U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended October 31, 1997
Commission File Number: 0-22990
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MAGNUM RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0368628
(State of incorporation) (I.R.S. Employer Identification No.)
1750 Yankee Doodle Road, Suite 202
Eagan, MN 55121
(612) 405 9247
(Address, including zip code, and telephone number including area code,
of Issuer's executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for 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___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 12, 1997 - 10,354,337.
Transitional Small Business Disclosure Format (Alternative 2):
Yes __X__ No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
MAGNUM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 31, July 31,
Assets 1997 1997
- ------ ----------- -----------
Current assets:
Cash $ 2,000 $ 7,000
Accounts receivable, net 1,835,000 1,455,000
Inventories 1,962,000 1,845,000
Prepaid expenses 84,000 66,000
----------- -----------
Total current assets 3,883,000 3,373,000
Property, plant & equipment, net 2,268,000 2,009,000
Other assets 97,000 41,000
----------- -----------
Total assets $ 6,248,000 $ 5,423,000
=========== ===========
Liabilities & Stockholders' Equity
Current liabilities:
Current maturities of
long-term obligations $ 150,000 $ 144,000
Accounts payable 1,444,000 1,187,000
Revolving note payable to bank 1,451,000 1,190,000
Accrued liabilities 481,000 489,000
----------- -----------
Total current liabilities 3,526,000 3,010,000
Long-term obligations, less current
maturities 707,000 434,000
Deferred income taxes 81,000 84,000
----------- -----------
Total liabilities 4,314,000 3,528,000
Stockholders' Equity:
Preferred stock, par value $.01 per
share; 5,000,000 shares authorized,
no shares issued or outstanding -0- -0-
Common stock, par value $.01 per
share, 50,000,000 shares authorized;
10,354,337 shares issued and
outstanding at October 31, 1997
and at July 31, 1997 104,000 104,000
Additional paid in capital 7,872,000 7,872,000
Accumulated deficit (6,042,000) (6,081,000)
----------- -----------
Total stockholders' equity 1,934,000 1,895,000
----------- -----------
Total Liabilities & Stockholders' Equity $ 6,248,000 $ 5,423,000
=========== ===========
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
MAGNUM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
October 31,
1997 1996
------------ ------------
Net sales $ 3,744,000 $ 2,247,000
Cost of goods sold 3,046,000 1,714,000
------------ ------------
Gross profit 698,000 533,000
Operating expenses:
Selling, general
and administration 518,000 431,000
Research, development
and engineering 51,000 42,000
------------ ------------
Operating profit 129,000 60,000
Other income (expense):
Interest expense, net (96,000) (20,000)
Other 3,000 4,000
------------ ------------
Income before
income taxes 36,000 44,000
Income tax benefit 3,000 3,000
------------ ------------
Net Income $ 39,000 $ 47,000
============ ============
Net income per share $ 0.00 $ 0.00
============ ============
Weighted average number of
common shares outstanding 10,354,337 10,252,337
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
MAGNUM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
October 31,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 39,000 $ 47,000
Adjustments to reconcile net income
to net cash from operations:
Depreciation & amortization 87,000 59,000
Deferred income taxes (3,000) (3,000)
Changes in operating assets and liabilities:
Accounts receivable (380,000) (407,000)
Inventories (117,000) (79,000)
Prepaid expenses (18,000) 6,000
Accounts payable 257,000 281,000
Accrued liabilities (8,000) (6,000)
--------- ---------
Net cash used in operating activities (143,000) (102,000)
Cash flows from investing activities:
Purchase of property, plant & equipment (346,000) (192,000)
Other assets (56,000) 0
--------- ---------
Net cash used in investing activities (402,000) (192,000)
Cash flows from financing activities:
Proceeds from long-term financing 311,000 16,000
Proceeds from revolving note payable
to bank, net of repayments 261,000 360,000
Payments on long-term obligations (32,000) (88,000)
--------- ---------
Net cash provided by investing activities 540,000 288,000
--------- ---------
Net decrease in cash (5,000) (6,000)
Cash at beginning of period 7,000 12,000
--------- ---------
Cash at end of period $ 2,000 $ 6,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 73,000 $ 15,000
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
MAGNUM RESOURCES, INC.
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Magnum Resources, Inc. (`the Company') and its wholly-owned subsidiaries.
These statements and related notes have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying
condensed consolidated financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the fiscal year ended July 31, 1997. The following information
reflects, in the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the interim period
results. Operating results for interim periods are not necessarily indicative of
results which may be expected for the year as a whole.
USE OF ESTIMATES
Preparation of the Company's financial statements requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and related revenues and expenses. Actual results could differ from estimates
used by management.
EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. The
Company has not yet determined what impact this statement will have on the
Company's financial statements.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with 1997 presentation.
<PAGE>
MAGNUM RESOURCES, INC.
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER MATTERS
During the quarter ended October 31, 1997, the Company utilized its line of
credit extensively to finance its growth. The line of credit bears interest at
Norwest Bank's prime rate + 6 1/2%. In addition to the interest cost with the
line of credit, many of the Company's dealers purchased equipment utilizing
company supported finance options (floorplans). The combined interest cost
associated with the borrowings under the line of credit and the dealer
participation in the floorplan financing, caused interest expense to increase
from $20,000 in the first quarter of 1996 to $96,000 in the first quarter of
1997. The Company expects interest expense to remain high in periods of revenue
growth.
In November 1997, the Company established a series of credit facilities for each
of its principal operating subsidiaries. Each line of credit is separately
maintained and is subject to separate security agreements covering most of the
assets of each corporation. The aggregate amount available under these lines is
$1,800,000.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
6.1 Revolving Credit facility for Magnum Resources and
subsidiaries dated November 25, 1997.
27.2 Financial Data Schedule
(B) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
MAGNUM RESOURCES, INC.
(Registrant)
Date: January 6, 1998 BY: /s/ John F. Luoma
----------------------
John F. Luoma
Chief Executive Officer
BY: /s/ David M. Eichers
----------------------
David M. Eichers
Secretary and Chief Accounting Officer
MAGNUM RESOURCES, INC. AND SUBSIDIARIES
EXHIBIT 6.1 Revolving Credit facility for Magnum Resources and Subsidiaries
dated November 25, 1997
10/31/97
CREDIT AND SECURITY AGREEMENT
Dated as of November 25, 1997
D&E MACHINING, INC., a North Dakota corporation (the
"Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" means a Hydra-Mac Revolving Advance, a D&E Revolving
Advance and a MBS Revolving Advance.
"Affiliate" or "Affiliates" means Hydra-Mac, MBS, MRI, Power
Equipment and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common
stockholders' equity of the Borrower, determined in accordance with
GAAP.
"Collateral" has the meaning given in Section 3.1.
"Collateral Account Agreement" means the Amended and Restated
Collateral Account Agreement of even date herewith by and among the
Borrower, Hydra-Mac, MBS, Norwest Bank Minnesota, National Association,
and the Lender.
"D&E Borrowing Base" means the lesser of:
(a) the D&E Maximum Line; or
(b) 80% of Eligible Accounts.
"D&E Maximum Line" means $200,000.
"D&E Revolving Advance" has the meaning given in Section 2.1.
"D&E Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three and
one-half percent (3.5%) over the Floating Rate, which rate shall change
when and as the Floating Rate changes.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
<PAGE>
(i) That portion of Accounts over 90 days past
invoice date or, if the Lender in its discretion has
determined that a particular dated Account of 120 days or less
from invoice date may be eligible, that portion of such
Account which is more than 30 days past the stated due date;
(ii) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not backed by a
bank letter of credit assigned to the Lender, in the
possession of the Lender and acceptable to the Lender in all
respects, in its sole discretion;
(vi) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in favor of the Lender or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender;
(ix) That portion of Accounts that have been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes; and
(xi) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus four and one-half percent (4.5%), which annual rate
shall change when and as the Base Rate changes.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.2.
"Guarantors" means Hydra-Mac, MBS, Power Equipment, MRI and
any other Person guaranteeing payment of any of the Obligations.
"Hydra-Mac" means Hydra-Mac International, Inc., a Delaware
corporation.
"Hydra-Mac Borrowing Base" has the meaning given in the
Hydra-Mac Credit Agreement.
"Hydra-Mac Credit Agreement" means that certain Amended and
Restated Credit and Security Agreement of even date herewith, by and
between the Lender and Hydra-Mac, as amended, supplemented and restated
from time to time.
"Hydra-Mac Revolving Advance" has the meaning given in the
Hydra-Mac Credit Agreement
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired.
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Disclosure by the Borrower in favor of the Lender of
even date herewith.
"Lockbox Agreement" means the Amended and Restated Lockbox
Agreement by and among the Borrower, Hydra-Mac, MBS, Norwest Bank
Minnesota, National Association, and the Lender, of even date herewith.
"Maturity Date" has the meaning given in Section 2.4.
"Maximum Line" means $1,800,000.
"MBS" means Magnum Business Systems, Inc., a [Minnesota]
corporation.
"MBS Borrowing Base" has the meaning given in the MBS Credit
Agreement.
"MBS Credit Agreement" means that certain Credit and Security
Agreement of even date herewith, by and between MBS and the Lender, as
amended, supplemented and restated from time to time.
"MBS Revolving Advance" has the meaning given in the MBS
Credit Agreement.
"MRI" means Magnum Resources, Inc., a Delaware corporation,
and the parent of the Borrower, Hydra-Mac and MBS.
<PAGE>
"MRI Security Agreement" means the Amended and Restated
Security Agreement of even date herewith, executed by MRI and delivered
to the Lender.
"Net Income" means fiscal year-to-date after-tax net income,
decreased by the sum of any extraordinary, non-operating or non-cash
income recorded by the Borrower and increased by any extraordinary,
non-cash or non-operating expense or loss recorded by the Borrower, as
determined in accordance with GAAP.
"Note" means the D&E Revolving Note.
"Obligations" means each and every debt, liability and
obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, including all indebtedness
arising under this Agreement, the Note or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Original Maturity Date" means July 10, 1999.
"Overall Borrowing Base" means, at any time and subject to
change from time to time in the Lender's sole discretion, the lesser
of:
(a) the Maximum Line; or
(b) the sum of the Hydra-Mac Borrowing Base, the
D&E Borrowing Base, and the MBS Borrowing
Base.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Power Equipment" means Power Equipment Corp., a Minnesota
corporation.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Security Documents" means this Agreement, the Collateral
Account Agreement and the Lockbox Agreement, each of even date herewith
and by and among the Borrower, Hydra-Mac, MBS, the Lender and Norwest
Bank Minnesota, National Association.
"Security Interest" has the meaning given in Section 3.1.
"Termination Date" means the Maturity Date or the date the
Lender demands payment pursuant to Section 2.4 or Section 7.2, or the
Borrower terminates the Credit Facility pursuant to Section 2.5, as the
case may be.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Minnesota.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "D&E Revolving Advance"). The
Lender shall not consider any request for a D&E Revolving Advance if, after
giving effect to such requested D&E Revolving Advance, (i) the sum of the
outstanding and unpaid D&E Revolving Advances, plus the outstanding and unpaid
Hydra-Mac Revolving Advances, plus the outstanding and unpaid MBS Revolving
Advances would exceed the Overall Borrowing Base or (ii) the sum of the
outstanding and unpaid D&E Revolving Advances would exceed the D&E Borrowing
Base. The Borrower's obligation to pay the D&E Revolving Advances shall be
evidenced by the D&E Revolving Note and shall be secured by the Collateral.
Within the limits set forth in this Section 2.1, the Borrower may request D&E
Revolving Advances, prepay, and request additional D&E Revolving Advances. The
Borrower shall make each request for a D&E Revolving Advance to the Lender
before 11:00 a.m. (Minneapolis time) of the day of the requested D&E Revolving
Advance. Requests may be made in writing or by telephone.
Section 2.2 Interest; Default Interest. All interest shall be
payable monthly in arrears on the first day of the month and on demand.
(a) REVOLVING NOTE. Except as set forth in subsection (c) and
(d), the outstanding principal balance of the D&E Revolving Advances
shall bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to subsections (a) and (c), the Borrower, Hydra-Mac
and MBS, collectively, shall pay to the Lender interest on the
Hydra-Mac Revolving Advances, the D&E Revolving Advances and the MBS
Revolving Advances, collectively, of not less than $37,500 per calendar
year during the term of this Agreement (prorated for less than full
years), and the Borrower, D&E and MBS, in a manner within the sole
discretion of the Borrower, D&E and MBS, shall pay any deficiency
between such
<PAGE>
minimum interest charge and the amount of interest otherwise calculated
under Sections (a) and (c) in arrears on the first day of each year.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the D&E Revolving Advances
outstanding from time to time shall bear interest at the Default Rate,
effective for any periods designated by the Lender from time to time
during that Default Period.
(d) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.3 Administration Fees. The Borrower hereby agrees to
pay the Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by the Lender
as its audit fees (which fees are currently $62.50 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in conducting
any such audit or inspection.
Section 2.4 Discretionary Nature of Credit Facility; Automatic
Renewal. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE A D&E
REVOLVING ADVANCE AND/OR DEMAND PAYMENT OF THE D&E REVOLVING ADVANCES AND
TERMINATE THIS AGREEMENT WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS
AGREEMENT. The Lender need not show that an adverse change has occurred in the
Borrower's condition, financial or otherwise, in order to refuse to make any
requested Advance or to demand payment of the D&E Revolving Advances. Unless
terminated by the Lender at any time or by the Borrower pursuant to Section 2.5,
this Agreement shall remain in effect until the Original Maturity Date and,
thereafter, shall automatically renew for successive one year periods. Each such
anniversary date is herein referred to as a "Maturity Date".
Section 2.5 Termination by Borrower.
(a) TERMINATION BY BORROWER. The Borrower may terminate this Agreement
at any time and, subject to payment and performance of all Obligations, may
obtain any release or termination of the Security Interest to which the Borrower
is otherwise entitled by law by (i) giving at least 30 days' prior written
notice to the Lender of the Borrower's intention to terminate this Agreement,
and (ii) paying the Lender a prepayment fee in accordance with subsection (b)
if the Borrower terminates this Agreement effective as of any date other than a
Maturity Date; provided, however, if the Borrower elects to terminate this
Agreement, the Borrower must also terminate the Hydra-Mac Credit Agreement, in
accordance with Section 2.6(a) of such agreement, and the MBS Credit Agreement,
in accordance with Section 2.5(a) of such agreement.
(b) PREPAYMENT FEE. If the Borrower desires to terminate this Agreement
as of any date other than a Maturity Date, or as of a Maturity Date but without
giving at least 90 days' prior written notice thereof, it shall (i) give at
least 30 days' prior written notice to the Lender of the Borrower's intention to
do so, and (ii) pay to the Lender a prepayment fee of 3% of the D&E Maximum
Line; provided, however, that such prepayment fee shall be waived if such
prepayment is made because of increased cash flow generated from the Borrower's
operations, in the normal course of business, or refinancing by an affiliate of
the Lender.
Section 2.6 Mandatory Prepayment. Without notice or demand,
if the outstanding principal balance of the D&E Revolving Advances shall at any
time exceed the D&E Borrowing Base or if the outstanding principal balance of
the Advances shall at any time exceed the Overall Borrowing Base, the Borrower
shall immediately prepay the D&E Revolving Advances to the extent necessary to
eliminate such excess.
Section 2.7 D&E Revolving Advances Without Request. The
Borrower hereby authorizes the Lender, in its discretion, at any time or from
time to time without the Borrower's request, to make D&E Revolving Advances to
pay accrued interest, fees, uncollected items that have been applied to the
Obligations, and other Obligations due and payable from time to time.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
grants to the Lender a security interest (the "Security Interest") in the
following collateral (the "Collateral"), as security for the payment and
performance of the Obligations:
<PAGE>
INVENTORY: All inventory of Borrower, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of
whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by Borrower or by some other Person who subsequently transfers
such Person's interest to Borrower, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Borrower may at any
time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of
such account debtor or other obligor; all including all of Borrower's
rights to payment in the form of all present and future accounts,
contract rights, loans and obligations receivable, chattel papers,
bonds, notes and other debt instruments, tax refunds and rights to
payment in the nature of general intangibles;
EQUIPMENT: All of the Borrower's equipment, as such term is defined in
the UCC whether now or hereafter owned, including all present and
future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts,
tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Secured Party by Borrower;
GENERAL INTANGIBLES: All of Borrower's general intangibles, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including all present and future contract rights, patents, patent
applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use Borrower's name,
and the goodwill of Borrower's business; and
INVESTMENT PROPERTY: All of Borrower's investment property, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks,
bonds, mutual fund shares, money market shares and U.S. Government
securities; together with all substitutions and replacements for and
products of any of the foregoing property and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
property, together with all accessions and together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and
(ii) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods.
Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (either before or after the occurrence of
an Event of Default) notify any account debtor or other Person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of each premises where Borrower conducts its
business and has any rights of possession (the "Premises") at any time
during any Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender in good faith considers related.
(c) The Lender's right to hold the Premises shall terminate
upon the earlier of payment in full of all Obligations, or final sale
or disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
<PAGE>
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession or use of any of the
Premises; provided, however, that if the Lender does pay or account for
any rent or other compensation for the possession or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof.
Section 3.4 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Lender's Willingness
to Consider Making D&E Revolving Advances. The Lender's willingness to consider
making an initial D&E Revolving Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Hydra-Mac Credit Agreement, properly executed by
Hydra-Mac.
(c) The MBS Credit Agreement, properly executed by MBS.
(d) The Note, properly executed by the Borrower.
(e) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(f) The Collateral Account Agreement, properly executed by the
Borrower, Hydra-Mac, MBS and Norwest Bank Minnesota, National
Association.
(g) The Lockbox Agreement, properly executed by the Borrower,
Hydra-Mac, MBS and Norwest Bank Minnesota, National Association.
(h) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(i) A certificate of the Borrower's Secretary certifying as to
(i) the resolutions of the Borrower's directors, and if required, its
shareholders, authorizing the execution, delivery and performance of
the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's agents authorized to
execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the
Borrower's behalf.
(j) A current certificate issued by the Secretary of State of
North Dakota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of North Dakota.
(k) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(l) A support agreement in favor of the Lender, properly
executed by David M. Eichers, in his personal capacity.
(m) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
<PAGE>
(n) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(o) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations.
(p) The MRI Security Agreement, properly executed by MRI.
(q) Payment of the fees and commissions due through the date
of the initial D&E Revolving Advance and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 8.3, including all legal expenses incurred through the date of
this Agreement.
(r) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All D&E Revolving
Advances. The Lender will not consider any request for a D&E Revolving Advance
unless on such date:
(a) the representations and warranties contained in Article V
and the Disclosure are correct on and as of the date of such D&E
Revolving Advance as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would result
from such D&E Revolving Advance which constitutes a Default or an Event
of Default.
ARTICLE V
Representations and Warranties
THE BORROWER REPRESENTS AND WARRANTS TO THE LENDER AS FOLLOWS:
Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During
its existence, the Borrower has done business solely under its corporate name as
set forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender
certain of its unaudited financial statements certified by the Borrower. Those
statements fairly present the Borrower's financial condition as of the dates
indicated therein and the results of its operations for the periods then ended
and were prepared in accordance with generally accepted accounting principles.
Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.
ARTICLE VI
Covenants of the Borrower
SO LONG AS THE D&E REVOLVING ADVANCES OR ANY AMOUNT OWING TO
LENDER HEREUNDER SHALL REMAIN UNPAID, THE BORROWER WILL COMPLY WITH THE
REQUIREMENTS IN THIS ARTICLE, UNLESS THE LENDER SHALL OTHERWISE CONSENT IN
WRITING.
Section 6.1 Reporting Requirements. The Borrower will deliver
to the Lender each of the following in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements prepared in accordance with GAAP; together
with (i) copies of all management letters prepared by such accountants;
(ii) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and
the computations as to, whether
<PAGE>
or not the Borrower is in compliance with the requirements set forth in
Section 6.7 and (iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been prepared in
accordance with GAAP, that they fairly present the Borrower's financial
condition and the results of its operations, and whether or not such
officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statement of income and retained earnings of the Borrower as at the end
of and for such month and for the year to date period then ended,
prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and fairly
represent the Borrower's financial condition and the results of its
operations, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Section
6.7;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification as of the end of such month;
(d) as soon as available and in any event within 20 days of
the end of each month, inventory certifications as of the end of such
month;
(e) as soon as available, a copy of the checking account
statement of the Borrower, including all deposit tickets, as of the
last day of each month from each bank with which Borrower maintains a
checking account, such statements to be provided to the Lender directly
by each such bank or by the Borrower with respect to a bank that is
unwilling to send them to the Lender;
(f) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets, income statements and
statements of cash flow for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by
the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its
discretion require; provided, however, that with respect to the
Borrower's projections for fiscal year 1998, such projections shall be
delivered to the Lender on or before December 31, 1997;
(g) as soon as available and in any event within 3 days after
they are due, copies of tax payments due and paid and written notice of
any and all taxes due but not paid;
(h) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request; and
(i) before March 31 of each calendar year, the Borrower shall
cause any and all Guarantors, along with John F. Luoma and David
Eichers, to submit financial statements to the Lender, and certified by
such party.
Section 6.2 Inspection. Upon the Lender's request, the
Borrower will permit any officer, employee, attorney, agent or accountant for
the Lender to audit, review, make extracts from or copy any and all records of
the Borrower and to inspect the Collateral at all times during ordinary business
hours.
Section 6.3 Account Verification. The Lender may at any time
and from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to verify Accounts as frequently as
daily and the Borrower understands the Lender intends to do so by telephone
and/or in writing.
Section 6.4 No Other Liens. The Borrower will keep all
Collateral free and clear of all security interests, liens and encumbrances
except the Security Interest, purchase money security interests in equipment,
and other security interests approved by the Lender in writing.
<PAGE>
Section 6.5 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 Lockbox; Collateral Account. The Borrower has
provided the Lender with agreements regarding a lockbox and a collateral account
in connection with the collection of Accounts.
Section 6.7 Minimum Book Net Worth. The Borrower will cause
MRI to maintain, during each period described below, its consolidated Book Net
Worth, determined as at the end of each month, at an amount not less than the
amount set forth opposite such period:
------------------------- -----------------------------
Period Minimum Book Net Worth
------------------------- -----------------------------
July 31, 1997 $1,800,000
through October 30, 1997
------------------------- -----------------------------
October 31, 1997 $1,850,000
through January 30, 1998
------------------------- -----------------------------
January 31, 1998 $1,900,000
through April 29, 1998
------------------------- -----------------------------
April 30, 1998 $1,950,000
through July 30, 1998
------------------------- -----------------------------
July 31, 1998 and $2,030,000
thereafter
------------------------- -----------------------------
Section 6.8 Minimum Net Income. The Borrower shall achieve
Minimum Net Income, beginning in January of 1998, in accordance with covenant
amounts established by the Lender, in its sole discretion, based upon the
Borrower's projections to be delivered in accordance with Section 6.1(f) herein.
Section 6.9 No Sale or Transfer of Collateral and Other
Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to anyone other than the sale of
Inventory in the ordinary course of business.
Section 6.10 No Sale or Transfer of Shares of Borrower.
Borrower will cause each of its shareholders not to sell, transfer, pledge, or
grant a security interest in, any shares of stock of the Borrower.
Section 6.11 Place of Business; Name. The Borrower will not
change the location of its chief executive office or principal place of business
from that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.
Section 6.12 Investments. The Borrower will not purchase or
hold beneficially any stock or other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investments or
acquire any interest whatsoever in, any other Person, including specifically but
without limitation any partnership, joint venture, or Affiliate, except:
(i) TRAVEL ADVANCES OR LOANS TO THE BORROWER'S OFFICERS AND
EMPLOYEES NOT EXCEEDING AT ANY ONE TIME AN AGGREGATE OF
$10,000; AND
(ii) ADVANCES IN THE FORM OF PROGRESS PAYMENTS, PREPAID RENT
NOT EXCEEDING TWO (2) MONTHS OR SECURITY DEPOSITS.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. An "Event of Default" as used
herein shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this
connection Borrower hereby waives presentment, notice of dishonor and
protest;
<PAGE>
(b) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document;
(d) An event of default under and as defined in the Hydra-Mac
Credit Agreement shall occur and be continuing, or any other breach,
default or event of default by or attributable to any Affiliate under
any agreement between such Affiliate and the Lender;
(e) An event of default under and as defined in the MBS Credit
Agreement shall occur and be continuing, or any other breach, default
or event of default by or attributable to any Affiliate under any
agreement between such Affiliate and the Lender.
Section 7.2 Rights and Remedies. As provided in Section 2.4,
the Lender may, at any time and for any reason, refuse to make any requested D&E
Revolving Advance or demand payment of the Obligations. In addition, upon the
occurrence of an Event of Default or at any time thereafter, the Lender may
exercise any or all of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of
any or all of the Collateral, and in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the
Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(b) The Lender may exercise any other rights and remedies
available to it by law or agreement.
THE REMEDIES PROVIDED HEREUNDER ARE CUMULATIVE.
Section 7.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.2) at least 10
calendar days before the date of intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8.1 Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender and any and all
parent corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Agreement, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
Section 8.2 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class United States mail, (iii) sent by
overnight courier of national reputation, or (iv) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopy number as set forth below its signature to this
Agreement.
Section 8.3 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents and any other document or agreement related
thereto, and the transactions contemplated hereby, including wire transfer and
ACH charges, the cost of credit reports, overadvance fees, the expense of any
auditors and fees and expenses in enforcing this Agreement.
Section 8.4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations,
<PAGE>
affiliated corporations, successor corporations, and all present and future
officers, directors, employees, attorneys and agents of the foregoing (the
"Indemnitees") from and against any of the following (collectively, "Indemnified
Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement and the
other Loan Documents or the making of the D&E Revolving
Advances;
(ii) any and all liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection
with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner
related to or arising out of or in connection with the making
of the D&E Revolving Advances, this Agreement and the other
Loan Documents or the use or intended use of the proceeds of
the D&E Revolving Advances; and
(iii) any claim, loss or damage to which any
Indemnitee may be subjected as a result of any violation of
any federal, state, local or other governmental statute,
regulation, law, or ordinance dealing with the protection of
human health and the environment.
IF ANY INVESTIGATIVE, JUDICIAL OR ADMINISTRATIVE PROCEEDING ARISING FROM ANY OF
THE FOREGOING IS BROUGHT AGAINST ANY INDEMNITEE, THEN THE BORROWER OR COUNSEL
DESIGNATED BY THE BORROWER AND SATISFACTORY TO THE INDEMNITEE, WILL RESIST AND
DEFEND SUCH ACTION, SUIT OR PROCEEDING TO THE EXTENT AND IN THE MANNER DIRECTED
BY THE INDEMNITEE. EACH INDEMNITEE WILL USE ITS BEST EFFORTS TO COOPERATE IN THE
DEFENSE OF ANY SUCH ACTION, SUIT OR PROCEEDING. IF THE FOREGOING UNDERTAKING TO
INDEMNIFY, DEFEND AND HOLD HARMLESS MAY BE HELD TO BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, THE BORROWER SHALL NEVERTHELESS MAKE THE
MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE BORROWER'S OBLIGATION
UNDER THIS SECTION 8.4 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE
DISCHARGE OF THE BORROWER'S OTHER OBLIGATIONS HEREUNDER.
Section 8.5 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Section 8.6 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of Hennepin
County, Minnesota located in Minneapolis, Minnesota, or the United States
District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.
NORWEST CREDIT, INC. D&E MACHINING, INC.
By
-------------------------------
Roger A. Pfiffner By
Its Vice President -------------------------------
John F. Luoma
Its President
Address:
Norwest Center
Sixth Street and Marquette Avenue Address:
Minneapolis, Minnesota 55479-0152 1750 Yankee Doodle Road
Telecopy No. (612) 341-2472 Suite 202
Federal Tax ID No. 41-1712687 Eagan, Minnesota 55121
Telecopy No. (612) 405-9312
Federal Tax ID No. 45-0308466
[SIGNATURE PAGE TO CREDIT AND SECURITY AGREEMENT]
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$200,000 Minneapolis, Minnesota
November 25, 1997
For value received, the undersigned, D&E MACHINING, INC., a
North Dakota corporation (the "Borrower"), hereby promises to pay ON DEMAND to
the order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America
and in immediately available funds, the principal sum of Two Hundred Thousand
Dollars ($200,000) or, if less, the aggregate unpaid principal amount of all D&E
Revolving Advances made by the Lender to the Borrower under the Credit and
Security Agreement of even date herewith by and between the Lender and the
Borrower (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") together with interest on the principal
amount hereunder remaining unpaid from time to time (computed on the basis of
actual days elapsed in a 360-day year) from the date of the initial D&E
Revolving Advance until this Note is fully paid at the rate from time to time in
effect under the Credit Agreement.
This Note is the D&E Revolving Note as defined in the Credit
Agreement and is subject to the Credit Agreement.
D&E MACHINING, INC.
By
---------------------------------
John F. Luoma
Its President
<PAGE>
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Roger A. Pfiffner
Norwest Credit, Inc.
Date: __________________, 199___
Subject: D&E Machining, Inc.
Financial Statements of Parent
In accordance with our Credit and Security Agreement dated as
of November __, 1997 (the "Credit Agreement"), attached are the consolidated
financial statements of Magnum Resources, Inc. (the "Parent") as of and for
______________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Parent's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to
thereto. Financial Covenants. I further hereby certify as
follows:
1. Minimum Book Net Worth. Pursuant to Section 6.7 of the
Credit Agreement, as of the Reporting Date, the Parent's Book Net Worth
was $____________ which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date as set forth in table below:
----------------------------- --------------------------
Period Minimum Book Net Worth
----------------------------- --------------------------
July 31, 1997 through October $1,800,000
30, 1997
----------------------------- --------------------------
October 31, 1997 through $1,850,000
January 30, 1998
----------------------------- --------------------------
January 31, 1998 through April $1,900,000
29, 1998
----------------------------- --------------------------
April 30, 1998 through July 30, $1,950,000
1998
----------------------------- --------------------------
July 31, 1998 and thereafter $2,030,000
----------------------------- --------------------------
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
D&E MACHINING, INC.
By
----------------------------
Dave Eichers
Its Secretary
<PAGE>
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of November 25, 1997
HYDRA-MAC INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" means a Hydra-Mac Revolving Advance, a D&E Revolving
Advance and a MBS Revolving Advance.
"Affiliate" or "Affiliates" means D&E, MBS, MRI, Power
Equipment and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common
stockholders' equity of the Borrower, determined in accordance with
GAAP.
"Collateral" has the meaning given in Section 3.1.
"Collateral Account Agreement" means the Amended and Restated
Collateral Account Agreement of even date herewith by and among the
Borrower,
D&E, MBS, Norwest Bank Minnesota, National Association, and
the Lender.
"D&E" means D&E Machining, Inc., a North Dakota corporation.
"D&E Borrowing Base" has the meaning given in the D&E Credit
Agreement.
"D&E Credit Agreement" means that certain Credit and Security
Agreement of even date herewith, by and between D&E and the Lender, as
amended, supplemented and restated from time to time.
"D&E Revolving Advance" has the meaning given in the D&E
Credit Agreement.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three and
one-half percent (3.5%) over the Floating Rate, which rate shall change
when and as the Floating Rate changes.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over 90 days past
invoice date or, if the Lender in its discretion has
determined that a particular dated Account of 120 days or less
from invoice date may be eligible, that portion of such
Account which is more than 30 days past the stated due date;
(ii) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
<PAGE>
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States [or Canada] which are not backed by
a bank letter of credit assigned to the Lender, in the
possession of the Lender and acceptable to the Lender in all
respects, in its sole discretion;
(vi) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in favor of the Lender or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender;
(ix) That portion of Accounts that have been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes; and
(xi) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"ELIGIBLE INVENTORY" MEANS ALL INVENTORY OF THE BORROWER, AT
THE LOWER OF COST OR MARKET VALUE AS DETERMINED IN ACCORDANCE WITH
GAAP; PROVIDED, HOWEVER, THAT THE FOLLOWING SHALL NOT IN ANY EVENT BE
DEEMED ELIGIBLE INVENTORY:
(i) Inventory that is: in-transit; located at any
warehouse or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements
to perfect a first priority security interest in such
Inventory; covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of title;
on consignment from any Person; on consignment to any Person
or subject to any bailment unless such consignee or bailee has
executed an agreement with the Lender located at job sites;
(ii) Supplies, packaging or parts Inventory;
(iii) Raw materials Inventory;
(iv) Work-in-process Inventory;
(v) Inventory that is damaged, slow moving, obsolete
or not currently saleable in the normal course of the
Borrower's operations;
(vi) Inventory that is perishable or live;
(vii) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(viii) Inventory that is subject to a security
interest in favor of any Person other than the Lender;
(ix) Sample Inventory;
(x) Inventory at a particular location if the value
of the same is less than 10% of total Inventory; and
(xi) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Existing Revolving Advances" has the meaning specified in
Section 2.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus four and one-half percent (4.5%), which annual rate
shall change when and as the Base Rate changes.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.2.
<PAGE>
"Guarantors" means D&E, MBS, Power Equipment, MRI and any
other Person guaranteeing payment of any of the Obligations.
"Hydra-Mac Borrowing Base" means the lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) 80% of Eligible Accounts, plus
(ii) the lesser of (A) 60% of Eligible
Inventory or (B) $450,000.
"Hydra-Mac Revolving Advance" has the meaning given in Section
2.2.
"Hydra-Mac Revolving Note" means the Borrower's revolving
promissory note, payable to the order of the Lender in substantially
the form of Exhibit A hereto.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired.
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Disclosure by the Borrower in favor of the Lender of
even date herewith.
"Lockbox Agreement" means the Amended and Restated Lockbox
Agreement by and among the Borrower, D&E, MBS, Norwest Bank Minnesota,
National Association, and the Lender, of even date herewith.
"Maturity Date" has the meaning given in Section 2.5.
"Maximum Line" means $1,800,000.
"MBS" means Magnum Business Systems, Inc., a [Minnesota]
corporation.
"MBS Borrowing Base" has the meaning given in the MBS Credit
Agreement.
"MBS Credit Agreement" means that certain Credit and Security
Agreement of even date herewith, by and between MBS and the Lender, as
amended, supplemented and restated from time to time.
"MBS Revolving Advance" has the meaning given in the MBS
Credit Agreement.
"MRI" means Magnum Resources, Inc., a Delaware corporation,
and the parent of the Borrower, D&E and MBS.
"MRI Security Agreement" means the Amended and Restated
Security Agreement of even date herewith, executed by MRI and delivered
to the Lender.
"Net Income" means fiscal year-to-date after-tax net income,
decreased by the sum of any extraordinary, non-operating or non-cash
income recorded by the Borrower and increased by any extraordinary,
non-cash or non-operating expense or loss recorded by the Borrower, as
determined in accordance with GAAP.
"Note" means the Hydra-Mac Revolving Note.
"Obligations" means each and every debt, liability and
obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, including all indebtedness
arising under this Agreement, the Note or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Old Credit Documents" means that certain Credit and Security
Agreement dated as of July 10, 1996, as amended by First Amendment to
Credit and Security Agreement dated as of January 29, 1997 and Second
Amendment to Credit and Security Agreement dated as of October 21,
1997.
"Old Revolving Note" means the Borrower's revolving promissory
note dated as of October 29, 1997, payable to the order of the Lender
in the original principal amount of $1,800,000.
"Original Maturity Date" means July 10, 1999.
"Overall Borrowing Base" means, at any time and subject to
change from time to time in the Lender's sole discretion, the lesser
of:
(a) the Maximum Line; or
(b) the sum of the Hydra-Mac Borrowing Base, the D&E
Borrowing Base, and the MBS Borrowing Base.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Power Equipment" means Power Equipment Corp., a Minnesota
corporation.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Security Documents" means this Agreement, the Collateral
Account Agreement and the Lockbox Agreement, each of even date herewith
and by and among the Borrower, D&E, MBS, the Lender and Norwest Bank
Minnesota, National Association.
"Security Interest" has the meaning given in Section 3.1.
"Termination Date" means the Maturity Date or the date the
Lender demands payment pursuant to Section 2.5 or Section 7.2, or the
Borrower terminates the Credit Facility pursuant to Section 2.6, as the
case may be.
[PAGE]
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Minnesota.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Existing Advances. The Lender has made various
advances to the Borrower (the "Existing Revolving Advances") as evidenced by the
Old Credit Documents. As of November __, 1997, the outstanding principal balance
of the Existing Revolving Advances was $______________. Upon execution and
delivery of this Agreement, the Existing Revolving Advances shall be deemed to
be Hydra-Mac Revolving Advances made pursuant to Section 2.2 and repayable in
accordance with the Hydra-Mac Revolving Note. To the extent the Hydra-Mac
Revolving Note evidences the Existing Revolving Advances, the Hydra-Mac
Revolving Note shall be issued in substitution for and replacement of but not in
payment of the Old Credit Documents.
Section 2.2 Revolving Advances. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "Hydra-Mac Revolving
Advance"). The Lender shall not consider any request for a Hydra-Mac Revolving
Advance if, after giving effect to such requested Hydra-Mac Revolving Advance,
(i) the sum of the outstanding and unpaid Hydra-Mac Revolving Advances, plus the
outstanding and unpaid D&E Revolving Advances, plus the outstanding and unpaid
MBS Revolving Advances would exceed the Overall Borrowing Base or (ii) the sum
of the outstanding and unpaid Hydra-Mac Revolving Advances would exceed the
Hydra-Mac Borrowing Base. The Borrower's obligation to pay the Hydra-Mac
Revolving Advances shall be evidenced by the Hydra-Mac Revolving Note and shall
be secured by the Collateral. Within the limits set forth in this Section 2.2,
the Borrower may request Hydra-Mac Revolving Advances, prepay, and request
additional Hydra-Mac Revolving Advances. The Borrower shall make each request
for a Hydra-Mac Revolving Advance to the Lender before 11:00 a.m. (Minneapolis
time) of the day of the requested Hydra-Mac Revolving Advance. Requests may be
made in writing or by telephone.
Section 2.3 Interest; Default Interest. All interest shall be
payable monthly in arrears on the first day of the month and on demand.
(a) REVOLVING NOTE. Except as set forth in subsection (c) and
(d), the outstanding principal balance of the Hydra-Mac Revolving
Advances shall bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to subsections (a) and (c), the Borrower, D&E and MBS,
collectively, shall pay to the Lender interest on the Hydra-Mac
Revolving Advances, the D&E Revolving Advances and the MBS Revolving
Advances, collectively, of not less than $37,500 per calendar year
during the term of this Agreement (prorated for less than full years),
and the Borrower, D&E and MBS, in a manner within the sole discretion
of the Borrower, D&E and MBS, shall pay any deficiency between such
minimum interest charge and the amount of interest otherwise calculated
under Sections (a) and (c) in arrears on the first day of each year.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Hydra-Mac Revolving
Advances outstanding from time to time shall bear interest at the
Default Rate, effective for any periods designated by the Lender from
time to time during that Default Period.
(d) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.4 Administration Fees. The Borrower hereby agrees
to pay the Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by the Lender
as its audit fees (which fees are currently $62.50 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in conducting
any such audit or inspection.
Section 2.5 Discretionary Nature of Credit Facility; Automatic
Renewal. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE A
HYDRA-MAC REVOLVING ADVANCE AND/OR DEMAND PAYMENT OF THE HYDRA-MAC REVOLVING
ADVANCES AND TERMINATE THIS AGREEMENT WHETHER BORROWER IS OR IS NOT IN
COMPLIANCE WITH THIS AGREEMENT. The Lender need not show that an adverse change
has occurred in the Borrower's condition, financial or otherwise, in order to
refuse to make any requested Advance or to demand payment of the Hydra-Mac
Revolving Advances. Unless terminated by the Lender at any time or by the
Borrower
<PAGE>
pursuant to Section 2.6, this Agreement shall remain in effect until the
Original Maturity Date and, thereafter, shall automatically renew for successive
one year periods. Each such anniversary date is herein referred to as a
"Maturity Date".
Section 2.6 Termination by Borrower.
(a) TERMINATION BY BORROWER. The Borrower may terminate this
Agreement at any time and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security
Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the
Borrower's intention to terminate this Agreement, and (ii) paying the
Lender a prepayment fee in accordance with subsection (b) if the
Borrower terminates this Agreement effective as of any date other than
a Maturity Date; provided, however, if the Borrower elects to terminate
this Agreement, the Borrower must also terminate the D&E Credit
Agreement, in accordance with Section 2.5(a) of such agreement, and the
MBS Credit Agreement, in accordance with Section 2.5(a) of such
agreement.
(b) PREPAYMENT FEE. If the Borrower desires to terminate this
Agreement as of any date other than a Maturity Date, or as of a
Maturity Date but without giving at least 90 days' prior written notice
thereof, it shall (i) give at least 30 days' prior written notice to
the Lender of the Borrower's intention to do so, and (ii) pay to the
Lender a prepayment fee of 3% of the Maximum Line; provided, however,
that such prepayment fee shall be waived if such prepayment is made
because of increased cash flow generated from the Borrower's
operations, in the normal course of business, or refinancing by an
affiliate of the Lender.
Section 2.7 Mandatory Prepayment. Without notice or demand, if
the outstanding principal balance of the Hydra-Mac Revolving Advances shall at
any time exceed the Hydra-Mac Borrowing Base or if the outstanding principal
balance of the Advances shall at any time exceed the Overall Borrowing Base, the
Borrower shall immediately prepay the Hydra-Mac Revolving Advances to the extent
necessary to eliminate such excess.
Section 2.8 Hydra-Mac Revolving Advances Without Request. The
Borrower hereby authorizes the Lender, in its discretion, at any time or from
time to time without the Borrower's request, to make Hydra-Mac Revolving
Advances to pay accrued interest, fees, uncollected items that have been applied
to the Obligations, and other Obligations due and payable from time to time.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
grants to the Lender a security interest (the "Security Interest") in the
following collateral (the "Collateral"), as security for the payment and
performance of the Obligations:
INVENTORY: All inventory of Borrower, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of
whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by Borrower or by some other Person who subsequently transfers
such Person's interest to Borrower, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Borrower may at any
time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of
such account debtor or other obligor; all including all of Borrower's
rights to payment in the form of all present and future accounts,
contract rights, loans and obligations receivable, chattel papers,
bonds, notes and other debt instruments, tax refunds and rights to
payment in the nature of general intangibles;
EQUIPMENT: All of the Borrower's equipment, as such term is defined in
the UCC whether now or hereafter owned, including all present and
future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts,
tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Secured Party by Borrower;
GENERAL INTANGIBLES: All of Borrower's general intangibles, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including all present and future contract rights, patents, patent
<PAGE>
applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use Borrower's name,
and the goodwill of Borrower's business; and
INVESTMENT PROPERTY: All of Borrower's investment property, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks,
bonds, mutual fund shares, money market shares and U.S. Government
securities; together with all substitutions and replacements for and
products of any of the foregoing property and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
property, together with all accessions and together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and
(ii) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods.
Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (either before or after the occurrence of
an Event of Default) notify any account debtor or other Person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of each premises where Borrower conducts its
business and has any rights of possession (the "Premises") at any time
during any Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender in good faith considers related.
(c) The Lender's right to hold the Premises shall terminate
upon the earlier of payment in full of all Obligations, or final sale
or disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession or use of any of the
Premises; provided, however, that if the Lender does pay or account for
any rent or other compensation for the possession or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof.
Section 3.4 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Lender's Willingness
to Consider Making Advances. The Lender's willingness to consider making an
initial Hydra-Mac Revolving Advance hereunder shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The D&E Credit Agreement, properly executed by D&E.
(c) The MBS Credit Agreement, properly executed by MBS.
(d) The Note, properly executed by the Borrower.
<PAGE>
(e) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(f) The Collateral Account Agreement, properly executed by the
Borrower, D&E, MBS and Norwest Bank Minnesota, National Association.
(g) The Lockbox Agreement, properly executed by the Borrower,
D&E, MBS and Norwest Bank Minnesota, National Association.
(h) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(i) A certificate of the Borrower's Secretary certifying as to
(i) the resolutions of the Borrower's directors, and if required, its
shareholders, authorizing the execution, delivery and performance of
the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's agents authorized to
execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the
Borrower's behalf.
(j) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Delaware.
(k) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(l) A support agreement in favor of the Lender, properly
executed by David M. Eichers, in his personal capacity.
(m) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(n) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(o) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations.
(p) The MRI Security Agreement, properly executed by MRI.
(q) Payment of the fees and commissions due through the date
of the initial Hydra-Mac Revolving Advance and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 8.4, including all legal expenses incurred through the date of
this Agreement.
(r) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All Hydra-Mac Revolving
Advances. The Lender will not consider any request for a Hydra-Mac Revolving
Advance unless on such date:
(a) the representations and warranties contained in Article V
and the Disclosure are correct on and as of the date of such Hydra-Mac
Revolving Advance as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would result
from such Hydra-Mac Revolving Advance which constitutes a Default or an
Event of Default.
<PAGE>
ARTICLE V
Representations and Warranties
THE BORROWER REPRESENTS AND WARRANTS TO THE LENDER AS FOLLOWS:
Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During
its existence, the Borrower has done business solely under its corporate name as
set forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender
certain of its unaudited financial statements certified by the Borrower. Those
statements fairly present the Borrower's financial condition as of the dates
indicated therein and the results of its operations for the periods then ended
and were prepared in accordance with generally accepted accounting principles.
Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.
ARTICLE VI
Covenants of the Borrower
SO LONG AS THE HYDRA-MAC REVOLVING ADVANCES OR ANY AMOUNT
OWING TO LENDER HEREUNDER SHALL REMAIN UNPAID, THE BORROWER WILL COMPLY WITH THE
REQUIREMENTS IN THIS ARTICLE, UNLESS THE LENDER SHALL OTHERWISE CONSENT IN
WRITING.
Section 6.1 Reporting Requirements. The Borrower will deliver
to the Lender each of the following in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements prepared in accordance with GAAP; together
with (i) copies of all management letters prepared by such accountants;
(ii) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance
with the requirements set forth in Section 6.7 and (iii) a certificate
of the Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP, that they fairly
present the Borrower's financial condition and the results of its
operations, and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statement of income and retained earnings of the Borrower as at the end
of and for such month and for the year to date period then ended,
prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and fairly
represent the Borrower's financial condition and the results of its
operations, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Section
6.7;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification as of the end of such month;
(d) as soon as available and in any event within 20 days of
the end of each month, inventory certifications as of the end of such
month;
(e) as soon as available, a copy of the checking account
statement of the Borrower, including all deposit tickets, as of the
last day of each month from each bank with which Borrower maintains a
checking account,
<PAGE>
such statements to be provided to the Lender directly by each such bank
or by the Borrower with respect to a bank that is unwilling to send
them to the Lender;
(f) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets, income statements and
statements of cash flow for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by
the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its
discretion require; provided, however, that with respect to the
Borrower's projections for the 1998 fiscal year, such projections shall
be delivered to the Lender on or before December 31, 1997.
(g) as soon as available and in any event within 3 days after
they are due, copies of tax payments due and paid and written notice of
any and all taxes due but not paid;
(h) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request; and
(i) before March 31 of each calendar year, the Borrower shall
cause any and all Guarantors, along with John F. Luoma and David
Eichers, to submit financial statements to the Lender, and certified by
such party.
Section 6.2 Inspection. Upon the Lender's request, the
Borrower will permit any officer, employee, attorney, agent or accountant for
the Lender to audit, review, make extracts from or copy any and all records of
the Borrower and to inspect the Collateral at all times during ordinary business
hours.
Section 6.3 Account Verification. The Lender may at any time
and from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to verify Accounts as frequently as
daily and the Borrower understands the Lender intends to do so by telephone
and/or in writing.
Section 6.4 No Other Liens. The Borrower will keep all
Collateral free and clear of all security interests, liens and encumbrances
except the Security Interest, purchase money security interests in equipment,
and other security interests approved by the Lender in writing.
Section 6.5 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 Lockbox; Collateral Account. The Borrower has
provided the Lender with agreements regarding a lockbox and a collateral account
in connection with the collection of Accounts.
Section 6.7 Minimum Book Net Worth. The Borrower will cause
MRI to maintain, during each period described below, its consolidated Book Net
Worth, determined as at the end of each month, at an amount not less than the
amount set forth opposite such period:
<PAGE>
--------------------- -------------------------------
Period Minimum Book Net Worth
--------------------- -------------------------------
July 31, 1997 $1,800,000
through October 30,
1997
--------------------- -------------------------------
October 31, 1997 $1,850,000
through January 30,
1998
--------------------- -------------------------------
January 31, 1998 $1,900,000
through April 29,
1998
--------------------- -------------------------------
April 30, 1998 $1,950,000
through July 30,
1998
--------------------- -------------------------------
July 31, 1998 and $2,030,000
thereafter
--------------------- -------------------------------
Section 6.8 Minimum Net Income. The Borrower shall achieve
Minimum Net Income, beginning in January of 1998, in accordance with covenant
amounts established by the Lender, in its sole discretion, based upon the
Borrower's projections to be delivered in accordance with Section 6.1(f) herein.
Section 6.9 No Sale or Transfer of Collateral and Other
Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to anyone other than the sale of
Inventory in the ordinary course of business.
Section 6.10 No Sale or Transfer of Shares of Borrower.
Borrower will cause each of its shareholders not to sell, transfer, pledge, or
grant a security interest in, any shares of stock of the Borrower.
Section 6.11 Place of Business; Name. The Borrower will not
change the location of its chief executive office or principal place of business
from that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.
Section 6.12 Investments. The Borrower will not purchase or
hold beneficially any stock or other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investments or
acquire any interest whatsoever in, any other Person, including specifically but
without limitation any partnership, joint venture, or Affiliate, except:
(i) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $10,000; and
(ii) advances in the form of progress payments,
prepaid rent not exceeding two (2) months or security
deposits.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. An "Event of Default" as used
herein shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this
connection Borrower hereby waives presentment, notice of dishonor and
protest;
(b) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document;
<PAGE>
(d) An event of default under and as defined in the D&E Credit
Agreement shall occur and be continuing, or any other breach, default
or event of default by or attributable to any Affiliate under any
agreement between such Affiliate and the Lender;
(e) An event of default under and as defined in the MBS Credit
Agreement shall occur and be continuing, or any other breach, default
or event of default by or attributable to any Affiliate under any
agreement between such Affiliate and the Lender.
Section 7.2 Rights and Remedies. As provided in Section 2.5,
the Lender may, at any time and for any reason, refuse to make any requested
Hydra-Mac Revolving Advance or demand payment of the Obligations. In addition,
upon the occurrence of an Event of Default or at any time thereafter, the Lender
may exercise any or all of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of
any or all of the Collateral, and in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the
Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(b) The Lender may exercise any other rights and remedies
available to it by law or agreement. The remedies provided hereunder
are cumulative.
Section 7.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.3) at least 10
calendar days before the date of intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8.1 Restatement of Old Credit Documents. This
Agreement is executed for the purpose of amending and restating the Old Credit
Documents.
Section 8.2 Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender and any and all
parent corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Agreement, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
Section 8.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class United States mail, (iii) sent by
overnight courier of national reputation, or (iv) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopy number as set forth below its signature to this
Agreement.
Section 8.4 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents and any other document or agreement related
thereto, and the transactions contemplated hereby, including wire transfer and
ACH charges, the cost of credit reports, overadvance fees, the expense of any
auditors and fees and expenses in enforcing this Agreement.
Section 8.5 Indemnity. In addition to the payment of expenses
pursuant to Section 8.4, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
<PAGE>
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement and the
other Loan Documents or the making of the Hydra-Mac Revolving
Advances;
(ii) any and all liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection
with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner
related to or arising out of or in connection with the making
of the Hydra-Mac Revolving Advances, this Agreement and the
other Loan Documents or the use or intended use of the
proceeds of the Hydra-Mac Revolving Advances; and
(iii) any claim, loss or damage to which any
Indemnitee may be subjected as a result of any violation of
any federal, state, local or other governmental statute,
regulation, law, or ordinance dealing with the protection of
human health and the environment.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, then the Borrower or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.5 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 8.6 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Section 8.7 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of Hennepin
County, Minnesota located in Minneapolis, Minnesota, or the United States
District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.
NORWEST CREDIT, INC. HYDRA-MAC INTERNATIONAL, INC.
By
--------------------------------
Roger A. Pfiffner By
Its Vice President ---------------------------------
John F. Luoma
Address: Its President
Norwest Center
Sixth Street and Marquette Avenue Address:
Minneapolis, Minnesota 55479-0152 1750 Yankee Doodle Road
Telecopy No. (612) 341-2472 Suite 202
Federal Tax ID No. 41-1712687 Eagan, Minnesota 55121
Telecopy No. (612) 405-9312
Federal Tax ID No. 41-1831948
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT)
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$1,800,000 Minneapolis, Minnesota
November 25, 1997
For value received, the undersigned, HYDRA-MAC INTERNATIONAL,
INC., a Delaware corporation (the "Borrower"), hereby promises to pay ON DEMAND
to the order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America
and in immediately available funds, the principal sum of One Million Eight
Hundred Thousand Dollars ($1,800,000) or, if less, the aggregate unpaid
principal amount of all Hydra-Mac Revolving Advances made by the Lender to the
Borrower under the Credit and Security Agreement of even date herewith by and
between the Lender and the Borrower (as the same may hereafter be amended,
supplemented or restated from time to time, the "Credit Agreement") together
with interest on the principal amount hereunder remaining unpaid from time to
time (computed on the basis of actual days elapsed in a 360-day year) from the
date of the initial Hydra-Mac Revolving Advance until this Note is fully paid at
the rate from time to time in effect under the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Hydra-Mac Revolving Note referred to in the Credit Agreement and is
subject to the Credit Agreement. To the extent this Note evidences the
Borrower's Obligation to pay Existing Revolving Advances, this Note is issued in
substitution for and replacement of but not in payment of the Borrower's
promissory note dated as of January 29, 1997, payable to the order of the Lender
in the original principal amount of $1,200,000.
HYDRA-MAC INTERNATIONAL, INC.
By
-----------------------------------
John F. Luoma
Its President
<PAGE>
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Roger A. Pfiffner
Norwest Credit, Inc.
Date: __________________, 199___
Subject: Hydra-Mac International, Inc.
Financial Statements of Parent
In accordance with our Amended and Restated Credit and
Security Agreement dated as of November __, 1997 (the "Credit Agreement"),
attached are the financial statements of Magnum Resources, Inc. (the "Parent")
as of and for ______________, 19___ (the "Reporting Date") and the year-to-date
period then ended (the "Current Financials"). All terms used in this certificate
have the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Parent's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to
thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Parent's Book Net Worth was
$____________ which |_| satisfies |_| does not satisfy the requirement that such
amount be not less than $_____________ on the Reporting Date as set forth in
table below:
--------------------- ---------------------------------
Period Minimum Book Net Worth
--------------------- ---------------------------------
July 31, 1997 $1,800,000
through October 30,
1997
--------------------- ---------------------------------
October 31, 1997 $1,850,000
through January 30,
1998
--------------------- ---------------------------------
January 31, 1998 $1,900,000
through April 29,
1998
--------------------- ---------------------------------
April 30, 1998 $1,950,000
through July 30,
1998
--------------------- ---------------------------------
July 31, 1998 and $2,030,000
thereafter
--------------------- ---------------------------------
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
HYDRA-MAC INTERNATIONAL, INC.
By
--------------------------------
Dave Eichers
Its Secretary
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of November 25 1997
MAGNUM BUSINESS SYSTEMS, INC., a [Minnesota] corporation (the
"Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" means a Hydra-Mac Revolving Advance, a D&E Revolving
Advance and a MBS Revolving Advance.
"Affiliate" or "Affiliates" means D&E, Hydra-Mac, MRI, Power
Equipment and any other Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common
stockholders' equity of the Borrower, determined in accordance with
GAAP.
"Collateral" has the meaning given in Section 3.1.
"Collateral Account Agreement" means the Amended and Restated
Collateral Account Agreement of even date herewith by and among the
Borrower, D&E, Hydra-Mac, Norwest Bank Minnesota, National Association,
and the Lender.
"D&E" means D&E Machining, Inc., a North Dakota corporation.
"D&E Borrowing Base" has the meaning given in the D&E Credit
Agreement.
"D&E Credit Agreement" means that certain Credit and Security
Agreement of even date herewith, by and between D&E and the Lender, as
amended, supplemented and restated from time to time.
"D&E Revolving Advance" has the meaning given in the D&E
Credit Agreement.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three and
one-half percent (3.5%) over the Floating Rate, which rate shall change
when and as the Floating Rate changes.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over 90 days past
invoice date or, if the Lender in its discretion has
determined that a particular dated Account of 120 days or less
from invoice date may be eligible, that portion of such
Account which is more than 30 days past the stated due date;
(ii) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
<PAGE>
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not backed by a
bank letter of credit assigned to the Lender, in the
possession of the Lender and acceptable to the Lender in all
respects, in its sole discretion;
(vi) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in favor of the Lender or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender;
(ix) That portion of Accounts that have been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes; and
(xi) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus four and one-half percent (4.5%), which annual rate
shall change when and as the Base Rate changes.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.2.
"Guarantors" means D&E, Hydra-Mac, Power Equipment and MRI and
any other Person guaranteeing payment of any of the Obligations.
"Hydra-Mac" means Hydra-Mac International, Inc., a Delaware
corporation.
"Hydra-Mac Borrowing Base" has the meaning given in the
Hydra-Mac Credit Agreement.
"Hydra-Mac Credit Agreement" means that certain Amended and
Restated Credit and Security Agreement of even date herewith, by and
between Hydra-Mac and the Lender, as amended, supplemented and restated
from time to time.
"Hydra-Mac Revolving Advance" has the meaning given in the
Hydra-Mac Credit Agreement.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired.
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Disclosure by the Borrower in favor of the Lender of
even date herewith.
"Lockbox Agreement" means the Amended and Restated Lockbox
Agreement by and among the Borrower, D&E, Hydra-Mac, Norwest Bank
Minnesota, National Association, and the Lender, of even date herewith.
"Maturity Date" has the meaning given in Section 2.4.
"Maximum Line" means $1,800,000.
"MBS Borrowing Base" means the lesser of:
(a) the MBS Maximum Line; or
(b) 80% of Eligible Accounts.
"MBS Maximum Line" means $400,000.
"MBS Revolving Advance" has the meaning given in Section 2.1.
"MBS Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto.
"MRI" means Magnum Resources, Inc., a Delaware corporation,
and the parent of the Borrower, D&E and Hydra-Mac.
"MRI Security Agreement" means the Amended and Restated
Security Agreement of even date herewith, executed by MRI and delivered
to the Lender.
"Net Income" means fiscal year-to-date after-tax net income,
decreased by the sum of any extraordinary, non-operating or non-cash
income recorded by the Borrower and increased by any
<PAGE>
extraordinary, non-cash or non-operating expense or loss recorded by
the Borrower, as determined in accordance with GAAP.
"Note" means the MBS Revolving Note.
"Obligations" means each and every debt, liability and
obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, including all indebtedness
arising under this Agreement, the Note or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Original Maturity Date" means July 10, 1999.
"Overall Borrowing Base" means, at any time and subject to
change from time to time in the Lender's sole discretion, the lesser
of:
(a) the Maximum Line; or
(b) the sum of the Hydra-Mac Borrowing Base, the
D&E Borrowing Base, and the MBS Borrowing Base.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Power Equipment" means Power Equipment Corp., a Minnesota
corporation.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Security Documents" means this Agreement, the Collateral
Account Agreement and the Lockbox Agreement, each of even date herewith
and by and among the Borrower, D&E, Hydra-Mac, the Lender and Norwest
Bank Minnesota, National Association.
"Security Interest" has the meaning given in Section 3.1.
"Termination Date" means the Maturity Date or the date the
Lender demands payment pursuant to Section 2.4 or Section 7.2, or the
Borrower terminates the Credit Facility pursuant to Section 2.5, as the
case may be.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Minnesota.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "MBS Revolving Advance"). The
Lender shall not consider any request for a MBS Revolving Advance if, after
giving effect to such requested MBS Revolving Advance, (i) the sum of the
outstanding and unpaid MBS Revolving Advances, plus the outstanding and unpaid
D&E Revolving Advances, plus the outstanding and unpaid Hydra-Mac Revolving
Advances would exceed the Overall Borrowing Base or (ii) the sum of the
outstanding and unpaid MBS Revolving Advances would exceed the MBS Borrowing
Base. The Borrower's obligation to pay the MBS Revolving Advances shall be
evidenced by the MBS Revolving Note and shall be secured by the Collateral.
Within the limits set forth in this Section 2.1, the Borrower may request MBS
Revolving Advances, prepay, and request additional MBS Revolving Advances. The
Borrower shall make each request for a MBS Revolving Advance to the Lender
before 11:00 a.m. (Minneapolis time) of the day of the requested MBS Revolving
Advance. Requests may be made in writing or by telephone.
Section 2.2 Interest; Default Interest. All interest shall be
payable monthly in arrears on the first day of the month and on demand.
(a) REVOLVING NOTE. Except as set forth in subsection (c) and
(d), the outstanding principal balance of the MBS Revolving Advances
shall bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to subsections (a) and (c), the Borrower, D&E and
Hydra-Mac, collectively, shall pay to the Lender interest on the
Hydra-Mac Revolving Advances, the D&E Revolving Advances and the MBS
Revolving Advances, collectively, of not less than $37,500 per calendar
year during the term of this Agreement (prorated for less than full
years), and the Borrower, D&E and MBS, in a manner within the sole
discretion of the Borrower, D&E and MBS, shall pay any deficiency
between such minimum interest charge and the amount of interest
otherwise calculated under Sections (a) and (c) in arrears on the first
day of each year.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the MBS Revolving Advances
outstanding from
<PAGE>
time to time shall bear interest at the Default Rate, effective for any
periods designated by the Lender from time to time during that Default
Period.
(d) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.3 Administration Fees. The Borrower hereby agrees
to pay the Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by the Lender
as its audit fees (which fees are currently $62.50 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in conducting
any such audit or inspection.
Section 2.4 Discretionary Nature of Credit Facility; Automatic
Renewal. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE A MBS
REVOLVING ADVANCE AND/OR DEMAND PAYMENT OF THE MBS REVOLVING ADVANCES AND
TERMINATE THIS AGREEMENT WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS
AGREEMENT. The Lender need not show that an adverse change has occurred in the
Borrower's condition, financial or otherwise, in order to refuse to make any
requested Advance or to demand payment of the MBS Revolving Advances. Unless
terminated by the Lender at any time or by the Borrower pursuant to Section 2.5,
this Agreement shall remain in effect until the Original Maturity Date and,
thereafter, shall automatically renew for successive one year periods. Each such
anniversary date is herein referred to as a "Maturity Date".
Section 2.5 Termination by Borrower.
(a) TERMINATION BY BORROWER. The Borrower may terminate this
Agreement at any time and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security
Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the
Borrower's intention to terminate this Agreement, and (ii) paying the
Lender a prepayment fee in accordance with subsection (b) if the
Borrower terminates this Agreement effective as of any date other than
a Maturity Date; provided, however, if the Borrower elects to terminate
this Agreement, the Borrower must also terminate the Hydra-Mac Credit
Agreement, in accordance with Section 2.6(a) of such agreement, and the
D&E Credit Agreement in accordance with Section 2.5(a) of such
agreement.
(b) PREPAYMENT FEE. If the Borrower desires to terminate this
Agreement as of any date other than a Maturity Date, or as of a
Maturity Date but without giving at least 90 days' prior written notice
thereof, it shall (i) give at least 30 days' prior written notice to
the Lender of the Borrower's intention to do so, and (ii) pay to the
Lender a prepayment fee of 3% of the MBS Maximum Line; provided,
however, that such prepayment fee shall be waived if such prepayment is
made because of increased cash flow generated from the Borrower's
operations, in the normal course of business, or refinancing by an
affiliate of the Lender.
Section 2.6 Mandatory Prepayment. Without notice or demand, if
the outstanding principal balance of the MBS Revolving Advances shall at any
time exceed the MBS Borrowing Base or if the outstanding principal balance of
the Advances shall at any time exceed the Overall Borrowing Base, the Borrower
shall immediately prepay the MBS Revolving Advances to the extent necessary to
eliminate such excess.
Section 2.7 MBS Revolving Advances Without Request. The
Borrower hereby authorizes the Lender, in its discretion, at any time or from
time to time without the Borrower's request, to make MBS Revolving Advances to
pay accrued interest, fees, uncollected items that have been applied to the
Obligations, and other Obligations due and payable from time to time.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
grants to the Lender a security interest (the "Security Interest") in the
following collateral (the "Collateral"), as security for the payment and
performance of the Obligations:
INVENTORY: All inventory of Borrower, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of
whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a
<PAGE>
loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by Borrower or by some other
Person who subsequently transfers such Person's interest to Borrower,
whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and
security interests) which Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make
any such payment or against any property of such account debtor or
other obligor; all including all of Borrower's rights to payment in the
form of all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles;
EQUIPMENT: All of the Borrower's equipment, as such term is defined in
the UCC whether now or hereafter owned, including all present and
future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts,
tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Secured Party by Borrower;
GENERAL INTANGIBLES: All of Borrower's general intangibles, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including all present and future contract rights, patents, patent
applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use Borrower's name,
and the goodwill of Borrower's business; and
INVESTMENT PROPERTY: All of Borrower's investment property, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks,
bonds, mutual fund shares, money market shares and U.S. Government
securities; together with all substitutions and replacements for and
products of any of the foregoing property and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
property, together with all accessions and together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and
(ii) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods.
Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (either before or after the occurrence of
an Event of Default) notify any account debtor or other Person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of each premises where Borrower conducts its
business and has any rights of possession (the "Premises") at any time
during any Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender in good faith considers related.
(c) The Lender's right to hold the Premises shall terminate
upon the earlier of payment in full of all Obligations, or final sale
or disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession or use of any of the
Premises; provided, however, that if the Lender does pay or account for
any rent or other compensation for the possession or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof.
Section 3.4 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
<PAGE>
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Lender's Willingness
to Consider Making MBS Revolving Advances. The Lender's willingness to consider
making an initial MBS Revolving Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The D&E Credit Agreement, properly executed by D&E.
(c) The Hydra-Mac Credit Agreement, properly executed by
Hydra-Mac.
(d) The Note, properly executed by the Borrower.
(e) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(f) The Collateral Account Agreement, properly executed by the
Borrower, D&E, Hydra-Mac and Norwest Bank Minnesota, National
Association.
(g) The Lockbox Agreement, properly executed by the Borrower,
D&E, Hydra-Mac and Norwest Bank Minnesota, National Association.
(h) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(i) A certificate of the Borrower's Secretary certifying as to
(i) the resolutions of the Borrower's directors, and if required, its
shareholders, authorizing the execution, delivery and performance of
the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's agents authorized to
execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the
Borrower's behalf.
(j) A current certificate issued by the Secretary of State of
[Minnesota], certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of [Minnesota].
(k) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(l) A support agreement in favor of the Lender, properly
executed by David M. Eichers, in his personal capacity.
(m) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(n) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(o) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations.
(p) The MRI Security Agreement, properly executed by MRI.
<PAGE>
(q) Payment of the fees and commissions due through the date
of the initial MBS Revolving Advance and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 8.3, including all legal expenses incurred through the date of
this Agreement.
(r) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All MBS Revolving
Advances. The Lender will not consider any request for an MBS Revolving Advance
unless on such date:
(a) the representations and warranties contained in Article V
and the Disclosure are correct on and as of the date of such MBS
Revolving Advance as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would result
from such MBS Revolving Advance which constitutes a Default or an Event
of Default.
ARTICLE V
Representations and Warranties
THE BORROWER REPRESENTS AND WARRANTS TO THE LENDER AS FOLLOWS:
Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During
its existence, the Borrower has done business solely under its corporate name as
set forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender
certain of its unaudited financial statements certified by the Borrower. Those
statements fairly present the Borrower's financial condition as of the dates
indicated therein and the results of its operations for the periods then ended
and were prepared in accordance with generally accepted accounting principles.
Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.
ARTICLE VI
Covenants of the Borrower
So long as the MBS Revolving Advances or any amount owing to
Lender hereunder shall remain unpaid, the Borrower will comply with the
requirements in this Article, unless the Lender shall otherwise consent in
writing.
Section 6.1 Reporting Requirements. The Borrower will deliver
to the Lender each of the following in form and detail acceptable to the Lender:
(a)as soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the Borrower's audited
financial statements prepared in accordance with GAAP; together with
(i) copies of all management letters prepared by such accountants; (ii)
a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance
with the requirements set forth in Section 6.7 and (iii) a certificate
of the Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP, that they fairly
present the Borrower's financial condition and the results of its
operations, and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b)as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and
statement of income and retained earnings of the Borrower as at the end
of and for such month and for the year to date period then ended,
prepared in accordance with GAAP, subject to year-end audit
<PAGE>
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and fairly
represent the Borrower's financial condition and the results of its
operations, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Section
6.7;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification as of the end of such month;
(d) as soon as available and in any event within 20 days of
the end of each month, inventory certifications as of the end of such
month;
(e) as soon as available, a copy of the checking account
statement of the Borrower, including all deposit tickets, as of the
last day of each month from each bank with which Borrower maintains a
checking account, such statements to be provided to the Lender directly
by each such bank or by the Borrower with respect to a bank that is
unwilling to send them to the Lender;
(f) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets, income statements and
statements of cash flow for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by
the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its
discretion require; provided, however, that with respect to the
Borrower's projections for the 1998 fiscal year, such projections shall
be delivered to the Lender on or before December 31, 1997;
(g) as soon as available and in any event within 3 days after
they are due, copies of tax payments due and paid and written notice of
any and all taxes due but not paid;
(h) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request; and
(i) before March 31 of each calendar year, the Borrower shall
cause any and all Guarantors, along with John F. Luoma and David
Eichers, to submit financial statements to the Lender, and certified by
such party.
Section 6.2 Inspection. Upon the Lender's request, the
Borrower will permit any officer, employee, attorney, agent or accountant for
the Lender to audit, review, make extracts from or copy any and all records of
the Borrower and to inspect the Collateral at all times during ordinary business
hours.
Section 6.3 Account Verification. The Lender may at any time
and from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to verify Accounts as frequently as
daily and the Borrower understands the Lender intends to do so by telephone
and/or in writing.
Section 6.4 No Other Liens. The Borrower will keep all
Collateral free and clear of all security interests, liens and encumbrances
except the Security Interest, purchase money security interests in equipment,
and other security interests approved by the Lender in writing.
Section 6.5 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 Lockbox; Collateral Account. The Borrower has
provided the Lender with agreements regarding a lockbox and a collateral account
in connection with the collection of Accounts.
<PAGE>
Section 6.7 Minimum Book Net Worth. The Borrower will cause
MRI to maintain, during each period described below, its consolidated Book Net
Worth, determined as at the end of each month, at an amount not less than the
amount set forth opposite such period:
------------------------------ -------------------------------
Period Minimum Book Net Worth
------------------------------ -------------------------------
July 31, 1997 through $1,800,000
October 30, 1997
------------------------------ -------------------------------
October 31, 1997 through $1,850,000
January 30, 1998
------------------------------ -------------------------------
January 31, 1998 through $1,900,000
April 29, 1998
------------------------------ -------------------------------
April 30, 1998 through July $1,950,000
30, 1998
------------------------------ -------------------------------
July 31, 1998 and thereafter $2,030,000
------------------------------ -------------------------------
Section 6.8 Minimum Net Income. The Borrower shall achieve
Minimum Net Income, beginning in January of 1998, in accordance with covenant
amounts established by the Lender, in its sole discretion, based upon the
Borrower's projections to be delivered in accordance with Section 6.1(f) herein.
Section 6.9 No Sale or Transfer of Collateral and Other
Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to anyone other than the sale of
Inventory in the ordinary course of business.
Section 6.10 No Sale or Transfer of Shares of Borrower.
Borrower will cause each of its shareholders not to sell, transfer, pledge, or
grant a security interest in, any shares of stock of the Borrower.
Section 6.11 Place of Business; Name. The Borrower will not
change the location of its chief executive office or principal place of business
from that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.
Section 6.12 Investments. The Borrower will not purchase or
hold beneficially any stock or other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investments or
acquire any interest whatsoever in, any other Person, including specifically but
without limitation any partnership, joint venture or Affiliate, except:
(a)travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $10,000; and
(b)advances in the form of progress payments, prepaid rent not
exceeding two (2) months or security deposits.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. An "Event of Default" as used
herein shall mean any of the following:
(a)Failure to pay the Note when demanded, and in this
connection Borrower hereby waives presentment, notice of dishonor and
protest;
(b)A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower
or such Guarantor as debtor;
(c)Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document;
<PAGE>
(d)An event of default under and as defined in the D&E Credit
Agreement shall occur and be continuing, or any other breach, default
or event of default by or attributable to any Affiliate under any
agreement between such Affiliate and the Lender;
(e)An event of default under and as defined in the Hydra-Mac
Credit Agreement shall occur and be continuing, or any other breach,
default or event of default by or attributable to any Affiliate under
any agreement between such Affiliate and the Lender.
Section 7. 2 Rights and Remedies. As provided in Section 2.4,
the Lender may, at any time and for any reason, refuse to make any requested MBS
Revolving Advance or demand payment of the Obligations. In addition, upon the
occurrence of an Event of Default or at any time thereafter, the Lender may
exercise any or all of the following rights and remedies:
(a)The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of
any or all of the Collateral, and in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the
Lender at a place to be designated by the Lender which is reasonably
convenient to both parties;
(b)The Lender may exercise any other rights and remedies
available to it by law or agreement. The remedies provided hereunder
are cumulative.
Section 7. 3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.2) at least 10
calendar days before the date of intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8. 1 Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender and any and all
parent corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Agreement, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
Section 8. 2 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class United States mail, (iii) sent by
overnight courier of national reputation, or (iv) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopy number as set forth below its signature to this
Agreement.
Section 8. 3 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents and any other document or agreement related
thereto, and the transactions contemplated hereby, including wire transfer and
ACH charges, the cost of credit reports, overadvance fees, the expense of any
auditors and fees and expenses in enforcing this Agreement.
Section 8. 4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i)any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of this Agreement and the other Loan Documents
or the making of the MBS Revolving Advances;
<PAGE>
(ii)any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the MBS Revolving
Advances, this Agreement and the other Loan Documents or the use or
intended use of the proceeds of the MBS Revolving Advances; and
(iii)any claim, loss or damage to which any Indemnitee may be
subjected as a result of any violation of any federal, state, local or
other governmental statute, regulation, law, or ordinance dealing with
the protection of human health and the environment.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, then the Borrower or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.4 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 8. 5 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Section 8. 6 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of Hennepin
County, Minnesota located in Minneapolis, Minnesota, or the United States
District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.
NORWEST CREDIT, INC. MAGNUM BUSINESS SYSTEMS, INC.
By __________________________________ By _________________________________
Roger A. Pfiffner John F. Luoma
Its Vice President Its President
Address:
Norwest Center Address:
Sixth Street and Marquette Avenue 1750 Yankee Doodle Road
Minneapolis, Minnesota 55479-0152 Suite 202
Telecopy No. (612) 341-2472 Eagan, Minnesota 55121
Federal Tax ID No. 41-1712687 Telecopy No. (612) 405-9312
Federal Tax ID No. 41-1888230
[SIGNATURE PAGE TO CREDIT AND SECURITY AGREEMENT]
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$400,000 Minneapolis, Minnesota
November 25, 1997
For value received, the undersigned, MAGNUM BUSINESS SYSTEMS,
INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND
to the order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America
and in immediately available funds, the principal sum of Four Hundred Thousand
Dollars ($400,000) or, if less, the aggregate unpaid principal amount of all MBS
Revolving Advances made by the Lender to the Borrower under the Credit and
Security Agreement of even date herewith by and between the Lender and the
Borrower (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") together with interest on the principal
amount hereunder remaining unpaid from time to time (computed on the basis of
actual days elapsed in a 360-day year) from the date of the initial MBS
Revolving Advance until this Note is fully paid at the rate from time to time in
effect under the Credit Agreement.
This Note is the MBS Revolving Note as defined in the Credit
Agreement and is subject to the Credit Agreement.
MAGNUM BUSINESS SYSTEMS, INC.
By _________________________________
John F. Luoma
Its President
<PAGE>
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Roger A. Pfiffner
Norwest Credit, Inc.
Date: __________________, 199___
Subject: Magnum Business Systems, Inc.
Financial Statements of Parent
In accordance with our Credit and Security Agreement dated as
of November __, 1997 (the "Credit Agreement"), attached are the consolidated
financial statements of Magnum Resources, Inc. (the "Parent"), as of and for
______________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Parent's financial condition as of the date thereof.
Events of Default. (Check one):
[ ] The undersigned does not have knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to
thereto.
Financial Covenants. I further hereby certify as follows:
1.Minimum Book Net Worth. Pursuant to Section 6.7 of the
Credit Agreement, as of the Reporting Date, the Parent's Book Net Worth was
$____________ which [ ] satisfies [ ] does not satisfy the requirement that such
amount be not less than $_____________ on the Reporting Date as set forth in
table below:
------------------------------ -------------------------------
Period Minimum Book Net Worth
------------------------------ -------------------------------
July 31, 1997 through $1,800,000
October 30, 1997
------------------------------ -------------------------------
October 31, 1997 through $1,850,000
January 30, 1998
------------------------------ -------------------------------
January 31, 1998 through $1,900,000
April 29, 1998
------------------------------ -------------------------------
April 30, 1998 through July $1,950,000
30, 1998
------------------------------ -------------------------------
July 31, 1998 and thereafter $2,030,000
------------------------------ -------------------------------
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These 998 through April 29, 1998$1,900,000April 30, 1998 through July 30,
1998$1,950,000July 31, 1998 and thereafter computations were made in accordance
with GAAP.
MAGNUM BUSINESS SYSTEMS, INC.
By _______________________________
David M. Eichers
Its Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAGNUM
RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 2,000
<SECURITIES> 0
<RECEIVABLES> 1,863,000
<ALLOWANCES> (28,000)
<INVENTORY> 1,962,000
<CURRENT-ASSETS> 3,883,000
<PP&E> 4,261,000
<DEPRECIATION> (1,993,000)
<TOTAL-ASSETS> 6,248,000
<CURRENT-LIABILITIES> 3,526,000
<BONDS> 707,000
0
0
<COMMON> 104,000
<OTHER-SE> 1,830,000
<TOTAL-LIABILITY-AND-EQUITY> 6,248,000
<SALES> 3,744,000
<TOTAL-REVENUES> 3,744,000
<CGS> 3,046,000
<TOTAL-COSTS> 3,046,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 96,000
<INCOME-PRETAX> 36,000
<INCOME-TAX> (3,000)
<INCOME-CONTINUING> 39,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
