding Date and amount of the Loan for each Type of Loan and, for any LIBOR Loan or Negotiated Rate Loan, the Loan Period thereof. Subject to the terms and conditions of this Agreement, the proceeds of each Revolving Loan shall be made available to the Borrowers by depositing the proceeds thereof, in immediately available funds, in an account to be designated by the Borrowers from time to time. 3.3 Conversion of Loans; Procedures. So long as no Default or Event of Default exists and is continuing, the Borrowers may convert all or any part of any outstanding Loan from one Type of Loan to another Type of Loan, if available, by giving notice to NBD of such conversion not later than the time required in Section 3.2 for such new Type of Loan. Each such notice shall be effective upon receipt by NBD, shall be in writing or by telephone to be promptly confirmed in writing (in either case, to be in the form of Exhibit 3.2), shall specify the date and amount of such conversion, the total amount of Loans to be so converted and the Loan Period therefor. Each conversion shall be on a Business Day, and in an amount as provided in Section 3.1. 17 3.4 Procedures at End of Loan Period. (a) Automatic Conversion. Unless the Borrowers request a new Negotiated Rate Loan or LIBOR Loan in accordance with subsection (b) below or repay the applicable Loan, NBD shall automatically and without request by the Borrowers, on the last day of the applicable Loan Period, convert each Negotiated Rate Loan and each LIBOR Loan to a Floating Rate Loan. (b) Extension. So long as no Default or Event of Default exists and is continuing, and subject to the limitations set forth in Section 2.1, the Borrowers may cause all or any part of any outstanding Negotiated Rate Loan or LIBOR Loan to continue to bear interest at a Negotiated Rate or an Adjusted LIBO Rate, as the case may be, if available, at the end of the then-applicable Loan Period, by (i) with respect to Negotiated Rate Loans, notifying NBD not later than 3:00 p.m., Detroit time, the first day of the new Loan Period or the last Business Day prior to the new Loan Period if it does not begin on a Business Day, and (ii) with respect to LIBOR Loans, notifying NBD not later than 11:00 a.m., Detroit time, on a day which three Business Days prior to the first day of the new Loan Period. Each such notice shall be effective upon receipt by NBD and shall be in writing or by telephone to be promptly confirmed in writing (in either case to be in the form of Exhibit 3.2), and shall specify the first day of the applicable Loan Period, the amount of the new Fixed Rate Loans and the Loan Period therefor. Each new Loan Period for LIBOR Loans shall begin on a Business Day and the aggregate amount of the Loans bearing the new Negotiated Rate or the new Adjusted LIBO Rate shall be in an amount as provided in Section 3.1 3.5 Requests for Negotiated Rate Loans. Subject to the terms and conditions of this Agreement, the Borrowers may request from NBD, from time to time, Negotiated Rate Loans pursuant to Section 3.2. All Negotiated Rate Loans requested by the Borrowers shall be subject to the following additional terms and conditions: (a) NBD shall have sole and absolute discretion to determine the Negotiated Rate for a Negotiated Rate Loan. (b) The Borrowers may request a maturity date for each Negotiated Rate Loan of 1, 2, 3, 6 or 12 months from the Funding Date of such Negotiated Rate Loan and, in any event, not later than the Termination Date. The Borrowers will forward to NBD a written confirmation of any Negotiated Rate Loan substantially in the form of the attached Exhibit 3.5, including confirmation of the date, maturity and amount of, and the Negotiated Rate applicable to, such Negotiated Rate Loan. (c) Each Negotiated Rate Loan shall be repayable upon the stated maturity date requested by the Borrowers at the time of making such loan and shall bear interest at the Negotiated Rate established by NBD on the date of the making of such loan. 18 (d) Interest on each Negotiated Rate Loan shall be payable upon the stated maturity of such Negotiated Rate Loan. (e) Each Negotiated Rate Loan or repayment thereof shall be in the minimum amount of $500,000 or a higher integral multiple of $100,000 and shall be made in immediately available funds at the principal office of NBD. (f) It is understood and agreed that any Negotiated Rate for a Negotiated Rate Loan offered under this Agreement may be below or above the Prime Rate and will not necessarily by the lowest rate charged by NBD to any of its customers. 3.6 Conditions for Initial Loans. The obligation of NBD to make the first Revolving Loans or to issue the first L/C hereunder is subject to receipt by NBD of the following documents and completion of the following matters on or prior to the Effective Date, in form and substance satisfactory to NBD: (a) Charter Documents. Certificates of recent date of the appropriate authority or official of the jurisdiction of incorporation of each of the Borrowers listing all charter documents of such Person on file in that office and certifying as to the good standing and corporate existence of the such Person, together with copies of such charter documents of the Borrowers certified as of a recent date by such authority or official, and certified as true and correct as of the Effective Date by a duly authorized officer of the such Person. (b) By-Laws and Corporate Authorizations. Copies of the by-laws of each Borrower together with all authorizing resolutions and evidence of other corporate action taken by the each Borrower to authorize the execution, delivery and performance by such Person of this Agreement and the other Loan Documents to which it is a party and the consummation by the such Person of the transactions contemplated hereby, certified as true and correct as of the Effective Date by a duly authorized officer of such Person. (c) Incumbency Certificate. Certificates of incumbency of the Borrowers containing, and attesting to the genuineness of, the signatures of those officers authorized to act on behalf of the Borrowers in connection with this Agreement and the other Loan Documents to which the Borrowers is a party and the consummation by the Borrowers of the transactions contemplated hereby, certified as true and correct as of the Effective Date by a duly authorized officer of such Borrower. (d) Note. The Notes appropriately completed and duly executed on behalf of the Borrowers. (e) Guaranty Agreement. The Guaranty Agreement, in the form of the attached Exhibit 3.6(e), duly executed on behalf of each Borrower. 19 (f) Security Agreements. The Amended and Restated Security Agreements, in the form attached as Exhibit 3.6(f), duly executed on behalf of each Borrower, together with appropriate UCC financing statements as requested by NBD. (g) Legal Opinion. The favorable written opinion of counsel for the Borrowers, with respect to each of the matters set forth in Sections 5.1, 5.2, 5.3 and 5.8, and as to such other matters as NBD may reasonably request. (h) Copies of Other Indebtedness. Full copies of the documentation of the company's indebtedness to KeyCorp Leasing Ltd., GE Capital Public Finance Inc., and Metro Life Capital Financial Corporation. (i) Consents, Approvals, Etc. Copies of all governmental and nongovernmental consents, approvals, authorizations, declarations, registrations or filings, if any, required on the part of the Borrowers in connection with the execution, delivery and performance of this Agreement and the other Loan Documents or the transactions contemplated hereby or as a condition to the legality, validity or enforceability of this Agreement or the other Loan Documents, certified as true and correct and in full force and effect as of the Effective Date by a duly authorized officer of the appropriate Borrower. (j) Satisfaction of Legal Counsel. Satisfaction of legal counsel to NBD with all documents and instruments delivered hereunder or under any other Loan Document and all proceedings related to the consummation of the transactions contemplated by this Agreement and the other Loan Documents, and delivery to NBD and such legal counsel of copies (executed or certified as may be appropriate) of all legal documents or proceedings which NBD or such legal counsel may reasonably request in connection with the consummation of such transactions. 3.7 Further Conditions for Disbursement. The obligation of NBD to make any Loan (including the first Revolving Loan or any extension or conversion of any Revolving Loan, other than an automatic conversion of a Negotiated Rate Loan or a LIBOR Loan to a Floating Rate Loan) or to issue any L/C (including any renewal or extension of any L/C) is further subject to the satisfaction of the following conditions precedent: (a) Representations True. The representations and warranties contained in Article V shall be true and correct on and as of the date such Loan is made or such L/C is issued (both before and after such Loan is made or such L/C is issued as if such representations and warranties were made on and as of such date. (b) No Default. No Default or Event of Default shall exist or shall have occurred and be continuing on the date such Loan is made or such L/C is issued (whether before or after such Loan is made or such L/C issued). (c) No Material Adverse Event. Nothing shall have occurred since the Effective Date which NBD shall determine either (i) constitutes a Material Adverse Event or (ii) 20 has, or may have, an adverse effect on the rights or remedies of NBD under this Agreement or any other Loan Document. (d) Request for Loans. In the case of the making of any Revolving Loan, NBD shall have timely received the request for Revolving Loan, or in the case of an extension or conversion of any Revolving Loan the applicable notice of extension or conversion, in accordance with this Agreement, in form and substance reasonably satisfactory to NBD. (e) L/Cs. In the case of the issuance of any L/Cs, the Borrowers shall have delivered the L/C Documents, as appropriate, and any other related documentation requested by and acceptable to NBD, appropriately completed and duly executed on behalf of the Borrowers (f) Reaffirmation. The Borrowers shall be deemed to have made a representation and warranty to NBD at the time of the making of each Loan or the issuance of each L/C to the effect set forth in clauses (a) and (b) of this Section 3.7. For purposes of this Section 3.7, the representations and warranties contained in Section 5.6 shall be deemed made with respect to both the financial statements referred to therein and the most recent financial statements delivered pursuant to Section 6.1(d). ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS 4.1 Principal Payments. (a) Mandatory Prepayment. If the principal balance outstanding under Section 2.1 plus the face amount of all outstanding L/Cs exceeds the lesser of (i) the Commitment plus the Authorization Amount or (ii) the Borrowing Base at any time, the Borrowers shall immediately prepay the amount of such excess to the Bank. (b) Optional Prepayment. The Company may at any time and from time to time prepay all or a portion of the Revolving Loans, without premium or penalty; provided, however, that each prepayment of a Floating Rate Loan shall be in a minimum amount of $25,000 and in an integral multiple of $25,000; and provided further that any prepayment of a LIBOR Loan which is made on a day other than the last day of a Loan Period or, with respect to a Negotiated Rate Loan, which is made on a day other than the maturity date thereof, shall be accompanied by the indemnity payment set forth in Section 4.8 below. (c) Final Payment of Loans. Unless earlier payment is required under this Agreement, the Borrowers shall pay to NBD on the Termination Date the outstanding principal amount of the Loans and provide cash collateral for, or obtain the cancellation of, all outstanding L/Cs. (d) Application of Prepayments; Interest. Except as otherwise provided in Section 4.1(c) or 4.3(a), the Revolving Loans to which any prepayments are to be applied shall 21 be selected by NBD in its sole discretion. The Company shall also pay to NBD, together with such amounts, all accrued interest to the date of payment on any Loans so prepaid and, with respect to any Fixed Rate Loan prepaid prior to the end of the applicable Loan Period or maturity date, the indemnity payment set forth in Section 4.8 below. 4.2 Interest Payments. (a) Regular Payments. The Borrowers will pay interest to NBD at the Applicable Rate on the unpaid principal amount of each Loan as follows: (i) Floating Rate Loans. Accrued and unpaid interest on Floating Rate Loans shall be payable: (A) on each Payment Date; (B) as to any portion of a Floating Rate Loan which is converted to a LIBOR Loan, on the date of such conversion; and (C) on the Termination Date. (ii) Fixed Rate Loans. Accrued and unpaid interest on Fixed Rate Loans shall be payable on the last day of each Loan Period, and, if the Loan Period is greater than three months, then also on each three month anniversary of the Funding Date. (b) Interest on Overdue Amounts. Notwithstanding the foregoing Section 4.2(a) or Section 3.5, the Loan Parties shall pay interest on demand at the Default Rate or the maximum rate permitted by law, whichever is lower, on the outstanding principal amount of any Loan and any other amount payable by the Loan Parties (other than interest) which is not paid in full when due (whether upon demand, at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof until the same is paid in full. In addition to the foregoing, during the period that any other Event of Default has occurred and shall be continuing, the Loan Parties shall pay on demand, at the election of NBD, interest at the Default Rate or the maximum rate permitted by law, whichever is lower, on the outstanding principal amount of all the Obligations which are outstanding during such period from and after the date of any such demand. 4.3 Payment Method and Related Matters. (a) Payments by the Borrowers . All payments to be made by the Borrowers hereunder will be made in Dollars and in immediately available funds to NBD at NBD's address set forth opposite its name on the first page of this Agreement, not later than 3:00 p.m., Detroit time, on the date on which such payment shall become due. Payments received after the hour specified above shall be deemed to be payments made prior to such hour on the next succeeding Business Day. At the time of making each such payment, the Borrowers shall specify to NBD the obligation of the Borrowers hereunder to which such payment is to be applied, or, in the event that the Borrowers fails to so specify or if an Event of Default shall have occurred and be continuing, NBD may apply such payments as it may determine in its sole discretion. 22 (b) Authorization of Payments. If the Borrowers shall not otherwise have made payment of any of the Obligations as provided in this Agreement, NBD is expressly authorized to charge any such Obligations, when due, to any of the Borrower's demand deposit accounts maintained with NBD or, if such accounts shall not control sufficient funds, to any other account maintained by any Borrower with NBD. 4.4 No Setoff or Deduction. All payments of principal of and interest on the Loans and other Obligations shall be paid by the Borrowers without setoff or counterclaim, and free and clear of, and without deduction or withholding for, or on account of, any present or future taxes, levies, imposts, duties, fees, assessments, or other charges of whatever nature, imposed by any governmental authority, or by any department, agency or other political subdivision or taxing authority or other person. 4.5 Payment on Non-Business Day; Payment Computations. Except as otherwise provided in this Agreement, whenever any installment of principal of, or interest on, any Loan or any other Obligation becomes due and payable on a day which is not a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of any installment of principal, interest shall be payable thereon at the then Applicable Rate during such extension. Computations of interest and other amounts due under this Agreement shall be made on the basis of a year of 360 days, for the actual number of days elapsed, including the first day but excluding the last day of the relevant period. 4.6 Additional Costs. (a) Increased Costs. In the event that any Governmental Regulation now or hereafter in effect and whether or not presently applicable to NBD, or any interpretation or administration thereof by any governmental authority (including without limitation the Board of Governors of the Federal Reserve System) charged with the interpretation or administration thereof, or compliance by NBD with any guideline, request or directive of any such authority (whether or not having the force of law), shall (i) affect the basis of taxation of payments to NBD of any amounts payable by the Borrowers under this Agreement or any other Loan Documents (other than taxes imposed on the overall net income of NBD, by the jurisdiction, or by any political subdivision or taxing authority of any such jurisdiction, in which NBD has its principal office), or (ii) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of deposits with or for the account of, or credit extended by NBD, or (iii) impose any other condition with respect to this agreement, the Commitment, the Note, the Loans or any other Obligation, and the result of any of the foregoing is to increase the cost to NBD of providing its Commitment or making, funding or maintaining any Loan or to reduce the amount of any sum receivable by NBD under this Agreement, then the Borrowers shall pay to NBD, from time to time, upon request by NBD, additional amounts sufficient to compensate NBD for such interested cost or reduced sum receivable. A Statement as to the amount of such increased cost or reduce sum receivable, prepared promptly, in good faith and in reasonable detail by NBD and submitted by NBD to the Borrowers, shall be presumed correct. 23 (b) Capital Requirements. In the event that any Governmental Regulation now or hereafter in effect and whether or not presently applicable to NBD, or any interpretation or administration thereof by any governmental authority (including without limitation the Board of Governors of the Federal Reserve System) charged with the interpretation or administration thereof, or compliance by NBD with any guideline, request or directive of any such authority (whether or not having the force of law), including any risk-based capital guidelines, affects or would affect the amount of capital required or expected to be maintained by NBD (or any corporation controlling NBD) and NBD determines that the amount of such capital is increased by or based upon the existence of NBD's obligations hereunder and such increase has the effect of reducing the rate of return on NBD's (or such controlling corporation's) capital as a consequence of such obligations hereunder to a level below that which NBD (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by NBD to be material, then the Borrowers shall pay to NBD, from time to time, upon request by NBD, additional amounts sufficient to compensate NBD (or such controlling corporation) for any increase in the amount of capital and reduced rate of return which NBD reasonably determines to be allocable to the existence of NBD's obligations hereunder. A statement as to the amount of such compensation, prepared promptly, in good faith and in reasonable detail by NBD and submitted by NBD to the Borrowers, shall be presumed correct. 4.7 Illegality and Impossibility. (a) Repayment. In the event that any Governmental Regulation now or hereafter in effect and whether or not presently applicable to NBD, or any interpretation or administration thereof by any governmental authority (including the Board of Governors Reserve System) charged with the interpretation or administration thereof, or compliance by NBD with any request or directive of such authority (whether or not having the force of law), including exchange controls, shall make it unlawful or impossible for NBD to maintain any LIBOR Loan at the Adjusted LIBOR Rate under this Agreement, the Borrowers shall, upon receipt of notice thereof from NBD, repay in full to NBD the then outstanding principal amount of such LIBOR Loan, together with all accrued interest thereon to the date of payment and all amounts due to NBD under Section 4.8, (i) on the last day of the then current Loan Period applicable to the Loan if NBD may lawfully continue to maintain such Loan at the Adjusted LIBOR Rate to such day, or (ii) immediately if NBD may not continue to maintain such Loan at the Adjusted LIBOR Rate to such day. (b) Conversion of LIBOR Loans to Floating Rate Loans. Notwithstanding Section 4.7(a), if such Section would otherwise be applicable, but NBD could lawfully maintain the LIBOR Loans at the Floating Rate then, during such period as NBD cannot maintain the LIBOR Loans at the Adjusted LIBO Rate, the LIBOR Loans shall bear interest at a per annum rate equal to the Floating Rate in effect from time to time. If all events or conditions making it unlawful or impossible for NBD to maintain the LIBOR Loans at the Adjusted LIBO Rate cease to exist, then the LIBOR Loans shall again bear interest at the Adjusted LIBO Rate, 24 commencing on the first day of the next Loan Period immediately following the date all such events and conditions so cease to exist. 4.8 Indemnity. If the Borrowers fail to make any payment of principal or interest in respect of any Fixed Rate Loan when due or makes any payment or prepayment of the principal of any Fixed Rate Loan, for any reason, on any due other than the last day of the Loan Period applicable thereto or, with respect to any Negotiated Rate Loan, the maturity date thereof, or if the rate of interest with respect to any LIBOR Loan shall be converted from the Adjusted LIBO Rate, pursuant to Section 4.7(b), on a date other than the last day of the Loan Period applicable thereto, or if the Borrowers fail to borrow any LIBOR Loan after requesting the same in accordance with this Agreement, the Borrowers shall reimburse NBD on demand for any resulting loss or expense incurred by NBD, including any loss incurred in obtaining, liquidating or employing deposits from third parties. A statement as to the amount of such loss or expense, prepared promptly, in good faith and in reasonable detail and submitted by NBD to the Borrowers, shall be presumed correct. Calculation of all amounts payable to NBD under this Section 4.8 with regard to LIBOR Loans shall be made as though NBD shall have funded or committed to fund such through the purchase of an underlying deposit in an amount equal to such Loans and having a maturity comparable to such Loans; provided, however, that NBD may fund the Fixed Rate Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the purpose of calculation of amounts payable under this Section 4.8. ARTICLE V. REPRESENTATIONS AND WARRANTIES The Borrowers represent and warrant to NBD as follows, on the Effective Date and on each Funding Date: 5.1 Corporate Existence and Power. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified to do business, and is in good standing, in all additional jurisdictions where such qualification is necessary under applicable law. Each Loan Party has all requisite corporate power to own or lease the properties used in its business and to carry on its business as now being conducted and as proposed to be conducted, and to execute and deliver this Agreement and the other Loan Documents to be executed by such Loan Party and to engage in the transactions contemplated by this Agreement. 5.2 Corporate Authority. The execution, delivery and performance by each Loan Party of this Agreement and the other Loan Documents have been duly authorized by all necessary corporate action and are not in contravention of any Governmental Regulation, or of the terms of the respective Loan Party's charter or by-laws, or of any contract or undertaking to which any Loan Party is a party or by which such Loan Party or its property may be bound or affected and do not result in the imposition of any Lien, except for the Liens granted to NBD. 25 5.3 Binding Effect. This Agreement is, and each of the Loan Documents when delivered hereunder will be, legal, valid and binding obligations of each Loan Party, which is a party to such agreement, enforceable against each Loan Party in accordance with their respective terms. 5.4 Subsidiaries. All of the Subsidiaries of the Company (and any of the other Loan Parties) are listed on Schedule 5.4, together with the percentage of ownership thereof. 5.5 Litigation. Except as set forth in Schedule 5.5, there is no action, suit or proceeding pending or, to the best of the Loan Parties' knowledge, threatened against or affecting any Loan Party before or by any court, governmental authority or arbitrator, which if adversely decided might result, either individually or collectively, in any Material Adverse Event or in any adverse effect on the legality, validity or enforceability of this Agreement or any other Loan Document and, to the best of the Loan Parties' knowledge, there is no basis for any such action, suit or proceeding. 5.6 Financial Condition. The financial statements listed in Schedule 5.6, copies of which have been furnished to NBD, fairly present, and the financial statements delivered pursuant to Section 6.1(d) will fairly present, the financial position of the Loan Parties as at the respective dates thereof, and the results of operations of the Loan Parties for the respective periods indicated, all on a Combined basis in accordance with GAAP (subject, in the case of interim statements, to normal, immaterial year-end audit adjustments). There has been no Material Adverse Event since March 31, 1996. There is no material Contingent Liability of any Loan Party that is not reflected in such Combined statements or in the notes thereto. 5.7 Use of Loans. The Borrowers will use the proceeds of the Loans for working capital and other general corporate purposes of the Loan Parties. The Loan Parties do not extend or maintain, in the ordinary course of business, credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used for the purpose, whether immediate, incidental, or ultimate, of buying or carrying any such margin stock or maintaining or extending credit to others for such purpose. 5.8 Consents, Etc. Except for such consents, approvals, authorizations, declarations, registrations or filings delivered by the Loan Parties pursuant to Section 3.6(h), if any, each of which is in full force and effect, no consent, approval or authorization of or declaration, registration or filing with any governmental authority or any nongovernmental person, including any creditor, lessor or shareholder of any Loan Party, is required on the part of any Loan Party in connection with the execution, delivery and performance of this Agreement and the other Loan Documents or the transactions contemplated hereby or as a condition to the legality, validity or enforceability of this Agreement and the other Loan Documents. 5.9 Taxes. Each of the Loan Parties has filed all tax returns (federal, state and local) required to be filed and have paid all taxes shown thereon to be due, including interest and 26 penalties, or has established adequate financial reserves on its books and records for payment thereof. The Loan Parties do not know of any actual or proposed tax assessment or any basis therefor, and no extension of time for the assessment of deficiencies in any federal or state tax has been granted to any of the Loan Parties. 5.10 Title to Properties. Except as otherwise disclosed in the latest Combined balance sheet delivered pursuant to Section 5.6 or 6.1(d), the Loan Parties have a valid and indefeasible ownership interest in all of the properties and assets reflected in the Combined balance sheet of the Loan Parties or subsequently acquired by any Loan Parties. All NBD Collateral is free and clear of any Lien, except for Permitted Liens. 5.11 Compliance with Governmental Regulations. Each of the Loan Parties is in compliance in all material respects with all Governmental Regulations (including Environmental Laws) applicable to such person or its business or properties. Without limiting the generality of the foregoing, all licenses, permits, orders or approvals which are required under any Governmental Regulation in connection with any of the businesses or properties of any Loan Party ("Permits") are in full force and effect, no notice of any violation has been received in respect of any such Permits and no proceeding is pending or, to the knowledge of the Loan Parties, threatened to terminate, revoke or limit any such Permits. 5.12 ERISA. The Loan Parties, their ERISA Affiliates and their respective Plans are in compliance in all material respects with those provisions of ERISA and of the Code which are applicable with respect to any Plan. No Prohibited Transaction and no Reportable Event has occurred with Respect to any such Plan. None of the Loan Parties or any of their ERISA Affiliates is an employer with respect to any Multiemployer Plan. The Loan Parties, and each of their ERISA Affiliates have met the minimum funding requirements under ERISA and the Code with respect to each of their respective Plans, if any, and have not incurred any liability to the PBGC or any Plan. There is no material unfunded benefit liability, determined in accordance with Section 4001(a)(18) of ERISA, with respect to any Plan of the Loan Party's or their ERISA Affiliates. 5.13 Environmental Matters. Except as disclosed in Schedule 5.13 and without limiting the generality of Section 5.11: (a) No written demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or otherwise, arising under, relating to or in connection with any Environmental Laws is pending or, to the best of the Loan Parties' knowledge, threatened against any Loan Party, any Property or any past or present operation of any Loan Party which could result in a Material Adverse Event. (b) The Loan Parties do not have any knowledge that any other person has ever received any notice, claim or allegation of any violation, and the Loan Parties are not aware of any existing violation, of Environmental Laws at or about any Property, and the Loan Parties do 27 not have any knowledge of any actions commenced or threatened by any party for or related to or arising out of non-compliance with Environmental Laws which apply to any Property, activities at any Property or Hazardous Materials at, from or affecting any Property. (c) None of the Property appears on the National Priority List (as defined under federal law) or any state listing which identifies sites for remedial clean-up or investigatory actions. To the best of the Loan Parties' knowledge, none of the Property has been contaminated with substances which give rise to a clean-up obligation under any Environmental Law or common law. 5.14 Investment Company Act. No Loan Party is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.15 Disclosure. No report or other information furnished in writing by or on behalf of any Loan Party to NBD in connection with the negotiation or administration of this Agreement contains any material misstatement of fact or omits to state any material fact or any fact necessary to make the statements contained therein not misleading. Neither this Agreement, the other Loan Documents, nor any other document, certificate, or report or statement or other information furnished to the NBD by or on behalf of any Loan Party in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact in order to make the statements contained herein and therein not misleading. There is no fact known to any Loan Party which materially and adversely affects, or which in the future may (so far as the Loan Parties can now foresee) materially and adversely affect, the business, properties, operations, condition, financial or otherwise, or prospects of any Loan Party which has not been set forth in this Agreement or in the other documents, certificates, statements, reports and other information furnished in writing to NBD by or on behalf of any Loan Party in connection with the transactions contemplated hereby. ARTICLE VI. COVENANTS 6.1 Affirmative Covenants. Each Borrower covenants and agrees that, until the Termination Date and thereafter until payment in full of the principal of and accrued interest on the Notes and the payment or performance of all other Obligations, unless NBD shall otherwise consent in writing, each Borrower, and shall cause each other Loan Party to: (a) Preservation of Corporate Existence; Etc. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except to the extent permitted by Section 6.2(g), and its qualification as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary under applicable law, and the rights, licenses, permits (including those required under Environmental Laws), franchises, patents, copyrights, trademarks and trade names material to the conduct of its businesses; and defend all 28 of the foregoing against all claims, actions, demands, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority. (b) Compliance with Laws; Etc. Comply with all Governmental Regulations (including ERISA, the Code and Environmental Laws), in effect from time to time; and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income, revenues or property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to any Lien upon such properties or any portion thereof, except to the extent that payment of any of the foregoing is then being contested in good faith by appropriate legal proceedings and with respect to which adequate financial reserves have been established on the books and records of such Loan Party. (c) Maintenance of Properties; Insurance. Maintain, preserve and protect all property that is material to the conduct of its business and keep such property in good repair, working order and condition and from time to time make, or cause to be made all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times in accordance with customary and prudent business practices for similar businesses; and maintain in full force and effect insurance with responsible and reputable insurance companies or associations in such amounts, on such terms and covering such risks, including fire and other risks insured against by extended coverage, as is usually carried by companies engaged in similar businesses and owning similar properties similarly situated and maintain in full force and effect public liability insurance, business interruption insurance, insurance against claims for personal injury or death or property damage occurring in connection with any of its activities or any of any properties owned, occupied or controlled by it, in such amounts as it shall reasonably deem necessary, and maintain such other insurance as may be required by Governmental Regulations or as may be reasonably requested by NBD. Upon request, the Loan Parties shall deliver to NBD copies of all or any of such insurance policies or the related certificates of insurance. (d) Reporting Requirements. Furnish to NBD the following: (i) promptly and in any event within three calendar days after becoming aware of the occurrence of (A) any Default or Event of Default, (B) the commencement of any material litigation against, by or affecting any Loan Party, and any material developments therein, or (C) any development in the business or affairs of any Loan Party which has resulted in or which is likely, in the reasonable judgment of the Loan Parties, to result in a Material Adverse Event, a statement of the chief financial officer of the Company setting forth details of such Event of Default or such event or condition or such litigation and the action which the affected person has taken and proposes to take with respect thereto; (ii) as soon as available and in any event within 45 days after the end of each fiscal quarter of the Company (other than the fourth fiscal quarter), (x) the 29 Combined balance sheet of the Loan Parties of the end of each such quarter and Combined statements of income, surplus and cash flow of the Loan Parties for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding fiscal year, and (y) the combining balance sheet and statements of income, surplus and cash flows with respect to the Loan Parties for such periods (prepared in a manner consistent with such Combined balance sheet and statements), all in reasonable detail and duly certified (subject to normal, immaterial year-end audit adjustments) by the chief financial officer or controller of the Company as having been prepared in accordance with GAAP, together with a certificate of the chief financial officer or controller of the Company (A) stating that no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, a statement setting forth the details thereof and the action which the applicable person has taken and proposes to take with respect thereto, and (B) setting forth a computation (which computation shall accompany such certificate and shall be in reasonable detail) showing compliance with Sections 6.2(a), (b), (c) and (d) in conformity with the terms of this Agreement; (iii) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a copy of the annual audited Combined financial statements of the Loan Parties for such fiscal year, with a customary audit report of such independent certified public accountants selected by the Company and reasonably acceptable to NBD, without qualifications unacceptable to NBD, together with the unaudited combining annual financial statements of the Loan Parties (prepared in a manner consistent with the Company's audited Combined annual financial statements) and a certificate of the chief financial officer or controller of the Company (A) stating that no Default or Event of Default has occurred or is continuing or if any Default or Event of Default has occurred and is continuing, a statement setting forth the details thereof and the action which the applicable person has taken and proposes to take with respect thereto, and (B) setting forth a computation (which computation shall accompany such certificate and shall be in reasonable detail) showing compliance with Sections 6.2(a), (b), (c) and (d) in conformity with the terms of this Agreement; (iv) as soon as available, and in any event within 15 days after the end of each month, a Borrowing Base Certificate in a form and detail reasonably acceptable to Bank, executed by the chief financial officers of the Loan Parties and completed as of the end of the preceding month; (v) as soon as available and in any event within 30 days after the end of each fiscal quarter of the Company, a report listing the accounts receivable aging, accounts payable aging and inventory of all of the Loan Parties, in a form and detail reasonably acceptable to Bank, executed by the chief financial officers of the Loan Parties and completed as of the end of the preceding quarter; 30 (vi) promptly after receipt thereof by any Loan Party, copies of any audit or management reports submitted to it by independent accountants in connection with any audit, interim audit or other report submitted to the board of directors (or other governing body) of any Loan Party; (vii) promptly after the same are available, copies of each annual report, proxy or financial statement or other communication sent to a Loan Party's stockholders and copies of all annual, regular, periodic and special reports and registration statements which the Company may file or be required to file with the Securities and Exchange Commission or with any securities exchange or the National Association of Securities Dealers, Inc.; and (viii) promptly, such other information respecting the business, properties, operations or condition, financial or otherwise, of any Loan Party as NBD may from time to time reasonably request upon reasonable notice. (e) Accounting; Access to Records, Books, Etc. Maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with GAAP and to comply with the requirements of this Agreement and, at any reasonable time and from time to time, (i) permit NBD or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such person and to discuss the affairs, finances and accounts of such person with their respective directors, officers, employees and independent auditors, and by this provision each Loan Party does hereby authorize the same, and (ii) permit NBD or any of its agents or representatives to conduct a comprehensive field audit of its books, records, properties and assets. (f) New Affiliates. Cause any Subsidiary of a Loan Party acquired or formed after June 30, 1996 to promptly deliver the agreements required to become a Loan Party hereunder. (g) Further Assurances. Execute and deliver promptly after request therefor by NBD, all further instruments and documents and take all further action that may be necessary or desirable, or that NBD may request, in order to give effect to, and to aid in the exercise and enforcement of the rights and remedies of NBD under, this Agreement and the other Loan Documents. 6.2 Negative Covenants. Each Borrower covenants and agrees that, until the Termination Date and thereafter until payment in full of the principal of and accrued interest on the Note and the payment and performance of all other Obligations, unless NBD shall otherwise consent in writing, each Borrower shall not, and shall cause each other Loan Party not to: (a) Tangible Capital Funds. Tangible Capital Funds of the Loan Parties to be less than $10,000,000 at any time after the Effective Date. 31 (b) Current Ratio. Permit or suffer the Current Ratio to be less than 1.25 to 1.0 at any time after the Effective Date. (c) Total Liabilities to Tangible Capital Funds Ratio. Permit or suffer the Total Liabilities to Tangible Capital Funds Ratio to exceed 3.0 to 1.0 at any time after the Effective Date. (d) Cash Flow Coverage Ratio. Permit or suffer the Cash Flow Coverage Ratio to be less than (i) 1.10 to 1.0 from the Effective Date until December 31,1996, and (ii) 1.20 to 1.0 at any time from January 1,1997 and thereafter. (e) Liens. Create, incur or suffer to exist any Lien on any of the NBD Collateral, except: (i) Liens for taxes not delinquent or for taxes being contested in good faith by appropriate proceedings and as to which adequate financial reserves have been established on its books and records; (ii) Liens (other than any Lien imposed by ERISA) created and maintained in the ordinary course of business which are not material in the aggregate, and which would not constitute or result in a Material Adverse Event, and which constitute (A) pledges or deposits under worker's compensation laws, unemployment insurance laws or similar legislation, (B) good faith deposits in connection with bids, tenders, contracts or leases to which a Loan Party is a party for a purpose other than borrowing money or obtaining credit, including rent security deposits, (C) Liens imposed by law, such as those of carriers, warehousemen and mechanics, if payment of the obligation secured thereby is not yet due, (D) Liens securing taxes, assessments or other governmental charges or levies not yet subject to penalties for nonpayment, and (E) pledges or deposits to secure public or statutory obligations of a Loan Party, or surety, customs or appeal bonds to which a Loan Party is a party; (iii) Liens affecting real property which constitute minor survey exceptions or defects or irregularities in title, minor encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of such real property; provided, however, that all of the foregoing, in the aggregate, do not at any time materially detract from the value of said properties or materially impair their use in the operation of the businesses of any Loan Party, as the case may be; and (iv) Liens in favor of NBD. (f) Merger; Partnerships. Merge or consolidate or amalgamate with any other person, nor acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other person, unless (i) a Loan Party (and if the Company 32 is involved, the Company) is the survivor of such merger or consolidation, and (ii) NBD provides its prior written consent thereto; nor enter into any partnership or similar arrangement with any other person, without the prior written consent of NBD. (g) Disposition of Assets; Etc. Sell, lease, license, transfer, assign or otherwise dispose of a substantial portion of the business, assets, rights, revenues or property, real, personal or mixed, tangible or intangible, of a Loan Party, whether in one or a series of transactions, without the prior written consent of NBD. (h) Restricted Payments. Make or commit to make any Restricted Payment at any time after the Effective Date, provided that so long as no Default or Event of Default exists both before and after the declaring and payment of a dividend, the other Loan Parties may pay cash dividends to the Company. (i) Nature of Business. Make any substantial change in the nature of its business from that engaged in on the Effective Date or engage in any other businesses other than manufacture, distribution and repair of plastic and metal components. (j) Transactions with Affiliates. Enter into, or permit or suffer to exist, any transaction or arrangement with any Affiliate, except, with respect to transactions with other Loan Parties, on terms which are no less favorable to such Loan Party than could be obtained from persons who are not Affiliates. (k) Inactive Affiliates. Permit any Inactive Affiliate to actively conduct business or own more assets than those owned as of June 30, 1996. ARTICLE VII. DEFAULT 7.1 Events of Default. The occurrence of any one of the following events or conditions shall be deemed an "Event of Default" hereunder unless waived by NBD pursuant to Section 8.1: (a) Nonpayment. The Borrowers shall fail to pay (i) when due (whether by mandatory prepayment or otherwise) any principal of the Note or the amount due under any L/C Document or (ii) more than five days after the due date thereof, any interest on the Note or any fees or any other Obligations payable hereunder. (b) Other NBD Debt. Any default, event of default or event of acceleration under any other agreement between any Loan Party, on one hand, and NBD or any Affiliate of NBD, on the other hand, which has not been waived in writing by NBD. (c) Misrepresentation. Any representation or warranty made by any Loan Party in Article V or in any certificate, report, financial statement other document furnished by or on 33 behalf of any Loan Party in connection with this Agreement, shall prove to have been incorrect in any material respect when made or deemed made. (d) Certain Covenants. Any term, covenant or agreement contained in Section 6.2 shall be breached. (e) Other Defaults. Any term, covenant or agreement contained in this Agreement or any other Loan Document (other than Section 6.2 or with regard to payments) shall be breached, and such breach shall remain unremedied for 10 calendar days after written notice is sent by NBD to any Loan Party. (f) Cross Default. Any Loan Party shall fail to pay any part of the principal of, the premium, if any, or the interest on, or any other payment of money due under, any of its Indebtedness (other than Indebtedness under this Agreement), beyond any period of grace provided with respect thereto, which individually or together with other such Indebtedness as to which any such failure exists has an aggregate outstanding principal amount in excess of $100,000; or any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any agreement, document or instrument evidencing or securing any Indebtedness in an aggregate outstanding principal amount in excess of $100,000, or under which any such Indebtedness was issued or created, beyond any period of grace, if any, if the effect of such failure is to cause, or permit the holders of such Indebtedness (or a trustee on behalf of such holders) to cause, any payment in respect of such Indebtedness to become due prior to its due date. (g) Judgments. One or more judgments or orders for the payment of money in an aggregate amount of $250,000 or more shall be rendered against any of the Loan Parties or any other judgment or order (whether or not for the payment of money) shall be rendered against or shall affect any Loan Party which causes or could cause a Material Adverse Event or which does or could have an adverse effect on the legality, validity or enforceability of this Agreement or any other Loan Document and either (i) such judgment or order shall have remained unsatisfied and such Loan Party shall not have taken action necessary to stay enforcement thereof by reason of pending appeal or otherwise, prior to the expiration of the applicable period of limitations for taking such action or, if such action shall have been taken, a final order denying such stay shall have been rendered, or (ii) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order; provided that no final judgment shall be included in the calculation under this subsection to the extent that the claim underlying such judgment is covered by insurance and defense of such claim has been tendered to and accepted by the insurer without reservation. (h) ERISA. The occurrence of a Reportable Event that results in or could result in liability of any Loan Party, or their respective ERISA Affiliates to the PBGC or to any Plan in excess of $50,000 and such Reportable Event is not corrected within thirty (30) days after the occurrence thereof; or the occurrence of any Reportable Event which could constitute grounds for termination of any Plan of the Company, any other Loan Party or their respective ERISA 34 Affiliates by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan and such Reportable Event is not corrected within thirty (30) days after the occurrence thereof; or the filing by the Company, any other Loan Party or any of their respective ERISA Affiliates of a notice of intent to terminate a Plan or the institution of other proceedings to terminate a Plan; or the Company, any other Loan Party or any of their respective ERISA Affiliates shall fail to pay when due any liability to the PBGC or to a Plan in excess of $50,000; or the PBGC shall have instituted proceedings to terminate, or to cause a trustee to be appointed to administer, any Plan of the Company, any other Loan Party or their respective ERISA Affiliates; or any person engages in a Prohibited Transaction with respect to any Plan which results in or could result in liability of any Loan Party, any of their respective ERISA Affiliates, any Plan of any Loan Party or their respective ERISA Affiliates or any fiduciary of any such Plan in excess of $50,000; or failure by any Loan Party or any of their respective ERISA Affiliates to make a required installment or other payment to any Plan within the meaning of Section 302(f) of ERISA or Section 412(n) of the Code that results in or could result in liability of any Loan Party or any of their respective ERISA Affiliates to the PBGC or any Plan in excess of $50,000; or the withdrawal of any Loan Party or any of their respective ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or any Loan Party or any of their respective ERISA Affiliates becomes an employer with respect to any Multiemployer Plan without the prior written consent of NBD. (i) Insolvency, Etc. Any Loan Party: shall be dissolved or liquidated (or any judgment, order or decree therefor shall be entered); or shall generally not pay its debts as they become due; or shall admit in writing its inability to pay its debts generally; or shall make a general assignment for the benefit of creditors; or shall institute, or there shall be instituted against any Loan Party, any proceeding or case seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or seeking the entry of an order for relief, or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its assets, rights, revenues or property, and, if such proceeding is instituted against any Loan Party and is being contested by such Loan Party in good faith by appropriate proceedings, such proceeding shall remain undismissed or unstayed for a period of 60 days; or shall take any action (corporate or other) to authorize or further any of the actions described above in this subsection. 35 (j) Change of Control. The Company shall cease to own 100% of each class of the outstanding voting stock of each of the other Borrowers. (k) Enforceability of Loan Documents. This Agreement or any of the other Loan Documents shall, at any time after their respective execution and delivery, and for any reason, cease to be in full force and effect or shall be declared null and void, or be revoked or terminated, or the validity or enforceability thereof or hereof shall be contested by any Loan Party, or any stockholder of any Loan Party, or any Loan Party shall deny that it has any or further liability or obligation thereunder or hereunder, as the case may be. 7.2 Remedies. (a) Termination of Commitment; Acceleration. Upon the occurrence and during the continuance of any Event of Default, NBD shall by notice to Borrowers terminate the Commitment or declare the outstanding principal of, and accrued interest on, the Note and all other Obligations to be immediately due and payable, or both, whereupon the Commitment shall terminate forthwith and all such amounts shall become immediately due and payable, or both; provided, however, that, in the case of any event or condition described in Section 7.1(i) with respect to any Borrower, the Commitment shall automatically terminate forthwith and all such amounts shall automatically become immediately due and payable without notice; in all cases without demand, presentment, protest, diligence, notice of dishonor or other formality, all of which are hereby expressly waived. (b) Other Remedies. Upon the occurrence and during the continuance of an Event of Default, Borrowers must post cash collateral with NBD in an amount equal to the aggregate outstanding face amount of the L/Cs and NBD may exercise and enforce any and all other rights and remedies available to it, whether arising under this Agreement or any other Loan Document or under applicable law, in any manner deemed appropriate by it, including suit in equity, action at law, or other appropriate proceedings, whether for the specific performance (to the extent permitted by law) of any covenant or agreement contained in this Agreement or in any other Loan Document or in aid of the exercise of any power granted in this Agreement or any other Loan Document or under applicable law. (c) Set off. Upon the occurrence and during the continuance of any Event of Default, NBD may at any time and from time to time, without notice to the Borrowers (any requirement for such notice being expressly waived by the Borrowers) set off and apply against any and all of the Obligations any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by NBD to or for the credit or the account of any Borrower and any property of any Borrower from time to time in possession of NBD, irrespective of whether or not NBD shall have made any demand hereunder and although such obligations may be contingent and unmatured. The Borrowers hereby grant to NBD a Lien on all such deposits, indebtedness and property as collateral security for the payment and performance of the Obligations. The rights of NBD under this 36 Section 7.2(c) are in addition to other rights and remedies (including other rights of setoff) which NBD may otherwise have. ARTICLE VIII. MISCELLANEOUS 8.1 Amendments. No provision of this Agreement or any other Loan Document may be modified, waived, or amended except by an instrument or instruments signed by the Company and NBD. 8.2 Notices. (a) General. Except as otherwise provided in Section 8.2(c), all notices, requests, consents and other communications hereunder shall be in writing and shall be delivered, telecopied or sent to the Borrowers or NBD at the address set forth in the introductory paragraph hereof; or to such other address as may be designated by the Borrowers or NBD by written notice to each other. All notices, requests, consents and other communications shall be deemed to have been given when received if hand delivered, if mailed by certified or registered mail, postage prepaid, on the third (3rd) day after such mailing, or if deposited with an expedited courier service such as "Federal Express" or "Purolator", on the Business Day following such deposit, or if telecopied, on the Business Day on which such telecopy is confirmed as having been received, in all cases, addressed to the respective address set forth on the first page hereof or as may otherwise be designated in accordance herewith. (b) Notices of Termination or Prepayment. Notices by the Borrowers to NBD with respect to terminations or reductions of the Commitment or the L/C Sublimit pursuant to Section 2.2, and notices of prepayment pursuant to Section 4.1 shall be irrevocable and binding on the Borrowers. (c) Telephonic Notices. Any notice to be given by the Borrowers to NBD pursuant to Section 3.1, 3.2, 3.3 or 3.4 and any notice to be given by NBD hereunder, may be given by telephone, to be confirmed in writing in the manner provided in Section 8.2(a). Any such notice given by telephone shall be deemed effective upon receipt thereof by the party to whom such notice is given. 8.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing on the part of NBD, nor any delay or failure on the part of NBD in exercising any right, power or privilege hereunder or under any other Loan Document shall operate as a waiver of such right, power or privilege or otherwise prejudice NBD's rights and remedies hereunder or under any other Loan Document; nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other right, power or privilege. No right or remedy conferred upon or reserved to NBD under this Agreement or under any other Loan Document is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to every other right or remedy granted thereunder or now or hereafter existing under any 37 applicable law. Every right and remedy granted by this Agreement or under any other Loan Document or by applicable law to NBD may be exercised from time to time and as often as may be deemed expedient by NBD and, unless contrary to the express provisions of this Agreement or the other Loan Documents, irrespective of the occurrence or continuance of any Default or Event of Default. 8.4 Reliance on and Survival of Various Provisions. All terms, covenants, agreements, representations and warranties of the Borrowers made herein or in any certificate, report, financial statement or other document furnished by or on behalf of the Borrowers in connection with this Agreement or any other Loan Document shall be deemed to be material and to have been relied upon by NBD, notwithstanding any investigation heretofore or hereafter made by NBD, and those covenants and agreements of the Borrowers set forth in Article IV and Section 8.5 shall survive the repayment in full of the Obligations and the termination of this Agreement and the Commitments. 8.5 Expenses; Indemnification. The Borrowers agree, jointly and severally, to pay, or reimburse NBD for the payment of, on demand, (a) the reasonable fees and expenses of counsel to NBD, including the fees and expenses of Honigman Miller Schwartz and Cohn in connection with the preparation, execution, delivery and administration of this Agreement and the consummation of the transactions contemplated hereby, and in connection with advising NBD as to its rights and responsibilities with respect thereto, and in connection with any amendments, waivers or consents in connection therewith, and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement, the Note and the other Loan Documents and the consummation of the transactions contemplated hereby, and any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes or fees, and (c) all reasonable costs and expenses of NBD (including reasonable fees and expenses of counsel and whether incurred through negotiations, legal proceedings or otherwise) in connection with any Default or Event of Default or the enforcement of, or the exercise or preservation of any rights under, this Agreement or any other Loan Document or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement. The Borrowers, jointly and severally, further agree to indemnify NBD for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever (including reasonable attorneys' fees) which may be imposed on, incurred by or asserted against NBD in any way relating to or arising out of its duties under this Agreement or any other Loan Documents or the transactions contemplated hereby (excluding, unless a Default or an Event of Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its duties hereunder); provided, however, that the Borrowers shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of NBD. 8.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrowers may not, without the prior consent of NBD, assign its rights or obligations 38 hereunder or under the Note and NBD shall not be obligated to make any Loan or issue any L/C hereunder to or for the account of any person other than the Borrowers. 8.7 Participation. NBD may grant participation in all or any part of its Loans, Notes and Commitment to any bank or other institutional investor (including any Affiliate of NBD), without the consent of the Borrowers. The Borrowers hereby acknowledge and agree that any participant described in this Section 8.7 shall be considered to have the same rights and remedies as NBD hereunder (including for purposes of Section 7.2(c)) and may rely on, and possess all rights under, any opinions, certificates, or other instruments or documents delivered under or in connection with this Agreement or any Loan Document. 8.8 Disclosure of Information. The Borrowers authorize NBD to disclose to any permitted participant or assignee of NBD or to any successor of NBD (each, a "Transferee") and any prospective Transferee any and all financial and other information in NBD's possession concerning the Loan Parties which has been delivered to NBD by the Loan Parties pursuant to this Agreement or the other Loan Documents or which has been received by NBD in connection with its credit evaluation of the Borrowers prior to entering into this Agreement. 8.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 8.10 Governing Law. (a) General. This Agreement is a contract made under, and shall be governed by and construed in accordance with, the laws of the State of Michigan applicable to contracts made and to be performed entirely within such State and without giving effect to choice of law principles of such State. The Company further agrees that any legal action or proceeding with respect to this Agreement or any other Loan Document or the transactions contemplated hereby may be brought in any court of the State of Michigan, or in any court of the United States of America sitting in the Eastern District of Michigan and the Borrowers hereby submit to and accept generally and unconditionally the jurisdiction of those courts with respect to their respective persons and properties. (b) Suit in Other Jurisdictions. Nothing in Section 8.10(a) shall affect the right of NBD to serve legal process in any other manner permitted by law or affect the right of NBD to bring any action or proceeding against the Borrowers or their respective property in the courts of any other jurisdictions. (c) Immunity. To the extent that such Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any service of process (whether from service or notice, or otherwise) with respect to itself or its property, such Borrower hereby irrevocably waives such immunity in respect of its obligations under this Agreement, the Note and the other Loan Documents. 39 8.11 Table of Contents and Headings. The table of contents and the headings of the various Articles, Sections and paragraphs hereof are for the convenience of reference only and shall in no way modify any of the terms or provisions hereof. 8.12 Construction of Certain Provisions. If any provision of this Agreement refers to any action to be taken by any person, or which such person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such person, whether or not expressly specified in such provision. 8.13 Integration and Severability. This Agreement and the other Loan Documents embody the entire agreement and understanding between the Borrowers and NBD with respect to the revolving credit granted by NBD to the Borrowers, and supersede all prior agreements and understandings, relating to the subject matter hereof. In case any one or more of the obligations, of any of the Borrowers under this Agreement or any other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrowers shall not in any way be affected or impaired thereby, and such invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality nor enforceability of the obligations of the Borrowers under this Agreement or any other Loan Document in any other jurisdiction. 8.14 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that it would be permitted by an exception to, or would be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default or any event or condition which with notice or lapse of time, or both, could become such a Default or an Event of Default if such action is taken or such condition exists. 8.15 Joint and Several Liability. All liabilities of the Borrowers under this Agreement and the Notes shall be joint and several. 8.16 Interest Rate Limitation. Notwithstanding any provisions of this Agreement or any other Loan Document, in no event shall the amount of interest paid or agreed to be paid by the Borrowers exceed an amount computed at the highest rate of interest permissible under applicable law. If, from any circumstances whatsoever, fulfillment of any provision of this Agreement or any other Loan Document at the time performance of such provision shall be due, shall involve exceeding the interest rate limitation validly prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to an amount computed at the highest rate of interest permissible under applicable law, and if for any reason whatsoever NBD shall ever receive as interest an amount which would be deemed unlawful under such applicable law such interest shall be automatically applied to the payment of principal of the Loans outstanding hereunder (whether or not then due and payable) and not to the payment of interest, or shall be refunded to the Borrowers if such principal and all other Obligations of the Borrowers to NBD have been paid in full. 40 8.17 Limitation of Liability. Neither NBD nor any of its Affiliates, directors, officers, agents, attorneys or employees shall be liable to the Borrowers or any of the Borrower's Affiliates for any action taken, or omitted to be taken, by it or them or any of them under this Agreement or any other Loan Document or in connection herewith or therewith, except that no person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. No claim may be made by the Borrowers or any of the Borrowers' Affiliates against NBD, or any of its Affiliates, directors, officers, agents, attorneys or employees, for any special, indirect, consequential or punitive damages in respect of any breach or wrongful conduct (whether the claim is based on contract or tort or duty imposed by law) arising out of or related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, or any act, omission or event occurring in connection herewith or therewith. The Borrowers, on their own behalf and on behalf of their Affiliates, hereby waive, release and agree not to sue upon any claim for any such damages, whether or not accrued, and whether or not known or suspected to exist in its favor. 8.18 WAIVER OF JURY TRIAL. NBD AND EACH BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER NBD NOR THE ANY OF THE BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH 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 NBD OR THE BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed this 9th day of August, 1996, to be effective as of June 30,1996. SECOM GENERAL CORPORATION By: /s/ David Marczak ---------------------- David Marczak Its: Secretary (Signatures continue on next page) 41 UNIFLOW CORPORATION By: /s/ David Marczak -------------------- David Marczak Its: Secretary-Treasurer MICANOL, INC. By: /s/ David Marczak -------------------- David Marczak Its: Secretary-Treasurer L & H DIE, INC. By: /s/ David Marczak -------------------- David Marczak Its: Secretary-Treasurer FORM FLOW, INC. By: /s/ David Marczak -------------------- David Marczak Its: Secretary-Treasurer NBD BANK By: /s/ Joseph B. Kabourek ---------------------- Joseph B. Kabourek Its: Vice President 42 EXHIBIT 2.1(b) LINE OF CREDIT NOTE Amount: $2,000,000 Dated: as of June 30, 1996 Made at Detroit, Michigan. FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay to the order of NBD BANK ("Bank"), at its offices in Detroit, Michigan or at such other place as the holder of this note may from time to time designate in writing, the principal sum of Two Million and 00/100 Dollars ($2,000,000), plus all accrued but unpaid interest on the Termination Date as may be agreed to under the Credit Agreement (defined below) as amended from time to time, together with interest on the outstanding balance thereof as provided in the Credit Agreement. Interest is payable as follows: monthly payments of accrued interest commencing on August 1, 1996, and continuing on the 1st day of each consecutive month thereafter until maturity. The indebtedness under this Note outstanding from time to time prior to maturity (whether by acceleration or otherwise) or the occurrence of an Event of Default shall bear interest on the basis of a year of 360 days for the actual number of days elapsed in each month, at the rates set forth in the Amended and Restated Revolving Credit and Loan Agreement dated as of the date hereof (as so amended, the "Credit Agreement"). Capitalized terms not otherwise defined herein shall have the meanings given them in the Credit Agreement. After maturity, or from and after an Event of Default, the outstanding principal balance under this Note shall bear additional interest from and after such maturity date or the occurrence of the Event of Default, at a rate of three (3%) percentage points per annum above the Applicable Rate until the Note is fully paid or the Event of Default is fully cured (the "Default Rate"). Principal of and interest on this Note shall be payable in lawful money of the United States of America. The undersigned agrees to pay all costs of collection and enforcement of this Note, including reasonable attorneys' fees and court costs. The indebtedness under this Note may be prepaid in whole or in part at any time. In addition to the principal payments described above, additional payments on this Note may be due and payable pursuant to the terms of the Credit Agreement. Bank is hereby authorized by Borrowers to record on its books and records, the date and amount of each Revolving Loan, the Loan Period, the applicable interest rate (including any changes therein), the amount of each payment of principal thereon and such other information as appropriate, which books and records shall constitute rebuttable presumptive evidence of the information so recorded, provided, however, that any failure by Bank to record any such information shall not relieve Borrowers of their obligation to repay the outstanding principal amount of all Revolving Loans made by Bank, all accrued interest thereon and any amount payable with respect thereto in accordance with the terms of this Note and the Credit Agreement. This Note is given pursuant to the terms and conditions of the Credit Agreement. This Note is secured by, among other collateral, the collateral granted to Lender under the terms of the Credit Agreement and the Loan Documents. The occurrence of any default under the Credit Agreement or any of the Loan Documents (as such documents may have been amended by the Credit Agreement), or any document or instrument referred to or incorporated into any of the foregoing shall be deemed a default under this Note and shall entitle the holder of this Note to accelerate the maturity of the debt evidenced by this Note and to have all rights and remedies afforded by law or available under the Credit Agreement, the Loan Documents and under all other agreements referred to or executed in connection with any of the foregoing. The undersigned, and all endorses and guarantors, hereby severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and expressly agree that the maturity of this Note, or any payment due under this Note, may be extended from time to time without in any way affecting the liability of the undersigned or such endorses or guarantors. This Note, made and executed in the State of Michigan, shall be governed and construed according to the internal laws of the State of Michigan. SECOM GENERAL CORPORATION, a Delaware corporation By: ----------------------- Name: David Marczak Its: Secretary and Chief Financial Officer 46035 Grand River Ave. Novi, Michigan 48374 UNIFLOW CORPORATION By: ----------------------- David Marczak Its: Secretary-Treasurer 26600 Heyn Drive Novi, Michigan 48450 (Signature continue on next page) 2 MICANOL, INC. By: ----------------------- David Marczak Its: Secretary-Treasurer P.O. Box 881 46001 Grand River Novi, Michigan 48376 L&H DIE, INC. By: ----------------------- David Marczak Its: Secretary-Treasurer 38200 Ecorse Road Romulus, Michigan 48174 FORM FLOW, INC. By: ----------------------- David Marczak Its: Secretary-Treasurer 6901 Cogswell Romulus, Michigan 48174 3 EXHIBIT 2.4 AMENDED AND RESTATED TERM NOTE Amount: $775,000 Dated: as of June 30, 1996 Due Date: December 6, 2000 Made at Detroit, Michigan. FOR VALUE RECEIVED, the undersigned promise to pay to the order of NBD BANK ("Bank"), at its offices in Detroit, Michigan or at such other place as the holder of this Note may from time to time designate in writing, the principal sum of Seven Hundred Seventy Five Thousand and 00/100 Dollars ($775,000), together with interest on the outstanding balance thereof at the Bank's Prime Rate, payable as follows: 53 monthly installments of principal in the amount of $5,000 plus accrued interest commencing on July 6, 1996, and continuing on the 6th day of each consecutive month thereafter followed by a balloon payment of all remaining principal and interest on December 6, 2000. As used herein, the "Prime Rate" shall be the per annum rate of interest from time to time announced by the Bank (or any successor thereto) as its prime rate, which prime rate may not be the lowest rate of interest charged by the Bank to any of its customers. Any change in the Prime Rate shall immediately effect a change in the rate of interest payable hereunder. After maturity, or from and after an Event of Default, described below, the outstanding principal balance under this Note shall bear additional interest from and after such maturity date or the occurrence of the Event of Default, at a rate of three (3%) percentage points per annum above the Prime Rate until the Note is fully paid or the Event of Default is fully cured (the "Default Rate"). The indebtedness under this Note outstanding from time to time shall bear interest on the basis of a year of 360 days for the actual number of days elapsed in each month. Principal of and interest on this Note shall be payable in lawful money of the United States of America. The undersigned agrees to pay all costs of collection and enforcement of this Note, including reasonable attorneys' fees and court costs. The indebtedness under this Note may be prepaid in whole or in part at any time. This Note is given pursuant to the terms and conditions of the Amended and Restated Revolving Credit and Loan Agreement dated as of the date hereof (as amended from time to time, the "Credit Agreement"). Capitalized terms not otherwise defined herein shall have the meanings given them in the Credit Agreement. This Note is secured by, among other collateral, the collateral granted to Lender under the terms of the Credit Agreement and the Loan Documents. The occurrence of any Event of Default under the Credit Agreement or any default under any of the Loan Documents or any document or instrument referred to or incorporated into any of the foregoing shall be deemed an Event of Default under this Note and shall entitle the holder of this Note to accelerate the maturity of the debt evidenced by this Note and to have all rights and remedies afforded by law or available under the Credit Agreement, the Loan Documents and under all other agreements referred to or executed in connection with any of the foregoing. This Amended and Restated Term Note, among other things, amends, restates and consolidates (but does not discharge) the indebtedness outstanding under that certain Amended and Restored Installment Business Loan Note dated as of December 6, 1995, in the original principal amount of $800,000, that certain Installment Business Loan Note dated December 28, 1994, in the original amount of $446,006.78, and that certain Installment Business Loan Note, dated March 23, 1993, in the original principal amount of $500,582.78. Any reference in any other document or instrument to the foregoing notes shall constitute a reference to this Amended and Restated Term Note. The undersigned, and all endorses and guarantors, hereby severally waive valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and expressly agree that the maturity of this Note, or any payment due under this Note, may be extended from time to time without in any way affecting the liability of the undersigned or such endorses or guarantors. This Note, made and executed in the State of Michigan, shall be governed and construed according to the internal laws of the State of Michigan. SECOM GENERAL CORPORATION, a Delaware corporation By: ------------------------ Name: ------------------ Title: ----------- 46035 Grand River Ave. Novi, Michigan 48374 2 EXHIBIT 3.2 Request Under Revolving Credit Agreement (Floating or LIBOR) The undersigned, Secom General Corporation, on behalf of itself and the other Borrowers, hereby certifies as set forth below pursuant to the Amended and Restated Revolving Credit and Loan Agreement, dated as of June 30, 1996, among the Borrowers and NBD Bank (such agreement, as amended, modified or supplemented from time to time, is referred to herein as the "Credit Agreement"). Reference is made to the Credit Agreement for definitions of capitalized terms not otherwise defined herein and for additional terms and conditions for Revolving Loans. Check applicable number(s) and complete request as appropriate. _______1. NEW ADVANCE. Borrowers hereby request a new Revolving Loan in the amount of $________________, with such terms as described in Section 3 below. _______2. CONVERSION OR EXTENSIONS. Borrowers hereby request that the following Revolving Loans be converted or extended with such new terms as described in Section 3 below: a. Type of Loan being converted or extended:__________________ b. Amount of such Loan: __________________ c. Due date of such Loan: __________________ 3. TERMS. Terms of new, extended or converted Loan, as applicable: a. Type of Advance:___________________________________ (specify Floating or LIBOR) b. Loan Period Requested:_____________________________________ (LIBOR - 1, 2, 3, 6 or 12 month only) c. Funding Date (same as for nor due date for conversion):__________ 4. CERTIFICATION. Borrowers certify that: (a) representations and warranties in the Credit Agreement are true in all material respects as of the date hereof (both before and after giving effect to the making of the Loan requested herein); (b) the aggregate amount of all outstanding Revolving Loans and Loans to be outstanding upon the making of the Loan requested herein together with the face amount of all outstanding L/Cs and will not exceed the Borrowing Base; and (c) no Default or Event of Default has occurred and is continuing as of the date hereof. 5. TRANSFER REQUEST. Borrowers hereby request that, any new Loan be credited to Acct. No.__________________ of______________ at NBD Bank. This Request Under Revolving Credit Agreement is executed and delivered to NBD by the undersigned authorized representative of the Borrowers on_______, 199_. SECOM GENERAL CORPORATION By: ---------------------- Its: ---------------- EXHIBIT 3.5 Request Under Revolving Credit Agreement (Negotiated Rate Loan) The undersigned, Secom General Corporation, on behalf of itself and the other Borrowers, hereby certifies as set forth below pursuant to the Amended and Restated Revolving Credit and Loan Agreement, dated as of June 30, 1996, among the Borrowers and NBD Bank (such agreement, as amended, modified or supplemented from time to time, is referred to herein as the "Credit Agreement"). Reference is made to the Credit Agreement for definitions of capitalized terms not otherwise defined herein and for additional terms and conditions for Negotiated Rate Loans. Check applicable number(s) and complete request as appropriate: _______1. RATE QUOTATION. Borrowers hereby request a quotation for a Negotiated Rate Loan in the amount of $_______,with such terms as described in Section 3 below. (This sentence to be completed and returned by NBD): NBD hereby offers to make such a Negotiated Rate Loan with such terms as described in Section 3 below and with an interest rate of___________ percent. _______Borrowers' authorized representative to initial this sentence and return this Request to NBD to request a Negotiated Rate Loan on the terms set forth in this Section 1 and in Section 3 below. If Section 2 is also completed this will be treated as a request for a conversion, otherwise it will be deemed to be a request for a new Revolving Loan. _______2. CONVERSION OR EXTENSIONS. Borrowers hereby request that the following Revolving Loan be converted or extended as a Negotiated Rate Loan with such new terms as described in Section 3 below: a. Type of Loan being converted or extended:______________________ b. Amount of such Loan: $_____________________ c. Due date of such Loan: ______________________ 3. TERMS. Terms of new, extended or converted Negotiated Rate Loan, as applicable: a. Advance Period Requested:_______________(1, 2, 3, 6 or 12 months) b. Funding Date (same as former due date for conversions):__________ 4. CERTIFICATION. Borrowers certify that: (a) representations and warranties in the Credit Agreement are true in all material respects as of the date hereof (both before and after giving effect to the making of the Loan requested herein); (b) the aggregate amount of all outstanding Revolving Loans and Loans to be outstanding upon the making of the Loan requested herein together with the face amount of all outstanding L/Cs will not exceed the Borrowing Base; and (c) no Default or Event of Default has occurred and is continuing as of the date hereof. 5. TRANSFER REQUEST. Borrowers hereby request that, any new Loan be credited to Acct. No._________________ of_____________ at NBD Bank. This Request Under Revolving Credit Agreement is executed and delivered to NBD by the undersigned authorized representative of the Borrowers on_____ , 199_. SECOM GENERAL CORPORATION By:______________________ Its:_____________________ AMENDED AND RESTATED EXHIBIT 3.6(e) CONTINUING GUARANTY NBD GUARANTY: To induce NBD Bank (the "Bank"), of 611 Woodward Avenue, Detroit, Michigan 48226-3497 at its option, to make loans, extend or continue credit or some other benefit, including letters of credit and foreign exchange contracts, present or future, direct or indirect, and whether several, joint or joint and several (referred to collectively as "Liabilities"), to_____________________________________________ , (Name of Borrower) and its successors (the "borrower"), and because the undersigned (the "Guarantor") has determined that executing this Guaranty is in its interest and to its financial benefit, the Guarantor absolutely and unconditionally guaranties to the Bank, as primary obligor and not merely a surety, that the Liabilities will be paid when due, whether by acceleration or otherwise. The Guarantor will not only pay the Liabilities, but will also reimburse the Bank for accrued and unpaid interest, and any expenses, including reasonable attorneys' fees, that the Bank may pay in collecting from the Borrower or the Guarantor, and for liquidating any collateral. LIMITATION: The Guarantor's obligation under this Guaranty is UNLIMITED. CONTINUED RELIANCE: The Bank may continue to make loans or extend credit to the Borrower based on this Guaranty until it receives written notice of termination from the Guarantor. That notice shall be effective at the opening of the Bank for business on the day after receipt of the notice. If terminated, the Guarantor will continue to be liable to the Bank for any Liabilities created, assumed or committed to at the time the termination becomes effective, and all subsequent renewals, extensions, modifications and amendments of the Liabilities. SECURITY: As security for the Guaranty, the Guarantor pledges and grants to the Bank a continuing security interest in the following described property and all of its additions, substitutions, increments, proceeds and products, whether now owned or later acquired ("Collateral"): 1. All securities and other property of the Guarantor in the custody, possession or control of the Bank (other than property held by the Bank solely in a fiduciary capacity); 2. All property or securities declared or acknowledged to constitute security for any past, present or future liability, direct or indirect of the Guarantor to the Bank; 3. All balances of deposit accounts of the Guaranty with the Bank; 4. The following additional property of the Guarantor: accounts, inventory, contract rights and other property as described in the security agreements executed in connection with the Amended and Restated Revolving Credit and Loan Agreement, dated as of June 1, 1996 among NBD, the Borrower and the Guarantor. The Bank shall have the right at any time to apply its own debt or liability to the Guarantor in whole or partial payment of this Guaranty or other present or future liabilities, direct or indirect, without any requirement for mutual maturity. If the Guarantor fails to pay any amount owing under this Guaranty, the Bank shall have all of the rights and remedies provided by law or under any other agreement to liquidize or foreclose on and sell the Collateral, including but not limited to the rights and remedies of a secured party under the Uniform Commercial Code. These rights and remedies shall be cumulative and not exclusive. If the Guarantor is entitled to notice, that requirement will be met if the Bank sends notice at least seven (7) days prior to the date of sale, disposition or other event which requires notice. The proceeds of any sale shall be applied first to costs, then toward payment of the amount owing under this Guaranty. The Bank is authorized to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other person, firms or corporation, with or without designation of the capacity of such nominee. For purpose of the following paragraphs, "any collateral" shall include the Guarantor's Collateral and any other collateral securing the Liabilities. ACTION REGARDING BORROWER: If any monies become available that the Bank can apply to the Liabilities, the Bank may apply them in any manner it chooses, including but not limited to applying them against liabilities which are not covered by this Guaranty. The Bank may take any action against the Borrower, any collateral, or any other person liable for any of the Liabilities. The Bank may release the Borrower or anyone else from the Liabilities, either in whole or in part, or release any collateral, and need not perfect a security interest in any collateral. The Bank does not have to exercise any rights that it has against the Borrower or anyone else, or make any effort to realize on any collateral or right of set-off. If the Borrower requests more credit or any other benefit, the Bank may grant it and the Bank may grant renewals, extensions, modifications and amendments of the Liabilities and otherwise deal with the Borrower or any other person as the Bank sees fit and as if this Guaranty were not in effect. The Guarantor's obligations under this Guaranty shall not be released or affected by (a) any act or omission of the Bank, (b) the voluntary or involuntary liquidation, sale or other disposition of all or substantially all of the assets of the Borrower, or any receivership, insolvency, bankruptcy, reorganization, or other similar proceedings affecting the Borrower or any of its assets or (c) any change in the composition or structure of the Borrower or Guarantor, including a merger or consolidation with any other person or entity. NATURE OF GUARANTY: This Guaranty is a guaranty of payment and not of collection. Therefore, the Bank may insist that the Guarantor pay immediately, and the Bank is not required to attempt to collect first from the Borrower, any collateral, or any other person liable for the Liabilities. The obligation of the Guarsntor shall be subject to no conditions of any kind, and shall be absolute, regardless of the unenforceability of any provisions of any agreement between the Borrower and the Bank, or the existence of any defense, setoff or counterclaim which the Borrower may assert. OTHER GUARANTORS: If there is more than one Guarantor, the obligations under this Guaranty shall be joint and several. In addition each Guarantor shall be jointly and severally liable with any other guarantor of the Liabilities. If the Bank elects to enforce its rights against less than all guarantors of the Liabilities, that election shall not release Guarantor from its obligations under this Guaranty. The compromise or release of any of the obligations of any of the other guarantors or the Borrower shall not serve to waive, alter or release the Guarantor's obligations. This Guaranty is not conditioned on anyone else executing this or any other guaranty. WAIVER OF SUBROGATION: The Guarantor expressly waives any and all rights of subrogation, contribution, reimbursement, indemnity, exoneration, implied contract, recourse to security or any other claim (including any claim, as that term is defined in the federal Bankruptcy Code, and any amendments) which the Guarantor may now have or later acquire against the Borrower, any other entity directly or contingently liable for the Liabilities or against the Collateral, arising from the existence or performance of the Guarantor's obligations under this Guaranty. The Guarantor further agrees that should any payments to the Bank on the Liabilities be in whole or in part, invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy act or code, state or federal law, common law or equitable doctrine, this Guaranty and any Collateral shall remain in full force and effect (or be reinstated as the case may be) until payment in full of any such amounts, which payment shall be due on demand. WAIVERS: The Guarantor waives any right it may have to receive notice of the following matters before the Bank enforces any of its rights: (a) the Bank's acceptance of this Guaranty, (b) any credit that the Bank extends to the Borrower, (c) the Borrower's default, (d) any demand, or (e) any action that the Bank takes regarding the Borrower, anyone else, any collateral, or any Liability, which it might be entitled to by law or under any other agreement. Any waiver shall affect only the specific terms and time period stated in the waiver. The Bank may waive or delay enforcing any of its rights without losing them. No modification or waiver of this Guaranty shall be effective unless it is in writing and signed by the party against whom it is being enforced. SETOFF: The Bank may at any time and from time to time, without notice to Guarantor (any requirement for such notice being expressly waived by the Guarantor) setoff and apply against any and all Liabilities any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of any Guarantor and any property of any Guarantor from time to time in possession of the Bank, irrespective of whether or not the Bank shall have made any demand hereunder and although such obligations may be contingent and unmatured. The Guarantor hereby grants to the Bank a lien on all such deposits, indebtedness and property as collateral security for the payment and performance of the Liabilities. The rights of the Bank under this provision are in addition to other rights and remedies which the Bank may otherwise have. REPRESENTATIONS BY GUARANTOR: The Guarantor represents that it is a corporation duly organized, existing and in good standing under the laws of its state in incorporation, and that the execution and delivery of this Guaranty and the performance of the obligations it imposes are within its corporate powers, have been duly authorized by all necessary action of its board of directors, and do not contravene the terms of its articles of incorporation or by-laws. Each Guarantor represents that the execution and delivery of this Guaranty and the performance of the obligations it imposes do not violate any law, do not conflict with any agreement by which it is bound, do not require the consent or approval of any governmental authority or any third party, and that this Guaranty is a valid and binding agreement, enforceable according to its terms. Each Guarantor further represents that all balance sheets, profit and loss statements, and other information, if any, furnished to the Bank are accurate and fairly reflect the financial condition of the organizations and persons to which they apply on their effect dates, including contingent liabilities of every type, which financial condition has not changed material and adversely since those dates. NOTICES: Notice from one party to another relating to this Guaranty shall be deemed effective if made in writing (including telecommunications) and delivered to the recipient's address, telex number or telecopier number set forth under its name by any of the following means: (a) hand delivery, (b) registered or certified mail, postage prepaid, with return receipt requested, (c) first class or express mail, postage prepaid, (d) Federal Express, Purolator Courier or like overnight courier service or (e) telecopy, telex or other wire transmission with request for assurance of receipt in a manner typical with respect to communications of that type. Notice made in accordance with this section shall be deemed delivered on receipt if delivered by hand or wire transmission, on the third business day after mailing if mailed by first class, registered or certified mail, or on the next business day after mailing or deposit with an overnight courier service if delivered by express mail or overnight courier. Notwithstanding the foregoing, notice of termination of this Guaranty shall be deemed received only upon the receipt of actual written notice by the Bank in accordance with the paragraph above labeled "Continued Reliance." LAW AND JUDICIAL FORUM THAT APPLY: This agreement is governed by Michigan law. The Guarantor agrees that any legal action or proceeding against it with respect to any of its obligations under this Guaranty may be brought in any state or federal court located in the State of Michigan, as the Bank in its sole discretion may elect. By the execution and delivery of this Guaranty, the Guarantor submits to and accepts, with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the jurisdiction of those courts. The Guarantor waives any claim that the State of Michigan is not a convenient forum or the proper venue for any such suit, action or proceeding. 2 MISCELLANEOUS: The Guarantor's liability under this Guaranty is independent of its liability under any other guaranty previously or subsequently executed by the Guarantor or any one of them, singularly or together with others, as to all or any part of the Liability, and may be enforced for the full amount of this Guaranty regardless of the Guarantor's liability under any other guaranty. This Guaranty is binding on Guarantor's heirs, successors and assigns, and will operate to the benefit of the Bank and its successors and assigns. The use of headings shall not limit the provisions of this Guaranty. All discussions and documents arising between this Guaranty and the last guaranty signed by the Guarantor as to the Borrower are merged into this Guaranty. WAIVER OF JURY TRIAL: The Bank and the Guarantor, 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 Guaranty or any related instrument or agreement, or any of the transactions contemplated by this Guaranty, or any course of conduct, dealing, statement (whether oral or written), or actions of either of them. Neither the Bank nor the Guarantor 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 Bank or the Guarantor except by a written instrument executed by both of them. Dated:_________________________1996 GUARANTOR: Address: _________________________________ ___________________________________ _________________________________ ___________________________________ _________________________________ 3 EXHIBIT 3.6(f) AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT ("Agreement"), dated as of June 30, 1996, is made by__________________ , a________________ corporation ("Debtor"), in favor of NBD Bank, a Michigan banking corporation ("NBD"). Recitals: A. Secom General Corporation, Uniflow Corporation, Micanol, Inc., L&H Die, Inc., and Form Flow, Inc. (collectively, the "Borrowers") have obtained various term loans and revolving loans from NBD. B. The Borrowers have requested that NBD amend and consolidate the existing credit facilities pursuant to an Amended and Restated Revolving Credit and Loan Agreement dated as of June 30, 1996 (such agreement, as amended, modified, restated, replaced or supplemented from time to time, is referred to herein as the "Loan Agreement"). C. Debtor has granted NBD a security interest in its assets pursuant to various Continuing Security Agreements and this Agreement amends and restates that grant of security and continues, but does not replace, such prior security interests only in the collateral specified herein. D. It is a condition to the obligations of NBD in the Loan Agreement that Debtor shall enter into this Agreement. THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor hereby agrees with NBD as follows: 1. Defined Terms. In addition to those terms defined elsewhere in this Agreement, terms defined in the Loan Agreement shall have their defined meanings when used herein (unless otherwise defined herein) and the following terms shall have the following meanings, unless the context otherwise requires: "Accounts" shall mean any "account" or "chattel paper", as such terms are defined in Sections 9-106 and 9-105, respectively, of the Code, now or hereafter owned by Debtor, and shall also mean and include (i) all accounts receivable, contract rights, book debts, notes, drafts, instruments, documents, acceptances, payments under leases and other forms of obligations, now owned or hereafter received or acquired by or belonging or owing to Debtor whether arising out of goods sold or leased or services rendered by it or from any other transaction, whether or not the same involves the sale of goods or services by Debtor (including,without limitation, any such obligation which might be characterized as an account, contract right, general intangible or chattel paper under the Uniform Commercial Code in effect in any jurisdiction); (ii) all of Debtor's rights in, to and under all purchase orders now owned or hereafter received or acquired by it for goods or services, and all of Debtor's rights to any goods represented by any of the foregoing (including returned or repossessed goods and unpaid sellers' rights of rescission, replevin, reclamation and stopping in transit); (iii) all monies due to or to become due to Debtor under all contracts for the sale or lease of goods or the performance of services by it (whether or not yet earned by performance on the part of Debtor) now in existence or hereafter arising, including, without limitation, the right to receive the proceeds of such purchase orders and contracts and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing; and (iv) all monies due or to become due to Debtor as a result of the repayment of any loans or extensions of credit by it, or the realization upon any security granted to Debtor with respect to such loans or extensions of credit. "Code" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of Michigan. "Collateral" shall have the meaning provided in Section 3. "Collected Proceeds" shall have the meaning provided in Section 13. "Contract Rights" shall mean all rights of Debtor (including, without limitation, all rights to payment) under each Contract. "Contracts" shall mean, collectively, all contracts, instruments, undertakings, documents or other agreements in or under which Debtor may now or hereafter have any right, title or interest and which pertain to the manufacture, lease, sale or other disposition by Debtor of any Inventory, or the providing of services, as any of the same may from time to time be amended, supplemented or otherwise modified. "Inventory" shall mean any "inventory", as such term is defined in Section 9-109(4) of the Code, wherever located, now owned or hereafter acquired by Debtor or in which Debtor now has or hereafter may acquire any right, title or interest including, without limitation, all goods and other personal property now or hereafter owned by Debtor which are leased or are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Debtor's business, or in the processing, packaging or shipping of the same, and all finished goods. "Lien Termination Date" shall have the meaning provided in Section 20. "Proceeds" shall have the meaning provided it under the Code and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, 2 warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Requirement of Law" shall mean, as to any person, the charter and By-Laws or other organizational or governing documents of such person, and any material law, treaty, rule or regulation or determination of arbitration or a court or other governmental authority, in each case applicable to or binding upon such person or any of its property or to which such person or any of its property is subject. 2. Benefit of Agreement. This Agreement is for the benefit of NBD to secure the payment of the Obligations (as defined in the Loan Agreement), and to secure the performance of the Debtor and the other Loan Parties of their respective obligations to NBD under any guaranty, promissory note or other agreement, whether now existing or arising in the future (the "Other Obligations"). 3. Grant of Security Interest. (a) General. As collateral security for the prompt and complete payment and performance of Debtor's obligations to NBD, whether under the Loan Agreement or other agreement or promissory note, whether now existing or arising in the future, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, and the Other Obligations and in order to induce NBD to enter into the Loan Agreement, Debtor hereby grants in favor of NBD, a continuing security interest (the "Security Interest") in all of the following property now owned, or at any time hereafter acquired, by Debtor or in which Debtor now has or at any time in the future may acquire any right, title or interest (all of which is hereinafter collectively referred to as the "Collateral"): (i) all existing and future Contracts (including, without limitation, instruments and documents); (ii) all existing and future Accounts, Contract Rights (including, without limitation, (a) all money due and to become due under any Contract, (b) any damages arising out of or for breach or default in respect of any Contract or Account, (c) all other amounts from time to time paid or payable under or in connection with any Contract or Account, and (d) the right of Debtor to terminate any Contract or to perform or exercise all remedies thereunder); (iii) all existing and future Inventory; and 3 (iv) to the extent not otherwise included, all Proceeds and products of any or all of the foregoing. (b) Business Records. In addition to the grant of the Security Interest under Section 3(a), Debtor hereby grants for the benefit of NBD, a lease and first Security Interest in all of Debtor's books and records pertaining to the Collateral, including without limitation, all books of accounts, ledgers, computer software, computer printouts and other computerized records in which there are reflected or maintained the Collateral in which NBD has a Security Interest, or which relate to any other Collateral NBD may hold from Debtor and all supporting evidence and documents relating to such security in the form of written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like. For convenience, these books, records and documents are called "Business Records". The Business Records, presently included in this Agreement, are described as follows: accounts receivable subsidiary ledger (including unpaid invoice file), cash receipts journal, cash disbursements journal and filing cabinets containing customer orders, correspondence, paid invoice files and any other books and records, filing cabinets, or places of storage of data and information, including all computer storage facilities, records and software usually located at Debtor's places of business identified on Schedule I or elsewhere. 4. Rights of NBD: Limitations on NBD's Obligations. It is expressly agreed to by Debtor that, anything herein to the contrary notwithstanding, nothing in this Agreement shall reduce Debtor's liability under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to such Account and in accordance with the terms and provisions of each such Contract. NBD shall not have any obligation or liability under any Account (or agreement giving rise thereto) or under any Contract by reason of or arising out of this Agreement or the receipt by NBD of any payment relating to any Account or Contract pursuant hereto, nor shall NBD be required or obligated in any manner to perform or fulfill any of the obligations of Debtor under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 5. Representations and Warranties. Debtor hereby represents and warrants that: (a) Title; No Other Security Interests. Except for the Security Interest granted hereunder for the benefit of NBD and Permitted Liens under the Loan Agreement, Debtor owns each item of the Collateral free and clear of any and all security interests or claims of others. 4 (b) Addresses. The Debtor's principal place of business and the place where its records concerning the Accounts and other Collateral are kept and the other addressees) of Debtor's business, if any, are set forth on Schedule I hereto. The states in which Collateral is located, and Debtor's principal place of business in each state, shall not be changed without prior written notice to NBD, but the Collateral, wherever located, is covered by this Agreement. Debtor shall immediately advise NBD in writing of any change in its name, address or form of organization. (c) Trade Names. Any and all trade names under which Debtor transacts any part of its business, and all former names of Debtor, are those which have been previously disclosed to NBD, as set forth on Schedule I hereto. (d) Accuracy of Information. All information, certificates or statements given to NBD pursuant to this Agreement shall be true and complete in all material respects, when given. 6. Covenants. Debtor covenants and agrees with NBD that, unless otherwise consented to by NBD in writing, from and after the date of this Agreement until the Obligations and Other Obligations are fully satisfied: (a) Further Documentation. Pledge of Instruments. At any time and from time to time, upon the written request of NBD, and at the sole expense of Debtor, Debtor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as NBD may reasonably request for the purpose of obtaining the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Security Interests granted hereby. A carbon, photographic or other reproduction of this agreement shall be sufficient as a financing statement for filing in any jurisdiction. (b) Maintenance of Records. If requested by NBD, Debtor will mark the Business Records pertaining to the Collateral to evidence this Agreement and the Security Interests granted hereby. (c) Indemnification. Debtor agrees to pay, and to hold NBD harmless from, any and all liabilities, costs and expenses (including, without limitation, reasonable legal fees and expenses) (i) with respect to, or resulting from, any delay in paying any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any Requirement of Law applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Agreement. (d) Payment of Obligations. Debtor will pay promptly when due, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge 5 need be paid if and to the extent not required to be paid pursuant to Section 6.1(b) or other provision of the Loan Agreement. (e) Limitation on Security Interests on Collateral. Debtor will not create, incur or permit to exist, and will defend the Collateral against, and will take such other action as is necessary to remove, any Security Interest or claim on or to the Collateral other than the Security Interests created hereby, and other than Permitted Liens pursuant to the Loan Agreement, and will defend the right, title and interest of NBD in and to any of the Collateral against the claims and demands of all persons whomsoever. Debtor will not sell or otherwise dispose of any type or item of Collateral except as expressly permitted by this Agreement or as otherwise not prohibited by the Loan Agreement. (f) Limitations on Modifications of Contracts, Accounts; No Waivers, Extensions. Debtor will not, other than in the ordinary course of business, (i) amend, modify, terminate or waive any provision of any Contract or any agreement giving rise to an Account in any manner which would reasonably be expected to materially adversely affect the value of such Contract or Account as Collateral, or (ii) fail to exercise promptly and diligently each and every right which it may have under each Contract and each agreement giving rise to an Account (other than any right of termination) in any manner which would reasonably be expected to materially adversely affect the value of such Contract. (g) Limitations on Discounts, Compromises, Extension of Accounts. Other than in the ordinary course of business, Debtor will not grant any extension of the time of payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partially, any person liable for the payment thereof or allow any credit or discount whatsoever thereon. (h) Maintenance of Property and Insurance. Debtor will maintain, preserve and protect all property that is material to the conduct of its business and keep such property in good repair, working order and condition and from time to time make, or cause to be made all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times in accordance with customary and prudent business practices for similar businesses; and maintain in full force and effect insurance with responsible and reputable insurance companies or associations in such amounts, on such terms and covering such risks, including fire and other risks insured against by extended coverage, as is usually carried by companies engaged in similar businesses and owning similar properties similarly situated and maintain in full force and effect public liability insurance, business interruption insurance, insurance against claims for personal injury or death or property damage occurring in connection with any of its activities or any of any properties owned, occupied or controlled by it, in such amounts as it shall reasonably deem necessary, and maintain such other insurance as may be required by Governmental Regulations or as may be reasonably requested by NBD. NBD shall be listed as a loss payee and additional insured with respect to the Collateral and providing 30 days notice to NBD prior to termination or cancellation, all in form and substance 6 reasonably satisfactory to NBD. Upon request, the Debtor shall deliver to NBD copies of all or any of such insurance policies or the related certificates of insurance. (i) Right of Inspection. NBD shall have access to the books, correspondence and records of Debtor during normal business hours. NBD and its representatives shall at all times also have the right to enter into and upon any premises where any of the records of Accounts or Inventory is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. NBD will take reasonable steps to maintain the confidentiality of information obtained by it, except as required by law. 7. Sale and Collections. (a) Sale of Inventory. So long as no Event of Default has occurred and is continuing and NBD has not given written notice to Debtor restricting such sales, Debtor may sell or otherwise dispose of Inventory in the ordinary course of Debtor's business. (b) Verification and Notification. If an Event of Default has occurred and is continuing, NBD may verify Collateral in any reasonable manner and Debtor shall assist NBD in so doing. Anything contained herein to the contrary notwithstanding, NBD may at any time during the continuance of an Event of Default, and Debtor shall, thereafter, upon request of NBD, notify the account debtors on any Accounts to make payment directly to NBD, and NBD may enforce collection of, settle, compromise, extend or renew the indebtedness of, such account debtors. NBD may also, at any time during the continuance of an Event of Default, notwithstanding any other provision of this Agreement, notify the bailer of any Inventory of its Security Interest therein. (c) Deposit With NBD. During the continuance of an Event of Default, NBD shall have the right, at any time, to notify and direct any person obligated to the Debtor (an "Account Debtor") to make all payments whatever to NBD and NBD shall have the right, at any time, to hold all amounts acquired from any Account Debtor and any proceeds as part of the Collateral. Also during the continuance of an Event of Default, any payment received by the Debtor shall be held by the Debtor in trust for NBD in the same medium in which received, shall not be commingled with any assets of the Debtor and shall, at the request of NBD, be turned over to NBD not later than the next business day following the day of their receipt. (d) License. NBD is hereby granted an irrevocable royalty-free license and right to use, without charge, Debtor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Debtor's rights under all licenses and all franchise agreements shall inure to NBD's benefit, all of which may be exercised during an Event of Default. 7 8. NBD's Appointment as Attorney-in-Fact. (a) General Appointment. During the continuance of an Event of Default, Debtor hereby irrevocably constitutes and appoints NBD, with power of substitution to appoint any person to act on its behalf where such appointment is required by applicable law, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in its own name, from time to time in NBD's discretion, for the purpose of carrying out the terms of this Agreement, on behalf of Debtor, to do the following: (i) to ask, demand, collect, receive and give acquittance and receipts for any and all monies due and to become due under any Contract or Account and, in the name of Debtor or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of monies due under any Contract or Account and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by NBD for the purpose of collecting any and all such monies due under any Contract or Account whenever payable; (ii) to pay or discharge taxes, Security Interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; and (iii) (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to NBD or as NBD shall direct; (B) to receive payment of and give receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as NBD may deem appropriate; and (G) to do, at NBD's option and Debtor's expense, at any time, or from time to time, all acts and things which NBD deems necessary or desirable to protect, preserve or realize upon the Collateral and NBD's Security Interest therein, in order to effect the intent of this Agreement, all as fully and effectively as Debtor might do. This power of attorney is a power coupled with an interest and shall be irrevocable until the Lien Termination Date. 8 (b) irrevocability The powers conferred on NBD hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon it to exercise any such powers. NBD shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to Debtor for any act or failure to act, except for its own gross negligence or willful misconduct. 9. Performance by NBD of Debtor's Obligations. If Debtor fails to perform or comply with any of its agreements contained herein or in the Loan Agreement and NBD, at its sole option, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of NBD incurred in connection with such performance or compliance shall be payable by Debtor to NBD on demand and shall constitute Obligations secured hereby. 10. Proceeds as Collateral. During the continuance of an Event of Default, any and all such Proceeds received by NBD (whether from Debtor or otherwise) may, in the sole discretion of NBD, be held by NBD as collateral security for, or then or at any time thereafter applied in whole or in part by NBD, against all or any part of the Obligations in the manner provided in Section 13. Any balance of such payments held by NBD and remaining after payment in full of all the obligations secured hereby shall be paid over to Debtor in the manner provided in Section 20. 11. Events of Default. The occurrence of (a) an Event of Default under the Loan Agreement or (b) an event of default or event of acceleration under any other agreement between Debtor and NBD or any Loan Party and NBD, shall be deemed an Event of Default hereunder. 12. Remedies. (a) General. If an Event of Default shall occur and be continuing, NBD may exercise in addition to all other rights and remedies granted to it in this Agreement, the Loan Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations or the Other Obligations, all rights and remedies of a secured party under the Code or other applicable law. Without limiting the generality of the foregoing, Debtor expressly agrees that in any such event NBD may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, or otherwise dispose of and deliver such Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange or broker's board or at any of NBD's offices or elsewhere at such prices as it may deem best for cash or on credit or for future delivery without assumption of any credit risk. NBD shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of such Collateral so sold, free of any right or equity of redemption in Debtor which right or equity is hereby waived or released. Debtor further agrees that if an Event of Default shall occur and be continuing, it will, at NBD's request, assemble the Collateral and make it available to NBD at places which NBD shall reasonably select, whether at Debtor's premises or elsewhere, at Debtor's sole cost and expense. NBD shall keep the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale for application to the payment in whole or in part of the Obligations and/or Other Obligations, as the case may be, in the manner provided in Section 13, and only after 9 payment by NBD of any other amount required by any provision of law, including Section 9-504(1)(c) of the Code, will NBD be required to account for the surplus, if any, to Debtor. The Debtor agrees that NBD need not give more than ten days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Debtor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which NBD is entitled, Debtor also being liable for the fees of any attorneys employed by NBD to collect such deficiency. (b) Costs. Debtor also agrees to pay all costs of NBD, including, without limitation, reasonable attorneys' fees and legal expenses, incurred with respect to the collection of any of the Obligations and/or Other Obligations and the enforcement and administration by NBD of this Agreement and any of its respective rights hereunder. 13. Application of Proceeds. (a) Payment of Expenses. All monies collected by NBD upon any sale or other disposition of the Collateral, together with all other monies received by NBD hereunder (the "Collected Proceeds"), shall be applied by NBD as required below. (b) Payment of Obligations. Prior to the Lien Termination Date, the Collected Proceeds shall be applied to satisfy the obligations secured hereby in such order as NBD shall deem appropriate, in its sole discretion. (c) Payment to Debtor. At the Lien Termination Date, any Collected Proceeds of the Collateral not otherwise applied pursuant to this Section 13, shall in each case be paid over (at NBD's discretion) to a court for distribution to any claimants of the Collected Proceeds or to Debtor pursuant to the terms of Section 20, except as otherwise required by law. 14. Limitation on Collateral NBD's Duty in Respect of Collateral. NBD's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as NBD deals with similar property for its own account. Neither NBD, nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Debtor or otherwise. 15. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 16. 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. 10 17. Section Headings, etc. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. All references to Sections, Schedules and Exhibits are to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. 18. No Waiver; Cumulative Remedies. NBD shall not by any act (except a written instrument pursuant to Section 19 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of the terms and conditions hereof. A waiver by NBD of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which NBD would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of NBD 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 future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by the Loan Agreement, any other Loan Documents or applicable law. 19. Waivers and Amendments; Successors and Assigns; Governing Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by a written instrument, duly executed by Debtor and NBD. This Agreement and all obligations of Debtor hereunder shall be binding upon the successors and assigns of Debtor, and shall, together with the rights and remedies of NBD hereunder, inure to the benefit of NBD and its respective successors and assigns, provided that Debtor may not assign or transfer any of its rights or obligations hereunder without the prior written consent of NBD. This Agreement shall be governed by, and be construed and interpreted in accordance with, the internal laws (and not the laws of conflict) of the State of Michigan. 20. Termination; Release. Upon the full and complete satisfaction of all obligations secured hereby, including without limitation the Other Obligations, this Agreement shall terminate, and NBD, at the request and expense of Debtor, shall promptly execute and deliver to Debtor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of NBD and which has not theretofore been sold or otherwise applied or released pursuant to this Agreement, together with any monies at the time held by NBD hereunder (the "Lien Termination Date"). 21. Notices. Etc. Any demand, notice or communication to be made or given hereunder shall be in writing, except as otherwise expressly permitted or required under this Agreement, and may be made or given by personal delivery, by courier service by registered or certified mail or by transmittal by telex or telecopy machine addressed to the respective parties as follows: 11 To Debtor: ________________________________ ________________________________ ________________________________ ________________________________ Attention:______________________ Phone:__________________________ Fax:____________________________ To NBD: NBD Bank 35011 Michigan Avenue Wayne, Michigan 48184 Attention: Joseph B. Kabourek Phone: (313) 326-3739 Fax: (313) 326-3746 or to such other mailing or telex or facsimile machine address as any party may from time to time notify the others in accordance with this Section 21. All notices, requests, consents and other communications shall be deemed to have been given when received if hand delivered, if mailed by certified or registered mail, postage prepaid, upon receipt of such mailing, or if deposited with an expedited courier service such as Federal Express" or "Purolator", upon receipt which will be presumed to be on the Business Day (as defined in the Loan Agreement) following such deposit, or if telecopied, on the Business Day on which such telecopy is confirmed as having been received, in all cases, addressed to the respective address set forth on the signature page attached hereto, or as may otherwise be designated in accordance herewith. 22. Loan Agreement Controls. In the event of an express conflict between the terms of this Agreement and the terms of the Loan Agreement, the terms of the Loan Agreement shall govern and control. 23. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 24. Prior Security Agreements. All prior security agreements given to NBD relating to Debtor's personal property are hereby amended and restated by this Agreement and NBD's security interests in any assets of Debtor granted by prior security agreements but not included in the definition of Collateral hereunder are acknowledged to be terminated. 25. Waiver of Jury Trial. THE PARTIES HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT MAY BE WAIVED. NBD AND DEBTOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES 12 ARISING OUT OF OR IN RELATION TO THIS AGREEMENT OR ANY OTHER AGREEMENTS BETWEEN THE PARTIES. NO PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A WRITTEN INSTRUMENT SIGNED BY THE PARTY TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED. IN WITNESS WHEREOF, Debtor and NBD have caused this Agreement to be executed by their duly authorized officers on the date first set forth above. NBD BANK, a Michigan banking corporation By: /s/ Joseph B. Kabourek ---------------------------- Joseph B. Kabourek Its: Vice President _______________________________ a____________corporation By:____________________________ Its:______________________ 13 EX-10.3 4 Exhibit 10.3 [ KeyCorp Leasing Ltd. Letterhead ] MASTER EQUIPMENT LEASE AGREEMENT THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of May 24, 1996 is made by and between KEYCORP LEASING LTD., a Delaware corporation with its principal place of business at 54 State Street, Albany, New York 12207 (Lessor"), and SECOM GENERAL CORPORATION, a Delaware corporation with its principal place of business at 46035 Grand River Avenue, Novi, MI 48374, UNIFLOW CORPORATION, a Michigan corporation with its principal place of business at 26600 Heyn Drive, Novi, MI 48374, FORM FLOW, INC., a Michigan corporation with its principal place of business at 6901 Cogswell, Romulus, MI 48174, L & H DIE, INC., a Michigan corporation with its principal place of business at 38200 Ecorse Road, Romulus, MI 48174 and MICANOL, INC., a Michigan corporation with its principal place of business at 46001 Grand River Avenue, Novi MI 48374 (collectively, the "Lessee"). TERMS AND CONDITIONS OF LEASE 1. Lease. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Equipment, subject to and upon the terms and conditions set forth herein. Each Equipment Schedule shall constitute a separate and enforceable lease incorporating all the terms and conditions of this Master Equipment Lease Agreement as if such terms and conditions were set forth in full in such Equipment Schedule. In the event that any term or condition of any Equipment Schedule conflicts with or is inconsistent with any term or condition of this Master Equipment Lease Agreement, the terms and conditions of the Equipment Schedule shall govern. 2. Disclaimer of Warranties. LESSOR MAKES NO (AND SHALL NOT BE DEEMED TO HAVE MADE ANY) WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE STATE OF TITLE THERETO OR ANY COMPONENT THERETO, THE ABSENCE OF LATENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE}, AND LESSOR HEREBY DISCLAIMS THE SAME; IT BEING UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS, IF ANY, ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR. LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE), INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION, DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP, MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12 AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance shall be conclusive evidence as between Lessor and Lessee that the Items of Equipment described therein are in all of the foregoing respects satisfactory to Lessee, and Lessee shall not assert any claim of any nature whatsoever against Lessor based on any of the foregoing matters; provided, however, that nothing contained herein shall in any way bar, reduce or defeat any claim that Lessee may have against the Supplier or any other person (other than Lessor). 3. Non-Cancelable Lease. THIS LEASE IS A NET LEASE AND LESSEE'S OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN, DESTRUCTION OF, DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER FORESEEN OR UNFORESEEN. 4. Definitions. Unless the context otherwise requires, as used in this Lease, the following terms shall have the respective meanings indicated below and shall be equally applicable to both the singular and the plural forms thereof: (a) "Applicable Law" shall mean all applicable Federal, state, local and foreign laws (including, without limitation, any Environmental Law, industrial hygiene and occupational safety or similar laws), ordinances, judgments, decrees, injunctions, writs and orders of any Governmental Authority and rules, regulations, orders, licenses and permits of any Governmental Authority. (b) "Appraisal Procedure" shall mean the following procedure for obtaining an appraisal of the Fair Market Sales Value or the Fair Market Rental Value. Lessor shall provide Lessee with the names of three independent Appraisers, two of which shall be Norm Levy & Associates of Southfield, Michigan, and Williams & Lipton Associates, of Birmingham, Michigan. Within ten (10) business days thereafter, Lessee shall select one of such Appraisers to perform the appraisal. The selected Appraiser shall be instructed to perform its appraisal based upon the assumptions specified in the definition of Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall complete its appraisal within twenty (20) business days after such selection. Any such appraisal shall be final, binding and conclusive on Lessee and Lessor and shall have the legal effect of an arbitration award. Lessee shall pay the fees and expenses of the selected Appraiser. (c) "Appraiser" shall mean a person engaged in the business of appraising property who has at least ten years' experience in appraising property similar to the Equipment. (d) "Authorized Signer" shall mean those officers of Lessee, set forth on an incumbency certificate (in form and substance satisfactory to Lessor) delivered by Lessee to Lessor, who are authorized and empowered to execute this Lease, the Equipment Schedules and all other documents the execution of which is contemplated hereby. (e) "Certificate of Acceptance" shall mean a certificate of acceptance, in form and substance satisfactory to Lessor, executed and delivered by Lessee in accordance with Section 7 hereof indicating, among other things, that the Equipment described therein has been accepted by Lessee for all purposes of this Lease. (f) "Default" shall mean any event or condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default. (g) "Environmental Law" shall mean any federal, state, or local statute, law, ordinance, code, rule, regulation, or order or decree regulating, relating to or imposing liability upon a person in connection with the use, release or disposal of any hazardous, toxic or dangerous substance, waste, or material as same may relate to the Equipment or its operation. (h) "Equipment" shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to this Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto. (i) "Equipment Group" shall consist of all Items of Equipment listed on a particular Equipment Schedule. (j) "Equipment Location" shall mean the location of the Equipment, as set forth on an Equipment Schedule, or such other location (approved by Lessor) as Lessee shall from time to time specify in writing. Lessor approved Equipment Locations shall include Lessee's current operating facilities listed on Exhibit A attached hereto. (k) "Equipment Schedule" shall mean each equipment lease schedule from time to time executed by Lessor and Lessee with respect to an Equipment Group, pursuant to and incorporating by reference all of the terms and conditions of this Master Equipment Lease Agreement. (l) "Event of Default" shall have the meaning specified in Section 22 hereof. (m) "Fair Market Rental Value" or "Fair Market Sale Value" shall mean the value of each Item of Equipment for lease or sale, unless otherwise specified herein as determined between Lessor and Lessee, or, if Lessor and Lessee are unable to agree, pursuant to the Appraisal Procedure, which would be obtained in an arms-length transaction between an informed and willing lessor or seller (under no compulsion to lease or sell) and an informed and willing lessee or buyer (under no compulsion to lease or purchase). In determining the Fair Market Rental Value or Fair Market Sale Value of the Equipment, (a) such Fair Market Rental Value or Fair Market Sale Value shall be calculated on the assumption that the Equipment is in the condition and repair required by Sections 12 and 13 hereof, and (b) there shall be excluded from the calculation thereof the value of any upgrades and attachments made pursuant to Section 14 hereof in which the Lessor does not own an interest; provided, however, that, unless otherwise provided in such Section 22, for purposes of Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be determined based upon the actual facts and circumstances then prevailing without regard to the assumptions in clause (a) above. (n) "Governmental Action" shall mean all authorizations, consents, approvals, waivers, filings and declarations of any Governmental Authority, including, without limitation, those environmental and operating permits required for the ownership, lease, use and operation of the Equipment. 2 (o) "Governmental Authority" shall mean any foreign, Federal, state, county, municipal or other governmental authority, agency, board or court. (p) "Guarantor" shall mean any guarantor of Lessee's obligations hereunder. (q) "Item of Equipment" shall mean each item of the Equipment. (r) "Late Payment Rate" shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law. (s) "Lease", "hereof', "herein" and "hereunder" shall mean, with respect to an Equipment Group, this Master Equipment Lease Agreement and the Equipment Schedule on which such Equipment Group is described. including all addenda attached thereto and made a part thereof. (t) "Lien" shall mean all mortgages, pledges, security interests, liens, encumbrances, claims or other charges of any kind whatsoever. (u) "Purchase Agreement" shall mean any purchase agreement or other contract entered into between the Supplier and Lessee for the acquisition of the Equipment to be leased hereunder. (v) "Related Equipment Schedule" shall have the meaning set forth in Section 27 hereof. (w) "Renewal Notice" shall have the meaning set forth in Section 32 hereof. (x) "Return Notice" shall have the meaning set forth in Section 13 hereof. (y) "Rent" shall mean the periodic rental payments due hereunder for the leasing of the Equipment, as set forth on the Equipment Schedules, and, where the context hereof requires, all such additional amounts as may from time to time be payable under any provision of this Lease. (z) "Rent Commencement Date" shall mean, with respect to an Equipment Group, the date on which Lessor disburses funds for the purchase of such Equipment Group, as determined by Lessor in its sole discretion. (aa) "Rent Payment Date" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ab) "Stipulated Loss Value" shall mean, as of any Rent Payment Date and with respect to an Item of Equipment, the amount determined by multiplying the Total Cost for such Item of Equipment by the percentage specified in the applicable Stipulated Loss Value Supplement opposite such Rent Payment Date. (ac) "Stipulated Loss Value Supplement" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ad) "Supplier" shall mean the manufacturer or the vendor of the Equipment, as set forth on each Equipment Schedule. (ae) "Term" shall mean the Initial Term, as defined in Section 8 hereof, and any Renewal Term, as defined in Section 8 hereof. (af) "Total Cost" shall mean, with respect to an Item of Equipment, (1) the acquisition cost of such Item of Equipment (including Lessor's capitalized costs), as set forth on the Equipment Schedule on which such Item of Equipment is described, or (2) if no such acquisition cost is specified, the Supplier's invoice price for such Item of Equipment plus Lessor's capitalized costs, or (3) if no such acquisition cost is specified and no such invoice price is obtainable, an allocated price for such Item of Equipment based on the Total Cost of all Items of Equipment set forth on the Equipment Schedule on which such Item of Equipment is described, as determined by Lessor in its sole discretion. 5. Supplier Not an Agent. LESSEE UNDERSTANDS AND AGREES THAT (i) NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE SUPPLIER, IS (1) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS LEASE UNLESS EXPRESSLY SET FORTH HEREIN. 6. Ordering Equipment. Lessee has selected and ordered the Equipment from the Supplier and, if appropriate, has entered into a Purchase Agreement with respect thereto. Lessor shall accept an assignment from Lessee of Lessee's rights, but none of Lessee's obligations, under any such Purchase Agreement. Lessee shall arrange for delivery of the Equipment so that it can be accepted in accordance with Section 7 hereof. If an Item of Equipment is subject to an existing Purchase Agreement between Lessee and the Supplier, Lessee warrants that such Item of Equipment has not been delivered to Lessee as of the date of the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be modified or altered, or requests any additions thereto prior to the Rent Commencement Date, Lessee (i) acknowledges that any such modification, alteration or addition to an Item of Equipment may affect the Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent with respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each Equipment Schedule with the serial numbers and other identification data of the Equipment Group associated therewith, as such data is received by Lessor. 3 7. Delivery and Acceptance. Upon acceptance For lease by Lessee of any Equipment delivered to Lessee and described in any Equipment Schedule, Lessee shall execute and deliver to Lessor a Certificate of Acceptance. LESSOR SHALL HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute Lessee's acknowledgment that such Equipment (a) was received by Lessee, (b) is satisfactory to Lessee in all respects and is acceptable to Lessee for lease hereunder, (c) is suitable for Lessee's purposes, (d) is in good order, repair and condition, (e) has been installed and operates properly, and (f) is subject to all of the terms and conditions of this Lease (including, without limitation, Section 2 hereof. 8. Term; Survival. With respect to any Item of Equipment, unless otherwise specified thereon, the initial term of this Lease (the "Initial Term") shall commence on the date on which such Item of Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on the final Rent Payment Date for such Item of Equipment. With respect to an Item of Equipment, any renewal term of this Lease (individually, a "Renewal Term"), as contemplated hereby, shall commence immediately upon the expiration of the Initial Term or any prior Renewal Term, as the case may be, and, unless earlier terminated as provided herein, shall expire on the date on which the final payment of Rent is due and paid hereunder. All obligations of Lessee hereunder shall survive the expiration, cancellation or other termination of the Term hereof. 9. Rent. With respect to Each Item of Equipment, Lessee shall pay the Rent set forth on the Equipment Schedule applicable to such Item of Equipment, commencing on the Rent Commencement Date, and, unless otherwise set forth on such Equipment Schedule, on the same day of each payment period thereafter for the balance of the Term. Rent shall be due whether or not Lessee has received any notice that such payments are due. All Rent shall be paid to Lessor at its address set forth on the Equipment Schedule, or as otherwise directed by Lessor in writing. 10. Location; Inspection; Labels. The Equipment shall be delivered to the Equipment Location and shall not be removed therefrom without Lessor's prior written consent. Lessor shall have the right to enter upon the Equipment Location and inspect the Equipment at any reasonable time. Lessor may, with notice to Lessee, remove the Equipment if the Equipment is, in the reasonable opinion of Lessor, being used beyond its capacity or is in any manner improperly cared for, abused or misused. At Lessor's request, Lessee shall affix labels stating that the Equipment is owned (or liened upon as appropriate) by Lessor permanently in a prominent place on the Equipment and shall keep such labels in good repair and condition. 11. Use; Alterations. Lessee shall use the Equipment lawfully and only in the manner for which it was designed and intended and so as to subject it only to ordinary wear and tear. Lessee shall comply with all Applicable Law. Lessee shall immediately notify Lessor in writing of any existing, pending or threatened investigation, inquiry, claim or action by any Governmental Authority in connection with any Applicable Law or Governmental Action which could adversely affect the Equipment or this Lease. Lessee, at its own expense, shall make such alterations, additions or modifications or improvements to the Equipment as may be required from time to time to meet the requirements of Applicable Law or Governmental Action. Except as otherwise permitted herein, Lessee shall not make any material alterations, additions, modifications or improvements to the Equipment without Lessor's prior written consent. 12. Repairs and Maintenance. Lessee, at Lessee's own cost and expense, shall (a) keep the Equipment in good repair, good operating condition and working order and in compliance with the manufacturer's specifications, and (b) enter into and keep in full force and effect during the Term hereof a maintenance agreement with the manufacturer of the Equipment, or a manufacturer-approved maintenance organization, to maintain, service and repair the Equipment so as to keep the Equipment in as good operating condition and working order as it was when it first became subject to this Lease and in compliance with the manufacturer's specifications. Upon Lessor's request, Lessee shall furnish Lessor with an executed copy of any such maintenance agreement. An alternate source of maintenance may be used by Lessee with Lessor's prior written consent. Lessee, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment that becomes worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or unavailable for use (whether or not such replacement is covered by the aforesaid maintenance agreement), with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part is in the condition required by this Lease). Such replacement part shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Loss or Damage (as defined in Section 16 hereof) of any Item of Equipment. 4 13. Return of Equipment. Upon the expiration (subject to Section 32 hereof and except as otherwise provided in an Equipment Schedule) or earlier termination of this Lease, Lessee, at its sole expense, shall return the Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such location or such carrier (packed for shipping) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be in the condition required by Section 12 hereof. All components of the Equipment shall have been properly serviced, following the manufacturer's written operating and servicing procedures, such that the Equipment is eligible, if available, for a manufacturer's standard, full service maintenance contract without Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in the reasonable opinion of Lessor, any Item of Equipment fails to meet the standards set forth above, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing such Item of Equipment and restoring it so as to meet such standards, assembling and delivering such Item of Equipment. Lessee shall give Lessor ninety (90) days written notice (the "Return Notice") that Lessee is returning the Equipment as provided for above. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. 14. Equipment Upgrades/Attachments. In addition to the requirements of Section 11 hereof, Lessee, at its own expense, may from time to time add or install upgrades or attachments to the Equipment during the Term; provided, that such upgrades or attachments (a) are readily removable without causing material damage to the Equipment, (b) do not materially adversely affect the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment, and (c) do not cause such Equipment to become "limited use property" within the meaning of Revenue Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of the applicable delivery date or the time of such upgrade or attachment. Any such upgrades or attachments which are not required by Section 11 hereof and which can be removed without causing damage to or adversely affecting the condition of the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment shall remain the property of Lessee; and upon the expiration or earlier termination of this Lease and provided that no Event of Default exists, Lessee may, at its option, remove any such upgrades or attachments and, upon such removal, shall restore the Equipment to the condition required hereunder. 15. Sublease and Assignment. (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR LESSEE'S QUALIFIED EMPLOYEES. (b) Lessor, at any time with or without notice to Lessee, may sell, transfer, assign and/or grant a security interest in this Lease, any Equipment Schedule or any Item of Equipment. In any such event, any such purchaser, transferee, assignee or secured party shall have and may exercise all of Lessor's rights hereunder with respect to the items to which any such sale, transfer, assignment and/or security interest relates, and LESSEE SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee acknowledges that no such sale, transfer, assignment and/or security interest will materially change Lessee's duties hereunder or materially increase its burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of any such sale, transfer, assignment and/or security interest, Lessee shall acknowledge receipt thereof in writing and shall comply with the directions of Lessor's successor or assign. 16. Loss of or Damage to Equipment. (a) Lessee shall bear the entire risk of loss, theft, destruction, disappearance of or damage to any and all Items of Equipment ("Loss or Damage") from any cause whatsoever during the Term hereof until the Equipment is returned to Lessor in accordance with Section 13 hereof. No Loss or Damage shall relieve Lessee of the obligation to pay Rent or of any other obligation under this Lease. (b) In the event of Loss or Damage to any Item of Equipment, Lessee, at the option of Lessor, shall within thirty (30) days following such Loss or Damage: (1) place such Item of Equipment in good condition and repair, in accordance with the terms hereof; (2) replace such Item of Equipment with replacement equipment (acceptable to Lessor) in as good condition and repair, and with the same value, remaining useful economic life and utility, as such replaced Item of Equipment immediately preceding the Loss or Damage (assuming that such replaced Item of Equipment is the condition required by this Lease), which replacement equipment shall be free and clear of all Liens; or (3) pay to Lessor the sum of (i) all Rent due and owing hereunder with respect to such Item of Equipment (at the time of such payment) plus (ii) the Stipulated Loss Value as of the Rent Payment Date next following the date of such Loss or Damage with respect to such Item of Equipment, as set forth on the Schedule applicable thereto. Upon Lessor's receipt of the payment required under subsection (3) above, Lessee shall be entitled to Lessor's interest in such Item of Equipment, in its then condition and location, "as is" and "where is", without any warranties, express or implied. If Lessee replaces the Item of Equipment pursuant to subsection (b) above, title to such replacement 5 equipment shall immediately (and without further act) vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. If Lessee fails to either restore of replace the Item of Equipment pursuant to subsection (1) or (2) above, respectively, Lessee shall make the payment under subsection (3) above. 17. Insurance. (a) Lessee, at all times during the Term hereof (until the Equipment shall have been returned to Lessor) and at Lessee's own cost and expense, shall maintain (1) insurance against all risks of physical loss or damage to the Equipment (including theft and collision for Equipment consisting of motor vehicles) in an amount not less than the full replacement value thereof or the Stipulated Loss Value thereof, whichever is greater, and (2) commercial general liability insurance (including blanket contractual liability coverage and products liability coverage) for personal and bodily injury and property damage in an amount satisfactory to Lessor. (b) All insurance policies required hereunder shall (1) require 30 days' prior written notice of cancellation or material change in coverage to Lessor (any such cancellation or change, as applicable, not being effective until the thirtieth (30th) day after the giving of such notice); (2) name "KeyCorp and its subsidiaries and affiliated companies, including KeyCorp Leasing Ltd." as an additional insured under the public liability policies and name Lessor as sole loss payee under the property insurance policies; (3) not require contributions from other policies held by Lessor; (4) waive any right of subrogation against Lessor; (5) in respect of any liability of any of Lessor, except for the insurers' salvage rights in the event of a Loss or Damage, waive the right of such insurers to set-off, to counterclaim or to any other deduction, whether by attachment or otherwise, to the extent of any monies due Lessor under such policies; (6) not require that Lessor pay or be liable for any premiums with respect to such insurance covered thereby; (7) be in full force and effect throughout any geographical areas at any time traversed by any Item of Equipment; and (8) contain breach of warranty provisions providing that, in respect of the interests of Lessor in such policies, the insurance shall not be invalidated by any action or inaction of Lessee or any other person (other than Lessor) and shall insure Lessor regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee or by any other person (other than Lessor). Prior to the first date of delivery of any Item of Equipment hereunder, and thereafter not less than 15 days prior to the expiration dates of the expiring policies theretofore delivered pursuant to this Section, Lessee shall deliver to Lessor a duplicate original of all policies (or in the case of blanket policies, certificates thereof issued by the insurers thereunder) for the insurance maintained pursuant to this Section. 18. General Tax Indemnification. Lessee shall pay when due and shall indemnify and hold Lessor harmless from and against (on an after-tax basis) any and all taxes, fees, withholdings, levies, imposts, duties, assessments and charges of any kind and nature (together with interest and penalties thereon) (including, without limitation, sales, use, gross receipts, personal property, ad valorem, business and occupational, franchise, value added, leasing, leasing use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor's assigns, Lessee or any Item of Equipment by any Governmental Authority with respect to any Item of Equipment or the manufacturing, ordering, sale, purchase, shipment, delivery, acceptance or rejection, ownership, titling, registration, leasing, subleasing, possession, use, operation, removal, return or other dispossession thereof or upon the rents, receipts or earnings arising therefrom or upon or with respect to this Lease, excepting only all Federal, state and local taxes on or measured by Lessor's net income (other than income tax resulting from making any alterations, improvements, modifications, additions, upgrades, attachments, replacements or substitutions by Lessee). Whenever this Lease terminates as to any Item of Equipment, Lessee shall, upon written request by Lessor, advance to Lessor the amount determined by Lessor to be the personal property or other taxes on said item which are not yet payable, but for which Lessee is responsible, provided Lessor provides Lessee with copies of tax bills supporting Lessor's request. 19. Lessor's Right to Perform for Lessee. If Lessee fails to perform or comply with any of its obligations contained herein, Lessor may (but shall not be obligated to do so) itself perform or comply with such obligations, and the amount of the reasonable costs and expenses of Lessor incurred in connection with such performance or compliance, together with interest on such amount at the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such performance or compliance by Lessor shall be deemed a waiver of the rights and remedies of Lessor or any assignee of Lessor against Lessee hereunder or be deemed to cure the default of Lessee hereunder. 20. Delinquent Payments: Interest. If Lessee fails to pay any Rent or other sums under this Lease within ten (10) days after the same becomes due, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such delinquent amount. Such late charge shall be payable by Lessee upon demand by Lessor and shall be deemed Rent hereunder. In no event shall such late charge exceed the maximum amounts permitted under Applicable Law. 6 21. Personal Property; Liens. Lessor and Lessor hereby agree that the Equipment is, and shall at all times remain, personal property notwithstanding the fact that any Item of Equipment may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. Lessee shall at all times keep the Equipment free and clear from all Liens. Lessee shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly, at Lessee's sole cost and expense, take such action as may be necessary to discharge any such Lien and (iii) indemnify and hold Lessor, on an after-tax basis, harmless from and against any loss or damage caused by any such Lien. 22. Events of Default; Remedies. (a) As used herein, the term "Event of Default" shall mean any of the following events: (1) Lessee fails to pay any Rent within ten (10) days after the same shall have become due; (2) Lessee or any Guarantor becomes insolvent or makes an assignment for the benefit of its creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any Guarantor or of all or a substantial part of Lessee's or such Guarantor's assets is appointed with or without the application or consent of Lessee or such Guarantor, respectively; (4) a petition is filed by or against Lessee or any Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or any Guarantor violates or fails to perform any provision of either this Lease or any other loan, lease or credit agreement or any acquisition or purchase agreement with Lessor or any other party; (6) Lessee violates or fails to perform any covenant or representation made by Lessee herein: (7) any representation or warranty made herein or in any Lease, certificate, financial statement or other statement furnished to Lessor shall prove to be false or misleading in any material respect as of the date on which the same was made; (8) Lessee makes a bulk transfer of furniture, furnishings, fixtures or other equipment or inventory (other than in the ordinary course of business); or (9) there is a material adverse change in Lessee's or any Guarantor's financial condition since the first Rent Commencement Date of any Equipment Schedule executed in connection herewith. An Event of Default with respect to any Equipment Schedule hereunder shall, at Lessor's option, constitute an Event of Default for all Equipment Schedules hereunder and any other agreements between Lessor and Lessee. Lessee shall have forty-five (45) days in which to cure an Event of Default declared hereunder with the exception of the failure of Lessee to pay any Rent within ten (ten) days after the same shall have become due. (b) Upon the occurrence of an Event of Default, Lessor may do one or more of the following as Lessor in its sole discretion shall elect: (1) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; (2) sell any Item of Equipment at public or private sale; (3) hold, keep idle or lease to others any Item of Equipment as Lessor in its sole discretion may determine; (4) by notice in writing to Lessee, terminate this Lease, without prejudice to any other remedies hereunder; (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor or its order in the manner and condition required by, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (6) enter upon the premises of Lessee or other premises where any Item of Equipment may be located and, without notice to Lessee and with or without legal process, take possession of and remove all or any such Items of Equipment without liability to Lessor by reason of such entry or taking possession, and without such action constituting a termination of this Lease unless Lessor notifies Lessee in writing to such effect. Such action shall be exercised by Lessor in a reasonable and prudent manner; (7) by written notice to Lessee specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the payment date specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Late Payment Rate from the payment date specified in such notice to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had this Lease not been terminated; or (ii) the Stipulated Loss Value, computed as of the payment date specified in such notice or, if such payment date is not a Rent Payment Date, the Rent Payment Date next following the payment date specified in such notice (provided, however, that, with respect to any Item of Equipment returned to or repossessed by Lessor, the amount recoverable under this clause (ii) shall be reduced (but not below zero) by an amount equal to the Fair Market Sales Value (taking into account its actual condition) of such Item of Equipment; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessors remedies with respect thereto, including without limitation the repayment in full of any costs and expenses necessary to be expended in repairing any Item of Equipment in order to cause it to be in compliance with all maintenance and regulatory standards imposed by this Lease. If an Event of Default occurs, to the fullest extent permitted by law, Lessee hereby waives any right to any 7 defenses, rights, offsets or claims against Lessor because of the manner or method of sale or disposition of any Items of Equipment. None of Lessor's rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor or its assigns at law or in equity. No express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor's rights. Lessor agrees to give Lessee reasonable notice of any sale or other disposition of the Equipment after the occurrence of an Event of Default. Lessee agrees that the requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to Lessee in accordance with the notice provisions hereof at least 10 days before the time of sale or other disposition. Lessor shall not be obligated to make any sale or other disposition of the Equipment regardless of notice having been given. 23. Notices. All notices and other communications hereunder shall be in writing and shall be transmitted by hand, overnight courier or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this Section. Such notices and other communications shall be effective upon receipt. 24. General Indemnification. Lessee shall pay, and shall indemnify and hold Lessor harmless on an after-tax basis from and against, any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including attorneys' fees), obligations, liabilities, demands and judgments, and Liens, of any nature whatsoever (collectively, a "Liability") arising out of or in any way related to: (a) this Lease or any other written agreement entered into in connection with the transactions contemplated hereby and thereby (including, without limitation, a Purchase Agreement, if any) or any amendment, waiver or modification of any of the foregoing or the enforcement of any of the terms hereof or any of the foregoing, (b) the manufacture, purchase, ownership, selection, acceptance, rejection, possession, lease, sublease, operation, use, maintenance, documenting, inspection, control, loss, damage, destruction, removal, storage, surrender, sale, use, condition, delivery, nondelivery, return or other disposition of or any other matter relating to any Item of Equipment or any part or portion thereof (including, in each case and without limitation, latent or other defects, whether or not discoverable, any claim for patent, trademark or copyright infringement and any and all Liabilities in any way relating to or arising out of injury to persons, properties or the environment or any and all Liabilities based on strict liability in tort, negligence, breach of warranties or violations of any regulatory law or requirement, (c) a failure to comply fully with any Environmental Law with respect to the Equipment or its operation or use, and (d) Lessee's failure to perform any covenant, or breach of any representation or warranty, hereunder; provided, that the foregoing indemnity shall not extend to the Liabilities to the extent resulting solely from the gross negligence or willful misconduct of Lessor. Lessee shall deliver promptly to Lessor (i) copies of any documents received from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency and (ii) copies of any documents submitted by Lessee or any of its subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning the Equipment or its operation. 25. Severability; Captions. Any provision of this Lease or any Equipment Schedule 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 shall not invalidate or render unenforceable such provision in any other jurisdiction. Captions are intended for convenience or reference only, and shall not be construed to define, limit or describe the scope or intent of any provisions hereof. 26. Lessor's Expense. Lessee shall pay all costs and expenses of Lessor, including reasonable attorneys' fees and the fees of any collection agencies, incurred by Lessor in enforcing any of the terms, conditions or provisions hereof or in protecting Lessor's rights hereunder. 27. Related Equipment Schedules. In the event that any Item of Equipment covered under any Equipment Schedule hereunder may become attached or affixed to, or used in connection with, Equipment covered under another Equipment Schedule hereunder (a "Related Equipment Schedule"), Lessee agrees that, if Lessee elects to exercise a purchase or renewal option under any such Equipment Schedule, or if Lessee elects to return the Equipment under any such Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its sole discretion, may require that all Equipment leased under all Related Equipment Schedules be similarly disposed of. 28. Financial and Other Data. During the Term hereof, Lessee shall furnish Lessor, as soon as available and in any event within 60 days after the end of each quarterly period (except the last) of each fiscal year, and, as soon as available and in any event within 120 days after the last day of each fiscal year, financial statements of Lessee and each Guarantor, in each case certified by an independent public accountant if customarily available or 8 requested. Lessee shall also furnish such other financial reports, information or data as Lessor may reasonably request from time to time. 29. Reserved. 30. No Affiliation with the Supplier. Lessee hereby represents and warrants to Lessor that, except as previously disclosed in writing to Lessor, neither Lessee nor any of its officers or directors (if a corporation) or partners (if a partnership) has, directly or indirectly, any financial interest in the Supplier. 31. Representations and Warranties of Lessee. Lessee represents and warrants that: (a) Lessee is a corporation duly organized and validly existing in good standing under the laws of the state of its incorporation; (b) the execution, delivery and performance of this Lease and all related instruments and documents: (1) have been duly authorized by all necessary corporate action on the part of Lessee, (2) do not require the approval of any stockholder, partner, trustee, or holder of any obligations of Lessee except such as have been duly obtained, and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound; (c) this Lease and all related instruments and documents when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee in accordance with the terms thereof; (d) there are no pending actions or proceedings to which Lessee is a party, and there are no other pending or threatened actions or proceedings of which Lessee has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would adversely affect the financial condition of Lessee, or the ability of Lessee to perform its obligations hereunder; (e) Lessee is not in default under any obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any rent under any lease agreement which, either individually or in the aggregate, would have the same such effect; (f) under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures; (g) the financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally acceptable accounting principles consistently applied ("GAAP"), and fairly present Lessee's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations; (h) the address stated above is the chief place of business and chief executive office, or in the case of individuals, the primary residence, of Lessee; (i) Lessee does not conduct business under a trade, assumed or fictitious name other than those listed on Exhibit B attached hereto; and (j) the Equipment is being leased hereunder solely for business purposes and that no item of Equipment will be used for personal, family or household purposes. 32. Renewal And Purchase Options. With respect to an Equipment Schedule and the Equipment Group set forth thereon, so long as no Default or Event of Default shall have occurred and is continuing, then, upon not less than ninety (90) days prior written notice to Lessor, (the "Renewal Notice") Lessee may (a) at the expiration of the Initial Term, or any Renewal Term, purchase all, but not less than all, of the Equipment Group for the Fair Market Sale Value of such Equipment Group, payable in cash to Lessor upon the expiration of the Initial Term or any Renewal Term, as the case may be, (b) at the expiration of the Initial Term, renew this Lease on a month to month basis at the same Rent payable at the expiration of the Initial Term, or (c) at the expiration of the Initial Term, renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value. If Lessee fails to give Lessor the Return Notice or the Renewal Notice at least ninety (90) days before the expiration of the Initial Term, Lessee shall be deemed to have chosen option (b) above. If Lessee exercises option (a) above, Lessee shall purchase the Equipment "as is" and "where is" and without any warranties, express or implied, by Lessor. 33. Lessee's Waivers. To the extent permitted by Applicable Law, Lessee hereby waives (a) any and all rights and remedies which it may now have or which at any time hereafter may be conferred upon it by statute (including, without limitation, Article A of the Uniform Commercial Code, as applicable) or otherwise, (1) which may limit or modify Lessor's rights or remedies hereunder, (2) to terminate, cancel, quit, repudiate or surrender this Lease, except as expressly provided herein; (3) to reject, revoke acceptance or accept partial delivery of the Equipment; (4) to recover damages from Lessor for any breach of warranty or for any other reason provided, however, that no such waiver shall preclude Lessee from asserting any such claim against Lessor in a separate cause of action; or (5) to setoff or deduct all or any part of any claimed damages resulting from Lessor's default, if any, under this Lease. 34. UCC Filings. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DISCRETION ARE 9 NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS; PROVIDED, HOWEVER, LESSOR SHALL NOT EXERCISE SUCH POWER-OF-ATTORNEY UNLESS EITHER (A) LESSEE HAS FAILED OR REFUSED TO SO EXECUTE, ENDORSE OR DELIVER, AS THE CASE MAY BE, ANY DOCUMENT, INSTRUMENT OR AGREEMENT SO REQUESTED BY LESSOR WITHIN FIVE (5) BUSINESS DAYS AFTER LESSOR'S WRITTEN REQUEST FOR THE SAME OR (B) AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING. 35. Miscellaneous. Time is of the essence with respect to this Lease. Any failure of Lessor to require strict performance by Lessee or any waiver by Lessor of any provision herein shall not be construed as a consent or waiver of any provision of this Lease. Neither this Lease nor any Equipment Schedule may be amended except by a writing signed by Lessor and Lessee. This Lease and each Equipment Schedule shall be binding upon, and inure to the benefit of, the parties hereto, their permitted successors and assigns. This Lease will be binding upon Lessor only if executed by a duly authorized officer or representative of Lessor at Lessor's principal place of business as set forth above. This Lease, and all other documents (the execution and delivery of which by Lessee is contemplated hereunder), shall be executed on Lessee's behalf by Authorized Signers of Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH. THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 36. Jury Trial Waiver. LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. 37. More than One Lessee. If more than one person or entity executes this Lease, each Equipment Schedule, and all addenda or other documents executed in connection herewith or therewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 38. Quiet Enjoyment. So long as no Event of Default has occurred and is continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without interruption by Lessor or any person or entity claiming through Lessor. 39. Entire Agreement. This Lease, together with all Equipment Schedules, riders and addenda executed by Lessor and Lessee collectively constitute the entire understanding or agreement between Lessor and Lessee with respect to the leasing of the Equipment, and there is no understanding or agreement, oral or written, which is not set forth herein or therein. By initialing below, Lessee hereby further acknowledges the conditions of this Section 39. Lessee's Initials:___ Lessee's Initials: ___ Lessee's Initials: ___ Lessee's Initials:___ Lessee's Initials: ___ 40. Execution in Counterparts. This Master Equipment Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 10 IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of this day and year first above written. Lessee: Lessee: SECOM GENERAL CORPORATION MICANOL, INC. BY: /s/ Robert A. Clemente BY: /s/ Robert A. Clemente ------------------------- ------------------------- Name: Robert A. Clemente Name: Robert A. Clemente Title: Chairman of the Board Title: Chairman of the Board Lessee: Lessee: UNIFLOW CORPORATION L & H DIE, INC. BY: /s/ Robert A. Clemente BY: /s/ Robert A. Clemente ------------------------- ------------------------- Name: Robert A. Clemente Name: Robert A. Clemente Title: Chairman of the Board Title: Chairman of the Board Lessee: FORM FLOW INC. BY: /s/ Robert A. Clemente ------------------------- Name: Robert A. Clemente Title: Chairman of the Board Lessor: KEYCORP LEASING LTD. By: /s/ Steven R. DeCarlo ---------------------- Name: Steven R. DeCarlo Title: Vice President 11 [ KeyCorp Leasing Ltd. letterhead ] EQUIPMENT SCHEDULE NO. 01 EQUIPMENT SCHEDULE NO. 01 dated as of May 24, 1996 (this "Schedule") between KEYCORP LEASING LTD. ("Lessor"), a Delaware corporation, and SECOM GENERAL CORPORATION, a Delaware corporation with its principal place of business at 46035 Grand River Avenue, Novi, MI 48374, UNIFLOW CORPORATION, a Michigan corporation with its principal place of business at 26600 Heyn Drive, Novi, MI 48374, FORM FLOW, INC., a Michigan corporation with its principal place of business at 6901 Cogswell, Romulus, MI 48174, L & H DIE, INC., a Michigan corporation with its principal place of business at 38200 Ecorse Road, Romulus, MI 48174 and MICANOL, INC., a Michigan corporation with its principal place of business at 46001 Grand River Avenue, Novi MI 48374 (collectively, the "Lessee"). I N T R O D U C T I O N : Lessor and Lessee have heretofore entered into that certain Master Equipment Lease Agreement dated as of May 24, 1996 (the "Master Lease"; the Master Lease and this Schedule hereinafter collectively referred to as, this "Lease"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in the Master Lease. The Master Lease provides for the execution and delivery of a Schedule substantially in the form hereof for the purpose of confirming the acceptance and lease of the Equipment under this Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof and hereof. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment listed on Exhibit A attached hereto (the "Equipment"). The aggregate Total Cost of such Equipment is $5,000,000.00. 2. TERM. The Initial Term of this Lease with respect to the Equipment described on this Schedule shall commence on the date on which such Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on the date which is seventy-two (72) months after the Rent Commencement Date (the "Initial Term Expiration Date'). 3. RENT PAYMENT DATES; RENT. (a) The Rent set forth in Section 3(b)(2) hereof shall be adjusted (pursuant to Section 3(c) hereof) with each change in the Actual Index (as hereinafter defined). (b) Lessee hereby agrees to pay Rent for the Equipment as follows: (1) On the Rent Commencement Date, an amount equal to $2,079.45 as interim rent for the period from the Rent Commencement Date to but excluding the first day of the month following the Rent Commencement Date, which interim rent was calculated by Lessor using the Assumed Rate (as hereinafter defined) and is expressly not subject to adjustment pursuant to Section 3(c) hereof. (2) Throughout the Initial Term in seventy-two (72) consecutive monthly installments payable in arrears commencing on July 1, 1996 and on the same day each month thereafter (each, a "Rent Payment Date"). Each such installment of Rent shall be in an amount equal to $86,657.72. (c) Lessee and Lessor agree that each Rent payment hereunder shall be increased or decreased (but not below zero), as the case may be, by the Rent Differential (as hereinafter defined) as follows: if, as of any Rent Payment Date, (i) the Rent Differential is greater than zero, the amount of Rent due on such Rent Payment, Date shall be increased by such Rent Differential, and (ii) the Rent Differential is less than zero, the amount of Rent due on such Rent Payment Date shall be decreased by such Rent Differential. (d) As used herein, the following terms shall have the respective meanings indicated below: (1) "Assumed Index" shall mean 5.4336%). (2) "Actual Index" shall mean, as of any day in a calendar month, the London interbank offered rate for deposits in United States dollars having a maturity of one month which appears in the "Money Rates" section of The Wall Street Journal, published on the business day on, or immediately prior to, the 28th day of the month immediately preceding such calendar month. If the Actual Index is no longer available, Lessor will choose a new index which is based upon comparable information and will give Lessee notice of such new "Actual Index." (3) "Current Fixed Index" shall mean the most recent Fixed Index available as of the week preceding the week in which the Conversion Date occurs. Lessor shall choose such Current Fixed Index on the day before the Conversion Date (as hereinafter defined). (4) "Daily Equivalent" shall mean the product of the following formula: Daily Actual Assumed Net Equivalent = Index - Index X Investment Balance ----------------- 365 (5) "Fixed Index" shall mean the sum of (i) the weekly average yield on United States Treasury securities adjusted to a constant maturity equal to the then remaining Initial Term of the Lease or, if a constant maturity equal to the then remaining Initial Term of the Lease is not available, the next highest constant maturity, as made available by the Federal Reserve Board, and (ii) 240 basis points. If the Fixed Index is no longer available, Lessor will choose a new index which is based upon comparable information. Lessor will give Lessee notice of such new "Fixed Index. " (6) "Net Investment Balance" shall mean, as of any day, the outstanding balance (initially calculated using the Assumed Index plus 215 basis points) reflected on Lessor's lease accounting system for the Rent Payment Date immediately preceding such day or, if such day is a Rent Payment Date, for such Rent Payment Date. (7) "Rent Differential" shall mean, with respect to any Rent Payment Date, the sum of all Daily Equivalents for each day from and including the immediately prior Rent Payment Date (or the Rent Commencement Date for the first Rent Payment Date) to and excluding such Rent Payment Date. (e) If (1) on or prior to execution of this Schedule, Lessee shall have paid to Lessor a conversion option fee equal to $17,500.00, (2) Lessee shall have provided Lessor with such documentation as Lessor may reasonably request to effect the conversion, and (3) no default under the Lease has occurred and is continuing, then, at any time on or after the twelve (12) month anniversary of the Rent Commencement Date, upon not less than forty-five (45), and not more than sixty (60), days' prior written notice, Lessee shall have the option (the "Conversion Option") to convert the then current Actual Index to a fixed index, determined pursuant to Section 3(f) hereof. The date of such conversion (the "Conversion Date") shall be the Rent Payment Date on which the next payment of Rent is due and payable under the Lease (after giving effect to such notice requirement). (f) If Lessee exercises the Conversion Option, (1) on and after the Conversion Date, the Rent set forth in Section 3(b) hereof shall be adjusted pursuant to Section 3(c) hereof, provided that, for the purposes of such adjustment, the term "Actual Index" shall be replaced by the term "Current Fixed Index," (2) effective as of the Conversion Date, such adjusted Rent shall be the Rent for the remaining Initial Term of the Lease, and Lessee shall pay the amount of such adjusted Rent (based on such Current Fixed Index) for the remainder of such Initial Term, and (3) notwithstanding anything to the contrary contained herein, the adjustment set forth in Section 3(a) shall be of no further force and effect. 2 4. EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this Schedule shall be located at, and except as otherwise provided in this Lease, shall not be removed from, the following address: See Exhibit "A" to Master Equipment Lease Agreement dated May 24, 1996. The billing address of Lessee is as follows: SECOM GENERAL CORPORATION, 46035 Grand River Avenue, Novi, MI 48374. 5. LESSEE'S PURCHASE AND RENEWAL OPTIONS. (a) With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal and Purchase Options") is hereby deleted in its entirety. (b) On the Initial Term Expiration Date, Lessee shall pay to Lessor an amount equal to $1.00. Upon payment in full by Lessee of all Rent (and all other sums) payable to Lessor hereunder, Lessor shall release its interest in the Equipment. 6. STIPULATED LOSS VALUE; FUTURE RENTS. There are no Stipulated Loss Values or Stipulated Loss Value Supplements applicable to the Equipment described on this Schedule. Notwithstanding anything to the contrary contained herein, including Section 3 hereof, with respect to all provisions of this Lease requiring calculation of Rent payable for an Item of Equipment for the remainder of the Term, such Rent shall be calculated using the Assumed Rate or, if Lessee has exercised its conversion option under Section 3(e) hereof, the Current Fixed Index. 7. SECURITY AGREEMENT. To secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee, now existing or hereafter created, to Lessor pursuant to this Lease or otherwise, Lessee hereby grants to Lessor a security interest in the Equipment and all accessions, substitutions and replacements thereto and therefor, and proceeds (cash and non-cash), including, without limitation, insurance proceeds thereof (but without power of sale). In furtherance of the foregoing, Lessee shall execute and deliver to Lessor, to be recorded at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected the security interest granted by Lessee herein. 8. NOTIFICATION OF TAX CONSEQUENCES. Lessee recognizes that, pursuant to Section 18 of the Master Lease, it is Lessee's responsibility to include, if required by Applicable Law, all equipment financed under this Lease in Lessee's personal property tax returns and, if necessary, to pay any resulting property tax bills. Lessor and Lessee acknowledge that personal property tax policies vary from state to state and that, where uncertainty exists as to a particular state's policies, Lessee shall contact its attorneys or financial advisors (who may be familiar with such state's personal property tax policy) for advice. It is expressly acknowledged by Lessee that Lessor has made no warranties, statements or representations as to such personal property tax matters, and Lessee hereby disclaims any reliance on any such warranties, statements or representations made by Lessor with respect thereto. 9. MODIFICATIONS TO MASTER LEASE. In addition to the modifications set forth in Section 5 hereof, with respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): All such alterations, additions, modifications or improvements immediately, and without further act, shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (b) Section 12 of the Master Lease ("Repairs and Maintenance") is hereby deleted in its entirety and the following substituted in its place: Lessee will keep and maintain, or cause to be kept and maintained, the Equipment in as good operating condition as on the date of execution hereof (or on the date on which acquired, if such date is subsequent to the date of execution hereof), ordinary wear and tear resulting from proper use thereof alone excepted. In addition, if any parts or accessories forming part of the Equipment 3 shall from time to time become worn out, lost, destroyed, damaged beyond repair or otherwise permanently rendered unfit for use, Lessee, at its own expense, will within a reasonable time replace such parts or accessories with replacement parts or accessories which and have a value and utility at least equal to the parts or accessories replaced. Such replacement part shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Loss or Damage (as defined in Section 16 hereof) of any Item of Equipment. Upon installation, attachment or incorporation in, on or into such Item of Equipment, such replacement part immediately, and without further act, shall be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder (c) Section 16(b) of the Master Lease ("Loss of or Damage to Equipment") is hereby amended to delete subsection "(3)" and substitute the following in its place: (3) pay to Lessor an amount, with respect to such Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the Term, after discounting such Rent to present worth on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had the Loss or Damage not occurred. In determining the Rent payable for an Item of Equipment for the purposes of this clause (3), Lessor and Lessee agree that such Rent shall be deemed equal to the product of (a) the total Rent payable under this Lease for the remainder of the Term, and (b) a fraction, the numerator of which is the value (as set forth in the appraisal prepared at lease closing) of such Item of Equipment and the denominator of which is the value (as set forth in the appraisal prepared at lease closing) of all Items of Equipment under this Lease. (d) Section 16(b) of the Master Lease ("Loss of or Damage to Equipment") is hereby amended to delete the second to last sentence and substitute the following in its place: If Lessee replaces the Item of Equipment pursuant to subsection (b) above, such replacement equipment shall immediately (and without further act) be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (e) Section 17(a) of the Master Lease ("Insurance") is hereby amended to delete subsection "(1)" and substitute the following in its place: (1) insurance against all risks of physical loss or damage to the Equipment (including theft and collision for Equipment consisting of motor vehicles) in an amount not less than the full replacement value thereof. (f) As used in Section 22(a) of the Master Lease ("Events of Default"), the term "Event of Default" shall also mean the following event: the dissolution of Lessee. (g) Section 22(b) of the Master Lease ("Events of Default") is hereby amended to delete subsection "(7)" and substitute the following in its place: (7) by written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the payment date specified in such notice plus the following amount which Lessor shall specify in such notice (together with interest on such amount at the Late Payment Rate from the payment date specified in such notice to the date of actual payment): an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had this Lease not been canceled or terminated. 4 (h) Section 22(b) of the Master Lease ("Events of Default") is hereby amended as follows: (1) with respect to Section 22(b)(4), the word "terminate" is hereby deleted and the words "cancel or terminate" are hereby substituted in its place; and (2) with respect to Section 22(b)(6), the word "termination" is hereby deleted and the words "cancellation or termination" are hereby substituted in its place. 10. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance. 11. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 12. PERSONAL PROPERTY TAX. To insure Lessee's compliance with the provisions of the Lease with respect to the payment of personal property taxes on the Equipment described on this Schedule, Lessee hereby covenants and agrees that, unless otherwise directed in writing by Lessor or otherwise required by law, Lessee will list itself as owner of all Items of Equipment for property tax purposes. Except in those jurisdictions in which Lessor is required to list itself as owner of all such Items of Equipment, upon receipt by Lessee of any property tax bill pertaining to such Items of Equipment from the appropriate taxing authority, Lessee will promptly pay all such taxes when due. In those jurisdictions in which Lessor is required to list itself as owner of all such Items of Equipment, upon receipt by Lessee of any property tax bill pertaining to such Items of Equipment, Lessee will promptly forward to Lessor such property tax bill and related payment. Upon receipt by Lessor of any such property tax bill and related payment, Lessor will pay such tax. 13. ADDITIONAL ADDENDA. In addition to the End of Lease Options Addendum, please see the following addenda to this Schedule, attached hereto and made a part hereof, for additional terms and conditions governing the leasing of the Equipment described on this Schedule: End of Lease Options Addendum. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, and all addenda or other documents executed in connection herewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall be construed in connection with and as part of the Lease, and all terms and conditions contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms and conditions were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms and conditions of the Master Lease except as they may be modified hereby. To the extent that any of the terms and conditions of this Schedule are contrary to or inconsistent with any terms and conditions of the Master Lease, the terms and conditions of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions and execute and deliver such additional documents as Lessor shall deem necessary from time to time to effectuate the terms of the Lease. 16. Prepayment. On any Rent Payment Date, Lessee may prepay, in whole but not in part, this Lease by paying to Lessor (1) any unpaid Rent and all other amounts due on or before such Rent Payment Date, plus (2) an amount equal to the Rent payable for the remainder of the Initial Lease Term, after discounting such future Rent to present worth as of such Rent Payment Date on the basis of a per annum rate of discount equal to five (5%) percent, from the respective dates upon which such Rent would have been paid had this Lease not been prepaid. 17. Depreciation. Lessor shall not claim any depreciation benefits as a result of this Lease. 5 IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly executed and delivered on the day and year first above written. Lessee: Lessee: SECOM GENERAL CORPORATION MICANOL, INC. BY: /s/ Robert A. Clemente BY: /s/ Robert A. Clemente ------------------------- ------------------------- Name: Robert A. Clemente Name: Robert A. Clemente Title: Chairman of the Board Title: Chairman of the Board Lessee: Lessee: UNIFLOW CORPORATION L & H DIE, INC. BY: /s/ Robert A. Clemente BY: /s/ Robert A. Clemente ------------------------- ------------------------- Name: Robert A. Clemente Name: Robert A. Clemente Title: Chairman of the Board Title: Chairman of the Board Lessee: FORM FLOW INC. BY: /s/ Robert A. Clemente ------------------------- Name: Robert A. Clemente Title: Chairman of the Board Lessor: KEYCORP LEASING LTD. By: /s/ Steven R. DeCarlo ---------------------- Name: Steven R. DeCarlo Title: Vice President 6 EX-10.4 5 Exhibit 10.4 DRAFTED BY AND AFTER RECORDING, RETURN TO: MetLife Capital Financial Corporation Real Estate Department 10900 N.E. 4th Street, Suite 500 Bellevue, Washington 98004 Loan Number: 2407796-001 MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS, AND FIXTURE FILING THIS INSTRUMENT ALSO IS A FUTURE ADVANCE MORTGAGE UNDER APPLICABLE MICHIGAN LAW THIS MORTGAGE (herein "Instrument") is made as of May 31 , 1996, among the Mortgagor, SECOM GENERAL CORPORATION, a Delaware corporation, whose address is 46035 Grand River, Novi, Michigan 48374 (herein "Borrower"), in favor of the Mortgagee, METLIFE CAPITAL FINANCIAL CORPORATION, a Delaware corporation, whose address is Real Estate Department, 10900 N.E. 4th Street, Suite 500, Bellevue, Washington, 98004 (herein "METLIFE"). Borrower, in consideration of the indebtedness herein recited irrevocably MORTGAGES AND WARRANTS to METLIFE all of Borrower's right, title and interest, now owned or hereafter acquired, including any reversion or remainder interest, in the real property located in the City of Novi, County of Oakland, State of Michigan described on Exhibit A attached hereto and incorporated herein including all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, tenements, hereditaments, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property (collectively "Premises"); TOGETHER with all of Borrower's estate, right, title and interest, now owned or hereafter acquired, in: (a) all buildings, structures, improvements, parking areas, landscaping, equipment, fixtures and articles of property now or hereafter erected on, attached to, or used or adapted for use in the operation of the Premises; including but without being limited to, all heating, air conditioning and incinerating apparatus and equipment; all boilers, engines, motors, dynamos, generating equipment, piping and plumbing fixtures, water heaters, cooling, ventilating, sprinkling and vacuum cleaning systems, fire extinguishing apparatus, gas and electric fixtures, carpeting, floor coverings, underpadding, elevators, escalators, partitions, mantels, built-in mirrors, window shades, blinds, draperies, screens, storm sash, awnings, signs, and shrubbery and plants, and including also all interest of any owner of the Premises in any of such items hereafter at any time acquired under conditional sale contract, chattel mortgage or other title retaining or security instrument, all of which property mentioned in this clause (a) shall be deemed part of the realty covered by this Instrument and not severable wholly or in part without material injury to the freehold of the Premises (all of the foregoing together with replacements and additions thereto are referred to herein as "Improvements"); and (b) all compensation, awards, damages, rights of action and proceeds, including interest thereon and/or the proceeds of any policies of insurance therefor, arising out of or relating to a (i) taking or damaging of the Premises or Improvements thereon by reason of any public or private improvement, condemnation proceeding (including change of grade), sale or transfer in lieu of condemnation, or fire, earthquake or other casualty, or (ii) any injury to or decrease in the value of the Premises or the Improvements for any reason whatsoever; (c) return premiums or other payments upon any insurance any time provided for the benefit of or naming METLIFE, and refunds or rebates of taxes or assessments on the Premises; (d) all the right, title and interest of Borrower in, to and under all written and oral leases and rental agreements (including extensions, renewals and subleases; all of the foregoing shall be referred to collectively herein as the "Leases") now or hereafter affecting the Premises including, without limitation, all rents, issues, profits and other revenues and income therefrom and from the renting, leasing or bailment of Improvements and building equipment, all guaranties of tenants' performance under the Leases, and all rights and claims of any kind that Borrower may have against any tenant under the Leases or in connection with the termination or rejection of the Leases in a bankruptcy or insolvency proceeding; and the leasehold estate in the event this Instrument is on a leasehold; (e) plans, specifications, contracts and agreements relating to the design or construction of the Improvements; Borrower's rights under any payment, performance, or other bond in connection with the design or construction of the Improvements; all landscaping and construction materials, supplies, and equipment used or to be used or consumed in connection with construction of the Improvements, whether stored on the Premises or at some other location; and contracts, agreements, and purchase orders with contractors, subcontractors, suppliers, and materialmen incidental to the design or construction of the Improvements; (f) all contracts, accounts, rights, claims or causes of action pertaining to or affecting the Premises or the Improvements, including, without limitation, all options or contracts to acquire other property for use in connection with operation or development of the Premises or Improvements; all management contracts, service or supply contracts, deposits, general intangibles (including without limitation trademarks, trade names and symbols), permits, licenses, franchises and certificates pertaining to or affecting the Premises or the Improvements; and all commitments or agreements, now or hereafter in existence, intended by the obliger thereof to provide 2 Borrower with proceeds to satisfy the loan evidenced hereby or improve the Premises or Improvements, and the right to receive all proceeds due under such commitments or agreements including refundable deposits and fees; (g) all books, records, surveys, reports and other documents related to the Premises, the Improvements, the Leases, or other items of collateral described herein; and (h) all additions, accessions, replacements, substitutions, proceeds and products of the real and personal property, tangible and intangible, described herein. All of the foregoing described collateral, and any subsequent reference thereto in this Instrument, is exclusive of (i) any furniture, furnishings or trade fixtures owned and supplied by tenants of the Premises; and (ii) any inventory, trade fixtures, the removal of which would not cause damage to the Premises, cash registers, furniture, furnishings and machinery, equipment, tooling and other items of personal property used in the operation of Borrower's business, rather than the maintenance, repair or operation of the Premises. The Premises, the Improvements, the Leases and all of the rest of the foregoing property are herein referred to as the "Property." TO SECURE TO METLIFE (a) the repayment of the indebtedness evidenced by Borrower's note dated of even date herewith in the principal sum of Two Million Eight Hundred Eighty-Seven Thousand Five Hundred Dollars ($2,887,500.00), with interest thereon as set forth in the note, a copy of which is attached as Exhibit B, and all renewals, extensions and modifications thereof (herein "Note"); (b) the repayment of any future advances, with interest thereon, made by METLIFE to Borrower pursuant to Section 28 hereof (herein "Future Advances"); (c) the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Instrument or to fulfill any of Borrower's obligations hereunder or under the other Loan Documents (as defined below); (d) the performance of the covenants and agreements of Borrower contained herein or in the other Loan Documents; and (e) the repayment of all sums now or hereafter owing to METLIFE by Borrower pursuant to any instrument which recites that it is secured hereby. The indebtedness and obligations described in clauses (a)-(e) above are collectively referred to herein as the "Indebtedness." The Note, this Instrument, and all other documents evidencing, securing or guarantying the Indebtedness (except any Certificate and Indemnity Agreement Regarding Hazardous Substances), as the same may be modified or amended from time to time, are referred to herein as the "Loan Documents. The terms of the Note secured hereby may provide that the interest rate or payment terms or balance due may be indexed, adjusted, renewed, or renegotiated from time to time, and this Instrument shall continue to secure the Note notwithstanding any such indexing, adjustment, renewal or renegotiation. Borrower represents and warrants that Borrower has good, marketable and insurable title to, and has the right to mortgage an indefeasible fee simple estate in, the Premises, Improvements, rents, and leases (or, if this Instrument is on a leasehold, good, marketable and insurable title to, and the right to convey the leasehold estate and that the ground lease is in full force and effect without modification except as noted above and without default on the part of either lessor or lessee thereunder), and the right to 3 convey the other Property, that the Property is unencumbered except as disclosed in writing to and approved by METLIFE prior to the date hereof, and that Borrower will warrant and forever defend the title to the Property against all claims and demands, subject only to the permitted exceptions set forth in Schedule 1 attached hereto. Borrower represents, warrants, covenants and agrees for the benefit of METLIFE as follows: 1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when due the principal of and interest on the Indebtedness, any prepayment and other charges provided in the Loan Documents and all other sums secured by this Instrument. 2. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon the occurrence of an Event of Default (hereinafter defined), and at METLIFE's sole option at any time thereafter, Borrower shall pay in addition to each monthly payment on the Note, one-twelfth of the annual real estate taxes, insurance premiums, assessments, water and sewer rates, ground rents and other charges (herein "Impositions") payable with respect to the Property (as estimated by METLIFE in its sole discretion), to be held by METLIFE without interest to Borrower, for the payment of such obligations. If the amount of such additional payments held by METLIFE ("Funds") at the time of the annual accounting thereof shall exceed the amount deemed necessary by METLIFE to provide for the payment of Impositions as they fall due, such excess shall be at Borrower's option, either repaid to Borrower or credited to Borrower on the next monthly installment or installments of Funds due. If at any time the amount of the Funds held by METLIFE shall be less than the amount deemed necessary by METLIFE to pay Impositions as they fall due, Borrower shall pay to METLIFE any amount necessary to make up the deficiency within thirty (30) days after notice from METLIFE to Borrower requesting payment thereof. Upon Borrower's breach of any covenant or agreement of Borrower in this Instrument, METLIFE may apply, in any amount and in any order as METLIFE shall determine in METLIFE's sole discretion, any Funds held by METLIFE at the time of application (i) to pay Impositions which are now or will hereafter become due, or (ii) as a credit against sums secured by this Instrument. Upon payment in full of all sums secured by this Instrument, METLIFE shall refund to Borrower any Funds held by METLIFE. 3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, each complete installment payment received by METLIFE from Borrower under the Note or this Instrument shall be applied by METLIFE first in payment of amounts payable to METLIFE by Borrower under Section 2 hereof, then to interest payable on the Note, then to principal of the Note, and then to interest and principal on any Future Advances in such order as METLIFE, at METLIFE's sole discretion, shall determine. Upon Borrower's breach of any covenant or agreement of Borrower in this Instrument, METLIFE may apply, in any amount and in any order as METLIFE shall determine in METLIFE's sole discretion, any payments received by METLIFE under the Note or this 4 Instrument. Any partial payment received by METLIFE shall, at METLIFE's option, be held in a non-interest bearing account until METLIFE receives funds sufficient to equal a complete installment payment. 4. CHARGES, LIENS. Borrower shall pay all Impositions attributable to the Property in the manner provided under Section 2 hereof or, if not paid in such manner, by Borrower making payment, when due, directly to the payee thereof, or in such other manner as METLIFE may designate in writing. If requested by METLIFE, Borrower shall promptly furnish to METLIFE all notices of Impositions which become due, and in the event Borrower shall make payment directly, Borrower shall promptly furnish to METLIFE receipts evidencing such payments. Borrower shall promptly discharge any lien which has, or may have, priority over or equality with, the lien of this Instrument, and Borrower shall pay, when due, the claims of all persons supplying labor or materials to or in connection with the Property. Without METLIFE's prior written permission, Borrower shall not allow any lien inferior to this Instrument to be perfected against the Property. If any lien inferior to this Instrument is filed against the Property without METLIFE's prior written permission and without the consent of Borrower, Borrower shall, within thirty (30) days after receiving notice of the filing of such lien, cause such lien to be released of record and deliver evidence of such release to METLIFE. 5. INSURANCE. Borrower shall obtain and maintain the following types of insurance upon and relating to the Property: (a) "All Risk" property and fire insurance (with extended coverage endorsement including malicious mischief and vandalism) in an amount not less than the full replacement value of the Property (with a deductible not to exceed $5,000 and with co-insurance limited to a maximum of 10% of the amount of the policy), naming METLIFE under a lender's loss payee endorsement (form 438BFU or equivalent) and including agreed amount, inflation guard, replacement cost and waiver of subrogation endorsements; (b) Comprehensive general liability insurance in an amount not less than $2,000,000.00 insuring against personal injury, death and property damage and naming METLIFE as additional insured; (c) Business interruption insurance covering loss of rental or other income (including all expenses payable by tenants) for up to six (6) months; and (d) Such other types of insurance or endorsements to existing insurance as may be required from time to time by METLIFE. Upon the request of METLIFE, Borrower shall increase the coverage under any of the insurance policies required to be maintained hereunder or otherwise modify such policies in accordance with METLIFE's request. All of the insurance policies required hereunder shall be issued by corporate insurers licensed to do business in the state in which the Property is located and rated A:X or better by A.M. Best Company, and shall be in form acceptable to METLIFE. If and to the extent that the Property is located within an area 5 that has been or is hereafter designated or identified as an area having special flood hazards by the Department of Housing and Urban Development or such other official as shall from time to time be authorized by federal or state law to make such designation pursuant to any national or state program of flood insurance, Borrower shall carry flood insurance with respect to the Property in amounts not less than the maximum limit of coverage then available with respect to the Property or the amount of the Indebtedness, whichever is less. Certificates of all insurance required to be maintained hereunder shall be delivered to METLIFE, along with evidence of payment in full of all premiums required thereunder, contemporaneously with Borrower's execution of this Instrument. All such certificates shall be in form acceptable to METLIFE and shall require the insurance company to give to METLIFE at least thirty (30) days' prior written notice before canceling the policy for any reason or materially amending it. Certificates evidencing all renewal and substitute policies of insurance shall be delivered to METLIFE, along with evidence of the payment in full of all premiums required thereunder, at least fifteen (15) days before termination of the policies being renewed or substituted. If any loss shall occur at any time when Borrower shall be in default hereunder, METLIFE shall be entitled to the benefit of all insurance policies held or maintained by Borrower, to the same extent as if same had been made payable to METLIFE, and upon foreclosure hereunder, METLIFE shall become the owner thereof. METLIFE shall have the right, but not the obligation, to make premium payments, at Borrower's expense, to prevent any cancellation, endorsement, alteration or reissuance of any policy of insurance maintained by Borrower, and such payments shall be accepted by the insurer to prevent same. If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or destruction of the Property (such event being called a "Loss"), Borrower will give prompt written notice thereof to METLIFE. All insurance proceeds paid or payable in connection with any Loss shall be paid to METLIFE. If (i) no Event of Default has occurred and is continuing hereunder, (ii) Borrower provides evidence satisfactory to METLIFE of its ability to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, (iii) the available insurance proceeds are, in METLIFE's judgment, sufficient to fully and completely restore, repair or replace the Property, and (iv) Borrower provides evidence satisfactory to METLIFE that none of the tenants of the Property will terminate their lease agreements as a result of either the Loss or the repairs to or replacement of the Property, Borrower shall have the right to apply all insurance proceeds received in connection with such Loss either (a) to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such Loss, or (b) to the payment of the Indebtedness in such order as METLIFE may elect. If an Event of Default has occurred and is continuing hereunder at the time of such Loss, if METLIFE determines that Borrower will be unable to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, if the available insurance proceeds are insufficient, in METLIFE's judgment, to fully and completely restore, repair or replace the Property or if METLIFE believes that one or more tenants of the Property will terminate their lease agreements as a result of either the Loss or the repairs to or replacement of the Property, then all of the insurance 6 proceeds payable with respect to such Loss will be applied to the payment of the Indebtedness, or if so instructed by METLIFE, Borrower will promptly, at Borrower's sole cost and expense and regardless of whether sufficient insurance proceeds shall be available, commence to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition, character immediately prior to such Loss. Borrower shall diligently prosecute any restoration, repairs or replacement of the Property undertaken by or on behalf of Borrower pursuant to this Section 5. All such work shall be conducted pursuant to written contracts approved by METLIFE in writing. Notwithstanding anything contained herein to the contrary, in the event the insurance proceeds received by METLIFE following any Loss are insufficient in METLIFE's judgment to fully and completely restore, repair or replace the Property, and if Borrower has complied with all of the other conditions described in this Section 5, Borrower may elect to restore, repair or replace the Property if it first deposits with METLIFE such additional sums as METLIFE determines are necessary in order to fully and completely restore, repair or replace the Property. In the event any insurance proceeds remain following the restoration, repair or replacement of the Property, such proceeds shall be applied to the Indebtedness in such order as METLIFE may elect. 6. PRESERVATION AND MAINTENANCE OF PROPERTY; LEASEHOLDS. Borrower (a) shall not commit waste or permit impairment or deterioration of the Property, (b) shall not abandon the Property, (c) shall restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as METLIFE may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair, (d) shall keep the Property, including all improvements, fixtures, equipment, machinery and appliances thereon and secured hereby, in good repair and shall replace fixtures, equipment, machinery and appliances on the Property when necessary to keep such items in good repair, (e) shall comply with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, (f) if all or part of the Property is for rent or lease, then METLIFE, at its option after the occurrence of an Event of Default, may require Borrower to provide for professional management of the Property by a property manager satisfactory to METLIFE pursuant to a contract approved by METLIFE in writing, unless such requirement shall be waived by METLIFE in writing, (g) shall generally operate and maintain the Property in a manner to ensure maximum rentals, and (h) shall give notice in writing to METLIFE of and, unless otherwise directed in writing by METLIFE, appear in and defend any action or proceeding purporting to affect the Property, the security of this Instrument or the rights or powers of METLIFE hereunder. Neither Borrower nor any tenant or other person, without the written approval of METLIFE, shall remove, demolish or alter any improvement now existing or hereafter erected on the Property or any fixture, equipment, machinery or appliance in or on the Property except when incident to the replacement of fixtures, equipment, machinery and appliances with items of like kind. Borrower represents, warrants and covenants that (i) the Property is, to its current actual knowledge, and shall be in compliance with the Americans with Disabilities Act of 1990 and all of the regulations promulgated thereunder, as the same may be amended from time to time; and (ii) it shall 7 secure permanent certificates of occupancy for the Property no later than August 31, 1996. If this Instrument is on a leasehold, Borrower (i) shall comply with the provisions of the ground lease, (ii) shall give immediate written notice to METLIFE of any default by lessor under the ground lease or of any notice received by Borrower from such lessor of any default under the ground lease by Borrower, (iii) shall exercise any option to renew or extend the ground lease and give written confirmation thereof to METLIFE within thirty (30) days after such option becomes exercisable, (iv) shall give immediate written notice to METLIFE of the commencement of any remedial proceedings under the ground lease by any party thereto and, if required by METLIFE, shall permit METLIFE as Borrower's attorney-in-fact to control and act for Borrower in any such remedial proceedings and (v) shall within thirty (30) days after request by METLIFE obtain from the lessor under the ground lease and deliver to METLIFE a lessor's estoppel certificate in form and substance acceptable to METLIFE. Borrower hereby expressly transfers and assigns to METLIFE the benefit of all covenants contained in the ground lease, whether or not such covenants run with the land, but METLIFE shall have no liability with respect to such covenants or any other covenants contained in the ground lease. Borrower shall neither surrender the leasehold estate and interests herein conveyed nor terminate or cancel the ground lease creating said estate and interests, and Borrower shall not, without the express written consent of METLIFE, alter or amend said ground lease. There shall not be a merger of the ground lease, or of the leasehold estate created thereby, with the fee estate covered by the ground lease by reason of said leasehold estate or said fee estate, or any part of either, coming into common ownership, unless METLIFE shall consent in writing to such merger; if Borrower shall acquire such fee estate, then this Instrument shall simultaneously and without further action be spread so as to become a lien on such fee estate. 7. USE OF PROPERTY. Unless required by applicable law or unless METLIFE has otherwise agreed in writing, Borrower shall not allow changes in the use for which all or any part of the Property was intended at the time this Instrument was executed. Borrower shall not, without METLIFE's prior written consent, (i) initiate or acquiesce in a change in the zoning classification (including any variance under any existing zoning ordinance applicable to the Property), (ii) permit the use of the Property to become a non-conforming use under applicable zoning ordinances, (iii) file any subdivision or parcel map affecting the Property, or (iv) amend, modify or consent to any easement or covenants, conditions and restrictions pertaining to the Property. 8. PROTECTION OF METLIFE'S SECURITY. If Borrower fails to perform any of the covenants and agreements contained in this Instrument, or if any action or proceeding is commenced which affects the Property or title thereto or the interest of METLIFE therein, including, but not limited to, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving a bankrupt or decedent, then METLIFE at METLIFE's option may make such appearances, disburse such sums and take such action as METLIFE deems necessary, in its sole discretion, to protect METLIFE's interest, including, but not limited to, (i) disbursement Of attorneys' fees, (ii) entry upon the 8 Property to make repairs, (iii) procurement of satisfactory insurance as provided in Section 5 hereof, and (iv) if this Instrument is on a leasehold, exercise of any option to renew or extend the ground lease on behalf of Borrower and the curing of any default of Borrower in the terms and conditions of the ground lease. Any amounts disbursed by METLIFE pursuant to this Section 8, with interest thereon, shall become additional Indebtedness of Borrower secured by this Instrument. Unless Borrower and METLIFE agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the highest rate which may be collected from Borrower under applicable law or, at METLIFE's option, the rate stated in the Note. Borrower hereby covenants and agrees that METLIFE shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Indebtedness. Nothing contained in this Section 8 shall require METLIFE to incur any expense or take any action hereunder. 9. INSPECTION. METLIFE may make or cause to be made reasonable entries upon the Property to inspect the interior and exterior thereof. 10. FINANCIAL DATA. Borrower will furnish to METLIFE, and will cause any guarantor of the Indebtedness to furnish METLIFE on request, within ninety (90) days after the close of its fiscal year (i) annual balance sheet and profit and loss statements prepared in accordance with generally accepted accounting principles and practices consistently applied and, if METLIFE so requires, accompanied by the annual audit report of an independent certified public accountant reasonably acceptable to METLIFE, (ii) an annual operating statement, together with a complete rent roll and other supporting data reflecting all material information with respect to the operation of the Property and Improvements, and (iii) all other financial information and reports that METLIFE may from time to time reasonably request, including, if METLIFE so requires, income tax returns of Borrower and any guarantor of any portion of the Indebtedness, and financial statements of any tenants designated by METLIFE. 11. CONDEMNATION. If the Property, or any part thereof, shall be condemned for any reason, including without limitation fire or earthquake damage, or otherwise taken for public or quasi-public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking of, or injury to, the Property shall be paid to METLIFE who shall have the right, in its sole and absolute discretion, to apply the amounts so received against (a) the costs and expenses of METLIFE, including reasonable attorneys' fees incurred in connection with collection of such amounts, and (b) the balance against the Indebtedness; provided, however, that if (i) no Event of Default shall have occurred and be continuing hereunder, (ii) Borrower provides evidence satisfactory to METLIFE of its ability to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, (iii) METLIFE determines, in its sole discretion, that the proceeds of such award are sufficient to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such taking (or, if the proceeds of such award are insufficient for such purpose, if Borrower provides additional sums to METLIFE's satisfaction so that the 9 aggregate of such sums and the proceeds of such award will be sufficient for such purpose), and (iv) Borrower provides evidence satisfactory to METLIFE that none of the tenants of the Property will terminate their lease agreements as a result of either the condemnation or taking or the repairs to or replacement of the Property, the proceeds of such award, together with additional sums provided by Borrower, shall be placed in a separate account for the benefit of METLIFE and Borrower to be used to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such taking. All work to be performed in connection therewith shall be pursuant to a written contract therefor, which contract shall be subject to the prior approval of METLIFE. To the extent that any funds remain after the Property has been so restored and repaired, the same shall be applied against the Indebtedness in such order as METLIFE may elect. To enforce its rights hereunder, METLIFE shall be entitled to participate in and control any condemnation proceedings and to be represented therein by counsel of its own choice, and Borrower will deliver, or cause to be delivered to METLIFE such instruments as may be requested by it from time to time to permit such participation. In the event METLIFE, as a result of any such judgment, decree or award, believes that the payment or performance of any of the Indebtedness is impaired, METLIFE may declare all of the Indebtedness immediately due and payable. 12. BORROWER AND LIEN NOT RELEASED. From time to time, METLIFE may, at METLIFE's option, without giving notice to or obtaining the consent of Borrower, Borrower's successors or assigns or of any junior lienholder or guarantors, without liability on METLIFE's part and notwithstanding Borrower's breach of any covenant or agreement of Borrower in this Instrument, extend the time for payment of the Indebtedness or any part thereof, reduce the payments thereon, release anyone liable on any of the Indebtedness, accept an extension or modification or renewal note or notes therefor, modify the terms and time of payment of the Indebtedness, release from the lien of this Instrument any part of the Property, take or release other or additional security, reconvey any part of the Property, consent to any map or plan of the Property, consent to the granting of any easement, join in any extension or subordination agreement, and agree in writing with Borrower to modify the rate of interest or period of amortization of the Note or change the amount of the monthly installments payable thereunder. Any actions taken by METLIFE pursuant to the terms of this Section 12 shall not affect the obligation of Borrower or Borrower's successors or assigns to pay the sums secured by this Instrument and to observe the covenants of Borrower contained herein, shall not affect the guaranty of any person, corporation, partnership or other entity for payment of the Indebtedness, and shall not affect the lien or priority of the lien hereof on the Property. Borrower shall pay METLIFE a service charge, together with such title insurance premiums and attorneys' fees as may be incurred at METLIFE's option, for any such action if taken at Borrower's request. 13. FORBEARANCE BY METLIFE NOT A WAIVER. Any forbearance by METLIFE in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any other right or remedy. The acceptance by METLIFE of payment of any sum secured by this Instrument after the due date of such payment shall not be a waiver of 10 METLIFE's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other liens or charges by METLIFE shall not be a waiver of METLIFE's right to accelerate the maturity of the Indebtedness secured by this Instrument, nor shall METLIFE's receipt of any awards, proceeds or damages under Sections 5 and 11 hereof operate to cure or waive Borrower's default in payment of sums secured by this Instrument. 14. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is intended to be a security agreement pursuant to the Uniform Commercial Code for any of the items specified above as part of the Property which, under applicable law, may be subject to a security interest pursuant to the Uniform Commercial Code, and Borrower hereby grants and conveys to METLIFE a first and prior security interest in all of the Property that constitutes personally, whether now owned or hereafter acquired. Borrower agrees that METLIFE may file this Instrument, or a reproduction thereof, in the real estate records or other appropriate index, as a financing statement for any of the items specified above as part of the Property. Any reproduction of this Instrument or of any other security agreement or financing statement shall be sufficient as a financing statement. In addition, Borrower agrees to execute and deliver to METLIFE, upon METLIFE's request, any financing statements, as well as extensions, renewals and amendments thereof, and reproductions of this Instrument in such form as METLIFE may require to perfect a security interest with respect to the foregoing items. Borrower shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all costs and expenses of any record searches for financing statements METLIFE may require. Without the prior written consent of METLIFE, Borrower shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in said items, including replacements and additions thereto. Upon Borrower's breach of any covenant or agreement of Borrower contained in this Instrument, including the covenants to pay when due all sums secured by this Instrument, METLIFE shall have the remedies of a secured party under the Uniform Commercial Code, and METLIFE may also invoke the remedies provided in Section 26 of this Instrument as to such items. In exercising any of said remedies METLIFE may proceed against the items of real property and any items of personal property specified above separately or together and in any order whatsoever, without in any way affecting the availability of METLIFE's remedies under the Uniform Commercial Code or of the remedies provided in Section 26 of this Instrument. Within ten (10) days following any request therefor by METLIFE, Borrower shall prepare and deliver to METLIFE a written inventory specifically listing all of the personal property covered by the security interest herein granted, which inventory shall be certified by Borrower as being true, correct, and complete. 15. LEASES OF THE PROPERTY. As used in this Section 15, the word "Lease" shall include subleases if this Instrument is on a leasehold. Borrower shall comply with and observe Borrower's obligations as landlord under all Leases of the Property or any part thereof. All Leases now or hereafter entered into will be in form and substance subject to the approval of METLIFE. All Leases of the Property shall specifically provide that such Leases are subordinate to this Instrument; that the tenant attorns to METLIFE, such attornment to be effective upon METLIFE's acquisition of title to the 11 Property; that the tenant agrees to execute such further evidences of attornment as METLIFE may from time to time request; that the attornment of the tenant shall not be terminated by foreclosure; and that METLIFE may, at METLIFE's option, accept or resect such attornments. Borrower shall not, without METLIFE's written consent, request or consent to the subordination of any Lease of all or any part of the Property to any lien subordinate to this Instrument. If Borrower becomes aware that any tenant proposes to do, or is doing, any act or thing which may give rise to any right of set-off against rent, Borrower shall (i) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (ii) immediately notify METLIFE thereof in writing and of the amount of said set-offs, and (iii) within ten (10) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such setoff-and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. Upon METLIFE's receipt of notice of the occurrence of any default or violation by Borrower of any of its obligations under the Leases, METLIFE shall have the immediate right, but not the duty or obligation, without prior written notice to Borrower or to any third party, to enter upon the Property and to take such actions as METLIFE may deem necessary to cure the default or violation by Borrower under the Leases. The costs incurred by METLIFE in taking any such actions pursuant to this paragraph shall become part of the Indebtedness, shall bear interest at the rate provided in the Note, and shall be payable by Borrower to METLIFE on demand. METLIFE shall have no liability to Borrower or to any third party for any actions taken by METLIFE or not taken pursuant to this paragraph. 16. REMEDIES CUMULATIVE. Each remedy provided in this Instrument is distinct and cumulative to all other rights or remedies under this Instrument or afforded by law or equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 17. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER; ASSUMPTION. METLIFE may, at its option, declare all sums secured by this Instrument to be immediately due and payable, and METLIFE may invoke any remedies permitted by Section 26 of this Instrument, if title to the Property is changed without the prior written consent of METLIFE, which consent shall be at METLIFE's sole discretion. Any transfer of any interest in the Property or in the income therefrom, by sale, lease (except for leases to tenants in the ordinary course of managing income property which are approved by METLIFE pursuant to Section 15 of this Instrument), contract, mortgage, deed of trust, further encumbrance or otherwise (including any such transfers as security for additional financing of the Property), and any change in the ownership interests in Borrower (including any change in the ownership interests of any legal entities which comprise or control Borrower), except transfers and changes in ownership by devise or descent, shall be considered a change of title. METLIFE shall have the right to condition its consent to any proposed sale or transfer described in this Section 17 upon, among other things, METLIFE's approval of the transferee's creditworthiness and management ability and the transferee's execution, prior to the sale or transfer, of a written assumption agreement containing such terms as METLIFE may require, including, if required by METLIFE, the imposition of an assumption fee of one percent 12 (1%) of the then outstanding balance of the Indebtedness. Consent by METLIFE to one transfer of the Property shall not constitute consent to subsequent transfers or waiver of the provisions of this Section 17. No transfer by Borrower shall relieve Borrower of liability for payment of the Indebtedness. Notwithstanding anything herein to the contrary, the foregoing limitations on transfer shall not apply to the sale, transfer or assignment of equity securities in Borrower, so long as such assignments, transfers and sales of the equity securities of Borrower do not result in the sale, transfer or assignment of fifty percent (50%) or more of the equity securities of Borrower within any twelve (12) month period; provided, however, the immediately preceding restriction shall not apply to (a) transactions effected in the ordinary course of business on any registered stock exchange; or (b) the issuance by Borrower of additional equity securities or warrants or options to purchase additional equity securities provided that no person or entity acquires fifty percent (50%) or more of the voting stock of Borrower as a result thereof. 18. NOTICE. Except for any notice required under applicable law to be given in another manner, any and all notices, elections, demands, or requests permitted or required to be made under this Instrument or under the Note shall be in writing, signed by the party giving such notice, election, demand or request, and shall be delivered personally, by telegram, or sent by registered, certified, or Express United States mail, postage prepaid, or by Federal Express or similar service requiring a receipt, to the other party at the address stated above, or to such other party and at such other address within the United States of America as any party may designate in writing as provided herein. The date of receipt of such notice, election, demand or request shall be the earliest of (i) the date of actual receipt, (ii) three (3) days after the date of mailing by registered or certified mail, (iii) one (1) day after the date of mailing by Express Mail or the delivery (for redelivery) to Federal Express or another similar service requiring a receipt, or (iv) the date of personal delivery (or refusal upon presentation for delivery). 19. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS; CAPTIONS. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective heirs, successors and assigns of METLIFE and Borrower, subject to the provisions of Section 17 hereof. If Borrower is comprised of more than one person or entity, whether as individuals, partners, partnerships or corporations, each such person or entity shall be Jointly and severally liable for Borrowers obligations hereunder. In exercising any rights hereunder or taking any actions provided for herein, METLIFE may act through its employees, agents or independent contractors as authorized by METLIFE. The captions and headings of the sections of this Instrument are for convenience only and are not to be used to interpret or define the provisions hereof. 20. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to assert any statute of limitations as a bar to the enforcement of the lien of this Instrument or to any action brought to enforce the Note or any other obligation secured by this Instrument. 13 21. WAIVER OF MARSHALLING. Notwithstanding the existence of any other security interests in the Property held by METLIFE or by any other party, METLIFE shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. METLIFE shall have the right to determine the order in which any or all portions of the Indebtedness secured hereby are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Borrower, any party who consents to this Instrument and any party who now or hereafter acquires a security interest in the Property and who has actual or constructive notice hereof hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 22. HAZARDOUS WASTE. Borrower has furnished to METLIFE a Phase I Environmental Assessment dated January 16, 1996, as supplemented by that Phase II Environmental Assessment dated May 21, 1996 and those certain letters to Ms. Roberta L. Greenway dated May 23, 1996 and May 30, 1996 and prepared by Clayton Environmental Consultants, that certain Phase II Environmental Assessment dated March 1, 1996 and prepared by Missaukee Surveying & Engineering, Inc. and an Environmental Questionnaire dated May 20, 1996 (collectively, the "Report"). Except as disclosed to METLIFE in the Report, Borrower has received no notification of any kind suggesting that the Property or any adjacent property is or may be contaminated with any hazardous waste or materials or is or may be required to be cleaned up in accordance with any applicable law or regulation; and Borrower further represents and warrants that, except as previously disclosed to METLIFE in writing, to the best of its knowledge as of the date hereof after due and diligent inquiry, there are no hazardous waste or materials located in, on or under the Property or any adjacent property, or incorporated in any Improvements, nor has the Property or any adjacent property ever been used as a landfill or a waste disposal site, or a manufacturing, handling, storage, distribution or disposal facility for hazardous waste or materials. As used herein, the term "hazardous waste or materials" includes any substance or material defined in or designated as hazardous or toxic wastes, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any federal, state or local statute, regulation or ordinance now or hereafter in effect. Borrower shall promptly comply with all statutes, regulations and ordinances, and with all orders, decrees or Judgments of governmental authorities or courts having jurisdiction, relating to the use, collection, treatment, disposal, storage, control, removal or cleanup of hazardous waste or materials in, on or under the Property or any adjacent property, or incorporated in any Improvements, at Borrower's expense. In the event that METLIFE at any time believes that the Property is not free of all hazardous waste or materials or that Borrower has violated any applicable environmental law with respect to the Property, then immediately upon request by METLIEE, Borrower shall obtain and furnish to METLIFE, at Borrowers sole cost and expense, an environmental audit and inspection of the Property from an expert satisfactory to METLIFE. In the event that Borrower fails to immediately obtain such audit or inspection, METLIFE or its agents may perform or obtain such audit or inspection at Borrower's sole cost and expense. METLIFE may, but is not obligated to, enter upon the Property and take such actions and incur such costs and expenses to effect such compliance as it deems advisable to protect its interest in the Property; and whether or not Borrower has actual knowledge of the existence of hazardous waste or materials on the Property or any adjacent property as of the date hereof, Borrower shall reimburse METLIFE as provided in Section 23 below for the full amount of all 14 costs and expenses incurred by METLIFE prior to METLIFE acquiring title to the Property through foreclosure or acceptance of a deed in lieu of foreclosure, in connection with such compliance activities. Neither this provision nor any of the other Loan Documents shall operate to put METLIFE in the position of an owner of the Property prior to any acquisition of the Property by METLIFE. The rights granted to METLIFE herein and in the other Loan Documents are granted solely for the protection of METLIFE's lien and security interest covering the Property, and do not grant to METLIFE the right to control Borrower's actions, decisions or policies regarding hazardous waste or materials. 23. ADVANCES, COSTS AND EXPENSES. Borrower shall pay within ten (10) days after written demand from METLIFE all sums advanced by METLIFE and all costs and expenses incurred by METLIFE in taking any actions pursuant to the Loan Documents including attorneys' fees and disbursements, accountants' fees, appraisal and inspection fees and the costs for title reports and guaranties, together with interest thereon at the rate applicable under the Note after an Event of Default from the date such costs were advanced or incurred. All such costs and expenses incurred by METLIFE, and advances made, shall constitute advances under this Instrument to protect the Property and shall be secured by and have the same priority as the lien of this Instrument. If Borrower fails to pay any such advances, costs and expenses and interest thereon, METLIFE may apply any undisbursed loan proceeds to pay the same, and, without foreclosing the lien of this Instrument, may at its option commence an independent action against Borrower for the recovery of the costs, expenses and/or advances, with interest, together with costs of suit, costs of title reports and guaranty of title, disbursements of counsel and reasonable attorneys' fees incurred therein or in any appeal therefrom. 24. ASSIGNMENT OF LEASES AND RENTS. Borrower, for good and valuable consideration, the receipt of which is hereby acknowledged, to secure the Indebtedness, does hereby absolutely and unconditionally grant, bargain, sell, transfer, assign, convey, set over and deliver unto METLIFE all right, title and interest of Borrower in, to and under the Leases of the Property, whether now in existence or hereafter entered into, and all guaranties, amendments, extensions and renewals of said Leases and any of them, and all rents, income and profits which may now or hereafter be or become due or owing under the Leases, and any of them, or on account of the use of the Property. Borrower represents, warrants, covenants and agrees with METLIFE as follows: (a) The sole ownership of the entire lessor's interest in the Leases is vested in Borrower, and Borrower has not, and shall not, perform any acts or execute any other instruments which might prevent METLIFE from fully exercising its rights with respect to the Leases under any of the terms, covenants and conditions of this Instrument. (b) The Leases are and shall be valid and enforceable in accordance with their terms and have not been and shall not be altered, modified, amended, terminated, canceled, renewed or surrendered except as approved in writing by METLIFE. The terms and 15 conditions of the Leases have not been and shall not be waived in any manner whatsoever except as approved in writing by METLIFE. (c) Borrower shall not materially alter the term or the amount of rent payable under any Lease without prior written notice to METLIFE and METLIFE's consent, which shall not be unreasonably withheld. (d) To the best of Borrower's knowledge, there are no defaults now existing under any of the Leases and there exists no state of facts which, with the giving of notice or lapse of time or both, would constitute a default under any of the Leases. (e) Borrower shall give prompt written notice to METLIFE of any notice received by Borrower claiming that a default has occurred under any of the Leases on the part of Borrower, together with a complete copy of any such notice. (f) Each of the Leases shall remain in full force and effect irrespective of any merger of the interest of lessor and any lessee under any of the leases. (g) Borrower will not permit any Lease to become subordinate to any lien other than the lien of this Instrument. This assignment is absolute, is effective immediately, and is irrevocable by Borrower so long as the Indebtedness remains outstanding. Notwithstanding the foregoing, until a Notice is sent to Borrower in writing that an Event of Default has occurred (which notice is hereafter called a "Notice"), Borrower may receive, collect and enjoy the rents, income and profits accruing from the Property. Upon the occurrence of an Event of Default hereunder, METLIFE may, at its option, after service of a Notice, receive and collect all such rents, income and profits from the Property as they become due. METLIFE shall thereafter continue to receive and collect all such rents, income and profits, as long as such default or defaults shall exist, and during the pendency of any foreclosure proceedings. Borrower hereby irrevocably appoints METLIFE its true and lawful attorney with power of substitution and with full power for METLIFE in its own name and capacity or in the name and capacity of Borrower, from and after service of a Notice, to demand, collect, receive and give complete acquittances for any and all rents, income and profits accruing from the Property, either in its own name or in the name of Borrower or otherwise, which METLIFE may deem necessary or desirable in order to collect and enforce the payment of the rents, income and profits of and from the Property. Lessees of the Property are hereby expressly authorized and directed, following receipt of a Notice from METLIFE, to pay any and all amounts due Borrower pursuant to the Leases to METLIFE or such nominee as METLIFE may designate in a writing delivered to and received by such lessees, and the lessees of the Property are expressly relieved of any and all duty, liability or obligation to Borrower in respect of all payments so made. 16 Upon the occurrence of any Event of Default, from and after service of a Notice, METLIFE is hereby vested with full power to use all measures, legal and equitable, deemed by it to be necessary or proper to enforce this Section 24 and to collect the rents, income and profits assigned hereunder, including the right of METLIFE or its designee, to enter upon the Property, or any part thereof, and take possession of all or any part of the Property together with all personal property, fixtures, documents, books, records, papers and accounts of Borrower relating thereto, and METLIFE may exclude Borrower, its agents and servants, wholly therefrom. Borrower hereby grants full power and authority to METLIFE to exercise all rights, privileges and powers herein granted at any and all times after service of a Notice, with full power to use and apply all of the rents and other income herein assigned to the payment of the costs of managing and operating the Property and of any indebtedness or liability of Borrower to METLIFE, including but not limited to the payment of taxes, special assessments, insurance premiums, damage claims, the costs of maintaining, repairing, rebuilding and restoring the improvements on the Property or of making the same rentable, reasonable attorneys' fees incurred in connection with the enforcement of this Instrument, and of principal and interest payments due from Borrower to METLIFE on the Note and this Instrument, all in such order as METLIFE may determine. METLIFE shall be under no obligation to exercise or prosecute any of the rights or claims assigned to it hereunder or to perform or carry out any of the obligations of the lessor under any of the Leases and does not assume any of the liabilities in connection with or arising or growing out of the covenants and agreements of Borrower in the Leases. It is further understood that the assignment set forth in this Section 24 shall not operate to place responsibility for the control, care, management or repair of the Property, or parts thereof, upon METLIFE, nor shall it operate to make METLIFE liable for the performance of any of the terms and conditions of any of the Leases, or for any waste of the Property by any lessee under any of the Leases, or any other person, or for any dangerous or defective condition of the Property or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any lessee, licensee, employee or stranger. 25. DEFAULT. The following shall each constitute an event of default ("Event of Default"): (a) Failure of or refusal by Borrower to pay any portion of the sums secured by this Instrument when due, and such failure or refusal shall continue for a period of ten (10) days after written notice is given to Borrower by METLIFE specifying such failure; or (b) Failure of Borrower within the time required by this Instrument to make any payment for taxes, insurance or for reserves for such payments, or any other payment necessary to prevent filing of or discharge of any lien, and such failure shall continue for a period of ten (10) days after written notice is given to Borrower by METLIFE specifying such failure; or (c) Failure by Borrower to observe or perform any obligations of Borrower to METLIFE on or with respect to any transactions, debts, 17 undertakings or agreements other than the transaction evidenced by the Note; or (d) Failure of Borrower to make any payment or perform any obligation under any superior liens or encumbrances on the Property, within the time required thereunder, or commencement of any suit or other action to foreclose any superior liens or encumbrances; or (e) Failure by Borrower to observe or perform any of its obligations under any of the Leases; or (f) The Property is transferred or any agreement to transfer any part or interest in the Property in any manner whatsoever is made or entered into without the prior written consent of METLIFE, except as specifically allowed under this Instrument, including without limitation creating or allowing any liens on the Property or leasing any portion of the Property; or (g) Filing by Borrower of a voluntary petition in bankruptcy or filing by Borrower of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the seeking, consenting to, or acquiescing by Borrower in the appointment of any trustee, receiver, custodian, conservator or liquidator for Borrower, any part of the Property, or any of the income or rents of the Property, or the making by Borrower of any general assignment for the benefit of creditors, or the inability of or failure by Borrower to pay its debts generally as they become due, or the insolvency on a balance sheet basis or business failure of Borrower, or the making or suffering of a preference within the meaning of federal bankruptcy law or the making of a fraudulent transfer under applicable federal or state law, or concealment by Borrower of any of its property in fraud of creditors, or the imposition of a lien upon any of the property of Borrower which is not discharged in the manner permitted by Section 4 of this Instrument, or the giving of notice by Borrower to any governmental body of insolvency or suspension of operations; or (h) Filing of a petition against Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation, or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debts, or the appointment of any trustee, receiver, custodian, conservator or liquidator of Borrower, of any part of the Property or of any of the income or rents of the Property, unless such petition shall be dismissed within sixty (60) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; or (i) The institution of any proceeding for the dissolution or termination of Borrower voluntarily, involuntarily, or by operation of law, or the death of Borrower; or 18 (j) A material adverse change occurs in the assets, liabilities or net worth of Borrower from the assets, liabilities or net worth of Borrower previously disclosed to METLIFE; or (k) Any warranty, representation or statement furnished to METLIFE by or on behalf of Borrower under the Note, this Instrument, any of the other Loan Documents or the Certificate and Indemnity Agreement Regarding Hazardous Substances, shall prove to have been false or misleading in any material respect; or (l) Failure of Borrower to observe or perform any other covenant or condition contained in the Note and such default shall continue for thirty (30)-days after notice is given to Borrower specifying the nature of the failure. No notice of default and no opportunity to cure shall be required if during the prior twelve (12) months METLIFE has already sent a notice to Borrower concerning default in performance of the same obligation; or (m) Failure of Borrower to observe or perform any other obligation under this Instrument, any other Loan Document or the Certificate and Indemnity Regarding Hazardous Substances when such observance or performance is due, and such failure shall continue beyond the applicable cure period set forth in such Loan Document, or if the default cannot be cured within such applicable cure period, Borrower fails within such time to commence and pursue curative action with reasonable diligence or fails at any time after expiration of such applicable cure period to continue with reasonable diligence all necessary curative actions. No notice of default and no opportunity to cure shall be required if during the prior twelve (12) months METLIFE has already sent a notice to Borrower concerning default in performance of the same obligation; or (n) Any of the foregoing events occur with respect to any tenant of the Property, or with respect to any guarantor of any tenant's obligations relating to the Property. 26. RIGHTS AND REMEDIES ON DEFAULT. 26.1 Remedies. Upon the occurrence of any Event of Default and at any time thereafter, METLIFE may exercise any one or more of the following rights and remedies: (a) METLIFE may declare all sums secured by this Instrument immediately due and payable, including any prepayment premium which Borrower would be required to pay. (b) METLIFE shall have the right to foreclose this Instrument in accordance with applicable law. The commencement by METLIFE of foreclosure proceedings by advertisement or in equity shall be deemed an exercise by METLIFE of 19 its option to accelerate the due date of all sums secured hereby. Borrower hereby grants power to METLIFE, in the event of the occurrence of an Event of Default, to grant, bargain, sell, release and convey the Premises at public auction or vendue, and upon such sale to execute and deliver to the purchaser(s) instruments of conveyance pursuant to the terms hereof and to the applicable laws. Borrower acknowledges that the foregoing sentence confers a power of sale upon METLIFE, and that upon an Event of Default this Mortgage may be foreclosed by advertisement as described below and in the applicable Michigan statutes. Borrower understands that upon an Event of Default, METLIFE is hereby authorized and empowered to sell the Premises, or cause the same to be sold and to convey the same to the purchaser in any lawful manner, including but not limited to that provided by Chapter 32 of the Revised Judicature Act of Michigan, entitled "Foreclosure of Mortgage by Advertisement", which permits METLIFE to sell the Premises without affording Borrower a hearing, or giving Borrower actual personal notice. The only notice required under such Chapter 32 is to publish notice in a local newspaper and to post a copy of the notice on the Premises. (c) In the event of any foreclosure, to the extent permitted by applicable law, METLIFE will be entitled to a judgment which will provide that if the foreclosure sale proceeds are insufficient to satisfy the judgment, execution may issue for any amount by which the unpaid balance of the obligations secured by this Instrument exceeds the net sale proceeds payable to METLIFE. (d) With respect to all or any part of the Property that constitutes personally, METLIFE shall have all rights and remedies of secured party under the Uniform Commercial Code. (e) METLIFE shall have the right to have a receiver appointed to take possession of any or all of the Property, with the power to protect and preserve the Property, to operate the Property preceding foreclosure or sale, to collect all the rents and revenues from the Property and apply the proceeds, over and above cost of the receivership, against the sums due under this Instrument, and to exercise all of the rights with respect to the Property described in Section 24 above. The receiver may serve without bond if permitted by law. METLIFE's right to the appointment of a receiver shall exist whether or not apparent value of the Property exceeds the sums due under this Instrument by a substantial amount. Employment by METLIFE shall not disqualify a person from serving as a receiver. (f) In the event Borrower remains in possession of the Property after the Property is sold as provided above or METLIFE otherwise becomes entitled to possession of the Property upon default of Borrower, Borrower shall become a tenant at will of METLIFE or the purchaser of the Property and shall pay a reasonable rental for use of the Property while in Borrower's possession. 20 (g) METLIFE shall have any other right or remedy provided in this Instrument, the Note, or any other Loan Document or instrument delivered by Borrower in connection therewith, or available at law, in equity or otherwise. (h) METLIFE shall have all the rights and remedies set forth in Sections 23 and 24. 26.2 Sale of the Property. In exercising its rights and remedies, METLIFE may, at METLIFE's sole discretion, cause all or any part of the Property to be sold as a whole or in parcels, and certain portions of the Property may be sold without selling other portions. METLIFE may bid at any public sale on all or any portion of the Property. 26.3 Notice of Sale. METLIFE shall give Borrower reasonable notice of the time and place of any public sale of any personal property or of the time after which any private sale or other intended disposition of the personal property is to be made. Reasonable notice shall mean notice given in accordance with applicable law, including notices given in the manner and at the times required for notices in a nonjudicial foreclosure. 26.4 Waiver; Election of Remedies. A waiver by either party of a breach of a provision of this Instrument shall not constitute a waiver of or prejudice the party's right otherwise to demand strict compliance with that provision or any other provision. Election by METLIFE to pursue any remedy shall not exclude pursuit of any other remedy, and all remedies of METLIFE under this Instrument are cumulative and not exclusive. An election to make expenditures or take action to perform an obligation of Borrower shall not affect METLIFE's right to declare a default and exercise its remedies under this Instrument. 27. SATISFACTION OF MORTGAGE. Upon payment of all sums secured by this Instrument, METLIFE shall execute a satisfaction of this Instrument and shall surrender this Instrument and all notes evidencing Indebtedness secured by this Instrument to the person or persons legally entitled thereto. Such person or persons shall pay METLIFE's costs incurred in connection with satisfaction of this Instrument. 28. FUTURE ADVANCES. Upon request of Borrower, METLIFE, at METLIFE's option so long as this Instrument secures Indebtedness held by METLIFE, may make Future Advances to Borrower. Such Future Advances, with interest thereon, shall be secured by this Instrument when evidenced by promissory notes stating that said notes are secured hereby. 29. IMPOSITION OF TAX BY STATE. 29.1 State Taxes Covered. The following constitute state taxes to which this Section applies: (a) A specific tax upon mortgages or upon all or any part of the indebtedness secured by a mortgage. 21 (b) A specific tax on a mortgagor which the taxpayer is authorized or required to deduct from payments on the indebtedness secured by a mortgage. (c) A tax on a mortgage chargeable against the mortgagee or the holder of the note secured. (d) A specific tax on all or any portion of the indebtedness or on payments of principal and interest made by a mortgagor. 29.2 Remedies. If any state tax to which this Section applies is enacted subsequent to the date of this Instrument, this shall have the same effect as an Event of Default, and METLIFE may exercise any or all of the remedies available to it unless the following conditions are met: (a) Borrower may lawfully pay the tax or charge imposed by state tax, and (b) Borrower pays the tax or charge within thirty (30) days after notice from METLIFE that the tax law has been enacted. 30. ATTORNEYS' FEES. In the event suit or action is instituted to enforce or interpret any of the terms of this Instrument (including without limitation efforts to modify or vacate any automatic stay or injunction), the prevailing party shall be entitled to recover all expenses reasonably incurred at, before and after trial and on appeal whether or not taxable as costs, or in any bankruptcy proceeding including, without limitation, attorneys' fees, witness fees (expert and otherwise), deposition costs, copying charges and other expenses. Whether or not any court action is involved, all reasonable expenses, including but not limited to the costs of searching records, obtaining title reports, surveyor reports, and title insurance, incurred by METLIFE that are necessary at any time in METLIFE's opinion for the protection of its interest or enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interest from the date of expenditure until repaid at the interest rate as provided in the Note. The term "attorneys' fees" as used in the Loan Documents shall be deemed to mean such fees as are reasonable and are actually incurred. 31. GOVERNING LAW; SEVERABILITY. This Instrument shall be governed by the law of the State of Michigan applicable to contracts made and to be performed therein (excluding choice-of-law principles). In the event that any provision or clause of this Instrument or the Note conflicts with applicable law, such conflict shall not affect other provisions of this Instrument or the Note which can be given effect without the conflicting provision, and to this end the provisions of this Instrument and the Note are declared to be severable. 32. TIME OF ESSENCE. Time is of the essence of this Instrument. 33. CHANGES IN WRITING. This Instrument and any of its terms may only be changed, waived, discharged or terminated by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge 22 or termination is sought. Any agreement subsequently made by Borrower or METLIFE relating to this Instrument shall be superior to the rights of the holder of any intervening lien or encumbrance. 34. NO OFFSET. Borrower's obligation to make payments and perform all obligations, covenants and warranties under this Instrument and under the Note shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation any setoff, counterclaim, abatement, suspension, recoupment, deduction, defense or other right that Borrower or any guarantor may have or claim against METLIFE or any entity participating in making the loan secured hereby. The foregoing provisions of this section, however, do not constitute a waiver of any claim or demand which Borrower or any guarantor may have in damages or otherwise against METLIFE or any other person, or preclude Borrower from maintaining a separate action thereon; provided, however, that Borrower waives any right it may have at law or in equity to consolidate such separate action with any action or proceeding brought by METLIFE. 35. AUTHORIZATION TO INSERT. Borrower authorizes METLIFE or its agent to insert in the spaces provided herein the amount of the Note, the mortgagee's loan policy number, the title company issuing such policy, the total amounts of the obligations secured, and the last payment due dates, if any of the foregoing information is not typed in on this document. 36. MAXIMUM INTEREST CHARGES. Notwithstanding anything contained herein or in any of the Loan Documents to the contrary, in no event shall METLIFE be entitled to receive interest on the loan secured by this Instrument (the "Loan") in amounts which, when added to all of the other interest charged, paid to or received by METLIFE on the Loan, causes the rate of interest on the Loan to exceed the highest lawful rate. Borrower and METLIFE intend to comply with the applicable law governing the highest lawful rate and the maximum amount of interest payable on or in connection with the Loan. If the applicable law is ever judicially interpreted so as to render usurious any amount called for under the Loan Documents, or contracted for, charged, taken, reserved or received with respect to the Loan, or if acceleration of the final maturity date of the Loan or if any prepayment by Borrower results in Borrower having paid or demand having been made on Borrower to pay, any interest in excess of the amount permitted by applicable law, then all excess amounts theretofore collected by METLIFE shall be credited on the principal balance of the Note (or, if the Note has been or would thereby be paid in full, such excess amounts shall be refunded to Borrower), and the provisions of the Note, this Instrument and any demand on Borrower shall immediately be deemed reformed and the amounts thereafter collectible thereunder and hereunder shall be reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder and hereunder. The right to accelerate the final maturity date of the Loan does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and METLIFE does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to METLIFE for the use, forbearance or detention of the Loan shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread through the 23 full term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the applicable usury ceiling. By execution of this Instrument, Borrower acknowledges that it believes the Loan to be nonusurious and agreed that if, at any time, Borrower should have reason to believe that the Loan is in fact usurious, it will give METLIFE written notice of its belief and the reasons why Borrower believes the Loan to be usurious, and Borrower agrees that METLIFE shall have ninety (90) days following its receipt of such written notice in which to make appropriate refund or other adjustment in order to correct such condition if it in fact exists. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ABE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT. IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused the same to be executed by its representatives whereunto duly authorized. WITNESSES: BORROWER: /s/ Sean M. Carty SECOM GENERAL CORPORATION, - -------------------------- a Delaware of corporation Print Name: Sean M. Carty /s/ Michael A. Lesha By: /s/ David J. Marczak - -------------------------- ---------------------------- Print Name: Micheal A. Lesha Print Name: David J. Morczak Its: Chief Financial Officer -------------------------- STATE OF MICHIGAN ) ss. COUNTY OF WAYNE The foregoing instrument was acknowledged before me this 24th day of May, 1996, by /s/ David J. Marczak, the Chief Financial Officer of SECOM GENERAL CORPORATION, a Delaware corporation, on behalf of said entity. /s/ Michael A. Lesha -------------------------- Notary Public ______________County,_____ My Commission Expires:____ MICHAEL A. LESHA Notary Public, Wayne County, MI My Commission Expires Sept. 23, 1999 24 EX-10.5 6 EXHIBIT 10.5 LOAN AGREEMENT Among GE CAPITAL PUBLIC FINANCE, INC., as Lender, and MICHIGAN STRATEGIC FUND, as Issuer, and SECOM GENERAL CORPORATION, as Borrower Dated as of June 1, 1996 --------- This instrument constitutes a security agreement under the Michigan Uniform Commercial Code --------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01. Definitions ........................................ 2 Section 1.02. Exhibits ........................................... 5 Section 1.03. Rules of Construction............................... 6 ARTICLE II FINANCING OF EQUIPMENT AND TERMS OF LOAN Section 2.01. Acquisition of Equipment............................ 6 Section 2.02. Loan................................................ 6 Section 2.03. Interest............................................ 6 Section 2.04. Payments............................................ 6 Section 2.05. Payment on Non-Business Days........................ 7 Section 2.06. Loan Payments To Be Unconditional................... 7 Section 2.07. Prepayments......................................... 7 Section 2.08. Execution, Authentication and Delivery of the Bond.. 8 Section 2.09. Mutilated, Lost, Stolen or Destroyed Bond .......... 8 ARTICLE III CONDITIONS PRECEDENT............................................... 8 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER................ 11 ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.............. 13 ARTICLE VI TITLE TO EQUIPMENT; SECURITY INTEREST Section 6.01. Title to the Equipment.............................. 20 Section 6.02. Security Interest in Equipment...................... 20 Section 6.03. Change in Name or Corporate Structure of Borrower; Change in Location of Borrower's Principal Place of Business......................................... 21 Section 6.04. Liens and Encumbrances to Title..................... 21 Section 6.05. Personal Property................................... 21 Section 6.06. Assignment of Insurance............................. 21 Section 6.07. Occupancy........................................... 22 Section 6.08. Agreement as Financing Statement.................... 22 ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER Section 7.01. Reporting Requirements.............................. 22 Section 7.02. Books and Records; Inspection and Examination....... 24 Section 7.03. Compliance With Laws; Environmental Indemnity....... 24 Section 7.04. Payment of Taxes and Other Claims................... 24 Section 7.05. Maintenance of Equipment............................ 24 Section 7.06. Insurance; Indemnification.......................... 25 Section 7.07. Preservation of Corporate Existence................. 27 Section 7.08. Performance by Lender............................... 27 Section 7.09. Covenant as to Nonimpairment of Tax-exempt Status... 27 Section 7.10. Financial Covenants................................. 28 ARTICLE VIII NEGATIVE COVENANTS OF BORROWER Section 8.01. Lein................................................ 29 Section 8.02. Sale of Assets...................................... 29 Section 8.03. Consolidation and Merger............................ 29 Section 8.04. Accounting.......................................... 30 Section 8.05. Transfers........................................... 30 Section 8.06. Other Defaults...................................... 30 Section 8.07. Place of Business................................... 30 Section 8.08. Modification and Substitutions...................... 30 Section 8.09. Use of the Equipment................................ 30 ARTICLE IX DAMAGE AND DESTRUCTION;............................................ 31 ARTICLE X ASSIGNMENT, SUBLEASING AND SELLING Section 10.01. Assignment by Lender................................ 31 Section 10.02. No Sale or Assignment by Borrower................... 32 ii ARTICLE XI EVENTS OF DEFAULT AND REMEDIES Section 11.01. Events of Default................................... 32 Section 11.02. Remedies on Default................................. 33 Section 11.03. Return of Equipment................................. 34 Section 11.04. No Remedy Exclusive................................. 35 Section 11.05. Late Charge......................................... 35 ARTICLE XII MISCELLANEOUS Section 12.01. Costs and Expenses of Lender and Issuer............. 35 Section 12.02. Disclaimer of Warranties............................ 36 Section 12.03. Notices............................................. 36 Section 12.04. Further Assurance and Corrective Instruments........ 36 Section 12.05. Binding Effect; Time of the Essence................. 36 Section 12.06. Severability........................................ 36 Section 12.07. Amendments.......................................... 36 Section 12.08. Execution in Counterparts........................... 37 Section 12.09. Applicable Law...................................... 37 Section 12.10. Captions............................................ 37 Section 12.11. Entire Agreement.................................... 37 Section 12.12. Usury............................................... 37 Section 12.13. Waiver of Jury Trial................................ 37 Section 12.14. Governmental Functions.............................. 37 iii LOAN AGREEMENT Lender: GE Capital Public Finance, Inc. Suite 470 8400 Normandale Lake Blvd. Minneapolis, MN 55437 Telephone: (800) 346-3164 Telecopier: (612) 897-5601 Issuer: Michigan Strategic Fund Attn: President 525 West Ottawa, 5th floor Lansing, MI 48933 Telephone: (517) 335-4417 Telecopier: (517) 335-3059 Borrower: Secom General Corporation 46035 Grand River Avenue Novi, MI 48374 Telephone: (805) 305-9410 Telecopier: (805) 305-9599 THIS LOAN AGREEMENT dated as of June 1, 1996 (this "Agreement") among GE Capital Public Finance, Inc., a Delaware corporation, as lender (with its successors and assigns, "Lender"), Michigan Strategic Fund, a public body corporate and politic duly organized and validly existing under the laws of the state of Michigan (the "State"), as issuer ("Issuer"), and Secom General Corporation, a Delaware corporation, as borrower ("Borrower"). WHEREAS, Issuer is authorized and empowered under the laws of the State, including 1984 PA270, as amended (the "Act"), to assist any person, firm or corporation in the financing of certain projects and facilities, through the issuance of its limited obligation revenue bonds; and WHEREAS, in furtherance of the purposes of the Act, Issuer proposes to finance all or a portion of the acquisition and installation of the Equipment (as hereinafter defined) by Borrower pursuant to this Agreement by obtaining a loan from Lender, issuing the Bond (as defined herein) and lending the proceeds thereof to Borrower; and WHEREAS, Borrower proposes the acquisition and installation of the Equipment and as an inducement therefor has requested Issuer to assist in the financing of the Equipment and certain other expenses incidental thereto, as provided in the Act; and WHEREAS, Borrower shall make Loan Payments (as hereinafter defined) directly to Lender as assignee of Issuer, and WHEREAS, the Bond and the interest obligation thereon shall never constitute any obligation of the State or a general obligation of Issuer within the meaning of any constitutional or statutory limitation and shall never constitute nor give rise to a change against the general credit or taxing powers of the State, but shall be a limited obligation of Issuer payable solely from the Loan Payments payable hereunder by Borrower to Lender as assignee of Issuer; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and in consideration of the premises contained in this Agreement, Lender, Issuer and Borrower agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01. Definitions. The following terms used herein will have the meanings indicated below unless the context clearly requires otherwise: "Acquisition Costs" means the contract price paid or to be paid to the Vendors for any portion of the Equipment upon Borrower's acceptance thereof as set forth on Exhibit A hereto. "Agreement" means this Agreement, including all exhibits hereto, as any of the same may be supplemented or amended from time to time in accordance with the terms hereof. "Bond" means Issuer's $3,000,000.00 Limited Obligation Revenue Bond (Secom General Corporation Project), Series 1996A, in the form attached hereto as Exhibit E. "Bond Counsel" means an attorney or firm of attorneys nationally recognized in the field of municipal finance and acceptable to Lender and Issuer. "Borrower" means Secom General Corporation, a Delaware corporation. "Business Day" means a day other than a Saturday or Sunday on which banks are generally open for business in New York, New York. "Capital Expenditures" means expenditures: (a) properly chargeable to the capital account of any person without regard to any rule of the Code which permits such expenditures to be treated as current expenses; (b) financed from sources other than the Loan Proceeds; and (c) which resulted in property used in connection with facilities located in the City of Novi, Oakland County, Michigan, or located in any adjacent political subdivision and integrated with or contiguous to such facilities, the "principal user" of which is Borrower or any Related Person or any other Principal User of the Equipment or Related Person to such Principal User, except capital expenditures exempted under Section 144(a)(4)(C) of the Code. 2 "Certificate of Acceptance" means a Certificate of Acceptance, in substantially the form set forth as Exhibit B hereto, whereby Borrower acknowledges receipt in good condition of particular items of Equipment identified therein and confirms the date of delivery thereof and certain other matters. "Code" means the Internal Revenue Code of 1986, as amended, and United States Treasury regulations promulgated thereunder. "Default" means an event that, with giving of notice or passage of time or both, would constitute an Event of Default as provided in Article XI hereof. "Determination of Taxability" means any determination, decision or decree by the Commissioner of Internal Revenue, or any District Director of Internal Revenue or any court of competent jurisdiction, or an opinion of Bond Counsel that an Event of Taxability shall have occurred. A Determination of Taxability also shall be deemed to have occurred on the first to occur of the following: (a) the date when Borrower files any statement, supplemental statement, or other tax schedule, return or document, which discloses that an Event of Taxability shall have occurred; or (b) the effective date of any federal legislation enacted after the due of this Agreement or promulgation of any income tax regulation or ruling by the Internal Revenue Service that causes an Event of Taxability after the date of this Agreement. "Equipment" means the personal property identified in Exhibit A hereto to be used in connection with Borrower's operations (including, to the extent permitted pursuant to the Code without jeopardizing the tax-exempt status of the Interest, certain items originally financed through internal advances of Borrower in anticipation of obtaining permanent financing through Issuer), together with all replacement parts, additions, repairs, accessions and accessories incorporated therein and/or affixed to such personal property. "Escrow Agent" means National City Bank of Minneapolis, as escrow agent under the Escrow Agreement, and its successors and assigns permitted under the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement dated as of June 1, 1996 among Lender, Issuer, Borrower and Escrow Agent. "Escrow Fund" means the fund established and held by Escrow Agent pursuant to the Escrow Agreement. "Event of Taxability" means if as the result of any act, failure to act or use of the proceeds of the Loan, a change in use of the Equipment or any misrepresentation or inaccuracy in any of the representations, warranties or covenants contained in this Agreement or the Tax Compliance Certificate by Issuer or Borrower or the enactment of any federal legislation after the date of this Agreement or the promulgation of any income tax regulation or ruling by the Internal Revenue Service 3 after the date of this Agreement, the interest on the Bond is or becomes includable in the recipient's gross income. "Guarantors" means Unifiow Corporation, Form Flow, Inc., L&H Die, Inc., and Micanol, Inc. "Guaranty Agreements" means the four Guaranty Agreements dated as of June 1, 1996 executed on behalf of Guarantors. "Indemnity Agreement" means the Indemnity Agreement dated as of June 1, 1996 executed on behalf of Borrower for the benefit of Lender. "Interest" means the portion of any payment from Issuer to Lender under the Bond designated as and comprising interest as shown in Exhibit A hereto. "Issuance Costs" means items of expense payable or reimbursable directly or indirectly by Issuer or Borrower and related to the authorization, sale and issuance of the Bond and authorization and execution of this Agreement, which items of expense shall include, but not be limited to, application fees and expenses, publication costs, printing costs, costs of reproducing documents, filing and recording fees, bond counsel and counsel fees, costs of credit ratings, charges for execution, transportation and safekeeping of the Bond and related documents, and other costs, charges and fees in connection with the foregoing. "Issuer" means the Michigan Strategic Fund, acting as issuer under this Agreement. "Lender" means (i) GE Capital Public Finance, Inc., acting as lender under this Agreement and holder of the Bond, (ii) any surviving, resulting or transferee corporation of GE Capital Public Finance, Inc. (who is also holder of the Bond) and (iii) except where the context requires otherwise, any assignee(s) of Lender (who shall also be holder of the Bond). "Loan" means the loan from Issuer to Borrower pursuant to this Agreement. "Loan Payments" means the loan payments payable by Borrower pursuant to the provisions of this Agreement as specifically set forth in Exhibit A hereto. As provided in Article II hereof, Loan Payments shall be payable by Borrower directly to Lender, as assignee of Issuer, in the amounts and at the times as set forth in Exhibit A hereto. "Loan Proceeds" means the total amount of money to be deposited pursuant to Section 2.02 hereof with Escrow Agent for deposit and application in accordance with the Escrow Agreement. The Loan Proceeds consist of the proceeds of the Bond. "Prepayment Amount" means the amount which Borrower may from time to time, in its discretion, pay or cause to be paid to Lender as assignee of Issuer in order to prepay the Loan and the Bond, as provided in Section 2.07 hereof, such amounts being set forth in Exhibit A hereto. "Principal" means the portion of any Loan Payment designated as principal in Exhibit A hereto. 4 "Principal User" means a principal user of the Equipment as such term is used in Section 144(a) of the Code. "Purchase Agreements" means Borrower's purchase agreements with Vendors of the Equipment. "Related Person" with reference to any Substantial User, means a "related person" within the meaning of Section 147(a) of the Code, and, with reference to any Principal User, means a "related person" within the meaning of Section 144(a)(3) of the Code. "Reserved Rights" means those certain rights of Issuer under this Agreement to indemnification, liability insurance proceeds and reimbursement for certain costs and expenses pursuant to Sections 7.06, 7.03 and 12.01(b) hereof, to receive notice pursuant to Section 12.03 hereof and to inspect Borrower's books and records pursuant to Section 7.02 hereof. "State" means the State of Michigan. "Subsequent Loan Agreement" means the loan agreement, if any, to be entered into among Lender, Issuer and Borrower to provide financing for purchases of equipment other than the Equipment to be purchased with the Loan Proceeds. "Substantial User" means, with respect to any "facilities" (as the term "facilities" is used in Section 147(a) of the Code), a "substantial user" of such "facilities" within the meaning of Section 147(a) of the Code. "Tax Compliance Certificate" means, collectively, the Non-Arbitrage Certificate and the Tax Compliance Certificate, each died as of the date hereof, executed by Borrower in connection with the issuance of the Bond. "UCC" means the Uniform Commercial Code as adopted and in effect in the State. "Vendor" means the manufacturer or vendor of an item of Equipment, as well as the agents or dealers of the manufacturer, from whom Borrower has purchased or is purchasing items of Equipment. Section 1.02. Exhibits. The following exhibits are attached hereto and made a part hereof: Exhibit A: Form of Schedule of Equipment and Loan Payments describing the Equipment and setting forth the Loan Payments and Prepayment Amounts. Issuer hereby authorizes Lender to insert in Exhibit A the serial or other identifying numbers relating to the Equipment when available. Exhibit B: Form of Certificate of Acceptance. Exhibit C: Form of opinion of counsel to Borrower and Guarantors. Exhibit D: Form of opinion of Bond Counsel. Exhibit E: Form of Bond. 5 Section 1.03. Rules of Construction. (a) The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include the plural, and vice versa. The use herein of a word of any gender shall include correlative words of all genders. (b) Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designed Articles, Sections and other subdivision of this Agreement as originally executed. The words "hereof," "herein," "hereunder" and words of similar import refer to this Agreement as a whole. (c) The headings or titles of the several articles and sections shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof. ARTICLE II FINANCING OF EQUIPMENT AND TERMS OF LOANS Section 2.01. Acquisition of Equipment. Borrower either has ordered or shall order the Equipment pursuant to one or more Purchase Agreements from one or more Vendors. Borrower shall remain liable to the Vendor or Vendors in respect of its duties and obligations in accordance with each Purchase Agreement and shall bear the risk of loss with respect to any loss or claim relating to any item of Equipment covered by any Purchase Agreement, and neither Lender nor Issuer shall assume any such liability or risk of loss. Section 2.02. Loan. Lender hereby agrees, subject to the terms and conditions of this Agreement, to make a loan to Issuer pursuant to the terms hereof and through the purchase of the Bond in the amount of $3,000,000.00; Issuer hereby agrees, subject to the terms and conditions of this Agreement and the Bond, to sell the Bond to Lender and to lend the Loan Proceeds to Borrower; and Borrower hereby agrees to borrow such amount from Issuer. Upon fulfillment of the conditions set forth in Article III hereof, Lender shall deposit the Loan Proceeds (consisting of the proceeds of the Bond) in the Escrow Fund to be held, invested and disbursed as provided in the Escrow Agreement. Issuer's obligation to make payments on the Bond, and Borrower's obligation to repay the Loan, shall commence, and interest shall begin to accrue, on the due on which Loan Proceeds are deposited in the Escrow Fund (which shall be the date on which the Bond is issued). Section 2.03. Interest. The principal amount of the Bond and the Loan hereunder outstanding from time to time shall bear interest (computed on the basis of actual days elapsed in a 360-day year) at the rate of six and fifteen-hundredths percent (6.15%). Interest accruing on the principal balance of such loans outstanding from time to time shall be payable as provided in Exhibit A and the Bond and upon earlier demand in accordance with the terms hereof or prepayment in accordance with the terms of the Bond and Section 2.07 hereof Section 2.04. Payments. Issuer shall pay the principal of, premium, if any in accordance with Section 2.07 hereof and interest on the Bond, but only out of the amounts paid by Borrower pursuant to this Agreement. Borrower shall pay to Lender, as assignee of Issuer and holder of the Bond, Loan Payments, in the amounts and on the dates set forth in Exhibit A hereto. As security for its obligation to pay the principal of, premium, if any in accordance with Section 2.07 hereof, and interest on the 6 Bond, Issuer assigns to Lender all of Issuer's right to receive Loan Payments from Borrower hereunder, all of Issuer's rights hereunder (except Reserved Rights) and all of Issuer's right, title and interest in and to the Equipment, and Issuer irrevocably constitutes and appoints Lender and any present or future officer or agent of Lender as its lawful attorney, with full power of substitution and resubstitution, and in the name of Issuer or otherwise, to collect the Loan Payments and any other payments due hereunder and under the Bond and to sue in any court for such Loan Payments or other payments, to exercise all rights hereunder with respect to the Equipment and to withdraw or settle any claims, suits or proceedings pertaining to or arising out of this Agreement upon any teams. Such Loan Payments and other payments shall be made by Borrower directly to Lender, as Issuer's assignee, and shall be credited against Issuer's payment obligations hereunder and under the Bond. No provision, covenant or agreement contained in this Agreement or any obligation herein imposed on Issuer, or the breach thereof, shall constitute or give rise to or impose upon Issuer or the State a pecuniary liability, a charge upon its general credit or taxing powers or a pledge of its general revenues but shall be a limited obligation as described herein. Issuer has no taxing power. All amounts required to be paid by Borrower hereunder shall be paid in lawful money of the United States of America in immediately available funds. No recourse shall be had by Lender or Borrower for any claim based on this Agreement or the Bond against any member, director, officer, employee or agent of Issuer alleging personal liability on the part of such person. Section 2.05 Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or the fees hereunder, as the case may be. Section 2.06. Loan Payments To Be Unconditional. The obligations of Borrower to make payment of the Loan Payments required under this Article II and to make other payments hereunder and to perform and observe the covenants and agreements contained herein shall be absolute and unconditional in all events, without abatement, diminution, deduction, setoff or defense for any reason, including (without limitation) any failure of the Equipment to be delivered or installed, any defects, malfunctions, breakdowns or infirmities in the Equipment or any accident, condemnation, destruction or unforeseen circumstances. Notwithstanding any dispute between Borrower and any of Issuer, Lender, any Vendor or any other person, Borrower shall make all Loan Payments when due and shall not withhold any Loan Payments pending final resolution of such dispute, nor shall Borrower assert any right of set-off or counterclaim against its obligation to make such payments required under this Agreement. Section 2.07. Prepayments. (a) Borrower may, in its discretion, prepay the Loan and the Bond in whole a any time after the third anniversary of the date hereof by paying the applicable Prepayment Amount. (b) Borrower shall prepay the Loan and the Bond in whole or in part at any time pursuant to Article IX hereof by paying the applicable Prepayment Amount. (c) Borrower shall prepay the Loan and the Bond in full immediately upon demand of Lender after the occurrence of an Event of Default by paying the applicable Prepayment Amount. 7 (d) Borrower shall prepay the Loan and the Bond in full immediately upon demand of Lender after the occurrence of a Determination of Taxability; provided, however, that Lender, in its sole discretion, may waive the requirement that the Loan and the Bond be prepaid pursuant to this Section 2.07(d). (e) The Loan and the Bond shall be repaid in part with funds remaining in the Escrow Fund upon termination of the Escrow Agreement as provided in Sections 2.03 or 2.04 of the Escrow Agreement. Such prepayment shall be without prepayment premium or penalty as long as such funds are not in an amount greater than $150,000.00. In the event that such funds are in an amount equal to or greater than $150,000.00, any such prepayment shall be subject to a 2% prepayment premium and shall not occur unless Borrower provides an opinion of counsel that such prepayment win not result in a Default or Event of Default and an opinion of Bond Counsel that such prepayment will not result in a Determinaion of Taxability. Upon any prepayment in part of the Loan and the Bond, the prepayment shall be applied to the Principal portion of prepayments in inverse order of maturity. Section 2.08. Execution, Authentication and Delivery of the Bond. The Bond shall be executed on behalf of Issuer by the manual signature of a member or an authorized officer of Issuer and shall have impressed or printed thereon the official seal of Issuer. Section 2.09 Mutilated, Lost, Stolen or Destroyed Bond. Subject to Act 354, Michigan Public Acts, 1972, as amended, and any other applicable law, in the event the Bond is mutilated, lost, stolen or destroyed, Issuer may authorize the execution and delivery of a new bond of like tenor as that mutilated, lost, stolen or destroyed; provided, however, that in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to Issuer and in the case of any lost, stolen or destroyed Bond, there shall first be furnished to Issuer evidence of the ownership thereof and of such loss, theft or destruction satisfactory to Issuer together, in each case, with a bond of indemnity satisfactory to Issuer. Issuer may charge the holder or owner of such Bond with any amounts provided by the aforesaid Act 354 and any other applicable law. ARTICLE III CONDITIONS PRECEDENT Lender's agreement to purchase the Bond, to make the loan to Issuer hereunder and to deposit the Loan Proceeds with Escrow Agent shall be subject to the condition precedent that Lender shall have received all of the following, each in form and substance satisfactory to Lender: (a) This Agreement, properly executed on behalf of Issuer and Borrower, and each of the Exhibits hereto properly completed. (b) The Bond, in the form Attached hereto as Exhibit E, properly executed on behalf of Issuer. (c) The Tax Compliance Certificate, properly executed on behalf of Borrower, in form and substance acceptable to Lender. 8 (d) The Escrow Agreement, properly executed on behalf of Issuer, Borrower and Escrow Agent. (e) The Indemnity Agreement, properly executed on behalf of Borrower, in form and substance acceptable to Lender. (f) A certificate of the Secretary or an Assistant Secretary of Borrower, certifying as to (i) the resolutions of the board of directors and, if required, the shareholders of Borrower, authorizing the execution, delivery and performance of this Agreement, the Escrow Agreement and the Tax Compliance Certificate and any related documents, (ii) the bylaws of Borrower, and (iii) the signatures of the officers or agents of Borrower authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate and other instruments, agreements and certificates on behalf of Borrower. (g) Currently certified copies of the Articles of Incorporation of Borrower. (h) A Certificate of Good Standing issued as to Borrower by the Secretary of State of the state of Borrower's incorporation and by the Michigan Department of Consumer and Industry Services not more than 10 days prior to the date hereof. (i) Certificates of the insurance required hereunder, containing a lender's loss payable clause or endorsement in favor of Lender. (j) A completed and executed Form 8038 or evidence of filing thereof with the Secretary of Treasury. (k) A resolution or evidence of other official action taken by or on behalf of Issuer to authorize the transactions contemplated hereby. (1) Evidence that the financing of the Equipment has been approved by the "applicable elected representative" of Issuer after a public hearing held upon reasonable notice. (m) A true and correct copy of any and all leases pursuant to which Borrower is leasing the property where the Equipment will be located, together with a landlord's disclaimer and consent with respect to each such lease. (n) A true and correct copy of any and all mortgages, deeds of trust or similar agreements (whether or not Borrower is a party to any such agreement) relating to the property where the Equipment will be located, together with a mortgagee's waiver with respect to each such mortgage, deed of trust or similar agreement. (o) As applicable, financing statements, including fixture filings if necessary, executed by Borrower, as debtor, and naming Issuer, as secured party, and Lender, as assignee, and/or the original certificate of title or manufacturer's certificate of origin and title application if any of the Equipment is subject to certificate of title laws. 9 (p) Financing statements, including fixture filings if necessary, executed by Issuer, as debtor, and naming Lender, as secured party. (q) Current searches of appropriate filing offices showing that (i) no state or federal tax liens have been filed and remain in effect against Borrower, (ii) no financing statements have been filed and remain in effect against Borrower relating to the Equipment except those financing statements filed by Lender, (iii) Lender has duly filed all financing statements necessary to perfect the security interest created pursuant to this Agreement and (iv) Lender has duly filed all financing statements necessary to perfect the transfer of Issuer's interest in this Agreement and the Loan Payments. (r) A Guaranty Agreement in form and substance acceptable to Lender executed on behalf of each Guarantor. (s) An opinion of counsel to Borrower, addressed to Lender and Issuer, in the form attached hereto as Exhibit C. (t) An opinion of Bond Counsel, addressed to Lender and Issuer, in the form attached hereto as Exhibit D. (u) Payment of Lender's fees, commissions and expenses required by Section 12.01 hereof. (v) Payment of Issuer's fees incurred in connection with this Agreement and the transactions contemplated hereby. (w) Any other documents or items required by Lender. (x) A mortgagee's waiver with respect to the Equipment in form and substance acceptable to Lender executed on behalf of MetLife Capital Financial Corporation and security interest subordination agreement(s) or release(s) in form and substance acceptable to Lender with respect to the Equipment executed on behalf of KeyCorp Leasing, Ltd., NBD Bank and such other persons requested by Lender in form and substance acceptable to Lender. (y) Approval and completion of a refinancing by KeyCorp Leasing, Ltd., in form and substance acceptable to Lender, in the amount of $5,000,000.00. (z) Approval and completion of a refinancing by MetLife Capital Financial Corporation, in form and substance acceptable to Lender, of Borrower's existing real estate debt. Lender's agreement to consider approval of any disbursement from the Escrow Fund shall be subject to the further conditions precedent that on the date thereof: (aa) Lender shall have received each of the items required for a disbursement pursuant to the Escrow Agreement; 1O (bb) Lender shall have received in form and substance satisfactory to Lender Vendor invoice(s) and/or bill(s) of sale relating to the Equipment and, if such invoices have been paid by Borrower, evidence of payment thereof and, if applicable, evidence of official intent to reimburse such payment as required by the Code; (cc) the representations and warranties contained in Articles IV and V hereof are correct on and as of the date of such disbursement as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and (dd) no event has occurred and is continuing or would result from such disbursement, which constitutes a Default, an Event of Default or a Determination of Taxability. (ee) Lender shall have received evidence satisfactory to Lender that Lender has a first priority perfected security interest in the Equipment, including (without Limitation) current searches of appropriate filing offices showing that (i) no state or federal tax liens or judgment liens have been filed and remain in effect against Borrower and (ii) no financing statements have been filed and remain in effect against Borrower relating to the Equipment except those financing statements filed by or on behalf of Borrower. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER Issuer represents, warrants and covenants for the benefit of Lender and Borrower, as follows: (a) Issuer is a public body corporate and politic duly created and validly existing under the Constitution and laws of the State. (b) Issuer is authorized under the Act to issue the Bond and to enter into this Agreement, the Escrow Agreement and the transactions contemplated hereby and to perform all of its obligations hereunder. (c) Issuer has duly authorized the issuance of the Bond and the execution and delivery of this Agreement and the Escrow Agreement under the terms and provisions of the resolution of its governing body, and further represents, covenants and warrants that all requirements have been met and procedures have occurred in order to ensure the enforceability of this Agreement and the Escrow Agreement against Issuer, and Issuer has complied with such public bidding requirements (if any) as may be applicable to this Agreement. Issuer has taken all necessary action and has complied with all provisions of the Act required to make this Agreement and the Escrow Agreement the valid and binding obligations of Issuer. (d) The officer of Issuer executing this Agreement and any related documents has been duly authorized to execute and deliver this Agreement and the Escrow Agreement and such related documents under the terms and provisions of a resolution of Issuer's governing body, or by other appropriate official action. 11 (e) This Agreement and the Escrow Agreement are legal, valid and binding obligations of Issuer, enforceable in accordance with their respective tarns, except to the extent limited by bankruptcy, reorganization or other laws of general application relating to effecting the enforcement of creditors' rights. (f) All of the proceedings approving this Agreement, the Escrow Agreement and the Bond were conducted by Issuer at meetings which complied with Act 267, Michigan Public Acts, 1976, as amended. (g) No member of the Board of Directors of Issuer is directly or indirectly a party to or in any manner whatsoever interested in this Agreement, the Escrow Agreement, the Bond or the proceedings related thereto. (h) Issuer has assigned to Lender all of Issuer's rights in the Equipment and this Agreement (except Reserved Rights) including the assignment of all rights in the security interest granted to Issuer by Borrower. (i) Issuer will not pledge, mortgage or assign this Agreement to any person, firm or corporation, except as provided under the terms hereof. (j) None of the execution and delivery of this Agreement or the Escrow Agreement, the consummation of the transactions contemplated hereby or the fulfillment of or compliance with the terms and conditions of this Agreement or the Escrow Agreement violates any law, rule, regulation or order, conflicts with or results in a breach of any of the terms, conditions or provisions of any restriction or any agreement or instrument to which Issuer is now a party or by which it is bound or constitutes a default under any of the foregoing or results in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Issuer under the terms of any instrument or agreement. (k) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body which has been served upon Issuer or, to the best of Issuer's knowledge, is threatened against or affecting Issuer, challenging Issuer's authority to enter into this Agreement or the Escrow Agreement or any other action wherein an unfavorable ruling or finding would adversely affect the enforceability of this Agreement or the Escrow Agreement or any other transaction of Issuer which is similar hereto, or the exclusion of the interest on the Bond from gross income for federal tax purposes under the Code, or would materially and adversely affect any of the transactions contemplated by this Agreement. (l) Issuer will submit or cause to be submitted to the Secretary of the Treasury a Form 8038 at the time and in the form required by the Code. (m) The financing of the Equipment has been approved by the "applicable elected representative" (as defined in Section 147(f) of the Code) of Issuer after a public hearing held upon reasonable notice. 12 (n) Issuer will take no action that would cause the Interest to become includable in gross income for federal income tax purposes under the Code. (o) Issuer covenants that it will promptly pay or cause to be paid to Lender the Loan Payments payable by Borrower hereunder and under the Bond to the extent actually received from Borrower at the place, on the dates and in the manner set forth herein and in the Bond. (p) Issuer recognizes that investment of the Loan Proceeds will be at the written direction of Borrower, but agrees that it would commit no act that would cause the Bond to be an "arbitrage bond" within the meaning of Section 148(a) of the Code. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER Borrower represents warrants and covenants for the benefit of Lender and Issuer, as follows: (a) Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, has power to enter into this Agreement and the Escrow Agreement and by proper corporate action has duly authorized the execution and delivery of this Agreement, the Escrow Agreement and the Tax Compliance Certificate. Borrower is in good standing and is duly licensed or qualified to transact business in the State and in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. (b) Borrower has been fully authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate under the terms and provisions of the resolution of its board of directors, or by other appropriate official approval, and further represents, covenants and warrants that all requirements have been met, and procedures have occurred in order to ensure the enforceability of this Agreement, the Escrow Agreement and the Tax Compliance Certificate and this Agreement, the Escrow Agreement and the Tax Compliance Certificate have been duly authorized executed and delivered. (c) The officer of Borrower executing this Agreement, the Escrow Agreement and the Tax Compliance Certificate and any related documents has been duly authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate and such related documents under the terms and provisions of a resolution of Borrower's board of directors. (d) This Agreement, the Escrow Agreement and the Tax Compliance Certificate constitute valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization or other laws of general application relating to effecting the enforcement of creditors' rights. 13 (e) The execution and delivery of this Agreement, the Escrow Agreement and the Tax Compliance Certificate, the consummation of the transactions contemplated hereby and the fulfillment of the terms and conditions hereof do not and will not violate any law, rule, regulation or order, conflict with or result in a breach of any of the terms or conditions of the articles of incorporation or bylaws of Borrower or of any corporate restriction or of any agreement or instrument to which Borrower is now a party and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any liens, charges or encumbrances of any nature upon any of the property or assets of Borrower contrary to the terms of any instrument or agreement to which Borrower is a party or by which it is bound. (f) The authorization, execution, delivery and performance of this Agreement by Borrower do not require submission to, approval of, or other action by any governmental authority or agency, which action with respect to this Agreement has not been taken and which is final and nonappealable. (g) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Borrower's knowledge, threatened against or affecting Borrower, challenging Borrower's authority to enter into this Agreement, the Escrow Agreement or the Tax Compliance Certificate or any other action wherein an unfavorable ruling or finding would adversely affect the enforceability of this Agreement, the Escrow Agreement or the Tax Compliance Certificate or any other transaction of Borrower which is similar hereto, or the exclusion of the Interest from gross income for federal tax purposes under the Code, or would materially and adversely affect any of the transactions contemplated by this Agreement. (h) The property a which the Equipment is located is properly zoned for its current and anticipated use and the use of the Equipment will not violate any applicable zoning, land use, environmental or similar law or restriction. Borrower has all licenses and permits to use the Equipment. Borrower has obtained all permits, licenses and other authorizations which are required under federal, state and local laws relating to emissions, discharges, releases of pollutants, contaminants, hazardous or toxic materials, or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or hazardous or toxic materials or wastes ("Environmental Laws") at Borrower's facilities or in connection with the operation of its facilities. Except as previously disclosed to Lender in writing, Borrower and all activities of Borrower at its facilities comply with all Environmental Laws and with all terms and conditions of any required permits, licenses and authorizations applicable to Borrower with respect thereto. Except as previously disclosed to Lender in writing, Borrower is also in compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in Environmental Laws or contained in any plan, order, decree, judgment or notice of which Borrower is aware. Except as previously disclosed to Lender in writing, Borrower is not aware of, nor has Borrower received notice of, any events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance with, or which may give rise to any liability under, any Environmental Laws. 14 (i) The Equipment is of the type authorized and permitted to be financed by the Act. (j) Borrower owns or will own the Equipment and intends to operate the Equipment, or cause the Equipment to be operated, as a "project," within the meaning of the Act, until the date on which all of the Loan Payments have been fully paid or the applicable Prepayment Amount has been fully paid. (k) Borrower will not take any action that would cause the Interest to become includable in gross income of the recipient for federal income tax purposes under the Code, and Borrower will take and will cause its officers, employees and agents to take all affirmative actions legally within its power necessary to ensure that the Interest does not become includable in gross income of the recipient for federal income tax purposes under the Code (including, without limitation, the calculation and payment of any rebate required to preserve such exclusion). (l) Borrower has heretofore furnished to Lender the audited financial statement of Borrower for its fiscal year ended September 30, 1995 and the unaudited financial statement of Borrower for the months ended December 31, 1995, and those statements fairly present the financial condition of Borrower on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with generally accepted accounting principles. Since the due of the most recent financial statements, there has been no material adverse change in the business, properties or condition (financial or otherwise) of Borrower. (m) Borrower has paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by it. Borrower has filed all federal, state and local tax returns which are required to be filed, and Borrower has paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment received by it to the extent such taxes have become due. (n) Borrower has or will have good and absolute title to all Equipment and all proceeds thereof, free and clear of all mortgages, security interests, liens and encumbrances except for the security interest created pursuant to this Agreement. (o) All financial and other information provided to Lender by or on behalf of Borrower and each Guarantor in connection with Borrower's request for the Loan contemplated hereby is true and correct in all material respects and, as to projections, valuations or pro forma financial statements, present a good faith opinion as to such projections, valuations and pro forma condition and results. (p) Borrower has provided to Lender signed financing statements sufficient when filed to perfect the security interest created pursuant to this Agreement. When such financing statements are filed in the offices noted therein, Lender, as assignee of Issuer, will have a valid and perfected security interest in the Equipment, subject to no other security interest, assignment, lien or encumbrance. Borrower intends the Equipment to be and remain personal 15 property rather than a fixture on real estate. Borrower owns the real property where the Equipment will be located subject to no liens or encumbrances of any kind except a mortgage interest held by MetLife Capital Financial Corporation. (q) Upon delivery and installation of the Equipment, Borrower will provide to Lender a completed and executed copy of the Certificate of Acceptance attached hereto as Exhibit B. (r) All representations and warranties of Borrower set forth in the Tax Compliance Certificate are true and correct as of the date hereof. Borrower will comply fully at all times with the Tax Compliance Certificate, and Borrower will not take any action, or omit to take any action, which, if taken or omitted, respectfully, would violate the Tax Compliance Certificate. (s) Expenses for work done by officers or employees of Borrower in connection with the Equipment will be included as an Acquisition Cost, if at all, only to the extent (i) such persons were specifically employed for such particular purpose, (ii) the expenses do not exceed the actual cost thereof and (iii) such expenses are treated or capable of being treated (whether or not so treated) on the books of Borrower as a capital expenditure in conformity with generally accepted accounting principles applied on a consistent basis. (t) Any costs incurred with respect to that part of the Equipment paid from the Loan Proceeds shall be treated or capable of being treated on the books of Borrower as capital expenditures in conformity with generally accepted accounting principles applied on a consistent basis. (u) No part of the Loan Proceeds will be used to finance inventory or rolling stock or will be used for working capital or to finance any other cost (other than Issuance Costs not exceeding $60,000) not constituting an Acquisition Cost. (v) No person other than Borrower and Unifiow Corporation (Borrower's wholly-owned subsidiary) is in occupancy or possession of any portion of the real property where the Equipment is located. (w) The Equipment is property of the character subject to the allowance for depreciation under Section 167 of the Code. (x) The completion of the acquisition of the Equipment will not have the effect of transferring more than 20 full-time employees from one municipality of the State to another and is expected to create approximately 25 jobs in the City of Novi and thereby promote the development of present business enterprises in Michigan. (y) None of the Loan Proceeds shall be applied to any costs of the acquisition or installation of the Equipment which were paid (within the meaning of Section 103 of the Code) prior to the date 60 days before the date (March 27, 1996) on which the inducement resolution was adopted by Issuer with respect to the Equipment. Issuer adopted a resolution declaring official intent to finance the costs of the Equipment pursuant to Treas. Reg. 1.150-2 not more 16 than 60 days after the date on which the acquisition and installation of the Equipment commenced. (z) No member, director or officer of Issuer has any interest of any kind in Borrower which would result, as a result of the Loan and the issuance of the Bond, in a substantial financial benefit to such persons other than as a member of the general public of the State. (aa) There are no outstanding bonds as described in Section 144(a)(2) of the Code that have been issued by any state, political subdivision, district, public body, agency, authority, commission or instrumentality, the proceeds of which have been or will be used with respect to facilities located within the City of Novi, Oakland County, Michigan, the Principal User of which is Borrower or a Related Person as defined in Section 144(a)(3) of the Code or a Principal User of the Equipment or any Related Person to any such Principal User. (bb) All property which is to be financed by the net Loan Proceeds is to be owned by Borrower. (cc) All reimbursements to Borrower for Acquisition Costs from Loan Proceeds shall be made in compliance with Treasury Regulation 1.150-2 (the "Reimbursement Regulations"). (dd) The amount of Issuance Costs financed from the proceeds of the sale of the Bond shall not exceed 2% of the Loan Proceeds. (ee) Borrower has heretofore supplied Lender and Issuer estimates of the costs of the Equipment, the completion date and periods of usefulness of the Equipment. Borrower hereby warrants that such estimates were made in good faith and are fair, reasonable and realistic. (ff) Borrower shall complete the acquisition of the Equipment as required by the Act as promptly as practicable, and shall cause to be paid all costs of the Equipment in excess of the moneys available therefor in the Escrow Fund in compliance with the terms of the Escrow Agreement. (gg) Borrower expects to complete acquisition and installation of the Equipment by January 1, 1997. (hh) There are no other bonds described in Section 144(a) of the Code which have been issued, or are contemplated to be issued, pursuant to Section 144(a) of the Code (or its predecessor provision), for the benefit of Borrower, any Principal User, or any Related Person to Borrower and which (i) were or are to be sold at substantially the same time as the Bond; (ii) were or are to be sold pursuant to a common plan of marketing as the marketing plan for the Bond; (iii) were or are to be sold at substantially the same rate of interest as the interest rate on the Bond; and (iv) are payable directly or indirectly by Borrower or from the source from which the Bond is payable. 17 (ii) Not less than 95% of the net Loan Proceeds (including investment proceeds) will be expended 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 paid in compliance with the Reimbursement Regulations and not less than 100% of the Loan Proceeds will be used to pay costs as permitted by the Act. (jj) The information furnished by Borrower and used by Issuer in preparing the Form 8038, Information Retun for Tax-Exempt Private Activity Bond Issues, to be filed by or on behalf of Issuer with the Internal Revenue Service in Philadelphia, Pennsylvania pursuant to Section 149(e) of the Code, was true and complete as of the date of completion of said Form 8038. (kk) The average maturity of the Bond does not exceed 120% of the average reasonably expected economic life of the Equipment, as determined pursuant to Section 147(b) of the Code. (11) No more than 25% of the net Loan Proceeds will be used to provide a facility the primary purpose of which is retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment. No portion of the Loan Proceeds will be used to provide any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet spots facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, store the principal business of which is the sale of alcoholic beverages for off premises consumption or residential real property for family units. (mm) Less than 25% of the net Loan Proceeds will be used to acquire land. No portion of the Loan Proceeds will be used to acquire land (or an interest therein) to be used for farming purposes. (nn) No portion of the net Loan Proceeds will be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. (oo) The sum of the authorized face amount of the Bond allocable to each test-period beneficiary (as defined in Section 144(a)(10)(D) of the Code) plus the respective aggregate face amount of all tax-exempt facility related bonds presently outstanding which are allocable to each such test-period beneficiary does not exceed $40,000,000. During a three (3) year period commencing on the later of the date of the issuance of the Bond or the date the Equipment is placed in service, Borrower shall not sell a portion of the Equipment or lease or allow the sublease of a portion of the Equipment to any Principal User who, together with Related Persons to such Principal User, would cause the $40,000,000 limitation of Section 144(a)(10) of the Code to be exceeded. (pp) The Equipment does not consist of a portion of a single building, enclosed shopping mall or strip of offices, stores or warehouses using substantial common facilities with 18 any other portion or portions of such property (of which the Equipment is a part) and where any such other portions are or will be financed with qualified bonds the interest on which is excluded from gross income for federal income tax purposes under Section 103(a) of the Code. (qq) The payment of principal or interest with respect to the Bond is not guaranteed in whole or in part by the United States or any agency or instrumentality thereof. The Bond is not issued as part of an issue a significant portion of the proceeds of which are to be used in making loans the payment of principal or interest with respect to which are to be guaranteed in whole or in part by the United States or any agency or instrumentality thereof, or invested directly or indirectly in federally insured deposits or accounts. The payment of principal or interest on the Bond is not otherwise indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof within the meaning of Section 149(b) of the Code. (rr) Borrower will comply with the provisions of Section 148 of the Code. Borrower covenants, for the benefit of itself, Issuer and Lender, that it will not cause or permit any Loan Proceeds to be invested in a manner contrary to the provisions of Section 148 of the Code and that it will assume compliance with such provisions on behalf of Issuer (including, without limitation, performing required calculations, the keeping of proper records and the timely payment to the Department of the Treasury of the United States, in the name of Issuer, all of amounts required to be so paid by Section 148 of the Code). (ss) No event has occurred and no condition exists with respect to Borrower that would constitute an "Event of Default" under this Agreement or that, with the lapse of time or the giving of notice or both, would become an "Event of Default" under this Agreement. (tt) At least 95% of the net Loan Proceeds will be used to finance a "manufacturing facility" within the meaning of Section 144(a)(12)(C) of the Code, and no more than 2S% of the net Loan Proceeds will be used to finance facilities that are "directly related and ancillary" thereto within the meaning of Section 144(a)(12)(C) of the Code. For this purpose, the term "manufacturing facility" means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). Manufacturing facilities do not include an office unless such office is located on the premises of the manufacturing facility and not more than a de minimus (5%) portion of the functions to be performed at such office is not directly related to the day-to-day operations at such facility. Manufacturing facilities do not include storage facilities for raw materials, work in process, finished goods or other materials unless such storage facilities are located on the premises of the manufacturing facility and are directly related to a manufacturing activity conducted at such facility as opposed to a warehousing, distributing, wholesaling, retailing or other non-manufacturing activity. (uu) No Loan Proceeds will be allocated to the reimbursement of an expenditure for costs of the Equipment unless such reimbursement allocation is made not later than 18 months aver the later of: (i) the date the original expenditure is paid; or 19 (ii) the date the Equipment is placed in service or abandoned, but in no event more than 3 years after the original expenditure is paid. (vv) No person that was a Substantial User of the Equipment at any time during the five (5) year period before the date on which the Bond was issued or any Related Person to that user (x) will receive (directly or indirectly) 5% or more of the Loan Proceeds for such person's interest in the Equipment, and (y) will be a Substantial User of the Equipment at any time during the five (5) year period after the date on which the Bond was issued. (ww) Borrower will not permit the sum of (i) the face amount of the Bond, plus (ii) Capital Expenditures made during the period of six (6) years beginning three (3) years prior to the issuance of the Bond and extending three (3) years thereafter, plus (iii) the outstanding principal amount of any prior industrial development bond issues issued to finance facilities of Borrower or any Related Person in the City of Novi, Michigan, to exceed $10,000,000. (xx) Notwithstanding any other provisions of this Agreement or any other agreement or any rights of Borrower under this Agreement or any other agreement, Borrower shall not take or permit to be taken by its agents or assigns any action which, or fail to take any reasonable action the omission of which would (i) impair the exclusion of interest on the Bond from the gross income of the recipient under the Code or (ii) affect the validity of the Bond under the Act. ARTICLE VI TITLE TO EQUIPMENT; SECURITY INTEREST Section 6.01. Title to the Equipment. Legal title to the Equipment and any and all repairs, replacements, substitutions and modifications to such Equipment shall be in Borrower. Borrower will at all times protect and defend, at its own cost and expense, its title from and against all claims, liens and legal processes of creditors of Borrower, and keep all Equipment free and clear of all such claims, liens and processes. Section 6.02. Security Interest in Equipment. This Agreement is intended to constitute a security agreement within the meaning of the UCC. As security for Borrower's payment to Lender, as assignee of Issuer, of Loan Payments and all other amounts payable to Lender hereunder, under the Indemnity Agreement and under the Subsequent Loan Agreement and as security for any other obligations (whether direct or indirect) of Borrower to Lender, Borrower hereby grants to Issuer, and Issuer hereby assigns to Lender, a security interest constituting a first lien on the Equipment, all repairs, replacements, substitutions and modifications thereto or thereof and all proceeds of the foregoing. Issuer and Borrower agree to execute such additional documents, including financing statements (including fixture filings if necessary), assignments, affidavits, notices and similar instruments, in form satisfactory to Lender, and to take such other actions that Lender deems necessary or appropriate to establish and maintain the security interest created by this Section, and Borrower hereby designates and appoints Lender as its agent, and grants to Lender a power of attorney (which is coupled with an interest), to execute on behalf of Borrower, such additional documents and to take such other actions. If requested by Lender, Borrower shall obtain a landlord and/or mortgagee's consent and waiver with 20 respect to the property where the Equipment is located. If requested by Lender, Borrower shall conspicuously mark the Equipment with appropriate lettering, labels or tags, and maintain such markings, so as clearly to disclose Lender's security interest in the Equipment. Section 6.03. Change in Name or Corporate Structure of Borrower; Change in Location of Borrower's Principal Place of Business. Borrower's chief executive office is located at the address set forth above, and all of Borrower's records relating to its business and the Equipment are kept at such location. Borrower hereby agrees to provide written notice to Lender and Issuer of any change or proposed change in its name, corporate structure, place of business or chief executive office or change or proposed change in the location of the Equipment; provided, however, that no change or proposed change in the location of the Equipment shall be (i) made without the prior written consent of Lender and Issuer, together with a written opinion of Bond Counsel to the effect that such relocation will not result in a Determination of Taxability, or (ii) to a location outside the State. Such notice shall be provided 30 days in advance of the date that such change or proposed change is planned to take effect. Borrower does business, and has done business, only under its own name and the trade names, if any, set forth on the execution page hereof. Section 6.04. Liens and Encumbrances to Title. Borrower shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Equipment (together, "Liens") other than the respective rights of Lender and Issuer as herein provided. Borrower shall promptly, at its own expense, take such action as may be necessary duly to discharge or remove any such Lien. Borrower shall reimburse Lender for any expenses incurred by Lender to discharge or remove any Lien. Section 6.05. Personal Properly The parties hereby intend that the Equipment be, and during the period this Agreement is in force remain, personal property and, when subjected to use by Borrower hereunder, not be or become fixtures; provided, however, that if contrary to the parties' intent the Equipment is or may be deemed to be a fixture, Borrower shall cause filings to be made with the applicable government officials or filing offices to create and preserve for Lender as assignee of Issuer a perfected first priority security interest in the Equipment. Section 6.06. Assignment of Insurance. As additional security for the payment and performance of Borrower's obligations hereunder, Borrower hereby assigns to Lender, as assignee of Issuer, any and all moneys (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Equipment or any evidence thereof or any business records or valuable papers pertaining thereto, and Borrower hereby directs the issuer of any such policy to pay all such moneys directly to Lender. Borrower hereby assigns to Lender, as assignee of Issuer, any and all moneys due or to become due with respect to any condemnation proceeding affecting the Equipment. At any time, whether before or after the occurrence of any Event of Default, Lender may (but need not), in Lender's name or in Borrower's name, execute and deliver proof of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy or party in any condemnation proceeding. 21 Section 6.07. Occupancy. (a) Borrower hereby irrevocably grants to Lender the right to occupy the property where the Equipment is located (the "Premises") at any time after the occurrence and during the continuance of an Event of Default. (b) Lender may occupy the Premises only to hold, sell, store, liquidate, realize upon or otherwise dispose of the Equipment and for other purposes that Lender may in good faith deem to be related or incidental purposes. (c) The right of Lender to occupy the Premises shall cease and terminate upon the earlier of (1) payment in full and discharge of all obligations of Borrower and Issuer hereunder, and (2) final sale or disposition of all of the Equipment and delivery of all such Equipment to purchasers. (d) Lender shall not be obligated to pay or account for any rent or other compensation for the occupancy of the Premises. Borrower will pay, or reimburse Lender for, all taxes, fees, duties, levies, charges and expenses at any time incurred by or imposed upon Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of this Section. Section 6.08. Agreement as Financing Statement. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or of any financing statements signed by Borrower is sufficient as a financing statement in any state to perfect the security interests granted in this Agreement. ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER So long as the Loan and the Bond shall remain unpaid, Borrower will comply with the following requirements, unless Lender shall otherwise consent in writing: Section 7.01. Reporting Requirements. Borrower will deliver, or cause to be delivered, to Lender each of the following, which shall be in form and detail acceptable to Lender: (a) as soon as available, and in any event within 120 days after the end of each fiscal year of Borrower, audited financial statements of Borrower with the unqualified opinion of independent certified public accountants selected by Borrower and acceptable to Lender, which annual financial statements shall include the balance sheet of Borrower as at the end of such fiscal year and the related statements of income, retained earnings and cash flows of Borrower for the fiscal year then ended, all in reasonable detail and prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices applied in the financial statements referred to in Article V hereof, together with (i) a report signed by such accountants stating that in making the investigations necessary for said opinion they obtained no knowledge, except as specifically stated, of any Default or Event of Default hereunder and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Borrower is in compliance with the requirements set forth in Section 7.10 hereof; and (ii) a certificate of the chief financial officer of Borrower stating that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the annual financial 22 statements referred to in Article V hereof and whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder and, if so, stating in reasonable detail the facts with respect thereto; (b) as soon as available and in any event within 90 days after the end of each fiscal quarter of Borrower, an unaudited internal balance sheet and statements of income and retained earnings of Borrower as at the end of and for such month and for the year to date period then ended, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof and certified by the chief financial officer of Borrower, subject to year-end audit adjustments; and accompanied by a certificate of that officer stating (i) that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof, (ii) whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Borrower is in compliance with the requirements set forth in Section 7.10 hereof; (c) immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting Borrower of the type described in Article V hereof or which seek a monetary recovery against Borrower in excess of $250,000.00; (d) as promptly as practicable (but in any event not later than five Business Days) after an officer of Borrower obtains knowledge of the occurrence of any event that constitutes a Default or an Event of Default hereunder, notice of such occurrence, together with a detailed statement by a responsible officer of Borrower of the steps being taken by Borrower to cure the effect of such Default or Event of Default; (e) promptly upon knowledge thereof, notice of any loss or destruction of or damage to any Equipment or of any material adverse change in any Equipment; (f) promptly upon their distribution, copies of all financial statements, reports and proxy statements that Borrower shall have sent to its stockholders; (g) promptly after the amending thereof, copies of any and all amendments to its certificate of incorporation, articles of incorporation or bylaws; (h) promptly upon knowledge thereof, notice of the violation by Borrower of any law, rule or regulation, (i) promptly upon knowledge thereof, notice of any material adverse change in the financial or operating condition of Borrower. 23 Section 7.02. Books and Records; Inspection and Examinaton. Borrower will keep accurate books of record and account for itself pertaining to the Equipment and pertaining to Borrower's business and financial condition and such other matters as Lender may from time to time request in which true and complete entries will be made in accordance with generally accepted accounting principles consistently applied and, upon request of Lender or Issuer, will permit any officer, employee, attorney or accountant for Lender or Issuer to audit, review, make extracts from, or copy any and all corporate and financial books, records and properties of Borrower at all times during ordinary business hours, and to discuss the affairs of Borrower with any of its directors, officers, employees or agents. Borrower will permit Lender, Issuer or any of their employees, accountants, attorneys or agents, to examine and copy any or all of its records and to examine and inspect the Equipment at any time during Borrower's business hours. Section 7.03. Compliance With Laws; Environmental Indemnity. Borrower will (a) comply with the requirements of applicable laws and regulations, the noncompliance with which would materially and adversely affect its business or its financial condition, (b) comply with all applicable Environmental Laws and obtain any permits, licenses or similar approvals required by any such Environmental Laws and (c) use and keep the Equipment, and will require that others use and keep the Equipment, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. Borrower shall secure all permits and licenses, if any, necessary for the installation and operation of the Equipment. Borrower shall comply in all respects (including, without limitation, with respect to the use, maintenance and operation of each item of the Equipment) with all laws of the jurisdictions in which its operations involving any component of Equipment may extend and of any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the items of the Equipment or its interest or rights under this Agreement. Borrower will indemnify, defend and hold Lender or Issuer harmless from and against any claims, loss or damage to which Lender or Issuer may be subjected as a result of any past, present or future existence, use, handling, storage, transportation or disposal of any hazardous waste or substance or toxic substance by Borrower or on property owned, leased or controlled by Borrower. This indemnification shall survive the termination of this Agreement and payment of the indebtedness hereunder and under the Bond. Section 7.04. Payment of Taxes and Other Claims. Borrower will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including, without limitation, the Equipment) or upon or against the creation, perfection or continuance of the security interest created pursuant to this Agreement, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which if unpaid, might by law become a lien or charge upon any properties of Borrower, provided, that Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Borrower will pay, as the same respectively come due, all taxes and governrnental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Equipment, as well as all gas, water, steam, electricity, heat, power, telephone, utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Equipment. Section 7.05. Maintenance of Equipment. (a) Borrower shall, at its own expense, maintain, preserve and keep the Equipment in good repair, working order and condition, and shall from time to 24 time make all repairs and replacements necessary to keep the Equipment in such condition, and in compliance with state and federal laws, ordinary wear and tear excepted. Borrower shall maintain the Equipment in a condition suitable for certification by the manufacturer thereof (if certification is available) and in conformance with all manufacturer's recommended maintenance requirements. In the event that any parts or accessories forming part of any item or items of Equipment become worn out, lost, destroyed, damaged beyond repair or otherwise rendered unfit for use, Borrower, at its own expense and expeditiously, will replace or cause the replacement of such parts or accessories by replacement parts or accessories free and clear of all liens and encumbrances and with a value and utility at least equal to that of the parts or accessories being replaced (assuming that such replaced parts and accessories were otherwise in good working order and repair). All such replacement parts and accessories shall be deemed to be incorporated immediately into and to constitute an integral portion of the Equipment and, as such, shall be subject to the terms of this Agreement. Neither Lender nor Issuer shall have any responsibility in any of these matters, or for the making of improvements or additions to the Equipment. (b) Borrower will defend the Equipment against all claims or demands of all persons (other than Lender) claiming the Equipment or any interest therein. (c) Borrower will keep the Equipment free and clear of all security interests, liens and encumbrances except the security interest created pursuant to this Agreement. Section 7.06. Insurance; Indemnification. (a) Borrower shall at its own expense, procure and maintain continuously in effect: (i) public liability insurance for personal injuries, death or damage to or loss of property arising out of or in any way relating to the Equipment sufficient to protect Lender and Issuer from liability in all events, with a coverage limit of not less than $1,000,000 per occurrence unless a different coverage minimum with respect to particular Equipment is required by Lender, and (ii) insurance against such hazards as Lender may require, including, but not limited to, all-risk casualty and property insurance, in an amount equal to the greater of the full replacement cost of the Equipment with new equipment having substantially similar specifications or the applicable Prepayment Amount. (b) If required by State law, Borrower shall carry workers' compensation insurance covering all employees on, in, near or about the Equipment, and upon request, shall furnish to Lender certificates evidencing such coverage. (c) All insurance policies required by this Article shall be taken out and maintained with insurance companies acceptable to Lender, and shall contain a provision that the insurer shall not cancel or revise coverage thereunder without giving written notice to the insured parties at least thirty (30) days before the cancellation or revision becomes effective. No insurance shall be subject to any co-insurance clause. Each insurance policy required by this Article shall name Lender and Issuer, as applicable, as an additional insured party and loss payee without regard to any breach of warranty or other act or omission of Borrower and shall include a lender's loss payable endorsement for the benefit of Lender. Prior to the delivery of Equipment, Borrower shall deposit with Lender evidence satisfactory to Lender of such insurance and, prior to the expiration thereof, shall provide Lender evidence of all renewals or replacements thereof 25 (d) As among Lender, Borrower and Issuer, Borrower assumes all risks and liabilities from any cause whatsoever, whether or not covered by insurance, for loss or damage to any Equipment and for injury to or depth of any person or damage to any property, whether such injury or death be with respect to agents or employees of Borrower or of third parties, and whether such property damage be to Borrower's property or the property of others. Whether or not covered by insurance, Borrower hereby assumes responsibility for and agrees to reimburse Lender for and will indemnify, defend and hold Lender harmless from and against all liabilities, obligations, losses, damages, penalties, claims, actions, costs and expenses (including reasonable attorneys' fees) of whatsoever kind and nature, imposed on, incurred by or asserted against Lender that in any way relate to or arise out of this Agreement, the Bond, the transactions contemplated hereby and the Equipment, including but not limited to, (i) the selection, manufacture, purchase, acceptance or rejection of Equipment or the ownership of the Equipment, (ii) the delivery, lease, possession, maintenance, use, condition, return or operation of the Equipment, (iii) the condition of the Equipment sold or otherwise disposed of after possession by Borrower, (iv) any patent or copyright infringement, (v) the conduct of Borrower, its officers, employees and agents, (vi) a breach of Borrower of any of its covenants or obligations hereunder and (vii) any claim, loss, cost or expense involving alleged damage to the environment relating to the Equipment, including, but not limited to investigation, removal, cleanup and remedial costs. All amounts payable by Borrower pursuant to the immediately preceding sentence shall be paid immediately upon demand of Lender. This provision shall survive the termination of this Agreement. (e) Issuer and its members, officers, agents and employees (the "Indemnified Persons") shall not be liable to Borrower for any reason. Borrower shall indemnify and hold Issuer and the Indemnified Persons harmless from any loss, expenses (including reasonable counsel fees) 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, installation, operation, use, or maintenance of the Equipment, (ii) any act, failure to act, or misrepresentation by any person, firm, corporation or governmental agency, including Issuer, in connection with the Loan, (iii) any act, failure to act, or misrepresentation by Issuer in connection with this Agreement or any other document involving Issuer in this matter, or (iv) the selection and appointment of firms providing services to the transactions contemplated by this Agreement. If any suit, action or proceeding is brought against Issuer or any Indemnified Person, that action or proceeding shall be defended by counsel to Issuer or Borrower, as Issuer shall determine. If the defense is by counsel to Issuer, which is the Attorney General of Michigan or may, in some instances by private, retained counsel, Borrower shall indemnify Issuer and Indemnified Persons for the reasonable cost of that defense, including reasonable counsel fees. If Issuer determines that Borrower shall defend Issuer or Indemnified Persons, Borrower shall immediately assume the defense at its own cost. Borrower shall not be liable for any settlement of any proceeding made without its consent (which consent shall not be unreasonably withheld). Borrower shall also indemnify Issuer for all reasonable costs and expenses, including reasonable counsel fees incurred in: (i) enforcing any obligation of Borrower under this Agreement or any related agreement, (ii) taking any action requested by Borrower, (iii) taking any action required by this Agreement or any related agreement, or (iv) taking any action considered necessary by Issuer and which is authorized by this Agreement or any related agreement. Borrower shall not be obligated to indemnify Issuer or any Indemnified Person if a court with competent jurisdiction finds that the liability in question was caused by the willful misconduct or sole 26 gross negligence of Issuer or the involved Indemnified Person, unless the court determines that, despite the adjudication of liability but in view of all circumstances of the case, Issuer or the Indemnified Person(s) is (are) fairly and reasonably entitled to indemnity for the expenses which the court considers proper. The obligations of Borrower under this Section 7.06(e) shall survive any assignment or termination of this Agreement. Section 7.07. Preservation of Corporate Existence. Borrower will preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business; and shall conduct its business in an orderly, efficient and regular manner. Section 7.08. Performance by Lender. If Borrower at any time fails to perform or observe any of the covenants or agreements contained in this Agreement, and if such failure shall continue for a period of ten calendar days after Lender gives Borrower written notice thereof (or in the case of the agreements contained in Sections 7.05 and 7.06 hereof, immediately upon the occurrence of such failure, without notice or lapse of time), Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of Borrower (or, at Lender's option, in Lender's name) and may, but need not, take any and all other actions which Lender may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations owed to account debtors or other obligers, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and Borrower shall thereupon pay to Lender on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by Lender, together with interest thereon from the date expended or incurred at the rate publicly announced by Citibank, N.A. at its principal office in New York, New York as its prime rate (any change in such prime rate of interest to be effective on the date on which such change is announced by Citibank, N.A.) plus 5%, but not in excess of the maximum rate permitted by law. To facilitate the performance or observance by Lender of such covenants of Borrower, Borrower hereby irrevocably appoints Lender, or the delegate of Lender, acting alone, as the attorney in fact of Borrower with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Borrower under this Agreement. Section 7.09. Covenant as to Nonimpairment of Tax-exempt Status. Borrower covenants that, notwithstanding any provision of this Agreement or the rights of Borrower hereunder, it will not take, or permit to be taken on its behalf, any action that would impair the exclusion of Interest from gross income for federal income tax purposes and that it will take such reasonable action for itself and on behalf of Issuer as may be necessary to continue such exclusion, including, without limitation, the preparation and filing of any statements required to be filed by it in order to maintain such exclusion. Borrower will not cause or permit any Loan Proceeds to be invested in a manner contrary to the provisions of Section 148 of the Code and will assure compliance with such requirements on behalf 27 of Issuer. Borrower shall calculate and timely pay to the United States of America, for the account of Issuer, all amounts required to be so paid in accordance with Section 148 of the Code and shall maintain, on behalf of Issuer, all records required to be maintained pursuant to Section 148(f) of the Code. At least once every five years, commencing with the end of the fifth Bond Year (as defined in the Income Tax Regulations promulgated under Section 148(f) of the Code, and not later than 60 days after payment in full of the Loan and the Bond, Borrower will furnish to each of Issuer and Lender a certificate showing compliance with the applicable provisions of said Section 148(f), which certificate shall be accompanied by an opinion of counsel or certificate of accountants supporting the matters set forth in such certificate. In addition to the foregoing covenants, Borrower further covenants that (i) it will requisition, apply and spend the moneys in the Escrow Fund in a manner so that as of any date at least 95% of the total amount theretofore requisitioned from the Escrow Fund will be applied to finance costs (paid on or after January 28, 1996) for the acquisition, construction, rehabilitation or improvement of land and other property which is of a character subject to an allowance for depreciation under Section 167 of the Code; (ii) it will not permit moneys in the Escrow Fund to be invested in such a manner as to cause the Bond to be an "arbitrage bond" under Section 148(a) of the Code; (iii) it will promptly notify Lender if, at any time, Borrower proposes to take any action, or any action is to be taken by or on behalf of any Principal User of the Project or any Related Person, the effect of which could be to cause Interest to become includable in the gross income of owners thereof for federal income tax purposes by reason of the $10,000,000 capital expenditure limitation imposed by Section 144(a)(4) of the Code being exceeded or the $40,000,000 limitation imposed by Section 144(a)(10) of the Code being exceeded; (iv) it will not requisition from the Escrow Fund more than $60,000 to pay Issuance Costs; and (v) no portion of the net Loan Proceeds will be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. Borrower acknowledges that a failure to abide by the foregoing covenants may result in a Determination of Taxability. Section 7.10. Financial Covenants. (a) Borrower and Guarantors will maintain a ratio of Total Funded Debt (as defined below) to EBITDA (as defined below) at no more than 4.75 to 1.0 (determined for the four most recently ended fiscal quarters). (b) Borrower and Guarantors will maintain Tangible Capital Funds (as defined below) at the end of each fiscal quarter equal to at least $10,000,000. (c) Borrower and Guarantors will maintain a ratio (calculated on a consolidated basis) of (i) total liabilities minus deferred tax liabilities at the end of each fiscal quarter, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied to (ii) Tangible Capital Funds, at no more than 3.0 to 1.0. (d) Borrower and Guarantors will maintain a ratio (calculated on a consolidated basis) of current assets to current liabilities, as determined in accordance with generally accepted accounting principles, of at least 1.25 to 1.0. 28 As used in this Section 7.10, the following terms have the following meanings: "Total Funded Debt" means total liabilities of Borrower and Guarantors minus (i) cash on hand, (ii) accounts payable, (iii) deferred tax liabilities, and (iv) other deferred liabilities, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied. "EBITDA" means consolidated earnings of Borrower and Guarantors net of interest payments and accruals, federal income taxes, depreciation and amortization, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied. "Tangible Capital Funds" means Tangible Net Worth plus deferred tax liabilities. "Tangible Net Worth" means (i) the amount of all assets excluding deferred tax liabilities which, under generally accepted accounting principles consistently applied, would appear on the consolidated balance sheet of Borrower and Guarantors, but excluding intangible items such as deferred tax assets, goodwill, treasury shares, reserves, patents, trademarks, research and development expenses and the like, and excluding any write-up in the book value of such assets resulting from a reevaluation thereof; less (ii) the amount of all liabilities which, under generally accepted accounting principles consistently applied, would appear on the consolidated balance sheet of Borrower and Guarantors (including all lease obligations payable within the succeeding 12-month period). ARTICLE VIII NEGATIVE COVENANTS OF BORROWER So long as the Loan and the Bond shall remain unpaid, Borrower agrees that: Section 8.01. Lien. Borrower will not create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of the Equipment except for the security interest created pursuant to this Agreement. Section 8.02. Sale of Assets. Borrower will not sell, lease, assign, transfer or otherwise dispose of all or a substantial part of its assets or of any of the Equipment or any interest therein (whether in one transaction or in a series of transactions) without the prior written consent of Lender (which consent Lender may withhold in its sole discretion) and, with respect to the Equipment, without providing an opinion of counsel that such action will not result in a Default or Event of Default and an opinion of Bond Counsel that such action will not result in a Determination of Taxability. Section 8.03. Consolidation and Merger. Borrower will not consolidate with or merge into any person, or permit any other person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other person unless: (i) Lender provides its prior written consent thereto (which consent Lender may withhold in its sole discretion), (ii) written notice of such merger or consolidation is provided to Issuer and (iii) the 29 surviving entity is qualified to do business in the State and agrees in writing to assume Borrower's obligations hereunder, under the Escrow Agreement and under the Tax Compliance Certificate. Section 8.04. Accounting. Borrower will not adopt, permit or consent to any material change in accounting principles other than as required by generally accepted accounting principles without the prior written consent of Lender (which consent Lender may withhold in its sole discretion). Borrower will not adopt, permit or consent to any change in its fiscal year without the prior written consent of Lender (which consent Lender may withhold in its sole discretion). Section 8.05. Transfers. Borrower will not in any manner transfer any property without prior or present receipt of full and adequate consideration. Section 8.06. Other Defaults. Borrower will not permit any breach, default or event of default to occur under any note, loan agreement, indenture, lease, mortgage, contract for deed, security agreement or other contractual obligation binding upon Borrower or any judgment, decree, order or determination applicable to Borrower. Section 8.07. Place of Business. Borrower will not permit any of the Equipment or any records pertaining to the Equipment to be located outside the State or in any location where, in the event of such location, a financing statement covering such Equipment would be required to be, but has not in fact been, filed in order to perfect the security interest created pursuant to this Agreement. Section 8.08. Modifications and Substitutions. (a) Borrower will not make any material alterations, modifications or additions to the Equipment which cannot be removed without materially damaging the functional capabilities or economic value of the Equipment. Upon transfer of the Equipment to Lender and at the request of Lender, Borrower, at its sole cost and expense, will remove all alterations, modifications and additions and repair the Equipment as necessary to return the Equipment to the condition in which it was furnished, ordinary wear and tear and permitted modifications excepted. (b) Notwithstanding the provisions of subparagraph (a) of this section, Borrower may, with the prior written consent of Lender, substitute for parts, elements, portions or all of the Equipment, other parts, elements, portions, equipment or facilities of similar function and value, provided, however, that any substitutions made pursuant to Borrower's obligations to make repairs referenced under any provision of this Agreement shall not require such prior written consent. Borrower shall provide such documents or assurances as Lender may reasonably request to maintain or confirm the security interest assigned to Lender in the Equipment as so modified or substituted. Section 8.09. Use of the Equipment. Borrower will not install, use, operate or maintain the Equipment improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Agreement. 30 ARTICLE IX DAMAGE AND DESTRUCTION; USE OF NET PROCEEDS Borrower shall provide a complete written report to Lender immediately upon any loss, theft, damage or destruction of any Equipment and of any accident involving any Equipment. If all or any part of the Equipment is lost, stolen, destroyed or damaged beyond repair ("Damaged Equipment"), Borrower shall as soon as practicable after such event either: (a) replace the same at Borrower's sole cost and expense with equipment having substantially similar specifications and of equal or greater value to the Damaged Equipment immediately prior to the time of the loss occurrence, such replacement equipment to be subject to Lender's approval, whereupon such replacement equipment shall be substituted in this Agreement and the other related documents by appropriate endorsement or amendment; or (b) pay the applicable Prepayment Amount of the Damaged Equipment. Borrower shall notify Lender of which course of action it will take within fifteen (15) calendar days after the loss occurrence. If within forty-five (45) calendar days of the loss occurrence, (a) Borrower fails to notify Lender, (b) Borrower and Lender fail to execute an amendment to this Agreement to delete the Damaged Equipment and add the replacement equipment or (c) Borrower fails to pay the applicable Prepayment Amount, then Lender may, at its sole discretion, declare the applicable Prepayment Amount to be immediately due and payable, and Borrower is required to pay the same. The Net Proceeds of insurance with respect to the Damaged Equipment shall be made available by Lender to be applied to discharge Borrower's obligation under this Article. The payment of the Prepayment Amount and the termination of Lender's interest in the Damaged Equipment is subject to the terms of Section 2.07 hereof For purposes of this Article, the term "Net Proceeds" shall mean the amount remaining from the gross proceeds of any insurance claim or condemnation award after deducting all expenses (including reasonable attorneys' fees) incurred in the collection of such claim or award. ARTICLE X ASSIGNMENT, SUBLEASING AND SELLING Section 10.01. Assignment by Lender. This Agreement, the Bond and the obligations of Borrower to make payments hereunder and under the Bond may be assigned in whole but not in part to an assignee by Lender at any time, without the necessity of obtaining the consent of Issuer or Borrower, provided, however, that no such assignment or any reassignment shall be effective unless and until Issuer and Borrower shall have received (i) notice of the assignment disclosing the name and address of the assignee, which notice Issuer shall maintain as evidence of the registration and ownership of the Bond, (ii) a properly completed assignment of the Bond and (iii) an investment letter substantially in the form delivered at closing. Upon receipt of notice of assignment, Borrower shall agree to make all payments to the assignee designated in the notice of assignment, notwithstanding any claim, defense, setoff or counterclaim whatsoever (whether arising from a breach of this Agreement or otherwise) that Issuer and Borrower may from time to time have against Lender or the assignee. Issuer and Borrower agree to execute all documents, including notices of assignment and chattel 31 mortgages or financing statements, which may be reasonably requested by Lender or its assignee to protect their interest in the Equipment and in this Agreement. Section 10.02. No Sale or Assignment by Borrower. This Agreement and the interest of Borrower in the Equipment may not be sold, assumed, assigned or encumbered by Borrower without the prior written consent of Lender (which consent Lender may withhold in its sole discretion) and without providing to Issuer: (i) 30 days' notice of such sale, assumption, assignment or encumbrance and (ii) evidence that Borrower's obligations hereunder, under the Escrow Agreement and under the Tax Compliance Certificate have been properly assumed. ARTICLE XI EVENTS OF DEFAULT AND REMEDIES Section 11.01. Events of Dealt. The following constitute "Events of Default" under this Agreement: (a) failure by Borrower to pay to Lender, as assignee of Issuer, when due any Loan Payment or to pay any other payment required to be paid hereunder or under the Indemnity Agreement and the continuation of such failure for a period of ten (10) days; (b) failure by Borrower to maintain insurance on the Equipment in accordance with Section 7.06 hereof; (c) failure by Borrower or Issuer to observe and perform any other covenant, condition or agreement contained herein, in the Escrow Agreement, in the Tax Compliance Certificate, in the Indemnity Agreement or in any other document or agreement executed in connection herewith on its part to be observed or performed for a period of 30 days after written notice is given to Borrower or Issuer, as the case may be, specifying such failure and requesting that it be remedied; provided, however, that, if the failure stated in such notice cannot be corrected within such 30-day period, Lender will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by Borrower or Issuer, as the case may be, within the applicable period and diligently pursued until the default is corrected; (d) initiation by Issuer of a proceeding under any federal or state bankruptcy or insolvency law seeking relief under such laws concerning the indebtedness of Issuer; (e) Borrower or any Guarantor shall be or become insolvent, or admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or Borrower or any Guarantor shall apply for or consent to the appointment of any receiver, trustee or similar officer for it or for all or any substantial part of its properly or such receiver, trustee or similar officer shall be appointed without the application or consent of Borrower or any Guarantor, as the case may be; or Borrower or any Guarantor shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, 32 application or otherwise) against Borrower or any Guarantor; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of Borrower or any Guarantor; (f) determination by Lender that any representation or warranty made by Borrower, Issuer or any Guarantor herein, in the Tax Compliance Certificate or in any other document executed in collection herewith was untrue in any material respect when made; (g) an Event of Taxability shall occur; (h) the occurrence of a default or an event of default under any instrument, agreement or other document evidencing or relating to any indebtedness or other monetary obligation of Borrower in an amount greater than $2S0,000.00; (i) any Guarantor shall repudiate, purport to revoke or fail to perform such Guarantor's obligations under a Guaranty Agreement; or (j) the percentage share of ownership of the stock of Borrower held by Borrower's officers and directors and by Manubusiness Opportunities, Inc. on the date on which the Bond is issued is reduced during the period that the Loan and the Bond are outstanding without the prior written consent of Lender (Borrower hereby acknowledges that Lender has made its decision to enter into the transactions contemplated hereby based upon the management expertise of the current stockholders and their ownership of the stock of Borrower); or (k) the occurrence of a default or an event of default under the Subsequent Loan Agreement or any other obligation (whether direct or indirect) of Borrower to Lender or any of its affiliates. Section 11.02. Remedies on Default. Whenever any Event of Default shall have occurred and be continuing, Lender, as assignee of Issuer, shall have the right, at its sole option without any further demand or notice, to take any one or any combination of the following remedial steps insofar as the same are available to secured parties under Article 9 of the UCC in effect in the State from time to time and which are otherwise accorded to Lender, as assignee of Issuer, by applicable law: (a) by notice to Issuer and Borrower, declare the entire unpaid principal amount of the Loan and the Bond then outstanding, all interest accrued and unpaid thereon and all amounts payable under this Agreement to be forthwith due and payable, whereupon the Loan, the Bond, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; (b) take possession of the Equipment wherever situated, without any court order or other process of law and without liability for entering the premises, and lease, sublease or make other disposition of the Equipment for use over a term in a commercially reasonable manner, all for the account of Lender, provided that Borrower shall remain directly liable for the deficiency, if any, between the rent or other amounts paid by a lessee or sublessee of the 33 Equipment pursuant to such lease or sublease during the same period of time, after deducting all costs and expenses, including reasonable attorneys' fees and expenses, incurred with respect to the recovery, repair and storage of the Equipment during such period of time; (c) take possession of the Equipment wherever situated, without any court order or other process of law and without liability for entering the premises, and sell the Equipment in a commercially reasonable manner. All proceeds from such sale shall be applied in the following manner: FIRST, to pay all proper and reasonable costs and expenses associated with the recovery, repair, storage and sale of the Equipment, including reasonable attorneys' fees and expenses; SECOND, to pay (i) Lender the amount of all unpaid Loan Payments or other obligations owed to Lender under the Subsequent Loan Agreement which are then due and owing, together with interest and late charges thereon and (ii) Lender the then applicable Prepayment Amount (taking into account the payment of past-due Loan Payments as aforesaid), plus a pro rata allocation of interest, at the rate utilized to calculate the Loan Payments, from the next preceding due date of a Loan Payment until the date of payment by the buyer; THIRD, to pay Issuer and/or Lender any other amounts due hereunder, including indemnity payments, taxes, charges, reimbursement of any advances and other amounts payable to Lender or Issuer hereunder; FOURTH, to pay the remainder of the sale proceeds, purchase moneys or other amounts paid by a buyer of the Equipment to Borrower; (c) proceed by appropriate court action to enforce specific performance by Issuer or Borrower of the applicable covenants of this Agreement or to recover for the breach thereof, including the payment of all amounts due from Borrower. Borrower shall pay or repay to Lender or Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees; and (d) take whoever action at law or in equity may appear necessary or desirable to enforce its rights with respect to the Equipment. Borrower shall pay or repay to Lender or Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees. Notwithstanding any other remedy exercised hereunder, Borrower shall remain obligated to pay to Lender any unpaid portion of the Prepayment Amount. Section 11.03. Return of Equipment. Upon an Event of Default, Borrower shall within ten (10) calendar days after notice from Lender, at its own cost and expense: (a) perform any testing and repairs required to place the Equipment in the condition required by Article VII; (b) if deinstallation, disassembly or crating is required, cause the Equipment to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lender; 34 and (c) deliver the Equipment to a location specified by Lender, freight and insurance prepaid by Borrower. If Borrower refuses to deliver the Equipment in the manner designated, Lender may enter upon Borrower's premises where the Equipment is kept and take possession of the Equipment and charge to Borrower the costs of such taking. Borrower hereby expressly waives any damages occasioned by such taking. Section 11.04. No Remedy Exclusive. No remedy herein conferred upon or reserved to Lender or Issuer is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of 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 Lender or Issuer to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice other than such notice as may be required by this Article. All remedies herein conferred upon or reserved to Lender or Issuer shall survive the termination of this Agreement. Section 11.05. Late Charge. Any Loan Payment not paid by Borrower on the due date thereof shall, to the extent permissible by law, bear a late charge equal to the lesser of five cents ($.05) per dollar of the delinquent amount or the lawful maximum, and Borrower shall be obligated to pay the same immediately upon receipt of Lender's written invoice therefor. ARTICLE XII MISCELLANEOUS Section 12.01. Costs and Expenses of Lender and Issuer. (a) Borrower shall pay to Lender, in addition to the Loan Payments payable by Borrower hereunder, such amounts in each year as shall be required by Lender in payment of any reasonable costs and expenses incurred by Lender in connection with the execution, performance or enforcement of this Agreement, including but not limited to payment of all reasonable fees, costs and expenses and all administrative costs of Lender in connection with the Equipment, expenses (including, without limitation, attorneys' fees and disbursements), fees of auditors or attorneys, insurance premiums not otherwise paid hereunder and all other direct and necessary administrative costs of Lender or charges required to be paid by it in order to comply with the terms of, or to enforce its rights under, this Agreement. Such costs and expenses shall be billed to Borrower by Lender from time to time, together with a statement certifying that the amount so billed has been paid by Lender for one or more of the items above described, or that such amount is then payable by Lender for such items. Amounts so billed shall be due and payable by Borrower within 30 days after receipt of the bill by Borrower. Issuer shall have no liability for any fees or expenses of Lender. (b) Borrower hereby further expressly agrees to pay upon written request, the fees and expenses of Issuer (including the fees and expenses of its bond counsel) related to the transactions contemplated by this Agreement which are not otherwise required to be paid by Borrower under the terms of this Agreement. In particular, but without limiting the generality of the foregoing, Borrower shall pay a one-time issuance fee of $7,500.00 to Issuer prior to or contemporaneously with the making of the Loan. In addition, Borrower shall pay, within ten (10) days of demand therefor: (i) all out-of- 35 pocket costs and expenses of Issuer incidental to the making of the Loan and (ii) the reasonable out-of-pocket expenses of Issuer (including, without limitation, reasonable attorneys' fees) relied to the transactions contemplated by this Agreement or incurred by Issuer in enforcing the provisions of this Agreement. Section 12.02. Disclaimer of Warranties. LENDER AND ISSUER MAKE NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILlTY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS FOR USE OF THE EQUIPMENT, OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT THERETO. In no event shall Lender or Issuer be liable for any loss or damage in connection with or arising out of this Agreement, the Equipment or the existence, furnishing, functioning or Borrower's use of any item or products or services provided for in this Agreement. Section 12.03. Notices. All notices, certificates, requests, demands and other communications provided for hereunder or under the Escrow Agreement shall be in writing and shall be (a) personally delivered, (b) sent by first-class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed to the party to whom notice is being given at its address as set forth above and, if telecopied, transmitted to that party at its telecopier number set forth above or, as to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be determined to have been given on (a) the due received if personality delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy. If notice to Borrower of any intended disposition of the Equipment or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Section) at least ten (10) calendar days prior to the date of intended disposition or other action. Section 12.04. Further Assurance and Corrective Instruments. Issuer and Borrower hereby agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such further acts, instruments, conveyances, transfers and assurances, as Lender reasonably deems necessary or advisable for the implementation, correction, confirmation or perfection of this Agreement or the Escrow Agreement and any rights of Lender hereunder or thereunder. Section 12.05. Binding Effect; Time of the Essence. This Agreement shall inure to the benefit of and shall be binding upon Lender, Issuer, Borrower and their respective successors and assigns. Time is of the essence. Section 12.06. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 12.07. Amendments. To the extent permitted by law, the terms of this Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by 36 written instrument signed by the parties hereto, and then such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Section 12.08. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart, provided that only the original marked "Original: 1 of 6" on the execution page thereof shall constitute chattel paper under the Uniform Commercial Code. Section 12.09. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.10. Captions. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. Section 12.11. Entire Agreement. This Agreement, the Escrow Agreement and the exhibits hereto and thereto constitute the entire agreement among Lender, Issuer, Borrower and Escrow Agent. There are no understandings, agreements, representations or warranties, express or implied, not specified herein or in such documents regarding this Agreement or the Equipment financed hereby. Section 12.12. Usury. It is the intention of the parties hereto to comply with any applicable usury laws; accordingly, it is agreed that, notwithstanding any provisions to the contrary in this Agreement, in no event shall this Agreement require the payment or permit the collection of interest or any amount in the nature of interest or fees in excess of the maximum permitted by applicable law. Section 12.13. Waiver of Jury Trial. LENDER, ISSUER AND BORROWER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG LENDER, ISSUER OR BORROWER RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG LENDER, ISSUER AND BORROWER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. Section 12.14. Governmental Functions The State is not assigning any of its governmental functions in this Agreement. The State shall not be precluded from taking such actions as shall be necessary in order for it to perform its governmental functions. Issuer shall, however, be bound by its undertakings herein and in the Escrow Agreement. 37 [REMAINDER OF PAGE INTENTIONALLY BLANK; EXECUTION PAGE FOLLOWS.] 38 IN WITNESS WHEREOF, the parties hereto have executed this Agreement in their respective corporate names by their duly authorized officers, all as of the date first written above. Lender: GE CAPITAL PUBLIC FINANCE, INC. By /s/ authorized officer ----------------------------- Title -------------------------- Issuer: MICHIGAN STRATEGIC FUND By /s/ James M. Storey ----------------------------- Title Member -------------------------- By ----------------------------- Title Authorized Officer -------------------------- Borrower: SECOM GENERAL CORPORATION By /s/ David J. Marczak ----------------------------- Title Chief Financial Officer -------------------------- Trade Names of Borrower, if any: - -------------------------------- NONE - -------------------------------- - -------------------------------- ORIGINAL: 4 OF 6 [EXECUTION PAGE OF LOAN AGREEMENT] EX-10.6 7 EXHIBIT 10.6 LOAN AGREEMENT Among GE CAPITAL PUBLIC FINANCE, INC., as Lender, and MICHIGAN STRATEGIC FUND, as Issuer, and SECOM GENERAL CORPORATION, as Borrower Dated as of September 1, 1996 --------- This instrument constitutes a security agreement under the Michigan Uniform Commercial Code --------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01. Definitions ........................................ 2 Section 1.02. Exhibits ........................................... 5 Section 1.03. Rules of Construction............................... 6 ARTICLE II FINANCING OF EQUIPMENT AND TERMS OF LOAN Section 2.01. Acquisition of Equipment............................ 6 Section 2.02. Loan................................................ 6 Section 2.03. Interest............................................ 6 Section 2.04. Payments............................................ 7 Section 2.05. Payment on Non-Business Days........................ 7 Section 2.06. Loan Payments To Be Unconditional................... 7 Section 2.07. Prepayments......................................... 7 Section 2.08. Execution, Authentication and Delivery of the Bond.. 8 Section 2.09. Mutilated, Lost, Stolen or Destroyed Bond .......... 8 ARTICLE III CONDITIONS PRECEDENT............................................... 8 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER................ 11 ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.............. 13 ARTICLE VI TITLE TO EQUIPMENT, SECURITY INTEREST Section 6.01. Title to the Equipment.............................. 21 Section 6.02. Security Interest in Equipment...................... 21 Section 6.03. Change in Name or Corporate Structure of Borrower, Change in Location of Borrower's Principal Place of Business......................................... 21 Section 6.04. Liens and Encumbrances to Title..................... 22 Section 6.05. Personal Property................................... 22 Section 6.06. Assignment of Insurance............................. 22 Section 6.07. Occupancy........................................... 22 Section 6.08. Agreement as Financing Statement.................... 23 ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER Section 7.01. Reporting Requirements.............................. 23 Section 7.02. Books and Records; Inspection and Examination....... 24 Section 7.03. Compliance With Laws; Environmental Indemnity....... 25 Section 7.04. Payment of Taxes and Other Claims................... 25 Section 7.05. Maintenance of Equipment............................ 25 Section 7.06. Insurance; Indemnification.......................... 26 Section 7.07. Preservation of Corporate Existence................. 28 Section 7.08. Performance by Lender............................... 28 Section 7.09. Covenant as to Nonimpairment of Tax-Exempt Status... 28 Section 7.10. Financial Covenants................................. 29 ARTICLE VIII NEGATIVE COVENANTS OF BORROWER Section 8.01. Lein................................................ 30 Section 8.02. Sale of Assets...................................... 30 Section 8.03. Consolidation and Merger............................ 31 Section 8.04. Accounting.......................................... 31 Section 8.05. Transfers........................................... 31 Section 8.06. Other Defaults...................................... 31 Section 8.07. Place of Business................................... 31 Section 8.08. Modification and Substitutions...................... 31 Section 8.09. Use of the Equipment................................ 32 ARTICLE IX DAMAGE AND DESTRUCTION;............................................ 32 ARTICLE X ASSIGNMENT, SUBLEASING AND SELLING Section 10.01. Assignment by Lender................................ 32 Section 10.02. No Sale or Assignment by Borrower................... 33 ii ARTICLE XI EVENTS OF DEFAULT AND REMEDIES Section 11.01. Events of Default................................... 33 Section 11.02. Remedies on Default................................. 34 Section 11.03. Return of Equipment................................. 36 Section 11.04. No Remedy Exclusive................................. 36 Section 11.05. Late Charge......................................... 36 ARTICLE XII MISCELLANEOUS Section 12.01. Costs and Expenses of Lender and Issuer............. 37 Section 12.02. Disclaimer of Warranties............................ 37 Section 12.03. Notices............................................. 37 Section 12.04. Further Assurance and Corrective Instruments........ 38 Section 12.05. Binding Effect; Time of the Essence................. 38 Section 12.06. Severability........................................ 38 Section 12.07. Amendments.......................................... 38 Section 12.08. Execution in Counterparts........................... 38 Section 12.09. Applicable Law...................................... 38 Section 12.10. Captions............................................ 38 Section 12.11. Entire Agreement.................................... 38 Section 12.12. Usury............................................... 39 Section 12.13. Waiver of Jury Trial................................ 39 Section 12.14. Governmental Functions.............................. 39 iii LOAN AGREEMENT Lender: GE Capital Public Finance, Inc. Suite 470 8400 Normandale Lake Blvd. Minneapolis, MN 55437 Telephone: (800) 346-3164 Telecopier: (612) 897-5601 Issuer: Michigan Strategic Fund Attn: President 525 West Ottawa, 5th floor Lansing, MI 48933 Telephone: (517) 335-4417 Telecopier: (517) 335-3059 Borrower: Secom General Corporation 46035 Grand River Avenue Novi, Ml 48374 Telephone: (805) 305-9410 Telecopier: (805) 305-9599 THIS LOAN AGREEMENT dated as of September 1, 1996 (this "Agreement") among GE Capital Public Finance, Inc., a Delaware corporation, as lender (with its successors and assigns, "Lender"), Michigan Strategic Fund, a public body corporate and politic duly organized and validly existing under the laws of the state of Michigan (the "State"), as issuer ("Issuer"), and Secom General Corporation, a Delaware corporation, as borrower ("Borrower"). WHEREAS, Issuer is authorized and empowered under the laws of the State, including 1984 PA270, as amended (the "Act"), to assist any person, firm or corporation in the financing of certain projects and facilities, through the issuance of its limited obligation revenue bonds; and WHEREAS, in furtherance of the purposes of the Act, Issuer proposes to finance all or a portion of the acquisition and installation of the Equipment (as hereinafter defined) by Borrower pursuant to this Agreement by obtaining a loan from Lender, issuing the Bond (as defined herein) and lending the proceeds thereof to Borrower; and WHEREAS, Borrower proposes the acquisition and installation of the Equipment and as an inducement therefor has requested Issuer to assist in the financing of the Equipment and certain other expenses incidental thereto, as provided in the Act; and WHEREAS, Borrower shall make Loan Payments (as hereinafter defined) directly to Lender as assignee of Issuer; and WHEREAS, the Bond and the interest obligation thereon shall never constitute any obligation of the State or a general obligation of Issuer within the meaning of any constitutional or statutory limitation and shall never constitute nor give rise to a charge against the general credit or taxing powers or the State, but shall be a limited obligation of Issuer payable solely from the Loan Payments payable hereunder by Borrower to Lender as assignee of Issuer; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledge and in consideration of the premises contained in this Agreement, Lender, Issuer and Borrower agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01 Definitions. The following terms used herein will have the meanings indicated unless the context clearly requires otherwise: "Acquisition Costs" means the contract price paid or to be paid to the Vendors for any portion of the Equipment upon Borrower's acceptance thereof as set forth on Exhibit A hereto. "Agreement" means this Agreement, including all exhibits hereto, as any of the same may be supplemented or amended from time to time in accordance with the terms hereof. "Bond" means Issuer's $4,000,000.00 Limited Obligation Revenue Bond (Secom General Corporation Project), Series 1996B, in the form attached hereto as Exhibit E. "Bond Counsel" means an attorney or firm of attorneys nationally recognized in the field of municipal finance and acceptable to Lender and Issuer. "Borrower" means Secom General Corporation, a Delaware corporation. "Business Day" means a day other than a Saturday or Sunday on which banks are generally open for business in New York, New York. "Capital Expenditures" means expenditures: (a) properly chargeable to the capital account of any person without regard to any rule of the Code which permits such expenditures to be treated as current expenses; (b) financed from sources other than the Loan Proceeds; and (c) which resulted in property used in connection with facilities located in the City of Novi, Oakland County, Michigan, or located in any adjacent political subdivision and integrated with or contiguous to such facilities, the "principal user" of which is Borrower or any Related Person or any other Principal User of the Equipment or Related Person to such Principal User, except capital expenditures exempted under Section 144(a)(4)(C) of the Code. 2 "Certificate of Acceptance" means a Certificate of Acceptance, in substantially the form set forth as Exhibit B hereto, whereby Borrower acknowledges receipt in good condition of particular items of Equipment identified therein and confirms the date of delivery thereof and certain other matters. "Code" means the Internal Revenue Code of 1986, as amended, and United States Treasury regulations promulgated thereunder. "Default" means an event that, with giving of notice or passage of time or both, would constitute an Event of Default as provided in Article XI hereof. "Determination of Taxability" means any determination, decision or decree by the Commissioner of Internal Revenue, or any District Director of Internal Revenue or any court of competent jurisdiction, or an opinion of Bond Counsel that an Event of Taxability shall have occurred. A Determination of Taxability also shall be deemed to have occurred on the first to occur of the following: (a) the date when Borrower files any statement, supplemental statement, or other tax schedule, return or document, which discloses that an Event of Taxability shall have occurred; or (b) the effective date of any federal legislation enacted after the date of this Agreement or promulgation of any income tax regulation or ruling by the Internal Revenue Service that causes an Event of Taxability after the date of this Agreement. "Equipment" means the personal property identified in Exhibit A hereto to be used in connection with Borrower's operations (including, to the extent permitted pursuant to the Code without jeopardizing the tax-exempt status of the Interest, certain items originally financed through internal advances of Borrower in anticipation of obtaining permanent financing through Issuer), together with all replacement parts, additions, repairs, accessions and accessories incorporated therein and/or affixed to such personal property. "Escrow Agent" means National City Bank of Minneapolis, as escrow agent under the Escrow Agreement and its successors and assigns permitted under the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement dated as of September 1, 1996 among Lender, Issuer, Borrower and Escrow Agent. "Escrow Fund" means the fund established and held by Escrow Agent pursuant to the Escrow Agreement. "Event of Taxability" means if as the result of any act, failure to act or use of the proceeds of the Loan, a change in use of the Equipment or any misrepresentation or inaccuracy in any of the representations, warranties or covenants contained in this Agreement or the Tax Compliance Certificate by Issuer or Borrower or the enactment of any federal legislation after the date of this 3 Agreement or the promulgation of any income tax regulation or ruling by the Internal Revenue Service after the date of this Agreement, the interest on the Bond is or becomes includable in the recipient's gross income. "Guarantors" means Uniflow Corporation, Form Flow, Inc., L&H Die, Inc., and Micanol, Inc. "Guaranty Agreements" means the four Guaranty Agreements dated as of September 1, 1996 executed on behalf of Guarantors. "Indemnity Agreement" means the Indemnity Agreement dated as of September 1, 1996 executed on behalf of Borrower for the benefit of Lender. "Interest" means the portion of any payment from Issuer to Lender under the Bond designated as and comprising interest as shown in Exhibit A hereto. "Insurance Costs" means items of expense payable or reimbursable directly or indirectly by Issuer or Borrower and related to the authorization, sale and issuance of the Bond and authorization and execution of this Agreement, which items of expense shall include, but not be limited to, application fees and expenses, publication costs, printing costs, costs of reproducing documents, filing and recording fees, bond counsel and counsel fees, costs of credit ratings, charges for execution, transportation and safekeeping of the Bond and related documents, and other costs, charges and fees in connection with the foregoing. "Issuer" means the Michigan Strategic Fund, acting as issuer under this Agreement. "Lender" means (i) GE Capital Public Finance, Inc., acting as lender under this Agreement and holder of the Bond, (ii) any surviving, resulting or transferee corporation of GE Capital Public Finance, Inc (who is also holder of the Bond) and (iii) except where the context requires otherwise, any assignee(s) of Lender (who shall also be holder of the Bond). "Loans" means the loan from Issuer to Borrower pursuant to this Agreement. "Loan Payments" means the loan payments payable by Borrower pursuant to the provisions of this Agreement as specifically set forth in Exhibit A hereto. As provided in Article II hereof, Loan Payments shall be payable by Borrower directly to Lender, as assignee of Issuer, in the amounts and at the times as set forth in Exhibit A hereto. "Loans Proceeds" means the total amount of money to be deposited pursuant to Section 2.02 hereof with Escrow Agent for deposit and application in accordance with the Escrow Agreement. The Loan Proceeds consist of the proceeds of the Bond. "Prepayment Amount" means the amount which Borrower may from time to time, in its discretion, pay or cause to be paid to Lender as assignee of Issuer in order to prepay the Loan and the Bond, as provided in Section 2.07 hereof, such amounts being set forth in Exhibit A hereto. 4 "Principal" means the portion of any Loan Payment designated as principal in Exhibit A hereto. "Principal User" means a principal user of the Equipment as such term is used in Section 144(a) of the Code. "Prior Loan Agreement" means the Loan Agreement dated as of June 1, 1996 among Lender, Issuer and Borrower. "Purchase Agreement" means Borrower's purchase agreements with Vendors of the equipment. "Related Person" with reference to any Substantial User, means a "related person" within the meaning of Section 147(a) of the Code, and, with reference to any "Principal User, means a "related person" within the meaning of Section 144(a)(3) of the Code. "Reserved Rights" means those certain rights of Issuer under this Agreement to indemnification, liability insurance proceeds and reimbursement for certain costs and expenses pursuant Sections 7.06, 7.03 and 12.01(b) hereof, to receive notice pursuant to Section 12.03 hereof and to inspect Borrower's books and records pursuant to Section 7.02 hereof. "State" means the State of Michigan. "Substantial User" means, with respect to any "facilities" (as the term "facilities' is used in section 147(a) of the Code), a "substantial user" of such "facilities" within the meaning of Section 147(a)of the Code. "Tax Compliance Certificate" means, collectively, the Non-Arbitrage Certificate and the Tax Compliance Certificate, each dated as of the date hereof, executed by Borrower in connection with the Issuance of the Bond. "UCC" means the Uniform Commercial Code as adopted and in effect in the State. "Vendor" means the manufacturer or vendor of an item of Equipment, as well as the agents or dealers of the manufacturer, from whom Borrower has purchased or is purchasing items of Equipment. Section 1.02. Exhibits. The following exhibits are attached hereto and made a part hereof: Exhibit A: Form of Schedule of Equipment and Loan Payments describing the Equipment and setting forth the Loan Payments and Prepayment Amounts. Issuer hereby authorizes Lender to insert in Exhibit A the serial or other identifying numbers relating to the Equipment when available. Exhibit B: Form of Certificate of Acceptance. Exhibit C: Form of opinion of counsel to Borrower and Guarantors. 5 Exhibit D: Form of opinion of Bond Counsel. Exhibit E: Form of Bond. Section 1.03. Rules of Construction. (a) The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include the plural, and vice versa. The use herein of a word of any gender shall include correlative words of all genders. (b) Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designated Articles, Sections and other subdivision of this Agreement as originally executed. The words "hereof," "herein," "hereunder" and words of similar import refer to this Agreement as a whole. (c) The headings or titles of the several articles and sections shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof. ARTICLE II FINANCING OF EQUIPMENT AND TERMS OF LOANS Section 2.01. Acquisition of Equipment. Borrower either has ordered or shall order the Equipment pursuant to one or more Purchase Agreements from one or more Vendors. Borrower shall remain liable to the Vendor or Vendors in respect of its duties and obligations in accordance with each Purchase Agreement and shall bear the risk of loss with respect to any loss or claim relating to any item of Equipment covered by any Purchase Agreement, and neither Lender nor Issuer shall assume any such liability or risk of loss. Section 2.02. Loan. Lender hereby agrees, subject to the terms and conditions of this Agreement, to make a loan to Issuer pursuant to the terms hereof and through the purchase of the Bond in the amount of $4,000,000.00; Issuer hereby agrees, subject to the terms and conditions of this Agreement and the Bond, to sell the Bond to Lender and to lend the Loan Proceeds to Borrower; and Borrower hereby agrees to borrow such amount from Issuer. Upon fulfillment of the conditions set forth in Article III hereof, Lender shall deposit the Loan Proceeds (consisting of the proceeds of the Bond) in the Escrow Fund to be held, invested and disbursed as provided in the Escrow Agreement. Issuer's obligation to make payments on the Bond, and Borrower's obligation to repay the Loan, shall commence, and interest shall begin to accrue, on the date on which Loan Proceeds are deposited in the Escrow Fund (which shall be the date on which the Bond is issued). Section 2.03. Interest. The principal amount of the Bond and the Loan hereunder outstanding from time to time shall bear interest (computed on the basis of actual days elapsed in a 360-day year) at the rate of five and ninety-nine hundredths percent (5.99%). Interest accruing on the principal balance of such loans outstanding from time to time shall be payable as provided in Exhibit A and the Bond and upon earlier demand in accordance with the terms hereof or prepayment in accordance with the terms of the Bond and Section 2.07 hereof. 6 Section 2.04. Payments. Issuer shall pay the principal of, premium, if any in accordance with Section 2.07 hereof and interest on the Bond, but only out of the amounts paid by Borrower pursuant to this Agreement. Borrower shall pay to Lender, as assignee of Issuer and holder of the Bond, Loan Payments, in the amounts and on the dates set forth in Exhibit A hereto. As security for its obligation to pay the principal of, premium, if any in accordance with Section 2.07 hereof, and interest on the Bond, Issuer assigns to Lender all of Issuer's right to receive Loan Payments from Borrower hereunder, all of Issuer's rights hereunder (except Reserved Rights) and all of Issuer's right, title and interest in and to the Equipment, and Issuer irrevocably constitutes and appoints Lender and any present or future officer or agent of Lender as its lawful attorney, with full power of substitution and resubstitution, and in the name of Issuer or otherwise, to collect the Loan Payments and any other payments due hereunder and under the Bond and to sue in any court for such Loan Payments or other payments, to exercise all rights hereunder with respect to the Equipment and to withdraw or settle any claims, suits or proceedings pertaining to or arising out of this Agreement upon any terms. Such Loan Payments and other payments shall be made by Borrower directly to Lender, as Issuer's assignee, and shall be credited against Issuer's payment obligations hereunder and under the Bond. No provision, covenant or agreement contained in this Agreement or any obligation herein imposed on Issuer, or the breach thereof, shall constitute or give rise to or impose upon Issuer or the State a pecuniary liability, a charge upon its general credit or taxing powers or a pledge of its general revenues but shall be a limited obligation as described herein. Issuer has no taxing power. All amounts required to be paid by Borrower hereunder shall be paid in lawful money of the United States of America in immediately available funds. No recourse shall be had by Lender or Borrower for any claim based on this Agreement or the Bond against any member, director, officer, employee or agent of Issuer alleging personal liability on the part of such person. Section 2.05 Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or the fees hereunder, as the case may be. Section 2.06. Loan Payments To Be Unconditional. The obligations of Borrower to make payment of the Loan Payments required under this Article II and to make other payments hereunder and to perform and observe the covenants and agreements contained herein shall be absolute and unconditional in all events, without abatement, diminution, deduction, setoff or defense for any reason, including (without limitation) any failure of the Equipment to be delivered or installed, any defects, malfunctions, breakdowns or infirmities in the Equipment or any accident, condemnation, destruction or unforeseen circumstances. Notwithstanding any dispute between Borrower and any of Issuer, Lender, any Vendor or any other person, Borrower shall make all Loan Payments when due and shall not withhold any Loan Payments pending final resolution of such dispute, nor shall Borrower assert any right of set-off or counterclaim against its obligation to make such payments required under this Agreement. Section 2.07. Prepayments. (a) Borrower may, in its discretion, prepay the Loan and the Bond in whole at any time after the third anniversary of the date hereof by paying the applicable Prepayment Amount. 7 (b) Borrower shall prepay the Loan and the Bond in whole or in part at any time pursuant to Article IX hereof by paying the applicable Prepayment Amount. (c) Borrower shall prepay the Loan and the Bond in full immediately upon demand of Lender after the occurrence of an Event of Default by paying the applicable Prepayment Amount. (d) Borrower shall prepay the Loan and the Bond in full immediately upon demand of Lender after the occurrence of a Determination of Taxability; provided, however, that Lender, in its sole discretion may waive the requirement that the Loan and the Bond be prepaid pursuant to this Section 2.07(d). (e) The Loan and the Bond shall be repaid in part with funds remaining in the Escrow Fund upon termination of the Escrow Agreement as provided in Sections 2.03 or 2.04 of the Escrow Agreement. Such prepayment shall be without prepayment premium or penalty as long as such funds are not in an amount greater than $150,000.00. In the event that such funds are in an amount equal to or greater than $150,000 00, any such prepayment shall be subject to a 2% prepayment premium and shall not occur unless Borrower provides an opinion of counsel that such prepayment will not result in a Default or Event of Default and an opinion of Bond Counsel that such prepayment will not result in a Determination of Taxability. Upon any prepayment in part of the Loan and the Bond, the prepayment shall be applied to the Principal portion of prepayments in inverse order of maturity. Section 2.08. Execution, Authentication and Delivery of the Bond. The Bond shall be executed on behalf of Issuer by the manual signature of a member or an authorized officer of Issuer and shall have impressed or printed thereon the official seal of Issuer. Section 2.09 Mutilated, Lost, Stolen or Destroyed Bond. Subject to Act 354, Michigan Public Acts, 1972, as amended, and any other applicable law, in the event the Bond is mutilated, lost, stolen or destroyed, Issuer may authorize the execution and delivery of a new bond of like tenor as that mutilated, lost, stolen or destroyed; provided, however, that in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to Issuer and in the case of any lost, stolen or destroyed Bond, there shall first be furnished to Issuer evidence of the ownership thereof and of such loss, theft or destruction satisfactory to Issuer together, in each case, with a bond of indemnity satisfactory to Issuer. Issuer may charge the holder or owner of such Bond with any amounts provided by the aforesaid Act 354 and any other applicable law. ARTICLE III CONDITIONS PRECEDENT Lender's agreement to purchase the Bond, to make the loan to Issuer hereunder and to deposit the Loan Proceeds with Escrow Agent shall be subject to the condition precedent that Lender shall have received all of the following, each in form and substance satisfactory to Lender: 8 (a) This Agreement, properly executed on behalf of Issuer and Borrower, and each of the Exhibits hereto properly completed. (b) The Bond, in the form attached hereto as Exhibit E, properly executed on behalf of Issuer. (c) The Tax Compliance Certificate, properly executed on behalf of Borrower, in form and substance acceptable to Lender. (d) The Escrow Agreement, properly executed on behalf of Issuer, Borrower and Escrow Agent. (e) The Indemnity Agreement, properly executed on behalf of Borrower, in form and substance acceptable to Lender. (f) A certificate of the Secretary or an Assistant Secretary of Borrower, certifying as to (i) the resolutions of the board of directors and, if required, the shareholders of Borrower, authorizing the execution, delivery and performance of this Agreement, the Escrow Agreement and the Tax Compliance Certificate and any related documents, (ii) the bylaws of Borrower, and (iii) the signatures of the officers or agents of Borrower authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate and other instruments, agreements and certificates on behalf of Borrower. (g) Currently certified copies of the Articles of Incorporation of Borrower. (h) A Certificate of Good Standing issued as to Borrower by the Secretary of State of the state of Borrower's incorporation and by the Michigan Department of Consumer and Industry Services not more than 10 days prior to the date hereof. (i) Certificates of the insurance required hereunder, containing a lender's loss payable clause or endorsement in favor of Lender. (j) A completed and executed Form 8038 or evidence of filing thereof with the Secretary of Treasury. (k) A resolution or evidence of other official action taken by or on behalf of Issuer to authorize the transactions contemplated hereby. (i) Evidence that the financing of the Equipment has been approved by the "applicable elected representative" of Issuer after a public hearing held upon reasonable notice. (m) A true and correct copy of any and all leases pursuant to which Borrower is leasing the property where the Equipment will be located, together with a landlord's disclaimer and consent with respect to each such lease. 9 (n) A true and correct copy of any and all mortgages, deeds of trust or similar agreements (whether or not Borrower is a party to any such agreement) relating to the property where the Equipment will be located, together with a mortgagee's waiver with respect to each such mortgage, deed of trust or similar agreement. (o) As applicable, financing statements, including fixture filings if necessary, executed by Borrower, as debtor, and naming Issuer, as secured party, and Lender, as assignee, and/or the original certificate of title or manufacturer's certificate of origin and title application if any of the Equipment is subject to certificate of title laws. (p) Financing statements, including fixture filings if necessary, executed by Issuer, as debtor, and naming Lender, as secured party. (q) Current searches of appropriate filing offices showing that (i) no state or federal tax liens have been filed and remain in effect against Borrower, (ii) no financing statements have been filed and remain in effect against Borrower relating to the Equipment except those financing statements filed by Lender, (iii) Lender has duly filed all financing statements necessary to perfect the security interest created pursuant to this Agreement and (iv) Lender has duly filed all financing statements necessary to perfect the transfer of Issuer's interest in this Agreement and the Loan Payments. (r) A Guaranty Agreement in form and substance acceptable to Lender executed on behalf of each Guarantor. (s) An opinion of counsel to Borrower, addressed to Lender and Issuer, in the form attached hereto as Exhibit C. (t) An opinion of Bond Counsel, addressed to Lender and Issuer, in the form attached hereto as Exhibit D. (u) Payment of Lender's fees, commissions and expenses required by Section 12.01 hereof. (v) Payment of Issuer's fees incurred in connection with this Agreement and the transactions contemplated hereby. (w) Any other documents or items required by Lender. (x) A mortgagee's waiver with respect to the Equipment in form and substance acceptable to Lender executed on behalf of MetLife Capital Financial Corporation and security interest subordination agreement(s) or release(s) in form and substance acceptable to Lender with respect to the Equipment executed by such persons as Lender may request in form and substance acceptable to Lender. 10 Lender's agreement to consider approval of any disbursement from the Escrow Fund shall be subject to the further conditions precedent that on the date thereof: (y) Lender shall have received each of the items required for a disbursement pursuant to the Escrow Agreement; (z) Lender shall have received in form and substance satisfactory to Lender Vendor invoice(s) and/or bill(s) of sale relating to the Equipment and, if such invoices have been paid by Borrower, evidence of payment thereof and, if applicable, evidence of official intent to reimburse such payment as required by the Code; (a) the representations and warranties contained in Articles IV and V hereof are correct on and as of the date of such disbursement as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier due; and (b) no event has occurred and is continuing, or would result from such disbursement, which constitutes a Default, an Event of Default or a Determination of Taxability. (c) Lender shall have received evidence satisfactory to Lender that Lender has a first priority perfected security interest in the Equipment, including (without limitation) current searches of appropriate filing offices showing that (i) no state or federal tax liens or judgment liens have been filed and remain in effect against Borrower and (ii) no financing statements have been filed and remain in effect against Borrower relating to the Equipment except those financing statements filed by or on behalf of Lender. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER Issuer represents, warrants and covenants for the benefit of Lender and Borrower, as follows: (a) Issuer is a public body corporate and politic duly created and validly existing under the Constitution and laws of the State. (b) Issuer is authorized under the Act to issue the Bond and to enter into this Agreement, the Escrow Agreement and the transactions contemplated hereby and to perform all of its obligations hereunder. (c) Issuer has duly authorized the issuance of the Bond and the execution and delivery of this Agreement and the Escrow Agreement under the terms and provisions of the resolution of its governing body, and further represents, covenants and warrants that all requirements have been met and procedures have occurred in order to ensure the enforceability of this Agreement and the Escrow Agreement against Issuer, and Issuer has complied with such public bidding requirements (if any) as may be applicable to this Agreement. Issuer has 11 taken all necessary action and has complied with all provisions of the Act required to make this Agreement and the Escrow Agreement the valid and binding obligations of Issuer. (d) The officer of Issuer executing this Agreement and any related documents has been duly authorized to execute and deliver this Agreement and the Escrow Agreement and such related documents under the terms and provisions of a resolution of Issuer's governing body, or by other appropriate official action. (e) This Agreement and the Escrow Agreement are legal, valid and binding Obligations of Issuer, enforceable in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization or other laws of general application relating to effecting the enforcement of creditors' rights. (f) All of the proceedings approving this Agreement, the Escrow Agreement and the Bond were conducted by Issuer at meetings which complied with Act 267, Michigan Public Acts, 1976, as amended. (g) No member of the Board of Directors of Issuer is directly or indirectly a party to or in any manner whatsoever interested in this Agreement, the Escrow Agreement, the Bond or the proceedings related thereto. (h) Issuer has assigned to Lender all of Issuer's rights in the Equipment and this Agreement (except Reserved Rights) including the assignment of all rights in the security interest granted to Issuer by Borrower. (i) Issuer will not pledge, mortgage or assign this Agreement to any person, firm or corporation, except as provided under the terms hereof. (j) None of the execution and delivery of this Agreement or the Escrow Agreement, the consummation of the transactions contemplated hereby or the fulfillment of or compliance with the terms and conditions of this Agreement or the Escrow Agreement violates any law, rule, regulation or order, conflicts with or results in a breach of any of the terms, conditions or provisions of any restriction or any agreement or instrument to which Issuer is now a party or by which it is bound or constitutes a default under any of the foregoing or results in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Issuer under the terms of any instrument or agreement. (k) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body which has been served upon Issuer or, to the best of Issuer's knowledge, is threatened against or affecting Issuer, challenging Issuer's authority to enter into this Agreement or the Escrow Agreement or any other action wherein an unfavorable ruling or finding would adversely affect the enforceability of this Agreement or the Escrow Agreement or any other transaction of Issuer which is similar hereto, or the exclusion of the interest on the Bond from gross income for federal tax purposes 12 under the Code, or would materially and adversely affect any of the transactions contemplated by this Agreement. (l) Issuer will submit or cause to be submitted to the Secretary of the Treasury a Form 8038 at the time and in the form required by the Code. (m) The financing of the Equipment has been approved by the "applicable elected representative" (as defined in Section 147(f) of the Code) of Issuer after a public hearing held upon reasonable notice. (n) Issuer will take no action that would cause the Interest to become includable in gross income for federal income tax purposes under the Code. (o) Issuer covenants that it will promptly pay or cause to be paid to Lender the Loan Payments payable by Borrower hereunder and under the Bond to the extent actually received from Borrower at the place, on the dates and in the manner set forth herein and in the Bond. (p) Issuer recognizes that investment of the Loan Proceeds will be at the written direction of Borrower, but agrees that it will commit no act that would cause the Bond to be an "arbitrage bond" within the meaning of Section 148(a) of the Code. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER Borrower represents, warrants and covenants for the benefit of Lender and Issuer, as follows: (a) Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, has power to enter into this Agreement and the Escrow Agreement and by proper corporate action has duly authorized the execution and delivery of this Agreement, the Escrow Agreement and the Tax Compliance Certificate. Borrower is in good standing and is duly licensed or qualified to transact business in the State and in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. (b) Borrower has been fully authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate under the terms and provisions of the resolution of its board of directors, or by other appropriate official approval, and further represents, covenants and warrants that all requirements have been met, and procedures have occurred in order to ensure the enforceability of this Agreement, the Escrow Agreement and the Tax Compliance Certificate and this Agreement, the Escrow Agreement and the Tax Compliance Certificate have been duly authorized, executed and delivered. 13 (c) The officer of Borrower executing this Agreement, the Escrow Agreement and the Tax Compliance Certificate and any related documents has been duly authorized to execute and deliver this Agreement, the Escrow Agreement and the Tax Compliance Certificate and such related documents under the terms and provisions of a resolution of Borrower's board of directors. (d) This Agreement, the Escrow Agreement and the Tax Compliance Certificate constitute valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization or other laws of general application relating to effecting the enforcement of creditors' rights. (e) The execution and delivery of this Agreement, the Escrow Agreement and the Tax Compliance Certificate, the consummation of the transactions contemplated hereby and the fulfillment of the terms and conditions hereof do not and will not violate any law, rule, regulation or order, conflict with or result in a breach of any of the terms or conditions of the articles of incorporation or bylaws of Borrower or of any corporate restriction or of any agreement or instrument to which Borrower is now a party and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any liens, charges or encumbrances of any nature upon any of the property or assets of Borrower contrary to the teens of any instrument or agreement to which Borrower is a party or by which it is bound. (f) The authorization, execution, delivery and performance of this Agreement by Borrower do not require submission to, approval of, or other action by any governmental authority or agency, which action with respect to this Agreement has not been taken and which is final and nonappealable. (g) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Borrower's knowledge, threatened against or affecting Borrower, challenging Borrower's authority to enter into this Agreement, the Escrow Agreement or the Tax Compliance Certificate or any other action wherein an unfavorable ruling or finding would adversely affect the enforceability of this Agreement, the Escrow Agreement or the Tax Compliance Certificate or any other transaction of Borrower which is similar hereto, or the exclusion of the Interest from gross income for federal tax purposes under the Code, or would materially and adversely affect any of the transactions contemplated by this Agreement. (h) The property at which the Equipment is located is properly zoned for its current and anticipated use and the use of the Equipment will not violate any applicable zoning, land use, environmental or similar law or restriction. Borrower has all licenses and permits to use the Equipment. Borrower has obtained all permits, licenses and other authorizations which are required under federal, state and local laws relating to emissions, discharges, releases of pollutants, contaminants, hazardous or toxic materials, or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, 14 use, treatment, storage, disposal, transport or handling of pollutants, contaminants or hazardous or toxic materials or wastes ("Environmental Laws") at Borrower's facilities or in connection with the operation of its facilities. Except as previously disclosed to Lender in writing, Borrower and all activities of Borrower at its facilities comply with all Environmental Laws and with all terms and conditions of any required permits, licenses and authorizations applicable to Borrower with respect thereto. Except as previously disclosed to Lender in writing, Borrower is also in compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in Environmental Laws or contained in any plan, order, decree, judgment or notice of which Borrower is aware. Except as previously disclosed to Lender in writing, Borrower is not aware of, nor has Borrower received notice of, any events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance with, or which may give rise to any liability under, any Environmental Laws. (i) The Equipment is of the type authorized and permitted to be financed by the Act. (j) Borrower owns or will own the Equipment and intends to operate the Equipment, or cause the Equipment to be operated, as a "project," within the meaning of the Act, until the date on which all of the Loan Payments have been fully paid or the applicable Prepayment Amount has been fully paid. (k) Borrower will not take any action that would cause the Interest to become includable in gross income of the recipient for federal income tax purposes under the Code, and Borrower will take and will cause its officers, employees and agents to take all affirmative actions legally within its power necessary to ensure that the Interest does not become includable in gross income of the recipient for federal income tax purposes under the Code (including, without limitation, the calculation and payment of any rebate required to preserve such exclusion). (l) Borrower has heretofore furnished to Lender the audited financial statement of Borrower for its fiscal year ended September 30, 1995 and the unaudited financial statement of Borrower for the months ended March 31, 1996, and those statements fairly present the financial condition of Borrower on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with generally accepted accounting principles. Since the date of the most recent financial statements, there has been no material adverse change in the business, properties or condition (financial or otherwise) of Borrower. (m) Borrower has paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by it. Borrower has filed all federal, state and local tax returns which are required to be filed, and Borrower has paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment received by it to the extent such taxes have become due. 15 (n) Borrower has or will have good and absolute title to all Equipment and all proceeds thereof, free and clear of all mortgages, security interests, liens and encumbrances except for the security interest created pursuant to this Agreement. (o) All financial and other information provided to Lender by or on behalf of Borrower and each Guarantor in connection with Borrower's request for the Loan contemplated hereby is true and correct in all material respects and, as to projections, valuations or pro forma financial statements, present a good faith opinion as to such projections, valuations and pro forma condition and results. (p) Borrower has provided to Lender signed financing statements sufficient when filed to perfect the security interest created pursuant to this Agreement. When such financing Statements are filed in the offices noted therein, Lender, as assignee of Issuer, will have a valid and perfected security interest in the Equipment, subject to no other security interest, Assignment, Lien or encumbrance. Borrower intends the Equipment to be and remain personal property rather than a fixture on real estate. Borrower owns the real property where the Equipment will be located subject to no liens or encumbrances of any kind except a mortgage interest held by MetLife Capital Financial Corporation. (q) Upon delivery and installation of the Equipment, Borrower will provide to lender a completed and executed copy of the Certificate of Acceptance attached hereto as Exhibit B. (r) All representations and warranties of Borrower set forth in the Tax Compliance Certificate are true and correct as of the date hereof. Borrower will comply fully at all times with the Tax Compliance Certificate, and Borrower will not take any action, or omit to take any action which, if taken or omitted, respectively, would violate the Tax Compliance Certificate. (s) Expenses for work done by officers or employees of Borrower in connection with the Equipment will be included as an Acquisition Cost, if at all, only to the extent (i) such persons were specifically employed for such particular purpose, (ii) the expenses do not exceed the actual cost thereof and (iii) such expenses are treated or capable of being treated (whether or not so treated) on the books of Borrower as a capital expenditure in conformity with generally accepted accounting principles applied on a consistent basis. (t) Any costs incurred with respect to that part of the Equipment paid from the Loan proceeds shall be treated or capable of being treated on the books of Borrower as capital expenditures in conformity with generally accepted accounting principles applied on a consistent basis. (u) No part of the Loan Proceeds will be used to finance inventory or rolling stock or will be used for working capital or to finance any other cost (other than Issuance Costs not exceeding $80,000) not constituting an Acquisition Cost. 16 (v) No person other than Borrower and Uniflow Corporation (Borrower's wholly-owned subsidiary) is in occupancy or possession of any portion of the real property where the Equipment is located. (w) The Equipment is property of the character subject to the allowance for depreciation under Section 167 of the Code. (x) The completion of the acquisition of the Equipment will not have the effect of transferring more than 20 full-time employees from one municipality of the State to another and is expected to create approximately 25 jobs in the City of Novi and thereby promote the development of present business enterprises in Michigan. (y) None of the Loan Proceeds shall be applied to any costs of the acquisition or installation of the Equipment which were paid (within the meaning of Section 103 of the Code) prior to the date 60 days before the date (March 27, 1996) on which the inducement resolution was adopted by Issuer with respect to the Equipment. Issuer adopted a resolution declaring official intent to finance the costs of the Equipment pursuant to Treas. Reg. 1.150-2 not more than 60 days after the date on which the acquisition and installation of the Equipment commenced. (z) No member, director or officer of Issuer has any interest of any kind in Borrower which would result, as a result of the Loan and the issuance of the Bond, in a substantial financial benefit to such persons other than as a member of the general public of the State. (aa) Other than Issuer's $3,000,000 Limited Obligation Revenue Bond (Secom General Corporation Project), Series 1996A, there are no outstanding bonds as described in Section 144(a)(2) of the Code that have been issued by any state, political subdivision, district, public body, agency, authority, commission or instrumentality, the proceeds of which have been or will be used with respect to facilities located within the City of Novi, Oakland County, Michigan, the Principal User of which is Borrower or a Related Person as defined in Section 144(a)(3) of the Code or a Principal User of the Equipment or any Related Person to any such Principal User. (bb) All property which is to be financed by the net Loan Proceeds is to be owned by Borrower. (cc) All reimbursements to Borrower for Acquisition Costs from Loan Proceeds shall be made in compliance with Treasury Regulation 1.150-2 (the "Reimbursement Regulations"). (dd) The amount of Issuance Costs financed from the proceeds of the sale of the Bond shall not exceed 2% of the Loan Proceeds. 17 (ee) Borrower has heretofore supplied Lender and Issuer estimates of the costs of the Equipment, the completion date and periods of usefulness of the Equipment. Borrower hereby warrants that such estimates were made in good faith and are fair, reasonable and realistic. (ff) Borrower shall complete the acquisition of the Equipment as required by the Act as promptly as practicable, and shall cause to be paid all costs of the Equipment in excess of the moneys available therefor in the Escrow Fund in compliance with the terms of the Escrow Agreement. (gg) Borrower expects to complete acquisition and installation of the Equipment by June 1, 1997. (hh) There are no other bonds described in Section 144(a) of the Code which have been issued, or are contemplated to be issued, pursuant to Section 144(a) of the Code (or its predecessor provision), for the benefit of Borrower, any Principal User, or any Related Person to Borrower and which (i) were or are to be sold at substantially the same time as the Bond; (ii) were or are to be sold pursuant to a common plan of marketing as the marketing plan for the Bond; (iii) were or are to be sold at substantially the same rate of interest as the interest rate on the Bond; and (iv) are payable directly or indirectly by Borrower or from the source from which the Bond is payable. (ii) Not less than 95% of the net Loan Proceeds (including investment proceeds) will be expended 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 paid in compliance with the Reimbursement Regulations and not less than 100% of the Loan Proceeds will be used to pay costs as permitted by the Act. (jj) The information furnished by Borrower and used by Issuer in preparing the Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, to be filed by or on behalf of Issuer with the Internal Revenue Service in Philadelphia, Pennsylvania pursuant to Section 149(e) of the Code, was true and complete as of the date of completion of said Form 8038. (kk) The average maturity of the Bond does not exceed 120% of the average reasonably expected economic life of the Equipment, as determined pursuant to Section 147(b) of the Code. (ll) No more than 25% of the net Loan Proceeds will be used to provide a facility the primary purpose of which is retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment. No portion of the Loan Proceeds will be used to provide any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, 18 skybox or other private luxury box, health club facility, facility primarily used for gambling, store the principal business of which is the sale of alcoholic beverages for off premises consumption or residential real property for family units. (mm) Less than 25% of the net Loan Proceeds will be used to acquire land. No portion of the Loan Proceeds will be used to acquire land (or an interest therein) to be used for farming purposes. (nn) No portion of the net Loan Proceeds will be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. (oo) The sum of the authorized face amount of the Bond allocable to each test-period beneficiary (as defined in Section 144(a)(10)(D) of the Code) plus the respective aggregate face amount of all tax-exempt facility related bonds presently outstanding which are allocable to each such test-period beneficiary does not exceed $40,000,000. During a three (3) year period commencing on the later of the date of the issuance of the Bond or the date the Equipment is placed in service, Borrower shall not sell a portion of the Equipment or lease or allow the sublease of a portion of the Equipment to any Principal User who, together with Related Persons to such Principal User, would cause the $40,000,000 limitation of Section 144(a)(10) of the Code to be exceeded. (pp) The Equipment does not consist of a portion of a single building, enclosed shopping mall or strip of offices, stores or warehouses using substantial common facilities with any other portion or portions of such property (of which the Equipment is a part) and where any such other portions are or will be financed with qualified bonds the interest on which is excluded from gross income for federal income tax purposes under Section 103(a) of the Code. (qq) The payment of principal or interest with respect to the Bond is not guaranteed In whole or in part by the United States or any agency or instrumentality thereof. The Bond is not issued as part of an issue a significant portion of the proceeds of which are to be used in making loans the payment of principal or interest with respect to which are to be guaranteed in whole or in part by the United States or any agency or instrumentality thereof, or invested directly or indirectly in federally insured deposits or accounts. The payment of principal or interest on the Bond is not otherwise indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof within the meaning of Section 149(b) of the Code. (rr) Borrower will comply with the provisions of Section 148 of the Code. Borrower covenants, for the benefit of itself, Issuer and Lender, that it will not cause or permit any Loan Proceeds to be invested in a manner contrary to the provisions of Section 148 of the Code and that it will assume compliance with such provisions on behalf of Issuer (including, without limitation, performing required calculations, the keeping of proper records and the 19 timely payment to the Department of the Treasury of the United States, in the name of Issuer, all of amounts required to be so paid by Section 148 of the Code). (ss) No event has occurred and no condition exists with respect to Borrower that would constitute an "Event of Default" under this Agreement or that, with the lapse of time or the giving of notice or both, would become an "Event of Default" under this Agreement. (tt) At least 95% of the net Loan Proceeds will be used to finance a "manufacturing facility' within the meaning of Section 144(a)(12)(C) of the Code, and no more than 25% of the net Loan Proceeds will be used to finance facilities that are "directly related and ancillary" thereto within the meaning of Section 144(a)(12)(C) of the Code. For this purpose, the term "manufacturing facility" means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). Manufacturing facilities do not include an office unless such office is located on the premises of the manufacturing facility and not more than a de minimus (5%) portion of the functions to be performed at such office is not directly related to the day-to-day operations at such facility. Manufacturing facilities do not include storage facilities for raw materials, work in process, finished goods or other materials unless such storage facilities are located on the premises of the manufacturing facility and are directly related to a manufacturing activity conducted at such facility as opposed to a warehousing, distributing, wholesaling, retailing or other non-manufacturing activity. (uu) No Loan Proceeds will be allocated to the reimbursement of an expenditure for costs of the Equipment unless such reimbursement allocation is made not later than 18 months after the later of: (i) the date the original expenditure is paid; or (ii) the date the Equipment is placed in service or abandoned, but in no event more than 3 years after the original expenditure is paid. (vv) No person that was a Substantial User of the Equipment at any time during the five (5) year period before the date on which the Bond was issued or any Related Person to that user (x) will receive (directly or indirectly) 5% or more of the Loan Proceeds for such person's interest in the Equipment, and (y) will be a Substantial User of the Equipment at any time during the five (5) year period after the date on which the Bond was issued. (ww) Borrower will not permit the sum of (i) the face amount of the Bond, plus (ii) Capital Expenditures made during the period of six (6) years beginning three (3) years prior to the issuance of the Bond and extending three (3) years thereafter, plus (iii) the outstanding principal amount of any prior industrial development bond issues issued to finance facilities of Borrower or any Related Person in the City of Novi, Michigan, to exceed $10,000,000. (xx) Notwithstanding any other provisions of this Agreement or any other agreement or any rights of Borrower under this Agreement or any other agreement, Borrower 20 shall not take or permit to be taken by its agents or assigns any action which, or fail to take any reasonable action the omission of which would (i) impair the exclusion of interest on the Bond from the gross income of the recipient under the Code or (ii) affect the validity of the Bond under the Act. ARTICLE VI TITLE TO EQUIPMENT; SECURITY INTEREST Section 6.01. Title to the Equipment. Legal title to the Equipment and any and all repairs, replacements, substitutions and modifications to such Equipment shall be in Borrower. Borrower will at all times protect and defend, at its own cost and expense, its title from and against all claims, liens and legal processes of creditors of Borrower, and keep all Equipment free and clear of all such claims, liens and processes. Section 6.02. Security Interest in Equipment. This Agreement is intended to constitute a security agreement within the meaning of the UCC. As security for Borrower's payment to Lender, as assignee of Issuer, of Loan Payments and all other amounts payable to Lender hereunder, under the Indemnity Agreement and under the Prior Loan Agreement and as security for any other obligations (whether direct or indirect) of Borrower to Lender, Borrower hereby grants to Issuer, and Issuer hereby assigns to Lender, a security interest constituting a first lien on the Equipment, all repairs, replacements, substitutions and modifications thereto or thereof and all proceeds of the foregoing. Issuer and Borrower agree to execute such additional documents, including financing statements (including fixture filings if necessary), assignments, affidavits, notices and similar instruments, in form satisfactory to Lender, and to take such other actions that Lender deems necessary or appropriate to establish and maintain the security interest created by this Sections and Borrower hereby designates and appoints Lender as its agent, and grants to Lender a power of attorney (which is coupled with an interest), to execute on behalf of Borrower, such additional documents and to take such other actions. If requested by Lender, Borrower shall obtain a landlord and/or mortgagee's consent and waiver with respect to the property where the Equipment is located. If requested by Lender, Borrower shall conspicuously mark the Equipment with appropriate lettering, labels or tags, and maintain such markings, so as clearly to disclose Lender's security interest in the Equipment. Section 6.03. Change in Name or Corporate Structure of Borrower; Change in Location on of Borrower's Principal Place of Business. Borrower's chief executive office is located at the address set forth above, and all of Borrower's records relating to its business and the Equipment are kept at such location. Borrower hereby agrees to provide written notice to Lender and Issuer of any change or proposed change in its name, corporate structure, place of business or chief executive office or change or proposed change in the location of the Equipment; provided, however, that no change or proposed change in the location of the Equipment shall be (i) made without the prior written consent of Lender and Issuer, together with a written opinion of Bond Counsel to the effect that such relocation will not result in a Determination of Taxability, or (ii) to a location outside the State. Such notice shall be provided 30 days in advance of the date that such change or proposed change is planned to take 21 effect. Borrower does business, and has done business, only under its own name and the trade names, if any, set forth on the execution page hereof. Section 6.04. Liens and Encumbrances to Title. Borrower shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or With respect to the Equipment (together, "Liens") other than the respective rights of Lender and Issuer as herein provided. Borrower shall promptly, at its own expense, take such action as may be necessary duly to discharge or remove any such Lien. Borrower shall reimburse Lender for any expenses incurred by Lender to discharge or remove any Lien. Section 6.05. Personal Property. The parties hereby intend that the Equipment be, and during the period this Agreement is in force remain, personal property and, when subjected to use by Borrower hereunder, not be or become fixtures; provided, however, that if contrary to the parties' intent the Equipment is or may be deemed to be a fixture, Borrower shall cause filings to be made with the applicable government officials or filing offices to create and preserve for Lender as assignee of Issuer a perfected first priority security interest in the Equipment. Section 6.06 Assignment of Insurance. As additional security for the payment and performance of Borrowers obligations hereunder, Borrower hereby assigns to Lender, as assignee of Issuer, any and all moneys (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Equipment or any evidence thereof or any business records or valuable papers pertaining thereto, and Borrower hereby directs the issuer of any such policy to pay all such moneys directly to Lender. Borrower hereby assigns to Lender, as assignee of Issuer, any and all moneys due or to become due with respect to any condemnation proceeding affecting the Equipment. At any time, whether before or after the occurrence of any Event of Default, Lender may (but need not), in Lender's name or in Borrower's name, execute and deliver proof of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy or party in any condemnation proceeding. Section 6.07. Occupancy. (a) Borrower hereby irrevocably grants to Lender the right to occupy the property where the Equipment is located (the "Premises") at any time after the occurrence and during the continuance of an Event of Default. (b) Lender may occupy the Premises only to hold, sell, store, liquidate, realize upon or otherwise dispose of the Equipment and for other purposes that Lender may in good faith deem to be related or incidental purposes. (c) The right of Lender to occupy the Premises shall cease and terminate upon the earlier of (1) payment in full and discharge of all obligations of Borrower and Issuer hereunder, and (2) final sale or disposition of all of the Equipment and delivery of all such Equipment to purchasers. 22 (d) Lender shall not be obligated to pay or account for any rent or other compensation for the occupancy of the Premises. Borrower will pay, or reimburse Lender for, all taxes, fees, duties, levies, charges and expenses at any time incurred by or imposed upon Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of this Section. Section 6.08. Agreement as Financing Statement. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or of any financing statements signed by Borrower is sufficient as a financing statement in any state to perfect the security interests granted in this Agreement. ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER So long as the Loan and the Bond shall remain unpaid, Borrower will comply with the following requirements, unless Lender shall otherwise consent in writing: Section 7.01. Reporting Requirements. Borrower will deliver, or cause to be delivered, to Lender each of the following, which shall be in form and detail acceptable to Lender: (a) as soon as available, and in any event within 120 days after the end of each fiscal year of Borrower, audited financial statements of Borrower with the unqualified opinion of independent certified public accountants selected by Borrower and acceptable to Lender, which annual financial statements shall include the balance sheet of Borrower as at the end of such fiscal year and the related statements of income, retained earnings and cash flows of Borrower for the fiscal year then ended, ally in reasonable detail and prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices applied in the financial statements referred to in Article V hereof, together with (i) a report signed by such accountants stating that in making the investigations necessary for said opinion they obtained no knowledge, except as specifically stated, of any Default or Event of Default hereunder and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Borrower is in compliance with the requirements set forth in Section 7.10 hereof; and (ii) a certificate of the chief financial officer of Borrower stating that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the annual financial statements referred to in Article V hereof and whether or not such of officer has knowledge of the occurrence of any Default or Event of Default hereunder and, if so, stating in reasonable detail the facts with respect thereto; (b) as soon as available and in any event within 90 days after the end of each fiscal quarter of Borrower, an unaudited internal balance sheet and statements of income and retained earnings of Borrower as at the end of and for such month and for the year to date period then ended, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with generally 23 accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof and certified by the chief financial officer of Borrower, subject to year-end audit adjustments; and accompanied by a certificate of that officer stating (i) that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof, (ii) whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not Borrower is in compliance with the requirements set forth in Section 7.10 hereof; (c) immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting Borrower of the type described in Article V hereof or which seek a monetary recovery against Borrower in excess of $250,000.00; (d) as promptly as practicable (but in any event not later than five Business Days) after an officer of Borrower obtains knowledge of the occurrence of any event that constitutes a Default or an Event of Default hereunder, notice of such occurrence, together with a detailed statement by a responsible officer of Borrower of the steps being taken by Borrower to cure the effect of such Default or Event of Default; (e) promptly upon knowledge thereof, notice of any loss or destruction of or damage to any Equipment or of any material adverse change in any Equipment; (f) promptly upon their distribution, copies of all financial statements, reports and proxy statements that Borrower shall have sent to its stockholders; (g) promptly after the amending thereof, copies of any and all amendments to its certificate of incorporation, articles of incorporation or bylaws; (h) promptly upon knowledge thereof, notice of the violation by Borrower of any law, rule or regulation; (i) promptly upon knowledge thereof, notice of any material adverse change in the financial or operating condition of Borrower. Section 7.02. Books and Records; Inspection and Examination. Borrower will keep accurate books of record and account for itself pertaining to the Equipment and pertaining to Borrower's business and financial condition and such other matters as Lender may from time to time request in which true and complete entries will be made in accordance with generally accepted accounting principles consistently applied and, upon request of Lender or Issuer, will permit any officer, employee, attorney or accountant for Lender or Issuer to audit, review, make extracts from, or copy any and all corporate and financial books, records and properties of Borrower at all times during 24 ordinary business hours, and to discuss the affairs of Borrower with any of its directors, officers, employees or agents. Borrower will permit Lender, Issuer or any of their employees, accountants, attorneys or agents, to examine and copy any or all of its records and to examine and inspect the Equipment at any time during Borrower's business hours. Section 7.03. Compliance With Laws; Environmental Indemnity. Borrower will (a) comply with the requirements of applicable laws and regulations, the noncompliance with which would materially and adversely affect its business or its financial condition, (b) comply with all applicable Environmental Laws and obtain any permits, licenses or similar approvals required by any such Environmental Laws and (c) use and keep the Equipment, and will require that others use and keep the Equipment only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. Borrower shall secure all permits and licenses, if any, necessary for the installation and operation of the Equipment. Borrower shall comply in all respects (including, without limitation, with respect to the use, maintenance and operation of each item of the Equipment) with all laws of the jurisdictions in which its operations involving any component of Equipment may extend and of any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the items at the Equipment or its interest or rights under this Agreement. Borrower will indemnify, defend and hold Lender or Issuer harmless from and against any claims, loss or damage to which Lender or Issuer may be subjected as a result of any past, present or future existence, use, handling, storage, transportation or disposal of any hazardous waste or substance or toxic substance by Borrower or on property owned, leased or controlled by Borrower. This indemnification shall survive the termination of this Agreement and payment of the indebtedness hereunder and under the Bond. Section 7.04. Payment of Taxes and Other Claims. Borrower will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including, without limitation, the Equipment) or upon or against the creation, perfection or continuance of the security interest created pursuant to this Agreement, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon any properties of Borrower; provided, that Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Borrower will pay, as the same respectively come due, all taxes and governmental charges of any kind whosoever that may at any time be lawfully assessed or levied against or with respect to the Equipment, as well as all gas, water, steam, electricity, heat, power, telephone, utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Equipment. Section 7.05. Maintenance of Equipment. (a) Borrower shall, at its own expense, maintain, preserve and keep the Equipment in good repair, working order and condition, and shall from time to time make all repairs and replacements necessary to keep the Equipment in such condition, and in compliance with state and federal laws, ordinary wear and tear excepted. Borrower shall maintain the Equipment in a condition suitable for certification by the manufacturer thereof (if certification is available) and in conformance with all manufacturers recommended maintenance requirements. In the event that any parts or accessories forming part of any item or items of Equipment become worn out, 25 lost, destroyed, damaged beyond repair or otherwise rendered unfit for use, Borrower, at its own expense and expeditiously, will replace or cause the replacement of such parts or accessories by replacement parts or accessories free and clear of all liens and encumbrances and with a value and utility at least equal to that of the parts or accessories being replaced (assuring that such replaced parts and accessories were otherwise in good working order and repair). All such replacement parts and accessories shall be deemed to be incorporated immediately into and to constitute an integral portion of the Equipment and, as such, shall be subject to the terms of this Agreement. Neither Lender nor Issuer shall have any responsibility in any of these matters, or for the making of improvements or additions to the Equipment. (b) Borrower will defend the Equipment against all claims or demands of all persons (other than Lender) claiming the Equipment or any interest therein. (c) Borrower will keep the Equipment free and clear of all security interests, liens and encumbrances except the security interest created pursuant to this Agreement. Section 7.06. Insurance; Indemnification. (a) Borrower shall, at its own expense, procure and maintain continuously in effect: (i) public liability insurance for personal injuries, death or damage to or loss of property arising out of or in any way relating to the Equipment sufficient to protect Lender and Issuer from liability in all events, with a coverage limit of not less than $1,000,000 per occurrence unless a different coverage minimum with respect to particular Equipment is required by Lender, and (ii) insurance against such hazards as Lender may require, including, but not limited to, all-risk casualty and property insurance, in an amount equal to the greater of the full replacement cost of the Equipment with new equipment having substantially similar specifications or the applicable Prepayment Amount. (b) If required by State law, Borrower shall carry workers' compensation insurance covering all employees on, in, near or about the Equipment, and upon request, shall furnish to Lender certificates evidencing such coverage. (c) All insurance policies required by this Article shall be taken out and maintained with insurance companies acceptable to Lender; and shall contain a provision that the insurer shall not cancel or revise coverage thereunder without giving written notice to the insured parties at least thirty (30) days before the cancellation or revision becomes effective. No insurance shall be subject to any co-insurance clause. Each insurance policy required by this Article shall name Lender and Issuer, as applicable, as an additional insured party and loss payee without regard to any breach of warranty or other act or omission of Borrower and shall include a lender's loss payable endorsement for the benefit of Lender. Prior to the delivery of Equipment, Borrower shall deposit with Lender evidence satisfactory to Lender of such insurance and, prior to the expiration thereof, shall provide Lender evidence of all renewals or replacements thereof. (d) As among Lender, Borrower and Issuer, Borrower assumes all risks and liabilities from any cause whatsoever, whether or not covered by insurance, for loss or damage to any Equipment and for injury to or death of any person or damage to any property, whether such injury or death be with respect to agents or employees of Borrower or of third parties, and whether such property damage be 26 to Borrower's property or the property of others. Whether or not covered by insurance, Borrower hereby assumes responsibility for and agrees to reimburse Lender for and will indemnify, defend and hold Lender harmless from and against all liabilities, obligations, losses, damages, penalties, claims, actions, costs and expenses (including reasonable attorneys' fees) of whatsoever kind and nature, imposed on, incurred by or asserted against Lender that in any way relate to or arise out of this Agreement, the Bond, the transactions contemplated hereby and the Equipment, including but not limited to, (i) the selection, manufacture, purchase, acceptance or rejection of Equipment or the ownership of the Equipment, (ii) the delivery, lease, possession, maintenance, use, condition, return or operation of the Equipment, (iii) the condition of the Equipment sold or otherwise disposed of after possession by Borrower, (iv) any patent or copyright infringement, (v) the conduct of Borrower, its officers, employees and agents, (vi) a breach of Borrower of any of its covenants or obligations hereunder and (vii) any claim, loss, cost or expense involving alleged damage to the environment relating to the Equipment, including, but not limited to investigation, removal, cleanup and remedial costs. All amounts payable by Borrower pursuant to the immediately preceding sentence shall be paid immediately upon demand of Lender. This provision shall survive the termination of this Agreement. (e) Issuer and its members, officers, agents and employees (the "Indemnified Persons") shall not be liable to Borrower for any reason. Borrower shall indemnify and hold Issuer and the indemnified Persons harmless from any loss, expenses (including reasonable counsel fees) 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, installation, operation, use, or maintenance of the Equipment, (ii) any act, failure to act, or misrepresentation by any person, firm, corporation or governmental agency, including Issuer, in connection with the Loan, (iii) any act, failure to act, or misrepresentation by Issuer in connection with this Agreement or any other document involving Issuer in this matter, or (iv) the selection and appointment of firms providing services to the transactions contemplated by this Agreement. If any suit, action or proceeding is brought against Issuer or any Indemnified Person, that action or proceeding shall be defended by counsel to Issuer or Borrower as Issuer shall determine. If the defense is by counsel to Issuer, which is the Attorney General of Michigan or may, in some instances by private, retained counsel, Borrower shall indemnify Issuer and Indemnified Persons for the reasonable cost of that defense, including reasonable counsel fees. If Issuer determines that Borrower shall defend Issuer or Indemnified Persons, Borrower shall immediately assume the defense at its own cost. Borrower shall not be liable for any settlement of any proceeding made without its consent (which consent shall not be unreasonably withheld). Borrower shall also indemnify Issuer for all reasonable costs and expenses, including reasonable counsel fees incurred in: (i) enforcing any obligation of Borrower under this Agreement or any related agreement, (ii) taking any action requested by Borrower, (iii) taking any action required by this Agreement or any related agreement, or (iv) taking any action considered necessary by Issuer and which is authorized by this Agreement or any related agreement. Borrower shall not be obligated to indemnify Issuer or any Indemnified Person if a court with competent jurisdiction finds that the liability in question was caused by the willful misconduct or sole gross negligence of Issuer or the involved Indemnified Person, unless the court determines that, despite the adjudication of liability but in view of all circumstances of the case, Issuer or the Indemnified 27 Person(s) is (are) fairly and reasonably entitled to indemnity for the expenses which the court considers proper. The obligations of Borrower under this Section 7.06(e) shall survive any assignment or termination of this Agreement. Section 7.07. Preservation of Corporate Existence. Borrower will preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business; and shall conduct its business in an orderly, efficient and regular manner. Section 7.08. Performance by Lender. If Borrower at any time fails to perform or observe any of the covenants or agreements contained in this Agreement, and if such failure shall continue for a period of ten calendar days after Lender gives Borrower written notice thereof (or in the case of the agreements contained in Sections 7.05 and 7.06 hereof, immediately upon the occurrence of such failure, without notice or lapse of time), Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of Borrower (or, at Lender's option, in Lender's name) and may, but need not, take any and all other actions which Lender may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations owed to account debtors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments), and Borrower shall thereupon pay to Lender on demand the amount of all moneys expended and all costs and expenses (including reasonable attorney's fees and legal expenses) incurred by Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by Lender, together with interest thereon from the date expended or incurred at the rate publicly announced by Citibank, N.A. at its principal office in New York, New York as its prime rate (any change in such prime rate of interest to be effective on the date on which such change is announced by Citibank, N.A.) plus 5%, but not in excess of the maximum rate permitted by law. To facilitate the performance or observance by Lender of such covenants of Borrower, Borrower hereby irrevocably appoints Lender, or the delegate of Lender, acting alone, as the attorney in fact of Borrower with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Borrower under this Agreement. Section 7.09. Covenant as to Nonimpairment of Tax-exempt Status. Borrower covenants that, notwithstanding any provision of this Agreement or the rights of Borrower hereunder, it will not take, or permit to be taken on its behalf, any action that would impair the exclusion of Interest from gross income for federal income tax purposes and that it will take such reasonable action for itself and on behalf of Issuer as may be necessary to continue such exclusion, including, without limitation, the preparation and filing of any statements required to be filed by it in order to maintain such exclusion. Borrower will not cause or permit any Loan Proceeds to be invested in a manner contrary to the provisions of Section 148 of the Code and will assure compliance with such requirements on behalf 28 of Issuer. Borrower shall calculate and timely pay to the United States of America, for the account of Issuer, all amounts required to be so paid in accordance with Section 148 of the Code and shall maintain on behalf of Issuer, all records required to be maintained pursuant to Section 148(f) of the Code. At least once every five years, commencing with the end of the fifth Bond Year (as defined in the Income Tax Regulations promulgated under Section 148(f) of the Code, and not later than 60 days after payment in full of the Loan and the Bond, Borrower will furnish to each of Issuer and Lender a certificate showing compliance with the applicable provisions of said Section 148(f), which certificate shall be accompanied by an opinion of counsel or certificate of accountants supporting the matters set forth in such certificate. In addition to the foregoing covenants, Borrower further covenants that (i) it will requisition, apply and spend the moneys in the Escrow Fund in a manner so that as of any date at least 95% of the total amount theretofore requisitioned from the Escrow Fund will be applied to finance costs (paid on or after January 28, 1996) for the acquisition, construction, rehabilitation or improvement of land and other property which is of a character subject to an allowance for depreciation under Section 167 of the Code; (ii) it will not permit moneys in the Escrow Fund to be invested in such a manner as to cause the Bond to be an "arbitrage bond" under Section 148(a) of the Code, (iii) it will promptly notify Lender if, at any time, Borrower proposes to take any action, or any action is to be taken by or on behalf of any Principal User of the Project or any Related Person, the effect of which could be to cause interest to become includable in the gross income of owners thereof for federal income tax purposes by reason of the $10,000,000 capital expenditure limitation imposed by Section 144(a)(4) of the Code being exceeded or the $40,000,000 limitation imposed by Section 144(a)(10) of the Code being exceeded; (iv) it will not requisition from the Escrow Fund more than $80,000 to pay Issuance Costs; and (v) no portion of the net Loan Proceeds will be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. Borrower acknowledges that a failure to abide by the foregoing covenants may result in a Determination of Taxability. Section 7.10. Financial Covenants. (a) Borrower and Guarantors will maintain a ratio of Total Funded Debt (as defined below) to EBITDA (as defined below) at no more than 4.75 to 1.0 (determined for the four most recently ended fiscal quarters). (b) Borrower and Guarantors will maintain Tangible Capital Funds (as defined below) at the end of each fiscal quarter equal to at least $10,000,000. (c) Borrower and Guarantors will maintain a ratio (calculated on a consolidated basis) of (i) total liabilities minus deferred tax liabilities at the end of each fiscal quarter, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied to (ii) Tangible Capital Funds, at no more than 3.0 to 1.0. 29 (d) Borrower and Guarantors will maintain a ratio (calculated on a consolidated basis) of current assets to current liabilities, as determined in accordance with generally accepted accounting principles, of at least 1.25 to 1.0. As used in this Section 7.10, the following terms have the following meanings: "Total Funded Debt" means total liabilities of Borrower and Guarantors minus (i) cash on hand, (ii) accounts payable, (iii) deferred tax liabilities, and (iv) other deferred liabilities, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied. "EBITDA" means consolidated earnings of Borrower and Guarantors net of interest payments and accruals, federal income taxes, depreciation and amortization, as shown on the consolidated balance sheet of Borrower and Guarantors and as determined and prepared in accordance with generally accepted accounting principles consistently applied. "Tangible Capital Funds" means Tangible Net Worth plus deferred tax liabilities. "Tangible Net Worth" means (i) the amount of all assets excluding deferred tax liabilities which, under generally accepted accounting principles consistently applied, would appear on the consolidated balance sheet of Borrower and Guarantors, but excluding intangible items such as deferred tax assets, goodwill, treasury shares, reserves, patents, trademarks, research and development expenses and the like, and excluding any write-up in the book value of such assets resulting from a reevaluation thereof, less (ii) the amount of all liabilities which, under generally accepted accounting principles consistently applied, would appear on the consolidated balance sheet of Borrower and Guarantors (including all lease obligations payable within the succeeding 12-month period). ARTICLE VIII NEGATIVE COVENANTS OF BORROWER So long as the Loan and the Bond shall remain unpaid, Borrower agrees that: Section 8.01. Lien. Borrower will not create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of the Equipment except for the security interest created pursuant to this Agreement. Section 8.02. Sale of Assets. Borrower will not sell, lease, assign, transfer or otherwise dispose of all or a substantial part of its assets or of any of the Equipment or any interest therein (whether in one transaction or in a series of transactions) without the prior written consent of Lender (which consent Lender may withhold in its sole discretion) and, with respect to the Equipment, without providing an opinion of counsel that such action will not result in a Default or Event of Default and an opinion of Bond Counsel that such action will not result in a Determination of Taxability. 30 Section 8.03. Consolidation and Merger. Borrower will not consolidate with or merge into any person or permit any other person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other person unless: (i) Lender provides its prior written consent thereto (which consent Lender may withhold in its sole discretion), (ii) written notice of such merger or consolidation is provided to Issuer and (iii) the surviving entity is qualified to do business in the State and agrees in writing to assume Borrower's obligations hereunder, under the Escrow Agreement and under the Tax Compliance Certificate. Section 8.04. Accounting. Borrower will not adopt, permit or consent to any material change in accounting principles other than as required by generally accepted accounting principles without the prior written consent of Lender (which consent Lender may withhold in its sole discretion). Borrower will not adopt, permit or consent to any change in its fiscal year without the prior written consent of Lender (which consent Lender may withhold in its sole discretion). Section 8.05. Transfers. Borrower will not in any manner transfer any property without prior or present receipt of full and adequate consideration. Section 8.06. Other Defaults. Borrower will not permit any breach, default or event of default to occur under any note, loan agreement, indenture, lease, mortgage, contract for deed, security agreement or other contractual obligation binding upon Borrower or any judgment, decree, order or determination applicable to Borrower. Section 8.07. Place of Business. Borrower will not permit any of the Equipment or any records pertaining to the Equipment to be located outside the State or in any location where, in the event of such location, a financing statement covering such Equipment would be required to be, but has not in fact been, filed in order to perfect the security interest created pursuant to this Agreement. Section 8.08. Modifications and Substitutions. (a) Borrower will not make any material alterations, modifications or additions to the Equipment which cannot be removed without materially damaging the functional capabilities or economic value of the Equipment. Upon transfer of the Equipment to Lender and at the request of Lender, Borrower, at its sole cost and expense, will remove all alterations, modifications and additions and repair the Equipment as necessary to return the Equipment to the condition in which it was furnished, ordinary wear and tear and permitted modifications excepted. (b) Notwithstanding the provisions of subparagraph (a) of this section, Borrower may, with the prior written consent of Lender, substitute for parts, elements, portions or all of the Equipment, other parts, elements, portions, equipment or facilities of similar function and value; provided, however, that any substitutions made pursuant to Borrower's obligations to make repairs referenced under any provision of this Agreement shall not require such prior written consent. Borrower shall provide such documents or assurances as Lender may reasonably request to maintain or confirm the security interest assigned to Lender in the Equipment as so modified or substituted. 31 Section 8.09. Use of the Equipment. Borrower will not install, use, operate or maintain the Equipment improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Agreement. ARTICLE IX DAMAGE AND DESTRUCTION; USE OF NET PROCEEDS Borrower shall provide a complete written report to Lender immediately upon any loss, theft, damage or destruction of any Equipment and of any accident involving any Equipment. If all or any part of the Equipment is lost, stolen, destroyed or damaged beyond repair ("Damaged Equipment"), Borrower shall as soon as practicable after such event either: (a) replace the same at Borrower's sole cost and expense with equipment having substantially similar specifications and of equal or greater value to the Damaged Equipment immediately prior to the time of the loss occurrence, such replacement equipment to be subject to Lender's approval, whereupon such replacement equipment shall be substituted in this Agreement and the other related documents by appropriate endorsement or amendment; or (b) pay the applicable Prepayment Amount of the Damaged Equipment. Borrower shall notify Lender of which course of action it will take within fifteen (15) calendar days after the loss occurrence. If, within forty-five (45) calendar days of the loss occurrence, (a) Borrower fails to notify Lender; (b) Borrower and Lender fail to execute an amendment to this Agreement to delete the Damaged Equipment and add the replacement equipment or (c) Borrower fails to pay the applicable Prepayment Amount, then Lender may, at its sole discretion, declare the applicable Prepayment Amount to be immediately due and payable, and Borrower is required to pay the same. The Net Proceeds of insurance with respect to the Damaged Equipment shall be made available by Lender to be applied to discharge Borrower's obligation under this Article. The payment of the Prepayment Amount and the termination of Lender's interest in the Damaged Equipment is subject to the terms of Section 2.07 hereof. For purposes of this Article, the term "Net Proceeds" shall mean the amount remaining from the gross proceeds of any insurance claim or condemnation award after deducting all expenses (including reasonable attorneys' fees) incurred in the collection of such claim or award. ARTICLE X ASSIGNMENT, SUBLEASING AND SELLING Section 10.01. Assignment by Lender. This Agreement, the Bond and the obligations of Borrower to make payments hereunder and under the Bond may be assigned in whole but not in part to an assignee by Lender at any time, without the necessity of obtaining the consent of Issuer or Borrower; provided, however, that no such assignment or any reassignment shall be effective unless and until Issuer and Borrower shall have received (i) notice of the assignment disclosing the name and address of the assignee, which notice Issuer shall maintain as evidence of the registration and ownership of the Bond, (ii) a properly completed assignment of the Bond and (iii) an investment letter 32 substantially in the form delivered at closing. Upon receipt of notice of assignment, Borrower shall agree to make all payments to the assignee designed in the notice of assignment, notwithstanding any claim, defense, setoff or counterclaim whatsoever (whether arising from a breach of this Agreement or otherwise) that Issuer and Borrower may from time to time have against Lender or the assignee. Issuer and Borrower agree to execute all documents, including notices of assignment and chattel mortgages or financing statements, which may be reasonably requested by Lender or its assignee to protect their interest in the Equipment and in this Agreement. Section 10.02. No Sale or Assignment by Borrower. This Agreement and the interest of Borrower in the Equipment may not be sold, assumed, assigned or encumbered by Borrower without the prior written consent of Lender (which consent Lender may withhold in its sole discretion) and without providing to Issuer: (i) 30 days' notice of such sale, assumption, assignment or encumbrance and (ii) evidence that Borrower's obligations hereunder, under the Escrow Agreement and under the Tax Compliance Certificate have been properly assumed. ARTICLE XI EVENTS OF DEFAULT AND REMEDIES Section 11.01. Events of Default. The following constitute "Events of Default" under this Agreement: (a) failure by Borrower to pay to Lender, as assignee of Issuer, when due any Loan Payment or to pay any other payment required to be paid hereunder or under the Indemnity Agreement and the continuation of such failure for a period of ten (10) days; (b) failure by Borrower to maintain insurance on the Equipment in accordance with Section 7.06 hereof; (c) failure by Borrower or Issuer to observe and perform any other covenant, condition or agreement contained herein, in the Escrow Agreement, in the Tax Compliance Certificate, in the Indemnity Agreement or in any other document or agreement executed in connection herewith on its part to be observed or performed for a period of 30 days after written notice is given to Borrower or Issuer, as the case may be, specifying such failure and requesting that it be remedied; provided, however, that, if the failure stated in such notice cannot be corrected within such 30-day period, Lender will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by Borrower or Issuer, as the case may be, within the applicable period and diligently pursued until the default is corrected; (d) initiation by Issuer of a proceeding under any federal or state bankruptcy or insolvency law seeking relief under such laws concerning the indebtedness of Issuer; (e) Borrower or any Guarantor shall be or become insolvent, or admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or 33 Borrower or any Guarantor shall apply for or consent to the appointment of any receiver, trustee or similar officer for it or for all or any substantial part of its property; or such receiver, trustee or similar officer shall be appointed without the application or consent of Borrower or any Guarantor, as the case may be; or Borrower or any Guarantor shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against Borrower or any Guarantor; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of Borrower or any Guarantor; (f) determination by Lender that any representation or warranty made by Borrower, Issuer or any Guarantor herein, in the Tax Compliance Certificate or in any other document executed in connection herewith was untrue in any material respect when made; (g) an Event of Taxability shall occur; (h) the occurrence of a default or an event of default under any instrument, agreement or other document evidencing or relating to any indebtedness or other monetary obligation of Borrower in an amount greater than $250,000.00; (i) any Guarantor shall repudiate, purport to revoke or fail to perform such Guarantor's obligations under a Guaranty Agreement; or (j) the percentage share of ownership of the stock of Borrower held by Borrower's officers and directors and by Manubusiness Opportunities, Inc. on the date on which the Bond is issued is reduced during the period that the Loan and the Bond are outstanding without the prior written consent of Lender (Borrower hereby acknowledges that Lender has made its decision to enter into the transactions contemplated hereby based upon the management expertise of the current stockholders and their ownership of the stock of Borrower); or (k) the occurrence of a default or an event of default under the Prior Loan Agreement or any other obligation (whether direct or indirect) of Borrower to Lender or any of its affiliates. Section 11.02. Remedies on Default. Whenever any Event of Default shall have occurred and be continuing, Lender, as assignee of Issuer, shall have the right, at its sole option without any further demand or notice, to take any one or any combination of the following remedial steps insofar as the same are available to secured parties under Article 9 of the UCC in effect in the State from time to time and which are otherwise accorded to Lender, as assignee of Issuer, by applicable law: (a) by notice to Issuer and Borrower, declare the entire unpaid principal amount of the Loan and the Bond then outstanding, all interest accrued and unpaid thereon and all amounts payable under this Agreement to be forthwith due and payable, whereupon the Loan, 34 the Bond, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; (b) take possession of the Equipment wherever situated, without any court order or other process of law and without liability for entering the premises, and lease, sublease or make other disposition of the Equipment for use over a term in a commercially reasonable manner, all for the account of Lender, provided that Borrower shall remain directly liable for the deficiency, if any, between the rent or other amounts paid by a lessee or sublessee of the Equipment pursuant to such lease or sublease during the same period of time, after deducting all costs and expenses, including reasonable attorneys' fees and expenses, incurred with respect to the recovery, repair and storage of the Equipment during such period of time; (c) take possession of the Equipment wherever situated, without any court order or other process of law and without liability for entering the premises, and sell the Equipment in a commercially reasonable manner. All proceeds from such sale shall be applied in the following manner: FIRST, to pay all proper and reasonable costs and expenses associated with the recovery, repair, storage and sale of the Equipment, including reasonable attorneys' fees and expenses; SECOND, to pay (i) Lender the amount of all unpaid Loan Payments or other obligations owed to Lender under the Prior Loan Agreement which are then due and owing, together with interest and late charges thereon and (ii) Lender the then applicable Prepayment Amount (taking into account the payment of past-due Loan Payments as aforesaid), plus a pro rata allocation of interest, at the rate utilized to calculate the Loan Payments, from the next preceding due date of a Loan Payment until the date of payment by the buyer; THIRD, to pay Issuer and/or Lender any other amounts due hereunder, including indemnity payments, taxes, charges, reimbursement of any advances and other amounts payable to Lender or Issuer hereunder; FOURTH, to pay the remainder of the sale proceeds, purchase moneys or other amounts paid by a buyer of the Equipment to Borrower; (c) proceed by appropriate court action to enforce specific performance by Issuer or Borrower of the applicable covenants of this Agreement or to recover for the breach thereof, including the payment of all amounts due from Borrower. Borrower shall pay or repay to Lender or Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees; and (d) take whatever action at law or in equity may appear necessary or desirable to enforce its rights with respect to the Equipment. Borrower shall pay or repay to Lender or 35 Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees. Notwithstanding any other remedy exercised hereunder, Borrower shall remain obligated to pay to Lender any unpaid portion of the Prepayment Amount. Section 11.03. Return of Equipment. Upon an Event of Default, Borrower shall within ten (10) calendar days after notice from Lender, at its own cost and expense: (a) perform any testing and repairs required to place the Equipment in the condition required by Article VII; (b) if deinstallation, disassembly or crating is required, cause the Equipment to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lender; and (c) deliver the Equipment to a location specified by Lender, freight and insurance prepaid by Borrower. If Borrower refuses to deliver the Equipment in the manner designed, Lender may enter upon Borrower's premises where the Equipment is kept and take possession of the Equipment and charge to Borrower the costs of such taking. Borrower hereby expressly waives any damages occasioned by such taking. Section 11.04. No Remedy Exclusive. No remedy herein conferred upon or reserved to Lender or Issuer is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of 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 Lender or Issuer to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice other than such notice as may be required by this Article. All remedies herein conferred upon or reserved to Lender or Issuer shall survive the termination of this Agreement. Section 11.05. Late Charge. Any Loan Payment not paid by Borrower on the due date thereof shall, to the extent permissible by law, bear a late charge equal to the lesser of five cents ($.05) per dollar of the delinquent amount or the lawful maximum, and Borrower shall be obligated to pay the same immediately upon receipt of Lender's written invoice therefor. 36 ARTICLE XII MISCELLANEOUS Section 12.01. Costs and Expenses of Lender and Issuer. (a) Borrower shall pay to Lender, in addition to the Loan Payments payable by Borrower hereunder, such amounts in each year as shall be required by Lender in payment of any reasonable costs and expenses incurred by Lender in connection with the execution, performance or enforcement of this Agreement, including but not limited to payment of all reasonable fees, costs and expenses and all administrative costs of Lender in connection with the Equipment, expenses (including, without limitation, attorneys' fees and disbursements), fees of auditors or attorneys, insurance premiums not otherwise paid hereunder and all other direct and necessary administrative costs of Lender or charges required to be paid by it in order to comply with the terms of, or to enforce its rights under, this Agreement. Such costs and expenses shall be billed to Borrower by Lender from time to time, together with a statement certifying that the amount so billed has been paid by Lender for one or more of the items above described, or that such amount is then payable by Lender for such items. Amounts so billed shall be due and payable by Borrower within 30 days after receipt of the bill by Borrower. Issuer shall have no liability for any fees or expenses of Lender. (b) Borrower hereby further expressly agrees to pay upon written request, the fees and expenses of Issuer (including the fees and expenses of its bond counsel) related to the transactions contemplated by this Agreement which are not otherwise required to be paid by Borrower under the terms of this Agreement. In particular, but without limiting the generality of the foregoing, Borrower shall pay a one-time issuance fee of $10,000.00 to Issuer prior to or contemporaneously with the making of the Loan. In addition, Borrower shall pay, within ten (10) days of demand therefor: (i) all out-of-pocket costs and expenses of Issuer incidental to the making of the Loan and (ii) the reasonable out-of-pocket expenses of Issuer (including, without limitation, reasonable attorneys' fees) related to the transactions contemplated by this Agreement or incurred by Issuer in enforcing the provisions of this Agreement. Section 12.02. Disclaimer of Warranties. LENDER AND ISSUER MAKE NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS FOR USE OF THE EQUIPMENT, OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT THERETO. In no event shall Lender or Issuer be liable for any loss or damage in connection with or arising out of this Agreement, the Equipment or the existence, furnishing, functioning or Borrowers use of any item or products or services provided for in this Agreement. Section 12.03. Notices. All notices, certificates, requests, demands and other communications provided for hereunder or under the Escrow Agreement shall be in writing and shall be (a) personally delivered, (b) sent by first-class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed to the party to whom notice is being given at its address as set forth above and, if telecopied, transmitted to that party at its telecopier number set forth 37 above or, as to each party, at such other address or telecopier number as may hereafter be designed by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy. If notice to Borrower of any intended disposition of the Equipment or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Section) at least ten (10) calendar days prior to the date of intended disposition or other action. Section 12.04. Further Assurance and Corrective Instruments. Issuer and Borrower hereby agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such further acts, instruments, conveyances, transfers and assurances, as Lender reasonably deems necessary or advisable for the implementation, correction, confirmation or perfection of this Agreement or the Escrow Agreement and any rights of Lender hereunder or thereunder. Section 12.05. Binding Effect; Time of the Essence. This Agreement shall inure to the benefit of and shall be binding upon Lender, Issuer, Borrower and their respective successors and assigns. Time is of the essence. Section 12.06. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 12.07. Amendments. To the extent permitted by law, the terms of this Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the parties hereto, and then such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Section 12.08. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instruments and any of the parties hereto may execute this Agreement by signing any such counterpart. provided that only the original marked "Original: 1 of 6" on the execution page thereof shall constitute chattel paper under the Uniform Commercial Code. Section 12.09. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.10. Captions. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. Section 12.11. Entire Agreement. This Agreement, the Escrow Agreement and the exhibits hereto and thereto constitute the entire agreement among Lender, Issuer, Borrower and Escrow 38 Agent. There are no understandings, agreements, representations or warranties, express or implied, not specified herein or in such documents regarding this Agreement or the Equipment financed hereby. Section 12.12. Usury. It is the intention of the parties hereto to comply with any applicable usury laws; accordingly, it is agreed that, notwithstanding any provisions to the contrary in this Agreement, in no event shall this Agreement require the payment or permit the collection of interest or any amount in the nature of interest or fees in excess of the maximum permitted by applicable law. Section 12.13. Waiver of Jury Trial. LENDER, ISSUER AND BORROWER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG LENDER, ISSUER OR BORROWER RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG LENDER, ISSUER AND BORROWER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY-AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED) EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. Section 12.l4. Governmental Functions. The State is not assigning any of its governmental functions in this Agreement. The State shall not be precluded from taking such actions as shall be necessary in order for it to perform its governmental functions. Issuer shall, however, be bound by its undertakings herein and in the Escrow Agreement 39 IN WITNESS WHEREOF, the parties hereto have executed this Agreement in their respective corporate names by their duly authorized officers, all as of the date first written above. GE CAPITAL PUBLIC FINANCE, INC. Lender: By__________________________ Title V. P. ---------------------- MICHIGAN STRATEGIC FUND Issuer: By__________________________ Title_______________________ By__________________________ Title_______________________ Borrower: SECOM GENERAL CORPORATION By__________________________ Title_______________________ Trade Names of Borrower, if any __________________ NONE __________________ __________________ ORIGINAL: 4 OF 6 [EXECUTION PAGE OF LOAN AGREEMENT] IN WITNESS WHEREOF, the parties hereto have executed this Agreement in their respective corporate names by their duly authorized officers, all as of the date first written above. GE CAPITAL PUBLIC FINANCE, INC. Lender: By__________________________ Title_______________________ MICHIGAN STRATEGIC FUND Issuer: By__________________________ Title Member ----------------------- By__________________________ Title Authorized Officer ------------------ Borrower: SECOM GENERAL CORPORATION By /s/ David J. Marczak -------------------------- Title Secretary-Treasurer ----------------------- Trade Names of Borrower, if any __________________ NONE __________________ __________________ ORIGINAL: 4 OF 6 [EXECUTION PAGE OF LOAN AGREEMENT] EX-22 8 Exhibit 22 Subsidiaries of the Registrant: Form Flow, Inc. L&H Die, Inc. Micanol, Inc. Milford Manufacturing Corporation Uniflow Corporation EX-23 9 Exhibit 23 INDEPENDENT AUDITORS' CONSENT Secom General Corporation: We consent to the incorporation by reference in Registration Statements No. 33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report dated December 23, 1996, appearing in this Annual Report on Form 10-K of Secom General Corporation for the year ended September 30, 1996. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Detroit, Michigan December 23, 1996 EX-27 10 ARTICLE 5 FDS FOR SECOM 10-K
5 YEAR SEP-30-1996 SEP-30-1996 $ 319,600 0 4,151,700 (21,000) 5,170,500 10,771,200 25,309,000 (7,550,400) 34,954,500 5,863,000 0 534,200 0 0 0 34,954,500 30,877,100 30,877,100 25,064,900 29,985,600 (14,600) 0 847,600 58,500 17,900 0 0 0 0 40,600 0.01 0.00
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