Document:

EXHIBIT 10.1

 

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this “Agreement”), dated as of June 30, 2005 is by and between MAGSTAR
TECHNOLOGIES, INC., (formerly known as REUTER MANUFACTURING, INC.), a corporation
organized under the laws of the State of Minnesota (the “Borrower”), and U.S.
BANK NATIONAL ASSOCIATION, a national banking association (the “Lender”).

 

WHEREAS, Borrower and Lender have previously entered
into an Amended and Restated Credit Agreement dated as of October 10, 2000, as
amended from time to time (the “Existing Agreement”); and

 

WHEREAS, the Borrower and the Lender wish to make
certain revisions to and restate in its entirety the Existing Agreement as
hereinafter provided;

 

NOW, THEREFORE, in consideration of the premises, the sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:

ARTICLE I

 

DEFINITIONS AND ACCOUNTING TERMS

 

Section 1.1  Defined Terms.  As used in this Agreement the following terms
shall have the following respective meanings:

 

“Accounts”: 
Each and every right to payment of Borrower, whether such right to
payment arises out of a sale or lease of goods by Borrower, or other
disposition of goods or other property of Borrower, out of a rendering of
services by Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any other bailee, out
of overpayment of taxes or other liabilities of Borrower, or which otherwise
arises under any contract or agreement, or from any other cause, whether such
right to payment now exists or hereafter arises and whether such right to
payment is or is not yet earned by performance and howsoever such right to
payment may be evidenced, together with all other rights and interest
(including all liens and security interests) which Borrower may at any time
have by law or agreement against any account debtor (as defined in the Uniform
Commercial Code in effect in the State of Minnesota) or other obligor obligated
to make any such payment or against any of the property of such account debtor
or other obligor; specifically (but without limitation), the term includes all
present and future instruments, documents, chattel papers, accounts and
contract rights of Borrower.

 

“Advance”: 
As defined in Section 2.1(a).

 

“Affiliate”: 
When used with reference to any Person, (a) each Person that, directly
or indirectly, controls, is controlled by or is under common control with, the
Person referred to, (b) each Person which beneficially owns or holds, directly
or indirectly, five percent or more of any class of voting stock of the Person
referred to (or if the Person referred to is not a corporation, five percent or
more of the equity interest), (c) each Person, five percent or more of the
voting stock (or if such Person is not a corporation, five percent or more of
the equity interest) of which is beneficially owned or held, directly or

 

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indirectly, by the Person referred to, and
(d) each of such Person’s officers, directors, joint venturers and
partners.  The term control (including
the terms “controlled by” and “under common control with”) means the
possession, directly, of the power to direct or cause the direction of the management
and policies of the Person in question.

 

“Borrowing Base”:  As defined in Section 2.5.

 

“Borrowing Base Certificate”:  As defined in Section 2.5

 

“Business Day”: 
Any day (other than a Saturday, Sunday or legal holiday in the State of
Minnesota) on which national banks are permitted to be open at the location of
the Lender.

 

“Change in Control”:  The occurrence, after the Closing Date, of
any one entity owning, directly or indirectly, securities of the Borrower
representing 10% of the securities of the Borrower entitled to vote in the
election of directors.

 

“Closing Date”: 
Any Business Day between the date of this Agreement and June 30, 2005
selected by the Borrower for the making of the initial Advance on the Revolving
Loan hereunder; provided that all the conditions precedent to the
obligation of the Lender to make the initial Advance on the Revolving Loan, as
set forth in Article III, have been, or, on such Closing Date, will be,
satisfied.  The Borrower shall give the
Lender not less than one Business Day’s prior notice of the day selected as the
Closing Date.

 

“Commitment”: 
The Revolving Commitment.

 

“Default”: 
Any event which, with the giving of notice (whether such notice is
required under Section 7.1, or under some other provision of this Agreement, or
otherwise) or lapse of time, or both, would constitute an Event of Default.

 

“EBITDA”: 
For any period of determination, without duplication, the net income of
the Borrower plus cash Interest Expense, income taxes, depreciation,
amortization, non-cash Interest Expense, deferred equipment lease expense and
deferred rent expense, minus gain on sale leaseback of equipment, minus gain on
sale leaseback of building, all as determined in accordance with GAAP.

 

“Eligible Accounts”:  Accounts owned by the Borrower which the
Lender, in its sole and absolute discretion, deems eligible for Advances, but
which, at a minimum, are subject to a first priority perfected security
interest in favor of the Lender and not subject to any assignment, claim or
Lien other than the Lien in favor of the Lender and other Liens consented to by
the Lender in writing, but specifically excluding (a) Accounts which are
not earned; (b) Accounts which are unpaid more than ninety (90) days after
the original invoice date; (c) Accounts owed by debtors 25% or more of
whose Accounts owed are otherwise ineligible; (d) Accounts representing
progress billings, or retainages, or for work covered by any payment or
performance bond; (e) Accounts owed by any of the Borrower’s Affiliates;
(f) Accounts owed by debtors not located in the United States, unless
supported by a letter of credit issued by a U.S. bank in favor of the Borrower
which has been delivered to the Lender; (g) Accounts as to which any
warranty or representation contained in any security agreement or other
agreement of the Borrower with or given to the Lender with respect to any such
Account is untrue in any material respect; (h) Accounts as to which the
account debtor has disputed liability, or made any claim with respect to any
other Account due from such account debtor to the Borrower; (i) Accounts
subject to setoff; (j) Accounts as to which the account debtor has filed a
petition for bankruptcy or any other petition for relief under the Bankruptcy
Code, assigned any assets for the benefit of creditors, or if any petition or
other application for relief under the Bankruptcy Code has been filed against
the account debtor, or if the

 

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account debtor has failed, suspended business, become
insolvent, or has had or suffered a receiver or a trustee to be appointed for
all or a significant portion of its assets or affairs; (k) Accounts owed
by any government or government agency; (l) Accounts evidenced by a
promissory note or other instrument; and (m) Accounts as to which the
Lender reasonably believes that collection of any such Account is insecure or
that any such Account may not be paid by reason of the account debtor’s
financial inability to pay.

 

“Eligible Inventory”:  means Inventory of the Borrower which meets
the following requirements:  (a) it is
owned by the Borrower, is subject to a first priority perfected security
interest in favor of the Lender, and is not subject to any assignment, claim or
Lien other than (i) a Lien in favor of the Lender and (ii) Liens
consented to by the Lender in writing; (b) the consists of raw materials or
finished produce (not including work in process and supplies; (c) if held for
sale or lease or furnishing under contracts of service, it is (except as the
Lender may otherwise consent in writing) new and unused; (d) except as the
Lender may otherwise consent, it is not stored with a bailee, warehouseman or
similar party; if so stored with the Lender’s consent, such bailee,
warehouseman or similar party has issued and delivered to the Lender, in form
and substance acceptable to the Lender, such documents and agreements as the
Lender may require, including, without limitation, warehouse receipts therefor
in the Lender’s name; (e) the Lender has determined, in its sole and absolute
discretion, that it is not unacceptable due to age, type, category, quality
and/or quantity; (f) it is not held by the Borrower on consignment and is not
subject to any other repurchase or return agreement; (g) it is not held by a
customer of the Borrower or any other Person on consignment; (h) it complies
with all standards imposed by any governmental agency having regulatory
authority over such goods and/or their use, manufacture or sale; and (i) the
warranties, representations and covenants contained in any security agreement
or other agreement of the Borrower with or given to the Lender relating
directly or indirectly to the Borrower’s Inventory are applicable to it without
exception.

 

“Event of Default”:  Any event described in Section 7.1.

 

“Fixed Charge Coverage Ratio”:  For any period of determination, the ratio of
(A) EBITDA plus rent, minus taxes, distributions and dividends, and maintenance
capital expenditures of $125,000, to (B) mandatory principal payments and Interest
Expense on indebtedness plus rent.

 

“Fixed Charge Coverage + Contribution Ratio”:  For any period of determination, the ratio of
(A) EBITDA plus cash rent, plus cash capital contributions, minus taxes, cash
distributions and dividends and maintenance capital expenditures of $125,000,
to (B) mandatory principal payments and cash Interest Expense on indebtedness
plus cash rent.

 

“GAAP”: 
Generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of any date of determination.

 

“Interest Expense”:  For any period of determination, the
aggregate amount, without duplication, of interest paid, accrued or scheduled
to be paid in respect of any indebtedness of the Borrower, including (a) all
but the principal component of payments in respect of conditional sale
contracts, capitalized leases and other title retention agreements, (b)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers’ acceptance financings and (c) net costs under interest rate
protection agreements, in each case determined in accordance with GAAP.

 

“Inventory” means any and all of the Borrower’s
goods, including, without limitation, goods in transit, wherever located which
are or may at any time be leased by the Borrower to a lessee,

 

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held for sale or lease, furnished under any contract
of service or held as raw materials, work in process, or supplies or materials
used or consumed in the Borrower’s business, or which are held for use in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, and all goods, the sale or other disposition of which
has given rise to account, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or the Lender, or at any time hereafter in
the possession or under the control of the Borrower or the Lender, or any agent
or bailee of either thereof, and all documents of title or other documents
representing the same.

 

“Lien”: 
With respect to any Person, any security interest, mortgage, pledge,
lien, charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of each lessor under any capitalized lease), in,
of or on any assets or properties of such Person, now owned or hereafter
acquired, whether arising by agreement or operation of law.

 

“Loan Documents”:  This Agreement, the Note and the Security
Agreement.

 

“Note”: 
As defined in Section 2.3

 

“Obligations”: 
shall mean (a) all indebtedness, liabilities and obligations of the
Borrower to Lender of every kind, nature or description under this Agreement,
including the Borrower’s obligation on any Note and any note or notes hereafter
issued in substitution or replacement thereof, (b) all liabilities of the
Borrower under the Security Agreement, and (c) any and all other
liabilities and obligations of the Borrower to the Lender of every kind, nature
and description, whether direct or indirect or hereafter acquired by the Lender
from any Person, absolute or contingent, regardless of how such liabilities
arise or by what agreement or instrument they may be evidenced, and in all of
the foregoing cases whether due or to become due, and whether now existing or
hereafter arising or incurred.

 

“Person”: 
Any natural person, corporation, partnership, limited partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.

 

“Prime Rate” The rate of interest from time to
time publicly announced by the Lender as its “prime rate.”  The Lender may lend to its customers at rates
that are at, above or below the Prime Rate. 
For purposes of determining any interest rate hereunder or under any
Note which is based on the Prime Rate, such interest rate shall change as and
when the Prime Rate shall change.

 

“Regulatory Change”:  Any change after the date of this Agreement
in federal, state or foreign laws or regulations or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including the Lender under any federal, state or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.

 

“Revolving Commitment”:  The obligation of the Lender to make Advances
to the Borrower on the Revolving Loan in an aggregate principal amount
outstanding at any time not to exceed the Revolving Commitment Amount upon the
terms and subject to the conditions and limitations of this Agreement.

 

“Revolving Commitment Amount”:  As defined in Section 2.1(a).

 

“Revolving Credit Availability”:  The lesser of all of the Revolving Commitment
Amount minus outstanding Advances or (b) the Borrowing Base minus
outstanding Advances.

 

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“Revolving Loan”:  As defined in Section 2.1(a).

 

“Revolving Maturity Date”:  As defined in Section 2.1(a).

 

“Security Agreement”:  That certain Security Agreement dated as of
October 10, 2000, executed by the Borrower in favor of the Lender, as the same
may be amended from time to time.

 

“Slow Moving Inventory”:  Any obsolete Inventory, Inventory on the
Borrower’s records or held by the Borrower for more than one year, and any
other Inventory deemed slow moving by the Lender, excluding up to $5,000 for
raw materials such as bar stock, metal rods, extrusions, plates, sheeting, or
billets which is mutually agreed by Borrower and Lender.

 

“Slow Moving Finished Goods Inventory”:  Slow Moving Inventory consisting of finished
goods.

 

“Slow Moving Raw Materials Inventory”:  Raw materials the part or parts number for
which have not been moved (used) by the Borrower within one year from the date
such raw materials were acquired by the Borrower.

 

“Subsidiary”: 
Any corporation or other entity of which securities or other ownership
interests having ordinary voting power for the election of a majority of the
board of directors or other Persons performing similar functions are owned by
the Borrower either directly or through one or more Subsidiaries.

 

Section 1.2  Accounting Terms and
Calculations.  Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.

 

Section 1.3  Other Definitional
Terms, Terms of Construction.  The
words “hereof,” “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. 
References to Sections, Exhibits, Schedules and the like references are
to Sections, Exhibits, Schedules and the like of this Agreement unless
otherwise expressly provided.  The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation.”  Unless the context in which
used herein otherwise clearly requires, “or” has the inclusive meaning
represented by the phrase “and/or.”  All
incorporations by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if
such provisions were fully set forth herein, and include all necessary
definitions and related provisions from such other agreements.  All covenants, terms, definitions and other
provisions from other agreements incorporated into this Agreement by reference
shall survive any termination of such other agreements until the obligations of
the Borrower under this Agreement and the Note is irrevocably paid in full and
the Revolving Commitment is terminated.

 

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ARTICLE II

 

TERMS OF LENDING

 

Section 2.1  The Commitments.  On the terms and subject to the conditions
hereof, the Lender agrees to make the following lending facilities available to
the Borrower:

 

2.1 (a)
Revolving Credit.  A revolving
loan (the “Revolving Loan”) to the Borrower available as advances (“Advances”)
at any time and from time to time from the Closing Date to June 30, 2006 (the “Revolving
Maturity Date”), during which period the Borrower may borrow, repay and
reborrow in accordance with the provisions hereof, provided, that the
unpaid principal amount of revolving Advances shall not at any time exceed
$1,200,000 (the “Revolving Commitment Amount”); and provided, further,
that no revolving Advance will be made if, after giving effect thereto, the
unpaid principal amount of the Advances would exceed the Borrowing Base.

 

Section 2.2  Procedure for
Advances.  Any request by the
Borrower for an Advance on the Revolving Loan shall be in writing or by
telephone and must be given so as to be received by the Lender not later than
10:00 (Minneapolis time) on the requested Advance date.  Each request for an Advance shall be
irrevocable and shall be deemed a representation by the Borrower that on the
requested Advance date and after giving effect to such Advance the applicable
conditions specified in Article III have been and will continue be
satisfied.  Each request for an Advance
shall specify (i) the requested Advance date (which must be a Business Day) and
(ii) the amount of such Advance which shall be in a minimum amount of
$10,000.  Unless the Lender determines
that any applicable condition specified in Article III has not been satisfied,
the Lender will make available to the Borrower at the Lender’s principal office
in Minneapolis, Minnesota in immediately available funds not later than 5:00 PM
(Minneapolis time) on the requested Advance date the amount of the requested
Advance.

 

Section 2.3  The Note.  The Advances on the Revolving Loan shall be
evidenced by a single promissory note of the Borrower (the “
Note”), substantially in the form of Exhibit 2.3 hereto.   The Lender shall enter in its ledgers and
records the amount of each Advance made and the payments made thereon, and the
Lender is authorized by the Borrower to enter on a schedule attached to the
Note a record of such Advances and payments.

 

Section 2.4  Interest Rates,
Interest Payments and Default Interest. 
Interest shall accrue and be payable on the unpaid balance of the
Advances at a floating rate per annum equal to the sum of the Prime Rate plus
2.0% (the latter being the “Applicable Revolving Margin”); provided, however,
that upon the happening of any Event of Default, then, at the option of the
Lender, the Advances shall thereafter bear interest at a floating rate equal to
the sum of (a) the Prime Rate, plus (b) the Applicable Revolving Margin, plus
(c) 2.0%.

 

Section 2.5 Borrowing Base and Mandatory Prepayment.  The Borrowing Base shall be equal to the sum
of (1) 40% of the lower of cost or market value of raw material Eligible
Inventory; provided,  however that Slow Moving Raw Materials
Inventory shall not comprise more than $100,000 (the “Slow Moving Raw Materials
Inventory Tolerance Level”) and that Slow Moving Finished Goods Inventory shall
not comprise more than $25,000 (the “Slow Moving Finished Goods Inventory
Tolerance Level”) and all amounts of Slow Moving Inventory that exceed the Slow
Moving Raw Materials Inventory Tolerance Level and the Slow Moving Finished
Goods Inventory Tolerance Level shall be excluded from the Borrowing Base; plus
(2) 30% of the lower of cost (determined on a first in, first out basis) or
market value of finished good Eligible inventory, plus (3) 80% of
the face value of Eligible

 

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Accounts.  The Borrower shall deliver borrowing base
certificates in substantially the form attached hereto (a “Borrowing Base
Certificate”) to the Lender contemporaneously with each Advance request and in
any event not less than monthly.  Each
such certificate shall state the amount of Eligible Accounts, Eligible
Inventory and Slow Moving Inventory and the Borrowing Base as of the last day
of the previous month.  Any limitations
on advances or required prepayments relating to the Borrowing Base shall be
based on the latest borrowing base certificate the Borrower shall have
delivered to the Lender.  If the
principal balance of the Advances at any time exceeds the Borrowing Base, the
Borrower shall immediately prepay the Advances by the amount of that excess.

 

Section 2.6  Repayment and
Prepayment.

 

2.6 (a)
Repayment of the Advances. 
Principal of the Advances shall be payable in full on the Revolving
Maturity Date.  The Borrower may prepay
the Advances, in whole or in part, at any time, without premium or penalty.  Amounts prepaid on the Advances under this
Section may be reborrowed upon the terms and subject to the conditions and
limitations of this Agreement.

 

Section 2.7  Computation.  Interest on the Note shall be computed on the
basis of actual days elapsed and a year of 360 days.

 

Section 2.8  Use of Proceeds.  The proceeds of the initial Revolving Advance
shall be used to satisfy obligations to the Lender under the Existing
Agreement.  Any remaining balance of the
initial Revolving Advance and the proceeds of any subsequent Revolving Advance
shall be used for the Borrower’s general business purposes in a manner not in
conflict with any of the Borrower’s covenants in this Agreement.

 

ARTICLE III

 

CONDITIONS PRECEDENT

 

Section 3.1  Conditions of Initial
Revolving Advance.  The obligation of
the Lender to make the initial Advance on the Revolving Loan hereunder shall be
subject to the prior or simultaneous fulfillment of each of the following
conditions:

 

3.1 (a)  Documents.  The Lender shall have received the following:

 

(i)
The Note executed by a duly authorized officer (or officers) of the Borrower
and dated the Closing Date.

 

(ii)
A copy of the corporate resolutions of the Borrower authorizing the execution,
delivery and performance of this Agreement and the Note and containing an
incumbency certificate showing the names and titles, and bearing the signatures
of, the officers of the Borrower authorized to execute this Agreement and the
Note, certified as of the Closing Date by the Secretary or an Assistant Secretary
of the Borrower and certifying that there has been no change to the Articles of
Incorporation or Bylaws of the Borrower since true and correct copies were last
delivered to the Lender.

 

(iii)  The Security Agreement.

 

(iv)
The initial Borrowing Base Certificate required under Section 2.5.

 

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3.1 (b)
Other Matters.  All
organizational and legal proceedings relating to the Borrower and all
instruments and agreements in connection with the transactions contemplated by
this Agreement shall be satisfactory in scope, form and substance to the Lender
and its counsel, and the Lender shall have received all information and copies
of all documents, including records of corporate proceedings, which it may
reasonably have requested in connection therewith, such documents where
appropriate to be certified by proper Borrower or governmental authorities.

 

3.1 (c)
Fees and Expenses.  The
Lender shall have received all fees and other amounts due and payable by the
Borrower on or prior to the Closing Date, including the reasonable fees and
expenses of counsel to the Lender payable pursuant to Section 8.2

 

3.1 (d)
Perfection.  The Security
Agreement (or financing statements with respect thereto) shall have been
appropriately filed to the satisfaction of the Lender and the priority and
perfection of the Lien created thereby shall have been established to the
satisfaction of the Lender.

 

Section 3.2  Conditions Precedent
to all Advances.  The Lender shall
not have any obligation to make any Advance on the Revolving Loan (including
Advances after the initial Advance) hereunder unless all representations and
warranties of the Borrower made in this Agreement remain true and correct and
no Default or Event of Default exists.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

The Borrower represents and warrants to the Lender:

 

Section 4.1  Organization,
Standing, Etc.  The Borrower is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to issue the Note and to perform its obligations
hereunder and thereunder.  This Agreement
and the Note have been duly authorized by all necessary corporate action and
when executed and delivered will be the legal and binding obligations of the
Borrower.  The execution and delivery of
this Agreement and the Note will not violate the Borrower’s Articles of Incorporation
or bylaws or any law applicable to the Borrower.  No governmental consent or exemption is
required in connection with the Borrower’s execution and delivery of this
Agreement and the Note.

 

Section 4.2  Financial Statements
and No Material Adverse Change.  The
Borrower’s audited financial statements as at December 31, 2004 as heretofore
furnished to the Lender, have been prepared in
accordance with GAAP.  The Borrower has
no material obligation or liability not disclosed in such financial statements,
and there has been no material adverse change in the condition of the Borrower
since the date of such financial statements.

 

Section 4.3  Litigation.  There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower.  The Borrower is not in violation of any law
or regulation (including environmental laws and regulations and laws relating
to employee benefit plans) where such violation could reasonably be expected to
impose a material liability on the Borrower.

 

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Section 4.4  Taxes.  The Borrower has filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property (other than taxes, fees
or charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).

 

[Section 4.5  Subsidiaries.  The Borrower has no Subsidiaries except for
EPR, Inc. and Reuter Recycling of Florida, Inc.]

 

ARTICLE V

 

AFFIRMATIVE COVENANTS

 

Until the Revolving Commitment shall have expired or
been terminated and the Note and all of the Borrower’s
other obligations to the Lender under this Agreement shall have been paid in
full, unless the Lender shall otherwise consent in writing:

 

Section 5.1  Financial Statements
and Reports.  The Borrower will
furnish to the Lender:

 

5.1 (a)  As soon as available and in any event within
120 days after the end of each fiscal year of the Borrower, audited financial
statements of the Borrower consisting of at least statements of income, cash
flow and changes in stockholders’ equity, and a balance sheet as at the end of
such year, setting forth in each case in comparative form corresponding figures
from the previous annual audit, certified without qualification by independent
certified public accountants of recognized national standing selected by the
Borrower and acceptable to the Lender.

 

5.1 (b)  As soon as available and in any event within
45 days after the end of each month, unaudited financial statements for the
Borrower for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements.

 

5.1 (c)  As soon as practicable and in any event
within 45 days after the end of each calendar quarter, a Compliance Certificate
in the form of Exhibit 5.1(c) hereto and a statement signed by the chief
financial officer of the Borrower stating that as at the end of such month
there did not exist any Default or Event of Default or, if such Default or
Event of Default existed, specifying the nature and period of existence thereof
and what action the Borrower proposes to take with respect thereto.

 

5.1 (d)  Immediately upon any officer of the
Borrower becoming aware of any Default or Event of Default, a notice describing
the nature thereof and what action the Borrower proposes to take with respect
thereto.

 

5.1 (e)  Concurrently with each request for an
Advance, and in any event not less than monthly within 15 days after the end of
each month, a Borrowing Base Certificate .

 

5.1 (f)  As soon as practicable and in any
event within fifteen days of the end of each month, (i) a listing of all
Accounts, together with an aging of all accounts and a reconciliation of such
accounts against the listing submitted pursuant hereto for the immediately
preceding month and an Inventory component report, and (ii) a listing of all
accounts payable, together with an aging of all accounts payable all in form
and substance satisfactory to the Lender.

 

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5.1 (g) From time
to time, such other information regarding the business, operation and financial
condition of the Borrower as the Lender may reasonably request.

 

Section 5.2  Corporate Existence.  The Borrower will maintain its corporate
existence in good standing under the laws of its jurisdiction of incorporation
and its qualification to transact business in each jurisdiction where failure
so to qualify would permanently preclude the Borrower from enforcing its rights
with respect to any material asset or would expose the Borrower to any material
liability.

 

Section 5.3  Insurance.  The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by
law and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.

 

Section 5.4  Payment of Taxes and
Claims.  The Borrower will file all
tax returns and reports which are required by law to be filed by it and will
pay before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any
kind (including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the
creation of a Lien upon its property.

 

Section 5.5  Inspection.  The Borrower will permit any Person
designated by the Lender to visit and inspect any of the properties, books and
financial records of the Borrower, to examine and to make copies of the books
of accounts and other financial records of the Borrower, and to discuss the
affairs, finances and accounts of the Borrower with its officers at such
reasonable times and intervals as the Lender may designate.  The Borrower shall also allow the Lender and
its agents to conduct periodic collateral audits of the Borrower’s accounts and
inventory at such intervals as the Lender may choose, and the Borrower shall
pay the Lender’s costs of such audits (provided that the Borrower shall not be
require to pay for more than three collateral audits in any calendar year).

 

Section 5.6  Maintenance of
Properties.  The Borrower will
maintain its properties in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs,
renewals, replacements, betterments and improvements thereto, all as may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.

 

Section 5.7  Books and Records.  The Borrower will keep adequate and proper
records and books of account in which full and correct entries will be made of
its dealings, business and affairs.

 

Section 5.8  Compliance.  The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.

 

Section 5.9  Notice of Litigation.  The Borrower will give prompt written notice
to the Lender of the commencement of any action, suit or proceeding affecting
the Borrower.

 

Section 5.10  Plans.  The Borrower will maintain any employee
benefit plans in compliance with all material requirements of applicable laws
and regulations.

 

Section 5.11  Making of Payments;
Charging of Accounts.

 

5.11 (a) 
All payments hereunder (including payments with respect to any Note)
shall be made without set-off or counterclaim and shall be made to the Lender
in immediately available funds (or as the Lender may otherwise consent) prior
to 2:00 p.m., Minneapolis time, on

 

10

 

the date due at
its office at U.S. Bank Center, 800 Nicollet Mall, Minneapolis, MN 55402-4302,
or at such other place as may be designated by Lender to the Borrower in
writing from time to time.  Borrower
acknowledges that deposits made and other items credited to the Collateral
Account are subject to applicable laws and regulations governing availability
of funds and to Lender’s funds availability requirements, and may not be
immediately available for application to the Loans or the other Obligations.

 

5.11(b) The Borrower hereby irrevocably
authorize the Lender and the Lender may, in its sole and absolute discretion,
at any time and from time to time, pay all or any portion of any Obligations
including, without limitation, interest, attorneys’ fees and other fees, costs
and expenses of the Lender for which any Borrower is liable pursuant to the
terms of the Loan Documents, by charging any bank account of any Borrower
maintained with Lender or by advancing the amount thereof to the Borrower as an
Advance and applying the proceeds of such Loan against such Obligations; provided,
however, that the provisions of this Section 5.11(b) shall not affect
the Borrowers’ obligation to pay when due all amounts payable by any Borrower
under any of the Loan Documents whether or not there are sufficient funds
therefor in any such bank account of any Borrower with Lender, or sufficient
Revolving Credit Availability.

 

ARTICLE VI

 

NEGATIVE COVENANTS

 

Until the Revolving Commitment shall have expired or
been terminated and the Note and all of the Borrower’s
other obligations to the Lender under this Agreement shall have been paid in
full, unless the Lender shall otherwise consent in writing:

 

Section 6.1  Merger.  The Borrower will not merge or consolidate or
enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution)

 

Section 6.2  Sale of Assets.  The Borrower will not sell, transfer, lease
or otherwise convey all or any substantial part of its assets except for sales
and leases of inventory in the ordinary course of business.

 

Section 6.3  Dividends.  The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock.

 

Section 6.4  Payments to Investors
and Affiliates.  The Borrower will
not compensate , Richard McNamara, James R. Reissner, Michael Tate or
Activar, Inc., or any of their Affiliates(including without limitation, salary,
bonus, management fees, consulting agreements and incentive compensation of any
type) in an amount in excess of $100,000 (excluding salary paid to Michael
Tate) in the aggregate in any of Borrower’s fiscal years.  The Borrower will not enter into a
transaction with any Affiliate, officer of or investor in the Borrower (i)
which requires the Borrower to pay more than $5,000 in the aggregate for
management fees and (ii) except upon fair and reasonable terms no less
favorable than the Borrower would obtain in a comparable arm’s-length
transaction with a person not an Affiliate, officer of or investor in Borrower.

 

Section 6.5  Investments.  The Borrower will not make any loans,
advances or extensions of credit to any other Person (except for trade and
customer accounts receivable for inventory sold or services rendered in the
ordinary course of business and payable in accordance with customary trade

 

11

 

terms) or purchase or acquire any stock or other debt or equity
securities of or any interest in any other Person or any integral part of any
business or the assets comprising such business or part thereof, except for:

 

6.5 (a)
Investments in readily marketable direct obligations issued or unconditionally
guaranteed by the United States government or any agency thereof and supported
by the full faith and credit of the United States.

 

6.5 (b)
Certificates of deposit or bankers’ acceptances issued by any commercial Bank
organized under the laws of the United States or any State thereof which has
(i) combined capital and surplus of at least $100,000,000, and (ii) a credit
rating with respect to its unsecured indebtedness from a nationally recognized
rating service that is satisfactory to the Lender.

 

6.5 (c)
Commercial paper given the highest rating by a nationally recognized rating
service.

 

6.5 (d)
Repurchase agreements relating to securities of the kind described in
subsection (a) of this Section.

 

6.5 (e)
Other readily marketable investments in debt
securities which are reasonably acceptable to the Lender.

 

6.5 (f)
Travel advances to officers and employees in the ordinary course of business.

 

Any
investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.

 

Section 6.6  Indebtedness.  The Borrower will not borrow any money or
issue any bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except (i) for Advances under
this Agreement and (ii) leases that require aggregate monthly payments not to
exceed $15,000.

 

Section 6.7  Liens.  The Borrower will not create, incur, assume
or suffer to exist any Lien, or enter into any
arrangement for the acquisition of any property through conditional sale,
lease-purchase or other title retention agreements except:

 

6.7 (a) Liens
granted to the Lender.

 

6.7 (b) Liens existing
on the date of this Agreement and disclosed on Exhibit 6.7 hereto.

 

6.7 (c) Deposits
or pledges to secure payment of workers’ compensation, unemployment insurance,
old age pensions or other social security obligations arising in the ordinary
course of business of the Borrower.

 

6.7 (d)
Liens for taxes, fees, assessments and governmental charges not delinquent.

 

6.7 (e) Liens of
carriers, warehousemen, mechanics and materialmen, and other like Liens arising
in the ordinary course of business, for sums not due.

 

12

 

6.7 (f) Liens
incurred or deposits or pledges made or given in connection with, or to secure
payment of, indemnity, performance or other similar bonds.

 

6.7 (g)
Encumbrances in the nature of zoning restrictions, easements and rights or
restrictions of record on the use of real property and landlord’s Liens under
leases on the premises rented, which do not materially detract from the value
of such property or impair the use thereof in the business of the Borrower.

 

Section 6.8  Contingent
Obligations.  The Borrower will not
guarantee or otherwise become liable on the indebtedness of any other Person.

 

Section 6.9  Change of Control.  The Borrower will not permit a Change of
Control to occur.

 

Section 6.10  Fixed Charge Coverage
Ratio.  The Borrower will not permit
its Fixed Charge Coverage Ratio to be less than (i) 0.70 to 1.0 on a year to
date basis as of September 30, 2005, and (ii) 0.85 to 1.0 as of December 31,
2005 and at the end of each calendar quarter thereafter for the twelve months
then ended.

 

Section 6.11  Fixed Charge Coverage
+Contributions Ratio.  The Borrower
will not permit the Fixed Charge Coverage + Contribution Ratio to be less than
1.25 to 1.0 at the end of any calendar quarter measured at September 30, 2005
and at the end of each calendar quarter thereafter, for the twelve months then
ended.

 

ARTICLE VII

 

EVENTS OF DEFAULT AND REMEDIES

 

Section 7.1  Events of Default.  The occurrence of any one or more of the
following events shall constitute an Event of Default:

 

7.1 (a) The
Borrower shall fail to make when due, whether by acceleration or otherwise, any
payment of principal of or interest on the Note or any other obligations of the
Borrower to the Lender pursuant to this Agreement.

 

7.1 (b) Any
representation or warranty made by or on behalf of the Borrower in this
Agreement or by or on behalf of the Borrower in any certificate, statement,
report or document herewith or hereafter furnished to the Lender pursuant to
this Agreement shall prove to have been false or misleading in any material
respect on the date as of which the facts set forth are stated or certified.

 

7.1 (c) The
Borrower shall fail to comply with Sections 5.2 or 5.3 or any Section of
Article VI.

 

7.1 (d) The Borrower
shall fail to comply with any other agreement, covenant, condition, provision
or term contained in this Agreement (other than those hereinabove set forth in
this Section 7.1) and such failure to comply shall continue for ten calendar
days after whichever of the following dates is the earliest:  (i) the date the Borrower gives notice of
such failure to the Lender, (ii) the date the Borrower should have given notice
of such failure to the Lender pursuant to Section 5.1, or (iii) the date the
Lender gives notice of such failure to the Borrower.

 

13

 

7.1 (e) The
Borrower shall become insolvent or shall generally not pay its debts as they
mature or shall apply for, shall consent to, or shall acquiesce in the appointment
of a custodian, trustee or receiver of the Borrower or for a substantial part
of the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or for a substantial part of the property thereof, or the Borrower
shall make an assignment for the benefit of creditors.

 

7.1 (f)  Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or against
the Borrower.

 

7.1 (g)  Any dissolution or liquidation proceeding shall be
instituted by or against the Borrower.

 

7.1 (h)  A judgment or judgments for the payment of money in excess
of the sum of $50,000 in the aggregate shall be rendered against the Borrower.

 

7.1 (i) The
maturity of any material indebtedness of the Borrower (other than indebtedness
under this Agreement) shall be accelerated, or the Borrower shall fail to pay
any such material indebtedness when due (after the lapse of any applicable grace
period) or any event shall occur or condition shall exist and shall continue
for more than the period of grace, if any, applicable thereto and shall have
the effect of causing, or permitting the holder of any such indebtedness to
cause, such material indebtedness to become due prior to its stated maturity or
to realize upon any collateral given as security therefor.  For purposes of this Section, indebtedness of
the Borrower shall be deemed “material” if it exceeds $25,000 as to any item of
indebtedness or in the aggregate for all items of indebtedness with respect to
which any of the events described in this Section has occurred.

 

7.1 (j)  Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower shall be taken or attempted to
be taken.

 

7.1 (k)  Any default shall occur under any other Loan Document.

 

Section 7.2  Remedies.   If (a) any Event of Default described in
Sections 7.1 (e), (f) or (g) shall occur with respect to the Borrower, the
Revolving Commitment shall automatically terminate and the Note and all other
obligations of the Borrower to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may (i) declare the
Revolving Commitment terminated, whereupon the Commitment shall terminate, and
(ii) declare the Note and all other obligations of the Borrower to the Lender
under this Agreement to be forthwith due and payable, whereupon the same shall
immediately become due and payable, in each case without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note to the contrary notwithstanding.  Upon the occurrence of any of the events
described in clauses (a) or (b) of the preceding sentence the Lender may
exercise all rights and remedies under this Agreement, the Note and any related
agreements and under any applicable law.

 

Section 7.3  Offset.  In addition to the remedies set forth in
Section 7.2, upon the occurrence of any Event of Default and thereafter while
the same be continuing, the Borrower hereby irrevocably authorizes the Lender
to set off all sums owing by the Borrower to the Lender against all deposits
and credits of the Borrower with, and any and all claims of the Borrower
against, the Lender.  The Borrower hereby
grants to the Lender a security interest in all of the Borrowers accounts held
by the Lender and all other property of the Borrower in the Lender’s
possession.

 

14

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1  Modifications.  Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or
waiver of any provision of this Agreement or consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such amendment, modifications,
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

 

Section 8.2  Costs and Expenses.  Whether or not the transactions contemplated
hereby are consummated, the Borrower agrees to reimburse the Lender upon demand
for all reasonable out-of-pocket expenses paid or incurred by the Lender
(including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender determined at such counsel’s customary rates
which in some instances may be higher than the rates charge to the Lender in
other matters) in connection with the negotiation, preparation, approval,
review, execution, delivery, amendment, modification, interpretation,
collection and enforcement of this Agreement and the Note. The obligations of
the Borrower under this Section shall survive any termination of this
Agreement.

 

Section 8.3  Waivers, etc.  No failure on the part of the Lender or the
holder of either Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof
or the exercise of any other power or right. 
The rights and remedies of the Lender hereunder are cumulative and not
exclusive of any right or remedy the Lender otherwise has.

 

Section 8.4  Notices.  Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. 
All periods of notice shall be measured from the date of delivery
thereof if manually delivered, from the date of sending thereof if sent by
telegram, telex or facsimile transmission, from the first Business Day after
the date of sending if sent by overnight courier, or from four days after the
date of mailing if mailed; provided, however, that any notice to
the Lender under Article II hereof shall be deemed to have been given only when
received by the Lender.

 

Section 8.5  Successors and
Assigns; Disposition of Loans. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign its rights
or delegate its obligations hereunder without the prior written consent of the
Lender.  The Lender may at any time sell,
assign, transfer, grant participations in, or otherwise dispose of any portion
of the Revolving Commitment and the Term Loan and/or Advances to banks or other
financial institutions.  The Lender may
disclose any information regarding the Borrower in the Lender’s possession to
any prospective buyer or participant.

 

Section 8.6  Governing Law and Construction.  The validity, construction and enforceability
of this agreement and the note shall be governed by the internal laws of the
state of Minnesota, without giving effect to conflict of laws principles
thereof, but giving effect to federal laws of the united
states applicable to national banks.

 

15

 

Section 8.7  Consent To
Jurisdiction.  At the option of the
lender, this agreement and the note may be enforced in any federal court or
Minnesota state court sitting in Hennepin or Ramsey county, Minnesota; and the
borrower consents to the jurisdiction and venue of any such court and waives
any argument that venue in such forums is not convenient.  In the event the borrower commences any
action in another jurisdiction or venue under any tort or contract theory
arising directly or indirectly from the relationship created by this agreement,
the lender at its option shall be entitled to have the case transferred to one
of the jurisdictions and venues above-described, or if such transfer cannot be
accomplished under applicable law, to have such case dismissed without
prejudice.

 

Section 8.8  Waiver of Jury Trial.  Each of the borrower and the lender
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or relating to this agreement, the note and any other loan
documents or the transactions contemplated hereby or thereby.

 

Section 8.9  Captions.  The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.

 

Section 8.10  Entire Agreement.  This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the Lender
with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof, including the Existing Agreement.  The Borrower confirms to the Lender that the
Obligations are and continue to be secured by the security interest granted by
the Borrower in favor of the Lender under the Security Agreement, and all of
the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations of the Borrower under such
documents and any and all other documents and agreements entered into with
respect to the obligations under the Existing Agreement, as amended and
restated herein, are incorporated herein by reference and are hereby ratified
and affirmed in all respects by the Borrower.

 

Section 8.11  Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

 

16

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first above written.

 

	
   

  	
  MAGSTAR TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Jon L. Reissner

  	
   

  
	
   

  	
  Print Name 

  	
    Jon Reissner

  	
   

  
	
   

  	
  Title 

  	
    President / CEO

  	
   

  
	
   

  	
   

  
	
  Borrower’s Address:

  	
   

  
	
  410 11th Avenue South

  	
   

  
	
  Hopkins, MN 55343

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
  By 

  	
  /s/ Benjamin Johnson

  	
   

  
	
   

  	
  Print Name 

  	
    Benjamin Johnson

  	
   

  
	
   

  	
  Title 

  	
    Vice President

  	
   

  
	
   

  	
   

  
	
  Lender’s Address:

  	
   

  
	
  U.S.
  Bank National Association

  	
   

  
	
  800
  Nicollet Ave.

  	
   

  
	
  Minneapolis,
  MN 55402-4302

  	
   

  
	
  Fax
  (612) 303-3638

  	
   

  
									

 

17

 

EXHIBIT 2.3 TO

CREDIT AGREEMENT

 

REVOLVING NOTE

 

	
  $1,200,000

  	
   

  	
  June 30, 2005

  
	
   

  	
   

  	
  Minneapolis, Minnesota

  

 

FOR VALUE RECEIVED, MAGSTAR TECHNOLOGIES, INC., a
corporation organized under the laws of the State of Minnesota, hereby promises
to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the “Lender”) at its
main office in Minneapolis, Minnesota, in lawful money of the United States of
America in immediately available funds the principal amount of ONE MILLION TWO
HUNDRED THOUSAND DOLLARS AND NO CENTS ($1,200,000) or, if less, the outstanding
amount of all Advances under the Credit Agreement (hereafter defined), and to
pay interest (computed on the basis of actual days elapsed and a year of 360
days) in like funds on the unpaid principal amount hereof from time to time
outstanding at the rate set forth in the Credit Agreement.

 

The
principal hereof and interest hereon is payable as set forth in the Credit
Agreement.:

 

This note is the Note referred to in the Second
Amended and Restated Credit Agreement dated as of June 30, 2005 (as the same
may be hereafter from time to time amended, restated or modified, the “Credit
Agreement”) between the undersigned and the Lender.  This note is secured, it is subject to
certain permissive and mandatory prepayments and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit Agreement.

 

In the event of default hereunder, the undersigned
agrees to pay all costs and expenses of collection, including reasonable
attorneys’ fees.  The undersigned waives
demand, presentment, notice of nonpayment, protest,
notice of protest and notice of dishonor.

 

THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO
FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.

 

	
   

  	
  MAGSTAR TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
					

 

18

 

BORROWING BASE
CERTIFICATE

Magstar Technologies Inc.

 

Borrowing Base Certificate for the period ended
                            
, 20  

 

This Borrowing Base Certificate is delivered in
accordance with the Second Amended and Restated Credit Agreement dated as of
June 30, 2005 between U.S. Bank National Association (the “Lender”) and Magstar
Technologies Inc. (“the Borrower”). 
Capitalized terms used herein which are defined in the Credit Agreement
shall have the meanings set forth for such terms therein.  All amounts are as of the
date shown above except as otherwise stated herein.

 

I certify that the following amounts were correctly
determined according to the Credit Agreement:

 

	
  Total Receivables

  	
   

  	
   

  	
   

  	
  $

  	
  (A)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivables 90+ days 

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other Ineligible $

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Ineligible

  	
   

  	
   

  	
   

  	
  $

  	
  (B)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible Receivables (A)
  - (B)

  	
   

  	
   

  	
   

  	
  $

  	
  (C)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible Receivables
  Borrowing

  Base (80% of (C))

  	
   

  	
   

  	
   

  	
  $

  	
  (D)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Raw Material
  Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (E)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ineligible Raw
  Material

  Inventory

  	
   

  	
   

  	
   

  	
  $

  	
   (F)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible Raw Material
  Inventory

  (E) - (F)

  	
   

  	
   

  	
   

  	
  $

  	
  (G)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raw Material Inventory
  Subtotal

  Borrowing Base 40% of (G)

  	
   

  	
   

  	
   

  	
  $

  	
  (H)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Slow Moving Raw
  Materials

  Inventory

  	
   

  	
   

  	
   

  	
  $

  	
  (I)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Slow Moving Raw
  Materials

  Inventory in excess of Tolerance

  Level (in excess of $100,000)

  	
   

  	
   

  	
   

  	
  $

  	
  (J)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deduction for Slow
  Moving

  Inventory (I) - (J)

  	
   

  	
   

  	
   

  	
  $

  	
  (K)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raw Material Inventory

  Borrowing Base (H)-(K)

  	
   

  	
   

  	
   

  	
  $

  	
  (L)

  

 

19

 

	
  Total Finished Goods
  Inventory

  	
   

  	
  $

  	
  (M)

  
	
   

  	
   

  	
   

  
	
  Ineligible Finished
  Goods

  Inventory

  	
   

  	
  $

  	
  (N)

  
	
   

  	
   

  	
   

  
	
  Eligible Slow Moving
  Finished

  Goods Inventory in excess of

  Tolerance Level (in excess of

  $25,000) 

  	
   

  	
  $

  	
  (O)
  

  
	
   

  	
   

  	
   

  
	
  Deduction for Slow
  Moving

  Finished Goods Inventory

  	
   

  	
  $

  	
  (P)

  
	
   

  	
   

  	
   

  
	
  Finished Goods
  Inventory

  Borrowing Base 30% of (M)-

  (N)-(P)

  	
   

  	
  $

  	
  (Q)

  
	
   

  	
   

  	
   

  
	
  Total Borrowing Base
  (D) + (L)

  + (Q)

  	
   

  	
  $

  	
  (R)

  
	
   

  	
   

  	
   

  
	
  Outstanding Advances

  	
   

  	
  $

  	
  (S)

  
	
   

  	
   

  	
   

  
	
  Availability (R) - (S)

  	
   

  	
  $

  	
  (T)

  

 

I hereby certify that all payroll and unemployment taxes are current as
of this date.

 

For the purpose of inducing the Lender to extend
credit to the Borrower pursuant to the Credit Agreement, the Borrower hereby
certifies that the foregoing information is true and correct in all
respects.  The Borrower further certifies
that all amounts outstanding under the Note were properly authorized for the
benefit of the Borrower and constitute obligations of the Borrower in
accordance with the terms of the Credit Agreement.  The Borrower further certifies that no
circumstances or conditions exist at the date of the Borrowing Base Certificate
which constitute an Event of Default.

 

	
   

  	
  MAGSTAR TECHNOLOGIES
  INC.

  
	
   

  
	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
  Title 

  	
   

  	
   

  
						

 

20

 

EXHIBIT 5.1(c) TO

CREDIT
AGREEMENT

 

[FORM OF
COMPLIANCE CERTIFICATE]

 

To:
         U.S. Bank
National Association

 

THE
UNDERSIGNED HEREBY CERTIFIES THAT:

 

(1)  I am the
duly elected chief financial officer of MAGSTAR TECHNOLOGIES, INC. (the “Borrower”);

 

(2)  I have
reviewed the terms of the Second Amended and Restated Credit Agreement dated as
of June 30, 2005 between MAGSTAR TECHNOLOGIES, INC., a corporation organized
under the laws of the State of Minnesota, (the “Borrower”), and U.S. BANK
NATIONAL ASSOCIATION (the “Lender”) (the “Credit Agreement”) and I have made,
or have caused to be made under my supervision, a detailed review of the
transaction and conditions of the Borrower during the accounting period covered
by the Attachment hereto; and

 

(3)  The
examination described in paragraph (2) did not disclose, and I have no
knowledge, whether arising out of such examinations or otherwise, of the
existence of any condition or event which constitutes a Default or an Event of
Default (as such terms are defined in the Credit Agreement) during or at the
end of the accounting period covered by Attachment hereto or as of the date of
this Certificate, except as described below (or on a separate attachment to
this Certificate).  The following
exceptions set forth, in detail, the nature of the condition or event, the
period during which has existed and the action which the Borrower has taken, is taking or proposes to take with respect to each
such condition or event.

 

The foregoing certification, together with the
computations in the Attachment hereto and the financial statements delivered
with this Certificate in support hereof, are made and delivered this
           day of
                            ,            ,
pursuant to Section 5.1 (c) of the Credit Agreement.

 

	
   

  	
  MAGSTAR
  TECHNOLOGIES, INC.

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  
					

 

21

 

ATTACHMENT TO COMPLIANCE CERTIFICATE

AS OF
                        
,       

WHICH PERTAINS TO THE PERIOD

FROM
                      
,
              
TO                     
,        

FOR THE FISCAL YEAR ENDING
                          
,      

 

	
   

  	
   

  	
  Actual

  	
   

  	
  In Compliance

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.10

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fixed Charge Coverage Ratio

  	
   

  	
        to 1.0

  	
   

  	
  Yes o No
  o

  
	
  (no less than 0.70 to 1.0 ytd on

  	
   

  	
   

  	
   

  	
   

  
	
  9-30-05 and 0.85 to 1.0 at each

  	
   

  	
   

  	
   

  	
   

  
	
  calendar quarter end thereafter

  	
   

  	
   

  	
   

  	
   

  
	
  for 12 months then ended)

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.11

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fixed Charge Coverage +

  	
   

  	
   

  	
   

  	
   

  
	
  Contribution Ratio

  	
   

  	
        to 1.0

  	
   

  	
  Yes o No
  o

  
	
  (no less than 1.25 to 1.0 at

  	
   

  	
   

  	
   

  	
   

  
	
  each calendar quarter end for

  	
   

  	
   

  	
   

  	
   

  
	
  12 months then ended commencing

  	
   

  	
   

  	
   

  	
   

  
	
  9-30-05)

  	
   

  	
   

  	
   

  	
   

  

 

22

 

CERTIFICATE OF SECRETARY OF

MAGSTAR TECHNOLOGIES, INC.

 

I,
                                           , hereby certify to U.S. Bank National
Association that I am the Secretary of Magstar Technologies, Inc., a
corporation organized under the laws of the State of Minnesota (the “Company”)
and that the following resolutions have been duly adopted by the Board of
Directors of the Company in a manner authorized by the laws of the State of
Minnesota:

 

“WHEREAS,
the Company wishes to borrow money from U.S. Bank National Association (the “Lender”),
and for that purpose intends to enter into a Second Amended and Restated Credit
Agreement with the Lender.

 

RESOLVED,
the Company shall enter into an Amended and Restated Credit Agreement with the
Lender under which the Company may obtain loans up to $1,200,000; and
the                                        or any                                        of the Company is hereby authorized at any
time and from time to time to execute and deliver to the Lender such Second
Amended and Restated Credit Agreement and any promissory notes, security
agreements, mortgages, subordination agreements, pledge agreements, assignments
of life insurance, reimbursement agreements, or amendments to any of the
foregoing as may be contemplated or required pursuant to such Second Amended
and Restated Credit Agreement or otherwise, all in such form as such officer
may determine and approve (such determination and approval to be established
conclusively by such officer’s execution and delivery of such Second Amended
and Restated Credit Agreement and any such related documents and instruments).

 

FURTHER RESOLVED,
that
the                                                      or
any                                         
of the Company is hereby authorized at any time and from time to time to sell,
assign, transfer, mortgage, create security interests in and pledge to the
Lender the real property, goods, instruments, documents, securities, chattel
paper, accounts, contract rights and other intangibles and any other property
now owned or hereafter acquired by the Company, either absolutely for such
consideration as such officer may determine to be appropriate or as security
for the payment or performance of any or all debts, liabilities and obligations
of every type and description now or at any time hereafter owed to the Lender
by the Company, on such terms as such officer may approve, and to do such other
acts or things in connection therewith or pursuant thereto as such officer may
determine to be appropriate (such determination and approval to be established
conclusively by the instrument executed or action taken by such officer).

 

FURTHER RESOLVED,
it is hereby acknowledged that each and every note, guaranty, security
agreement and other instrument made pursuant to the foregoing resolutions is
and will be made and given for the corporate purposes of this Company.

 

FURTHER RESOLVED,
the Secretary or Assistant Secretary shall certify to the Lender the names and
signatures of the persons who presently are duly elected, qualified and acting
as the officers authorized to act under the foregoing resolutions, and the
Secretary or Assistant Secretary shall from time to time hereafter, upon a
change in the facts so certified, immediately certify to the Lender the names
and signatures of the persons then authorized to sign or to act; the Lender
shall be fully protected in relying on such certificates and on the obligation
of the Secretary or an Assistant Secretary immediately to certify to the Lender
any change in any fact certified, and the Lender shall be indemnified and saved
harmless by the Company from any and all claims, demands, expenses,

 

23

 

costs and damages resulting from or growing out of honoring or relying
on the signature or other authority (whether or not properly used) of any
officer whose name and signature was so certified, or refusing to honor any
signature or authority not so certified.”

 

I
further certify that the foregoing resolutions have not been amended or revoked
and are in full force and effect on the date hereof.

 

I
further certify that the Articles of Incorporation and the Bylaws of the
Company have not been amended since true and correct copies were last delivered
to the Lender and are in full force and effect on the date hereof.

 

I
further certify that the Board of Directors of the Company has, and at the time
of adoption of the foregoing resolutions had, full power and lawful authority
to adopt the foregoing resolutions and to confer the powers therein granted
upon the officers designated, and that such officers have full power and
authority to exercise the same.

 

I
further certify that the officers whose names appear below have been duly
elected to and now hold the offices in the Company set forth opposite their
respective names and that the signature appearing opposite the name of each of
such officer is authentic and official:

 

	
  Name

  	
   

  	
  Title

  	
   

  	
  Specimen Signature

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I
further certify that shareholder approval of the foregoing resolutions is not
required and said resolutions are effective and binding on the Company without
approval by its shareholders.

 

	
  Dated

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Secretary

  
	
   

  	
   

  
	
  Attest by a Director

  
						

 

24Exhibit 10.2

 

KITE REALTY GROUP TRUST

 

Schedule of Non-Employee Trustee Fees and Other Compensation

 

	
  Annual Retainer

  	
   

  	
  $25,000
  (1)

  
	
   

  	
   

  	
   

  
	
  Board Meeting Fees (telephonic and
  in-person)

  	
   

  	
  $1,000

  
	
   

  	
   

  	
   

  
	
  Committee Meeting Fees (telephonic and
  in-person)

  	
   

  	
  $1,000

  
	
   

  	
   

  	
   

  
	
  Committee Chair Annual Retainer

  	
   

  	
  Audit
  Committee: $10,000

  Compensation Committee: $7,500

  Nominating and Corporate Governance Committee: $5,000

  
	
   

  	
   

  	
   

  
	
  Lead Trustee Retainer

  	
   

  	
  $10,000

  
	
   

  	
   

  	
   

  
	
  Annual Restricted Share Awards

  	
   

  	
  Upon
  initial election, each trustee receives 3,000 restricted shares that vest 1
  year from date of grant.

  

  On an annual basis each year after their initial election, each trustee will
  receive restricted shares with a value of $15,000 that vest 1 year from the
  date of grant.

  

 

(1)                                  On May 13, 2005, the Board of Trustees elected to begin receiving
approximately one-half of their $25,000 annual retainer, which was previously
paid entirely in cash, in common shares of beneficial interest, par value $0.01
per share, of the Company. As a result, beginning with the quarterly payment
for the third calendar quarter of 2005, trustees will receive approximately 50%
of the quarterly payment in common shares pursuant to unrestricted share grants
under the Company’s 2004 Equity Incentive Plan and the remainder in cash. The
number of common shares to be issued each quarter will be based on the closing
price of the common shares on the second business day after public release of
the Company’s financial data for the preceding calendar quarter (rounded down
to the nearest whole common share).

 

Effective: May 2005

 

1

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