-----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, O+om09d7Q/mByD1nUwYbfRCivU8X0uZbAqaIpdaTARbE8axU+U5IlzIRuaACnJ3L /3Okbsx2tpSPeUFsqzKq4g== 0000950124-02-000074.txt : 20020413 0000950124-02-000074.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950124-02-000074 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20020114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCLAIN INDUSTRIES INC CENTRAL INDEX KEY: 0000063686 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 381867649 STATE OF INCORPORATION: MI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07770 FILM NUMBER: 2508894 BUSINESS ADDRESS: STREET 1: 6200 ELMRIDGE RD CITY: STERLING HEIGHTS STATE: MI ZIP: 48313 BUSINESS PHONE: 8102643611 10-K 1 k66941e10-k.txt ANNUAL REPORT DATED 9/30/01 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------------- --------------- Commission File No. 0-7770 MCCLAIN INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) STATE OF MICHIGAN 38-1867649 State of Incorporation I.R.S. Employer I.D. No. 6200 ELMRIDGE ROAD STERLING HEIGHTS, MICHIGAN 48310 (810) 264-3611 (Address of principal executive offices and telephone number) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of December 7, 2001, the aggregate market value of the Registrant's voting stock held by nonaffiliates of the Registrant was $5,650,932 determined in accordance with the highest price at which the stock was sold on such date as reported by the Nasdaq National Market. As of December 7, 2001, there were 4,520,746 shares of the Registrant's common stock issued and outstanding. The Exhibit Index Begins on Page 51 PART I ITEM 1. BUSINESS GENERAL McClain Industries, Inc., a Michigan corporation ("McClain"), together with its subsidiaries (the "Company"), is one of the nation's leading manufacturers of a diversified line of dump truck bodies and solid waste handling equipment. Dump truck bodies are assemblies attached to truck frames and used to carry and dump solid materials such as dirt or gravel. Solid waste handling equipment is used for the temporary storage, transportation and compaction of residential, commercial and industrial waste and recycling materials. The Company also sells truck chassis at the retail level. In addition, the Company operates a steel tube mill to manufacture some of its steel tubing needs. The Company also provides coiled steel cutting and warehousing services for its own manufacturing operations and, on a limited basis, for sale to third-party customers. BACKGROUND McClain was incorporated in 1968 and became a publicly-traded company in 1973. It currently has: (i) five wholly-owned operating subsidiaries: McClain E-Z Pack, Inc. ("E-Z Pack"); McClain Galion, Inc. ("Galion"); McClain Southland Company ("Southland"); Shelby Steel Processing Co. ("Shelby Steel"); McClain Tube Company (d/b/a Quality Tubing) ("Tube"); (ii) one wholly-owned lease financing subsidiary: McClain Group Leasing, Inc. ("Leasing"); and (iii) one wholly-owned international sales corporation, McClain International FSC, Inc. ("FSC"). All of these companies are Michigan corporations, except for FSC, which is a Virgin Islands corporation. The Company's executive offices are located at 6200 Elmridge Road, Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611. PRODUCTS The Company manufactures and markets dump truck bodies and four solid waste handling equipment product lines: (1) containers; (2) compactors and baling equipment; (3) garbage and recycling truck bodies; and (4) transfer trailers. The Company also markets truck chassis. Sales of dump truck bodies accounted for approximately 15%, sales of solid waste handling equipment accounted for approximately 66%, and truck chassis accounted for approximately 19% of the Company's consolidated net sales for the fiscal year ended September 30, 2001. Dump Truck Bodies and Hoists Galion manufactures steel and aluminum dump truck bodies varying in capacity from two to twenty-five cubic yards at its Winesburg, Ohio facility. E-Z Pack, under license from Galion, also manufactures dump truck bodies at its Oklahoma City, Oklahoma facility. Dump truck bodies are assemblies that are attached to a truck's frame or chassis, to allow the truck to carry and dump solid materials such as dirt, gravel or waste materials. Hoists are the hydraulic lift mechanisms used to tilt the dump body. Trucks with a dump body and hoist are commonly seen in use as "dump trucks". The products manufactured by Galion are sold under the registered trademark "Galion". 2 Containers Detachable Roll-Off Containers and Roll-Off Hoists. E-Z Pack manufactures several types of detachable roll-off containers and roll-off hoists at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama, and Oklahoma City, Oklahoma. Detachable roll-off containers vary in capacity from ten to forty-five cubic yards and are transported with their contents to recycling centers, incinerators or landfill sites. Roll-off hoists consist of frames mounted on truck chassis which are hydraulically operated to load, transport and dump roll-off containers. Roll-off hoists are advertised and sold under the trade name "MAGNA-HOIST. Intermodal, Water-Tight and Sludge Containers. The Company manufactures various types of intermodal, water-tight and sludge containers at the Company's facilities in Sterling Heights, Michigan, Demopolis, Alabama, and Oklahoma City, Oklahoma. Intermodal containers vary in capacity from nineteen cubic yards to thirty-five cubic yards and are designed for highway, railroad and marine movement of waste products. Water-tight containers vary in capacity from ten to forty cubic yards and are designed for highway movement of wet waste. Sludge containers vary in capacity from ten to thirty-five cubic yards and are designed for highway movement of slurry type waste products. Compactors and Baling Equipment The Company manufactures compactors at its facilities in Sterling Heights, Michigan, Demopolis, Alabama, and Oklahoma City, Oklahoma. Compactors consist of a compaction unit and separate power source. Compaction units force deposited refuse through an opening at one end of the unit into a roll-off body coupled to the compaction unit. When the roll-off body is filled, the compactor is detached and the roll-off body is removed for dumping. The Company also manufactures unitized compaction systems consisting of a compactor and roll-off container manufactured as a single unit. Compactors are sold under the trade name "MAGNUM" and unitized compactor systems are sold under the trade name "OCTAMAG". E-Z Pack manufactures, at the Winesburg, Ohio facility, several models of balers which compact plastic and paper products, primarily cardboard. Balers are either vertical downstroke or closed door horizontal balers. Garbage and Recycling Truck Bodies E-Z Pack manufactures at its Galion, Ohio facility traditional garbage truck bodies comprised of front, rear and side loading truck bodies and a recycling truck body used in solid waste handling and disposal. The front loading truck bodies vary in capacity from thirty-two cubic yards to forty-three cubic yards, the rear loading truck bodies vary in capacity from eighteen cubic yards to thirty-one cubic yards, and the side loading truck bodies vary in capacity from twenty-nine cubic yards to thirty-nine cubic yards. The recycling truck bodies vary in capacity from thirty cubic yards to forty cubic yards. The products manufactured by E-Z Pack are sold under the registered trademark "E-Z Pack". Within this line, E-Z Pack sells its rear loading truck bodies under the trademarks "Goliath", "Goliath II", and "Apollo", and its front loading truck bodies under the trademark "Hercules". The side loading truck bodies and the recycling truck bodies are principally identified by the E-Z Pack name only. The Company has several patents covering these products. 3 Transfer Trailers E-Z Pack manufactures at its Galion, Ohio facility, various types of steel and aluminum transfer trailers, including open-top walking floor trailers, closed-top walking floor trailers, ejection trailers and open-top tipper trailers, varying in capacity from thirty cubic yards to 124 cubic yards. Transfer trailers are used to transport compacted solid waste from transfer stations to landfills or incinerators. Truck Chassis Truck chassis are purchased and combined with either a roll-off hoist or garbage truck body for sale as a road ready package. This program gives the Company the opportunity to provide a more complete product to its customers and gives it the ability to react quickly to unexpected customer needs. Since the trucks are purchased rather than manufactured by the Company, lower margins are expected on the sales of these package units then the sales of products manufactured by the Company. Leasing Leasing provides the Company's customers with financing options through both finance type and operating leases. The operating leases are T.R.A.C. (Terminal Rental Adjustment Clause) leases. CUSTOMERS AND DISTRIBUTION For the fiscal year ended September 30, 2001 the Company's consolidated net sales were divided approximately 45% to distributors, 45% to solid waste handling companies, and 10% to other entities. During the fiscal years ended September 30, 2001, 2000 and 1999, approximately 17.0%, 22.6% and 23.1%, respectively, of the Company's total sales were made to Waste Management, Inc. The Company has no contracts with any of its customers, except Waste Management, Inc. (see footnote 16 to the consolidated financial statements of the Company, included under Item 8 of the Form 10-K, for additional information) and, accordingly, sells its products pursuant to purchase orders placed from time to time in the ordinary course of business. The Company delivers its products to its customers through the use of its own trucks or common carriers. The Company obtains its municipal as well as certain private contracts through the process of competitive bidding. There can be no assurance that municipalities or others will continue to solicit bids, or if they do, that the Company will continue to be successful in having its bids accepted. Additionally, inherent in the competitive bidding process is the risk that if a bid is submitted and a contract is subsequently awarded, actual performance costs may exceed the projected costs upon which the submitted bid or contract price was based. Historically, foreign sales have not accounted for a significant portion of the Company's revenues, The Company anticipates that future foreign sales will remain steady or increase slightly. SALES AND MARKETING Historically, the Company's products have been marketed by the Company's executive officers and sales personnel who have worked closely with customers to 4 solicit orders and to render technical assistance and advice. The Company's executive officers will continue to devote a significant amount of time to developing and maintaining continuing relations with the Company's customers. The Company also engages independent distributors and dealers in various regions throughout the United States and certain foreign countries, for marketing its products to customers. The Company's dealers are generally responsible in their respective geographic markets for identifying customers and soliciting customer orders. As of December 7, 2001, there were approximately 225 authorized Company dealers located in numerous states and 20 authorized Company dealers, licensees and commissioned district managers in 10 foreign countries, each of which is independently owned. The Company is dependent on such dealers for a significant portion of its revenues. These dealers typically specialize in specific products and areas and, accordingly, have specific knowledge of and contacts in particular markets. The Company believes that its dealers have enhanced and will continue to enhance the scope of the Company's marketing and sales efforts and have, to a certain extent, also enabled the Company to avoid certain significant costs associated with creating a more extensive direct sales network. The Company advertises its products under trade names and under its name in trade journals and brochures. Other marketing efforts include articles in trade publications, attendance at trade shows and presentations by the Company's personnel at industry trade conferences. The Company, through Leasing, also provides both sales-type financing and operating leases. At September 30, 2001, Leasing held net lease receivables of approximately $27.8 million. RAW MATERIALS The Company is dependent on third-party suppliers and manufacturers for the raw materials and a significant portion of the parts it uses in the manufacture of its products. The major raw materials used by the Company are steel in sheet, plate, structural and tubular form and aluminum in sheet and extruded form. The Company purchases its steel, principally in coils, and its sheet and extruded aluminum from domestic mills, warehouses and importers. Coiled steel is received by the Company at various manufacturing facilities where it is then cut, bent, sheared and formed for assembly by welding. Electric and hydraulic components incorporated into the power units of compactors, balers and hoists used with dump bodies manufactured by the Company are brand name items purchased from various sources and assembled by the Company or to their specifications by outside sources. The assembled products are then painted to customers' specifications. While the Company attempts to maintain alternative sources for the Company's raw materials and believes that multiple sources are currently available for all of the raw materials that it uses, the Company's business is generally subject to periodic shortages of raw materials which could have an adverse effect on the Company. The Company generally has no supply agreements with any of its suppliers and, accordingly, generally purchases raw materials pursuant to purchase orders placed from time to time in the ordinary course of business. Failure or delay by suppliers in supplying necessary raw materials to the Company could adversely affect the Company's ability to obtain and deliver its products on a timely and competitive basis. In addition, the Company has experienced price fluctuations for the raw materials that it 5 purchases, particularly with respect to steel and aluminum. Any significant price fluctuations in the future could also have an adverse effect on the Company. The Company uses a forecasting and purchasing system to monitor the quantity and cost of necessary raw materials. Such cost controls allow the Company to minimize its operating costs by purchasing from the lowest priced suppliers the appropriate amount of raw materials in light of the Company's needs. The Company often orders raw materials in amounts in excess of its anticipated short-term needs in order to take advantage of price discounts available on large volume purchases of raw materials. To reduce its cost of raw materials, the Company processes coiled steel and manufactures some of its own tubing, rather than purchasing tubing and processed sheet steel from third parties. The Company believes that it is the only manufacturer of dump truck bodies and solid waste handling equipment to process coiled steel and to operate a steel tube mill. Steel Processing Shelby Steel, a wholly-owned subsidiary of the Company, receives coiled steel and either warehouses or cuts and processes the steel at its River Rouge, Michigan facility to prescribed specifications. In addition to processing coiled steel for use by the Company, Shelby Steel also offers steel processing and warehousing services to third parties. Shelby Steel's ability to warehouse customers' steel attracts customers such as steel brokers who do not maintain facilities of their own to warehouse steel. Its steel processing and warehousing sales are generally limited to customers in the Detroit metropolitan area. Sales to third parties represented 88.5%, 93.8%, and 92.6% of Shelby Steel's business and 1.7%, 1.4%, and 1.5% of the Company's consolidated net sales for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. Tube Manufacturing Tube, a wholly-owned subsidiary of the Company, began operating its tube manufacturing line in the Company's Kalamazoo facility in mid-1994. The facility receives coiled steel, slits the coil to proper width and forms it into square and rectangular tubing. The tubing produced by this facility provides the Company with approximately 95% of its steel tubing requirements. COMPETITION The Company faces intense competition in the solid waste handling equipment and dump truck bodies industries. Certain of the Company's competitors offer as wide a range of products, and have greater market share and financial, marketing, manufacturing and other resources than the Company. At present, the Company's order backlogs are approximately two to four weeks. In addition, the Company believes that several of its competitors have added or are in the process of adding additional manufacturing capacity, which could reduce order backlogs and price levels, and consequently adversely affect the Company. Moreover, the absence of highly sophisticated technology results in a number of small regional companies entering the container and dump truck body industries periodically and competing with the Company. Although the Company believes that its products are superior to those of most of its competitors because of the quality and amount of steel used in its products, 6 consumers generally find the products relatively interchangeable. Consequently, price, product availability and delivery, design and manufacturing quality and service are the principal means of competition. The Company believes that it can continue to compete and further strengthen its competitive position through proper pricing, marketing and cost-effective distribution of the Company's products. The steel processing industry is also highly competitive, with quality, price and delivery the principal means of competition. The Company believes that it will generally continue to maintain its competitive position in the marketplace with respect to steel processing. Shelby Steel's ability to warehouse customers' steel attracts customers such as steel brokers who do not maintain facilities of their own to warehouse steel. BACKLOG AND INVENTORY The Company generally produces solid waste handling equipment and dump truck bodies pursuant to customer purchase orders. The Company includes in its backlog only firm product orders, which are subject to termination at will and rescheduling, without penalty. The Company's backlog was approximately $11.2 million and $12.9 million at September 30, 2001 and 2000, respectively. Substantially all of the Company's backlog is delivered within four to six weeks of the Company's receipt of purchase orders. Due to numerous factors, including termination of orders, rescheduling, possible change orders and delays, which affect production and delivery of the Company's products, there can be no assurance as to if or when cash receipts will be recognized from the Company's backlog. In addition, year to year comparisons of backlog are not necessarily indicative of future operating results. Although most of the Company's sales are based on orders for goods to be manufactured, the Company nevertheless carries certain amounts of finished goods inventory in order to meet customer delivery dates. In addition, from time to time, the Company manufactures units in excess of ordered units to "round out" production runs or to maintain base stock levels. At September 30, 2001, 2000 and 1999, the Company had inventory of $36.7 million, $52.0 million and $63.3 million, respectively. EMPLOYEES The Company had approximately 560 employees as of December 7, 2001. Sixty-eight of the Company's hourly employees are represented by the McClain Hourly Employees' Union pursuant to a collective bargaining agreement that expires September 16, 2002. The 104 hourly employees of E-Z Pack (E-Z Pack Division) are represented by the International Association of Machinists and Aerospace Workers Union pursuant to a collective bargaining agreement which expires June 12, 2003. The 45 hourly employees of E-Z Pack (Ohio Division) are represented by the International Association of Machinists and Aerospace Workers Union pursuant to a collective bargaining agreement which expires November 1, 2002. The Shopmen's Local Union No. 616 of the International Association of Bridge, Structional and Ornamental Workers represent certain hourly employees at the Company's facility in Macon, Georgia. E-Z Pack has conducted extensive negotiations with this union toward a collective bargaining agreement which, at this time, has not been finalized. ENVIRONMENTAL The Company's operations are subject to extensive federal, state and local regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Inherent in 7 manufacturing operations and in owning real estate is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs, on an ongoing basis, associated with environmental regulatory compliance in its business. The Company has budgeted approximately $1.0 million to make capital additions and improvements to its painting processes and enhance the related environmental controls at its facilities in Sterling Heights, Michigan and Oklahoma City, Oklahoma. State and local agencies have become increasingly active in the environmental area. The increased regulation by multiple agencies can be expected to increase the Company's future environmental costs. In particular, properties under federal and state scrutiny frequently result in significant clean-up costs and litigation expenses related to a party's clean-up obligation. However, the Company believes that the ever-increasing waste stream and the continuing initiatives of government authorities relating to environmental and waste disposal problems, including restrictions on landfill locations and operations and extensive regulation relating to the disposal of waste, create significant opportunities for companies in the solid waste handling equipment industry. ITEM 2. PROPERTIES In the aggregate, the Company owns or leases approximately 961,000 square feet of real property located in Michigan, Ohio, Georgia, Oklahoma, Alabama and Florida. The Company owns three facilities in Michigan, two facilities in Ohio, one facility in Georgia, one facility in Oklahoma, one facility in Alabama and one facility in Florida. The properties that the Company owns or leases consist of the following:
OWNED SQUARE LOCATION OR LEASED FOOTAGE -------- --------- ------- Sterling Heights, Michigan Owned 37,000 Sterling Heights, Michigan Leased 18,000 Kalamazoo, Michigan Owned 55,000 River Rouge, Michigan Owned 50,000 Galion, Ohio Owned 365,000 Winesburg, Ohio Owned 113,500 Macon, Georgia Owned 114,500 Oklahoma City, Oklahoma Owned 100,000 Demopolis, Alabama Owned 102,000 Bartow, Florida Owned 6,000
The Company's main office and manufacturing facilities are located in a 37,000 square foot facility situated on 8 2/3 acres in Sterling Heights, Michigan owned by the Company. This facility is used to manufacture roll-off containers, roll-off hoists and compactors. The Company also owns a 55,000 square foot facility located in Kalamazoo, Michigan which is home to the Company's tube mill. The Company leases, under a verbal month-to-month lease, an 18,000 square foot manufacturing facility also located in Sterling Heights, Michigan from siblings of Messrs. Kenneth and Robert McClain. This facility is used by the Company as a fabrication facility. The monthly rental for this facility is $3,500, with the lessor responsible for the payment of real estate taxes, assessments, insurance premiums and replacement in case of damage by fire, and the Company responsible for maintenance of the building. The Company believes that the terms and conditions of this lease are comparable to the terms and conditions which would be available from an unrelated party with respect to similar facilities, 8 although other similarly situated unrelated parties would, in all likelihood, require a long-term written lease. Shelby Steel owns a 50,000 square foot steel processing facility on six acres of land in River Rouge, Michigan, where all of its operations are conducted. E-Z Pack owns three buildings comprising approximately 365,000 square feet situated on approximately 38 acres of land in Galion, Ohio. This facility manufactures front, side and rear loading garbage truck bodies and recycling trucks as well as transfer trailers. E-Z Pack's Georgia facility is an approximately 114,500 square foot manufacturing facility on 13.2 acres in Macon, Georgia where it manufactures roll-off hoists. E-Z Pack's Oklahoma facility consists of four buildings in Oklahoma City, aggregating 100,000 square feet. This facility is used to fabricate and process steel for its own use and to manufacture roll-off containers, compactors and dump bodies. E-Z Pack owns an approximately 102,000 square foot manufacturing facility in Demopolis, Alabama on approximately 84 acres of land. This facility is used to fabricate and process steel for its own use and to manufacture roll-off containers and compactors. Galion owns a 113,500 square foot manufacturing facility situated on 20 acres of land in Winesburg, Ohio where it manufactures dump bodies, hoists and balers. The Company's Southland facility owns a building that is approximately 6,000 square feet on approximately 3.43 acres of land. This property provides administration offices and service facilities for Southland. The Company's Sterling Heights, Michigan facility and Galion, Ohio facility are currently operating at approximately 60% of capacity. The Oklahoma facility is currently operating at 65% of capacity. The Georgia facility is currently operating at 30% of capacity. The Alabama facility is currently operating at 60% capacity. The Winesburg, Ohio facility is currently operating at 80% of capacity. The Kalamazoo, Michigan facility is currently operating at 60% of capacity. The determination of the productive capacity on each facility actually used by the Company is a function of the mix of products being produced at such facility and the pricing of such products. The production capacity figures set forth in this paragraph reflect the mix of products presently produced by each facility and the present pricing of such products. The Company enjoys expandable capacity at most of these facilities depending on double-shifting and other performance enhancing activities. The facilities owned and leased by the Company are well maintained and in good operating condition. Its plants and equipment are subject to various liens and encumbrances that collateralize certain obligations. See Notes 6 and 7 of Notes to Consolidated Financial Statements. 9 ITEM 3. LEGAL PROCEEDINGS The Company is from time to time subject to various claims from existing or former employees alleging gender, age or racial discrimination and anti-union activity, none of which are expected to have a material adverse affect on the Company. In addition, as a manufacturer of industrial products, the Company is, from time to time, subjected to various product liability claims. Such claims typically involve personal injury or wrongful death associated with the use or misuse of the Company's products. While such claims have not been material to the Company in any year and the Company believes that it maintains adequate product liability insurance, there can be no assurance that such insurance will continue to be available on terms acceptable to the Company. Any product liability claim not fully covered by insurance, as well as any adverse publicity from a product liability claim, could have a material adverse effect on the Company. The Company is currently defending a number of legal proceedings involving product liability claims relating to McClain, Galion and E-Z Pack brand products. Although the Company believes that it can continue to successfully resolve pending and future product liability claims, there can be no assurance that the Company will be able to do so. The International Association of Bridge, Structual, Ornamental and Reinforcing Iron Workers, Local Union 526 (the "Local 526") filed unfair labor practices with regard to the Company's Macon, Georgia operations in 1995 which were subsequently upheld by the National Labor Relations Board and the U.S. Court of Appeals for the Eleventh Circuit. The Company is negotiating with the NLRB in an effort to reach a settlement as to the extent of the liability arising from the matter. Local 526 filed additional unfair labor practices in 1996. On October 4, 2001 the NLRB issued an Order Consolidating Cases, Second Amended Consolidated Complaint and Notice of Hearing which set a hearing date of March 11, 2002. The Second Amended Consolidated Complaint asserts various unfair labor practices including violations of Sections 8(a)(1) and (3) and (5) and 8(d) of the National Labor Relations Act. The NLRB seeks backpay, reinstatement, and an order requiring transfer of work. While the Company believes these lawsuits will be settled, there can be no assurance that they will be. If they are not settled, there can be no assurance that the amounts awarded will not have a material adverse effect on the Company. The Company is not presently a party to any material legal proceedings except as described above in this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report. 10 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded and quoted on the Nasdaq National Market ("Nasdaq/NMS") under the trading symbol "MCCL." The following table sets forth, for the periods indicated, the high and low sales prices for the Common Stock as reported by Nasdaq/NMS. These per share quotations represent inter-dealer prices on the Nasdaq/NMS, and do not include retail mark-ups or commissions.
SALES PRICE OF COMMON STOCK ------------ HIGH LOW ---- --- FISCAL YEAR ENDED SEPTEMBER 30, 2000 First Quarter 6.25 3.875 Second Quarter 6.812 4.187 Third Quarter 5.437 4.625 Fourth Quarter 5.625 3.875 FISCAL YEAR ENDED SEPTEMBER 30, 2001 First Quarter 4.50 3.75 Second Quarter 3.12 2.12 Third Quarter 2.75 2.12 Fourth Quarter 2.75 1.25
On December 7, 2001, the last reported sales price for the Common Stock as reported by Nasdaq/NMS was $1.25. As of such date there were approximately 199 holders of record of the Common Stock. The Company believes there are a substantial number of beneficial owners of the Company's Common Stock whose shares are held in street name. The Company has never paid any cash dividends. The payment of dividends by the Company is within the discretion of the Board of Directors and will depend on the Company's earnings, its capital requirements and financial condition, as well as other relevant factors. The Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain earnings for use in the Company's operations. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for each of the Company's last five fiscal years ended September 30 are as follows: 11
======================================================================================================================== 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Gross Sales $ 92,499,362 $ 142,978,636 $ 142,079,475 $ 118,487,052 $ 95,255,641 Sales, Net of $ 91,549,939 $ 141,117,959 $ 140,604,885 $ 116,554,031 $ 95,255,641 Customer Discounts Net Income (Loss) $ (4,989,041) $ (85,854) $ 4,181,938 $ 3,383,892 $ (1,703,780) Net Earnings (Loss) Per Common and Common Equivalent $ (1.11) $ (.02) $ .90 $ .72 $ (.36) Share,(1) Working Capital (Deficit) $ (12,409,479) $ 59,987,560 $ 58,689,965 $ 41,919,687 $ 33,520,003 Total Assets $ 102,646,275 $ 123,684,913 $ 129,923,989 $ 100,246,967 $ 87,185,567 Long-Term Debt(2) $ 0 $ 67,476,117 $ 62,648,684 $ 42,530,105 $ 38,513,490 Stockholders' Investment $ 25,005,663 $ 30,207,456 $ 30,890,965 $ 26,835,306 $ 23,837,091 Weighted Average Number of Common Equivalent Shares Outstanding(1) 4,504,341 4,565,661 4,673,027 4,711,741 4,729,281 Current Ratio(2) 0.83:1 3.67:1 2.79:1 2.57:1 2.63:1 Funded Debt to Equity 2.38:1 2.24:1 2.03:1 1.59:1 1.62:1 ========================================================================================================================
1 Weighted average number of shares outstanding includes, as appropriate, adjustments for the effect of common stock equivalents. 2 For 2001, current liabilities include long term debt subject to a forbearance agreement. See Note 7 of the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the consolidated financial statements, including the notes to them, appearing elsewhere in this report. Certain statements in this Form 10-K and in future filings by the Company with the Securities and Exchange Commission, and in the Company's written and oral statements made by or with the approval of an authorized executive officer, constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company intends that such forward-looking statements be subject to the safe harbors created by such acts. The words "believe", "expect", "anticipate"; and similar expressions identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but are subject to many uncertainties and factors relating to the Company's operations and business environment which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking 12 statements. Examples of such uncertainties include, but are not limited to, changes in customer demand and requirements, interest rate fluctuations, changes in federal income tax laws and regulations, competition, industry specific factors and both national and world wide economic and business conditions. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The following table presents, as a percentage of net sales, certain selected financial data for the Company for the years indicated:
----------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Net Sales 100.00% 100.00% 100.00% 100.0% 100.00% Cost of Sales 86.71 84.47 82.40 82.18 83.68 ------ ------ ------ ----- ------ Gross Profit 13.29 15.53 17.60 17.82 16.32 Selling, General & Administrative Expenses 18.82 12.76 11.55 11.47 14.33 Restructuring and Impairment Charge 0.00 0.00 0.00 0.00 1.84 ------ ------ ------ ----- ------ Operating Profit (Loss) (5.53) 2.77 6.05 6.35 .15 Other Expense 2.71 2.86 1.54 2.22 2.24 ------ ------ ------ ----- ------ Income (Loss) Before Income Taxes (8.24) (.09) 4.51 4.13 (2.09) Income Taxes (Benefit) (2.79) (.03) 1.53 1.23 (.30) ------ ------ ------ ----- ------ Net Income (Loss) (5.45)% (.06)% 2.98% 2.90% (1.79)% ====== ====== ====== ====== ======
RESULTS OF OPERATIONS Comparison of year ended September 30, 2001 to year ended September 30, 2000 Net sales decreased 35.1% to $91.6 million for the fiscal year ended September 30, 2001 (Fiscal 2001) from $141.1 million for the fiscal year ended September 30, 2000 (Fiscal 2000). The decrease was due primarily to slumping sales resulting from the slowdown in the economy. McClain E-Z Pack's sales decreased 36.1% or $31.0 million during Fiscal 2001 compared to the Fiscal 2000 while McClain Truck sales decreased 40.9% or $12.1 million during Fiscal 2001 compared to Fiscal 2000. These decreases were the result of the continuing economic slowdown and limited capital expenditures in the hauling industry. Sales of the Company's dump body products decreased by 28.8% or $5.5 million for Fiscal 2001 compared to Fiscal 2000 due to the continued slump and excess production capacity in the dump body markets. Sales of the Company's other product lines fell 22.8% due to the current economic slump for Fiscal 2001 compared to Fiscal 2000. The sales of the McClain Truck division accounted for 23.2% of the Company's sales for fiscal 2001 compared to 20.6% of the Company's sales for Fiscal 2000. Cost of goods sold increased to 86.7% for Fiscal 2001 from 84.5% for Fiscal 2000. The gross profit margin on manufactured products decreased to 17.7% for Fiscal 2001 compared to 21.8% for Fiscal 2000 due primarily to the lower sales volume that increased the Company's fixed cost rates and continued increases in health insurance costs. The McClain Truck division had a gross loss of 1.1% for Fiscal 2001 compared to a gross loss of 3.15% for Fiscal 2000. Selling, General & Administrative Expenses increased to 18.8% of net sales for Fiscal 2001 from 12.8% of net sales for Fiscal 2000 primarily due to the lower sales volume, increases in the reserves for the accounts and lease receivable, continued 13 increases in health insurance costs, various severance packages for terminated employees, and costs related to the ongoing negotiations with the principal lender regarding the Company's debt structure (see the discussion in the Liquidity and Capital Resources section). Inventory has decreased to $36.7 million at September 30, 2001 from $52.0 million at September 30, 2000. This decrease is due primarily to the Company's efforts to liquidate inventory in order to bring the inventory levels into line with the current sales levels. The Company's leasing subsidiary generated pretax income of $1.0 Million for Fiscal 2001 compared to of $.70 Million for Fiscal 2000. The Company had $27.8 Million in net finance lease receivables at September 30, 2001 compared to $23.6 Million at September 30, 2000. Interest expense decreased to $5.5 million in Fiscal 2001 from $6.3 in Fiscal 2000. This decrease was due primarily to falling interest rates, decreased debt related to the inventory reductions and was partially offset by increased debt related to the leasing company. Income taxes are calculated based on the current statutory rates. No significant differences between the Company's effective rate and the statutory rates exist. The Company had a Net Loss of $4,989,041 for Fiscal 2001 compared to a Net Loss of $85,854 for Fiscal 2000. The loss was due primarily to reduced sales volumes throughout the Company's product lines and increases in certain other costs as previously discussed. Comparison of year ended September 30, 2000 to year ended September 30, 1999 Net sales increased .4% to $141.1 million for the fiscal year ended September 30, 2000 (Fiscal 2000) from $140.6 million for the fiscal year ended September 30, 1999 (Fiscal 1999). The Company experienced increases in the sales of its commodity products and truck chassis while refuse truck and dump body sales decreased. Sales for the commodity products increased 5.14% or $2.7 million, while truck chassis sales increased 11.3% or $3.0 million. Dump body sales decreased 5.4% or $1.1 million due primarily to an overall slump in the dump body industry. During Fiscal 2000, E-Z Pack sales fell 9.41% or $3.4 million after an increase of 49.6% or $11.8 million in Fiscal 1999. This decrease was due primarily to the national haulers limiting their capital purchases while they implemented integration plans following ongoing consolidations in the waste hauling industry. Sales of the Company's other product lines increased slightly or were flat for Fiscal 2000 compared to Fiscal 1999. The sales of the McClain truck division accounted for 20.6% of the Company's sales for Fiscal 2000 compared to 18.8% of the Company's sales for Fiscal 1999. The Company's overall gross profit as a percentage of sales decreased to 15.53% for Fiscal 2000 from 17.60% for Fiscal 1999, while the gross profit margin for products the Company manufactured increased to 21.8% for Fiscal 2000 compared to 21.4% for Fiscal 1999. This increase results from reduced steel prices and increased production efficiencies at certain of the Company's production facilities. The truck chassis division had a gross loss of 3.15% during Fiscal 2000 compared to a gross profit of 6.8% for Fiscal 1999. During Fiscal 2000 the Company determined that due to the current slump in the tandem dump truck market and certain other market factors it would not be able to compete effectively in the package dump truck market. Based on 14 this determination and the costs to continue carrying the dump truck chassis inventory, the Company decided to liquidate the entire portion of this inventory in the fourth quarter of Fiscal 2000. This liquidation resulted in a realized loss on disposal of approximately $1.75 million. Selling, General & Administrative Expenses increased to 12.76 % of net sales for Fiscal 2000 from 11.55% of net sales for the Fiscal 1999 due primarily to increases in marketing activity, health insurance costs, professional fees and additional trucking expenses necessary to ship commodity products made at E-Z Pack's Demopolis, Alabama facility to regions outside the Southeast in order to reduce a build up of the finished goods inventory at that facility. Inventory has decreased to $52.0 million at September 30, 2000 from $63.3 million at September 30, 1999. This decrease is due primarily to the liquidation of the dump truck chassis inventory as discussed above. The Company's leasing subsidiary generated pretax income of $.70 Million for Fiscal 2000 compared to of $.5 Million for Fiscal 1999. The Company had $23.6 Million in net finance lease receivables at September 30, 2000 compared to $18.8 Million at September 30, 1999. Interest expense increased to $6.3 million in Fiscal 2000 from $4.0 in Fiscal 1999. This increase was due primarily to rising interest rates, increased debt related to the leasing company and the debt service on the dump truck chassis inventory prior to the liquidation previously discussed. Income taxes are calculated based on the current statutory rates. No significant differences between the Company's effective rate and the statutory rates exist. The Company had a net loss of $85,854 for Fiscal 2000 compared to a net profit of $4,181,938 for Fiscal 1999. This decrease was due primarily to losses incurred by the Company's truck chassis division and increased interest expense as previously discussed as well as reduced profits from the Company's refuse truck and dump body divisions due to slower than expected sales. LIQUIDITY AND CAPITAL RESOURCES The Company had negative working capital of $12.4 million at September 30, 2001 compared to positive working capital $59.9 million at September 30, 2000. The ratio of current assets to current liabilities was 0.83:1 at September 30, 2001 and 3.63:1 at September 30, 2000. The decline in working capital is primarily a result of classifying long term debt as current at September 30, 2001 due to noncompliance with debt covenants at that date. The Company's cash and cash equivalents totaled $0.8 million at September 30, 2001. Cash flows provided by operations were $13.3 million for the year ended September 30, 2001. The Company's working capital needs decreased during Fiscal 2001 from Fiscal 2000 due to the Company's ongoing efforts to reduce its inventory to levels more consistent with the current sales volumes. The Company has a Revolving Credit Facility with Standard Federal Bank, a federal savings bank ("Standard"), which provides maximum availability of $22.0 for working capital needs. At September 30, 2001 the Company had borrowed approximately $20.7 million under the working capital line. Borrowings under the 15 working capital line are limited to 80% of eligible accounts receivable and 50% of qualified inventory The Company has a second Revolving Credit Facility with Standard used to finance certain of its lease receivables. The agreement calls for a maximum availability of $20.0 million with borrowing limited to 80% of eligible lease receivables. At September 30, 2001 approximately $18.8 million had been drawn on this facility. All borrowings with Standard are secured by substantially all of the assets of the Company. The Company's debt agreements contain certain restrictive covenants that require the Company to, among other things, meet certain net worth and working capital requirements along with maintaining various financial ratios. As the result of non compliance with certain of the financial covenants, the Company entered into a forbearance agreement with its principal lending institution in June of 2001 and expiring August 31, 2001. This agreement was extended to October 31, 2001 and further extended through January 31, 2002. Under the most recent amended and extended forbearance agreement, the line of credit is capped at $22 million, effective December 4, 2001, interest will accrue at the default rate of prime plus 2 1/2%, the leasing credit limit is reduced to the lesser of $19 million or the borrowing base, as defined, and the Company has been placed under a dominion of funds arrangement. Accordingly, the debt related to these agreements has been shown as a current liability. Management's plans to resolve this matter include, exploring other financing options while continuing to negotiate with its principal lender to extend the forbearance period or amend its current agreements to among other things reset those covenants that are currently out of compliance and extend the maturity dates on certain of its revolving credit agreements, continuing to evaluate the need for additional personnel reductions, analyzing all plant operations and product lines to determine the viability of each facility, and continuing inventory reductions to match forecasted operating levels. While management believes it will be successful in its negotiations with it principal lender or in obtaining an alternative financing source, that outcome is not certain. If either of these options are ultimately unavailable to the Company and the principal lender exercises it right to accelerate the repayment of the outstanding debt, the Company would be unable to pay the amount outstanding. The revolving credit agreements expire in May 2002. The Company has agreements with three financial institutions to provide financing for its TRAC (Terminal Rental Adjustment Clause) Leasing Agreements. The agreements call for maximum availability of $19.5 million in lease commitments. Under these facilities, the Company may finance 100% of eligible lease receivables over the term of the related lease at a fixed interest rate determined at the time of the lease closing. The notes are secured by the related lease receivable. At September 30, 2001, approximately $14.0 million had been drawn on the facilities. Management believes, that if its principal lender extends the forbearance period, the negotiations discussed above are successful or the Company secures an alternative financing source, that the Company's cash flow, together with the credit available to it under existing debt facilities, will provide it with adequate cash for its working capital needs for the next 12 months. If these options are ultimately unavailable to the Company and the principal lender exercises it right to accelerate the repayment of the outstanding debt, the Company would be unable to pay the amount outstanding. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are filed under Item 14 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There have been no changes in the Company's independent public accountants during the past two fiscal years and the Company does not disagree with such accountants on any matter of accounting principles, practices or financial statement disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows:
APPROXIMATE DATE SERVICE NAME AGE OFFICE BEGAN ---- --- ------ ----- Kenneth D. McClain(1) 60 Chairman of the Board, Chief Executive Officer and President 3/68 Robert W. McClain(1) 65 Senior Vice President, Assistant Secretary and Director 3/68 Raymond Elliott 67 Director 8/90 Walter J. Kirchberger 66 Director 11/95 Ronald B. Briggs 66 Director 6/01 Carl Jaworski 58 Secretary 10/72 Mark S. Mikelait 41 Treasurer 5/97
(1) Kenneth D. McClain and Robert W. McClain are brothers. KENNETH D. MCCLAIN is Chairman of the Board and President of the Company. He has been a director and officer of the Company since its inception in March 1968. He also serves as Vice President and a director of Shelby Steel. Mr. McClain is also a director and the Chairman of the Board of E-Z Pack and Galion. ROBERT W. MCCLAIN is Senior Vice President and Assistant Secretary of the Company. He has been a director and officer of the Company since its inception in March 1968. He also serves as President of Shelby Steel. 17 RAYMOND ELLIOTT has been a director of the Company since August 1990. He is President of Hartland Insurance Group, Inc. From January 1, 1997 to October 2, 1998, he was a Vice President of First of America Insurance (now National City) Group since October 1996. Prior to that he was President and a director of Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans Insurance Agency, Inc. since 1967. Mr. Elliott also serves as a director of the Boys and Girls Club of Troy, a charitable organization located in Troy, Michigan. WALTER J. KIRCHBERGER was elected to the Board of Directors in November 1995. Mr. Kirchberger is a Director at UBS Warburg LLC and has served in such capacity for more than 25 years. Until recently he also served as a director of Simpson Industries, Inc. RONALD BRIGGS was elected to the Board of Directors in June 2001. Mr. Briggs is a former shareholder/director of Doeren Mayhew, Certified Public Accountants located in Troy, Michigan. He started his career with the firm in 1960, became audit director in 1967 and served as managing director of the firm from 1984 to 1996 and retired in 1997. Mr. Briggs is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. CARL JAWORSKI has served as Secretary since October 1972. Mr. Jaworski was also a director and the Treasurer of the Company from October 1972 until April 1992. Mr. Jaworski also serves as Secretary and a director of Shelby Steel. Mr. Jaworski is the Secretary of E-Z Pack and Galion. MARK S. MIKELAIT has served as Treasurer of the Company since May 1997 and joined the Company in September 1994. Prior to that time Mr. Mikelait, a CPA, was employed as a senior manager by Rehmann Robson, the Company's independent auditors, beginning in November 1985. The Company is required to identify each person who was an officer, director or beneficial owner of more than 10% of the Company's registered equity securities during the Company's most recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. Based solely upon its review of copies of such reports received by it during or with respect to the fiscal year ended September 30, 2001, the Company believes that all officers, directors and beneficial owners of more than 10% of the Company's registered equity securities timely filed all required reports. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following tables set forth all cash compensation paid to the Chief Executive Officer of the Company and the other executive officers whose total annual salary and bonus from the Company exceeded $100,000 during the fiscal year ended September 30, 2001. 18 SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------ Annual Compensation Long Term Compensation - ------------------------------------------------------------------------------------ Name and Fiscal Salary Options/ Principal Position Year Amount($) SARs(#) ------------------ ---- ------ ---- Kenneth D. McClain, President/ CEO 2001 $277,083 --- 2000 294,792 --- 1999 275,000 25,000 Robert W. McClain, Senior Vice President 2001 $150,000 --- 2000 150,000 --- 1999 143,751 25,000 Carl Jaworski Secretary 2001 $112,750 --- 2000 111,373 --- 1999 108,750 5,000 Mark S. Mikelait Treasurer 2001 $126,075 --- 2000 122,781 --- 1999 126,250 5,000 ====================================================================================
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES TABLE
- ---------------------------------------------------------------------------------------------------------------------------------- Shares No. of Unexercised Value of Unexercised Acquired Options/SARs at In-The-Money Options/SARs at on Fiscal Year-End (1) Fiscal Year-End(2) Exercise Value in 2001 Realized ------------------------------------------------------------------------- Not Not Exercisable Exercisable(1) Exercisable Exercisable - ---------------------------------------------------------------------------------------------------------------------------------- Kenneth D. McClain -0- -0- 16,666 8,334 $ -0- $ -0- Robert W. McClain -0- -0- 13,333 6,667 $ -0- $ -0- Carl Jaworski -0- -0- 10,000 -0- $ -0- $ -0- Mark S. Mikelait -0- -0- 15,000 -0- $ -0- $ -0- ==================================================================================================================================
(1) Stock options granted between February 9, and May 7,1999 pursuant to the Company's 1989 and 1999 Incentive Stock Plans (the "Incentive Plans"). Options must be exercised by May 7, 2004. Exercise prices vary from $5.08 to $5.50 per share. (2) Value based on the average of the September 30, 2001 closing bid high and low price which was $1.38 per share. COMPENSATION OF DIRECTORS Directors who are employees of the Company do not receive compensation for serving on the Board or on the Board's committees. Directors who are not employees of the Company are entitled to a quarterly retainer fee of $4,000, a $1,000 fee for each regular or special meeting of the Board and a $1,000 fee for each committee meeting attended on a day other than a regular or special Board meeting date (collectively, the "Fees"). A Director may elect to receive payment of the Fees in shares of Common Stock pursuant to the Company's 1999 Retainer Stock Plan for Non-Employee 19 Directors (the "Retainer Plan"). To participate in the Retainer Plan, an eligible director must elect prior to December 31 of each year the percentage, if any, of Fees he desires to receive in the form of shares of Common Stock. The Common Stock is issued quarterly during the following calendar year. The number of shares of Common Stock to be issued to an eligible director is determined by dividing the dollar amount of the percentage of fees such director elects to receive in Common Stock by the "fair market value" of Common Stock on the day prior to the date of issuance of the Common Stock to such director. The term "fair market value" means the average of the highest and lowest selling price for the Common Stock as quoted on Nasdaq/NMS for the day prior to the date of issuance or for the first date prior to the date of issuance for which shares of Common Stock are quoted, if not quoted on the day prior to the date of issuance. Any fractional share of Common Stock derived from such calculation is paid in cash. The aggregate fair market value of the shares of Common Stock issued to any eligible director in a given year cannot exceed 100% of such eligible director's fees. Fees may not be increased more often than annually. For the fiscal year ended September 30, 2001, 19,939 shares of Common Stock were issued under the Retainer Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 7, 2001, certain information regarding the beneficial ownership of Common Stock, of: (i) each person known to the Company to be the beneficial owner of more than five (5%) percent of the Common Stock; (ii) each director of the Company; (iii) each executive officer listed in the Summary Compensation Table; and (iv) all executive officers and directors of the Company as a group, based upon information available to the Company.
AMOUNT AND NATURE OF PERCENT OF NAME AND ADDRESS BENEFICIAL OUTSTANDING OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2) - ------------------------------- ------------ --------- Kenneth D. McClain 1,423,662(3) 31.49% 6200 Elmridge Road Sterling Heights, MI 48310 Robert W. McClain 998,361(4) 22.08% 6200 Elmridge Road Sterling Heights, MI 48310 June McClain 337,178 7.46% 6200 Elmridge Road Sterling Heights, MI 48310 Robert J. Gordon 899,233(5) 19.89% Suite 2400 One Woodward Avenue Detroit, MI 48226 Raymond Elliott 37,844 0.84% 290 Town Center P.O. Box 890 Troy, Michigan 48084 Walter J. Kirchberger 15,890 0.35% 2301 West Big Beaver Rd., Suite 800 Troy, Michigan 48084 Ronald B. Briggs 4,026 0.09% 755 West Big Beaver RD Troy, MI 48084
20
AMOUNT AND NATURE OF PERCENT OF NAME AND ADDRESS BENEFICIAL OUTSTANDING OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2) - ------------------------------- ------------ --------- Carl Jaworski 124.493 2.75% 6200 Elmridge Road Sterling Heights, MI 48310 Mark S Mikelait 15,000 0.33% 500 Sherman Street Galion, OH 44833 All current executive officers and 2,619,276(6) 57.24% Directors as a group (6 persons)
(1) For purposes of this table, a person is deemed to have "beneficial ownership" of any shares that such person has a right to acquire within 60 days. (2) Based on 4,520,746 shares of Common Stock issued and outstanding as of December 7, 2001. In addition, for purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security that such person or persons has or have the right to acquire within 60 days is also deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (3) Includes 2,430 shares of Common Stock owned by Kenneth D. McClain's wife. Mr. McClain disclaims beneficial ownership of these shares. (4) Includes 337,178 shares of Common Stock owned by Robert W. McClain's wife. Mr. McClain disclaims beneficial ownership of these shares. (5) Represents shares of common stock held by Mr. Gordon as trustee of trusts established for family members of Messrs. Kenneth D. McClain and Robert W. McClain. Messrs. Kenneth D. McClain, Robert W. McClain and Robert J. Gordon disclaim beneficial ownership of these shares. (6) Includes 54,999 shares which executive officers and directors have the right to acquire pursuant to stock options exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases one of its facilities from siblings of Messrs. Kenneth and Robert McClain. See "Properties." The Company believes that the terms and conditions of this lease are comparable to those available from an unrelated party with respect to similar facilities. The Company had sales of approximately $103,500 in Fiscal 2000 to McClain Leasing Corporation, an entity controlled by certain officers and directors of the Company. The Hartland Insurance Group, an entity owned by Raymond Elliott, a director of the Company, provided insurance to the Company during Fiscal 2001. Sales from this entity to the Company aggregated approximately $2,050,000 million during Fiscal 2001, for which this entity received fees and commissions in the approximate amount of $210,000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed herewith as part of this Form 10-K: (1) A list of the financial statements required to be filed as a part of this Form 10-K is shown in the "Index to the Consolidated Financial Statements and Schedules" filed herewith. 21 (2) A list of financial statement schedules required to be filed as a part of this Form 10-K is shown in the "Index to the Consolidated Financial Statements and Schedules" filed herewith. (3) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Form 10-K is shown on the "Index to Exhibits" filed herewith. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 9, 2002 McCLAIN INDUSTRIES, INC. By:/s/ Kenneth D. McClain -------------------------------------- Kenneth D. McClain, President (Principal Executive Officer) And By:/s/ Mark S. Mikelait ---------------------------------- Mark S. Mikelait, Treasurer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: January 9, 2002 /s/ Kenneth D. McClain ----------------------------------------- Kenneth D. McClain, Director Dated: January 9, 2002 /s/ Robert W. McClain ----------------------------------------- Robert W. McClain, Director Dated: January 9, 2002 /s/ Raymond Elliott ------------------------------------ Raymond Elliott, Director Dated: January 9, 2002 /s/ Walter J. Kirchberger ------------------------------------ Walter J. Kirchberger, Director Dated: January 9, 2002 /s/ Ronald B Briggs ------------------------------------ Ronald B. Briggs, Director 23 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. Form 10-K For Corporations ANNUAL REPORT FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000, and 1999 MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT -24- MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets - September 30, 2001 and 2000 Consolidated Statements of Operations for the years ended September 30, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Investment for the years ended September 30, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999 Notes to Consolidated Financial Statements SCHEDULES The information required to be submitted in Schedule II - Valuation and Qualifying Accounts is included in the consolidated financial statements and notes thereto. The following schedules are omitted as not required or not applicable: I, III, IV and V. -25- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders McClain Industries, Inc. and Subsidiaries Sterling Heights, Michigan We have audited the accompanying consolidated balance sheets of McClain Industries, Inc. and Subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of operations, stockholders' investment, and cash flows for each of the three years in the period ended September 30, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of McClain Industries, Inc. and Subsidiaries as of September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company's recent losses from operations and its attendant difficulties in generating sufficient cash flow to meet its obligations have resulted in noncompliance with certain financial covenants contained in its debt agreements. The Company's principal lender has not waived its rights to call the debt arising from such noncompliance and has renewed a forbearance agreement only through January 31, 2002. This condition raises substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. REHMANN ROBSON Troy, Michigan December 28, 2001 -26- MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30 --------------------------------------------- 2 0 0 1 2 0 0 0 --------------------- --------------------- CURRENT ASSETS Cash and cash equivalents $ 763,635 $ 1,401,810 Accounts receivable, net of allowance for doubtful accounts of $1,147,000 ($520,000 in 2000) 11,818,760 20,692,647 Inventories 36,729,464 52,031,112 Net investment in sales-type leases, current portion 10,600,000 7,500,000 Refundable federal and state taxes 2,733,572 587,612 Prepaid expenses 142,539 238,404 --------------------- --------------------- TOTAL CURRENT ASSETS 62,787,970 82,451,585 PROPERTY, PLANT AND EQUIPMENT, NET 21,620,641 23,298,832 Net investment in sales-type leases net of allowance for doubtful collections of $900,000 ($400,000 in 2000), less current portion 17,200,109 16,086,444 Equipment under construction 777,643 1,012,690 Goodwill, net of amortization 188,495 616,624 Other 71,417 218,738 --------------------- --------------------- TOTAL ASSETS $ 102,646,275 $ 123,684,913 ===================== =====================
The accompanying notes are an integral part of these consolidated financial statements. -27-
LIABILITIES AND STOCKHOLDERS' INVESTMENT SEPTEMBER 30 ------------------------------------------- 2 0 0 1 2 0 0 0 -------------------- -------------------- CURRENT LIABILITIES Accounts payable $ 11,555,975 $ 14,523,573 Current portion of long-term debt (Note 7) 59,415,504 4,200,000 Accrued expenses 4,225,970 3,740,452 -------------------- -------------------- TOTAL CURRENT LIABILITIES 75,197,449 22,464,025 Long-term debt, net of current portion - 67,476,117 Product liability 897,163 1,182,315 Deferred income taxes 1,546,000 2,355,000 -------------------- -------------------- TOTAL LIABILITIES 77,640,612 93,477,457 -------------------- -------------------- COMMITMENTS AND CONTINGENCIES (NOTE 16) STOCKHOLDERS' INVESTMENT Common stock, no par value; authorized 10,000,000 shares, issued and outstanding, 4,520,746 shares (4,560,086 shares in 2000) 4,061,123 4,273,875 Retained earnings 20,944,540 25,933,581 -------------------- -------------------- TOTAL STOCKHOLDERS' INVESTMENT 25,005,663 30,207,456 -------------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 102,646,275 $ 123,684,913 ==================== ====================
-28- MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30 ------------------------------------------------------------------ 2 0 0 1 2 0 0 0 1 9 9 9 ------------------- -------------------- -------------------- Net sales $ 91,549,939 $ 141,117,959 $ 140,604,885 Cost of sales 79,379,375 119,208,522 115,863,228 ------------------- -------------------- -------------------- GROSS PROFIT 12,170,564 21,909,437 24,741,657 Selling, general and administrative expenses 17,229,156 18,002,259 16,234,546 ------------------- -------------------- -------------------- (LOSS) INCOME FROM OPERATIONS (5,058,592) 3,907,178 8,507,111 ------------------- -------------------- -------------------- OTHER INCOME (EXPENSE) Interest expense (5,482,236) (6,343,380) (3,982,325) Interest income 3,300,014 2,457,524 1,575,188 Other, net (304,227) (151,176) 236,964 ------------------- -------------------- -------------------- OTHER EXPENSE - NET (2,486,449) (4,037,032) (2,170,173) ------------------- -------------------- -------------------- (LOSS) INCOME BEFORE INCOME TAXES (7,545,041) (129,854) 6,336,938 Income taxes benefit (expense) 2,556,000 44,000 (2,155,000) ------------------- -------------------- -------------------- NET (LOSS) INCOME $(4,989,041) $ (85,854) $ 4,181,938 =================== ==================== ==================== Net (loss) income per share: Basic $ (1.11) $ (0.02) $ 0.90 =================== ==================== ==================== Assuming dilution $ (1.11) $ (0.02) $ 0.90 =================== ==================== ==================== Weighted average shares outstanding, basic and diluted 4,504,341 4,560,086 4,673,027 =================== ==================== ====================
The accompanying notes are an integral part of these consolidated financial statements. -29- MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
COMMON STOCK RETAINED -------------------------------------- SHARES AMOUNT EARNINGS TOTALS ---------------- ------------------ -------------------- ------------------- Balance at October 1, 1998 4,686,727 $ 4,997,809 $ 21,837,497 $ 26,835,306 Shares issued 4,505 25,123 - 25,123 Shares repurchased (30,354) (151,402) - (151,402) Net income - - 4,181,938 4,181,938 ---------------- ------------------ -------------------- ------------------- Balance at September 30, 1999 4,660,878 4,871,530 26,019,435 30,890,965 Shares issued 7,350 32,970 - 32,970 Shares repurchased (108,142) (630,625) - (630,625) Net loss - - (85,854) (85,854) ---------------- ------------------ -------------------- ------------------- Balance at September 30, 2000 4,560,086 4,273,875 25,933,581 30,207,456 Shares issued 19,939 34,486 - 34,486 Shares repurchased (59,279) (247,238) - (247,238) Net loss - - (4,989,041) (4,989,041) ---------------- ------------------ -------------------- ------------------- BALANCE AT SEPTEMBER 30, 2001 4,520,746 $ 4,061,123 $ 20,944,540 $ 25,005,663 ================ ================== ==================== ===================
-30- MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30 -------------------------------------------------------------- 2 0 0 1 2 0 0 0 1 9 9 9 ------------------- -------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (4,989,041) $ (85,854) $ 4,181,938 Adjustments to reconcile net (loss) income to net cash used in operating activities Depreciation and amortization 3,345,633 3,425,281 3,280,109 Deferred income taxes (benefit) (809,000) 155,000 (15,000) Provision for doubtful accounts 1,375,000 230,800 146,500 Gain on disposal of plant and equipment 14,607 (28,856) (8,330) Common stock issued to directors for services 34,486 32,970 25,123 Net changes in operating assets and liabilities which provided (used) cash: Accounts receivable 7,998,887 (383,281) 3,949,095 Inventories 15,301,648 11,250,673 (24,408,308) Net investment in sales-type leases (4,713,665) (5,214,471) (9,658,012) Prepaid expenses and other assets 373,480 (623,411) (233,581) Refundable federal and state taxes (2,145,960) (587,612) - Accounts payable (2,967,598) (7,251,566) 3,369,915 Accrued expenses 485,518 (2,224,309) 1,500,945 ------------------- -------------------- ------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 13,303,995 (1,304,636) (17,869,606) ------------------- -------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of plant and equipment (1,190,345) (2,953,102) (2,768,433) Payments on liabilities assumed upon the Galion acquisition (285,152) (224,513) (503,077) Proceeds from sale of plant and equipment 41,178 28,856 8,330 ------------------- -------------------- ------------------- NET CASH USED IN INVESTING ACTIVITIES (1,434,319) (3,148,759) (3,263,180) ------------------- -------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 1,499,807 9,027,433 24,303,311 Repayments of long-term debt (13,760,420) (4,450,000) (3,034,732) Repurchase of common stock (247,238) (630,625) (151,402) ------------------- -------------------- ------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (12,507,851) 3,946,808 21,117,177 ------------------- -------------------- ------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (638,175) (506,587) (15,609) Cash and cash equivalents, beginning of year 1,401,810 1,908,397 1,924,006 ------------------- -------------------- ------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 763,635 $ 1,401,810 $ 1,908,397 =================== ==================== ===================
The accompanying notes are an integral part of these consolidated financial statements. -31- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business McClain Industries, Inc. and its wholly-owned subsidiaries (the "Company") manufacture and sell a diversified line of dump truck bodies (assemblies attached to truck frames which are used to carry and dump solid materials such as dirt, gravel or waste materials) and solid waste handling equipment (including containers, compactors and baling equipment, garbage and recycling truck bodies, and transfer trailers) used for the temporary storage, transportation and compaction of residential, commercial and industrial waste and recycling materials. The Company sells its dump truck bodies primarily to truck equipment dealers and its solid waste handling equipment primarily to distributors, solid waste handling companies, government agencies, shopping centers and other large retail outlets principally within the United States. The Company also sells truck chassis at the retail level. In addition, the Company provides coiled steel cutting and warehousing services for its own manufacturing operations in order to reduce its processed steel expense (one of its major cost components) and, on a limited basis, for sale to third-party customers. Going Concern As indicated in Note 7, the Company, at September 30, 2001, was not in compliance with certain restrictive covenants contained in various debt agreements. As a result of this noncompliance, the Company entered into a forbearance agreement with its principal lending institution in June 2001 which has been extended through January 31, 2002. The lender has not waived its rights to call the debt arising from such noncompliance nor given any assurance that the agreement will be extended beyond that date; as such, all debt has been classified as current on the 2001 balance sheet, which has resulted in a significant working capital deficit. Should the lender exercise its right to accelerate the repayment of the outstanding debt, the Company would be unable to pay the amount outstanding. This condition raises substantial doubt about the Company's ability to continue operating as a going concern in the normal course of business. Management's plans to address the above matter, recent operating losses from operations and the Company's ability to generate sufficient cash flows includes the following actions: - Exploring other financial options while the Company continues to negotiate with its principal lender. - Continuing to evaluate the need to reduce additional personnel. - Management is analyzing all plant operations to determine the viability of each facility. - Reduce inventory to match appropriate operating levels. -32- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Principles of Consolidation The consolidated financial statements include the accounts of McClain Industries, Inc., and its wholly-owned subsidiaries (McClain E-Z Pack, Inc., McClain, Galion, Inc., Shelby Steel Processing Co., McClain Group Leasing, Inc., McClain Tube Company, McClain Southland, Inc., and McClain International FSC, Inc., an international sales corporation). All significant intercompany accounts and transactions have been eliminated. Concentration Risks The Company grants trade credit to its customers in the normal course of business. No collateral is required. Concentrations of credit risk with respect to trade receivables generally are limited due to the relatively large number of customers comprising the Company's customer base and its geographic dispersion, with the exception of the customer discussed below. The Company maintains reserves for potential credit losses and such losses have historically been insignificant and generally within management's expectations. Sales to a major customer aggregated approximately $13,200,000, $31,870,000, and $32,500,000 in 2001, 2000, and 1999, respectively. The Company had receivables of approximately $1,526,000 and $2,070,000 from this customer at September 30, 2001 and 2000, respectively. The loss of this customer could adversely affect the Company's short-term operating results. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include but are not limited to product liability, goodwill amortization and the allowance for doubtful receivables. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities. Deferred income taxes arise from temporary basis differences principally related to inventory, product liability, plant and equipment, receivables, and net operating losses. -33- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Sales-Type Leases The Company, through McClain Group Leasing, Inc., offers lease financing to certain purchasers of the Company's products. These leases, along with certain TRAC leases (Note 4), meet the criteria for classification as capitalized leases and are accounted for as sales-type leases, whereby sales and gross profit are recognized at the inception of the lease. Accordingly, an investment is reflected on the accompanying balance sheets in an amount equal to the gross minimum lease payments receivable less advance payments, deposits, unearned finance income, and an allowance for doubtful collections. Unearned finance income is amortized in such a manner as to produce a constant periodic rate of return on the net investment in the lease. Goodwill Goodwill representing the purchase price in excess of the fair values of net assets acquired is amortized on a straight line basis. The amortization period is estimated based upon management's judgements and is generally five years. Accumulated amortization as of September 30, 2001 and 2000 was $2,062,230 and $1,634,101, respectively. Earnings (Loss) Per Share Earnings (loss) per share is computed using the weighted average number of common shares outstanding during the year. The diluted amount reflects the potential dilution of all common stock equivalents. At September 30, 2001, 2000 and 1999 options to purchase 219,000, 262,000, and 244,998 common shares, respectively, were excluded from the computation of earnings per share because the options' exercise prices were greater than the average market price of the common shares. Fair Values of Financial Instruments The carrying amount of cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amounts of long-term debt approximate their fair values because the interest rates are representative of, or change with, market rates. -34- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Common Stock Issued to Directors for Services Common stock is issued from time to time in lieu of cash for services provided to the Company by its Directors and is recorded as compensation expense generally at the fair value on the date of issuance. Revenue Recognition Sales are recorded by the Company when the products are delivered to independent distributors or other customers. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations." Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company has historically accounted for its business combinations using the purchase method and expects that adoption of the new standard will not have a material effect on the Company's financial position or results of operations. In June 2001, the FASB also issued Statement No. 142 "Goodwill and Other Intangible Assets" which is effective generally beginning January 1, 2002. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of Statement 142. As of January 1, 2002, the Company expects to have unamortized goodwill of approximately $188,000, which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was approximately $428,000, $428,000 and $396,000 for the years ended September 30, 2001, 2000, and 1999, respectively. The Company is currently evaluating the effects of adopting the remaining provisions of Statements 141 and 142 (which are effective January 1, 2002), including whether any transitional adjustments will be required. In June 2001, the FASB issued Statement No. 143 "Accounting for Asset Retirement Obligations." Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the remaining useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. Statement 143 is effective for fiscal years beginning after June 15, 2002. Adoption of this statement is not expected to impact the Company's results of operations or financial position. -35- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In August 2001, the FASB issued Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," effective prospectively for fiscal years beginning after December 15, 2001. Statement 144 supersedes Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("Opinion 30") for the disposal of a segment of business (as previously defined under Opinion 30). The FASB issued Statement No. 144 to establish a single accounting model for long-lived assets to be disposed of by sale. Statement 144 broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of an entity. Statement 144 also requires that discontinued operations be measured at the lower of the carrying amount or fair value less cost to sell, rather than net realizable value. The Company is currently evaluating the effects of adopting Statement No. 144 and at this time cannot predict whether or not its provisions will have a material impact on its financial position or results of operations. 2. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE The following is a summary of changes in the allowance for doubtful accounts during each of the three years in the period ended September 30:
2001 2000 1999 ----------- ----------- ----------- Balance, beginning of year $ 520,000 $ 570,000 $ 800,000 Add provision charged against income 875,000 130,800 146,500 Less uncollectible accounts written off, net of recoveries (248,000) (180,800) (376,500) ----------- ----------- ----------- BALANCE, END OF YEAR $ 1,147,000 $ 520,000 $ 570,000 =========== =========== ===========
3. INVENTORIES Inventories are stated at the lower of cost, determined by the first-in, first-out (FIFO) and certain inventories on the last-in, last-out (LIFO) method, or market. The major components of inventories were as follows at September 30:
2001 2000 ------------ ----------- Materials $16,136,116 $23,918,300 Work-in process 4,306,681 5,521,754 Finished goods 8,583,582 11,146,428 ----------- ----------- 29,026,379 40,586,482 Chassis 7,703,085 11,444,630 ----------- ----------- $36,729,464 $52,031,112 =========== ===========
-36- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The chassis inventory above consists of the cost of the vehicle as purchased from the manufacturer and, as applicable, includes the Company's cost of manufacturing, assembling and mounting its truck bodies and waste handling equipment products. The purchased cost of the chassis on a stand-alone basis was $5,684,975 and $8,473,526 at September 30, 2001 and 2000, respectively. 4. LEASING OPERATIONS Sale-Leaseback-Sublease Transactions The Company, through McClain Group Leasing, Inc., has TRAC (Terminal Rental Adjustment Clause) leasing programs in place with three financial institutions in order to assist customers in obtaining financing for certain products delivered by guaranteeing a portion of the residual values of such products. Distribution of the Company's products in this manner has been accomplished by (i) selling the products to the independent financial institution leasing company, (ii) leasing the products back and providing a specified minimum guaranteed residual value to the leasing company, and (iii) subleasing the product to the user customer. Sales-Type Leases The Company provides financing contracts for the sales of various manufactured products to certain of its customers. Such financing is principally structured in the form of finance leases having a five-year term, which are accounted for as sales-type leases, with the related gross profit on sale of the products recognized as income currently. The total net investment in these sales-type leases is comprised of the following amounts at September 30:
2001 2000 ------------ ----------- Gross minimum lease payments $35,263,432 $30,248,398 collectible in monthly installments Less advance lease payments and deposits received 915,193 787,093 ----------- ----------- Subtotal 34,348,239 29,461,305 Less unearned finance income 5,648,130 5,474,861 ----------- ----------- Subtotal 28,700,109 23,986,444 Less allowance for doubtful collection and losses 900,000 400,000 ----------- ----------- Total net investment in sales-type leases 27,800,109 23,586,444 Current portion 10,600,000 7,500,000 ----------- ----------- Noncurrent portion $17,200,109 $16,086,444 =========== ===========
-37- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gross minimum lease payments, net of advances and deposits, are collectible in the following scheduled annual amounts for the years succeeding September 30, 2001:
Year ending September 30 Amount - ---------------- ----------------- 2002 $ 10,600,000 2003 9,400,000 2004 7,900,000 2005 4,600,000 2006 1,848,239 ----------------- Gross minimum amount collectible $ 34,348,239 ================
The TRAC leasing programs in place with financial institutions allow for maximum availability of $19,500,000 in lease commitments, which provide for financing of 80% of eligible lease receivables and 95% of unamortized costs of eligible leased assets over the term of the related lease. These notes are secured by a pledge of the remittances in the related sublease. At September 30, 2001, approximately $16,489,214 had been drawn on these lease programs, $2,487,443 of which is accounted for as capital lease obligations (Note 7) and $14,001,771 of which is accounted for as minimum lease payments due under operating leases. The following is a schedule of future minimum lease payments required under capital lease obligations for the years succeeding September 30, 2001.
Year ending September 30 Amount - ---------------- ----------------- 2002 $ 850,000 2003 850,000 2004 787,443 ----------------- Total 2,487,443 Less amounts representing interest imputed at various interest rates 46,075 ----------------- Present value of net minimum lease payments $ 2,441,368 =================
Rental income from these subleasing activities was $4,513,315, $2,817,000 and $1,221,000 in the years 2001, 2000, and 1999, respectively, while the related rental expense for the leaseback of the products was $4,096,972, $2,629,000 and $1,035,000 during the years ended September 30, 2001, 2000, and 1999, respectively. Proceeds of the subleasing activities have been, and are expected to continue to be, in excess of the related rental expense. Minimum scheduled rental payments and rental receipts under these operating lease arrangements in future years are summarized as follows: -38- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ending Rental Rental September 30 Payments Receipts ------------ ----------------- ---------------- 2002 $ 3,080,390 $ 3,782,368 2003 3,080,390 3,782,368 2004 3,080,390 3,782,368 2005 3,080,390 3,782,368 2006 1,680,211 2,063,110 ----------------- ---------------- Gross minimum rental payments $ 14,001,771 $ 17,192,582 ================ ================
Total residual values guaranteed by the Company under these leasing arrangements approximates $2,405,000 as of September 30, 2001. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are recorded at cost. Depreciation for financial reporting purposes is provided primarily using the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are used for income tax purposes. Estimated useful lives range from 20 to 40 years for buildings and improvements, and 3 to 30 years for machinery, equipment, furniture and fixtures, and vehicles. Expenditures for maintenance and repairs are charged to expense as incurred, and significant betterments are capitalized. Property, plant and equipment consisted of the following amounts as of September 30:
2001 2000 ------------------ ---------------- Land $ 2,381,487 $ 2,366,387 Buildings and improvements 16,385,856 15,783,431 Machinery and equipment 24,217,980 24,008,223 Furniture, fixtures and vehicles 3,989,037 4,400,067 ------------------ ---------------- 46,974,360 46,558,108 Less accumulated depreciation 25,353,719 23,259,276 ------------------ ---------------- Property, plant and equipment, net $ 21,620,641 $ 23,298,832 ================== ================
-39- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LINES OF CREDIT The Company and certain of its subsidiaries are party to the following line-of-credit agreements with financial institutions as of September 30:
2001 2000 ----------------- ---------------- Revolving line of credit providing for maximum availability of up to $22,000,000 and $32,142,858 at September 30, 2001 and 2000, respectively. Borrowings are limited to 80% of the eligible accounts receivable and 50% of qualified inventory and are subject to interest at prime rate plus 2 1/2% (default rate) (8.5% at September 30, 2001). $ 20,638,621 $ 30,341,000 The agreement is collateralized by substantially all the assets of the Company and contains various covenants requiring the Company to maintain certain financial ratios (see Note 7). The agreement also prohibits the Company from incurring additional indebtedness other than subordinated indebtedness and limits plant and equipment acquisitions to $3.0 million per fiscal year. This agreement expires in May 2002. Line of credit providing for maximum availability of $20,000,000 in 2001 and 2000 (see Note 7). Borrowings are limited to 80% of eligible lease receivables and are subject to interest at the prime rate plus 2 1/2% (8.5% at September 30, 2000). The agreement is collateralized by certain equipment leases held by the Company's leasing subsidiary. This agreement expires in May 2002. 18,813,000 17,808,000 ----------------- ---------------- Total lines of credit borrowings (Note 7) $ 39,451,621 $ 48,149,000 ================= ================
-40- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT Long-term debt consisted of the following obligations as of September 30:
2001 2000 ----------------- ---------------- Promissory note to a bank, collateralized by certain assets as disclosed in Note 6. The note is payable in monthly installments of $220,000 plus interest at the prime rate plus 2 1/2% (effective rate of 8.5% at September 30, 2001), maturing in September 2006. $ 13,220,000 $ 15,860,000 Promissory notes to banks, collateralized by commercial mortgages on certain real estate and equipment, payable in monthly installments of $28,300 plus interest ranging from the bank prime rate to prime plus 1/4% (effective rates of 6.0% to 6.25% at September 30, 2001), maturing at various dates through December 2002. 1,177,515 791,653 Industrial Revenue Bonds, collateralized by a bank letter of credit. The bonds are payable in annual installments of $525,000 through April 2007. The bonds bear interest, payable monthly, at either a fixed term, or a variable rate (effective rate of 2.33% at September 30, 2001) as determined by the bond holder. 3,125,000 3,650,000 ----------------- ---------------- Subtotal, notes and bonds 17,522,515 20,301,653 Lines of credit borrowings (Note 6) 39,451,621 48,149,000 Capital lease obligations (Note 4) 2,441,368 3,225,464 ----------------- ---------------- Total long-term debt 59,415,504 71,676,117 Less current portion 59,415,504 4,200,000 ----------------- ---------------- Long-term debt, net of current portion $ - $ 67,476,117 ================= ================
-41- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The debt agreements contain certain restrictive covenants which require the Company to, among other things, meet certain net worth and working capital requirements along with maintaining various financial ratios. As of September 30, 2001, the Company was not in compliance with certain of the financial covenants contained in the loan agreements with its principal lending institution. As a result, the Company and the lender entered into a forbearance agreement in June 2001 which expired August 31, 2001. This agreement was extended through October 31, 2001 and further extended only through January 31, 2002. Under the most recent amended and extended forbearance agreement, the line of credit is capped at $22 million, interest will accrue effective December 4, 2001 at the default rate of prime plus 2 1/2%, the leasing credit limit is reduced to the lesser of $19 million or the borrowing base, as defined, and the Company has been placed under a dominion of funds arrangement. Since there can be no assurance beyond January 31, 2002 that the lender will continue to a) lend to the Company, b) forbear from enforcing its rights and remedies, or c) further extend the forbearance period, all debt is classified as current on the accompanying September 30, 2001 balance sheet. As a result, the Company has a significant working capital deficit. 8. ACCRUED EXPENSES Accrued expenses included on the accompanying consolidated balance sheets consist of the following amounts at September 30:
2001 2000 ---------- ---------- Sales discounts $1,792,250 $1,084,919 Compensation 313,446 300,343 Vacation and holiday pay 343,295 415,006 Taxes 360,565 439,738 Insurance 144,865 394,270 Other 1,271,549 1,106,176 ---------- ---------- Total $4,225,970 $3,740,452 ========== ==========
9. INCOME TAXES The benefit (provision) for income taxes for each of the three years in the period ended September 30, consists of the following components:
2001 2000 1999 ----------- ----------- ----------- Current federal benefit (provision) $ 1,747,000 $ 199,000 $(2,170,000) Deferred benefit (provision) 809,000 (155,000) 15,000 ----------- ----------- ----------- Total $ 2,556,000 $ 44,000 $(2,155,000) =========== =========== ===========
-42- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The effective income tax rate on consolidated pre-tax income differs from the federal statutory rate for the following reasons:
2001 2000 1999 ---------------------- -------------------- ----------------------- Amount % Amount % Amount % -------------- ----- ------------- ----- ---------------- ----- Benefit (provision) $ 2,568,000 34 $ 44,000 34 $ (2,155,000) 34 computed at statutory rate Nondeductible expenses (32,000) - (27,000) (1) (22,000) (1) Other 20,000 - 27,000 1 22,000 1 -------------- ----- ------------- ----- ---------------- ----- $ 2,556,000 34 $ 44,000 34 $ (2,155,000) 34 ============== ===== ============= ===== ================ =====
The balance of the net deferred income tax liability consists of temporary basis differences related to the following assets and liabilities as of September 30:
2001 2000 ---------------- ---------------- Taxable differences: Property and equipment $ 2,972,000 $ 3,101,000 Inventory 1,149,000 1,143,000 ---------------- ---------------- Gross deferred tax liabilities 4,121,000 4,244,000 ---------------- ---------------- Deductible differences: Product liability 305,000 402,000 Accounts receivable 696,000 313,000 Accrued expenses 942,000 812,000 Goodwill 442,000 362,000 Net operating loss 190,000 - ---------------- ---------------- Gross deferred tax assets 2,575,000 1,889,000 ---------------- ---------------- Net deferred income tax liability $ 1,546,000 $ 2,355,000 ================ ================
The components which comprise gross deferred taxes are predominantly noncurrent; as such, the entire related net liability is classified as noncurrent. The Company has a net operating loss of approximately $560,000, expiring in 2015, available to offset future federal taxable income. 10. EMPLOYEE PENSION AND PROFIT SHARING PLANS The Company and certain subsidiaries have qualified pension and profit sharing plans covering substantially all union employees. Contributions to the plans were calculated at an hourly rate as defined in the various union contracts. The Company also maintains a defined contribution pension plan qualified pursuant to Section 401(k) of the Internal Revenue Code for certain union employees and all eligible non-union employees. The Company makes matching contributions of specified percentages of participants' compensation. The cost of all of these plans was $614,032 in 2001, $729,183 in 2000 and $673,480 in 1999. -43- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has an employee stock bonus plan for full time, salaried and non-union employees. Company contributions are discretionary each year and are generally limited to 15% of participants' compensation. No contributions were made for any of the years ended September 30, 2001, 2000 and 1999. 11. RELATED PARTY TRANSACTIONS Leases The Company leases an operating facility from siblings of the President of McClain Industries, Inc. on a month-to-month basis with annual rentals totaling $42,000 in each of the years ended September 30, 2001, 2000 and 1999. Insurance Costs Raymond Elliott, a director of the Company, is also the owner of Hartland Insurance Group. That entity provided insurance at a cost of approximately $2,050,000, $1,466,000 and $1,005,000 to the Company during the years ended September 30, 2001, 2000 and 1999, respectively. That entity received fees and commissions in connection with these transactions of approximately $210,000, $170,000 and $117,500, respectively. Product Sales The Company had product sales of approximately $103,500, $282,500 and $231,000, during the years ended September 30, 2001, 2000 and 1999, respectively, to a business controlled by the President of McClain Industries, Inc. 12. STOCK BASED COMPENSATION PLANS The Company maintains the 1999 and 1989 Retainer Stock Plans for Non-employee Directors and the McClain 1999 and 1989 Incentive Stock Plans. Retainer Stock Plans The Retainer Stock Plans as adopted call for reserving 233,333 shares of the Company's no par common stock and allows non-employee directors the option to receive payment of all or a portion of their directors fees in the form of shares of common stock at the fair market value of such shares on the date of issuance. For the years ended September 30, 2001, 2000 and 1999 the Company issued 1,999, 7,350 and 4,505 shares, respectively, of its common stock to such directors in exchange for services rendered. -44- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Incentive Stock Plan The Incentive Stock Plans as adopted call for reserving 2,333,333 shares of the Company's no par common stock for the granting of stock awards to officers and key management personnel. The awards consist of incentive stock option (ISO) or non-qualified options, stock appreciation rights (SARs) and restricted share rights, and may be granted at the following prices at the date of grant: incentive stock options must be equal to or greater than the fair market value of common stock; stock appreciation rights and restricted share rights may be issued at a price which may not be less than 50% of the price of the common stock. Shares which have been issued under these plans vest in annual installments from the date of grant, over a three year period, and expire within 5 years from the date of grant. The following table presents a summary of stock option activity for each of the years in the three year period ended September 30:
2001 2000 1999 --------------------- --------------------- ---------------------- Exercise Exercise Exercise Shares Price * Shares Price * Shares Price * ----------- -------- ---------- --------- ----------- --------- Outstanding, beginning of year 219,000 $ 5.34 269,665 $5.71 199,476 $6.30 Granted - - - - 130,000 5.42 Exercised - - - - - - Forfeited/expired - - (50,665) 7.33 (59,811) 7.06 ----------- -------- ---------- --------- ----------- --------- Outstanding, end of year 219,000 5.34 219,000 $5.34 269,665 $5.71 ----------- -------- ---------- --------- ----------- --------- Exercisable, end of year 168,660 5.34 102,982 $5.34 85,332 $6.50 =========== ======== ========== ========= =========== =========
OPTIONS AT SEPTEMBER 30, 2001
Options Outstanding Options Exercisable --------------------------------- --------------------- Remaining Contractual Exercise Exercise Range of Exercise Prices Shares Life * Price * Shares Price * ------------------------ ---------- ----------- -------- ---------- -------- $5.00 to $5.50 204,000 2.0 years 5.30 153,660 5.40 $5.51 to $6.00 15,000 0.2 years 5.75 15,000 5.75 ---------- ----------- -------- ---------- -------- Total 219,000 1.9 years 5.34 168,660 5.43 ========== =========== ======== ========== ======== *Weighted average
The Company continues to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options issued pursuant to the 1999 and 1989 Incentive Stock Plan. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is recorded in the accompanying consolidated statements of operations. There were no stock options granted during fiscal 2001 or 2000. Had stock option compensation expense been determined pursuant to the methodology provided in Statement of Financial Accounting Standards No. 123, "Accounting -45- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for Stock-Based Compensation", using the Black-Scholes option pricing model, the following weighted average assumptions for grants in 1999 would have been employed: expected volatility of 71%, risk free interest rate of 5.5%, and expected lives of 5 years. The pro-forma effect on results of operations would have been a decrease in net income of $223,000 for the year ended September 30, 1999. 13. COMMON STOCK REPURCHASES The Board of Directors has authorized the Company to repurchase from time to time on the open market up to 500,000 shares of the Company's common stock. During the year ended September 30, 2001, the Company repurchased 59,279 shares at prices ranging from $1.40 to $4.50 per share. During the year ended September 30, 2000, the Company repurchased 108,142 shares at prices ranging from $3.87 to $5.97. During the year ended September 30, 1999, the Company repurchased 30,354 shares at prices ranging from $3.375 to $5.75 14. SUPPLEMENTAL CASH FLOWS INFORMATION During the years ended September 30, 2001, 2000 and 1999, common stock valued at $34,486, $32,970 and $25,123, respectively, was issued to non-employee directors in exchange for services rendered. Cash paid for interest amounted to $5,558,826 for 2001, $6,210,200 for 2000, and $3,855,735 for 1999. Cash paid for federal income taxes amounted to $-0- for 2001, $304,000 for 2000, and $350,000 for 1999. 15. SEGMENT INFORMATION The Company operates in three principal operating segments 1) Manufactured Equipment, 2) Truck Chassis Sales, and 3) Leasing Operations. The accounting policies of the reportable segments are the same as those described in Note 1. Management evaluates the performance of its operating segments separately to individually monitor the different factors affecting performance. The Company measures the performance of its operating segments based on net revenue and operating income. Income taxes are managed on a Company-wide basis. Segment performance is also evaluated based on profit or loss before income taxes. -46- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information regarding the Company's operating segments follows:
Manufacturing Truck Leasing Operations Group Operations Totals ------------------ ----------------- ----------------- ----------------- 2001 Net sales $ 67,673,984 $23,875,955 $ - $ 91,549,939 Lease revenues - - 7,493,107 7,493,107 Operating (loss) income (4,972,771) (1,124,814) 1,038,993 (5,058,592) Interest expense 2,114,539 1,642,096 1,725,601 5,482,236 Income (loss) before income taxes (5,756,446) (2,827,588) 1,038,993 (7,545,041) Identifiable assets 66,628,496 7,622,890 28,394,889 102,646,275 Capital expenditures 1,190,345 - - 1,190,345 Depreciation and amortization 3,345,633 - - 3,345,633 2000 Net sales $103,648,239 $37,469,720 $ - $ 141,117,959 Lease revenues - - 5,391,613 5,391,613 Operating income 4,878,056 (1,675,215) 704,337 3,907,178 Interest expense 2,973,818 1,825,362 1,544,200 6,343,380 Income (loss) before income taxes 2,666,386 (3,500,577) 704,337 (129,854) Identifiable assets 86,921,342 11,641,505 25,122,066 123,684,913 Capital expenditures 2,953,102 - - 2,953,102 Depreciation amortization 3,425,281 - - 3,425,281 1999 Net sales $105,024,800 $35,580,085 $ - $ 140,604,885 Lease revenues - - 3,597,594 3,597,594 Operating income 7,661,619 368,844 476,648 8,507,111 Interest expense 2,283,630 988,496 710,199 3,982,325 Income (loss) before income taxes 6,247,914 (387,624) 476,648 6,336,938 Identifiable assets 80,563,757 26,162,434 23,197,798 129,923,989 Capital expenditures 2,768,433 - - 2,768,433 Depreciation and amortization 3,280,109 - - 3,280,109
Net sales for the Truck Group include sales of products manufactured by the Company of $8,613,903, $9,906,371 and $9,129,104 for the years ended September 30, 2001, 2000 and 1999, respectively. -47- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net sales by product for the years ended September 30, 2001, 2000 and 1999 were as follows:
2001 2000 1999 ------------ ------------ ------------ Product type Containers $ 19,735,213 $ 28,906,263 $ 27,255,856 Refuse bodies 18,178,816 32,353,072 35,714,049 Truck chassis 17,394,489 29,440,561 26,450,982 Dump truck bodies 13,593,146 19,083,440 20,175,160 Compactors 7,643,758 9,018,576 7,529,480 Transfer trailers 7,157,843 11,056,258 9,824,136 Parts 3,683,575 3,681,513 3,711,092 Tilt frame assemblies 2,216,699 4,475,165 5,301,279 Other 1,946,400 3,103,111 4,642,851 ------------ ------------ ------------ $ 91,549,939 $141,117,959 $140,604,885 ============ ============ ============
-48- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. COMMITMENTS AND CONTINGENCIES Product Liability As a manufacturer of industrial products, the Company is occasionally subjected to various product liability claims. Such claims typically involve personal injury or wrongful death associated with the use or misuse of the Company's products. The Company is currently defending certain legal proceedings involving allegations of product liability relating to products manufactured and sold by the Company. Historically, such claims have not resulted in material losses to the Company in any one year, and the Company maintains product liability insurance in amounts believed by management to be adequate. McClain E-Z Pack, Inc., as successor to Galion Holding Company (GHC), pursuant to an indemnification it provided to the seller in connection with GHC's July 1992 acquisition of the Galion operations, is currently defending a number of legal proceedings involving product liability claims arising out of products manufactured and sold prior to the acquisition. These claims are covered by insurance and many of these cases have been settled. In addition, the acquisition agreement called for the seller to share in the payment of certain costs related to the defense of these cases. On December 29, 1998, the Company reached a settlement agreement with the seller, the terms of which called for the Company to release the seller from its obligations related to product liability claims under the Galion acquisition agreement in exchange for a cash payment to the Company of $1,050,000. A liability to provide for these product claims was established at the acquisition date. Since many of the cases have been settled and insurance coverage exists, management believes that the ongoing costs to defend these claims will not exceed the amount accrued on the accompanying consolidated balance sheet at September 30, 2001. Nevertheless, it is not possible to predict the ultimate outcome of any product liability claim, and any such claim not fully covered by insurance, as well as adverse publicity from a product claim, could have a material adverse effect on the Company. Environmental Matters The Company's operations are subject to extensive federal, state and local regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Inherent in manufacturing operations and in owning real estate is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs, on an ongoing basis, associated with environmental regulatory compliance in its business. -49- McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Labor Union Matters Certain of the Company's hourly employees are represented by various labor unions pursuant to collective bargaining agreements which expire between September 2002 and June 2003. In 1995, a local union filed unfair labor practices against the Company's Macon, Georgia plant, which were subsequently upheld by the National Labor Relations Board (NLRB) and the U.S. Court of Appeals. The local union filed additional unfair labor practices in 1996. The NLRB seeks back pay, reinstatement and an order requiring transfer of work. The Company is currently negotiating with the NLRB in an effort to reach a settlement of all of these matters. There can be no assurance that these claims will be settled or that the amounts awarded to the union will not have a material adverse impact on the Company. Sales Commitment In connection with the purchase of a manufacturing facility in 1996, the seller of the facility agreed to use reasonable commercial efforts to purchase annually from the Company, manufactured products in an amount that is not less than $25,000,000 in sales per year through December 31, 2001. In the event the $25,000,000 is reached, the Company has agreed to pay to the customer $1,200,000 during each year. In addition, a 5% sales discount will be paid on sales in excess of $25,000,000. If the customer purchases less than $25,000,000 annually, the $1,200,000 amount is to be reduced in accordance with the terms of the acquisition agreement. For the years ended September 30, 2001, 2000, 1999 and 1998 approximately $707,000, $1,395,000, and $1,308,000 has been recorded as sales discounts in connection with post-acquisition sales of $13,200,000, $31,870,000 and $32,500,000, respectively, made to the customer pursuant to the agreement. On November 29, 1999, the Company signed an amendment to this agreement that extended the contract through December 31, 2003. Self Health Insurance The Company is self-insured for certain health benefits up to $100,000 per occurrence per individual, with an aggregate limitation of $1,600,000 annually. The Company is self-insured for State of Michigan workers' compensation up to $200,000 per occurrence, with an annual limitation of $500,000 annually. Other Legal Matters The Company is also involved in routine litigation incidental to its business. Management believes that the resolution of these matters will not materially affect the consolidated financial statements. * * * * * -50- INDEX TO EXHIBITS
Exhibit No. Description Location - ----------- ----------- -------- 3.1 Articles of Incorporation of McClain Industries, Inc. (7) 3.2 Bylaws of McClain Industries, Inc. (1) 10.1 McClain Industries, Inc. 1989 Incentive Stock Plan (2) 10.2 McClain Industries, Inc. 1989 Retainer Stock Plan for Non-Employee Directors (2) 10.3 Agreement of Purchase and Sale dated July 20, 1992 by and between Peabody International (4) Corporation, as Seller, and Galion Holding Company, as Buyer 10.4 Manufacture and License Agreement dated as of November 2, 1992, between Galion Dump (6) Bodies, as Licensor, and the Company, as Licensee 10.5 Loan documents dated as of March 1, 1993, between the Company and Galion Dump Bodies (6) and E-Z Pack 10.6 Guaranty Fee Agreement dated as of March 2, 1993, between Galion Holding and the Company (6) 10.7 Purchase Agreement, dated as of March 30, 1993, between the Company and Group (7) Properties III 10.8 Purchase Agreement, dated as of March 30, 1993, between the Company and Group Properties (7) 10.9 Purchase Agreement, dated as of March 30, 1993, between the Company and Group (7) Properties of Georgia 10.10 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (8) Statement Dated February 6, 1995, between Standard Federal Bank and the Company 10.11 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (8) Statement Dated February 6, 1995, between Standard Federal Bank and the Company 10.12 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8) (Secures Future Advances) dated February 6, 1995, between Standard Federal Bank and E-Z Pack 10.13 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8) (Secures Future Advances) dated February 6, 1995, between Standard Federal Bank and Galion Dump Bodies 10.14 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8) (Secures Future Advances) between Standard Federal Bank and Galion Dump Bodies dated June 22, 1995. 10.15 Third Amended and Restated Promissory Note (Line of Credit) dated June 22, 1995, (8) between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida 10.16 Security Agreement dated June 22, 1995, between Standard Federal Bank and McClain Group (8) Sales of Florida 10.17 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8) (Secures Future Advances) dated June 22, 1995, between Standard Federal Bank and E-Z Pack 10.18 Loan Agreement dated July 17, 1996, between Standard Federal Bank and Leasing (9)
51 Exhibit No. Description Location - ----------- ----------- -------- 10.19 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank and (9) Leasing 10.20 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (9) Statement dated August 29, 1996, between Standard Federal Bank and McClain-Alabama. 10.21 Security Agreement dated August 29, 1996, between Standard Federal Bank and (9) McClain-Alabama 10.22 Master Lease Agreement dated July 15, 1995 between Fifth Third Leasing Company and (9) Leasing 10.23 Master Lease Agreement dated May 17, 1996 between NBD Bank and Leasing (9) 10.24 Term Note dated January 17, 1997 between Trust Company Bank of Middle Georgia and the (10) Company 10.25 Preliminary Placement Memorandum dated April 17, 1997 - The Industrial Development (10) Board of the City of Demopolis Industrial Development Revenue Bonds Series 1997 (McClain of Alabama, Inc. Project) 10.26 Lease Agreement dated April 1, 1997 between the Industrial Development Board of the (10) City of Demopolis and McClain of Alabama 10.27 Trust Indenture Agreement dated April 1, 1997 between the Industrial Development Board (10) of the City of Demopolis and LaSalle National Bank 10.28 Bond Guaranty Agreement dated April 1, 1997 between LaSalle National Bank and (10) McClain-Alabama 10.29 Mortgage, Assignment of Leases and Security Agreement dated April 1, 1997 from the (10) Industrial Development Board of the City of Demopolis and McClain-Alabama to Standard Federal Bank 10.30 Standard Federal Bank Irrevocable Letter of Credit dated April 23, 1997 (10) 10.31 Placement Agency Agreement dated April 23, 1997 - The Industrial Development Board of (10) the City of Demopolis Industrial Development Revenue Bond Series 1997 (McClain of Alabama, Inc. Project) 10.32 Remarketing Agreement dated April 23, 1997 among LaSalle National Bank, The Industrial (10) Development Board of the City of Demopolis and McClain of Alabama, Inc. 10.33 Loan Agreement dated April 16, 1998 between Standard Federal Bank and McClain (11) Industries, Inc., McClain of Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel Processing Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc. 10.34 Promissory Note (Line of Credit) dated April 16, 1998 between Standard Federal Bank and (11) McClain Industries, Inc., McClain of Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel Processing Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
52 Exhibit No. Description Location - ----------- ----------- -------- 10.35 Promissory Note (Term Loan) dated April 16, 1998 between Standard Federal Bank and (11) McClain Industries, Inc., McClain of Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel Processing Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc. 10.36 Promissory Note (Line of Credit Converting to Term Loan) dated April 16, 1998 between (11) Standard Federal Bank and McClain Industries, Inc., McClain of Alabama, Inc., McClain of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain EPCO, Inc., Shelby Steel Processing Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc. 10.37 Second Amendment Agreement, Loan Agreement, Promissory Note (Line of Credit) dated (11) April 16, 1998 between Standard Federal Bank and McClain Group Leasing, Inc. 10.38 McClain Industries, Inc. 1999 Incentive Stock Plan (12) 10.39 McClain Industries, Inc. 1999 Retainer Stock Plan for Non-Employee Directors (12) 10.40 Amended and Restated Loan Agreement dated July 9, 1999 between Standard Federal Bank (12) and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.41 Promissory Note (Line of Credit) dated July 9, 1999 between Standard Federal Bank and (12) McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.42 Promissory Note (Term Loan) dated July 9, 1999 between Standard Federal Bank and (12) McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.43 Promissory Note (Line of Credit Converting to Term Loan) dated July 9, 1999 between (12) Standard Federal Bank and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.44 Third Amendment Agreement, Loan Agreement, Promissory Note (Line of Credit) dated July (12) 9, 1999 between Standard Federal Bank and McClain Group Leasing, Inc. 10.45 Second Amendment Agreement dated May 10, 2000 between Standard Federal Bank and McClain (13) Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.46 Fourth Amendment Agreement, Loan Agreement, Promissory Note (Line of Credit) dated May (13) 10, 2000 between Standard Federal Bank and McClain Group Leasing, Inc.
53 Exhibit No. Description Location - ----------- ----------- -------- 10.47 Amendment and Forbearance Agreement dated June 20, 2001 between Standard Federal Bank 55 and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, McClain Southland Co., and McClain Group Leasing, Inc. 10.48 Extension Agreement for Amendment and Forbearance Agreement dated June 20, 2001, dated 80 September 1, 2001 between Standard Federal Bank and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, McClain Southland Co., and McClain Group Leasing, Inc. 10.49 Second Extension Agreement for Amendment and Forbearance Agreement dated June 20, 2001, 85 dated December 28, 2001 between Standard Federal Bank and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, McClain Southland Co., and McClain Group Leasing, Inc. 10.50 Amended and Restated Loan Agreement Between Standard Federal Bank and McClain Group 92 Leasing, Inc. 10.51 Amended and Restated Guaranty dated June 20, 2001 between Standard Federal Bank and 112 McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain International FSC, and McClain Southland Co. 10.52 Guaranty dated June 20, 2001 between Standard Federal Bank and McClain Group Leasing, Inc. 119 22 List of Subsidiaries (9) (1) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/89 (2) Incorporated by reference to the Company's Registration Statement (33-29613) (3) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/91 (4) Incorporated by reference to the Company's Form 8-K dated 7/27/92 (5) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/92 (6) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/93 (7) Incorporated by reference to the Company's Registration Statement on Form S-2 (33-84562) (8) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/95 (9) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/96 (10) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/97 (11) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/98 (12) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/99 (13) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/00
54 EX-10.47 3 k66941ex10-47.txt AMENDMENT & FORBEARANCE AGREEMENT EXHIBIT 10.47 AMENDMENT AND FORBEARANCE AGREEMENT Amendment and Forbearance Agreement dated June __, 2001 among Standard Federal Bank ("Standard Federal" or "Lender"), McClain Industries, Inc. ("Industries"), McClain E-Z Pack, Inc. ("E-Z Pack"), McClain Galion, Inc. ("Galion"), Shelby Steel Processing Company ("Shelby"), McClain Tube Company d/b/a Quality Tube ("Tube"), McClain International FSC ("International"), McClain Southland Co. ("Southland"), and McClain Group Leasing, Inc. ("Leasing"). Industries, E-Z Pack, Galion, Shelby, Tube, International, Southland and Leasing are identified collectively as the "Borrowers" and individually as a "Borrower"; Industries, in its capacity as guarantor, is identified as the "Guarantor"; and (3) the Borrowers and the Guarantor are identified collectively as the "Obligated Parties" and individually as an "Obligated Party". RECITALS THE INDEBTEDNESS A. Lender provided loans to Borrowers (collectively, the "Loans"). B. In connection with the Loans, each Borrower and, as applicable, the Guarantor executed and delivered to Lender certain notes, agreements, mortgages, guaranties and other documents executed in connection with or in furtherance of any of the foregoing, including all documents referenced herein or executed in connection herewith, as amended and as may be amended from time to time, including as amended by this Agreement, but exclusive of all present or future oral agreements between Lender and any one of the Obligated Parties, are identified collectively as the "Loan Documents". C. Capitalized terms used but not defined in this Agreement have the same meanings given to those terms in the Loan Documents. D. As of June 15, 2001 amounts due from Borrowers to Lender include:
BORROWER LOAN PRINCIPAL INTEREST -------- ---- --------- -------- Borrowers $30,000,000 Line of Credit $26,364,921.00 $58,450.86 (all except Leasing) Borrowers $20,000,000 Term Loan $13,880,000.00 $29,687.78 (all except Leasing) Leasing $20,000,000 Line of Credit $18,378,000.00 $39,815.81
plus in each case accrued but unpaid interest, costs and expenses (including attorneys' fees) called for by the Loan Documents plus reimbursement obligations of the Obligated Parties in connection with Letters of Credit issued by Standard Federal upon application of an Obligated Party (all such obligations together with all other principal and interest due or becoming due to Lender, together with the payment of all other sums, indebtedness and liabilities of any and every kind now or hereafter owing and to become due from Borrowers to Lender, however 1 created, however incurred, evidenced, acquired or arising, and whether direct or indirect, primary, secondary, fixed or contingent, matured or unmatured, joint, several, or joint and several, and whether for principal, interest, reimbursement obligations, indemnity obligations, obligations under guaranty agreements, fees, costs, expenses, or otherwise, all of Borrowers' obligations under this Agreement, together with all other present and future obligations of Borrower to Lender, are identified as the "Obligations"). E. The Obligations of Leasing are guaranteed by Industries. The Guaranty, as amended, and all other documents and agreements executed in support of the Guaranty by the Guarantor, in its capacity as guarantor, are identified collectively as the "Guarantor Loan Documents" and individually as a "Guarantor Loan Document". F. Each of the Obligated Parties, jointly and severally, acknowledge and agree that the Obligations, each Guarantor's obligations under the Guarantor Loan Documents, and all other obligations of any one or more of the Obligated Parties to Standard Federal are immediately due and owing to Standard Federal without setoff, recoupment, defense or counterclaim, in law or in equity, of any nature or kind. G. All collateral granted to Lender by any one or more of the Obligated Parties described in the Loan Documents and all collateral heretofore, simultaneously herewith or hereafter granted to Standard Federal by any one or more of the Obligated Parties to secure any of the Obligations or any other obligations to Standard Federal, is identified collectively as the "Collateral". H. Each Obligated Party reaffirms, ratifies, confirms and approves its obligations and duties under the Loan Documents (including the Guarantor Loan Documents) as modified by this Agreement. Without limiting the generality of the immediately preceding sentence, the Guarantor, jointly and severally, hereby reaffirms, ratifies, confirms and approves its obligations and duties under the Loan Documents (including the Guarantor Loan Documents) and the provisions herein, and acknowledges and agrees that the Guarantor Loan Documents extend to and cover all of the Obligations. Each Obligated Party, jointly and severally, reaffirms, ratifies and confirms the liens, assignments and security interests granted to Standard Federal in the Collateral under the Loan Documents or otherwise. DEFAULT AND REQUEST FOR FORBEARANCE I. Each Obligated Party is in default under the Loan Documents (the "Specified Defaults") as set forth on Exhibit 1. J. Each Obligated Party represents and warrants, after due inquiry and investigation, that it is not aware of any other Events of Default or defaults, or of any event that, with the passage of time, notice, or both, would become an Event of Default or a default under the Loan Documents or this Agreement. K. Each Obligated Party also acknowledges that based on the Specified Defaults, Standard Federal has the right, without further notice, to enforce its rights under the Loan Documents (including the Guarantor Loan Documents) and applicable law. Further, if Standard Federal took such action, each Obligated Party acknowledges that Standard Federal's actions 2 would be within Standard Federal's rights under the Loan Documents and applicable law, and would be reasonable and appropriate under the circumstances. L. Each Obligated Party acknowledges and agrees that (i) Standard Federal has fully performed all of its obligations under the Loan Documents; (ii) Standard Federal has no obligation to continue to lend to Borrowers; (iii) Standard Federal has no obligation to forbear from enforcing its rights and remedies other than as set forth in this Agreement; (iv) any loans made after the date of this Agreement will continue to be made in Standard Federal's sole discretion; (v) Standard Federal has made no representations of any nature or kind that funding in any amount will continue; and (vi) Standard Federal has made no representations of any nature or kind that the Forbearance Period (defined below) will be extended beyond its schedule expiration. M. Each Obligated Party further acknowledges and agrees that the actions taken by Standard Federal to date in furtherance of the Loan Documents are reasonable and appropriate under the circumstances and are within Standard Federal's rights under the Loan Documents and applicable law. N. Each Obligated Party represents and warrants to Standard Federal that it received direct and substantial economic benefit from all of the Obligations and that it will continue to receive direct and substantial economic benefit from the Obligations, and from any other loans made or that may be made in the future. O. In order to allow the Obligated Parties time to stabilize their financial situation and refinance or otherwise satisfy the Obligations in full, the Obligated Parties have requested that Standard Federal forbear from exercising its rights and remedies under the Loan Documents and applicable law in connection with the Specified Defaults until August 31, 2001. P. Subject to the terms and conditions of this Agreement, and in reliance on the Obligated Parties' agreements, acknowledgments, representations, and warranties in this Agreement, Standard Federal has agreed to amend the Loan Documents, and, to forbear from enforcing its rights and remedies on account of the Specified Defaults under the Loan Documents as set forth below. AGREEMENT Based on the foregoing Recitals (which are incorporated herein as agreements, representations, warranties, and covenants of the Obligated Parties), Standard Federal and each Obligated Party agree as follows: 1. Forbearance. Subject to the condition that Standard Federal receives, on or before June 20, 2001, a fully executed copy of this Agreement, acknowledged by each of the Obligated Parties as provided below, together with fully executed copies of all Exhibits hereto that require signature, and there being no default under this Agreement, Standard Federal agrees to forbear from enforcing its rights and remedies based on the Specified Defaults through August 31, 2001 (the "Forbearance Period"). 3 2. Line of Credit Cap. Effective immediately, the Line of Credit Cap under the Amended and Restated Loan Agreement dated July 9, 1999, as amended, among Borrowers (all except Leasing) and Lender, is $28,000,000. 3. Field Examination. The Obligated Parties acknowledge and agree that Lender may immediately conduct a field examination and that they will cause the Borrowers to fully cooperate with the field examination so that same may be completed by July 31, 2001. Furthermore, the Obligated Parties are liable for all of Lender's costs and expenses incurred in connection with such field examination. 4. Fees. Borrowers must pay Lender a $95,000 fee simultaneously with the execution of this Agreement (allocated $20,000 to Leasing and $75,000 to all other Borrowers). 5. [RESERVED] 6. Bank Accounts. All of each Borrower's bank, checking, investment, and other financial accounts of any type or nature must be at Standard Federal provided, however, that Borrowers may maintain existing accounts at out of state banks as identified in Exhibit 2. 7. Amended and Restated Leasing Agreement. Leasing shall execute and deliver to Lender an amended and restated loan agreement in the form attached as Exhibit 3. 8. Interest. Notwithstanding Standard Federal's demand and acceleration of the Loans, each Obligated Party must timely make all monthly principal, interest and other payments due Standard Federal. Effective as of June 20, 2001, interest shall accrue on the Loans at Lender's prime rate from time to time in effect plus one-half percentage points (1/2%). In the event of default by Borrowers under this Agreement, any document executed under this Agreement, or the Loan Documents, interest on the Loans shall accrue at the rate otherwise provided in this paragraph plus two percentage points (2.0%). Pricing for standby letters of credit under the IRB facility shall increase to 1 1/2% (from 1%) for the year commencing April 15, 2001 and ending April 15, 2002. 9. No Further Forbearance Implied. Each Obligated Party acknowledges that Standard Federal has no obligation to continue making loans; extend the term of the Forbearance Period; or forbear from enforcing its rights and remedies after the Forbearance Period, and nothing contained herein or otherwise is intended to be or is a promise or agreement to continue making loans; or extend the term of the Forbearance Period beyond the expiration thereof. Furthermore, no future agreement by Standard Federal to continue making loans; or to extend the term of the Forbearance Period beyond the expiration thereof, or any other agreement, is valid or enforceable unless it is contained in a written agreement signed by Standard Federal. 10. Additional Reporting. In addition to any reports or information required by the Loan Documents (which must be provided timely), or that Standard Federal may hereafter request, each Obligated Party must provide Standard Federal with: (a) Within three business days of receipt, copies of written notices of default received from other creditors. 4 (b) Within one day of gaining knowledge thereof, any adverse information regarding any Obligated Party. Further, Borrowers (all except Leasing) must: (c) Furnish to Standard Federal as soon as available and, in any event, within 30 days after the end of each month detailed financial statements of the Borrowers as of the close of such month containing a consolidated balance sheet of the Borrowers and its subsidiaries, if any, and statements of income of the Borrowers and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officers of the Borrowers as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. (d) Furnish to Standard Federal, within a reasonable time not to exceed 15 days after the end of each calendar month, (i) a statement of accounts receivable, in a form acceptable to Standard Federal, certified as correct by Borrowers or a principal officer of Borrowers showing the agings thereof and the payment, write-off or other disposition of former accounts receivable the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably require, (ii) a statement of accounts payable, in form acceptable to Standard Federal, certified as correct by Borrowers showing the agings thereof and (iii) a report of Borrowers' inventory, in form acceptable to Standard Federal, certified as correct by Borrowers showing the agings thereof. Borrowers will further specifically disclose any facts known to Borrowers which facts would tend to render doubtful the collectibility of any account receivable disclosed in such statements or which would indicate that the existence or amount of such account is disputed by the debtor thereon. (e) Furnish to Standard Federal on Wednesday of each week, a borrowing base report as of the last day of the preceding week, in form acceptable to Standard Federal and certified as correct by the Borrowers. Further, Leasing must: (f) Furnish to Standard Federal as soon as available and, in any event, within 30 days after the close of each month detailed financial statements of Leasing as of the close of such month containing a consolidated balance sheet of Leasing and its subsidiaries, if any, and statements of income of Leasing and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the president of Leasing as being true and correct and as having been prepared in 5 accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. (g) Furnish to Standard Federal, within a reasonable time not to exceed 15 days after the end of each calendar month, statements of Eligible Lease Receivables and Eligible Leases, in form acceptable to Standard Federal, certified as correct by Leasing or a principal officer of Leasing showing the agings thereof and the payment, write-off or other disposition of former lease receivables or leases, the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably require. Leasing will further specifically disclose any facts known to Leasing which facts would tend to render doubtful the collectibility of any lease receivable or leases disclosed in such statements or which would indicate that the existence or amount of such receivable or lease is disputed by the lessee thereon. (h) Furnish to Standard Federal as soon as available and, in any event, within 30 days after the close of each quarter of each fiscal year, and in each case in form acceptable to Standard Federal, (i) a listing of conditional sales contracts and TRAC leases with any payments that are more than 180 days past due, (ii) a listing of all lease accounts (TRAC and conditional sales contracts) that were re-written, modified, assumed, extended or consolidated with other lease schedules during the applicable fiscal quarter, (iii) a doubtful accounts reserve schedule indicating the reserve balance as of quarter end and a summary of non-accrual and charged-off accounts certified by the president of Leasing as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 11. Supplemental Negative Covenants. In addition to any Negative Covenants in the Loan Documents, the following negative covenants shall apply to Borrowers (all except Leasing): From the date hereof until all amounts owing under the Line of Credit, the Swing Line of Credit and the Term Loan are paid in full and all obligations under the Line of Credit Note, the Swing Line of Credit Note and the Term Note, this Loan Agreement and all other documents executed in connection with the Line of Credit, the Swing Line of Credit and the Term Loan are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrowers covenant and agree that they will not do and will not permit any subsidiary, if any, to do any of the following without the prior written approval of Standard Federal: (a) Create, incur, assume or permit to exist (i) any mortgage, pledge, security interest, lien or charge of any kind upon any of their property or assets whether now owned or hereafter acquired other than in favor of Standard Federal, except as required or permitted by Standard Federal, or (ii) any indebtedness or liability for borrowed money, except indebtedness to 6 Standard Federal or indebtedness subordinated to the prior payment in full of the Borrowers' indebtedness to Standard Federal which is approved in writing by Standard Federal, except as otherwise required or permitted in writing by Standard Federal. The existing TRAC financing arrangements with Bank One are permitted under this paragraph. (b) Make loans, advances or extensions of credit to any Entity (which in this Loan Agreement means any individual, partnership, corporation or other legal entity), other than a parent or subsidiary of the Borrowers, in excess of $100,000.00 in principal amount, except for sales on open account and in ordinary course of business; or guarantee or in any way become responsible for obligations of any other Entity except by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; or subordinate any indebtedness due it from an Entity to indebtedness of any other creditor of such Entity. (c) Sell, lease or transfer, during any fiscal year, except inventory in the ordinary course of business, any substantial portion of its assets; or consolidate with or merge into any other Entity, or permit another to merge into it; or acquire by lease or purchase all or substantially all the business or assets of any Entity; or enter into any lease-back arrangement with any Entity. (d) Permit the aggregate amount of all Capital Expenditures made by the Borrowers during any fiscal year ending after the date hereof to exceed $3,000,000.00. "Capital Expenditures" shall mean any expenditure for an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classifiable in relevant financial statements as property, equipment or improvements, fixed assets, or a similar type of capitalized assets in accordance with generally accepted accounting principles. (e) Repurchase or redeem or agree to repurchase or redeem any shares of their stock. (f) Purchase or otherwise acquire or become obligated for the purchase of all or substantially all of the assets or business interests of any person, firm or corporation or any shares of stock of any corporation, trusteeship or association or in any other manner effectuate or attempt to effectuate an expansion of present business by acquisition. (g) Enter into any Interest Rate Protection Agreement unless entered into for risk management purposes and not speculative purposes. 12. Appraisal. On or before July 31, 2001, Borrowers (all except Leasing) shall deliver to Lender a current appraisal of fair market value and forced sale value of all of their equipment, in form acceptable to Lender by an appraiser acceptable to Lender. Borrowers have 7 advised Lender that they have retained Dovebid/Norman Levy Associates to conduct this appraisal, whom Lender acknowledges is acceptable. 13. Leasing Guaranty. Concurrently with execution and delivery of this Agreement, Leasing shall execute and deliver to Lender its guaranty of the Obligations of all of the other Borrowers, in the form attached as Exhibit 4. 14. Macon, Georgia Mortgage. On or before July 3, 2001, Industries shall execute and deliver to Lender a mortgage/security deed pledging its real property in Macon, Georgia to secure a portion of the Obligations, substantially in the form attached as Exhibit 5, junior only to existing mortgages to Trust Company Bank of Middle Georgia, N.A. Industries represents and warrants to Lender that the outstanding principal amount due Trust Company Bank secured by the existing mortgages is approximately $380,000 and that Industries shall not borrow any further funds from such Bank which would be secured by those mortgages without the prior written consent of Lender. 15. Assignment of Life Insurance. Concurrently with execution and delivery of this Agreement, Borrowers shall pledge or cause to be pledged to Lender a life insurance policy in the amount of not less than $2,000,000 on the life of Kenneth McClain issued by an insurance company acceptable to Lender to secure the Obligations, under an assignment agreement in the form attached as Exhibit 6. 16. Consultant. The Borrowers or its counsel, Jaffe Raitt Heuer & Weiss, P.C., shall select and retain a business consultant (which must be agreeable to Standard Federal in the exercise of its reasonable judgment) on or before June 20, 2001. The terms of the engagement will include a provision that the consultant's report of its review of the business of the Borrowers will be made available to the Borrowers and Standard Federal not later than July 31, 2001. The consultant will be required as a part of its engagement, among other activities as requested by the Borrowers, to perform the following activities and to report regarding its conclusions and recommendations: (a) Prepare a business plan which shows the Borrowers' ability to operate profitably and meet their current debt service requirements for the fourth quarter ending September 30, 2001 and for the fiscal year ending September 30, 2002. (b) Implement cash management procedures, cash flow projections, expenditure reviews and profit/loss analysis for the Borrowers as a whole and for each business unit. (c) Review the sufficiency of the existing and projected working capital and cash flow based on the developed projections and if the projections cannot be met, to recommend a reasonable alternative operating strategy. (d) Review existing inventory control procedures and make recommendations regarding improvements if deemed necessary or desirable. (e) Review the existing management structure of the Borrowers. 8 The Borrowers have advised Standard Federal that its counsel has retained Stout Risious Ross, which is agreeable to Standard Federal. 17. No Out-of-Formula Amounts. Borrowers must manage their financial affairs such that their line of credit loans remain in formula at all times. 18. No Overdrafts. Notwithstanding that Standard Federal may have honored overdrafts in the past, each Obligated Party acknowledges that neither Standard Federal nor its affiliates will, under any circumstances, honor any checks or other items presented to Standard Federal or its affiliates for payment for which there are insufficient available funds in such Borrower's account, and Standard Federal or its affiliates may return any such items. 19. Authorization to Debit Accounts. If any payment called for by the Loan Documents, this Agreement (or any agreement referred to or incorporated herein), or any other present or future agreements between Standard Federal or any of its affiliates on the one hand, or any one or more of the Obligated Parties on the other hand, is not paid when and as called for in the terms of such agreement, then Standard Federal or any of its affiliates may debit any one or more of the Obligated Parties' accounts at Standard Federal or any of its affiliates for such amount. The fact that Standard Federal or any of its affiliates has debited any such account will in no way waive or diminish any default for failure to make such payment when and as due. 20. Expenses, Fees and Costs: Indemnification. (a) Each Obligated Party, jointly and severally, is responsible for the payment of all fees and out-of-pocket disbursements incurred by Standard Federal, including fees of counsel and court costs, in any way arising from or in connection with this Agreement, any Collateral, any Loan Document, any Obligations, or the business relationship between Standard Federal, on the one hand, and any one or more of the Obligated Parties, on the other hand, including, without limitation: (1) Audit Fees (as defined below); (2) all fees and expenses (including recording fees and insurance policy fees) of Standard Federal and its counsel for the preparation, examination, approval, negotiation, execution and delivery of, or the closing of any of the transactions contemplated by, this Agreement or any of the Loan Documents; (3) all fees and out-of-pocket disbursements incurred by Standard Federal, including attorneys' fees, in any way arising from or in connection with any action taken by Standard Federal to monitor, advise, administer, enforce, or collect any of the Obligations (including under this Agreement, the Guarantor Loan Documents, any other Loan Document, or otherwise) or any other obligations of any one or more of the Obligated Parties, whether joint, joint and several, or several, under this Agreement, any Loan Document, any other existing or future document or agreement, or arising from or relating to the business relationship between Standard Federal, on the one hand, and any one or more of the Obligated Parties, on the other hand, or otherwise securing any of the Obligations, including any actions to lift the automatic stay or to otherwise in any way monitor or participate in any bankruptcy, reorganization or insolvency proceeding of 9 any one or more of the Obligated Parties; (4) all expenses and fees (including attorneys' fees) incurred in relation to, in connection with, in defense of or in prosecution of any litigation instituted by any one or more of the Obligated Parties, Standard Federal, or any third party, against or involving Standard Federal arising from, relating to, or in connection with any of the Obligations, or any one or more of the Obligated Parties' other obligations, this Agreement, any Collateral, any Loan Document, or the business relationship between Standard Federal, on the one hand, and any one or more of the Obligated Parties, on the other hand, including any so-called "lender liability" action, any claim and delivery or other action for possession of, or foreclosure on, any of the Collateral, post-judgment enforcement of any rights or remedies including enforcement of any judgments, and prosecution of any appeals (whether discretionary or as of right and whether in connection with pre-judgment or post-judgment matters); (5) all costs, expenses, and fees incurred by Standard Federal or its agents in connection with appraisals and reappraisals of all or any of the Collateral (and each Obligated Party must fully cooperate with such appraisers and make their property available for appraisal in connection with as many appraisals as Standard Federal may request); and (6) all costs, expenses, and fees incurred by Standard Federal or its counsel in connection with consultants, expert witnesses, or other professionals retained by Standard Federal or its counsel, to assist, advise, or give testimony with respect to any matter relating to the Collateral, the Obligations, the Loan Documents, or the business relationship between Standard Federal, on the one hand, and any one or more of the Obligated Parties, on the other hand (and each Obligated Party must fully cooperate with such consultant, expert witness or other professional and must make their premises, books and records, accounting systems, computer systems and other media for the recordation of information available to such persons). Each Obligated Party's agreement, jointly and severally, to be responsible for Standard Federal's attorneys' fees and costs applies regardless of whether or not Standard Federal prevails in whole or in part in any action, proceeding, litigation, or otherwise, and regardless of the nature of any action or litigation or the theories or bases of recovery or defense. Each Obligated Party, jointly and severally, agrees to indemnify Standard Federal for all Claims (as hereinafter defined) that may be imposed on, incurred by, or asserted against Standard Federal in connection with this Agreement, any Loan Document, or the transactions contemplated hereby or thereby, or the business relationship between Standard Federal, on the one hand, and any one or more of the Obligated Parties, on the other hand. All of each Obligated Party's obligations under this paragraph, including all indemnification obligations, survive repayment of the Obligations, termination of the Loan Documents, or both. 10 (b) All of the foregoing costs, expenses, reimbursement obligations, and indemnification obligations are part of the Obligations and are secured by all of the Collateral. (c) "Claims" means any demand, claim, action or cause of action, damage, liability, loss, cost, debt, expense, obligation, tax, assessment, charge, lawsuit, contract, agreement, undertaking or deficiency, of any kind or nature, whether known or unknown, fixed, actual, accrued or contingent, liquidated or unliquidated (including interest, penalties, attorneys' fees and other costs and expenses incident to proceedings or investigations relating to any of the foregoing or the defense of any of the foregoing), whether or not litigation has commenced. 21. Verification of Accounts/Audits. Each Obligated Party agrees that Standard Federal, through its employees or authorized agents, is permitted to send a letter to and otherwise contact each Borrower's account debtors to verify account receivable balances and other matters. In addition, Standard Federal is permitted full and complete access to each Borrower's facilities, and books and records to conduct audits as often as Standard Federal reasonably desires. The cost of such audits is part of the Obligations, is secured by all Collateral, and must be paid by each Borrower within ten (10) days of receipt of an invoice therefor (the "Audit Fees"). The Audit Fees are in addition to all other interest, fees, costs, and expenses provided for in the Loan Documents or this Agreement. 22. Other Documents. Each Obligated Party must execute any documents reasonably requested by Standard Federal to carry out the intent of or to implement this Agreement, the Guarantor Loan Documents or any other Loan Document. Without limitation, concurrently with execution and delivery of this Agreement, each Obligated Party shall execute and deliver to Lender Amended and Restated Security Agreements and updated borrowing resolutions and support resolutions. 23. Defaults. In addition to any other events of default or defaults provided for in the Loan Documents, and without waiver of the demand and discretionary provisions of the Loan Documents, the occurrence of any of the following constitutes an Event of Default, an event of default, and a default under this Agreement (and each Loan Document): (a) If any Obligated Party fails to comply with any term or condition in this Agreement (or any agreement referred to or incorporated herein) or the Loan Documents (other than the Specified Defaults), or any other document or agreement between any Obligated Party and Standard Federal. (b) If any material adverse change occurs in any Obligated Party's financial condition or business prospects. (c) If any Obligated Party discontinues its respective business operations. (d) If any lender, supplier, creditor, lessor, bond holder or representative thereof (collectively, "Creditor") of any Obligated Party (i) obtains a 11 judgment against any Obligated Party in excess of $100,000 or (ii) receives from Borrower any prepayments of obligations. (e) If any Obligated Party makes a general assignment for the benefit of a Creditor. (f) If any Obligated Party applies for, consents to, or is subject to, the appointment of a receiver. (g) If any Obligated Party has an order for relief entered under the Bankruptcy Code, or an involuntary petition under the Bankruptcy Code is filed against any Obligated Party and is not dismissed within 60 days. (h) If any representation or warranty made by any Obligated Party in this Agreement or in connection with the negotiation hereof is untrue when made or hereafter becomes untrue. (i) If any party attaches by way of seizure, levy, lien or otherwise any assets of any one or more of the Obligated Parties. (j) If any government, department or agency files any notice of lien, levy or assessment against any one or more of the Obligated Parties, or if any taxes or debts that are owing become a lien or encumbrance upon any assets of any one or more of the Obligated Parties. 24. Default Remedies. Immediately upon the occurrence of an Event of Default or a default under this Agreement or any Loan Document (or any document executed in connection herewith or referenced herein, other than the Specified Defaults), and without notice or an opportunity to cure such event of default or default, Standard Federal may exercise any remedies provided in this Agreement, the Loan Documents (including the Guarantor Loan Documents), and under applicable law with respect to the Specified Defaults as well as with respect to any new event of default or default, and, at Standard Federal's election and without further notice, the Forbearance Period automatically expires, and all of each Obligated Party's obligations to Standard Federal (including the Obligations and the Guarantor's obligations under each Guarantor Loan Document) will be immediately due and payable. Without limiting the discretionary nature of any loans that Standard Federal may make, on and after the date that any event of default or default occurs under this Agreement (or any agreement referred to or incorporated herein) or under any Loan Document (other than the Specified Defaults), Standard Federal may immediately cease making any loans or other financial accommodations available to any Obligated Party. In any event, after the earlier of expiration of the Forbearance Period or the occurrence of an event of default or a default under this Agreement or any Loan Document (other than the Specified Defaults), Standard Federal may immediately without notice take action to enforce its rights and remedies under the Loan Documents (including enforcement action on account of the Specified Defaults), the Guarantor Loan Documents, this Agreement, or applicable law, including collecting the Obligations and foreclosing on the Collateral. All Collateral granted to Standard Federal by any Obligated Party secures all of that Obligated Party's Obligations to Standard Federal. Each Obligated Party, on its own behalf and on behalf 12 of its successors and assigns, expressly waives all rights, if any, to require a marshaling of Collateral or other assets by Lender, or to require that Lender first resort to some or any portion of any Collateral securing the Obligations before foreclosing upon, selling, or otherwise realizing on any other portion thereof 25. Receivership. Without notice to the Obligated Parties and without reference to the value of its assets or to the solvency or insolvency of them, each of the Obligated Parties consents, upon the occurrence of an Event of Default under this Agreement and subject to the Bankruptcy Code, to the immediate appointment, whether by Lender or under order of any court, of a receiver for all or any of the Collateral, and further agrees to take all necessary steps to immediately, completely, and effectively transfer all of its respective right, title, and interest in and to the Collateral to any such receiver, including, without limitation, to transfer or assign all personal property, lists, accounts, intangibles, any licenses or franchises, and deeds for all real property. The appointment of a receiver shall be for the benefit of Lender and such receiver shall be vested with the power to take immediate possession of the Collateral, to manage the Borrowers' assets and businesses, and to collect any and all rents, issues, profits, accounts, and proceeds of the Collateral, and any and all such rents, issues, profits, accounts, and proceeds, when collected, may be applied toward the payment of the Indebtedness, and the costs, attorneys fees, taxes, insurance, or other items necessary for the protection and preservation of the Collateral, including the expenses of such receivership. Such receiver shall be directed to sell the Collateral as promptly as is commercially reasonable and shall apply the proceeds of sale against the Indebtedness. 26. Loan Documents and Guaranties Continue. Except as expressly modified and amended by the terms of this Agreement, all other terms and conditions of the Loan Documents (including the Guarantor Loan Documents) remain in full force and effect and are ratified, confirmed, and approved. If there is an express conflict between the terms of this Agreement and the terms of the Loan Documents, including the Loan Documents executed in connection herewith, the terms of this Agreement govern and control. Guarantor (a) acknowledges and agrees to the modification of the Loans as described above, and to all other terms and conditions of this Agreement, and (b) reaffirms its obligations under its written guaranties as continuing in full force and effect with respect to the Loans and the Obligated Parties' obligations to Standard Federal. 27. Reservation of Rights/No Waivers. (a) This Agreement grants a limited forbearance until the expiration of the Forbearance Period on the terms and conditions set forth in this Agreement. Except for such forbearance through the expiration of the Forbearance Period, all of Standard Federal's rights and remedies against each Obligated Party and the Collateral are expressly reserved, including all rights and remedies resulting from, or arising in connection with, the Specified Defaults. Likewise, nothing herein is a waiver of any Specified Defaults existing as of the date hereof, an agreement to consent to further worsening of such Specified Defaults, or new events of default or defaults, or in any way prejudices Standard Federal's rights and remedies under the Loan Documents (including the Guarantor Loan Documents) or applicable 13 law. Standard Federal has the right to waive any term, provision, or condition in this Agreement or the Loan Documents, in its sole discretion, and any such waiver does not prejudice, waive, or reduce any other right or remedy that Standard Federal may have against any one or more of the Obligated Parties. No waiver of rights or any condition of this Agreement, the Loan Documents, or any other agreement by Standard Federal is effective unless contained in a writing signed by an authorized agent of Standard Federal. (b) ANYTHING CONTAINED IN THIS AGREEMENT OR IN ANY OTHER AGREEMENT TO THE CONTRARY NOTWITHSTANDING, NOTHING CONTAINED IN THIS AGREEMENT OR IN ANY OTHER AGREEMENT RESTRICTS OR PROHIBITS STANDARD FEDERAL'S RIGHT TO BLOCK, STOP OR PROHIBIT PAYMENTS TO ANY SUBORDINATED CREDITOR(S) ON ACCOUNT OF THE EXISTING DEFAULTS, DEFAULTS, OR OTHERWISE. 28. Credit Inquiries. If customers, buyers, investors, potential alternative financing sources, or other parties ask Standard Federal about the current lending relationship among Standard Federal and any one or more of the Obligated Parties, each Obligated Party agrees that Standard Federal may refer such inquiries to any Obligated Party. 29. Entire Agreement, Etc. (a) This Agreement and the Exhibits hereto constitute the Obligated Parties' and Standard Federal's entire understanding with respect to the subject matter hereof Modifications or amendments to this Agreement must be in writing and signed by the party to be charged in order to be effective. This Agreement is governed by the internal laws of the State of Michigan (without regard to conflicts of law principles). This Agreement is binding on each Obligated Party and their respective successors, assigns, heirs, and personal representatives and inures to Standard Federal's benefit and the benefit of its successors and assigns. If any provision of this Agreement conflicts with any applicable statute or law, or is otherwise unenforceable, such offending provision is null and void only to the extent of such conflict or unenforceability, and is deemed separate from and does not invalidate any other provision of this Agreement. (b) This Agreement is being entered into among competent persons, who are experienced in business and represented by counsel (or who have had the opportunity to be represented by counsel), and has been reviewed by the Obligated Parties and their counsel, if any. Therefore, any ambiguous language in this Agreement will not necessarily be construed against any particular party as the drafter of such language. (c) This Agreement may be executed in any number of counterparts with the same effect as if all signatories had signed the same document. All counterparts must be construed together to constitute one instrument. 14 Facsimile copies of signatures are treated as original signatures for all purposes. (d) References in the Loan Documents and all other documents executed in connection with the Loan Documents (as each of the foregoing is amended hereby) to the Loan Documents mean the Loan Documents as amended by this Agreement. (e) The term "including" means including, without limitation, and the term "includes" means includes, without limitation. (f) All headings are inserted for convenience only and do not affect the construction or interpretation of this Agreement. 30. Additional Representations. Each Obligated Party represents and warrants to Standard Federal that: (a) (i) Each Borrower's execution, delivery, and performance of this Agreement and all agreements and documents delivered in connection herewith by Borrowers have been duly authorized by all necessary corporate action and does not and will not require any consent or approval of its stockholders, violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or of its articles of incorporation or bylaws, or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which either Borrower is a party or by which it or its properties may be bound or affected; (ii) no authorization, consent, approval, license, exemption of or filing a registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary to the valid execution, delivery or performance: by Borrowers of this Agreement and all agreements and documents delivered in connection with this Agreement; and (iii) this Agreement and all agreements and documents delivered pursuant hereto by any one or more of the Obligated Parties are the legal, valid and binding obligations of each such Obligated Party enforceable against each such Obligated Party in accordance with the terms thereof (b) After giving effect to the amendments contained herein and effected in accordance herewith, all representations and warranties contained in the Loan Documents are true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof (c) Except for the Specified Defaults, each Obligated Party has duly and properly performed, complied with and observed each of its covenants, agreements, and obligations contained in the Loan Documents. 15 (d) No Obligated Party or any one or more of them has assigned any claim, set off or defense to any individual or entity. (e) This Agreement and all of the Exhibits and other written material delivered by any one or more of the Obligated Parties to Standard Federal in connection with the transactions contemplated hereby do not contain any statement that is false or misleading with respect to any material fact. and do not omit to state a material fact necessary in order to make the statements therein not false or misleading. There is no additional fact of which any Obligated Party is aware that has not been disclosed in writing to Standard Federal that materially affects adversely or, so far as each Obligated Party can reasonably foresee, will materially affect adversely any Obligated Party's financial condition, business prospects, or any Collateral. (f) All Obligated Parties executing this Agreement in a representative capacity warrant that they have authority to execute this Agreement and legally bind the entity they represent. (g) 1. Industries' chief executive office and principal place of business is located at Sterling Heights, Michigan; 2. E-Z Pack's chief executive office and principal place of business is located at Galion, Ohio; 3. Galion's chief executive office and principal place of business is located at Galion, Ohio; 4. Shelby's chief executive office and principal place of business is located at Sterling Heights/River Rouge, Michigan; 5. Tube's chief executive office and principal place of business is located at Sterling Heights/Kalamazoo, Michigan; 6. International's chief executive office and principal place of business is located at Sterling Heights, Michigan; 7. Southland's chief executive office and principal place of business is located at Sterling Heights, Michigan/Bartow, Florida; and 8. Leasing's chief executive office and principal place of business is located at Sterling Heights, Michigan. (h) 1. All of Industries' business records are kept either at Sterling Heights, Michigan or Galion, Ohio; 2. all of E-Z Pack's business records are kept either at Galion, Ohio, Macon, Georgia or Demopolis, Alabama; 3. all of Galion's business records are kept at Galion, Ohio; 4. all of Shelby's business records are kept either at Galion, Ohio or River Rouge, Michigan; 5. all of Tube's business records are kept either at Galion, Ohio or Kalamazoo, Michigan; 6. all of International's business records are kept at Galion, Ohio; 7. all of Southland's business records are kept either at Galion, Ohio or Bartow, Florida; and 8. all of Leasing's business records are kept either at Galion, Ohio or Sterling Heights, Michigan. (i) Each Borrowers' corporate name is exactly as set forth on the signature page of this Agreement and no Borrower has changed its corporate name 16 since the date of its incorporation, nor has it or does it use any tradenames or tradestyles except as set forth on Exhibit 7. (j) Exhibit 8 is a correct and complete list of all locations of all of the Collateral and Exhibit 9 correctly identifies any of such facilities and locations that are not owned by Borrowers and sets forth the names of the owners and lessors of, and to the best of the Obligated Parties' knowledge, the holders of any mortgages on such facilities and locations. (k) No liens or encumbrances, other than those in favor of Lender, attach to any Borrowers' property except as described on Exhibit 10, and (a) Borrowers do not own any assets other than the personal property included in the definition of Collateral (the "Personal Property"), except as described on Exhibit 11, and (b) Borrowers do not own any real property other than the real property included in Exhibit 12 (the "Real Property"). (l) With respect to the Real Property and all other real property pledged to Lender to secure the Obligations, except as provided on Exhibit 12A, there are no: (a) toxic or hazardous waste, substances, or materials, nor any petroleum based products or compounds, nor any other waste covered by any applicable environmental or similar laws of any kind or nature which are or have been stored, disposed of, or located in, on, or about the Property; (b) asbestos or asbestos-containing materials, nor any polychlorinated biphenyls, located in, on, or about the Property; (c) gas wells or other wells, whether capped or uncapped, on or about the Property; (d) underground tanks of any type located at the Property; (e) surface or subsurface conditions on or about the Property which constitute, or which, with the passage of time may constitute, a public or private nuisance; (f) so-called "wetlands" or similarly-protected area under any applicable environmental or similar laws at the Property; (g) clean-up or other remediation activity which has occurred or is in process at the Property; (h) notice, citation, or other action by any federal, state, or local environmental or other agency, which is pending or threatened against the Property; (i) notice, report, or corrective action plan which has been filed with any federal, state, or local environmental or other agency with respect to the Property; or (j) permit which is required or which has been issued by any federal, state, or local environmental agency for the use or maintenance of any improvement or facility in, on, or about the Property. (m) None of the Obligated Parties is a party to any litigation or lawsuit, except as described on Exhibit 13. (n) Except as stated on Exhibit 14, the Obligated Parties have promptly paid when due all taxes, assessments, and governmental charges of every kind and nature that have been lawfully levied, assessed, or imposed upon them or their respective properties (including the use thereof), and any obligations which, if unpaid, would become liens against their respective 17 assets, including, without limitation, all sums due and owing to any taxing authority for income and other taxes withheld from the wages and salaries of their respective employees. (o) Borrower has not, during the past five years, been a party to any merger or consolidation, or acquired all or substantially all of the assets of any person or entity, or acquired any of its property or assets out of the ordinary course of business except as described in Exhibit 15. (p) Each Borrower owns or possesses adequate licenses or other rights to use all patents, processes, trademarks, trade names, copyrights, and other intellectual property necessary to conduct its business as now conducted or presently intended to be conducted Borrowers have no reason to believe that any such rights conflict or will conflict with the rights of others. A list of all patents, trademarks, copyright filings or registrations, and other intellectual property that Borrowers have any interest in must be provided by Borrowers by July 3, 2001 and may be attached to this Agreement as Exhibit 16. (q) Obligated Parties are conducting and have conducted their respective business operations without interference from Lender, Lender has not controlled, directed, or otherwise interfered with such business operations, and Borrower Obligated Parties have made all decisions concerning payments to their respective creditors, including Lender. 31. Survival: Reliance. All agreements, representations and warranties made in this Agreement (and all agreements referred to or incorporated herein) survive the execution of this Agreement (and all documents and agreements referred to or incorporated herein). Notwithstanding anything in this Agreement (or any documents or agreements referred to or incorporated herein) to the contrary, no investigation or inquiry by Standard Federal (including by its agents) with respect to any matter that is the subject of any representation, warranty, covenant or other agreement set forth herein or therein is intended, nor is it to be interpreted, to limit, diminish, or otherwise affect the full scope and effect of any such representation, warranty, covenant or other agreement. All terms, covenants, agreements, representations and warranties of each Obligated Party made herein (or in any documents or agreements referred to or incorporated herein), or in any certificate or other document delivered or to be delivered pursuant hereto, are deemed to be material and to have been relied upon by Standard Federal, notwithstanding any investigation heretofore or hereafter made by Standard Federal or its agents. 32. Notices. Any notice or other communication required or permitted to be given under this Agreement or any of the Loan Documents must be in writing and delivered personally, telegraphed, telecopied, or telexed, or mailed (by certified or registered mail or by recognized overnight courier), postage prepaid, and is deemed given when so delivered personally, telegraphed or telexed, or if mailed, two days after the date of mailing, addressed as follows (or to any another address as to which any party so advises the other parties in writing): 18 (a) If to Borrowers and/or Guarantors: c/o Kenneth McClain 6200 Elmridge Sterling Heights, Michigan 48313 with a copy to: Louis P. Rochkind Jaffe Raitt Heuer & Weiss, P.C. One Woodward Avenue, Suite 2400 Detroit, MI 48226 Facsimile: (313) 961-7917 (b) If to Standard Federal: Dennis J. Harder Standard Federal Bank 2600 West Big Beaver Road Troy, MI 48084 Facsimile: (248) 816-4860 With a copy to: Marc M. Bakst Bodman, Longley & Dahling LLP 100 Renaissance Center, 34th Floor Detroit, MI 48243-1001 Facsimile: (313) 393-7579 Defaults have occurred under the Loan Documents and each Obligated Party, to the fullest extent allowed under applicable law, waives all notices that Standard Federal might be required to give but for this waiver, including notices under Sections 9-504, 9-505, and 9-506 of the Uniform Commercial Code as enacted in the State of Michigan or the relevant state concerning the applicable Collateral. Furthermore, each Obligated Party waives all rights to redeem any of the Collateral, including any right to redeem any of the Collateral under Section 9-506 of the Uniform Commercial Code. 33. Discretionary Loans: Demand Obligations. Notwithstanding any provisions of this Agreement, it is understood and agreed that Standard Federal is at no time obligated to make any loan, despite compliance with any express conditions precedent thereto, and Standard Federal may at any time make demand for payment of the Obligations, notwithstanding that there may then exist no Event of Default or default. 34. Impairment of Collateral. The execution and delivery of this Agreement (and all agreements and documents referred to herein) does not impair or affect any other security (by 19 endorsement or otherwise) for the Obligations, or any one or more of the Obligated Parties' other obligations to Standard Federal. No security taken before or after as security for the Obligations impairs or affects this Agreement (or any agreement or document referred to herein). All present and future additional security is cumulative security. 35. Time Is of the Essence. Time is of the essence as to each and every term and provision of this Agreement and each Loan Document. 36. Adverse Events. Promptly upon gaining knowledge thereof or at such time as any Obligated Party should have known thereof, each Obligated Party must inform Standard Federal of the occurrence of any Event of Default, or default, or any event that with the lapse of time, service of notice, or both, would constitute an Event of Default or default under this Agreement or any of the Loan Documents, or of any other occurrence that has or could reasonably be expected to have a material adverse effect on any Obligated Party's business, properties, Collateral, or financial condition or upon any Obligated Party's ability to comply with its obligations under this Agreement or the Loan Documents (including the Guarantor Loan Documents). 37. Non-Waiver. No failure or delay on Standard Federal's part in the exercise of any power or right, and no course of dealing between any one or more of the Obligated Parties and Standard Federal, operates as a waiver of such power or right, nor does any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. The remedies provided for herein are cumulative and not exclusive of any remedies that are available to Standard Federal at law or in equity. No notice to or demand on any Obligated Party not required hereunder or under the Loan Documents entitles any such Obligated Party to any other or further notice or demand in similar or other circumstances, or waives Standard Federal's right to any other or further action in an, circumstances without notice or demand. Any waiver of any provision of this Agreement or the Loan Documents and any consent to any departure by any one or more of the Obligated Parties from the terms of any provision of this Agreement or the Loan Documents, is effective only if in writing signed by an authorized officer of Standard Federal, and only in the specific instance and for the specific purpose for which given. 38. No Other Promises or Inducements. There are no promises or inducements that have been made to any signatory hereto to cause such signatory to enter into this Agreement other than those that are set forth in this Agreement. 39. Communications Inadmissible as Evidence. The parties to this Agreement acknowledge that the purpose of this Agreement is to facilitate the resolution of the Specified Defaults and that, consistent with that purpose, no part of any oral or written communications between the Obligated Parties and Standard Federal through the date of this Agreement regarding the transactions contemplated in this Agreement, exclusive of this written Agreement itself (collectively, "Communications"), shall be utilized or deemed to be admissible as evidence in any litigation involving any of the Obligated Parties or Standard Federal. Communications shall be deemed to constitute compromise negotiations, and not to constitute evidence that is discoverable, as those phrases are used in the Federal Rules of Evidence and any applicable state 20 rules of evidence, and no Communications shall be deemed to constitute evidence that is otherwise admissible for any other purpose. 40. No Outstanding Offers. As of the date of this Agreement, there are no offers outstanding from Standard Federal to the Obligated Parties. Any prior offer by Standard Federal, whether oral or written is rescinded in full. 41. Legal Rate Adjustment. This Agreement and all security agreements, mortgages, notes, and other Loan Documents between any one or more of the Obligated Parties and Standard Federal are expressly limited so that in no event whatsoever will the amount of interest paid or agreed to be paid to Standard Federal exceed the highest rate of interest permissible under applicable law. If, from any circumstances, fulfillment of any provision of this Agreement or any other Loan Document at the time performance of such provisions is due, involves exceeding the interest limitation validly prescribed by law which a court of competent jurisdiction may deem applicable to this Agreement and the Obligations, then the obligation to be fulfilled is reduced to an amount computed at the highest rate of interest permissible under applicable law, and if, for any reason whatsoever, Standard Federal ever receives as interest an amount that would be deemed unlawful under applicable law, such interest will be automatically applied to the payment of the principal amount of the Obligations (whether or not then due and payable), and not to the payment of interest, or will be refunded to the applicable Obligated Party, if such principal has been paid in full. 42. Bankruptcy-Related Acknowledgments. (a) Absent the execution and delivery of this Agreement, the Loans would be past due and owing, would accrue interest at a default rate, and, unless the Obligated Parties commenced cases under title 11 of the United States Code (the "Bankruptcy Code"), Lender would be entitled to exercise all of its rights and remedies under the Loan Documents and applicable law with respect to the Obligated Parties and the Collateral; (b) the commencement of cases under the Bankruptcy Code may have a materially adverse effect on the Borrowers' respective businesses; and (c) the forbearance granted by Lender in this Agreement will provide the Obligated Parties with relief similar to that which they would otherwise obtain under the automatic stay provisions of section 362(a) of the Bankruptcy Code (the "Automatic Stay"). As of the date of this Agreement, the Obligated Parties (x) are solvent, and will not become insolvent after giving effect to the transactions contemplated by this Agreement, and (y) after giving effect to the transactions contemplated by this Agreement, Borrowers will have adequate capital to conduct their respective businesses as presently conducted and as contemplated by this Agreement. 43. Waiver of the Automatic Stay. In consideration of Standard Federal agreeing to forbear from exercising its various rights and remedies under the Loan Documents and applicable law in response to the Specified Defaults, and in consideration of the other mutual agreements contained in this Agreement, and for other good and valuable consideration, each of the Obligated Parties agrees that if it (a) has an order for relief entered, or has an involuntary petition filed against it, in a case under the Bankruptcy Code, (b) files or is the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the Bankruptcy Code or any other applicable federal or state law relating to bankruptcy, insolvency, or other debtor relief, or (c) seeks or consents to the appointment of any trustee, receiver, conservator, or liquidator, then Standard Federal shall 21 immediately and absolutely be entitled to, and each of the Obligated Parties consents to, the immediate termination of the Automatic Stay to enable Standard Federal to exercise any and all of its rights and remedies under the Loan Documents, this Agreement and applicable law, and none of the Parties shall assert, or request or cause any other party to assert, that the Automatic Stay operates to stay, condition, reduce, or inhibit such right of Standard Federal. Upon the filing of any motion or other pleading or the taking of any other action by Standard Federal in any bankruptcy case of any of the Parties for relief from the Automatic Stay or for a modification or lifting of the Automatic Stay or any stay otherwise provided by any applicable law as it relates to Standard Federal and affects Standard Federal's rights and remedies against the Parties or the Collateral, none of the Parties shall in any manner whatsoever oppose or object to, and shall not request or cause any other party to oppose or object to, such motion or pleading or other action taken by Standard Federal, but, rather, irrevocably consents thereto. Upon the commencement of any voluntary or involuntary bankruptcy case by or against any of the Parties, each of them irrevocably waives and agrees not to seek a supplemental stay or other relief, whether injunctive or otherwise, pursuant to section 105 of the Bankruptcy Code or otherwise, to stay, condition, reduce, or inhibit Standard Federal's ability to enforce any rights it has under the Loan Documents or this Agreement. Standard Federal, but for this section, would not enter into this Agreement. 44. Benefit of Successors. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Parties, Standard Federal and their respective successors and assigns. The Parties may not assign their respective rights or obligations arising under this Agreement without Standard Federal's prior written consent. 45. No Third Party Beneficiaries. All of the terms and conditions of this Agreement are for the sole and exclusive benefit of the parties to this Agreement and their respective successors and assigns. No other person or entity shall obtain any interest in this Agreement or require the satisfaction of such terms and conditions according to the terms of this Agreement or be entitled to assume that any of the parties to this Agreement will enforce such terms and conditions, and no other person or entity shall, under any circumstances, be a beneficiary of such terms or conditions. 46. Severability. If one or more or the provisions of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had not been contained in this Agreement. 47. No Duress. Parties acknowledge that they have reviewed (or have had the opportunity to review) this Agreement with counsel of their choice and have executed this Agreement of their own free will and accord and without duress or coercion of any kind by Standard Federal or any other person or entity. 48. STATUTE OF FRAUDS. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. ALL PRIOR AND CONTEMPORANEOUS ORAL AGREEMENTS, IF ANY, BETWEEN STANDARD FEDERAL, ON THE ONE 22 HAND, AND ANY ONE OR MORE OF THE PARTIES, ON THE OTHER HAND, ARE MERGED INTO THIS AGREEMENT AND DO NOT SURVIVE THE EXECUTION OF THIS AGREEMENT. 49. RELEASE. AS OF THE DATE HEREOF EACH OBLIGATED PARTY REPRESENTS AND WARRANTS THAT THEY ARE AWARE OF, AND POSSESS, NO CLAIMS OR CAUSES OF ACTION AGAINST STANDARD FEDERAL, NATIONAL BANK OF CANADA ("NBC"), FIFTH THIRD BANK, SUCCESSOR TO OLD KENT BANK BY REASON OF MERGER, ("FIFTH THIRD"), OR NATIONAL CITY BANK OF MICHIGAN/ILLINOIS ("NCB") (NBC, FIFTH THIRD AND NCB TOGETHER, THE "PARTICIPANTS") ALL OF WHICH ARE PARTICIPATING BANKS IN THE LOANS TO THE OBLIGATED PARTIES. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION FOR THE AGREEMENTS AND UNDERSTANDINGS HEREIN, EACH OBLIGATED PARTY INDIVIDUALLY, JOINTLY, SEVERALLY, AND JOINTLY AND SEVERALLY, IN EVERY CAPACITY, INCLUDING BUT NOT LIMITED TO, AS SHAREHOLDERS, OFFICERS, PARTNERS, DIRECTORS, INVESTORS, OR CREDITORS OF ANY ONE OR MORE OF THE OBLIGATED PARTIES, EACH OF ITS EMPLOYEES, AGENTS, EXECUTORS, SUCCESSORS AND ASSIGNS, HEREBY RELEASES STANDARD FEDERAL, NBC, FIFTH THIRD AND NCB AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT OR CAUSE OF ACTION THAT NOW EXISTS, OR HEREAFTER ARISES, WHETHER KNOWN OR UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN EXISTENCE AS OF THE DATE HEREOF. BY WAY OF EXAMPLE AND NOT LIMITATION, THE FORGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO ACTIONS TAKEN OR OMITTED TO BE TAKEN BY STANDARD FEDERAL, NBC , FIFTH THIRD, NCB, OR ANY OR ALL OF THEM, UNDER THE LOAN DOCUMENTS, THE GUARANTOR LOAN DOCUMENTS, THE BUSINESS RELATIONSHIP WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AND ALL OTHER OBLIGATIONS OF ANY NATURE OR KIND OF ANY ONE OR MORE OF THE PARTIES, ANY ORAL AGREEMENTS OR UNDERSTANDINGS (ACTUAL OR ALLEGED), ANY BANKING RELATIONSHIPS THAT ANY ONE OR MORE OF THE PARTIES HAS OR MAY HAVE HAD WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AT ANY TIME AND FOR ANY REASON INCLUDING, BUT NOT LIMITED TO, DEMAND DEPOSIT ACCOUNTS, OR OTHERWISE. 50. Waiver of jury trial and bond; submission to jurisdiction: and acknowledgment. (A) 1. Any judicial proceeding against any Obligated Party brought by lender with respect to any term or condition of this agreement, or any other present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever may be brought by Lender in a court of competent jurisdiction in the State of Michigan, United States of America, and the parties each hereby irrevocably consents and submits itself to jurisdiction in any such court; and, by execution and delivery of this Agreement, each of the parties and Lender accept for themselves and in connection with their respective properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agree to be bound by any final judgment rendered thereby in connection with this agreement, or any other present and future agreement between any of the, Obligated Parties and Lender and/or any other matter of any kind whatsoever. 2. Each of the parties waives personal service of any and all process upon it, and consents that all such service of process may be made by first-class mail or messenger directed to it at its address set forth in this agreement. Each of the parties waives any 23 bond or surety or security upon such bond or surety that might, but for this waiver, be required of Lender. 3. Nothing contained in this section affects or limits the right of Lender to serve legal process in any other manner permitted by law or affects Lender's right to bring any action or proceeding against any Obligated Party or their property in the courts of any other jurisdiction selected by lender in its sole and absolute discretion. 4. Any judicial proceeding by any Obligated Party against Lender and/or any person or entity related to or affiliated with Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this agreement or any present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever, may be brought only in a court located in the state of Michigan, county of Oakland (which court shall have sole and exclusive jurisdiction to hear such matters). 5. Each of the Obligated Parties waives any objection to jurisdiction and venue of any action instituted hereunder or in connection herewith and may not assert any defense based in any way on lack of jurisdiction or venue or based upon forum non conveniens. (B) each Obligated Party acknowledges that (1) it has fully read all of this Agreement and has been given the opportunity to consult with counsel and other advisors of its choice, and after consulting with such counsel or advisors (or having had the opportunity to do so), knowingly, voluntarily and without duress, coercion, unlawful restraint, intimidation or compulsion, enter into this Agreement, based upon such advice and counsel (if any) and in the exercise of its business judgment, (2) this Agreement has been entered into in exchange for good and valuable consideration, receipt of which the Obligated Party hereto acknowledges, (3) it has carefully and completely read all of the terms and provisions of this agreement and is not relying on the opinions or advice of lender or its agents or representatives in entering into this Agreement. (C) the Obligated Parties and Lender acknowledge that the right to a trial by jury is a constitutional right, but that the right may be waived. Each of the Obligated Parties and Lender each knowingly, voluntarily, irrevocably, and after the opportunity to consult with their respective counsel, without coercion, waive any and all rights to trial by jury of all disputes between them including, without limitation, any claims and/or defenses asserted in any judicial proceeding described herein. Neither Lender nor any of the Obligated Parties will be deemed to have given up this waiver of jury trial unless the Obligated Party claiming that this waiver has been relinquished has a written instrument signed by the other Obligated Parties and Lender stating that this waiver has been given up. (D) the Obligated Parties or Lender may file an original counterpart or a copy of this Agreement with any court as written evidence of the waivers and consents contained herein. 24 51. Standard Federal executes this Agreement with the consent of all Participants. STANDARD FEDERAL BANK By:________________________________ Its:_______________________________ McCLAIN INDUSTRIES, INC. McCLAIN E-Z PACK, INC. By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN GALION, INC. SHELBY STEEL PROCESSING COMPANY By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN TUBE COMPANY McCLAIN INTERNATIONAL FSC d/b/a Quality Tube By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN SOUTHLAND CO. McCLAIN GROUP LEASING, INC. By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ 25 EX-10.48 4 k66941ex10-48.txt EXTENSION AGREEMENT EXHIBIT 10.48 EXTENSION AGREEMENT FOR AMENDMENT AND FORBEARANCE AGREEMENT DATED JUNE 20, 2001 Extension Agreement dated as of September 1, 2001 ("Extension Agreement") for Amendment and Forbearance Agreement dated June 20, 2001 (the "Forbearance Agreement") among Standard Federal Bank ("Standard Federal" or "Lender"), McClain Industries, Inc. ("Industries"), McClain E-Z Pack, Inc. ("E-Z Pack"), McClain Galion, Inc. ("Galion"), Shelby Steel Processing Company ("Shelby"), McClain Tube Company d/b/a Quality Tube ("Tube"), McClain International FSC ("International"), McClain Southland Co. ("Southland"), and McClain Group Leasing, Inc. ("Leasing"). Industries, E-Z Pack, Galion, Shelby, Tube, International, Southland and Leasing are identified collectively as the "Borrowers" and individually as a "Borrower"; Industries, in its capacity as guarantor, is identified as the "Guarantor"; and (3) the Borrowers and the Guarantor are identified collectively as the "Obligated Parties" and individually as an "Obligated Party". RECITALS A. Borrowers have requested an extension to October 31, 2001 of the Forbearance Period to permit Borrowers additional time to stabilize their financial situation and refinance or otherwise satisfy the Obligations in full. B. Capitalized terms used but not defined in this Agreement have the same meanings given to those terms in the Forbearance Agreement and the Loan Documents. C. Each Obligated Party reaffirms, ratifies, confirms and approves its obligations and duties under the Forbearance Agreement and the Loan Documents (including the Guarantor Loan Documents) as modified by this Extension Agreement. Future administration of the Obligations and the financing arrangements among Standard Federal and the Obligated Parties shall continue to be governed by the covenants, terms and conditions of the Forbearance Agreement and the Loan Documents, which are ratified and confirmed and are incorporated by this reference, except to the extent the Forbearance Agreement or the Loan Documents are superseded, amended, modified or supplemented by this Extension Agreement or are inconsistent with this Extension Agreement, then this Extension Agreement will govern. D. Other than the Specified Defaults each Obligated Party represents and warrants, after due inquiry and investigation, that it is not aware of any other Events of Default or defaults, or of any event that, with the passage of time, notice, or both, would become an Event of Default or a default under the Forbearance Agreement, Loan Documents or this Extension Agreement. E. Each Obligated Party acknowledges and agrees that (i) Standard Federal has fully performed all of its obligations under the Forbearance Agreement and the Loan Documents; (ii) Standard Federal has no obligation to continue to lend to Borrowers; (iii) Standard Federal has no obligation to forbear from enforcing its rights and remedies other than as set forth in this Agreement; (iv) any loans made after the date of this Extension Agreement will continue to be made in Standard Federal's sole discretion; (v) Standard Federal has made no representations of any nature or kind that funding in any amount will continue; and (vi) Standard Federal has made 1 no representations of any nature or kind that the Forbearance Period will again be extended beyond its extended expiration. F. Each Obligated Party further acknowledges and agrees that the actions taken by Standard Federal to date in furtherance of the Forbearance Agreement and the Loan Documents are reasonable and appropriate under the circumstances and are within Standard Federal's rights under the Loan Documents and applicable law. G. Each Obligated Party represents and warrants to Standard Federal that it received direct and substantial economic benefit from all of the Obligations and that it will continue to receive direct and substantial economic benefit from the Obligations, and from any other loans made or that may be made in the future. H. Subject to the terms and conditions of this Agreement, and in reliance on the Obligated Parties' agreements, acknowledgments, representations, and warranties in the Forbearance Agreement, Standard Federal has agreed to extend the Forbearance Period as set forth below. AGREEMENT Based on the foregoing Recitals (which are incorporated herein as agreements, representations, warranties, and covenants of the Obligated Parties), Standard Federal and each Obligated Party agree as follows: 1. Forbearance. Subject to the condition that Standard Federal receives, on or before September ___, 2001, a fully executed copy of this Agreement, acknowledged by each of the Obligated Parties as provided below, together with fully executed copies of all Exhibits hereto that require signature, and there being no default under the Forbearance Agreement, Standard Federal agrees that the Forbearance Period is extended through October 31, 2001. 2. No Further Forbearance Implied. Each Obligated Party acknowledges that Standard Federal has no obligation to continue making loans; again extend the term of the Forbearance Period; or forbear from enforcing its rights and remedies after the Forbearance Period, and nothing contained herein or otherwise is intended to be or is a promise or agreement to continue making loans; or extend the term of the Forbearance Period beyond the extended expiration thereof. Furthermore, no future agreement by Standard Federal to continue making loans; or to extend the term of the Forbearance Period beyond the expiration thereof, or any other agreement, is valid or enforceable unless it is contained in a written agreement signed by Standard Federal. 3. RELEASE. AS OF THE DATE OF EXECUTION OF THIS EXTENSION AGREEMENT BY THE OBLIGATED PARTIES, EACH OBLIGATED PARTY REPRESENTS AND WARRANTS THAT THEY ARE AWARE OF, AND POSSESS, NO CLAIMS OR CAUSES OF ACTION AGAINST STANDARD FEDERAL, NATIONAL BANK OF CANADA ("NBC"), FIFTH THIRD BANK, SUCCESSOR TO OLD KENT BANK BY REASON OF MERGER, ("FIFTH THIRD"), OR NATIONAL CITY BANK OF MICHIGAN/ILLINOIS ("NCB") (NBC, FIFTH THIRD AND NCB TOGETHER, THE "PARTICIPANTS") ALL OF WHICH ARE PARTICIPATING BANKS IN THE LOANS TO THE OBLIGATED PARTIES. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION FOR THE AGREEMENTS AND UNDERSTANDINGS 2 HEREIN, EACH OBLIGATED PARTY INDIVIDUALLY, JOINTLY, SEVERALLY, AND JOINTLY AND SEVERALLY, IN EVERY CAPACITY, INCLUDING BUT NOT LIMITED TO, AS SHAREHOLDERS, OFFICERS, PARTNERS, DIRECTORS, INVESTORS, OR CREDITORS OF ANY ONE OR MORE OF THE OBLIGATED PARTIES, EACH OF ITS EMPLOYEES, AGENTS, EXECUTORS, SUCCESSORS AND ASSIGNS, HEREBY RELEASES STANDARD FEDERAL, NBC, FIFTH THIRD AND NCB AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT OR CAUSE OF ACTION THAT NOW EXISTS, OR HEREAFTER ARISES, WHETHER KNOWN OR UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN EXISTENCE AS OF THE DATE OF EXECUTION OF THIS EXTENSION AGREEMENT BY THE OBLIGATED PARTIES. BY WAY OF EXAMPLE AND NOT LIMITATION, THE FORGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO ACTIONS TAKEN OR OMITTED TO BE TAKEN BY STANDARD FEDERAL, NBC, FIFTH THIRD, NCB, OR ANY OR ALL OF THEM, UNDER THE LOAN DOCUMENTS, THE GUARANTOR LOAN DOCUMENTS, THE BUSINESS RELATIONSHIP WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AND ALL OTHER OBLIGATIONS OF ANY NATURE OR KIND OF ANY ONE OR MORE OF THE PARTIES, ANY ORAL AGREEMENTS OR UNDERSTANDINGS (ACTUAL OR ALLEGED), ANY BANKING RELATIONSHIPS THAT ANY ONE OR MORE OF THE PARTIES HAS OR MAY HAVE HAD WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AT ANY TIME AND FOR ANY REASON INCLUDING, BUT NOT LIMITED TO, DEMAND DEPOSIT ACCOUNTS, OR OTHERWISE. 4. Waiver of jury trial and bond; submission to jurisdiction: and acknowledgment. (A) 1. Any judicial proceeding against any Obligated Party brought by Lender with respect to any term or condition of this Extension Agreement, the Forbearance Agreement or the Loan Documents, or any other present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever may be brought by Lender in a court of competent jurisdiction in the State of Michigan, United States of America, and the parties each hereby irrevocably consents and submits itself to jurisdiction in any such court; and, by execution and delivery of this Agreement, each of the Obligated Parties and Lender accept for themselves and in connection with their respective properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agree to be bound by any final judgment rendered thereby in connection with this agreement, or any other present and future agreement between any of the Obligated Parties and Lender and/or any other matter of any kind whatsoever. 2. Each of the Obligated Parties waives personal service of any and all process upon it, and consents that all such service of process may be made by first-class mail or messenger directed to it at its address set forth in the Forbearance Agreement. Each of the parties waives any bond or surety or security upon such bond or surety that might, but for this waiver, be required of Lender. 3. Nothing contained in this section affects or limits the right of Lender to serve legal process in any other manner permitted by law or affects Lender's right to bring any action or proceeding against any Obligated Party or their property in the courts of any other jurisdiction selected by lender in its sole and absolute discretion. 3 4. Any judicial proceeding by any Obligated Party against Lender and/or any person or entity related to or affiliated with Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this agreement or any present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever, may be brought only in a court located in the state of Michigan, county of Oakland (which court shall have sole and exclusive jurisdiction to hear such matters). 5. Each of the Obligated Parties waives any objection to jurisdiction and venue of any action instituted hereunder or in connection herewith and may not assert any defense based in any way on lack of jurisdiction or venue or based upon forum non conveniens. (B) each Obligated Party acknowledges that (1) it has fully read all of this Extension Agreement and has been given the opportunity to consult with counsel and other advisors of its choice, and after consulting with such counsel or advisors (or having had the opportunity to do so), knowingly, voluntarily and without duress, coercion, unlawful restraint, intimidation or compulsion, enter into this Extension Agreement, based upon such advice and counsel (if any) and in the exercise of its business judgment, (2) this Extension Agreement has been entered into in exchange for good and valuable consideration, receipt of which the Obligated Party hereto acknowledges, (3) it has carefully and completely read all of the terms and provisions of this agreement and is not relying on the opinions or advice of lender or its agents or representatives in entering into this Extension Agreement. (C) the Obligated Parties and Lender acknowledge that the right to a trial by jury is a constitutional right, but that the right may be waived. Each of the Obligated Parties and Lender each knowingly, voluntarily, irrevocably, and after the opportunity to consult with their respective counsel, without coercion, waive any and all rights to trial by jury of all disputes between them including, without limitation, any claims and/or defenses asserted in any judicial proceeding described herein. Neither Lender nor any of the Obligated Parties will be deemed to have given up this waiver of jury trial unless the Obligated Party claiming that this waiver has been relinquished has a written instrument signed by the other Obligated Parties and Lender stating that this waiver has been given up. (D) the Obligated Parties or Lender may file an original counterpart or a copy of this Extension Agreement with any court as written evidence of the waivers and consents contained herein. STANDARD FEDERAL BANK By:_______________________________ Its:_______________________________ 4 This Extension Agreement is executed by each of the Obligated Parties on September ___, 2001. McCLAIN INDUSTRIES, INC. McCLAIN E-Z PACK, INC. By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN GALION, INC. SHELBY STEEL PROCESSING COMPANY By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN TUBE COMPANY McCLAIN INTERNATIONAL FSC d/b/a Quality Tube By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ McCLAIN SOUTHLAND CO. McCLAIN GROUP LEASING, INC. By:________________________________ By:_________________________________ Its:_______________________________ Its:________________________________ 5 EX-10.49 5 k66941ex10-49.txt SECOND EXTENSION AGREEMENT EXHIBIT 10.49 SECOND EXTENSION AGREEMENT FOR AMENDMENT AND FORBEARANCE AGREEMENT DATED JUNE 20, 2001, AS AMENDED Second Extension Agreement dated as of December 31, 2001 ("Second Extension Agreement") for Amendment and Forbearance Agreement dated June 20, 2001 as amended under the Extension Agreement dated as of September 1, 2001 (as amended, the "Forbearance Agreement") among Standard Federal Bank ("Standard Federal" or "Lender"), McClain Industries, Inc. ("Industries"), McClain E-Z Pack, Inc. ("E-Z Pack"), McClain Galion, Inc. ("Galion"), Shelby Steel Processing Company ("Shelby"), McClain Tube Company d/b/a Quality Tube ("Tube"), McClain International FSC ("International"), McClain Southland Co. ("Southland"), and McClain Group Leasing, Inc. ("Leasing"). Industries, E-Z Pack, Galion, Shelby, Tube, International, Southland and Leasing are identified collectively as the "Borrowers" and individually as a "Borrower"; Industries, in its capacity as guarantor, is identified as the "Guarantor"; and the Borrowers and the Guarantor are identified collectively as the "Obligated Parties" and individually as an "Obligated Party". RECITALS A. The Forbearance Period expired October 31, 2001. Standard Federal has been forbearing day to day from further efforts to collect the Loans. Borrowers have requested an extension to January 31, 2002 of the Forbearance Period to permit Borrowers additional time to stabilize their financial situation. B. Capitalized terms used but not defined in this Agreement have the same meanings given to those terms in the Forbearance Agreement and the Loan Documents. C. Each Obligated Party reaffirms, ratifies, confirms and approves its obligations and duties under the Forbearance Agreement and the Loan Documents (including the Guarantor Loan Documents) as modified by this Extension Agreement. Future administration of the Obligations and the financing arrangements among Standard Federal and the Obligated Parties shall continue to be governed by the covenants, terms and conditions of the Forbearance Agreement and the Loan Documents, which are ratified and confirmed and are incorporated by this reference, except to the extent the Forbearance Agreement or the Loan Documents are superseded, amended, modified or supplemented by this Extension Agreement or are inconsistent with this Extension Agreement, then this Extension Agreement will govern. D. Other than the Specified Defaults each Obligated Party represents and warrants, after due inquiry and investigation, that it is not aware of any other Events of Default or defaults, or of any event that, with the passage of time, notice, or both, would become an Event of Default or a default under the Forbearance Agreement, Loan Documents or this Extension Agreement. E. Each Obligated Party acknowledges and agrees that (i) Standard Federal has fully performed all of its obligations under the Forbearance Agreement and the Loan Documents; (ii) Standard Federal has no obligation to continue to lend to Borrowers; (iii) Standard Federal has no obligation to forbear from enforcing its rights and remedies other than as set forth in this Agreement; (iv) any loans made after the date of this Extension Agreement will continue to be made in Standard Federal's sole discretion; (v) Standard Federal has made no representations of 1 any nature or kind that funding in any amount will continue; and (vi) Standard Federal has made no representations of any nature or kind that the Forbearance Period will again be extended beyond its extended expiration. F. Each Obligated Party further acknowledges and agrees that the actions taken by Standard Federal to date in furtherance of the Forbearance Agreement and the Loan Documents are reasonable and appropriate under the circumstances and are within Standard Federal's rights under the Loan Documents and applicable law. G. Each Obligated Party represents and warrants to Standard Federal that it received direct and substantial economic benefit from all of the Obligations and that it will continue to receive direct and substantial economic benefit from the Obligations, and from any other loans made or that may be made in the future. H. Subject to the terms and conditions of this Agreement, and in reliance on the Obligated Parties' agreements, acknowledgments, representations, and warranties in the Forbearance Agreement, Standard Federal has agreed to extend the Forbearance Period as set forth below. AGREEMENT Based on the foregoing Recitals (which are incorporated herein as agreements, representations, warranties, and covenants of the Obligated Parties), Standard Federal and each Obligated Party agree as follows: 1. Forbearance. Subject to the condition that Standard Federal receives, on or before December 28, 2001, a fully executed copy of this Second Extension Agreement, acknowledged by each of the Obligated Parties as provided below, together with fully executed copies of all Exhibits hereto that require signature, and there being no default under the Forbearance Agreement, Standard Federal agrees that the Forbearance Period is extended through January 31, 2002. 2 2. Line of Credit Cap. Effective immediately, the Line of Credit Cap under the Amended and Restated Loan Agreement dated July 9, 1999, as amended, among Borrowers (all except Leasing) and Lender, is $22,000,000. 3. Interest. Beginning as of December 4, 2001, interest on the Loans has accrued at the default rate of Lender's prime rate from time to time in effect plus two and one-half percentage points (2-1/2%). Interest shall continue to accrue on the Loans at that default rate. 4. Inventory Cap. Effective immediately, the cap on the maximum amount of Qualified Inventory included in the Line of Credit Limit under the Amended and Restated Loan Agreement dated July 9, 1999, as amended, is reduced from $15,000,000 to $13,500,000, and shall be further reduced to $12,000,000 as of December 31, 2001. 5. Container Sales. Borrowers have delivered to Standard Federal an e-mail acknowledgment from Waste Management of acceptance by that customer of Borrowers' invoices for the sale of containers to the customer for a total sale price of not less than $3,700,000, and on or before December 31, 2001, Borrowers shall deliver to Bank in the form received payment in full of the foregoing invoices. Without limitation, failure by Borrowers to deliver timely the payment shall be a default under this Second Extension Agreement. 6. Consultant. The consultant previously retained by Borrowers or its counsel is no longer providing services at the request of Borrowers. The Borrowers have advised Standard Federal that Borrowers have retained another business consultant, BBK Ltd., under an engagement letter dated December 17, 2001, a copy of which Borrowers have provided to Standard Federal. That consultant is agreeable to Standard Federal. The terms of the engagement must also include a provision that the consultant's reports of its review of the business of the Borrowers will be made available to the Borrowers and Standard Federal not later than January 31, 2002. 7. Leasing Credit Limit. Effective immediately, the definition of Credit Limit under the Amended and Restated Loan Agreement between Standard Federal and Leasing dated June 20, 2001 shall mean the lesser of (a) $19,500,000 through January 15, 2002 or $19,000,000 from January 16, 2002 through January 30, 2002, or (b) an amount equal to the Borrowing Base (as defined in that Loan Agreement). 3 8. Dominion of Funds. Borrowers (all except Leasing) acknowledge and agree they shall hold in express trust for Standard Federal and immediately surrender in the form received all of their cash inflows to Standard Federal by depositing such inflows into account #1054400337 maintained at Standard Federal ("Cash Collateral Account"). One hundred percent of Borrowers' (all except Leasing) cash inflows will be applied to those Borrowers' Line of Credit Loan. Subject to maintaining an advisory Line of Credit Limit equal to or greater than the balance owing on the Line of Credit Loan made available by Standard Federal to Borrowers (all except Leasing), and provided there are no further defaults under the terms of the Forbearance Agreement, as amended, and no further defaults under the Loan Documents, Bank may, in its sole discretion, continue to advance to those Borrowers under the Line of Credit Loan, in accordance with the Loan Documents and the Forbearance Agreement, as amended, through January 30, 2002. In the event the balance on the Line of Credit Loan exceeds the then applicable Line of Credit Limit at any time, no advances will be allowed. Each borrowing request or accounts receivable collection must be accompanied by a borrowing base report, in form satisfactory to Standard Federal, with a minimum of one report per week. 9. No Further Forbearance Implied. Each Obligated Party acknowledges that Standard Federal has no obligation to continue making loans; again extend the term of the Forbearance Period; or forbear from enforcing its rights and remedies after the Forbearance Period, and nothing contained herein or otherwise is intended to be or is a promise or agreement to continue making loans; or extend the term of the Forbearance Period beyond the extended expiration thereof. Furthermore, no future agreement by Standard Federal to continue making loans; or to extend the term of the Forbearance Period beyond the expiration thereof, or any other agreement, is valid or enforceable unless it is contained in a written agreement signed by Standard Federal. 10. RELEASE. AS OF THE DATE OF EXECUTION OF THIS SECOND EXTENSION AGREEMENT BY THE OBLIGATED PARTIES, EACH OBLIGATED PARTY REPRESENTS AND WARRANTS THAT THEY ARE AWARE OF, AND POSSESS, NO CLAIMS OR CAUSES OF ACTION AGAINST STANDARD FEDERAL, NATIONAL BANK OF CANADA ("NBC"), FIFTH THIRD BANK, SUCCESSOR TO OLD KENT BANK BY REASON OF MERGER, ("FIFTH THIRD"), OR NATIONAL CITY BANK OF MICHIGAN/ILLINOIS ("NCB") (NBC, FIFTH THIRD AND NCB TOGETHER, THE "PARTICIPANTS") ALL OF WHICH ARE PARTICIPATING BANKS IN THE LOANS TO THE OBLIGATED PARTIES. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION FOR THE AGREEMENTS AND UNDERSTANDINGS HEREIN, EACH OBLIGATED PARTY INDIVIDUALLY, JOINTLY, SEVERALLY, AND JOINTLY AND SEVERALLY, IN EVERY CAPACITY, INCLUDING BUT NOT LIMITED TO, AS SHAREHOLDERS, OFFICERS, PARTNERS, DIRECTORS, INVESTORS, OR CREDITORS OF ANY ONE OR MORE OF THE OBLIGATED PARTIES, EACH OF ITS EMPLOYEES, AGENTS, EXECUTORS, SUCCESSORS AND ASSIGNS, HEREBY RELEASES STANDARD FEDERAL, NBC, FIFTH THIRD AND NCB AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT OR CAUSE OF ACTION THAT NOW EXISTS, OR HEREAFTER ARISES, WHETHER KNOWN OR UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN EXISTENCE AS OF THE DATE OF EXECUTION OF THIS SECOND EXTENSION AGREEMENT BY THE OBLIGATED PARTIES. BY WAY OF EXAMPLE AND NOT LIMITATION, THE FORGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO ACTIONS TAKEN OR OMITTED TO BE TAKEN BY STANDARD FEDERAL, 4 NBC , FIFTH THIRD, NCB, OR ANY OR ALL OF THEM, UNDER THE LOAN DOCUMENTS, THE GUARANTOR LOAN DOCUMENTS, THE BUSINESS RELATIONSHIP WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AND ALL OTHER OBLIGATIONS OF ANY NATURE OR KIND OF ANY ONE OR MORE OF THE PARTIES, ANY ORAL AGREEMENTS OR UNDERSTANDINGS (ACTUAL OR ALLEGED), ANY BANKING RELATIONSHIPS THAT ANY ONE OR MORE OF THE PARTIES HAS OR MAY HAVE HAD WITH STANDARD FEDERAL, NBC, FIFTH THIRD, NCB OR ANY OR ALL OF THEM AT ANY TIME AND FOR ANY REASON INCLUDING, BUT NOT LIMITED TO, DEMAND DEPOSIT ACCOUNTS, OR OTHERWISE. 11. Waiver of jury trial and bond; submission to jurisdiction: and acknowledgment. (A) 1. Any judicial proceeding against any Obligated Party brought by Lender with respect to any term or condition of this Second Extension Agreement, the Forbearance Agreement or the Loan Documents, or any other present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever may be brought by Lender in a court of competent jurisdiction in the State of Michigan, United States of America, and the parties each hereby irrevocably consents and submits itself to jurisdiction in any such court; and, by execution and delivery of this Agreement, each of the Obligated Parties and Lender accept for themselves and in connection with their respective properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agree to be bound by any final judgment rendered thereby in connection with this agreement, or any other present and future agreement between any of the Obligated Parties and Lender and/or any other matter of any kind whatsoever. 2. Each of the Obligated Parties waives personal service of any and all process upon it, and consents that all such service of process may be made by first-class mail or messenger directed to it at its address set forth in the Forbearance Agreement. Each of the parties waives any bond or surety or security upon such bond or surety that might, but for this waiver, be required of Lender. 3. Nothing contained in this section affects or limits the right of Lender to serve legal process in any other manner permitted by law or affects Lender's right to bring any action or proceeding against any Obligated Party or their property in the courts of any other jurisdiction selected by lender in its sole and absolute discretion. 4. Any judicial proceeding by any Obligated Party against Lender and/or any person or entity related to or affiliated with Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this agreement or any present or future agreement between any Obligated Party and Lender and/or any other matter of any kind whatsoever, may be brought only in a court located in the state of Michigan, county of Oakland (which court shall have sole and exclusive jurisdiction to hear such matters). 5. Each of the Obligated Parties waives any objection to jurisdiction and venue of any action instituted hereunder or in connection herewith and may not assert any defense based in any way on lack of jurisdiction or venue or based upon forum non conveniens. 5 (B) each Obligated Party acknowledges that (1) it has fully read all of this Extension Agreement and has been given the opportunity to consult with counsel and other advisors of its choice, and after consulting with such counsel or advisors (or having had the opportunity to do so), knowingly, voluntarily and without duress, coercion, unlawful restraint, intimidation or compulsion, enter into this Second Extension Agreement, based upon such advice and counsel (if any) and in the exercise of its business judgment, (2) this Second Extension Agreement has been entered into in exchange for good and valuable consideration, receipt of which the Obligated Party hereto acknowledges, (3) it has carefully and completely read all of the terms and provisions of this agreement and is not relying on the opinions or advice of Lender or its agents or representatives in entering into this Second Extension Agreement. (C) the Obligated Parties and Lender acknowledge that the right to a trial by jury is a constitutional right, but that the right may be waived. Each of the Obligated Parties and Lender each knowingly, voluntarily, irrevocably, and after the opportunity to consult with their respective counsel, without coercion, waive any and all rights to trial by jury of all disputes between them including, without limitation, any claims and/or defenses asserted in any judicial proceeding described herein. Neither Lender nor any of the Obligated Parties will be deemed to have given up this waiver of jury trial unless the Obligated Party claiming that this waiver has been relinquished has a written instrument signed by the other Obligated Parties and Lender stating that this waiver has been given up. (D) the Obligated Parties or Lender may file an original counterpart or a copy of this Second Extension Agreement with any court as written evidence of the waivers and consents contained herein. STANDARD FEDERAL BANK By:________________________________ Its:_______________________________ This Second Extension Agreement is executed by each of the Obligated Parties on December __, 2001. McCLAIN INDUSTRIES, INC. McCLAIN E-Z PACK, INC. By: /s/ Mark S. Mikelait By: /s/ Mark S. Mikelait -------------------------------- --------------------------------- Its: Treasurer Its: Treasurer -------------------------------- --------------------------------- 6 McCLAIN GALION, INC. SHELBY STEEL PROCESSING COMPANY By: /s/ Mark S. Mikelait By: /s/ Mark S. Mikelait -------------------------------- --------------------------------- Its: Treasurer Its: Treasurer -------------------------------- --------------------------------- McCLAIN TUBE COMPANY McCLAIN INTERNATIONAL FSC d/b/a Quality Tube By: /s/ Mark S. Mikelait By: /s/ Mark S. Mikelait -------------------------------- --------------------------------- Its: Treasurer Its: -------------------------------- --------------------------------- McCLAIN SOUTHLAND CO. McCLAIN GROUP LEASING, INC. By: /s/ Mark S. Mikelait By: /s/ Mark S. Mikelait -------------------------------- --------------------------------- Its: Treasurer Its: Treasurer -------------------------------- --------------------------------- 7 EX-10.50 6 k66941ex10-50.txt AMENDED & RESTATED LOAN AGREEMENT EXHIBIT 10.50 AMENDED AND RESTATED LOAN AGREEMENT BETWEEN STANDARD FEDERAL BANK AND MCCLAIN GROUP LEASING, INC. THIS AMENDED AND RESTATED LOAN AGREEMENT is made and delivered this ___ day of June, 2001 by and between McClain Group Leasing, Inc., a Michigan corporation ("Borrower"), whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. Borrower and Standard Federal entered into a Loan Agreement dated as of July 17, 1996, as amended by five amendments ("Existing Agreement"). B. Borrower, McClain Group (defined below) and Standard Federal entered into an Amendment and Forbearance Agreement of even date ("Forbearance Agreement"). This Amended and Restated Loan Agreement is required under the Forbearance Agreement. C. McClain Industries, Inc. is a guarantor of the obligations of Borrower to Standard Federal. Under the Forbearance Agreement, McClain Group is required to execute and deliver to Standard Federal a guaranty of the obligations of Borrower to Standard Federal. D. Borrower and Standard Federal desire to amend and restate the Existing Agreement in its entirety. NOW, THEREFORE, in reliance upon the representations herein provided and in consideration of the premises and the mutual promises herein contained, the Borrower and Standard Federal hereby agree that the Existing Agreement is amended and restated in its entirety as follows: SECTION 1. DEFINITIONS 1.1 The following terms shall have the meanings stated below when used in this Loan Agreement: "Amortization Amount" shall mean with respect to any assets subject to an Eligible Lease the amount determined by multiplying the number of whole or partial months since the date of the applicable lease by the product of the purchase price of the applicable assets by a fraction equal to one over the number of months in the original lease term. For example if the cost of the assets is $100,000 and the original lease term is 60 months and five months have elapsed since the date of the lease, then the Amortization Amount would be $100,000 x 5 x 1/60 = $8,333.33. "Base Tangible Net Worth" shall initially mean $2,500,000. On September 30 of each year, beginning September 30, 2001, Base Tangible Net Worth shall increase by 80% of Borrower's net income for the fiscal year then ended. If net income is less than $0 for any fiscal year, it shall be deemed to be $0 for such fiscal year for purposes of this definition. "Borrowing" shall mean an advance of all or any portion of the Line of Credit or the Swing Line of Credit. "Borrowing Base" shall mean the sum of (a) the lesser of (i) 80% of Eligible Lease Receivables and (ii) $19,500,000 and (b) 95% of the Unamortized Cost of Eligible Leased Assets under Eligible Leases. "Borrowing Notice" shall mean a notice by Borrower to Standard Federal that Borrower wishes to make a Borrowing. "Business Day" shall mean a day on which the main office of Standard Federal is open for business. "Credit Limit" shall mean (A) the lesser of: (a) Twenty Million and 00/100 Dollars ($20,000,000.00), or (b) an amount equal to the Borrowing Base, minus (B) principal amounts outstanding under the Swing Line of Credit. "Current" means with respect to any lease that no payment due under such lease is more than 45 (or, beginning March 31, 2002, 30) days past due. "Effective Date" shall mean the date designated by Borrower in a Borrowing Notice as the date the Borrowing covered by such Borrowing Notice shall be funded and shall also mean, where applicable, the first day of the Interest Period applicable to a LIBOR Borrowing. An Effective Date for a Prime Rate Borrowing must be a Business Day. An Effective Date for a LIBOR Borrowing must be a London Business Day. "Eligible Lease Receivables" shall mean lease receivables arising under leases entered into on or before March 31, 2001 which are less than 90 days (or, beginning March 31, 2002 60 days) old and are not doubtful as to collectability or disputed as to existence or amount or subject to offset, contra-indebtedness or return, exclusive of discounts and rebates, and are otherwise acceptable to Standard Federal in its sole discretion, and may include up to $382,000.00 in lease receivables from McClain Galion, Inc. but shall not otherwise be intra-company or owing from any affiliated or related company or other entity, as such lease receivables are disclosed in the statements timely furnished to Standard Federal pursuant to Section 3 below. Eligible Lease Receivables shall include (a) receivables under consolidated leases for the same lessee provided that payments under all of the consolidated leases are Current and the amortization of the combined leases is not extended more than six months, (b) receivables under leases assumed by another lessee of the Borrower provided that the new lessee is Current with respect to all of its existing leases with the Borrower and (c) receivables under leases which have been extended provided that the applicable lease has not been extended, the extension is for 60 days or less, the reason for the extension has been provided to Standard Federal and is acceptable to Standard Federal and the lessee is Current with respect to all of its existing leases with the Borrower. "Eligible Leases" means leases entered into in the ordinary course of Borrower's business which do not have any lease payments more than 60 days past due and are not doubtful as to collectability or disputed as to existence or amount or subject to offset, contra-indebtedness or return and are otherwise acceptable to Standard Federal in its sole discretion but shall not include intra- company or owing from any affiliated or related Company or other entity. In addition, with respect to combined, assumed or extended leases, the requirements set forth under the definition of Eligible Lease Receivables must be satisfied. "Line of Credit Maturity Date" shall mean May 1, 2002, or any extension or renewal thereof. "Line of Credit Note" shall mean the Promissory Note, dated July 17, 1996, as amended, and all renewals and amendments thereof, evidencing the Line of Credit. "McClain Group" shall mean individually and collectively McClain Industries, Inc.; McClain E-Z Pack, Inc.; McClain Galion, Inc.; Shelby Steel Processing Company; McClain Tube Company d/b/a Quality Tube; McClain International FSC and McClain Southland Co. "Prime-Based Rate" shall mean a rate per annum equal to the Wall Street Journal Prime Rate plus one-half percentage points (0.5%), which rate shall increase or decrease automatically when and to the extent that the Wall Street Journal Prime Rate shall be increased or decreased, plus one-half percent. "Prime Rate Borrowing" shall mean the principal amount of any portion of any Borrowing bearing interest at the Prime-Based Rate. "Revolving Credit Period" means the period from the date of this Loan Agreement through the Line of Credit Maturity Date. "Tangible Net Worth" shall mean total assets of Borrower as defined in accordance with generally accepted accounting principles consistently applied. "Unamortized Cost of Leased Assets" shall mean with respect to each Eligible Lease entered into after March 31, 2001, the purchase price to the Borrower for the assets subject to the lease (including sales tax) less the Amortization Amount with respect to such assets. "Unused Line" shall mean the amount available for draw but not advanced from time to time on the Line of Credit or the Swing Line of Credit. "Unused Line Fee" shall mean a fee in the amount of 0.25% per annum of the Unused Line. The amount of the Unused Line Fee payable on the first day of each month will be determined by multiplying the average daily balance of the Unused Line for the calendar month which ends one month prior to the due date of such Unused Line Fee by .020833%. "Wall Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks as the same may be changed from time to time. If more than one Prime Rate is published, the highest rate published shall be deemed the Wall Street Journal Prime Rate. If the publishing of the Wall Street Journal Prime Rate is discontinued, then the Prime-Based Rate shall be based upon the index which is published by The Wall Street Journal in replacement thereof based on similar base rates on corporate loans or, if no such replacement index is published, the index which, in Standard Federal's sole determination, most nearly corresponds to the Wall Street Journal Prime Rate. Section 2. Equipment Lease Line of Credit 2.1 Standard Federal hereby extends the Line of Credit to the Borrower, which shall not exceed at any one time outstanding the Credit Limit. 2.2 The Borrower shall be obligated to repay all advances made hereunder with respect to any lease which becomes 90 days (or, beginning March 31, 2002 60 days) or more delinquent and such repayment shall be due and payable 15 days after the lease receivable statement which discloses such delinquency is timely furnished to Standard Federal pursuant to Section 3 below. 2.3 The Line of Credit herein extended shall be subject to the terms and conditions of the Line of Credit Note. This Loan Agreement and the Line of Credit Note are of equal materiality and shall each be construed in such manner as to give full force and effect to all provisions of both documents. 2.4 Standard Federal shall, from time to time during the term hereof, make advances to Borrower under the Line of Credit upon request therefor by Borrower, provided that upon giving effect to such advance no Event of Default (as defined in the Line of Credit Note or this Agreement) and no event which with notice and/or the passage of time would become an Event of Default shall exist at the time the advance is to be made; and provided further that upon giving effect to such advance and at the time the advance is to be made all of the representations and warranties of Borrower contained in this Agreement and all other documents executed in connection with the Line of Credit are true and correct in all material respects; and provided further that at the time the advance is to be made Standard Federal shall not have previously or concurrently declared all amounts owing under the Line of Credit Note to be immediately due and payable; and provided further the amount requested shall not cause the total amount outstanding under the Line of Credit to exceed the Credit Limit. 2.5 Borrowings under the Line of Credit shall bear interest at the Prime-Based Rate. Interest shall be calculated on the basis of a year of 360 days for the actual number of days amounts are outstanding. In the event of default or an Event of Default by Borrower under this Loan Agreement or any document executed under this Loan Agreement, then interest shall accrue at the rate otherwise provided in this paragraph plus two percentage points (2.0%). 2.6 If at any time the amount outstanding under the Line of Credit shall exceed the Credit Limit, Borrower shall, on demand, forthwith pay to Standard Federal such sums as are necessary to reduce the amount outstanding to an amount not greater than the Credit Limit. 2.7 Borrower shall pay to Standard Federal, on the first day of each month, commencing on the first payment date after the date hereof, and continuing on the same day of each consecutive month thereafter until the termination of the Line of Credit and all sums owing for principal and interest with respect to the Line of Credit are paid in full, the Unused Line Fee. 2.8 In all events, unless earlier terminated, the Line of Credit shall terminate on the Line of Credit Maturity Date. Upon termination, Borrower shall forthwith pay to Standard Federal all sums owing for principal and interest with respect to the Line of Credit. 2.9 To effect a Borrowing under the Line of Credit, Borrower shall give Standard Federal a Borrowing Notice. 2.10 A Borrowing Notice may be made in writing, by telefacsimile or by telephone by an authorized representative of the Borrower and shall specify the aggregate amount of the requested Borrowing and the Effective Date of the Borrowing. Any Borrowing Notice by telephone may be recorded by Standard Federal for accuracy. 2.11 If Standard Federal shall determine that the adoption, amendment or revision of any applicable law, rule or regulation affecting Standard Federal's capital requirements or adequacy, or the interpretation or administration thereof by any governmental authority or regulatory agency,. central bank or other comparable authority, or compliance by Standard Federal with any applicable law, rule or regulation affecting Standard Federal's capital requirements or adequacy, or any request, interpretation or directive (whether or not having the force of law) of any governmental authority or regulatory agency, central bank or other comparable authority which affects Standard Federal's capital requirements, has; or would have the effect of reducing the rate of return on Standard Federal's capital to a level below the rate of return Standard Federal would have realized in the absence of such adoption, amendment, revision, interpretation, administration or compliance (taking into account Standard Federal's policies with respect to capital adequacy) by an amount considered by Standard Federal to be material, then, beginning five (5) days after demand by Standard Federal, Borrower shall pay to Standard Federal as additional interest or as fees, as determined by Standard Federal in its sole discretion, such additional amount or amounts as will compensate Standard Federal for such reduction in its rate of return. Such adjustments in interest or fees shall be imposed effective five (5) days after Standard Federal's demand and shall apply to the then outstanding principal balance of the Line of Credit and to subsequent advances under this Loan Agreement. In determining such amount or amounts, Standard Federal may use any reasonable averaging and attribution methods. Standard Federal will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Standard Federal to compensation pursuant to this Section. A certificate of Standard Federal claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. Standard Federal will, on request, provide evidence supporting such certificate. Section 2A. Conditions to Opening Line of Credit 2A.1 The following are conditions precedent to continuing Line of Credit, as amended under this Loan Agreement: 2A.l(a) The Borrower shall have delivered or shall have had delivered to Standard Federal, in form and substance satisfactory to Standard Federal and its counsel, each of the following: a. A duly executed copy of this Loan Agreement and the Forbearance Agreement and all documents required under that Forbearance Agreement; b. A duly executed copy of the Line of Credit Note, and such other loan documents as Standard Federal shall require to evidence and document the Line of Credit (the "Loan Documents"); c. Such credit applications, financial statements, authorizations, and such information concerning the Borrower and its business, operations, and condition (financial and otherwise) as Standard Federal may reasonably request; d. Certified copies of resolutions of the Board of Directors of the Borrower approving the execution and delivery of the Loan Documents required hereunder; e. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents required hereunder; f. Copies of the Articles of Incorporation of the Borrower, certified by the Secretary of State of Michigan as of a recent date; g. Copies of the Articles of Incorporation and Bylaws of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as of the date of this Agreement as being accurate and complete; h. Certificate of good standing of the Borrower from the Secretary of State of Michigan as of a recent date; i. Certificates of authority and good standing of the Borrower for each state in which the Borrower is qualified to do business; j. A certificate of compliance of the chief financial officer or treasurer of the Borrower in form satisfactory to Standard Federal dated as of the date of this Agreement; k. Such certificates, binders or other evidence of all insurance required of the Borrower under this Loan Agreement as Standard Federal may reasonably require; and l. Acknowledgment copies of all UCC-1 financing statements filed with respect to the Collateral accompanied by a search report showing such financing statements as duly filed and evidencing that the security interest of Standard Federal in the Collateral is prior to all other security interests of record. m. Payment of a non-refundable amendment fee in the amount of $20,000. 2A.l(b) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings, or registrations) required to be done and performed and to have happened precedent to the execution, delivery, and performance of the Loan Documents required hereunder and to constitute the same legal, valid, and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in due and strict compliance with all applicable laws. 2A.l(c) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Loan Documents shall be satisfactory in form and substance to Standard Federal and its counsel and all fees and charges, including recording and filing fees, shall have been paid as required hereunder. 2A.2 As conditions precedent to Standard Federal's obligation to fund any request for an advance under the Line of Credit, at and as of the date of the funding thereof and except as amended by this Agreement; a. The representations and warranties of the Borrower contained in the Loan Documents shall be accurate and complete in all respects as if made on and as of such date; b. The Borrower shall have paid all fees and expenses, including any recording fees and charges, required hereunder; c. There shall not have occurred an Event of Default or any event which with the passage of time of the giving of notice or both would constitute an Event of Default; and d. Following the making of such loan or advance, the aggregate principal amount outstanding will not exceed the limitations described in Section 2 or Section 3A, as applicable. Section 3. Representations and Warranties The Borrower represents and warrants to Standard Federal that as of the date of acceptance of this Agreement, as of the time any advance is to be made hereunder and, unless expressly provided otherwise herein or agreed to by a writing signed by Standard Federal, at all times any amounts are outstanding hereunder: 3.1 The Borrower and each of its subsidiaries, if any, are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation; the Borrower and each of its subsidiaries (if any) have the legal power and authority to own their properties and assets and to carry out their business as now being conducted and each is qualified to do business in the state of its incorporation and in every jurisdiction where the nature of its business or the property owned or operated by it makes such qualification necessary and is otherwise in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets; the Borrower has the legal power and authority to execute and perform this Agreement, to borrow money in accordance with its terms, to execute and deliver the Line of Credit Note and other documents contemplated hereby, to grant to Standard Federal security interests in the Collateral, as hereby contemplated, and to do any and all other things required of it hereunder; and this Agreement, the Line of Credit Note, and all other documents contemplated hereby, when executed by the Borrower's duly authorized officers will constitute its valid and binding legal obligations enforceable in accordance with their terms. 3.2 The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution and delivery of the Line of Credit Note, and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action, (b) do not require governmental approval or the approval of any person not a party to this Agreement, (c) will not result (with or without notice and/or the passage of time) in any conflict with or breach or violation of or default under, any provision of law, the Articles of Incorporation or Bylaws of the Borrower or any indenture, agreement or other instrument to which the Borrower is a party, or by which it or any of its properties or assets are bound, and (d) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower other than in favor of Standard Federal and as contemplated hereby. 3.3 There is not pending or, to the best of the knowledge of the Borrower, threatened, any litigation, proceeding or governmental investigation which could materially and adversely affect the business of the Borrower or its subsidiaries, if any, or its ability to perform its covenants hereunder. 3.4 Borrower has good and marketable title to its properties given as security as herein described, and, except for liens in favor of Standard Federal, liens for taxes not delinquent or being contested in good faith and liens created in connection with worker's compensation, unemployment insurance and social security, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety and appeal bonds, and other obligations of like nature made in the ordinary course of business, none of the Borrower's or any of its subsidiaries, (if any) assets are subject to any mortgage, pledge, lien, security interest, or other encumbrance of any kind or character except as have been disclosed to Standard Federal in writing. The Borrower owns all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from any material restrictions, that are necessary for the operation of its business as presently conducted. 3.5 All financial data which has been or shall hereafter be furnished to Standard Federal for the purposes of, or in connection with, this Agreement, including particularly, but without limitation, the audited consolidated financial statements of McClain Industries, Inc. and the Form 10-Q's filed with the Securities and Exchange Commission by McClain Industries, Inc. pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and the transactions contemplated hereby has been and/or shall be prepared in accordance with generally accepted accounting principles consistently applied, and does or will fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the periods, for which the same is furnished to Standard Federal. 3.6 [Reserved]. 3.7 [Reserved] 3.8 Borrower has filed all reports and tax returns required by governmental authority to be filed by it prior to the date hereof and Borrower has received no notice that such reports or returns have been rejected, declared insufficient, or otherwise challenged by such governmental authority. 3.9 The principal officers of the Borrower ("Principal Officers") are as follows: Chairman of the Board Kenneth D. McClain President Peter Beale Secretary Carl L. Jaworski 3.10 The Borrower is a wholly-owned subsidiary of McClain Industries, Inc., a Michigan corporation, and has no subsidiaries. 3.11 None of the proceeds of the Line of Credit will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U or G. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Borrower nor any person acting on behalf of Borrower has taken or will take any action which might cause the Line of Credit Note, or any of the other documents executed in conjunction therewith, including this Agreement, to violate Regulations U or G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin stock" except for that described in the financial statements provided to Standard Federal and, as of the date hereof, the aggregate value of all "margin stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of all of the value of all of Borrower's and its subsidiaries', if any, assets. 3.12 Other than as disclosed to Lender in writing by Borrower to Lender prior to the date of this Agreement, neither the Borrower nor, to the best of Borrower's knowledge after due inquiry, any other person or entity, has caused or permitted any waste, oil, pesticides, or any substance or material of any kind which is currently known or suspected to be toxic or hazardous, including but not limited to any substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to as "Hazardous Material") to be discharged, dispersed, released, disposed of, or allowed to escape on, under or at any property owned, occupied or operated by any Borrower in violation of any Hazardous Materials Laws (as hereinafter defined), nor has any property owned, occupied or operated by any Borrower, or any part thereof, ever been used by the Borrower or, to the best of Borrower's knowledge after due inquiry, any prior owner or any other person, as a dump, storage or disposal site for any Hazardous Material, nor has there occurred any other violation of the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et seq., or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Material ("Hazardous Materials Laws") with respect to any property owned, occupied or operated by any Borrower. No asbestos or asbestos-containing materials have been installed, used, incorporated into, or disposed of on any property owned, occupied or operated by any Borrower. No polychlorinated biphenyls ("PCBs") are located on or in any property owned, occupied or operated by any Borrower, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device or form. All underground storage tanks located on any property owned, occupied or operated by any Borrower have been installed and are being operated in full compliance with all applicable Hazardous Materials Laws. The Borrower: (a) has not received any notice of any release, threatened release, escape, seepage, leakage, spillage, discharge or emission of any Hazardous Materials in, under or upon any property owned, occupied or operated by any Borrower or of any violation of any Hazardous Materials Law, and (b) does not know of any basis for any such notice or violation. 3.13 No "reportable event," as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is continuing with respect to any employee pension and/or profit sharing benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted proceedings to terminate any such employee pension and/or profit sharing plan or to appoint a trustee to administer such plan. The Borrower has maintained and funded and caused each of its subsidiaries, if any, to maintain and fund all employee pension and/or profit sharing plans in accordance with their terms and with all applicable provisions of ERISA. Neither the Borrower nor any duly appointed administrator of any employee pension and/or profit sharing plan: (a) has incurred any liability to PBGC with respect to any such plan other than for premiums not yet due or payable, (b) has instituted or intends to institute proceedings to terminate any such plan under Section 4042 or 4041A of ERISA, or (c) has withdrawn from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA). 3.14 There is no material fact that the Borrower has not disclosed to Standard Federal which could have a material adverse effect on the properties, business, prospects or condition (financial or otherwise) of the Borrower or any of its subsidiaries. For purposes of this Section 3.14, a "material adverse effect" means any circumstance or event which (a) could have any adverse effect whatsoever upon the validity, performance or enforceability of any material provision of the Loan Documents, (b) is or might be material and adverse to the financial condition or business operations of the Borrower or any subsidiary, (c) could impair the ability of the Borrower to fulfill its obligations under the Loan Documents, or (d) causes an Event of Default or any event which, with notice or lapse of time or both, could become an Event of Default. Neither the financial statements referred to in Section 3.5 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower in connection with the negotiations of this Loan Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein, under the circumstances in which they were made, from being misleading. 3.15 Each request for an advance under the Line of Credit shall constitute, without the necessity of specifically containing a written statement, a representation and warranty by Borrower that no Event of Default exists and that all representations and warranties contained in this Section 3 or in any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note, the Swing Line of Credit Note or this Agreement are true and correct at and as of the time the advance is to be made. Section 4. Affirmative Covenants of Borrower 4.1 Prior to Standard Federal's disbursement of any advances under the Line of Credit, the Borrower shall; (a) furnish to Standard Federal, if Standard Federal so requires, certified copies of its Articles of Incorporation, Bylaws and Certificate of Good Standing, which Articles of Incorporation and Good Standing Certificate are to be certified by the appropriate official of the Borrower's state of incorporation; (b) furnish to Standard Federal if Standard Federal so requires a statement of the Borrower and the chief financial officer of Borrower certifying that they are unaware of the occurrence of an Event of Default or of any event which with notice and/or the passage of time could become an Event of Default other than as disclosed in this Agreement; and (c) furnish Standard Federal such other instruments, documents, opinions or certificates as Standard Federal or its counsel shall reasonably require. All actions, proceedings, instruments and documents required or requested hereunder shall be satisfactory to and approved by Standard Federal and/or its counsel prior to the disbursement of advances under the Line of Credit. 4.2 From the date hereof until all amounts owing under the Line of Credit are paid in full and all obligations under the Line of Credit Note, this Loan Agreement and all other documents executed in connection with the Line of Credit or this Loan Agreement are fully paid, performed and satisfied and so long as Standard Federal has any commitment to make advances hereunder, the Borrower covenants and agrees it will: 4.2(a) Furnish to Standard Federal as soon as available and, in any event, within 120 days after the close of each fiscal year of McClain Industries, Inc., a Michigan corporation ("McClain"), or, in the event McClain obtains an extension of the filing date from the Securities Exchange Commission, by such extended date, detailed financial statements of McClain as of the close of such fiscal year, containing a consolidated balance sheet of McClain and its subsidiaries, and statements of income and cash flows of McClain and its subsidiaries for such fiscal year prepared in accordance with generally accepted accounting principles and in a manner consistent with prior such statements containing an analysis of sources and uses of funds and such other comments and financial details as are usually included in similar reports. Such statements shall be accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by McClain) of independent certified public accountants selected by McClain and acceptable to Standard Federal as to the fairness of the statements included in the report and to the effect that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances. 4.2(b) Furnish to Standard Federal as soon as available and, in any event, within 90 days after the close of each fiscal year, detailed financial statements of the Borrower as of the close of such fiscal period containing a consolidated balance sheet of the Borrower and its subsidiaries, if any, and statements of income and cash flows of the Borrower and its subsidiaries, if any, for such fiscal period and for the portion of the fiscal year ending with such period in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officer of the Borrower as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 4.2(c) Furnish to Standard Federal, within a reasonable time not to exceed 15 days after the end of each calendar month, a statement of lease receivables, in a form acceptable to Standard Federal, certified as correct by Borrower or a principal officer of Borrower showing the agings thereof and the payment, write-off or other disposition of former lease receivables the disposition of which has not previously been reported to Standard Federal, and such other information and data as Standard Federal may reasonably require. Borrower will further specifically disclose any facts known to Borrower which facts would tend to render doubtful the collectability of any lease receivable disclosed in such statements or which would indicate that the existence or amount of such receivable is disputed by the lessee thereon. 4.2(d) Furnish to Standard Federal as soon as available and, in any event, within 30 days after the close of each quarter of each fiscal year, and in each case in form acceptable to Standard Federal, (i) a listing of conditional sales contracts and TRAC leases with any payments that are more than 180 days past due, (ii) a listing of all lease accounts (TRAC and conditional sales contracts) that were re-written, modified, assumed, extended or consolidated with other lease schedules during the applicable fiscal quarter, (iii) a doubtful accounts reserve schedule indicating the reserve balance as of quarter end and a summary of non-accrual and charged-off accounts, (iv) detailed financial statements for the applicable fiscal quarter, containing a balance sheet of Borrower, statements of income and cash flow for such fiscal period and for the portion of the fiscal year then ended in reasonable detail and form acceptable to Standard Federal and certified by the chief financial officers of the Borrower as being true and correct and as having been prepared in accordance with generally accepted accounting principles consistently applied, subject to year-end adjustments, if any. 4.2(e) Promptly inform Standard Federal of the occurrence of any Event of Default or of any event (including without limitation any pending or threatened litigation or other proceedings before any governmental body or agency) which could have a materially adverse effect upon the Borrower's business, properties, financial condition or ability to comply with its obligations hereunder or under the Line of Credit Note. 4.2(f) The Borrower shall allow Standard Federal and its participants in the Line of Credit and staff or independent accountants or auditors selected by Standard Federal and its participants to conduct, at Borrowers expense, a full audit of the Collateral and the Borrower's financial statements and its books and records, semi-annually (or more frequently in the sole discretion of Standard Federal) during the term of the Line of Credit. Standard Federal shall schedule such audits during normal business hours of the Borrower and shall provide Borrower not less than two (2) business days notice of the commencement of each audit. The Borrower shall make adequate facilities available on their premises at Borrower's expense to enable Standard Federal to conduct the audits herein described and shall make available all of its books, records and other documents and information as may be reasonably requested to facilitate the audits. 4.2(g) Maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses, and provide Standard Federal evidence of such insurance upon request; policies of casualty insurance shall contain a customary mortgagee clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all other insurance shall contain a customary loss payable clause requiring payment of proceeds to Borrower and to Standard Federal as their interests may appear and all insurance policies shall provide that no cancellation, reduction in amount, change in coverage or expiration thereof shall be effective until at least 30 days prior written notice has been given by the insurer to Standard Federal; and pay when due all taxes, assessments, fees and similar charges of every kind and nature lawfully assessed upon the Borrower and/or its property, except to the extent being contested in good faith; and in the event the Borrower fails to maintain such insurance or to pay promptly any taxes or charges when due, then and in such event Standard Federal, in its sole discretion, may, but shall not be required to, pay the same and any amounts expended by Standard Federal for such purpose shall become a part of the Line of Credit and shall bear interest at the rate applicable to the outstanding principal balance owing under the Line of Credit Note. 4.2(h) Preserve and keep in full force and effect its own and its material, operating subsidiaries' (if any) corporate existence in good standing and maintain voting control in its present controlling shareholder's); keep current all filings of assumed name certificates for each name under which and each county in which the Borrower does business and promptly inform Standard Federal of any assumed names under which it does business which were not used by the Borrower on the date of this Agreement; continue to conduct and operate its business substantially as presently conducted and operated in accordance with all applicable laws and regulations; maintain and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair and condition; pay its indebtedness and obligations when due under normal terms and maintain proper books of record and account, and; otherwise remain in compliance with all applicable laws, statutes, regulations, rules and requirements of any federal, state, judicial, regulatory or administrative body having jurisdiction of the Borrower or any of its assets, except to the extent noncompliance is immaterial and would not have a material adverse effect on Borrower. 4.2(i) At all times meet and cause each of its subsidiaries, if any, to meet the minimum funding requirements of ERISA with respect to all employee pension and/or profit sharing plans subject to ERISA and, with respect to any such employee benefit plan, promptly notify Standard Federal in writing of any reportable event, as defined in ERISA, or any proposed termination (voluntary or otherwise) which could give rise to material termination liability within the meaning of ERISA ss.4062. 4.3 The Borrower will not make any change in its accounting policies or financial reporting practices and procedures, except changes in accounting policies which are required or permitted by generally accepted accounting principles and changes in financial reporting practices and procedures which are required or permitted by generally accepted accounting principles. 4.4 The Borrower shall use the monies loaned hereunder solely for working capital purposes. 4.5 Maintain as of the end of each month Tangible Net Worth of not less than the Base Tangible Net Worth. 4.6 The Borrower will not permit its allowance for doubtful accounts to be less than $350,000 through September 29, 2001 and not less than $600,000 beginning September 30, 2001 and thereafter. 4.7 The Borrower shall maintain total funded TRAC leases plus unfunded availability of TRAC leases of not more than $24,000,000. Financing for such TRAC leases may be through Bank One under the existing facilities with that bank or under (i) modified facilities with that bank or (ii) facilities with a replacement lender, either of which must be on terms acceptable to Standard Federal. As used in this Section "TRAC" shall mean terminal residual adjustment clause. 4.8 The Borrower shall not permit guaranties of TRAC facilities to exceed 8% of residual values. 4.9 Beginning September 30, 2001, the Borrower shall not permit the aggregate amount of gross leases with any payments past due more than 180 days plus non-accrual amounts to exceed 175% of the Borrower's allowance for doubtful accounts or to exceed 150% of such allowance beginning March 31, 2002 and thereafter. Section 5. Security 5.1 In order to secure: (1) the full and timely performance of the Borrower's covenants set forth herein and in the Line of Credit Note and the Swing Line of Credit Note, (2) the repayment of any and all indebtedness of the Borrower to Standard Federal arising pursuant to the Line of Credit Note and the Swing Line of Credit Note (including any renewals or substitutions thereof), this Agreement and any mortgage, guaranty, security agreement or other document given to secure or relating to the Line of Credit Note, the Swing Line of Credit Note or this Agreement, and (3) all other indebtedness and liabilities of the Borrower to Standard Federal arising under this Agreement, or the Line of Credit Note or the Swing Line of Credit Note, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising: 5.1(a) The Borrower hereby grants unto Standard Federal a security interest in the following property and the proceeds thereof: (i) any and all securities or other property received by the Borrower with respect to, on account of or in exchange for any item of Collateral; (ii) all stock and/or liquidating dividends (whether the same be in the form of cash or other property) paid upon, on account of or with respect to any item of Collateral; and (iii) all bank deposits, instruments, negotiable documents, chattel paper and any and all other property of the Borrower of any kind whatsoever which shall at any time be in the possession or under the control of Standard Federal; 5.1(b) The Borrower will grant to Standard Federal a security interest of first priority in certain equipment leases and the equipment described therein as provided in an Assignment of Equipment Leases and Security Agreement dated July 17, 1996, as amended, from the Borrower to Standard Federal, and all schedules thereto, the provisions of which are hereby incorporated herein by reference; and 5.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard Federal as collateral security a life insurance policy on the life of Kenneth D. McClain in the face amount of $2,000,000.00 (herein, together with the property described in Sections 5.1(a) (i), (ii) and (iii) and 5.1(b) above, referred to as the "Collateral" or "item(s) of Collateral"). 5.2 The Borrower shall execute and deliver to Standard Federal any and all documents (including financing statements) as Standard Federal may require to insure the perfection and priority of its liens and security interests in the Collateral and furnish, if Standard Federal so requires, proof of hazard insurance policies, in accordance with Section 4.2(g) above, relating to the Collateral. Section 6. Events of Default The occurrence of any of the events enumerated in Sections 6.l to 6.11 below shall constitute an Event of Default for purposes of this Agreement: 6.1 Failure to Pay Monies Due. If any indebtedness of the Borrower to Standard Federal on the Line of Credit is not paid when due, regardless of whether such indebtedness has arisen pursuant to the terms of the Line of Credit Note or the Swing Line of Credit Note, this Agreement or any mortgage, security agreement, guaranty, instrument or other agreement executed in conjunction herewith. 6.2 Misrepresentation. If any warranty or representation made by or for the Borrower and/or any endorser or guarantor of the Line of Credit Note or the Swing Line of Credit Note in connection with the loan(s) evidenced thereby, or if any financial data or any other information now or hereafter furnished to Standard Federal by or on behalf of the Borrower and/or any endorser or guarantor of the Line of Credit Note or the Swing Line of Credit Note shall prove to be false, inaccurate or misleading in any material respect. 6.3 Noncompliance with Affirmative Covenants and other Agreements. If the Borrower shall fail to perform any of its obligations and covenants under Section 4 of this Agreement, or shall fail to comply with any of the other provisions of this Agreement, the Line of Credit Note or any other agreement with Standard Federal to which it may be a party, other than the payment of principal and interest. 6.4 Business Suspension. If the Borrower and/or any endorser or guarantor of the Line of Credit Note or the Swing Line of Credit Note shall voluntarily suspend transaction of its business. 6.5 Bankruptcy, Etc. If the Borrower and/or any endorser or guarantor of the Line of Credit Note: (a) makes a general assignment for the benefit of creditors; (b) shall file a voluntary petition in bankruptcy or for a reorganization to effect a plan or other arrangement with creditors; or shall file an answer to a creditor's petition or other petition against Borrower and/or any endorser or guarantor of the Line of Credit Note for relief in bankruptcy or for a reorganization which answer admits the material allegations thereof; or if any order for relief shall be entered by any court of bankruptcy jurisdiction with respect to the Borrower and/or any endorser or guarantor of the Line of Credit Note, or if bankruptcy, reorganization or liquidation proceedings are instituted against Borrower and/or any endorser or guarantor of the Line of Credit Note and remain undismissed for 60 days; (c) has entered against it any order by any court approving a plan for the reorganization of the Borrower or any endorser or guarantor of the Line of Credit Note or any other plan or arrangement with creditors of the Borrower or any endorser or guarantor of the Line of Credit Note; (d) shall apply for or permit the appointment of a receiver, trustee or custodian for any substantial portion of the Borrower's and/or any endorser's or guarantor's properties or assets; or (e) becomes unable to meet its debts as they mature or becomes insolvent. 6.6 Judgments and Writs. If there shall be entered against the Borrower and/or any endorser or guarantor of the Line of Credit Note one or more judgments or decrees which are not insured against or satisfied or appealed from and bonded within the time or times limited by applicable rules of procedure for appeal as of right or if a writ of attachment or garnishment against the Borrower and/or any endorser or guarantor of the Line of Credit Note shall be issued and levied in an action claiming $100,000.00 or more and not released, bonded or appealed from within 30 days after the levy thereof. 6.7 Merger. If the Borrower shall merge or consolidate with another entity. 6.8 Change of Control or Management. If the Borrower or a controlling portion of its voting stock or a substantial portion of its assets comes under the practical, beneficial or effective control of any person or persons other than those having such control as of the date of execution of the Line of Credit Note, whether by reason of merger, consolidation, sale or purchase of stock or assets or otherwise, if any such change of control, in the sole and absolute discretion of Standard Federal, adversely impacts upon the ability of the Borrower to carry on its business as theretofore conducted. 6.9 Other Defaults. If the Borrower and/or any endorser or guarantor of the Line of Credit Note or the Swing Line of Credit Note shall default in the due payment of any material indebtedness to whomsoever owed, or shall default in the observance or performance of any material term, covenant or condition in any mortgage, security agreement, guaranty, instrument, lease or agreement to which the Borrower and/or any endorser or guarantor of the Line of Credit Note or the Swing Line of Credit Note is a party. 6.10 Reportable Event. If there shall occur any "reportable event", as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto, which is determined to constitute grounds for termination by the Pension Benefit Guaranty Corporation of any employee pension benefit plan maintained by or on behalf of the Borrower for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such plan and such reportable event is not corrected and such determination is not revoked within 30 days after notice thereof has been given to the plan administrator or the Borrower; or the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate any such employee benefit pension plan or to appoint a trustee to administer such plan; or the appointment of a trustee by the appropriate United States District Court to administer any such employee benefit pension plan. 6.11 Forbearance Agreement. In the event Borrower, McClain Group or any of them shall default under the Forbearance Agreement. Section 7. Remedies Upon Event of Default 7.1 Upon the occurrence of any Event of Default described in Sections 6.2, 6.3 or 6.9 hereof which is not cured or waived in writing by Standard Federal within 15 days after written notice to the Borrower of such default; or upon the occurrence of any Event of Default described in Section 6.1 which continues unremedied for 10 days, or upon the occurrence of any Event of Default described in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.10 or 6.11, Standard Federal's commitment to lend hereunder, if any, shall terminate and Standard Federal may, without notice, declare the entire unpaid and outstanding principal balance of the Line of Credit and all accrued interest to be due and payable in full forthwith, without presentment, demand or notice of any kind, all of which are hereby expressly waived by Borrower, and thereupon Standard Federal shall have and may exercise any one or more of the rights and remedies provided herein or in the Line of Credit Note or in any mortgage, guaranty, security agreement or other document relating hereto or granted secured parties under the Michigan Uniform Commercial Code, including the right to take possession of and dispose of the Collateral, or otherwise provided by applicable law, and to offset against the Line of Credit any amount owing by Standard Federal to the Borrower. Section 8. Miscellaneous 8.1 No default shall be waived by Standard Federal except in writing and a waiver of any default shall not be a waiver of any other default or of the same default on a future occasion. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise hereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 8.2 No forbearance on the part of Standard Federal in enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder shall constitute a waiver of any of the terms of this Agreement or of any such right. 8.3 This Agreement shall be construed in accordance with the law of the State of Michigan. 8.4 All covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing hereunder and shall be deemed to have been relied upon by Standard Federal. All statements contained in any certificate or other document delivered to Standard Federal at any time by or on behalf of the Borrower pursuant hereto shall constitute representations and warranties by the Borrower. 8.5 The Borrower agrees that it will pay all costs and expenses incurred by Standard Federal in the consummation and closing of this Agreement and in protecting or in enforcing Standard Federal's rights under this Agreement and the documents contemplated hereby, including without limitation any and all reasonable fees and disbursements of legal counsel to Standard Federal. 8.6 This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of Standard Federal. 8.7 If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any or all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more phrases, sentences, clauses or sections contained in this Agreement, shall not affect the remaining portions of this Agreement, or any part thereof. Section 9. Additional Provisions 9.1 In addition to the terms, covenants and conditions set forth above, the parties hereto hereby agree as follows: 9.1(a) Borrower shall cause McClain and each of its Subsidiaries to execute and deliver to Standard Federal an unlimited payment guaranty of the obligations of Borrower under the Line of Credit in form and substance acceptable to Standard Federal. (b) A default by McClain Group, or any of them, under any loan documents or agreements with Standard Federal, including the Forbearance Agreement, shall be a default under this Agreement. (c) To the extent any provision of this Amended and Restated Loan Agreement is not consistent with the Forbearance Agreement, the Forbearance Agreement shall govern. IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this Amended and Restated Loan Agreement to be executed as of the day and year first written above. Borrower: MCCLAIN GROUP LEASING, INC., a Michigan corporation ____________________________________ By: --------------------------------- Peter Beale Its: President 38-2969462 Taxpayer Identification Number Standard Federal: STANDARD FEDERAL BANK, a federal savings bank By: --------------------------------- Its: -------------------------------- EX-10.51 7 k66941ex10-51.txt AMENED & RESTATED GUARANTY EXHIBIT 10.51 AMENDED AND RESTATED GUARANTY THIS GUARANTY, is made this ______ day of June, by the undersigned, whose address is 6200 Elmridge, Sterling Heights, Michigan 48310 (individually, a "Guarantor" and collectively, the "Guarantors") , to and with Standard Federal Bank, a federal savings bank ("Standard Federal") RECITALS: A. McClain Group Leasing, Inc., a Michigan corporation ("Borrower"), may from time to time request loans, advances or other financial accommodations from Standard Federal and Standard Federal may, in its discretion, honor such requests in whole or part and thereby Borrower may from time to time be indebted to Standard Federal; and B. Standard Federal is unwilling to make loans, advances or extend other financial accommodations to or otherwise do business with Borrower unless the Guarantors unconditionally guaranty payment of all present and future indebtedness and obligations of Borrower to Standard Federal; and C. Each of the Guarantors will directly benefit from Standard Federal's making of loans advances or extending other financial accommodations to or otherwise doing business with Borrower. NOW, THEREFORE, in order to induce Standard Federal to make loans, advances or extend other financial accommodations to and otherwise do business with Borrower and for other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, Guarantors hereby covenant and agree with Standard Federal as follows: SECTION 1. GUARANTY 1.1 The Guarantors hereby irrevocably and unconditionally guaranty to Standard Federal and its successors and assigns: (a) the full and prompt payment and performance when due of the Indebtedness, as hereinafter defined; and (b) the payment, compliance with and performance of all other obligations, covenants, representations and warranties of every kind, nature and description in accordance with all instruments and documents executed by the Borrower in favor of Standard Federal, whether now owing or existing or heretofore or hereafter created or arising, regardless of whether such obligations, covenants, representations or warranties are held to be unenforceable, void or of no effect against the Borrower and including without limitation, those under any loan agreement and/or promissory note executed and delivered by Borrower to Standard Federal, and any extensions, modifications or renewals thereof. The term "Indebtedness" shall mean all principal, interest, attorneys' fees, commitment fees, liabilities for costs and expenses and all other indebtedness, obligations and liabilities under and in accordance with the terms of all instruments and documents executed by Borrower in favor of Standard Federal, whether direct or indirect, absolute or contingent and whether now owing or existing or heretofore or hereafter created or arising, and regardless of whether such indebtedness, obligations or liabilities are held to be unenforceable, void or of no effect against the Borrower, 1 and all costs, expenses and fees, including reasonable attorneys' fees, arising in connection with the collection or enforcement of any or all amounts, indebtedness, obligations and liabilities of Borrower to Standard Federal, as described above, regardless of whether the Borrower is held to be liable for such amounts. Each Guarantor acknowledges and agrees that any indebtedness of the Borrower to Standard Federal as evidenced by any promissory note may be extended or renewed upon maturity at the sole discretion of Standard Federal and that the Indebtedness as defined herein, the payment of which is hereby guaranteed, shall include, without limitation, all indebtedness and other obligations as extended or renewed and as may be evidenced by any renewal promissory note. 1.2 This is an irrevocable, unconditional and absolute guaranty of payment, and not of collection, and the undersigned agrees that its liability on this guaranty shall be immediate and Standard Federal may have immediate recourse against the undersigned for full and immediate payment of the Indebtedness at any time after the Indebtedness or any part thereof, has not been paid when due (whether by acceleration or otherwise) or the Borrower has defaulted or otherwise failed to perform when due any of its obligations, covenants, representations or warranties to Standard Federal. SECTION 2. LIABILITY OF GUARANTORS 2.1 The liability of Guarantors on this Guaranty shall not be contingent upon the exercise or enforcement by Standard Federal of whatever remedies it may have against the Borrower or others, or the enforcement of any lien or realization upon any security or collateral Standard Federal may at any time possess. Any one or more successive and/or concurrent actions may be brought hereon against the Guarantors (or any of them) either in the same action, if any, brought against Borrower or in separate actions, as often as Standard Federal, in it sole discretion, may deem advisable. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Standard Federal's right to proceed in any other form of action or proceeding or against other parties unless Standard Federal has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Standard Federal against Borrower under any document or instrument evidencing or securing the Indebtedness shall serve to diminish the liability of the Guarantors, except to the extent Standard Federal realizes payment by such action or proceeding, notwithstanding the affect of any such action or proceeding upon the Guarantors' right of subrogation against Borrower. Receipt by Standard Federal of payment or payments with knowledge of the breach of any provision with respect to any of the Indebtedness shall not, as to the Guarantors, be deemed a waiver of such breach. All rights, powers and remedies of Standard Federal hereunder and under any other agreement now or at any time hereafter in force between Standard Federal and the Guarantors shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Standard Federal by law. 2.2 Each Guarantor agrees that its liability hereunder is absolute and unconditional and that Standard Federal shall not be obligated (although it may do so at its sole option) before being entitled to direct recourse against any Guarantor to take any steps, whatsoever to preserve, protect, accept, perfect Standard Federal's interest in, foreclose upon or realize on collateral security, if any, for the payment of the Indebtedness or any other guaranty of the Indebtedness or 2 in any other respect exercise any diligence whatever in collecting or attempting to collect the Indebtedness by any means. 2.3 The liability of the Guarantors shall in no way be affected or impaired by: (a) any amendment, alteration, extension, renewal, waiver, indulgence or other modification of the Indebtedness; (b) any settlement or compromise in connection with the Indebtedness; (c) any subordination of payments under the Indebtedness to any other debt or claim; (d) any substitution, exchange, release or other disposition of all or any part of the Indebtedness; (e) any failure, delay, neglect, act or omission by Standard Federal to act in connection with the Indebtedness; (f) any advances for the purpose of performing any covenant of agreement of the Borrower, or curing any breach; (g) the filing by or against Borrower of bankruptcy, insolvency, reorganization or other debtor's relief afforded Borrower pursuant to the present or future provisions of the Bankruptcy Code or any other state or federal statute or by the decision of any court; or (h) any other matter whether similar or dissimilar to the foregoing. The obligations of the Guarantors are unconditional, notwithstanding any defect in the genuineness, validity, regularity or enforceability of the Indebtedness or any other circumstances whether or not referred to herein, which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. 2.4 Each of the Guarantors hereby waives each and every defense which, under principles of guaranty or suretyship law or otherwise, would otherwise operate to impair or diminish the liability of Guarantors hereunder, including, without limitation: (a) notice of acceptance of this Guaranty and of creations of Indebtedness of Borrower to Standard Federal; (b) any subrogation to the rights of Standard Federal against Borrower until the Indebtedness has been paid in full; (c) presentment and demand for payment of any Indebtedness of Borrower; (d) protest, notice or protest, and notice of dishonor or default to the Guarantors or to any other party with respect to any of the Indebtedness; (e) all other notices to which the Guarantors might otherwise be entitled; (f) any demand for payment under this Guaranty; (g) any defense arising by reason of any disability or other defense of Borrower by reason of the cessation from any cause whatsoever of the liability of the Borrower; (h) any rights to extension, composition or otherwise under the Bankruptcy Code or any amendments thereof, or under any state or other federal statute; and (i) any right or claim or claim of right to cause a marshalling of Borrower's assets. No notice to or demand on the Guarantors shall be deemed to be a waiver of the obligation of the Guarantors or of the right of Standard Federal to take further action without notice or demand as provided herein; nor in any event shall any modification or waiver of the provisions of this Guaranty be effective unless in writing nor shall any such waiver be applicable except in the specific instance for which given. SECTION 3. WARRANTIES AND REPRESENTATIONS 3.1 Each Guarantor represents, warrants and covenants to Standard Federal that, as of the date of this Guaranty: the fair salable value of such Guarantor's assets exceeds its liabilities, including the liability undertaken pursuant to this Guaranty; any financial statements of such Guarantor furnished Standard Federal are true and correct and include in the footnotes thereto all contingent liabilities of such Guarantor: there are not now pending any material court or administrative proceedings or undischarged judgments against such Guarantor and no federal or 3 state tax liens have been filed or threatened against such Guarantor, nor is such Guarantor in default or claimed default under any agreement for borrowed money. 3.2 Each Guarantor agrees to immediately give Standard Federal written notice of any material adverse change in its financial condition, including but not limited to litigation commenced, tax liens filed, default claimed under its indebtedness for borrowed money or bankruptcy proceedings commenced by or against such Guarantor. Each Guarantor agrees to deliver, timely to Standard Federal, annual financial statements for the preceding fiscal year; and at such reasonable times as Standard Federal requests to furnish its current financial statements to Standard Federal and permit Standard Federal or its representatives to inspect at such Guarantor's offices, its financial records and properties and make extracts therefrom in order to evaluate the financial condition of such Guarantor. The Guarantors are fully aware of the financial condition of the Borrower. The Guarantors deliver this Guaranty based solely upon their own independent investigation and in no part upon any representation or statement of Standard Federal with respect thereto. The Guarantors are in a position to and hereby assume full responsibility for obtaining any additional information concerning Borrower's financial condition as Guarantors may deem material to its obligations hereunder; and Guarantors are not relying upon nor expecting Standard Federal to furnish them any information in Standard Federal's possession concerning Borrower's financial condition. SECTION 4. MISCELLANEOUS 4.1 This Guaranty shall inure to the benefit of Standard Federal and its successors and assigns, including each and every holder or owner of any of the indebtedness guaranteed hereby. In the event that there shall be more than one such holder or owner, this Guaranty shall be deemed a separate contract with each such holder and owner. In the event that any person other than Standard Federal shall become a holder or owner of any of the Indebtedness, each reference to Standard Federal hereunder shall be construed as if it referred to each such holder or owner. 4.2 This Guaranty shall be binding upon Guarantors and its successors and assigns. Guarantors agree that recourse may be had against their earnings and separate property for all of Guarantors' obligations under this Guaranty. 4.3 The liability of each Guarantor executing this Guaranty shall be joint and several and the term "Guarantor" shall mean each and all such Guarantors. 4.4 This Guaranty and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the laws of the State of Michigan. 4.5 THIS GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO STANDARD FEDERAL BY GUARANTORS, JOINTLY AND SEVERALLY, WITHOUT ANY DURESS OR COERCION, AND AFTER GUARANTORS, JOINTLY AND SEVERALLY, HAVE EITHER CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY TO DO SO, AND GUARANTORS, JOINTLY AND SEVERALLY, HAVE CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS GUARANTY. 4.6 This Guaranty amends and restates in its entirety the Guaranty dated July 17, 1996 by McClain Industries, Inc. in favor of Standard Federal. 4 IN WITNESS WHEREOF, this Guaranty was executed and delivered by the undersigned on the day and year first above written. BORROWERS: MCCLAIN INDUSTRIES, INC., a Michigan corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer --------------------------- 38-1867649 ---------------------------------------- Taxpayer Identification Number MCCLAIN E-Z PACK INC., a Michigan corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer --------------------------- 38-3060202 ---------------------------------------- Taxpayer Identification Number 5 MCCLAIN GALION, INC., a Michigan corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer --------------------------- 38-3060260 ---------------------------------------- Taxpayer Identification Number SHELBY STEEL PROCESSING COMPANY, a Michigan corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer --------------------------- 38-2205216 ---------------------------------------- Taxpayer Identification Number MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer -------------------------- 38-3191647 ---------------------------------------- Taxpayer Identification Number MCCLAIN INTERNATIONAL FSC, a U.S. Virgin Islands corporation By: - ---------------------------------- ------------------------------------ Kenneth D. McClain Its: President -------------------------- ---------------------------------------- Taxpayer Identification Number 6 MCCLAIN SOUTHLAND CO, INC., a Florida corporation By: - ---------------------------------- ------------------------------------ Mark S. Mikelait Its: Treasurer -------------------------- 59-3241829 ---------------------------------------- Taxpayer Identification Number 7 EX-10.52 8 k66941ex10-52.txt GUARANTY DATED JUNE 20, 2001 EXHIBIT 10.52 GUARANTY THIS GUARANTY is made the ___ day of June, 2001 by McClain Group Leasing, Inc. ("Guarantor"), whose address is 6200 Elmridge Road, Sterling Heights, Michigan 48310, to and with Standard Federal Bank, a federal savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084. RECITALS: A. McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel Processing Company, McClain Tube Company d/b/a Quality Tube, McClain International FSC and McClain Southland Co., or any of them (individually and collectively, "Borrower"), may from time to time request loans, advances or other financial accommodations from Standard Federal and Standard Federal may, in its discretion, honor such requests in whole or part and thereby Borrower may from time to time be indebted to Standard Federal; and B. Standard Federal is unwilling to make loans, advances or extend other financial accommodations to or otherwise do business with Borrower unless Guarantor unconditionally guarantees payment of all present and future indebtedness and obligations of Borrower to Standard Federal; and C. Guarantor will directly benefit from Standard Federal's making of loans advances or extending other financial accommodations to or otherwise doing business with Borrower. NOW, THEREFORE, in order to induce Standard Federal to make loans, advances or extend other financial accommodations to and otherwise do business with Borrower and for other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, Guarantor hereby covenants and agrees with Standard Federal as follows: 1. GUARANTY. Guarantor hereby irrevocably and unconditionally guarantees to Standard Federal and its successors and assigns: (a) the full and prompt payment and performance when due of the Indebtedness, as hereinafter defined; and (b) the payment, compliance with and performance of all other obligations, covenants, representations and warranties of every kind, nature and description in accordance with all instruments and documents executed by the Borrower in favor of Standard Federal, whether now owing or existing or heretofore or hereafter created or arising, regardless of whether such obligations, covenants, representations or warranties are held to be unenforceable, void or of no effect against the Borrower and including without limitation, those under any loan agreement and/or promissory note executed and delivered by Borrower to Standard Federal, and any extensions, modifications or renewals thereof. The term "Indebtedness" shall mean all principal, interest, attorneys' fees, commitment fees, liabilities for costs and expenses and all other indebtedness, obligations and liabilities under and in accordance with the terms of all instruments and documents executed by Borrower in favor of Standard Federal, whether direct or indirect, absolute or contingent and whether now owing or existing or heretofore or hereafter created or arising, and regardless of whether such indebtedness, obligations or liabilities are held to be unenforceable, void or of no effect against the Borrower, and all costs, expenses and fees, including reasonable attorneys' fees, arising in connection with the collection or enforcement of any or all amounts, indebtedness, obligations and liabilities of Borrower to Standard Federal, as described above, regardless of whether the Borrower is held to be liable for such amounts. Guarantor acknowledges and agrees that any indebtedness of the Borrower to Standard Federal as evidenced by any promissory note may be extended or renewed upon maturity at the sole discretion of Standard Federal and that the Indebtedness as defined herein, the payment of which is hereby guaranteed, shall include, without limitation, all indebtedness and other obligations as extended or renewed and as may be evidenced by any renewal promissory note. 2. GUARANTY UNCONDITIONAL. This is an irrevocable, unconditional and absolute guaranty of payment, and not of collection, and the undersigned agrees that its liability on this Guaranty shall be immediate and Standard Federal may have immediate recourse against the undersigned for full and immediate payment of the Indebtedness at any time after the Indebtedness or any part thereof, has not been paid when due (whether by acceleration or otherwise) or the Borrower has defaulted or otherwise failed to perform when due any of its obligations, covenants, representations or warranties to Standard Federal. 3. LIABILITY NOT CONTINGENT. The liability of Guarantor on this Guaranty shall not be contingent upon the exercise or enforcement by Standard Federal of whatever remedies it may have against the Borrower or others, or the enforcement of any lien or realization upon any security or collateral Standard Federal may at any time possess. Any one or more successive and/or concurrent actions may be brought hereon against Guarantor either in the same action, if any, brought against Borrower or in separate actions, as often as Standard Federal, in it sole discretion, may deem advisable. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Standard Federal's right to proceed in any other form of action or proceeding or against other parties unless Standard Federal has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Standard Federal against Borrower under any document or instrument evidencing or securing the Indebtedness shall serve to diminish the liability of Guarantor, except to the extent Standard Federal realizes payment by such action or proceeding, notwithstanding the effect of any such action or proceeding upon Guarantor's right of subrogation against Borrower. Receipt by Standard Federal of payment or payments with knowledge of the breach of any provision with respect to any of the Indebtedness shall not, as to the Guarantor, be deemed a waiver of such breach. All rights, powers and remedies of Standard Federal hereunder and under any other agreement now or at any time hereafter in force between Standard Federal and the Guarantor shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Standard Federal by law. 4. LIABILITY ABSOLUTE. Guarantor agrees that its liability hereunder is absolute and unconditional and that Standard Federal shall not be obligated (although it may do so at its sole option) before being entitled to direct recourse against Guarantor to take any steps, whatsoever to preserve, protect, accept, perfect Standard Federal's interest in, foreclose upon or realize on collateral security, if any, for the payment of the Indebtedness or any other guaranty of the Indebtedness or in any other respect exercise any diligence whatever in collecting or attempting to collect the Indebtedness by any means. 5. NO IMPAIRMENT OF LIABILITY. The liability of the Guarantor shall in no way be affected or impaired by: (a) any amendment, alteration, extension, renewal, waiver, indulgence or other modification of the Indebtedness; (b) any settlement or compromise in connection with the Indebtedness; (c) any subordination of payments under the Indebtedness to any other debt or claim; (d) any substitution, exchange, release or other disposition of all or any part of any collateral for the Indebtedness; (e) any failure, delay, neglect, act or omission by Standard Federal to act in connection with the Indebtedness; (f) any advances for the purpose of performing any covenant of agreement of the Borrower, or curing any breach; (g) the filing by or against Borrower of bankruptcy, insolvency, reorganization or other debtor's relief afforded Borrower pursuant to the present or future provisions of the Bankruptcy Code or any other state or federal statute or by the decision of any court; or (h) any other matter whether similar or dissimilar to the foregoing. The obligations of Guarantor are unconditional, notwithstanding any defect in the genuineness, validity, regularity or enforceability of the Indebtedness or any other circumstances whether or not referred to herein, which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. 6. WAIVERS. The Guarantor hereby waives each and every defense which, under principles of guaranty or suretyship law or otherwise, would otherwise operate to impair or diminish the liability of Guarantor hereunder, including, without limitation: (a) notice of acceptance of this Guaranty and of creations of Indebtedness of Borrower to Standard Federal; (b) any subrogation to the rights of Standard Federal against Borrower until the Indebtedness has been paid in full; (c) presentment and demand for payment of any Indebtedness of Borrower; (d) protest, notice or protest, and notice of dishonor or default to the Guarantor or to any other party with respect to any of the Indebtedness; (e) all other notices to which the Guarantor might otherwise be entitled; (f) any demand for payment under this Guaranty; (g) any defense arising by reason of any disability or other defense of Borrower by reason of the cessation from any cause whatsoever of the liability of the Borrower; (h) any rights to extension, composition or otherwise under the Bankruptcy Code or any amendments thereof, or under any state or other federal statute; and (i) any right or claim or claim of right to cause a marshalling of Borrower's assets. No notice to or demand on the Guarantor shall be deemed to be a waiver of the obligation of the Guarantor or of the right of Standard Federal to take further action without notice or demand as provided herein; nor in any event shall any modification or waiver of the provisions of this Guaranty be effective unless in writing nor shall any such waiver be applicable except in the specific instance for which given. 7. WARRANTIES AND REPRESENTATIONS. Guarantor represents, warrants and covenants to Standard Federal that, as of the date of this Guaranty: the fair salable value of Guarantor's assets exceeds its liabilities, including the liability undertaken pursuant to this Guaranty; any financial statements of Guarantor furnished Standard Federal are true and correct and include in the footnotes thereto all contingent liabilities of Guarantor: there are not now pending any material court or administrative proceedings or undischarged judgments against Guarantor and no federal or state tax liens have been filed or threatened against Guarantor, nor is Guarantor in default or claimed default under any agreement for borrowed money. 8. NOTICES. Guarantor agrees to immediately give Standard Federal written notice of any material adverse change in its financial condition, including but not limited to litigation commenced, tax liens filed, default claimed under its indebtedness for borrowed money or bankruptcy proceedings commenced by or against Guarantor. Guarantor agrees to deliver, timely to Standard Federal, annual financial statements for the preceding fiscal year; and at such reasonable times as Standard Federal requests to furnish its current financial statements to Standard Federal and permit Standard Federal or its representatives to inspect at Guarantor's offices, its financial records and properties and make extracts therefrom in order to evaluate the financial condition of Guarantor. 9. NO RELIANCE BY GUARANTOR. Guarantor is fully aware of the financial condition of the Borrower. Guarantor delivers this Guaranty based solely upon its own independent investigation and in no part upon any representation or statement of Standard Federal with respect thereto. Guarantor is in a position to and hereby assumes full responsibility for obtaining any additional information concerning Borrower's financial condition as Guarantor may deem material to its obligations hereunder; and Guarantor is not relying upon nor expecting Standard Federal to furnish it any information in Standard Federal's possession concerning Borrower's financial condition. 10. MISCELLANEOUS. This Guaranty shall inure to the benefit of Standard Federal and its successors and assigns, including each and every holder or owner of any of the indebtedness guaranteed hereby. In the event that there shall be more than one such holder or owner, this Guaranty shall be deemed a separate contract with each such holder and owner. In the event that any person other than Standard Federal shall become a holder or owner of any of the Indebtedness, each reference to Standard Federal hereunder shall be construed as if it referred to each such holder or owner. This Guaranty shall be binding upon Guarantor and its successors and assigns. Guarantor agrees that recourse may be had against its earnings and separate property for all of Guarantor's obligations under this Guaranty. This Guaranty and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the laws of the State of Michigan. 11. JOINT AND SEVERAL GUARANTY. The liability of each Guarantor executing this Guaranty shall be joint and several and the term "Guarantor" shall mean each and all such Guarantors. 12. GUARANTY FREELY GIVEN. THIS GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO STANDARD FEDERAL BY GUARANTOR, JOINTLY AND SEVERALLY, WITHOUT ANY DURESS OR COERCION, AND AFTER GUARANTOR, JOINTLY AND SEVERALLY, HAS EITHER CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY TO DO SO, AND GUARANTOR, JOINTLY AND SEVERALLY, HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS GUARANTY. IN WITNESS WHEREOF, this Guaranty was executed and delivered by the undersigned on the date stated in the first paragraph above. Witness: GUARANTOR: McCLAIN GROUP LEASING, INC. ________________________________ By:_________________________________ Its:_________________________________ -----END PRIVACY-ENHANCED MESSAGE-----