EXHIBIT 10.29
SECOND AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
(Ex-Im Bank Guaranteed Loan No. _____________)
Dated as of August __, 2000
RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"),
and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION f/k/a Norwest Bank
Minnesota, National Association, a national banking association (the "Lender")
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used in this
Agreement have the meanings given in the Borrower Agreement. In addition, the
following terms have the meanings given below:
"Accounts Receivable" means all of the Borrower's right, title
and interest, now owned or hereafter acquired, in (i) "accounts" (as
such term is defined in the UCC), other receivables, book debts and
other forms of obligations, whether arising 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; (ii)
rights in, to and under all purchase orders or receipts for goods or
services; (iii) rights to any goods represented or purported to be
represented by any of the foregoing (including unpaid sellers' rights
of rescission, replevin, reclamation and stoppage in transit and rights
to returned, reclaimed or repossessed goods); (iv) moneys due or to
become due to the Borrower under all purchase orders and contracts for
the sale or lease of goods or the performance of services or both by
the Borrower (whether or not yet earned by performance on the part of
the Borrower), including the proceeds of the foregoing; (v) any notes,
drafts, chattel paper, bond, letters of credit, insurance proceeds or
other instruments, documents and writings evidencing or supporting the
foregoing; and (vi) all collateral security and guarantees of any kind
given by any other Person with respect to any of the foregoing; whether
created, generated or earned by the Borrower or by some other Person
who subsequently transfers such Person's interest to the Borrower,
whether or not already earned by performance, and howsoever evidenced;
<PAGE>
together with all other rights and interests (including all Liens)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any payment or
against any property of such account debtor or other obligor; and
including all rights to payment in the nature of general intangibles.
"Advance" has the meaning given in Section 2.2.
"Affiliate" or "Affiliates" means any 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 Second Amended and Restated Credit and
Security Agreement, as amended, supplemented and restated from time to
time.
"Availability" means the least of:
(a) the difference of (i) the Borrowing Base and
(ii) the outstanding principal balance of
the Advances; or
(b) the Inventory Threshold Amount.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP, provided that Debt subordinated to the
Obligations that is converted to equity shall be excluded when
determining the Borrower's compliance with any financial covenant using
this definition.
"Borrower Agreement" means the Borrower Agreement of even date
herewith by and between the Borrower and the Lender in the form
attached hereto as Exhibit B.
"Borrowing Base" means, at any time the least of
(a) the Maximum Amount;
(b) the difference of $2,500,000 and the Domestic
Revolving Credit Exposure; or
(c) the Collateral Base.
"Borrowing Base Certificate" means a certificate,
substantially in the form attached hereto as Exhibit E, executed by the
Borrower and accepted by the Lender.
"Business Day" means any day on which the Federal Reserve Bank
of New York is open for business.
-2-
<PAGE>
"Buyer" means a Person that has entered into one or more
Export Orders with the Borrower.
"Closing Date" means the date of this Agreement.
"Collateral" means all Accounts Receivable, Equipment, General
Intangibles, Inventory and Investment Property, together with (i) all
other collateral described in any Security Document, (ii) all
substitutions and replacements for and products of any of the foregoing
property, (iii) in the case of all tangible property, together with (A)
all accessions, accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
such goods, and (B) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods, and (iv) all
proceeds of any and all of the foregoing property.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement by and among the Borrower, Norwest Bank International, New
York Branch and the Lender dated as of June 26, 1997, as the same may
be amended, supplemented or restated from time to time.
"Collateral Base" means subject to change from time to time in
the Lender's sole discretion, the sum of:
(i) 80% of Eligible Export-Related Accounts Receivable;
and
(ii) 60% of Eligible Export-Related Inventory;
provided, however, that the Lender or the Servicer, may, in its sole
discretion, establish reserves for fees which have become or may become
due pursuant to any or all of the Borrower's license agreements with
licensors with whom the Lender has not entered into a License
Acknowledgment and Agreement, in form and substance acceptable to the
Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Country Limitation Schedule" means the schedule published
from time to time by Ex-Im Bank and provided to the Borrower by the
Lender which sets forth on a country by country basis whether and under
what conditions Ex-Im Bank will provide coverage for the financing of
export transactions to countries listed therein.
"Credit Facility" means the credit facility made available to
the Borrower pursuant to Article II.
"Debarment Regulations" means, collectively, (i) the
Governmentwide Debarment and Suspension (Nonprocurement) regulations
(Common Rule), 53 Fed.
-3-
<PAGE>
Reg. 19204 (May 26, 1988), (ii) Subpart 9.4 (Debarment, Suspension, and
Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R.
9.400-9.409 and (iii) the revised Governmentwide Debarment and
Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg.
33037 (June 26, 1995).
"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 on a consolidated basis as of 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 percent
(3%) over the Floating Rate, which rate shall change when and as the
Floating Rate changes.
"Dollars" or "$" means the lawful currency of the United
States.
"Domestic Credit Agreement" means that certain Amended and
Restated Credit and Security Agreement by and between the Borrower and
WFBCI dated as of April 16, 1998, as the same may hereafter be amended,
supplemented or restated from time to time.
"Domestic Credit Facility" means the credit facility extended
to the Borrower pursuant to the Domestic Credit Agreement.
"Domestic Revolving Credit Exposure" means the outstanding
principal balance of the Revolving Advances as defined in the Domestic
Credit Agreement.
"Eligible Export-Related Accounts Receivable" means an
Export-Related Account Receivable excluding, however any Export-Related
Account Receivable:
(a) that does not arise from the sale of Items in the
ordinary course of the Borrower's business;
(b) that is not subject to a valid, perfected first
priority Lien in favor of the Lender;
-4-
<PAGE>
(c) as to which any covenant, representation or
warranty contained in the Loan Documents with respect to such
Account Receivable has been breached;
(d) that is not owned by the Borrower or is subject
to any right, claim or interest of another Person other than
the Liens in favor of the Lender and the Servicer;
(e) with respect to which an invoice has not been
sent;
(f) that arises from the sale of defense articles or
defense services;
(g) that is due and payable from a Buyer located in a
country with which Ex-Im Bank is prohibited from doing
business as designated in the Country Limitation Schedule;
(h) that does not comply with the requirements of the
Country Limitation Schedule;
(i) that is due and payable more than one hundred
eighty (180) days from the earlier of the date of the invoice
or the shipment date;
(j) that is not paid within sixty (60) calendar days
from its original due date, unless it is insured through Ex-Im
Bank export credit insurance for comprehensive commercial and
political risk, or through Ex-Im Bank approved private
insurers for comparable coverage, in which case it is not paid
within ninety (90) calendar days from its due date;
(k) that arises from a sale of goods to or
performance of services for an employee of the Borrower, a
stockholder of the Borrower, a subsidiary of the Borrower, a
Person with a controlling interest in the Borrower or a Person
which shares common controlling ownership with the Borrower;
(l) that is backed by a letter of credit unless the
Items covered by the subject letter of credit have been
shipped;
(m) that the Lender or Ex-Im Bank, in its reasonable
judgment, deems uncollectible for any reason;
(n) that is due and payable in a currency other than
Dollars, except as may be approved in writing by Ex-Im Bank;
(o) that is due and payable from a military Buyer,
except as may be approved in writing by Ex-Im Bank;
(p) that does not comply with the terms of sale set
forth in Section 7 of the Loan Authorization Agreement;
-5-
<PAGE>
(q) that is due and payable from a Buyer who (A)
applies for, suffers, or consents to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its
property or calls a meeting of its creditors, (B) admits in
writing its inability, or is generally unable, to pay its
debts as they become due or ceases operations of its present
business, (C) makes a general assignment for the benefit of
creditors, (D) commences a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (E)
is adjudicated as bankrupt or insolvent, (F) files a petition
seeking to take advantage of any other law providing for the
relief of debtors, (G) acquiesces to, or fails to have
dismissed, any petition which is filed against it in any
involuntary case under such bankruptcy laws, or (H) takes any
action for the purpose of effecting any of the foregoing;
(r) that arises from a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any
other repurchase or return basis or is evidenced by chattel
paper;
(s) for which the Items giving rise to such Account
Receivable have not been shipped or the services giving rise
to such Account Receivable have not been performed by the
Borrower or the Account Receivable otherwise does not
represent a final sale;
(t) that is subject to any offset, deduction,
defense, dispute, or counterclaim or the Buyer is also a
creditor or supplier of the Borrower or the Account Receivable
is contingent in any respect or for any reason;
(u) for which the Borrower has made any agreement
with the Buyer for any deduction therefrom, except for
discounts or allowances made in the ordinary course of
business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value
of each respective invoice related thereto;
(v) for which any of the Items giving rise to such
Account Receivable have been returned, rejected or
repossessed;
(w) to the extent it includes any finance charges,
service charges, taxes, discounts, credits, allowances and
Retainages;
(x) that arise from the sale of Items containing less
than fifty percent (50%) US Content;
(y) that arise from the sale of Items containing any
Foreign Content not incorporated into such Items in the US;
-6-
<PAGE>
(z) that arise from the sale of any Items to be used
in the construction, alteration, operation or maintenance of
nuclear power, enrichment, reprocessing, research or heavy
water production facilities; or
(aa) that are otherwise deemed ineligible for any
reason by the Lender or Ex-Im Bank in its discretion.
"Eligible Export-Related Inventory" means Export-Related
Inventory consisting of Items, raw materials and components to be used
to manufacture or assemble Items and work-in-process relating to Items,
and raw materials and components the Borrower must purchase to
manufacture or assemble Items, at the lower of cost or market value as
determined in accordance with GAAP, excluding however any such
Export-Related Inventory:
(a) that is not subject to a valid, perfected first
priority Lien in favor of the Lender;
(b) that is subject to a security interest in favor
of any Person other than the Lender or the Servicer;
(c) that is located at an address that has not been
approved by the Lender in writing;
(d) that is placed by the Borrower on consignment or
held by the Borrower on consignment from another Person;
(e) that is in-transit; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; in the possession of a processor or bailee,
or located on premises leased or subleased to the Borrower, or
on premises subject to a mortgage in favor of a Person other
than the Lender, unless such processor or bailee or mortgagee
or the lessor or sublessor of such premises, as the case may
be, has executed and delivered all documentation which the
Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with
respect to such Inventory and the Lender's fight to gain
access thereto;
(f) that is produced in violation of the Fair Labor
Standards Act or subject to the "hot goods" provisions
contained in 29 U.S.C.ss. 215 or any successor statute or
section;
(g) as to which any covenant, representation or
warranty with respect to such Inventory contained in the Loan
Documents has been breached;
(h) that is not located in the United States;
-7-
<PAGE>
(i) that is sample or demonstration Inventory;
(j) that consists of proprietary software (i.e.
software designed solely for the Borrower's internal use and
not intended for resale);
(k) that is damaged, slow moving, obsolete, returned,
defective, recalled or unfit for further processing or not
currently saleable in the normal course of the Borrower's
operations;
(l) that has been previously exported from the United
States;
(m) that constitutes defense articles or defense
services;
(n) that is to be incorporated into Items destined
for shipment to a country as to which Ex-Im Bank is prohibited
from doing business as designated in the Country Limitation
Schedule;
(o) that is to be incorporated into Items destined
for shipment to a Buyer located in a country in which Ex-Im
Bank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only
to the extent that such Items are to be sold to such country
on terms of a letter of credit confirmed by a bank acceptable
to Ex-Im Bank;
(p) that is to be incorporated into Items whose sale
would result in an Account Receivable which would not be an
Eligible Export-Related Account Receivable (for reasons other
than pursuant to clause (j) of the definition of "Eligible
Export-Related Account Receivable";
(q) that is perishable or live;
(r) that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to
the vendor thereof;
(s) that is the Foreign Content portion of Items
containing less than fifty percent (50%) US Content;
(t) for Items containing at least fifty percent (50%)
US Content, that is Foreign Content not incorporated into such
Items in the US; and
(u) that is otherwise deemed ineligible by the Lender
in its discretion.
"Equipment" means 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
-8-
<PAGE>
the goods described in any equipment schedule or list herewith or
hereafter furnished to the Lender by the Borrower;
"Event of Default" has the meaning specified in Section 7.1.
"Ex-Im Bank" means the Export-Import Bank of the United
States.
"Existing Advances" has the meaning given in Section 2.1.
"Export Order" means a written export order or contract for
the purchase by the Buyer from the Borrower of any of the Items.
"Export-Related Accounts Receivable" means that portion of
Accounts Receivable consisting of the unpaid obligations of Buyers
arising from the sale of Items which is due and payable to the Borrower
in the United States.
"Export-Related Inventory" means the Inventory of the Borrower
located in the United States that has been purchased, manufactured or
otherwise acquired by the Borrower for resale pursuant to Export
Orders.
"Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus the Spread, which annual rate shall change when and as
the Prime Rate changes.
"Foreign Content" means that portion of the cost of an Item
arising from materials which are not of US origin or from labor and
services not performed in the US.
"Funding Date" has the meaning given in Section 2.2.
"General Intangibles" means all of the 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 the
Borrower's name, and the goodwill of the Borrower's business.
"GAAP" means generally accepted accounting principles issued
by the American Institute of Certified Public Accountants, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.2.
"Intangible Assets" means all intangible assets as determined
in accordance with GAAP and including without limitation, patents,
trademarks, trade names, copyrights, licenses, goodwill, receivables
from Affiliates, directors, officers or employees, prepaid expenses,
deposits, deferred charges or treasury stock or any securities or Debt
of the Borrower or any other securities unless the same are readily
marketable in the US or entitled to be used as a credit against federal
income tax
-9-
<PAGE>
liabilities, non-compete agreements and any other assets designated
from time to time by the Lender, in its sole discretion.
"Inventory" means all of the Borrower's inventory (as such
term is defined in the UCC), now or hereafter owned or acquired by the
Borrower, wherever located, including all inventory, merchandise, goods
and other personal property which are held by or on behalf of the
Borrower for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, whole
goods, spare parts or components, work in process or materials used or
consumed or to be used or consumed in the Borrower's business or in the
processing, production, packaging, promotion, delivery or shipping of
the same, including other supplies.
"Investment Property" means all of the 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;
"Items" means the finished goods or services which are
intended for export from the United States, as specified in Section
4(A) of the Loan Authorization Agreement.
"Lien" means any mortgage, security deed or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, security title, easement or encumbrance, or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or
title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of, or
agreement to give, any financing statement perfecting a security
interest under the UCC or comparable law of any jurisdiction) by which
property is encumbered or otherwise charged.
"Loan Authorization Agreement" means the Loan Authorization
Notice attached as Exhibit C hereto.
"Loan Documents" means (i) this Agreement, the Note, the
Borrower Agreement and the Loan Authorization Agreement, each of even
date herewith, (ii) the Patent and Trademark Security Agreement and the
Collateral Account Agreement dated as of June 26, 1997, and (iii) the
Disclosure by the Borrower in favor of the Lender dated as of June 26,
1998.
"Master Guarantee" means that certain Master Guarantee
Agreement No. MN-MGA-99-001, dated as of July 20, 1999, by and between
the Lender and Ex-Im Bank.
"Maturity Date" means June 26, 2001.
-10-
<PAGE>
"Maximum Amount" means $1,500,000.
"Minimum Interest Charge" has the meaning given in Section
2.4(b).
"Note" means the Borrower's replacement revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto.
"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 Amended and Restated
Credit and Security Agreement dated as of April 16, 1998 by and between
the Borrower and Lender, the Collateral Account agreement and the
Patent and Trademark Security Agreement."
"Old Note" means the Borrower's revolving promissory note
dated as of September 3, 1999, payable to the order of the Lender in
the original principal amount of $1,500,000.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender and
WFBCI dated as of June 26, 1997, as the same may hereafter be amended,
supplemented or restated from time to time.
"Permitted Liens" means (i) Liens for taxes, assessments or
other governmental charges or levies not delinquent, or, being
contested in good faith and by appropriate proceedings and with respect
to which proper reserves have been taken by the Borrower, provided,
that, the Lien shall have no effect on the priority of the Liens in
favor of the Lender or the value of the assets in which the Lender has
such a Lien and a stay of enforcement of any such Lien shall be in
effect; (ii) deposits or pledges securing obligations under worker's
compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) deposits or pledges
securing bids, tenders, contracts (other than contracts for the payment
of money), leases, statutory obligations, surety and appeal bonds and
other obligations of like nature arising in the ordinary course of the
Borrower's business; (iv) judgment Liens that have been stayed or
bonded; (v) mechanics', workers', materialmen's or other like Liens
arising in the ordinary course of the Borrower's business with respect
to obligations which are not due; (vi) Liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price thereof,
provided, that, any such Lien shall not encumber any other property of
the Borrower; (vii) Liens in favor of the Lender securing the
Obligations; and (viii) Liens disclosed in Section 6(D) of the Loan
Authorization Agreement.
-11-
<PAGE>
"Person" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust,
unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or
government (whether national, federal, provincial, state, county, city,
municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's
successors and assigns.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Prime Rate" means the rate of interest publicly announced
from time to time by Wells Fargo Bank, N.A. as its "prime rate" or, if
such bank ceases to announce a rate so designated, any similar
successor rate designated by the Lender.
"Prohibited Country" means any country in which Ex-Im Bank
coverage is not available for commercial reasons or in which Ex-Im Bank
is legally prohibited from doing business, as designated in the Country
Limitation Schedule.
"Security Documents" means this Agreement, the Collateral
Account Agreement and the Patent and Trademark Security Agreement
"Security Interest" has the meaning given in Section 3.1.
"Servicer" means WFBCI.
"Spread" means for each month a percentage based on the number
of days during the month that are a Tier One Period, Tier Two Period or
Tier Three Period as set forth below:
Period Type Spread
----------- ------
--------------------------------------- -------------------------------
Tier One Period 0%
--------------------------------------- -------------------------------
Tier Two Period 1.0%
--------------------------------------- -------------------------------
Tier Three Period 4.0%
--------------------------------------- -------------------------------
"Subordinated Debt" means all Debt of the Borrower which has
been subordinated to the payment and performance of the Obligations
pursuant to a written subordination agreement acceptable to the Lender
in its sole discretion.
"Tangible Net Worth" means (i) Book Net Worth, plus (ii)
Subordinated Debt, less (iii) Intangible Assets.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 7.1.
-12-
<PAGE>
"Tier One Period" means any Tier One Period as defined in the
Domestic Credit Agreement.
"Tier Two Period" means any Tier Two Period as defined in the
Domestic Credit Agreement.
"Tier Three Period" means any Tier Three Period as defined in
the Domestic Credit Agreement.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Minnesota.
"US" means the United States of America.
"US Content" means that portion of the cost of an Item arising
from materials which are of US origin or from labor and services
performed in the US.
"WFBCI" means Wells Fargo Business Credit, Inc. f/k/a Norwest
Business Credit, Inc., a Minnesota corporation.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Existing Revolving Advances. The Lender has made
various advances to the Borrower (the "Existing Advances") as evidenced by the
Old Credit Documents. As of August [23], 2000, the outstanding principal balance
of the Existing Advances was $[__________]. Upon execution and delivery of this
Agreement, the Existing Advances shall be deemed to be Advances made pursuant to
Section 2.2 and repayable in accordance with the Note. To the extent the Note
evidences the Existing Advances, the Note shall be issued in substitution for
and replacement of but not in payment of the Old Note.
Section 2.2 Revolving Advances. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances (each an
"Advance") to the Borrower from time to time from the date all of the conditions
set forth in Section 4.1 are satisfied (the "Funding Date") to the Termination
Date, to provide the Borrower with working capital to fulfill Export Orders. The
Lender shall have no obligation to make an Advance to the extent that the amount
of the requested Advance exceeds Availability. The Borrower's obligation to pay
the Advances shall be evidenced by the Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.2, the Borrower may
request Advances, prepay, and obtain additional Advances.
Section 2.3 Limitations on Using Inventory to Secure Advances.
Pursuant to Section 2.07(c) of the Borrower Agreement, the outstanding principal
balance of the Credit Accommodations that is supported by Export-Related
Inventory may not exceed sixty percent (60%) of the sum of the total outstanding
principal balance of the Disbursements and the undrawn face amount of all
outstanding Commercial Letters of Credit (as such terms are
-13-
<PAGE>
defined in the Borrower Agreement). Accordingly, at no time may the Collateral
Base reduced by the amount contributed by clause (ii) of the Collateral Base be
less than forty percent (40%) of the outstanding principal balance of the
Advances. Therefore, the Lender shall have no obligation to make an Advance to
the extent that the amount thereof (the "Inventory Threshold Amount") would
cause such rule to be violated.
Section 2.4 Requests for Advances. The Borrower shall make
each request for an Advance to the Lender before 11:00 a.m. (Minneapolis,
Minnesota time) of the day of the requested Advance. Requests for Advances may
be made in writing or by telephone. The Lender shall have no obligation to make
an Advance unless the Lender has received from the Borrower, among other things,
a Borrowing Base Certificate as of a date not more than five (5) days before the
date of the requested Advance and copies of the Export Orders (or a summary
thereof) against which the Borrower is requesting such Advance. Whenever the
Borrower makes a request for an Advance based on Eligible Export Inventory, it
shall also indicate in its books and records that such Inventory has been
designated to fulfill Export Orders and shall no longer be considered Eligible
Inventory under the Domestic Credit Facility. Any request for an Advance shall
be deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the date of the request.
Section 2.5 Interest; Default Interest. All interest shall be
payable monthly in arrears on the first day of the month and on demand.
(a) NOTE. Except as set forth in subsection (c) and (d), the
outstanding principal balance of the Advances shall bear interest at
the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to subsections (a) and (c), the Borrower, during any
Tier Two Period or Tier Three Period, shall pay to the Lender interest
of not less than (i) $2083.33 per month during a Tier Two Period
(prorated for less than full months), and (ii) $3750 per month during a
Tier Three Period (prorated for less than full months). The Borrower
shall pay any deficiency between (i) such minimum interest charge and
(ii) the sum of the amount of interest otherwise calculated under
Sections (a) and (c) hereof plus the amount of interest paid during the
same period under the Domestic Credit Agreement. Such minimum interest
charge deficiency shall be payable in arrears on the first day of the
following month, provided that the sum of the Minimum Interest Charge
and the Minimum Interest Charge under the Domestic Credit Facility
shall not exceed (i) $2083.33 per month during a Tier Two Period
(prorated for less than full months), and (ii) $3750 per month during a
Tier Three Period (prorated for less than full months).
(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 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.
-14-
<PAGE>
(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 2.6 Fees.
(a) APPLICATION FEE. The Borrower shall reimburse the Lender
for the $100 application fee payable to Ex-Im Bank in connection with
the Master Guaranty.
(b) ANNUAL FACILITY FEE. On the Funding Date, the Borrower
shall pay to the Lender an annual facility fee of $12,500, which fee is
one percent (1%) of the Maximum Amount pro-rated for the period from
the Funding Date through the Maturity Date.
(c) AUDIT FEES. The Borrower shall 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 $500 per day per auditor), together with
all actual out-of-pocket costs and expenses incurred in conducting any
such audit or inspection; provided that so long as WFBCI is the
Servicer the Borrower shall not have to reimburse such costs and
expenses to the extent it has already done so pursuant to the Domestic
Credit Facility.
Section 2.7 Capital Adequacy. If any Related Lender determines
at any time that its Return has been reduced as a result of any Rule Change,
such Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.7:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
(b) "Return", for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital
requirements and a reasonable attribution formula that takes account of
the Capital Adequacy Rules then in effect. Return may be calculated for
each calendar quarter and for the shorter period between the end of a
calendar quarter and the date of termination in whole of this
Agreement.
(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the Closing Date, but the term does not include
any changes in applicable requirements that on the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or
any increases in the capital that any Related
-15-
<PAGE>
Lender is required to maintain to the extent that the increases are
required due to a regulatory authority's assessment of
the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.7, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.8 Termination by Borrower. The Borrower may
terminate this Agreement at any time upon 30 days' prior written notice to the
Lender.
Section 2.9 Mandatory Prepayment. Without notice or demand, if
(i) the Borrowing Base shall at any time be less than the outstanding principal
balance of the Advances, or (ii) if the Borrowing Base reduced by the amount
contributed by clause (ii) of the Borrowing Base shall be less than forty
percent (40%) of the total outstanding principal balance of the Advances, the
Borrower shall immediately prepay the Advances to the extent necessary to
eliminate such deficiency1 or increase the Borrowing Base by furnishing
additional Collateral to the Lender in form and amount satisfactory to the
Lender and Ex-Im Bank.
Section 2.10 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 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.
Section 2.11 Use of Proceeds. The Borrower shall use the
proceeds of Advances for working capital to finance the manufacture, assembly,
production or purchase and subsequent sale of Items only. Without limiting the
generality of the foregoing, the Borrower shall not use any proceeds of Advances
for any purpose prohibited by the Borrower Agreement or (i) to acquire fixed
assets or capital goods for use in the Borrower business; (ii) to acquire, equip
or rent commercial space overseas; (iii) to employ non-US residents in offices
outside the US; (iv) to serve as a retainage or warranty bond; or (v) to repay
pre-existing Debt or future indebtedness of the Borrower unrelated to the
Advances.
Section 2.12 Facility Subject to Ex-Im Bank Rules. The
Borrower acknowledges that the Lender is willing to make the Credit Facility
available to the Borrower
-----------------------
(1) ss. 2.07 of the Borrower Agreement gives 5 Business Days to cure and permits
cure by adding new (non-inventory) collateral.
-16-
<PAGE>
because the Ex-Im Bank is willing to guaranty payment of a significant portion
of the Obligations pursuant to the Master Guaranty. Accordingly, in the event of
any inconsistency among the Loan Documents and the Master Guaranty or related
documents, the provision that is the more stringent on the Borrower shall
control.
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
Collateral as security for the payment and performance of the Obligations.
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 US 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 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take exclusive possession of the Premises at any time during
any Default Period.
-17-
<PAGE>
(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 and termination
of the Commitment, 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 3.5 License. Without limiting the generality of the
Patent and Trademark Security Agreement, the Borrower hereby grants to the
Lender a non-exclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral following an Event of Default.
Section 3.6 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by the
Borrower is sufficient as a financing statement.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Initial Advance. The
Lender's obligation to make the initial 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 Note, properly executed by the Borrower.
(c) The SBA/Ex-Im Bank Joint Application, properly completed
and executed by the Borrower.
(d) The Borrower Agreement, properly executed by the Borrower.
(e) A properly completed and executed Borrowing Base
Certificate as of a date not more than five (5) Business Days before
the date of this Agreement.
-18-
<PAGE>
(f) A certificate of the Borrower's secretary or assistant
secretary certifying as to (i) the resolutions of the Borrower's
directors and if required, shareholders, authorizing the execution,
delivery and performance of this Agreement, the Note, the Borrower
Agreement and the Loan Authorization Agreement, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver this
Agreement, the Note, the Borrower Agreement and the Loan Authorization
Agreement and other instruments, agreements and certificates, including
Advance requests, on the Borrower's behalf.
(g) An Exceptions Approval Letter, properly signed by Ex-Im
Bank.
(h) Payment of the fees and commissions due through the date
of the initial Advance and expenses incurred by the Lender through such
date and required to be paid by the Borrower under Sections 2.6 and
8.4, including all legal expenses incurred through the Closing Date.
(i) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such 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 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 legal name as set
forth herein and under such trade names and such other corporate names as
disclosed to the Lender in writing before this Agreement is signed and
delivered. The address of the Borrower's chief executive office and principal
place of business and its federal employer 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 the Lender in writing before this
Agreement is signed and delivered. The Borrower has no subsidiaries except as
disclosed to the Lender in writing before this Agreement is signed and
delivered.
-19-
<PAGE>
Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender
certain of its audited 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.
Section 5.3. Suspension and Debarment, etc. On the date of
this Agreement neither the Borrower nor its Principals (a) are debarred,
suspended, proposed for debarment with a final determination still pending,
declared ineligible or voluntarily excluded (as such terms are defined under any
of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations or
(b) have been indicted or convicted or have had a civil judgment rendered
against them for any of the offenses listed in any of the Debarment Regulations.
Unless authorized by Ex-Im Bank, the Borrower will not knowingly enter into any
transactions in connection with the Items with any person who is debarred,
suspended, declared ineligible or voluntarily excluded from participation in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations.
The Borrower will provide immediate written notice to the Lender if at any time
it learns that the certification set forth in this Section 5.3 was erroneous
when made or has become erroneous by reason of changed circumstances.
Section 5.4 Legal Agreements. The Old Credit Documents
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms. The Borrower has
no claim, defense or offset to enforcement of the Old Credit Documents.
ARTICLE VI
COVENANTS OF THE BORROWER
So long as the Advances or any amount owing to the 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, its compiled
financial statements prepared in accordance with GAAP; together with
(i) a report signed by such accountants stating that in making the
investigations necessary for said review they obtained no knowledge,
except as specifically stated, of any Default or Event of Default
hereunder
-20-
<PAGE>
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 (ii) 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 D 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) as soon as available and in any event within five (5)
Business Days after the end of each month, a properly completed
Borrowing Base Certificate as at the end of such month, signed by the
Borrower's chief financial officer;
(d) as soon as available and in any event within five (5)
Business Days after the end of each month, inventory certifications as
at the end of such month;
(e) during a Tier Two Period, as soon as available and in any
event within two (2) Business Days after the end of each week, a
properly completed Borrowing Base Certificate as at the end of such
week, signed by the Borrower's chief financial officer;
(f) within 10 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;
(g) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements 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;
-21-
<PAGE>
(h) as soon as available and in any event within three (3)
days after they are due, written notice of any and all taxes due but
not paid;
(i) 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;
(j) as soon as available and in any event within 15 days of
receipt thereof, a copy of the checking account statement of the
Borrower 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;
(k) at a minimum during any Tier Three Period and at the
Lender's Sole Discretion, 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.
(l) promptly upon knowledge thereof, notice of any Items (and
the corresponding invoice amount) which are articles, services, or
related technical data that are listed on the United States Munitions
List (part 121 of title 22 of the Code of Federal Regulations);
(m) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower which seek a
monetary recovery against the Borrower in excess of $50,000;
(n) as promptly as practicable (but in any event not later
than three (3) Business Days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(o) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(p) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
-22-
<PAGE>
So long as the Servicer is actively servicing the Loan Documents on behalf of
the Lender as described in Section 8.3, the Borrower shall provide to the
Servicer all reports required under this Section 6.1.
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 Account Debtors to Pay to Designated Account;
Pledge of Account. The Borrower shall instruct all of its Account debtors
located outside the US to make all payments for Items directly to the Collateral
Account.
Section 6.5 No Other Liens. The Borrower will keep all
Collateral free and clear of all Liens except Permitted Liens.
Section 6.6 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
under this Agreement.
Section 6.7 Minimum Tangible Net Worth. Commencing as of March
31, 2001, the Borrower will maintain its Tangible Net Worth, determined as at
the end of each month, at an amount not less than $1.
Section 6.8 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 6.9 Change in Ownership. The Borrower will not issue
or sell any stock so as to change the percentage of voting and non-voting stock
owned by each of the Borrower's shareholders, and the Borrower will not permit
or suffer to occur the sale, transfer, assignment, pledge or other disposition
of any or all of the issued and outstanding shares of stock of the Borrower.
Section 6.10 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into
-23-
<PAGE>
it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
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 Legal Agreements. The Borrower acknowledges the
legal, valid and binding obligations imposed on it under the Loan Documents; and
the Borrower will comply with all obligations under the Loan Documents.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
(b) Any payment default shall occur under any agreement (other
than this Agreement) between the Borrower and the Lender, or the Lender
shall accelerate or demand payment of any obligations (other than
arising under this Agreement) owed to it by the Borrower, or the Lender
shall begin exercising its remedies against the Borrower;
(c) Any payment default shall occur under any agreement
between the Borrower and the Servicer, or the Servicer shall accelerate
or demand payment of any obligations owed to it by the Borrower, or the
Servicer shall begin exercising its remedies against the Borrower;
(d) Ex-Im Bank shall repudiate, purport to revoke or fail to
perform its obligations under the Master Guaranty;
(e) Any material litigation is commenced against the Borrower
and is not withdrawn within thirty (30) calendar days of filing;
(f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(g) The Borrower begins any procedure for its liquidation or
dissolution or any such procedure is commenced against it; or
-24-
<PAGE>
(h) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document not
specifically addressed in this Section 7.1, which shall remain uncured
for 30 days after notice from the Lender.
Section 7.2 Rights and Remedies. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) 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;
(c) 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 Restatement of Old Credit Documents. This
Agreement is executed for the purpose of amending and restating the Old Credit
Documents.
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 US 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.
-25-
<PAGE>
Section 8.3 Servicing of Credit Facility.
(a) The Lender has requested that the Servicer service and
enforce the Loan Documents, make all Advances and collect all
Obligations on the Lender's behalf and the Servicer has agreed to do
so. The Borrower acknowledges and accepts the Servicer's appointment as
such.
(b) The Servicer shall have no duties or responsibilities to
the Borrower hereunder, but only to the Lender. Neither the Servicer
nor any of its officers, directors, employees or agents shall be liable
for any action taken or omitted by them hereunder or in connection
herewith, unless caused by its or their willful misconduct. The
Servicer's duties shall be mechanical and administrative in nature;
nothing in this Agreement, express or implied, is intended to or shall
be so construed as to impose upon the Servicer any obligations with
respect to the Loan Documents except as expressly set forth herein. The
Borrower shall not in any way be construed to be a third party
beneficiary of any relationship between the Servicer and the Lender.
(c) The Servicer shall be entitled to rely, and shall be fully
protected in relying, upon any communication whether written or oral
believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person, and, with respect to all legal matters
pertaining to this Agreement and its duties hereunder, upon advice of
counsel selected by it.
(d) The Borrower shall be entitled to rely upon any
communication whether written or oral sent or made by the Servicer for
and on behalf of the Lender with respect to all matters pertaining to
the Loan Documents and the Borrower's duties and obligations hereunder,
unless and until the Borrower receives written notice from the Lender
that the Servicer is no longer servicing this credit facility.
(e) The Servicer shall hold and be the custodian of the Loan
Documents on the Lender's behalf for so long as the Servicer is
servicing the Credit Facility.
Section 8.4 Costs and Expenses. The Borrower shall 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 shall 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"):
-26-
<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 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 Advances, this Agreement and the other Loan Documents
or the use or intended use of the proceeds of the 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. If Ex-Im Bank makes
payment of a claim to the Lender under the Master Guaranty in connection with
the Credit Facility, Ex-Im Bank may assume all rights and remedies of the Lender
under the Loan Documents and may enforce any such rights or remedies against the
Borrower, the Collateral and any Guarantors. The Borrower shall hold Ex-Im Bank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Ex-Im Bank or the Lender in connection with
the Credit Facility, this Agreement, the Loan Authorization Agreement or any
other Loan Documents or (b) any material breach by the Borrower of the terms and
conditions of this Agreement, the Loan Authorization Agreement or any of the
other Loan Documents. The Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the
Credit Facility is subject to the penalties provided in Article 19 U.S.C.
Section 1001.
Section 8.6 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the
-27-
<PAGE>
Borrower and the Lender and their respective successors and assigns, except that
the Borrower may not 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, Wells Fargo & Company, and all direct and indirect
subsidiaries of Wells Fargo & Company, 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.
-28-
<PAGE>
Section 8.7 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. The Loan Documents shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of Minnesota. The
parties hereto hereby (i) consent 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; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth
Division; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
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.
WELLS FARGO BANK MINNESOTA, RSI SYSTEMS, INC.
NATIONAL ASSOCIATION
By ______________________________ By ________________________________
Brett Beugen Eugene W. Courtney
Its Assistant Vice President Its Chief Executive Officer
Address: Address:
Sixth Street and Marquette Avenue 5555 West 78th Street
MAC N9305-052 Edina Minnesota 55439
Minneapolis, MN 55479 Telecopy No. (612) 896-3030
Attention: Brett Beugen
Telecopy No. 612-667-2269 Federal Employer Identification No.
41-1767211
Federal Employer Identification No.
41-1592157
-29-
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Note
Exhibit B Form of Borrower Agreement
Exhibit C Form of Loan Authorization Notice
Exhibit D Form of Compliance Certificate
Exhibit E Form of Borrowing Base Certificate
<PAGE>
Exhibit A to Credit and Security
Agreement
REPLACEMENT PROMISSORY NOTE
$1,500,000 Minneapolis, Minnesota
August ___, 2000
For value received, the undersigned, RSI Systems, Inc., a
Minnesota corporation (the "Borrower"), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below) to the order of
WELLS FARGO BANK MINNESOTA, NATOINAL ASSOCIATION, a national banking association
(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 Five Hundred Thousand Dollars and No Cents ($1,500,000) or, if less, the
aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Second Amended and Restated 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 Advance until this Note is fully paid
at the rate from time to time in effect under the Credit Agreement.
This Note is the Note as defined in the Credit Agreement and
is subject to the Credit Agreement. To the extent this Note evidences the
Borrower's obligation to pay Existing Advances, this Note is issued in
substitution for and replacement of but not in payment of the Borrower's
promissory note dated as of September 3, 1999 payable to the order of the Lender
in the original principal amount of $1,500,000.
RSI SYSTEMS, INC.
By _______________________________
Eugene W. Courtney
Its Chief Executive Officer
<PAGE>
Exhibit B to Credit and Security
Agreement
FORM OF THE BORROWER AGREEMENT
<PAGE>
Exhibit D to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Michael Guillou
Wells Fargo Business Credit, Inc.
Brett Beugen
Wells Fargo Bank Minnesota, National Association
Date: __________________, 200__
Subject: RSI Systems, Inc.
Financial Statements
In accordance with our Second Amended and Restated Credit and
Security Agreement dated as of August 24, 2000 (the "Credit Agreement"),
attached are the financial statements of RSI Systems, Inc., a Minnesota
corporation (the "Borrower") as of and for ________________, 200__ (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 Borrower'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 Tangible Net Worth. Pursuant to Section 6.7 of the
Credit Agreement, as of the Reporting Date the Borrower's Tangible Net Worth was
$____________ which |_| satisfies |_| does not satisfy the requirement that such
amount be not less than $1 on the Reporting Date.
<PAGE>
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.
RSI SYSTEMS, INC.
By ____________________________
James D. Hanzlik
Its Chief Financial Officer
-2-
<PAGE>
Exhibit E to Credit and Security
Agreement
BORROWING BASE CERTIFICATE
TO: Michael Guillou
Wells Fargo Business Credit, Inc.
Brett Beugen
Wells Fargo Bank Minnesota, National Association
DATE: ____________________, _________
SUBJECT: RSI Systems, Inc. (the "Borrower")
Borrowing Base Certificate
In accordance with our Second Amended and Restated Credit and
Security Agreement dated as of August 24, 2000 (the "Credit Agreement"), set
forth below is the calculation of the Borrowing Base and Availability as of
______________, ______ (the "Reporting Date"). All terms used in this
certificate have the meanings given to them in the Credit Agreement. Unless
otherwise indicated, all amounts are as of the Reporting Date.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
A. ELIGIBLE EXPORT-RELATED ACCOUNTS RECEIVABLE AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
1. Total Export-Related Accounts Receivable (net of any and all rights of
offset or counterclaim) $
-------------------------------------------------------------------------------- ------------------
2. Ineligible Export-Related Accounts Receivable
-------------------------------------------------------------------------------- ------------------
(a) that does not arise from the sale of Items in the ordinary
course of the Borrower's business; $
-------------------------------------------------------------------------------- ------------------
(b) that is not subject to a valid, perfected first priority Lien in
favor of the Lender; $
-------------------------------------------------------------------------------- ------------------
(c) as to which any covenant, representation or warranty contained
in the Loan Documents with respect to such Account Receivable
has been breached; $
-------------------------------------------------------------------------------- ------------------
(d) that is not owned by the Borrower or is subject to any right,
claim or interest of another Person other than the Liens in
favor of the Lender and the Servicer; $
-------------------------------------------------------------------------------- ------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
A. ELIGIBLE EXPORT-RELATED ACCOUNTS RECEIVABLE AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
(e) with respect to which an invoice has not been sent; $
-------------------------------------------------------------------------------- ------------------
(f) that arises from the sale of defense articles or defense
services; $
-------------------------------------------------------------------------------- ------------------
(g) that is due and payable from a Buyer located in a country with
which Ex-Im Bank is prohibited from doing business as designated
in the Country Limitation Schedule; $
-------------------------------------------------------------------------------- ------------------
(h) that does not comply with the requirements of the Country
Limitation Schedule; $
-------------------------------------------------------------------------------- ------------------
(i) that is due and payable more than one hundred eighty (180) days
from the earlier of the date of the invoice or the shipment date; $
-------------------------------------------------------------------------------- ------------------
(j) that is not paid within sixty (60) calendar days from its
original due date, unless it is insured through Ex-Im Bank
export credit insurance for comprehensive commercial and
political risk, or through Ex-Im Bank approved private
insurers for comparable coverage, in which case it is not paid
within ninety (90) calendar days from its due date; $
-------------------------------------------------------------------------------- ------------------
(k) that arises from a sale of goods to or performance of services
for an employee of the Borrower, a stockholder of the
Borrower, a subsidiary of the Borrower, a Person with a
controlling interest in the Borrower or a Person which shares
common controlling ownership with the Borrower; $
-------------------------------------------------------------------------------- ------------------
(l) that is backed by a letter of credit unless the Items covered by
the subject letter of credit have been shipped; $
-------------------------------------------------------------------------------- ------------------
(m) that the Lender or Ex-Im Bank, in its reasonable judgment, deems
uncollectible for any reason; $
-------------------------------------------------------------------------------- ------------------
(n) that is due and payable in a currency other than Dollars, except
as may be approved in writing by Ex-Im Bank; $
-------------------------------------------------------------------------------- ------------------
(o) that is due and payable from a military Buyer, except as may be
approved in writing by Ex-Im Bank; $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
A. ELIGIBLE EXPORT-RELATED ACCOUNTS RECEIVABLE AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
(p) that does not comply with the terms of sale set forth in
Section 7 of the Loan Authorization Agreement; $
-------------------------------------------------------------------------------- ------------------
(q) that is due and payable from a Buyer who (i) applies for,
suffers, or consents to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or calls
a meeting of its creditors, (ii) admits in writing its
inability, or is generally unable, to pay its debts as they
become due or ceases operations of its present business,
(iii) makes a general assignment for the benefit of creditors,
(iv) commences a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) is
adjudicated as bankrupt or insolvent, (vi) files a petition
seeking to take advantage of any other law providing for the
relief of debtors,(vii) acquiesces to, or fails to have
dismissed, any petition which is filed against it in any
involuntary case under such bankruptcy laws, or (viii) takes any
action for the purpose of effecting any of the foregoing; $
-------------------------------------------------------------------------------- ------------------
(r) that arises from a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper; $
-------------------------------------------------------------------------------- ------------------
(s) for which the Items giving rise to such Account Receivable
have not been shipped or the services giving rise to such
Account Receivable have not been performed by the Borrower or
the Account Receivable otherwise does not represent a final
sale; $
-------------------------------------------------------------------------------- ------------------
(t) that is subject to any offset, deduction, defense, dispute, or
counterclaim or the Buyer is also a creditor or supplier of the
Borrower or the Account Receivable is contingent in any respect
or for any reason; $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
A. ELIGIBLE EXPORT-RELATED ACCOUNTS RECEIVABLE AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
(u) for which the Borrower has made any agreement with the Buyer
for any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt
payment, all of which discounts or allowances are reflected in
the calculation of the face value of each respective invoice
related thereto; $
-------------------------------------------------------------------------------- ------------------
(v) for which any of the Items giving rise to such Account
Receivable have been returned, rejected or repossessed; $
-------------------------------------------------------------------------------- ------------------
(w) to the extent it includes any finance charges, service charges,
taxes, discounts, credits, allowances and Retainages; $
-------------------------------------------------------------------------------- ------------------
(x) that arise from the sale of Items containing less than fifty
percent (50%) US Content; $
-------------------------------------------------------------------------------- ------------------
(y) that arise from the sale of Items containing any Foreign Content
not incorporated into such Items in the US; $
-------------------------------------------------------------------------------- ------------------
(z) that arise from the sale of any Items to be used in the
construction, alteration, operation or maintenance of nuclear
power, enrichment, reprocessing, research or heavy water
production facilities; or $
-------------------------------------------------------------------------------- ------------------
(aa) that are otherwise deemed ineligible for any reason by the
Lender or Ex-Im Bank in its discretion. $
-------------------------------------------------------------------------------- ------------------
(bb) Total ineligibles $
-------------------------------------------------------------------------------- ------------------
3. Total Eligible Export-Related Accounts Receivable (line 1 less line 2(bb)) $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
B. ELIGIBLE EXPORT-RELATED INVENTORY AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
4. Export-Related Inventory consisting of Items, raw materials and
components to be used to manufacture or assemble Items and
work-in-process relating to Items, and raw materials and components the
Borrower must purchase to manufacture or assemble Items, at the lower
of cost or market value as determined in accordance with GAAP. $
-------------------------------------------------------------------------------- ------------------
5. Ineligible Export-Related Inventory:
-------------------------------------------------------------------------------- ------------------
(a) that is not subject to a valid, perfected first priority Lien in
favor of the Lender; $
-------------------------------------------------------------------------------- ------------------
(b) that is subject to a security interest in favor of any Person
other than the Lender or the Servicer; $
-------------------------------------------------------------------------------- ------------------
(c) that is located at an address that has not been approved by the
Lender in writing; $
-------------------------------------------------------------------------------- ------------------
(d) that is placed by the Borrower on consignment or held by the
Borrower on consignment from another Person; $
-------------------------------------------------------------------------------- ------------------
(e) that is in-transit; covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of title; in
the possession of a processor or bailee, or located on premises
leased or subleased to the Borrower, or on premises subject to a
mortgage in favor of a Person other than the Lender, unless such
processor or bailee or mortgagee or the lessor or sublessor of
such premises, as the case may be, has executed and delivered
all documentation which the Lender shall require to evidence the
subordination or other limitation or extinguishment of such
Person's rights with respect to such Inventory and the Lender's
fight to gain access thereto; $
-------------------------------------------------------------------------------- ------------------
(f) that is produced in violation of the Fair Labor Standards Act
or subject to the "hot goods" provisions contained in 29
U.S.C. ss. 215 or any successor statute or section; $
-------------------------------------------------------------------------------- ------------------
(g) as to which any covenant, representation or warranty with
respect to such Inventory contained in the Loan Documents has
been breached; $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
B. ELIGIBLE EXPORT-RELATED INVENTORY AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
(h) that is not located in the United States; $
-------------------------------------------------------------------------------- ------------------
(i) that is sample or demonstration Inventory; $
-------------------------------------------------------------------------------- ------------------
(j) that consists of proprietary software (i.e. software designed
solely for the Borrower's internal use and not intended for
resale); $
-------------------------------------------------------------------------------- ------------------
(k) that is damaged, slow moving, obsolete, returned, defective,
recalled or unfit for further processing or not currently
saleable in the normal course of the Borrower's operations; $
-------------------------------------------------------------------------------- ------------------
(l) that has been previously exported from the United States; $
-------------------------------------------------------------------------------- ------------------
(m) that constitutes defense articles or defense services; $
-------------------------------------------------------------------------------- ------------------
(n) that is to be incorporated into Items destined for shipment to a
country as to which Ex-Im Bank is prohibited from doing business
as designated in the Country Limitation Schedule; $
-------------------------------------------------------------------------------- ------------------
(o) that is to be incorporated into Items destined for shipment to a
Buyer located in a country in which Ex-Im Bank coverage is not
available for commercial reasons as designated in the Country
Limitation Schedule, unless and only to the extent that such
Items are to be sold to such country on terms of a letter of
credit confirmed by a bank acceptable to Ex-Im Bank; $
-------------------------------------------------------------------------------- ------------------
(p) that is to be incorporated into Items whose sale would result
in an Account Receivable which would not be an Eligible
Export-Related Account Receivable (for reasons other than
pursuant to line 2(j)); $
-------------------------------------------------------------------------------- ------------------
(q) that is perishable or live; $
-------------------------------------------------------------------------------- ------------------
(r) that the Borrower has returned, has attempted to return, is in
the process of returning or intends to return to the vendor
thereof; $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
B. ELIGIBLE EXPORT-RELATED INVENTORY AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
(s) that is the Foreign Content portion of Items containing less
than fifty percent (50%) US Content; $
-------------------------------------------------------------------------------- ------------------
(t) for Items containing at least fifty percent (50%) US Content,
that is Foreign Content not incorporated into such Items in the
US; and $
-------------------------------------------------------------------------------- ------------------
(u) Inventory otherwise deemed ineligible by the Lender in its
discretion. $
-------------------------------------------------------------------------------- ------------------
(v) Total ineligibles
-------------------------------------------------------------------------------- ------------------
6. Total Eligible Export-Related Inventory (line 4 less line 5(v)) $
-------------------------------------------------------------------------------- ------------------
-------------------------------------------------------------------------------- ------------------
C. BORROWING BASE AMOUNT
-------------------------------------------------------------------------------- ------------------
7. Collateral Base: The sum of:
-------------------------------------------------------------------------------- ------------------
(a) 80% of Eligible Export-Related Accounts Receivable (from line 3) $
-------------------------------------------------------------------------------- ------------------
(b) 60% of Eligible Export-Related Inventory (from line 6) $
-------------------------------------------------------------------------------- ------------------
Total $
-------------------------------------------------------------------------------- ------------------
8. Maximum Amount $1,500,000
-------------------------------------------------------------------------------- ------------------
9. Borrowing Base amount (lesser of lines 7 and 8) $
-------------------------------------------------------------------------------- ------------------
-------------------------------------------------------------------------------- ------------------
D. AVAILABILITY AMOUNT
-------------------------------------------------------------------------------- ------------------
10. The difference of (i) $_________________ {the Borrowing Base amount (from
line 9)} and (ii) $____________ {the outstanding principal balance of
the Advances}; $
-------------------------------------------------------------------------------- ------------------
11. Inventory Threshold Amount: $____________ {the Collateral Base (from line
7)}, less $_______________{ the amount contributed by line 7(b)} must be
not less than forty percent (40%) of $_____________ {the outstanding
principal balance of the Advances} $
-------------------------------------------------------------------------------- ------------------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- ------------------
D. AVAILABILITY AMOUNT
-------------------------------------------------------------------------------- ------------------
<S> <C>
12. The least of lines 10, and 11 $
-------------------------------------------------------------------------------- ------------------
</TABLE>
The Borrower represents and warrants that this Borrowing Base
Certificate is a true and correct statement regarding the status of the matters
set forth herein. The Borrower further represents and warrants that no Default
or Event of Default has occurred and is continuing. The Borrower acknowledges
that any Advances made to the Borrower under the Credit Agreement will be based
upon the Lender's reliance on the information contained herein.
RSI SYSTEMS, INC.
By _______________________________
Eugene W. Courtney
Its Chief Executive Officer
-8-
