Exhibit 10.80

 

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AMENDED AND RESTATED

CREDIT AND SECURITY AGREEMENT

 

BY AND BETWEEN

 

RF MONOLITHICS, INC.

 

AND

 

WELLS FARGO BANK MINNESOTA, N.A.

 

Dated as of: February 3, 2003

 

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Export-Import Bank of the United States

 

Working Capital Guarantee No.: APO77025XX

 

Master Guarantee Agreement No.: MN-MGA-99-001

 

Delegated Authority Letter Agreement No.: MN-DA-99-001

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TABLE OF CONTENTS

 

             

Page

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ARTICLE I

  

Definitions

  

1

   

Section 1.1

  

Definitions

  

1

   

Section 1.2

  

Other Definitional Terms; Rules of Interpretation

  

15

ARTICLE II

  

Amount and Terms of the Credit Facility

  

15

   

Section 2.1

  

Revolving Advances

  

15

   

Section 2.2

  

Interest; Minimum Charge; Default Interest; Participations; Usury

  

16

   

Section 2.3

  

Fees.

  

17

   

Section 2.4

  

Computation of Interest and Fees; When Interest Due and Payable

  

17

   

Section 2.5

  

Capital Adequacy

  

18

   

Section 2.6

  

Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit
Facility by the Borrower

  

18

   

Section 2.7

  

Termination and Line Reduction Fees; Waiver of Termination Fees.

  

19

   

Section 2.8

  

Mandatory Prepayment

  

19

   

Section 2.9

  

Payment

  

19

   

Section 2.10

  

Payment on Non-Banking Days

  

19

   

Section 2.11

  

Use of Proceeds

  

19

   

Section 2.12

  

Liability Records

  

20

   

Section 2.13

  

Automatic Renewal

  

20

   

Section 2.14

  

Facility Subject to Eximbank Rules

  

20

ARTICLE III

  

Security Interest; Occupancy; Setoff

  

20

   

Section 3.1

  

Grant of Security Interest

  

20

   

Section 3.2

  

Notification of Account Debtors and Other Obligors

  

20

   

Section 3.3

  

Assignment of Insurance

  

21

   

Section 3.4

  

Occupancy

  

21

   

Section 3.5

  

License

  

22

   

Section 3.6

  

Financing Statement

  

22

   

Section 3.7

  

Setoff

  

22

ARTICLE IV

  

Conditions of Lending

  

23

   

Section 4.1

  

Conditions Precedent to the Initial Revolving Advance

  

23

   

Section 4.2

  

Conditions Precedent to All Revolving Advances

  

24

ARTICLE V

  

Representations and Warranties

  

25

   

Section 5.1

  

Corporate Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Tax Identification Number

  

25

   

Section 5.2

  

Authorization of Borrowing; No Conflict as to Law or Agreements

  

25

   

Section 5.3

  

Legal Agreements

  

26

   

Section 5.4

  

Subsidiaries

  

26

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TABLE OF CONTENTS

(continued)

 

             

Page

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Section 5.5

  

Financial Condition; No Adverse Change

  

26

   

Section 5.6

  

Litigation

  

26

   

Section 5.7

  

Regulation U

  

26

   

Section 5.8

  

Taxes

  

26

   

Section 5.9

  

Titles and Liens

  

26

   

Section 5.10

  

Plans

  

27

   

Section 5.11

  

Default

  

27

   

Section 5.12

  

Environmental Matters

  

27

   

Section 5.13

  

Submissions to Lender

  

28

   

Section 5.14

  

Financing Statements

  

28

   

Section 5.15

  

Rights to Payment

  

28

   

Section 5.16

  

Financial Solvency

  

28

   

Section 5.17

  

Suspension and Debarment, etc

  

29

   

Section 5.18

  

Ownership of Borrower

  

29

   

Section 5.19

  

Intellectual Property

  

30

ARTICLE VI

  

Borrower’s Affirmative Covenants

  

31

   

Section 6.1

  

Reporting Requirements

  

31

   

Section 6.2

  

Books and Records; Inspection and Examination

  

34

   

Section 6.3

  

Account Verification

  

34

   

Section 6.4

  

Compliance with Laws.

  

34

   

Section 6.5

  

Payment of Taxes and Other Claims

  

34

   

Section 6.6

  

Maintenance of Properties

  

35

   

Section 6.7

  

Insurance

  

35

   

Section 6.8

  

Preservation of Existence

  

35

   

Section 6.9

  

Delivery of Instruments, etc

  

35

   

Section 6.10

  

Chattel Paper

  

35

   

Section 6.11

  

Lockbox; Collateral Account; Alternate Collateral Account

  

35

   

Section 6.12

  

Performance by the Lender

  

37

   

Section 6.13

  

Control Agreements

  

37

   

Section 6.14

  

Minimum Tangible Net Worth

  

37

   

Section 6.15

  

Minimum Book Net Worth

  

37

   

Section 6.16

  

Quarterly Minimum Net Income

  

38

   

Section 6.17

  

Monthly Minimum Net Income

  

38

   

Section 6.18

  

[Intentionally Omitted.]

  

38

   

Section 6.19

  

Quarterly Inspection and Review

  

38

   

Section 6.20

  

Assembly of Export Order Summaries

  

38

   

Section 6.21

  

Perfection of Intellectual Property Security Interest

  

38

   

Section 6.22

  

Location of Collateral; Acknowledgment from Bailees

  

39

ARTICLE VII

  

Negative Covenants

  

39

   

Section 7.1

  

Liens

  

39

   

Section 7.2

  

Indebtedness

  

40

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TABLE OF CONTENTS

(continued)

 

             

Page

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Section 7.3

  

Guaranties

  

40

   

Section 7.4

  

Investments and Subsidiaries

  

41

   

Section 7.5

  

Dividends

  

41

   

Section 7.6

  

Sale or Transfer of Assets; Suspension of Business Operations

  

41

   

Section 7.7

  

Consolidation and Merger; Asset Acquisitions

  

41

   

Section 7.8

  

Sale and Leaseback

  

42

   

Section 7.9

  

Restrictions on Nature of Business

  

42

   

Section 7.10

  

Capital Expenditures

  

42

   

Section 7.11

  

Accounting

  

42

   

Section 7.12

  

Discounts, etc

  

42

   

Section 7.13

  

Defined Benefit Pension Plans

  

42

   

Section 7.14

  

Other Defaults

  

42

   

Section 7.15

  

Place of Business; Name

  

42

   

Section 7.16

  

Organizational Documents

  

42

   

Section 7.17

  

Salaries

  

43

ARTICLE VIII

  

Events of Default, Rights and Remedies

  

43

   

Section 8.1

  

Events of Default

  

43

   

Section 8.2

  

Rights and Remedies

  

45

   

Section 8.3

  

Certain Notices

  

45

ARTICLE IX

  

Miscellaneous

  

46

   

Section 9.1

  

No Waiver; Cumulative Remedies

  

46

   

Section 9.2

  

Amendments, Etc

  

46

   

Section 9.3

  

Addresses for Notices, Etc

  

46

   

Section 9.4

  

Further Documents

  

47

   

Section 9.5

  

Collateral

  

47

   

Section 9.6

  

Costs and Expenses

  

47

   

Section 9.7

  

Indemnity

  

47

   

Section 9.8

  

Participants

  

49

   

Section 9.9

  

Execution in Counterparts

  

49

   

Section 9.10

  

Binding Effect; Assignment; Complete Agreement; Exchanging Information

  

49

   

Section 9.11

  

Severability of Provisions

  

49

   

Section 9.12

  

Entire Agreement

  

49

   

Section 9.13

  

Headings

  

49

   

Section 9.14

  

Governing Law; Jurisdiction, Venue; Waiver of Jury Trial

  

50

   

Section 9.15

  

Confidentiality

  

50

   

Section 9.16

  

Retention of Borrower’s Records

  

50

   

Section 9.17

  

Amendment and Restatement

  

50

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CREDIT AND SECURITY AGREEMENT

 

Dated as of February 3, 2003

 

RF MONOLITHICS, INC., a Delaware corporation (the “Borrower”), and WELLS FARGO
BANK MINNESOTA, N.A. a national banking association (the “Lender”), hereby agree
as follows:

 

R E C I T A L S

 

A. The Borrower and the Lender have entered into that certain Credit and
Security Agreement dated as of December 8, 2000, as amended by (a) that certain
First Amendment to Credit and Security Agreement and Waiver of Defaults dated as
of March 30, 2001, (b) that certain Second Amendment to Credit and Security
Agreement dated as of August 23, 2001, (c) that certain Third Amendment to
Credit and Security Agreement dated as of November 29, 2001, (d) that certain
Fourth Amendment to Credit and Security Agreement dated as of April 12, 2002,
and (e) that certain Fifth Amendment to Credit and Security Agreement dated as
of December 12, 2002 (as amended, the “Existing Credit Agreement”).

 

B. The Borrower has requested and the Lender has agreed to amend and modify the
Existing Credit Agreement upon the terms and conditions hereinafter set forth.

 

NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly provided, the following terms shall have the meanings assigned to them
in this Section or in the Section referenced after such term:

 

“Accounts” means all of the Borrower’s accounts, as such term is defined in the
UCC, including each and every right of the Borrower to the payment of money,
whether such right to payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease or other disposition of goods or other
property, out of a rendering of services, out of a loan, out of the overpayment
of taxes or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or earned by the
Borrower or by some other person who subsequently transfers such person’s
interest to the Borrower, whether such right to payment is or is not already
earned by performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all Liens) which the
Borrower may at any time have by law or agreement against any account debtor or
other obligor obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all present
and future accounts, contract rights,

 

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loans and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.

 

“Affiliate” or “Affiliates” means any Person controlled by, controlling or under
common control with another Person. 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. For avoidance of
doubt, each Subsidiary of the Borrower is an Affiliate of the Borrower.

 

“Agreement” means this Amended and Restated Credit and Security Agreement, as
amended, supplemented or restated from time to time.

 

“Alternate Collateral Account” means an account owned by Wells Fargo Bank, N.A.,
the Lender, or any of their Affiliates or subsidiaries used to process Accounts
receivable due from foreign account debtors to the Borrower.

 

“Availability” means the lesser of:

 

(a) the difference between (i) Borrowing Base and (ii) the outstanding principal
balance of the Revolving Advances; or

 

(b) the difference between (i) $13,500,000 and (ii) the outstanding principal
balance of the WFBCI Revolving Advances.

 

“Banking Day” means a day other than a Saturday, Sunday or other day on which
banks are generally not open for business in Dallas, Texas.

 

“Book Net Worth” means the aggregate of the common and preferred stockholders’
equity of the Borrower, determined in accordance with GAAP on a consolidated
basis.

 

“Borrower Agreement” means the Borrower Agreement dated as of December 8, 2000,
executed by the Borrower in favor of Eximbank and acknowledged by the Lender a
copy of which is attached hereto as Exhibit B.

 

“Borrowing Base” means, at any time the lesser of:

 

(a) the Maximum Line; or

 

(b) subject to change from time to time in the Lender’s sole discretion, the sum
of:

 

(i) 90% of Eligible Export-Related Accounts, provided that such rate will be
reduced by 1% for each percentage point by which Dilution exceeds 5%, plus

 

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(ii) the lesser of (A) $3,000,000 or (B) 60% of Eligible Export Inventory,
provided that on December 1, 2003, and on the first day of each month
thereafter, such rate will be reduced by 1% per month until equal to 50%;

 

provided, however, at no time shall the outstanding principal balance of the
Revolving Advances supported by Eligible Export Inventory exceed 60% of the
aggregate amount of all outstanding Revolving Advances.

 

“Capital Expenditures” for a period means any expenditure of money for the
lease, purchase or other acquisition of any capital asset, or the lease of any
other asset whether payable currently or in the future.

 

“Charges” means all fees, charges, and/or other items of value, if any,
contracted for, charged, taken, received or reserved by Lender in connection
with the transactions contemplated hereunder, which are treated as interest
under applicable law.

 

“Chattel Paper” means all of the Borrower’s Chattel Paper, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired.

 

“Collateral” means all of the Borrower’s assets, including Accounts, Chattel
Paper, deposit accounts, documents, Equipment, General Intangibles, fixtures,
goods, Instruments, Intellectual Property, Inventory, Investment Property,
letter-of-credit rights, letters of credit, Receivables, all sums on deposit in
any Collateral Account or any Alternate Collateral Account, any items in any
Lockbox, and the Real Property; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) in the case of all
goods, all accessions; (iii) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
goods; (iv) all warehouse receipts, bills of lading and other documents of title
now or hereafter covering such goods; (v) all collateral subject to the Lien of
any Security Document; (vi) any money, or other assets of the Borrower that now
or hereafter come into the possession, custody, or control of the Lender; (vii)
all sums on deposit in the Special Account; and (viii) proceeds of any and all
of the foregoing.

 

“Collateral Account” means the Lender Account, as such term is defined in the
Lockbox Agreement.

 

“Commitments” means the Lender’s commitments to make Revolving Advances to or
for the Borrower’s account pursuant to Article II.

 

“Compliance Certificate” means a certificate substantially in the form of
Exhibit C attached hereto.

 

“Country Limitation Schedule” means the most recent schedule published by
Eximbank and provided to the Borrower by the Lender which sets forth on a
country-by-country basis whether and under what conditions Eximbank will provide
coverage for the financing of export transactions to countries listed therein.

 

“Credit Facility” means the credit facility being made available to the Borrower
by the Lender pursuant to Article II.

 

3

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“Current Maturities of Long Term Debt” means as of a given date, the amount of
the Borrower’s long-term debt and capitalized leases which became due during the
applicable period ending on the designated date.

 

“Debt” of any Person means all items of indebtedness or liability which in
accordance with GAAP would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of that Person as at the date as of
which Debt is to be determined. For purposes of determining a Person’s aggregate
Debt at any time, “Debt” shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.

 

“Deed of Trust” means that certain Deed of Trust, Security Agreement, Assignment
of Rents and Fixture Financing Statement executed by the Borrower dated as of
even date herewith in favor of Michael W. Hilliard, trustee for the benefit of
the Lender, covering the Real Property more particularly described herein.

 

“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 the lesser of (a) the Maximum Rate, or (b) with respect to
the Revolving Advances, an annual rate equal to three percent (3%) over the
Revolving Floating Rate, which rate shall change when and as the Revolving
Floating Rate changes.

 

“Dilution” means the gross amount of all returns, allowances, discounts,
credits, write-offs, and similar items relating to the Borrower’s Accounts (but
excluding any non-diluting items) computed as a percentage of the Borrower’s
gross sales, calculated on a three month rolling average, as determined by WFBCI
in its sole discretion during routine collateral audits.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Eligibility Certificate” means a certificate substantially in the form attached
hereto as Exhibit E, executed by the Borrower and accepted by the Lender.

 

“Eligible Export-Related Accounts” means all unpaid Export Related Accounts owed
by account debtors located outside the United States for the sale or provision
of Items, net of any credits, but in no event shall Eligible Export-Related
Accounts include any Export Related Account:

 

(i) that does not arise from the sale of Items in the ordinary course of
Borrower’s business;

 

(ii) that is not subject to a valid, perfected first priority Lien in favor of
Lender;

 

4

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(iii) as to which any covenant, representation or warranty contained in the Loan
Documents with respect to such Account has been breached;

 

(iv) that is not owned by Borrower or is subject to any right, claim or interest
of another Person other than the Lien in favor of Lender and the junior Lien in
favor of WFBCI;

 

(v) with respect to which an invoice has not been sent;

 

(vi) that arises from the sale of defense articles or defense services;

 

(vii) that is due and payable from an account debtor located in a Prohibited
Country;

 

(viii) that does not comply with the requirements of the Country Limitation
Schedule;

 

(ix) that is due and payable more than 90 days from the earlier of the shipment
date or the date of the invoice;

 

(x) that is not paid within 60 calendar days from its original due date, unless
it is insured through Eximbank export credit insurance for comprehensive
commercial and political risk, or through Eximbank approved private insurers for
comparable coverage, in which case it is not paid within 90 calendar days from
its due date;

 

(xi) that arises from a sale of goods to or performance of services for an
employee of Borrower, a stockholder of Borrower, a Subsidiary of Borrower, a
Person with a controlling interest in Borrower or a Person which shares common
controlling ownership with Borrower;

 

(xii) that is backed by a letter of credit unless the Items covered by the
subject letter of credit have been shipped;

 

(xiii) that Lender or Eximbank, in its reasonable judgment, deems uncollectible
for any reason;

 

(xiv) that is due and payable in a currency other than U.S. dollars, (a) except
as may be approved in writing by Eximbank, (b) except for up to an aggregate of
$500,000 in accounts receivable payable by customers of the Borrower in British
Pounds Sterling, and (c) except for up to an aggregate of $500,000 in accounts
receivable payable by customers of the Borrower in Euros which must be supported
by forward dollar contracts;

 

(xv) that is due and payable from a military account debtor, except as may be
approved in writing by Eximbank;

 

5

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(xvi) that does not comply with the terms of sale set forth in Section 7 of the
Loan Authorization Notice;

 

(xvii) that is due and payable from an account debtor 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;

 

(xviii) 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;

 

(xix) for which the Items giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor or the services giving rise to
such Account have not been performed by Borrower and accepted by the account
debtor or the Account otherwise does not represent a final sale;

 

(xx) that is subject to any offset, deduction, defense, dispute, or counterclaim
or the account debtor is also a creditor or supplier of Borrower or the Account
is contingent in any respect or for any reason;

 

(xxi) for which Borrower has made any agreement with the account debtor 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;

 

(xxii) for which any of the Items giving rise to such Account have been
returned, rejected or repossessed;

 

(xxiii) to the extent it includes any finance charges, service charges, taxes,
discounts, credits, allowances and Retainages;

 

(xxiv) that portion of the Export-Related Accounts arising from Foreign Content
incorporated into the Items sold;

 

(xxv) 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

 

6

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(xxvi) that are otherwise deemed ineligible for any reason by the Lender or
Eximbank in its discretion.

 

“Eligible Export Inventory” means the Items including raw materials, components
and work-in-process that has been purchased, manufactured or otherwise acquired
by the Borrower for resale pursuant to Export Orders and for which the Lender
has received an Eligibility Certificate certifying that such Inventory will be
used for export purposes only, at the lower of cost or market value as
determined in accordance with GAAP with market value as of the date of any
Inventory appraisal completed pursuant to the provisions of Section 6.15 being
established pursuant to such appraisal; provided, however, that in no event
shall Eligible Export Inventory include any Inventory:

 

(i) that is not subject to a valid, perfected first priority Lien in favor of
Lender and subject to no other Liens except those Liens in favor of WFBCI to
secure repayment of WFBCI Credit Agreement;

 

(ii) that is located at an address that has not been disclosed to Lender in
writing;

 

(iii) that is placed by Borrower on consignment or held by Borrower on
consignment from another Person;

 

(iv) that is in-transit; covered by any negotiable or non-negotiable warehouse
receipt, bill of lading or other document of title; that is in the possession of
a processor or bailee, or located on premises leased or subleased to Borrower,
or on premises subject to a mortgage in favor of a Person other than 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
Lender shall require to evidence the subordination or other limitation or
extinguishment of such Person’s rights with respect to such Inventory and
Lender’s right to gain access thereto;

 

(v) that is produced in violation of the Fair Labor Standards Act or subject to
the “hot goods” provisions contained in 29 U.S.C. § 215 or any successor statute
or section;

 

(vi) as to which any covenant, representation or warranty with respect to such
Inventory contained in the Loan Documents has been breached;

 

(vii) that is not located in the United States;

 

(viii) that is sample or demonstration Inventory;

 

(ix) that consists of proprietary software (i.e. software designed solely for
Borrower’s internal use and not intended for resale);

 

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(x) 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;

 

(xi) that has been previously exported from the United States;

 

(xii) that constitutes defense articles or defense services;

 

(xiii) that is to be incorporated into Items destined for shipment to a
Prohibited Country, unless and only to the extent that such Items are to be sold
to such Prohibited Country on terms of a letter of credit confirmed by a bank
acceptable to Eximbank; or

 

(xiv) that is to be incorporated into Items whose sale would result in an
Account which would not be an Eligible Export-Related Account;

 

(xv) that the Borrower has returned, has attempted to return, is in the process
of returning or intends to return to the vendor thereof;

 

(xvi) with respect to raw materials and work-in-process Inventory, that portion
of such Inventory in excess of an amount equal to (1) the total value of total
raw materials and work-in-process Inventory not otherwise ineligible minus the
value of that portion of such Inventory representing Foreign Content, multiplied
by (2) the Foreign Sales Percentage;

 

(xvii) with respect to finished goods Inventory (A) for the period from December
1, 2002 through May 1, 2003, that portion of such Inventory in excess of an
amount equal to (1) the total value of finished goods Inventory not otherwise
ineligible minus the value of that portion of such Inventory representing
Foreign Content, multiplied by (2) the Foreign Sales Percentage; and (B) after
May 1, 2003, that portion of such Inventory in excess of an amount equal to (1)
the total value of finished goods Inventory not otherwise ineligible multiplied
by (2) the US Shipped Foreign Sales Percentage, multiplied by (3) the US Content
Cost Percentage; and

 

(xviii) Inventory otherwise deemed ineligible by the Lender in its sole
discretion.

 

“Environmental Indemnity Agreement” means the Environmental Indemnity Agreement
executed by the Borrower in favor of the Lender dated as of even date herewith,
as the same may be amended, modified or supplemented from time to time.

 

“Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.

 

“Equipment” means all of the Borrower’s equipment, as such term may be defined
from time to time in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop

 

8

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equipment, office and recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) 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 8.1.

 

“Exceptions Approval Letter” means a letter from Eximbank approving any and all
applicable exceptions from the rules and regulations of Eximbank governing the
Working Capital Guaranty Program.

 

“Excess Cash Flow” means Net Income plus depreciation and amortization minus
Current Maturities of Long Term Debt minus unfinanced Capital Expenditures.

 

“Eximbank” means the Export-Import Bank of the United States.

 

“Export Collateral” means that portion of Collateral consisting of Export
Related Accounts and the Items.

 

“Export Related Accounts” means all Accounts of the Borrower owed by account
debtors located outside the United States other than the WFBCI Export Related
Accounts.

 

“Export Order” means a written export order or contract for the purchase from
the Borrower of Items from a customer outside the United States.

 

“Extension” means the date to which the Original Maturity Date has been extended
in a written notice from the Lender to the Borrower, but in no event shall such
date extend beyond December 31, 2005.

 

“First Amendment to Patent Security Agreement” means that certain First
Amendment to Patent and Trademark Security Agreement executed by the Borrower in
favor of the Lender dated as of the date hereof amending the Patent Security
Agreement.

 

“Foreign Content” means that portion of the cost of Inventory arising from
materials which are not of United States origin or from labor and services not
performed in the United States.

 

“Foreign Sales Percentage” means the level of export sales of Items as a percent
of the Borrower’s total Inventory sales during the twelve (12) month period
preceding the date of determination plus the projected sales in the next ninety
(90) days, determined as at the end of each fiscal quarter.

 

“Funding Date” has the meaning given in Section 2.1.

 

“FYE” means the last day of the Borrower’s fiscal year, which is August 31.

 

“GAAP” means generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the audited financial
statements described in Section 6.1(a), except for any change in accounting
practices to the extent that, due to a

 

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promulgation of the Financial Accounting Standards Board changing or
implementing any new accounting standard, the Borrower either (i) is required to
implement such change, or (ii) for future periods will be required to and for
the current period may in accordance with generally accepted accounting
principles implement such change, for its financial statements to be in
conformity with generally accepted accounting principles (any such change is
herein referred to as a “Required GAAP Change”), provided that (x) the Borrower
shall fully disclose in such financial statements any such Required GAAP Change
and the effects of the Required GAAP Change on the Borrower’s income, retained
earnings or other accounts, as applicable, and (y) the Borrower’s financial
covenants set forth in Section 6.14 and 7.10 shall be adjusted as necessary to
reflect the effects of such Required GAAP Change.

 

“General Intangibles” means all of the Borrower’s general intangibles, as such
term may be defined from time to time in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future 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.

 

“Guaranty” means any Guaranty executed by a guarantor in favor of and in form
and substance acceptable to the Lender.

 

“Hazardous Substances” means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.

 

“Instruments” means all of the Borrower’s instruments, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired.

 

“Intellectual Property” means all rights, priorities and privileges relating to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, any now owned or
hereafter arising copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, service marks, trade dress, trade secrets, mask
works, and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.

 

“Interest Payment Date” has the meaning given in Section 2.2.

 

“Inventory” means all of the Borrower’s inventory, as such term may be defined
from time to time in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.

 

“Investment Property” means all of the Borrower’s investment property, as such
term may be defined from time to time 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.

 

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“Items” means all Inventory of the Borrower to be sold by the Borrower to
customers outside the United States.

 

“Letter of Credit Rights” means a right to payment or performance under a letter
of credit, whether or not the Borrower has demanded or is at the time entitled
to demand payment or performance but does not include the right to demand
payment or performance.

 

“Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a Person, whether now owned or hereafter acquired
and whether arising by agreement or operation of law.

 

“Loan Authorization Notice” means that certain Loan Authorization Notice
submitted to the Eximbank by Lender in connection with this Agreement.

 

“Loan Documents” means this Agreement, the Revolving Note, the Borrower
Agreement, any Swap Contract, the Environmental Indemnity Agreement, the
Security Documents and any other documents executed by the Borrower in relation
to any of the foregoing.

 

“Lockbox” has the meaning given in the Lockbox Agreement.

 

“Lockbox Agreement” means the Lockbox and Collection Account Agreement by and
among the Borrower, Regulus West LLC, Wells Fargo Bank Texas, N.A. and, the
Lender, dated as of December 13, 2002.

 

“Master Guaranty” means that certain Master Guarantee Agreement No.
MN-MGA-99-001 dated July 20, 1999, by and between the Lender and Eximbank, as
supplemented by a Delegated Authority Letter Agreement No. MN-DA-99-001 dated
September 30, 1999.

 

“Maturity Date” has the meaning given in Section 2.13.

 

“Maximum Line” means $5,000,000, unless said amount is reduced pursuant to
Section 2.6, in which event it means the amount to which said amount is reduced.

 

“Maximum Rate” means the maximum lawful rate of interest which may be contracted
for, charged, taken, received or reserved by Lender in accordance with the
applicable laws of the State of Texas (or applicable United States federal law
to the extent that such law permits Lender to contract for, charge, take,
receive or reserve a greater amount of interest than under Texas law), taking
into account all Charges made in connection with the transaction evidenced by
the Loan Documents. To the extent, if any, that Chapter 303 of the Texas Finance
Code, as amended, establishes the Maximum Rate, the Maximum Rate shall be the
“weekly ceiling” as defined therein.

 

“Minimum Charge” has the meaning given in Section 2.2(c).

 

11

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“Net Income” means fiscal year-to-date after-tax consolidated net income of a
Person, decreased by the sum of any extraordinary, non-operating or non-cash
income recorded by such Person as determined in accordance with GAAP.

 

“Obligations” means the Revolving Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender or any Affiliates of Lender, whether such
debt, liability or obligation now exists or is hereafter created or incurred,
whether it arises in a transaction involving the Lender alone, or any Affiliates
of Lender or in a transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint, several or
joint and several, and including specifically, but not limited to, all
indebtedness of the Borrower arising under this Agreement, the Revolving Note,
any Swap Contract, the Loan Documents, or any other loan or credit agreement or
guaranty between the Borrower and the Lender or any Affiliates of Lender,
whether now in effect or hereafter entered into.

 

“Original Maturity Date” means the later of December 31, 2004 or the Extension.

 

“Patent Security Agreement” means the Patent and Trademark Security Agreement
executed by the Borrower in favor of the Lender dated as of December 8, 2000, as
the same may be amended, supplemented or restated from time to time.

 

“Permitted Lien” has the meaning given in Section 7.1.

 

“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Plan” means an employee benefit plan or other plan maintained for the
Borrower’s employees and covered by Title IV of ERISA.

 

“Premises” means all premises where the Borrower conducts its business and has
any rights of possession, including the premises legally described in Exhibit D
attached hereto.

 

“Prime Rate” means the rate of interest publicly announced from time to time by
Wells Fargo Bank, N.A.-San Francisco, 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 Eximbank coverage is not
available for commercial reasons or in which Eximbank is legally prohibited from
doing business, as designated in the Country Limitation Schedule.

 

“Real Property” means the Borrower’s real property located at 4441-4445 Sigma
Road, Dallas, Dallas County, Texas, as more particularly described in the Deed
of Trust.

 

“Receivables” means each and every right of the Borrower to the payment of
money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of

 

12

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services, out of a loan, out of the overpayment of taxes or other liabilities,
or otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other person
who subsequently transfers such person’s interest to the Borrower, whether such
right to payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which the Borrower may at any time
have by law or agreement against any account debtor or other obligor obligated
to make any such payment or against any property of such account debtor or other
obligor; all including but not limited to all present and future Accounts, tax
refunds and rights to payment not constituting General Intangibles.

 

“Reportable Event” shall have the meaning assigned to that term in Title IV of
ERISA.

 

“Retainage” means that portion of an Account that an account debtor is not
obligated to pay until the end of a specified period of time following
satisfactory performance by the Borrower.

 

“Revolving Advance” has the meaning given in Section 2.1.

 

“Revolving Floating Rate” means an annual rate equal to the sum of the Prime
Rate plus one and one-half percent (1.50%), which annual rate shall change when
and as the Prime Rate changes.

 

“Revolving Note” means the Borrower’s revolving promissory note, payable to the
order of the Lender in substantially the form of Exhibit A hereto and any note
or notes issued in substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time.

 

“Security Documents” means this Agreement, the Lockbox Agreement, the Patent
Security Agreement, the Deed of Trust, any Guaranty and any other document
delivered to the Lender from time to time to secure the Obligations, as the same
may hereafter be amended, supplemented or restated from time to time.

 

“Security Interest” has the meaning given in Section 3.1.

 

“Subsidiary” means any corporation of which more than 50% of the outstanding
shares of capital stock having general voting power under ordinary circumstances
to elect a majority of the board of directors of such corporation, irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and one or
more other Subsidiaries, or by one or more other Subsidiaries.

 

“Swap Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap

 

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transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions
of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including
any such obligations or liabilities under any Master Agreement.

 

“Tangible Net Worth” means the difference between (i) the tangible assets of the
Borrower, which, in accordance with GAAP are tangible assets, after deducting
adequate reserves in each case where, in accordance with GAAP, a reserve is
proper and (ii) all Debt of the Borrower; provided, however, that
notwithstanding the foregoing in no event shall there be included as such
tangible assets 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 United States of America or entitled to be used as a credit against
federal income tax liabilities, and any other assets designated from time to
time by the Lender, in its sole discretion, in each case computed on a
consolidated basis.

 

“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
8.2.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of Texas.

 

“US Content” means that portion of the cost of an Item arising from materials
which are of United States origin or from labor and services performed in the
United States.

 

“US Content Cost Percentage” means a percentage representing the cost of the
Eligible Export Inventory that is finished goods (exclusive of the Borrower’s
mark-up) that is derived from US Content of the Items destined for export
determined as at the end of and for each month.

 

“US Shipped Foreign Sales Percentage” means the level of export sales of
finished goods Inventory located in the United States as a percentage of the
Borrower’s total sales of its finished goods Inventory located in the United
States, determined (i) as of May 31, 2003, for the previous two fiscal quarters,
(ii) as of August 31, 2003, for the previous three fiscal quarters, and (iii) as
of November 30, 2003 and thereafter, at the end of each fiscal quarter for the
twelve (12) month period preceding the date of determination.

 

“WFBCI” means Wells Fargo Business Credit, Inc., a Minnesota corporation.

 

“WFBCI Credit Agreement” means that certain Amended and Restated Credit and
Security Agreement of even date herewith by and between the Borrower and WFBCI,
as the same may hereafter be amended, supplemented or restated from time to
time.

 

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“WFBCI Export Related Accounts” means all Accounts of the Borrower owed by
account debtors located outside the United States that are included in the
“Borrowing Base” as such term is defined in the WFBCI Credit Agreement.

 

“WFBCI Revolving Advances” means the Revolving Advances as defined in WFBCI
Credit Agreement.

 

Section 1.2 Other Definitional Terms; Rules of Interpretation. The words
“hereof”, “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP. All terms defined in
the UCC and not otherwise defined herein have the meanings assigned to them in
the UCC. References to Articles, Sections, subsections, Exhibits, Schedules and
the like, are to Articles, Sections and subsections of, or Exhibits or Schedules
attached to, this Agreement unless otherwise expressly provided. The words
“include”, “includes” and “including” shall be deemed to be followed by the
phrase “without limitation”. Unless the context in which used herein otherwise
clearly requires, “or” has the inclusive meaning represented by the phrase
“and/or”. Defined terms include in the singular number the plural and in the
plural number the singular. Reference to any agreement (including the Loan
Document), document or instrument means such agreement, document or instrument
as amended or modified and in effect from time to time in accordance with the
terms thereof (and, if applicable, in accordance with the terms hereof and the
other Loan Documents), except where otherwise explicitly provided, and reference
to any promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor. Reference to any law,
rule, regulation, order, decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified, replaced or reenacted, in
whole or in part, and in effect on the determination date, including rules and
regulations promulgated thereunder.

 

ARTICLE II

 

Amount and Terms of the Credit Facility

 

Section 2.1 Revolving Advances. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make advances 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, on the terms and subject to the
conditions herein set forth (the “Revolving Advances”). In no event shall the
provisions of Chapter 346 of the Texas Finance Code (which regulates certain
revolving credit loan accounts) apply to this Agreement or the Revolving Note or
other Loan Documents. The Lender shall have no obligation to make a Revolving
Advance if, after giving effect to such requested Revolving Advance, the sum of
the outstanding and unpaid Revolving Advances would exceed Availability. In
addition, at no time shall the outstanding Revolving Advances supported by
Eligible Export Inventory exceed 60% of all Revolving Advances. The Borrower’s
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral as provided in Article III and in
the Security Documents. Within the limits set forth in this Section 2.1, the
Borrower may borrow, prepay pursuant to Section 2.6 and reborrow. On the
Termination Date, the entire unpaid principal balance of the Revolving Note, and
all unpaid interest accrued thereon, shall be due and payable. The

 

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Borrower agrees to comply with the following procedures in requesting Revolving
Advances under this Section 2.1:

 

(a) The Borrower shall make each request for a Revolving Advance to the Lender
before 11:00 a.m. (Central time) of the day of the requested Revolving Advance.
Requests may be made in writing or by telephone, specifying the date of the
requested Revolving Advance and the amount thereof. Each request shall be by (i)
any officer of the Borrower; or (ii) any person designated as the Borrower’s
agent by any officer of the Borrower in a writing delivered to the Lender; or
(iii) any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.

 

(b) Upon fulfillment of the applicable conditions set forth in Article IV, the
Lender shall disburse the proceeds of the requested Revolving Advance by
crediting the same to the Borrower’s demand deposit account maintained with
Wells Fargo Bank Texas, N.A. unless the Lender and the Borrower shall agree in
writing to another manner of disbursement. Upon the Lender’s request, the
Borrower shall promptly confirm each telephonic request for a Revolving Advance
by executing and delivering an appropriate confirmation certificate to the
Lender. The Borrower shall repay all Revolving Advances even if the Lender does
not receive such confirmation and even if the person requesting a Revolving
Advance was not in fact authorized to do so. Any request for a Revolving
Advance, whether written or telephonic, 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 time of the request.

 

Section 2.2 Interest; Minimum Charge; Default Interest; Participations; Usury.
Interest accruing on the Revolving Note shall be due and payable in arrears on
the first day of each month (each an “Interest Payment Date”).

 

(a) Revolving Note. Except as set forth in Sections 2.2(c) and 2.2(e), the
outstanding principal balance of the Revolving Note shall bear interest at the
Revolving Floating Rate.

 

(b) Minimum Charge. Subject to Section 2.2(e), in addition to the provisions of
Section 2.2(a) and 2.2(c), the Borrower shall pay to the Lender on each Interest
Payment Date an additional commitment fee equal to the difference, if any,
between (i) $10,000.00 per calendar month during the term of this Agreement, and
(ii) the amount of interest calculated under Sections 2.2(a) and 2.2(c) of this
Agreement and Section 2.8 of the WFBCI Credit Agreement.

 

(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 Revolving Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods designated by
the Lender from time to time during that Default Period.

 

(d) Participations. The Lender may sell participations to one or more Persons in
all or a portion of its rights and obligations under this Agreement. If any
Person shall

 

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acquire a participation in the Revolving Advances under this Agreement, the
Borrower shall be obligated to the Lender to pay the full amount of all interest
calculated under, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than the Revolving Floating Rate, or
otherwise elects to accept less than its pro rata share of such fees, charges
and other amounts due under this Agreement.

 

(e) Usury. In any event no rate change shall be put into effect which would
result in a rate greater than the Maximum Rate. It is not the intention of the
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, the Lender shall never be entitled to charge, receive, collect
or apply, as interest on the Obligations, any amount in excess of Maximum Rate.
If the Lender receives, collects or applies, as interest, any such excess, such
amount which would be excessive interest shall be deemed a partial repayment of
principal and treated hereunder as such; and if principal is paid in full, any
remaining excess shall be paid to the Borrower. All sums constituting interest
under applicable law shall be, to the extent permitted by applicable law,
amortized or spread, using the actuarial method, throughout the stated term of
the Revolving Note.

 

Section 2.3 Fees.

 

(a) Facility Fee. The Borrower hereby agrees to pay the Lender a fully earned
and non-refundable facility fee of 1.5% of the Maximum Line, due and payable
upon the execution of this Agreement and on each anniversary hereof.

 

(b) Unused Line Fee. For the purposes of this Section 2.3(b), “Unused Amount”
means the Maximum Line reduced by outstanding Revolving Advances. At such time,
if any, as this Agreement is in effect but the WFBCI Credit Agreement is not in
effect, the Borrower agrees to pay to the Lender an unused line fee at the rate
of one-quarter percent (0.25%) per annum on the average daily Unused Amount from
the date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on each Interest Payment Date and on the Termination
Date.

 

(c) Audit Fees. The Borrower hereby agrees to pay the Lender, on demand, audit
fees in connection with any audits or inspections conducted by the Lender of any
Collateral or the Borrower’s operations or business at the rates established
from time to time by the Lender as its audit fees (which fees are currently $750
per day per auditor), together with all actual out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.

 

Section 2.4 Computation of Interest and Fees; When Interest Due and Payable.
Interest accruing on the outstanding principal balance of the Revolving Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days.

 

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Section 2.5 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 2.5:

 

(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 Revolving 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 date of this Agreement, but the term does not include any changes in
applicable requirements that at the Closing Date are scheduled to take place
under the existing Capital Adequacy Rules or any increases in the capital that
any Related 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, WFBCI, 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 2.5, 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 2.6 Voluntary Prepayment; Reduction of the Maximum Line; Termination of
the Credit Facility by the Borrower. Except as otherwise provided herein, the
Borrower may prepay the Revolving Advances in whole at any time or from time to
time in part. The Borrower may terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least 30 days’ prior
written notice and (ii) pays the Lender the termination or line reduction fees
in accordance with Section 2.7. Any reduction in the Maximum Line must be in an
amount not less than $100,000 or an integral multiple thereof. If the Borrower
reduces the Maximum Line to zero, all Obligations shall be immediately due and
payable. Upon termination of the Credit Facility and payment and performance of
all Obligations, the Lender shall release

 

18

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or terminate the Security Interest and the Security Documents to which the
Borrower is entitled by law.

 

Section 2.7 Termination and Line Reduction Fees; Waiver of Termination Fees.

 

(a) Termination and Line Reduction Fees. If the Credit Facility is terminated
for any reason as of a date other than the Maturity Date, or the Borrower
reduces the Maximum Line, the Borrower shall pay to the Lender a fee in an
amount equal to a percentage of the Maximum Line (or the reduction, as the case
may be) as follows: (i) one and one-quarter percent (1.25%) if the termination
or reduction occurs after December 31, 2002 but on or before December 31, 2003;
and (ii) one percent (1%) if the termination or reduction occurs after December
31, 2003.

 

(b) Waiver of Termination Fees. The Borrower will not be required to pay the
termination and line reduction fees otherwise due under this Section 2.7 if such
termination or line reduction is made because of increased cash flow generated
from the Borrower’s operations or refinancing by an Affiliate of the Lender.

 

Section 2.8 Mandatory Prepayment. Without notice or demand, if the outstanding
principal balance of the Revolving Advances shall at any time exceed the
Borrowing Base, the Borrower shall immediately prepay the Revolving Advances to
the extent necessary to eliminate such excess. Any payment received by the
Lender under this Section 2.8 or under Section 2.7 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.

 

Section 2.9 Payment. All payments to the Lender shall be made in immediately
available funds and shall be applied to the Obligations two (2) Banking Days
after receipt by the Lender. The Lender may hold all payments not constituting
immediately available funds for three (3) additional Banking Days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower’s request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.

 

Section 2.10 Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Revolving Advances or the fees hereunder, as the case may be.

 

Section 2.11 Use of Proceeds. The Borrower shall use the proceeds of Revolving
Advances only as a source of working capital to fulfill Export Orders and to
finance the manufacture, production or purchase and subsequent export sale of
Items. Without limiting the generality of the foregoing, the Borrower shall not
use any proceeds of Revolving Advances for any purpose prohibited by the
Borrower Agreement or (i) to service or repay any of Borrower’s pre-existing or
future indebtedness unrelated to the Credit Facility, (ii) to acquire fixed
assets or capital goods for use in the Borrower’s business, (iii) to acquire,
equip or rent commercial space

 

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outside the United States, (iv) to employ non-United States citizens or non-U.S.
permanent residents located outside of the United States, or (v) to serve as a
retainage or warranty bond.

 

Section 2.12 Liability Records. The Lender may maintain from time to time, at
its discretion, liability records as to the Obligations. All entries made on any
such record shall be presumed correct absent manifest error or unless the
Borrower establishes the contrary. Upon the Lender’s demand, the Borrower will
admit and certify in writing the exact principal balance of the Obligations that
the Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
30 days after receipt absent manifest error.

 

Section 2.13 Automatic Renewal. Unless terminated (a) by the Lender (i) by
giving written notice to the Borrower no less than ninety (90) days prior to the
Maturity Date or (ii) in accordance with Section 8.2, or (b) by the Borrower (i)
by giving written notice to the Lender no less than ninety (90) days prior to
the Maturity Date or (ii) in accordance with Section 2.6, the Credit Facility
shall remain in effect until the Original Maturity Date, and, thereafter, shall
automatically renew for successive one-year periods; provided, however that the
Credit Facility shall not renew unless all applicable conditions set forth in
the rules and regulations of Eximbank governing the Working Capital Guaranty
Program for such renewal are satisfied and the Eximbank guaranty with respect to
the Credit Facility pursuant to the Master Guaranty shall remain in full force
and effect for the renewal term. “Maturity Date” shall initially mean the
Original Maturity Date; provided, however, that if at any time the Credit
Facility has been automatically renewed, “Maturity Date” shall mean the one-year
anniversary of the date that was formerly the Maturity Date.

 

Section 2.14 Facility Subject to Eximbank Rules. The Borrower acknowledges that
the Lender is willing to make the Credit Facility available to the Borrower
because the Eximbank 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 and the rules and regulations of the Eximbank governing the Working
Capital Guaranty Program, the provision that is the more stringent on the
Borrower shall control. Compliance with any such applicable rule or regulation
shall constitute an additional covenant of the Borrower incorporated herein by
reference.

 

ARTICLE III

 

Security Interest; Occupancy; Setoff

 

Section 3.1 Grant of Security Interest. The Borrower hereby pledges, assigns and
grants to the Lender a security interest (collectively referred to as the
“Security Interest”) in the Collateral, as security for the payment and
performance of the Obligations. Upon request by the Lender, the Borrower will
grant the Lender a security interest in all commercial tort claims it may have
against any Person.

 

Section 3.2 Notification of Account Debtors and Other Obligors. The Lender may
at any time during a Default Period notify any account debtor or other person
obligated to pay the

 

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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, in the Lender’s name or in the Borrower’s name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower’s agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower’s mail to any address
designated by the Lender, otherwise intercept the Borrower’s mail, and receive,
open and dispose of the Borrower’s mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower’s account or
forwarding such mail to the Borrower’s last known address.

 

Section 3.3 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
possession of the Premises at any time during a Default Period.

 

(b) The Lender may use the Premises only to hold, process, manufacture, sell,
use, store, liquidate, realize upon or otherwise dispose of goods that are
Collateral and for other purposes that the Lender may in good faith deem to be
related or incidental purposes.

 

(c) The Lender’s right to hold the Premises shall cease and terminate upon the
earlier of (i) payment in full and discharge of all Obligations and termination
of the Commitments, and (ii) 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, occupancy 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, occupancy or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any

 

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time incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.

 

Section 3.5 License. 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 during any
Default Period.

 

Section 3.6 Financing Statement. The Borrower authorizes the Lender to file from
time to time where permitted by law, such financing statements against the
Collateral described as “all personal property” as the Lender deems necessary or
useful to perfect the Security Interest. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:

 

Name and address of Debtor:

RF Monolithics, Inc.

4347 Sigma Road

Farmers Branch, TX 75244

Federal Tax Identification No.: 75-1638027

 

On July 1, 2003, the address of Debtor will change to 4445 Sigma Road, Farmers

Branch, Texas 75244.

 

Name and address of Secured Party:

Wells Fargo Bank Minnesota, N.A.

Wells Fargo Center

Sixth and Marquette Avenue

Minneapolis, Minnesota 55479

 

The Borrower hereby (i) authorizes the Lender to file one or more UCC financing
statements describing the Collateral and/or an “all personal property”
description and (ii) agrees to execute UCC financing statements covering the
Collateral when and as requested by the Lender from time to time.

 

Section 3.7 Setoff. The Borrower agrees that the Lender may at any time or from
time to time, at its sole discretion and without demand and without notice to
anyone, setoff any liability owed to the Borrower by the Lender, whether or not
due, against any Obligation, whether or not due. In addition, each other Person
holding a participating interest in any Obligations shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person to
the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.

 

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ARTICLE IV

 

Conditions of Lending

 

Section 4.1 Conditions Precedent to the Initial Revolving Advance. The Lender’s
obligation to make the initial Revolving Advances hereunder shall be subject to
the condition precedent that the Borrower shall have satisfied and/or 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 Revolving Note, properly executed by the Borrower.

 

(c) A true and correct copy of any and all leases pursuant to which the Borrower
is leasing the Premises, together with a landlord’s disclaimer and consent with
respect to each such lease.

 

(d) The First Amendment to Patent Security Agreement, properly executed by the
Borrower.

 

(e) The IP Supplement.

 

(f) The Borrower has simultaneously entered into the WFBCI Credit Agreement and
all conditions precedent to the initial Advance set forth therein have been
satisfied or waived by WFBCI.

 

(g) The Lockbox Agreement, properly executed by the Borrower, Regulus West LLC
and Wells Fargo Bank Texas, N.A.

 

(h) The Borrower Agreement, properly executed by the Borrower.

 

(i) The SBA/Eximbank Joint Application, properly completed and executed by the
Borrower.

 

(j) Current searches of appropriate filing offices showing that (i) no state or
federal tax liens have been filed and remain in effect against the Borrower,
(ii) no financing statements have been filed and remain in effect against the
Borrower except those financing statements relating to Permitted Liens or to
liens held by Persons who have agreed in writing that upon receipt of proceeds
of the Revolving Advances, they will deliver UCC releases and/or terminations
satisfactory to the Lender, and (iii) the Lender has duly filed all financing
statements necessary to perfect the Security Interest as first in priority to
all other perfected security interests, to the extent the Security Interest is
capable of being perfected by filing. Within 90 days after of the date of this
Agreement the Borrower shall provide searches of appropriate filing offices
showing that no assignments of patents, trademarks or copyrights have been filed
and remain in effect against the Borrower.

 

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(k) 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 the Loan
Documents, (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 the Loan Documents and other instruments, agreements and certificates,
including Revolving Advance requests, on the Borrower’s behalf.

 

(l) A certificate of an officer of Borrower confirming the representations and
warranties set forth in Article V.

 

(m) A current certificate issued by the Secretary of State of Delaware,
certifying that the Borrower is in compliance with all applicable organizational
requirements of the State of Delaware and is in existence in good standing.

 

(n) A current certificate issued by the Secretary of State of Texas, certifying
that the Borrower is duly licensed and qualified to transact business in the
State of Texas.

 

(o) An opinion of counsel to the Borrower, addressed to the Lender, and in form
and substance reasonably acceptable to the Lender.

 

(p) Certificates of the insurance required hereunder, with all hazard insurance
and the foreign credit insurance containing a lender’s loss payable endorsement
in the Lender’s favor and with all liability insurance naming the Lender as an
additional insured.

 

(q) A Certificate of Completion issued by the State of Texas with respect to the
Real Property.

 

(r) Payment of the fees and commissions due through the date hereof under
Section 2.3 and expenses incurred by the Lender through such date and required
to be paid by the Borrower under Section 9.6, including all legal expenses
incurred through the date of this Agreement.

 

(s) The Environmental Indemnity Agreement, properly executed by the Borrower.

 

(t) The Deed of Trust, properly executed by the Borrower.

 

(u) Certificates of flood insurance for the Real Property.

 

(v) Such other documents as the Lender may reasonably require.

 

Section 4.2 Conditions Precedent to All Revolving Advances. The Lender’s
obligation to make each Revolving Advance shall be subject to the further
conditions precedent that on such date:

 

(a) the Lender has received an Eligibility Certificate submitted no less than
one month before the requested day of the Revolving Advance and copies of the
Export

 

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Orders (or a written summary thereof) against which the Borrower is requesting
such Revolving Advance.

 

(b) the representations and warranties contained in Article V are correct on and
as of the date of such Revolving Advance as though made on and as of such date,
except to the extent that such representations and warranties relate solely to
an earlier date; and

 

(c) no event has occurred and is continuing, or would result from such Revolving
Advance, which constitutes a Default or an Event of Default.

 

ARTICLE V

 

Representations and Warranties

 

The Borrower represents and warrants to the Lender as follows:

 

Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number. The Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower’s chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower’s records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or the other locations set forth in Schedule 5.1 hereto.

 

Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by the Borrower of the Loan Documents and
the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent or
approval of the Borrower’s stockholders; (ii) require any authorization, consent
or approval by, or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except Eximbank; (iii) violate any
provision of any law, rule or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System) or
of any order, writ, injunction or decree presently in effect having
applicability to the Borrower or of the Borrower’s articles of incorporation or
bylaws; (iv) result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other material agreement, lease or instrument
to which the Borrower is a party or by which it or its properties may be bound
or affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.

 

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Section 5.3 Legal Agreements. This Agreement constitutes and, upon due execution
by the Borrower, the other Loan Documents will constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.

 

Section 5.4 Subsidiaries. The Borrower has no Subsidiaries.

 

Section 5.5 Financial Condition; No Adverse Change. The Borrower has heretofore
furnished to the Lender its audited financial statements for its fiscal year
ended August 31, 2002 and its unaudited financial statements for the month ended
December 31, 2002 and those statements fairly present in all material respects
the Borrower’s financial condition on the dates thereof and the results of its
operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower’s business, properties or condition (financial or otherwise).

 

Section 5.6 Litigation. There are no actions, suits or proceedings pending or,
to the Borrower’s knowledge, threatened against or affecting the Borrower or any
of its Affiliates or the properties of the Borrower or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.

 

Section 5.7 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Revolving Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.

 

Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused to be
paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due
other than any tax the amount of which, applicability, or validity is being
contested in good faith by appropriate proceedings and (x) for which proper
reserves have been made, (y) there is no risk of forfeiture of Collateral during
the pendency of such action, and (z) any lien arising as a result of such tax is
at all times junior in priority to the Lender’s security interest in the
Collateral.

 

Section 5.9 Titles and Liens. The Borrower has good and indefeasible title to
the Real Property, all Collateral described in the collateral reports provided
to the Lender and all other Collateral, properties and assets reflected in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens. Upon the proper
filing of a

 

26

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UCC financing statements in Delaware describing the Collateral (other than
fixtures), and a fixture financing statement in Dallas County, Texas, the
Lender’s Security Interest in the Collateral will constitute a valid, perfected
security interest in the Collateral capable of being perfected by filing, prior
to all other security interests of any other Person except for the security
interest of WFBCI in Collateral not constituting Export Collateral.

 

Section 5.10 Plans. Except as disclosed to the Lender in writing prior to the
date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in compliance with any
of the material requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan’s tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:

 

(a) Any accumulated funding deficiency within the meaning of ERISA; or

 

(b) Any liability or knows of any fact or circumstances which could result in
any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any Plan
(other than accrued benefits which or which may become payable to participants
or beneficiaries of any such Plan).

 

Section 5.11 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
have a material adverse effect on the Borrower’s financial condition, properties
or operations.

 

Section 5.12 Environmental Matters.

 

(a) To the Borrower’s best knowledge, there are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create any
liability or obligation for either the Borrower or the Lender under common law
of any jurisdiction or under any Environmental Law, and no Hazardous Substances
have ever been stored, buried, spilled, leaked, discharged, emitted or released
in, on or under the Premises in such a way as to create any such liability.

 

(b) To the Borrower’s best knowledge, the Borrower has not disposed of Hazardous
Substances in such a manner as to create any liability under any Environmental
Law, except for liabilities in the aggregate amount of less than $25,000 and
with respect to which no liens have attached to any of the Collateral.

 

(c) There are not and there never have been any requests, claims, notices,
investigations, demands, administrative proceedings, hearings or litigation,
relating in any way to the Premises or the Borrower, alleging liability under,
violation of, or noncompliance with any Environmental Law or any license, permit
or other authorization issued pursuant thereto. To the Borrower’s best
knowledge, no such matter is threatened or impending.

 

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(d) To the Borrower’s best knowledge, the Borrower’s businesses are and have in
the past always been conducted in compliance in all material respects with all
Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient
operation of such businesses are in the Borrower’s possession and are in full
force and effect. No permit required under any Environmental Law is scheduled to
expire within 12 months for which renewal is not expected to be obtained and
there is no threat that any such permit will be withdrawn, terminated, limited
or materially changed.

 

(e) To the Borrower’s best knowledge, the Premises are not and never have been
listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.

 

(f) The Borrower has delivered to Lender all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating in any way
to the Premises or Borrower’s businesses.

 

Section 5.13 Submissions to Lender. All financial and other information provided
to the Lender by or on behalf of the Borrower in connection with the Borrower’s
request for the credit facilities contemplated hereby is true and correct in all
material respects and, as to projections, valuations or proforma financial
statements, present a good faith opinion as to such projections, valuations and
proforma condition and results.

 

Section 5.14 Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.

 

Section 5.15 Rights to Payment. Each right to payment and each Instrument,
document, Chattel Paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named
therein or in the Borrower’s records pertaining thereto as being obligated to
pay such obligation.

 

Section 5.16 Financial Solvency. Both before and after giving effect to the
transactions contemplated in the Loan Documents, none of the Borrower or its
Affiliates:

 

(a) was or will be insolvent, as that term is used and defined in Section
101(32) of the United States Bankruptcy Code and Section 2 of the Uniform
Fraudulent Transfer Act;

 

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(b) has unreasonably small capital or is engaged or about to engage in a
business or a transaction for which any remaining assets of the Borrower or such
Affiliate are unreasonably small;

 

(c) by executing, delivering or performing its obligations under the Loan
Documents or other documents to which it is a party or by taking any action with
respect thereto, intends to, nor believes that it will, incur debts beyond its
ability to pay them as they mature;

 

(d) by executing, delivering or performing its obligations under the Loan
Documents or other documents to which it is a party or by taking any action with
respect thereto, intends to hinder, delay or defraud either its present or
future creditors; and

 

(e) at this time contemplates filing a petition in bankruptcy or for an
arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of any
actual, pending or threatened bankruptcy, insolvency or similar proceedings
under any law of any jurisdiction.

 

Section 5.17 Suspension and Debarment, etc. Neither the Borrower nor any of its
Principals (as defined below) are (A) 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 US federal government department or agency
pursuant to any of the Debarment Regulations (as defined below) or (B) indicted,
convicted or had a civil judgment rendered against the Borrower or any of its
Principals for any of the offenses listed in any of the Debarment Regulations.
Unless authorized by Eximbank, 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 US 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 5.17 was erroneous when made or
has become erroneous by reason of changed circumstances. For the purposes
hereof, (1) ”Principals” shall mean any officer, director, owner, partner, key
employee, or other person with primary management or supervisory
responsibilities with respect to the Borrower; or any other person (whether or
not an employee) who has critical influence on or substantive control over the
transaction covered by this Agreement and (2) the Debarment Regulations shall
mean (x) the Government wide Debarment and Suspension (Nonprocurement)
regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (y) Subpart 9.4
(Debarment, Suspension and Ineligibility) of the Federal Acquisition
Regulations, 48 C.F.R. 9.400-9.409 and (z) the revised Government wide Debarment
and Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037
(June 26, 1995). The Borrower acknowledges that any statement, certification or
representation made by it in connection with the Credit Facility is subject to
the penalties provided in Article 18 U.S.C. Section 1001.

 

Section 5.18 Ownership of Borrower. No Person or affiliated Persons owns or
controls the right to vote more than 20% of the outstanding capital stock of the
Borrower.

 

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Section 5.19 Intellectual Property.

 

(a) Owned Intellectual Property. Contemporaneously with the execution of this
Agreement the Borrower has delivered to the Lender a complete list (the “IP
Supplement”) of all patents, applications for patents, trademarks, applications
for trademarks, service marks, applications for service marks, mask works, trade
dress and copyrights for which the Borrower is the registered owner (the “Owned
Intellectual Property”). Except as disclosed on the IP Supplement, (i) the
Borrower owns the Owned Intellectual Property free and clear of all restrictions
(including covenants not to sue a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise, (ii) no
Person other than the Borrower owns or has been granted any right in the Owned
Intellectual Property, (iii) all Owned Intellectual Property is valid,
subsisting and enforceable and (iv) the Borrower has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.

 

(b) Agreements with Employees and Contractors. The Borrower has entered into a
legally enforceable agreement with each of its employees and subcontractors
obligating each such Person to assign to the Borrower, without any additional
compensation, any Intellectual Property created, discovered or invented by such
Person in the course of such Person’s employment or engagement with the Borrower
(except to the extent prohibited by law), and further requiring such Person to
cooperate with the Borrower, without any additional compensation, in connection
with securing and enforcing any Intellectual Property therein; provided,
however, that the foregoing shall not apply with respect to employees and
subcontractors whose job descriptions are of the type such that no such
assignments are reasonably foreseeable.

 

(c) Intellectual Property Rights Licensed from Others. The IP Supplement is a
complete list of all agreements under which the Borrower has licensed
Intellectual Property from another Person (“Licensed Intellectual Property”)
other than readily available, non-negotiated licenses of computer software and
other intellectual property used solely for performing accounting, word
processing and similar administrative tasks (“Off-the-shelf Software”) and a
summary of any ongoing payments the Borrower is obligated to make with respect
thereto. Except as disclosed on the IP Supplement and in written agreements
copies of which have been given to the Lender, the Borrower’s licenses to use
the Licensed Intellectual Property are free and clear of all restrictions,
Liens, court orders, injunctions, decrees, or writs, whether by written
agreement or otherwise. Except as disclosed on the IP Supplement, the Borrower
is not obligated or, to the Borrower’s knowledge upon reasonably diligent
inquiry under any liability whatsoever, to make any payments of a material
nature by way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any Intellectual Property.

 

(d) Other Intellectual Property Needed for Business. Except for Off-the-shelf
Software and as disclosed on the IP Supplement, the Owned Intellectual Property
and the Licensed Intellectual Property constitute all Intellectual Property used
or necessary to conduct the Borrower’s business as it is presently conducted or
as the Borrower reasonably foresees conducting it.

 

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(e) Infringement. Except as disclosed on the IP Supplement, the Borrower has no
knowledge of, and has not received any written claim or notice alleging, any
Infringement of another Person’s Intellectual Property rights (including any
written claim that the Borrower must license or refrain from using the
Intellectual Property rights of any third party) nor, to the Borrower’s
knowledge, is there any threatened claim or any reasonable basis for any such
claim.

 

ARTICLE VI

 

Borrower’s Affirmative Covenants

 

So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:

 

Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:

 

(a) as soon as available, and in any event on the earlier of (x) the date the
Borrower files its Annual Report on SEC form 10-K and (y) 90 days after the end
of each fiscal year of the Borrower, the Borrower’s audited financial statements
with the unqualified opinion of independent certified public accountants
selected by the Borrower and acceptable to the Lender, which annual financial
statements shall include the Borrower’s balance sheet as at the end of such
fiscal year and the related statements of the Borrower’s income, retained
earnings and cash flows for the fiscal year then ended, prepared, on a
consolidating and consolidated basis to include any other Subsidiaries, all in
reasonable detail and prepared in accordance with GAAP, together with (i) copies
of all management letters prepared and delivered by such accountants; (ii) a
report signed by such accountants stating that in making the investigations
necessary for said opinion they obtained no knowledge, except as specifically
stated, of any Default or Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections 6.14,
6.15, 6.16, 6.17 and 7.10; and (iii) a certificate of the Borrower’s chief
financial officer stating that such financial statements have been prepared in
accordance with GAAP 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 statements 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, on a consolidating and consolidated basis to
include any Subsidiaries, in reasonable detail and stating in comparative form
the figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments; and
accompanied by a Compliance Certificate signed by the Borrower’s chief financial
officer stating (i) that such financial

 

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statements have been prepared in accordance with GAAP, subject to normal
year-end audit adjustments, (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 Sections 6.14, 6.15, 6.16, 6.17 and 7.10;

 

(c) within 15 days after the end of each month or more frequently if the Lender
so requires, agings of the Borrower’s accounts receivable, Eligible
Export-Related Accounts, inventory, Eligible Export Inventory and its accounts
payable, an inventory certification report, an accounts receivable certification
as of the end of such month or shorter time period and such information as the
Lender shall require to establish the sales percentage of the Items to total
Inventory sales for such periods as the Lender may request;

 

(d) as soon as available and in any event within 15 days after the end of each
month, a properly completed Eligibility Certificate as of the end of such month,
signed by the Borrower’s chief financial officer.

 

(e) at least 10 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 having been prepared
in good faith and no more positive as to the Borrower’s operating results or
financial condition than the projections used by the Borrower for internal
planning purposes, together with such supporting schedules and information as
the Lender may in its reasonable discretion require;

 

(f) within 5 Banking Days after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or which
seek a monetary recovery against the Borrower in excess of $10,000;

 

(g) as promptly as practicable (but in any event not later than five 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;

 

(h) as soon as possible and in any event within 30 days after the Borrower knows
or has reason to know that any Reportable Event with respect to any Plan has
occurred, the statement of the Borrower’s chief financial officer setting forth
details as to such Reportable Event and the action which the Borrower proposes
to take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;

 

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(i) as soon as possible, and in any event within 10 days after the Borrower
fails to make any quarterly contribution required with respect to any Plan under
Section 412(m) of the Internal Revenue Code of 1986, as amended, the statement
of the Borrower’s chief financial officer setting forth details as to such
failure and the action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be provided to
the Pension Benefit Guaranty Corporation;

 

(j) promptly upon knowledge thereof, notice of (i) any disputes or claims by the
Borrower’s customers exceeding $10,000 individually or $25,000 in the aggregate
during any fiscal year; (ii) credit memos; (iii) any goods returned to or
recovered by the Borrower; and (iv) any change in the persons constituting the
Borrower’s officers and directors; provided, however, that events described in
clauses (ii) and (iii) may be reported using the daily collateral report
provided to the Lender;

 

(k) promptly upon knowledge thereof, notice of any loss of or material damage to
any Collateral or other collateral covered by the Security Documents or of any
substantial adverse change in any Collateral or such other collateral or the
prospect of payment thereof;

 

(l) promptly upon their distribution, copies of all financial statements,
reports and proxy statements which the Borrower shall have sent to its
stockholders;

 

(m) 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;

 

(n) as soon as possible, and in any event by not later than five Banking Days
after the earlier of the due date or filing date thereof each year, copies of
the franchise and federal and state income tax returns of the Borrower and all
schedules thereto and any and all other state tax returns of the Borrower no
later than five Banking Days of the Lender’s request for the same;

 

(o) promptly upon knowledge thereof, notice of the Borrower’s violation of any
law, rule or regulation, the non-compliance with which could materially and
adversely affect the Borrower’s business or its financial condition;

 

(p) within 5 days after knowledge thereof, notice of a change in ownership of
the Premises or any parcel thereof;

 

(q) 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
reasonably request; and

 

(r) promptly upon knowledge thereof, the Borrower will deliver to the Lender
notice of any commercial tort claims it may bring against any person, including
the name and address of such defendant, a summary of the facts, an estimate of
the Borrower’s

 

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damages, copies of any complaint or demand letter submitted by the Borrower, and
such other information as the Lender may request.

 

Section 6.2 Books and Records; Inspection and Examination. The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower’s business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender’s
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower’s affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours. The Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to the Lender, at the
Borrower’s expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding the
Borrower.

 

Section 6.3 Account Verification. The Lender may at any time and from time to
time send or require the Borrower to send requests for verification of accounts
or notices of assignment to account debtors and other obligors. The Lender may
also at any time and from time to time telephone account debtors and other
obligors to verify accounts.

 

Section 6.4 Compliance with Laws.

 

(a) The Borrower will (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition and (ii) use and keep the Collateral,
and require that others use and keep the Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or ordinance.

 

(b) Without limiting the foregoing undertakings, the Borrower specifically
agrees that it will comply in all material respects with all applicable
Environmental Laws and obtain and comply in all material respects with all
permits, licenses and similar approvals required by any Environmental Laws, and
will not generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation under the
common law of any jurisdiction or any Environmental Law.

 

Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the

 

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Borrower shall not be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made.

 

Section 6.6 Maintenance of Properties. The Borrower will: (a) keep and maintain
the Collateral, the other collateral covered by the Security Documents and all
of its other properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided, however,
that nothing in this Section 6.6 shall prevent the Borrower from discontinuing
the operation and maintenance of any of its properties if such discontinuance
is, in the Lender’s judgment, desirable in the conduct of the Borrower’s
business and not disadvantageous in any material respect to the Lender; (b)
defend the Collateral against all claims or demands of all persons (other than
the Lender) claiming the Collateral or any interest therein; and (c) keep all
Collateral and other collateral covered by the Security Documents free and clear
of all security interests, liens and encumbrances except Permitted Liens.

 

Section 6.7 Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure,
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles), insure its foreign receivables with foreign credit insurance, and
insurance for such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender’s loss payable endorsement
for the Lender’s benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.

 

Section 6.8 Preservation of Existence. The Borrower will preserve and maintain
its existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.

 

Section 6.9 Delivery of Instruments, etc. The Borrower will promptly deliver to
the Lender in pledge all Instruments payable to it or any Subsidiary. In
addition, the Borrower will deliver to the Lender all Chattel Paper evidencing a
right to payment in excess of $5,000.

 

Section 6.10 Chattel Paper. The Borrower will shall place the following legend
in conspicuous type on all Chattel Paper (including electronic Chattel Paper) it
creates:

 

“This Chattel Paper has been assigned to Wells Fargo Bank Minnesota, N.A. (the
“Secured Party”). Further assignment of this Chattel Paper violates the rights
of the Secured Party.”

 

Section 6.11 Lockbox; Collateral Account; Alternate Collateral Account.

 

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(a) For so long as the Credit Facility is in existence or any Obligations are
outstanding, the Borrower shall irrevocably direct all present and future
account debtors of Export Related Accounts and other Persons obligated to make
payments constituting Export Collateral to make such payments directly to the
Lockbox or to an Alternate Collateral Account. All of the Borrower’s invoices,
account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account or any other amount
constituting Export Collateral shall conspicuously direct that all payments be
made (i) to the Lockbox and shall include the Lockbox address, or (ii) to an
Alternate Collateral Account and shall include appropriate payment instructions.
All payments received in the Lockbox shall be processed to the Collateral
Account.

 

(b) The Borrower agrees to deposit in the Collateral Account, an Alternate
Collateral Account or, at the Lender’s option, to deliver to the Lender all
collections on Accounts, contract rights, chattel paper and other rights to
payment constituting Export Collateral, and all other cash proceeds of Export
Collateral, which the Borrower may receive directly notwithstanding its
direction to account debtors and other obligors to make payments to the Lockbox
or to an Alternate Collateral Account, immediately upon receipt thereof, in the
form received, except for the Borrower’s endorsement when deemed necessary.
Until delivered to the Lender or deposited in the Collateral Account or an
Alternate Collateral Account, all proceeds or collections of Export Collateral
shall be held in trust by the Borrower for and as the property of the Lender and
shall not be commingled with any funds or property of the Borrower.

 

(c) Amounts deposited in the Collateral Account or any Alternate Collateral
Account shall not bear interest and shall not be subject to withdrawal by the
Borrower, except after full payment and discharge of all Obligations.

 

(d) All deposits in the Collateral Account or any Alternate Collateral Account
shall constitute proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after allowing
one (1) Banking Day, apply deposited funds in the Collateral Account or an
Alternate Collateral Account to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender, by transferring such funds to
the Lender’s general account.

 

(e) All items deposited in the Collateral Account or an Alternate Collateral
Account shall be subject to final payment. If any such item is returned
uncollected, the Borrower will immediately pay the Lender, or, for items
deposited in the Collateral Account or an Alternate Collateral Account, the bank
maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower’s commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account or any Alternate Collateral Account, whether
or not in fact endorsed by the Borrower.

 

(f) For the proceeds of collection on any Account deposited in the Collateral
Account or any Alternate Collateral Account, a portion of which Account
constitutes Export Collateral supporting the Revolving Advances and a portion of
which constitutes Domestic Collateral (as defined in the WFBCI Credit Agreement)
supporting the WFBCI

 

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Revolving Advances, the Lender shall retain the portion of such Account in an
amount based on the percentage of the actual cost of the Items consisting of US
Content (prior to the Borrower’s mark-up) for those Items sold and billed to the
buyer(s) on the applicable invoice(s), and the Lender shall allocate and credit
or remit the remaining portion (corresponding to the percentage of the cost of
the Items consisting of Foreign Content) of such Account proceeds to WFBCI. All
amounts retained by the Lender hereunder are subject to the other terms of this
Section 6.11.

 

Section 6.12 Performance by the Lender. If the Borrower at any time fails to
perform or observe any of the foregoing covenants contained in this Article VI
or elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.11, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender’s option, in the
Lender’s name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys’ fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender’s performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender’s delegate,
acting alone, as the Borrower’s attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower during any Default Period any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by the Borrower under this Section 6.12.

 

Section 6.13 Control Agreements. Upon request by the Lender, the Borrower hereby
agrees to cooperate with the Lender in obtaining a control agreement in form and
substance reasonably satisfactory to the Lender with respect to Collateral
consisting of deposit accounts, letter of credit rights and Investment Property
sufficient to perfect the Lender’s Security Interest in such Collateral.

 

Section 6.14 Minimum Tangible Net Worth. The Borrower will maintain its Tangible
Net Worth as of the end of each month at an amount not less than $1.00.

 

Section 6.15 Minimum Book Net Worth. The Borrower will maintain, during each
period described below, its Book Net Worth in an amount not less than the amount
set forth below:

 

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(a) From September 1 through November 30 of each year, a minimum Book Net Worth
of not less than an amount equal to $250,000 less than the Book Net Worth as at
the prior FYE;

 

(b) From December 1 through February 28 of each year, a minimum Book Net Worth
of not less than an amount equal to $500,000 less than the Book Net Worth as at
the prior FYE;

 

(c) From March 1 through May 31 of each year, a minimum Book Net Worth of not
less than an amount equal to $250,000 less than the Book Net Worth as at the
prior FYE; and

 

(d) From June 1 through August 31 of each year, a minimum Book Net Worth of not
less than an amount equal to $100,000 less than the Book Net Worth as at the
prior FYE.

 

Section 6.16 Quarterly Minimum Net Income. The Borrower will achieve at all
times: (a) during the three month fiscal period ending on November 30 of each
year, a minimum Net Income of greater than <$250,000>; (b) during the six month
fiscal period ending February 28 or 29 of each year, a minimum Net Income of
greater than <$500,000>; (c) during the nine month fiscal period ending on May
31 of each year, a minimum Net Income of greater than <$250,000>; (d) during the
fiscal year ending August 31, a minimum Net Income of greater than <$100,000>.

 

Section 6.17 Monthly Minimum Net Income. The Borrower will achieve, as of the
end of each month, a minimum Net Income of greater than <$300,000>.

 

Section 6.18 [Intentionally Omitted.]

 

Section 6.19 Quarterly Inspection and Review. The Borrower shall cooperate with
and assist the Lender and its agents in conducting a field examination, audit
and appraisal of the Collateral once every quarter while any Obligations remain
outstanding for the purpose of determining the value of the Collateral,
verification of the Borrowing Base and Borrower’s compliance with the Loan
Documents. The field examination shall include an inspection and valuation of
the Inventory, a book audit of Borrower’s Accounts and a review of the accounts
receivable aging report. During any Default Period, the Lender may require more
frequent exams. The costs of such field exams shall be paid by the Borrower.

 

Section 6.20 Assembly of Export Order Summaries. In the event the Borrower has
furnished summaries of Export Orders to the Lender pursuant to Section 4.2(a),
the Borrower shall at least once each calendar quarter make a sampling of such
Export Orders selected by the Lender representing at least 10% of the aggregate
U.S. dollar volume of all Export Orders and 10% of the number of Export Orders
supporting Revolving Advances made during the preceding calendar quarter
available for the Lender’s review and inspection.

 

Section 6.21 Perfection of Intellectual Property Security Interest. No later
than 90 days after the date of this Agreement, the Borrower shall execute and
file in all appropriate filing offices such instruments as may be required to
properly perfect the security interests granted

 

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pursuant to the Patent Security Agreement as the Lender requests. The Borrower
shall provide the Lender with updates on its progress in obtaining the
perfection of such security interests in all foreign jurisdictions every thirty
days after the date of this Agreement until all such security interests are
properly perfected as first priority security interests.

 

Section 6.22 Location of Collateral; Acknowledgment from Bailees. The Debtor
will not permit the Collateral to be kept at any location not set forth on
Schedule 5.1 hereto. In the event Collateral is in the possession of a third
party, upon request of the Lender, Debtor will join with Secured Party in
notifying the third party of Secured Party’s security interest and obtaining an
acknowledgment from the third party that it is holding the Collateral for the
benefit of the Secured Party.

 

ARTICLE VII

 

Negative Covenants

 

So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower agrees that, without the Lender’s prior written
consent:

 

Section 7.1 Liens. The Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing, the
following (collectively, “Permitted Liens”):

 

(a) in the case of any of the Borrower’s property which is not Collateral or
other collateral described in the Security Documents, covenants, restrictions,
rights, easements and minor irregularities in title which do not materially
interfere with the Borrower’s business or operations as presently conducted;

 

(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1 hereto,
securing indebtedness for borrowed money permitted under Section 7.2;

 

(c) the Security Interest and Liens created by the Security Documents;

 

(d) the Liens in favor of WFBCI provided such Liens are subordinate to the
Security Interest in Export Collateral;

 

(e) purchase money security interests (including capital leases) relating to
permitted Capital Expenditures under Section 7.10 not exceeding the lesser of
cost or fair market value thereof so long as no Default Period is then in
existence and none would exist immediately after such acquisition;

 

(f) liens for taxes not then delinquent or the amount, applicability or validity
of which is being contested in good faith by appropriate proceedings for which
proper reserves have been made and (x) which do not materially interfere with
the Borrower’s business or operations as presently conducted, (y) there is no
risk of forfeiture of

 

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Collateral during the pendency of such action, and (z) any lien arising as a
result of such tax is at all times junior in priority to the Lender’s security
interest in the Collateral;

 

(g) any landlord’s lien on fixtures or personal property arising by operation of
law to the extent such lien is subordinate to the security interest of the
Lender in the Collateral and the rent secured thereby is not in default;

 

(h) any judgment lien which is subordinate to the security interest of the
Lender in the Collateral in an amount not exceeding $25,000 so long as (x) the
finality of such judgment is being contested in good faith by appropriate
proceedings, (y) for which proper reserves have been made and (z) such
proceedings or such lien does not materially interfere with the Borrower’s
business or operations as presently conducted; and

 

(i) “Permitted Exceptions” as defined in the Deed of Trust.

 

The Borrower will not amend any financing statements in favor of the Lender
except as permitted by law. Any authorization by the Lender to any Person to
amend financing statements in favor of the Lender shall be in writing.

 

Section 7.2 Indebtedness. The Borrower will not incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money or letters of credit issued on the Borrower’s
behalf, or any other indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:

 

(a) indebtedness arising hereunder;

 

(b) indebtedness of the Borrower in existence on the date hereof and listed in
Schedule 7.2 hereto including any renewals or extensions thereof;

 

(c) indebtedness relating to liens permitted in accordance with Section 7.1; and

 

(d) obligations (contingent or otherwise) of the Borrower existing or arising
under any Swap Contract, provided that (i) such obligations are (or were)
entered into by the Borrower in relation to the Real Estate Term Loan under and
as defined in the WFBCI Credit Agreement and not for purposes of speculation or
taking a “market view;” and (ii) such Swap Contract does not contain any
provision exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party.

 

Section 7.3 Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:

 

(a) the endorsement of negotiable instruments by the Borrower for deposit or
collection or similar transactions in the ordinary course of business; and

 

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(b) guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons, in existence on the date
hereof and listed in Schedule 7.2 hereto.

 

Section 7.4 Investments and Subsidiaries.

 

(a) The Borrower will not purchase or hold beneficially any stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person, including specifically but without limitation any partnership or
joint venture, except:

 

(i) investments in direct obligations of the United States of America or any
agency or instrumentality thereof whose obligations constitute full faith and
credit obligations of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
Standard & Poors Corporation or “P-1” or “P-2” by Moody’s Investors Service or
certificates of deposit or bankers’ acceptances having a maturity of one year or
less issued by members of the Federal Reserve System having deposits in excess
of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully
insured by the Federal Deposit Insurance Corporation);

 

(ii) travel advances or loans to the Borrower’s officers and employees not
exceeding at any one time an aggregate of $50,000; and

 

(iii) advances in the form of progress payments for the purchase of capital
assets permitted pursuant to Section 7.10, prepaid rent not exceeding one month
and security deposits maintained in the ordinary course of business.

 

(b) The Borrower will not create or permit to exist any Subsidiary.

 

Section 7.5 Dividends. The Borrower will not declare or pay any dividends (other
than dividends payable solely in stock of the Borrower) on any class of its
stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.

 

Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations. 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 any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any property
other than obsolete or worn-out Equipment in the aggregate value of $25,000 or
less during any fiscal year without prior or present receipt of full and
adequate consideration.

 

Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower will not
dissolve, consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.

 

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Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.

 

Section 7.9 Restrictions on Nature of Business. The Borrower will not engage in
any line of business materially different from that presently engaged in by the
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.

 

Section 7.10 Capital Expenditures. The Borrower will not incur or contract to
incur Capital Expenditures of more than (a) $3,500,000 in the aggregate during
the fiscal year ending August 31, 2003, and (b) for each fiscal year thereafter,
the sum of $1,000,000 plus the lesser of (i) 50% of Net Income for the current
fiscal year, or (ii) 50% of Excess Cash Flow for the current fiscal year.

 

Section 7.11 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by GAAP. The Borrower will not
adopt, permit or consent to any change in its fiscal year.

 

Section 7.12 Discounts, etc. The Borrower will not, after notice from the
Lender, grant any discount, credit or allowance to any customer of the Borrower
or accept any return of goods sold, or at any time (whether before or after
notice from the Lender) modify, amend, subordinate, cancel or terminate the
obligation of any account debtor or other obligor of the Borrower.

 

Section 7.13 Defined Benefit Pension Plans. The Borrower will not adopt, create,
assume or become a party to any defined benefit pension plan, unless disclosed
to the Lender pursuant to Section 5.10.

 

Section 7.14 Other Defaults. The Borrower will not permit any breach, default or
event of default to occur under any note, loan agreement, indenture, lease,
mortgage, contract for deed, security agreement or other contractual obligation
binding upon the Borrower.

 

Section 7.15 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location; provided, however, that the Borrower may change its
mailing address as of July 1, 2003, to 4445 Sigma Road, Dallas, Texas 75244. The
Borrower will not permit any tangible Collateral or any records pertaining to
the 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 or place of incorporation.

 

Section 7.16 Organizational Documents. The Borrower will not amend its
certificate of incorporation or bylaws except to permit the issuance of
additional equity securities provided such amendment does not adversely affect
the Lender’s rights or remedies.

 

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Section 7.17 Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or,
without the prior approval of the independent members of the Borrower’s Board of
Directors, increase the salary, bonus, commissions, consultant fees or other
compensation of any director, officer or consultant, or any member of their
families, by more than 10% in any one year, either individually or for all such
persons in the aggregate, or pay any such increase from any source other than
profits earned in the year of payment or improvements in operating results
compared to the preceding period or periods.

 

ARTICLE VIII

 

Events of Default, Rights and Remedies

 

Section 8.1 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) Default in the payment of any fees, commissions, costs or expenses required
to be paid by the Borrower under this Agreement;

 

(c) Default in the performance, or breach, of any covenant or agreement of the
Borrower contained in this Agreement;

 

(d) The Borrower shall be or become insolvent (as such term is defined in
Section 5.16(a) hereof), or admit in writing its or his inability to pay its or
his debts as they mature, or make an assignment for the benefit of creditors; or
the Borrower shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial part of
its or his property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower, as the case may
be; or the Borrower shall institute (by petition, application, answer, consent
or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating to
it or him under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower; or any
judgment, writ, warrant of attachment or execution or similar process shall be
issued or levied against a substantial part of the property of the Borrower for
an amount in excess of $25,000 at any one time in the aggregate;

 

(e) A petition shall be filed by or against the Borrower under the United States
Bankruptcy Code naming the Borrower as debtor;

 

(f) Any representation or warranty made by the Borrower in this Agreement, or by
the Borrower (or any of its officers) in any agreement, certificate, instrument
or financial statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement shall prove to have been
incorrect in any material respect when deemed to be effective;

 

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(g) The rendering against the Borrower of a final judgment, decree or order for
the payment of money in excess of $25,000 and the continuance of such judgment,
decree or order unsatisfied and in effect for any period of 30 consecutive days
without a stay of execution;

 

(h) A default under any bond, debenture, note or other evidence of indebtedness
of the Borrower owed to any Person other than the Lender, or under any indenture
or other instrument under which any such evidence of indebtedness has been
issued or by which it is governed, or under any lease of any of the Premises,
and the expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture, other instrument or lease;

 

(i) Any Reportable Event, which the Lender determines in good faith constitutes
grounds for the termination of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan,
shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Lender; or a trustee shall
have been appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or the Borrower shall have filed for a distress termination of any Plan
under Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, which the Lender determines in good
faith may by itself, or in combination with any such failures that the Lender
may determine are likely to occur in the future, result in the imposition of a
lien on the Borrower’s assets in favor of the Plan;

 

(j) An event of default shall occur under any Security Document or under any
other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any obligations of the Borrower hereunder or
under any note;

 

(k) The Borrower shall liquidate, dissolve, terminate or suspend its business
operations or otherwise fail to operate its business in the ordinary course, or
sell all or substantially all of its assets, without the Lender’s prior written
consent;

 

(l) The Borrower shall fail to pay, withhold, collect or remit any tax or tax
deficiency when assessed or due (other than any tax deficiency which is being
contested in good faith and by proper proceedings and for which it shall have
set aside on its books adequate reserves therefor) or notice of any state or
federal tax liens shall be filed or issued;

 

(m) Default in the payment of any amount owed by the Borrower to the Lender
other than any indebtedness arising hereunder;

 

(n) An Event of Default shall occur under the Borrower Agreement;

 

(o) Any of David M. Kirk, James P. Farley, Darrell Ash or Jon Prokop cease to be
actively involved in the day-to-day management of the Borrower;

 

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(p) The Borrower fails to deliver a new landlord’s waiver acceptable to the
Lender within 30 days following a change in ownership of the Premises;

 

(q) An Event of Default shall occur under the WFBCI Credit Agreement; or

 

(r) Any breach, default or event of default by or attributable to any Affiliate
under any agreement between such Affiliate and the Lender.

 

Section 8.2 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 Commitments to be
terminated, whereupon the same shall forthwith terminate;

 

(b) the Lender may, by notice to the Borrower, declare the Obligations to be
forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby expressly waives;

 

(c) the Lender may, without notice to the Borrower and without further action,
apply any and all money owing by the Lender or any affiliate of the Lender to
the Borrower to the payment of the Obligations;

 

(d) the Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the UCC, including, without
limitation, 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;

 

(e) the Lender may exercise and enforce its rights and remedies under the Loan
Documents; and

 

(f) the Lender may exercise any other rights and remedies available to it by law
or agreement.

 

Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.

 

Section 8.3 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 9.3) at least ten calendar days before
the date of intended disposition or other action.

 

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ARTICLE IX

 

Miscellaneous

 

Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the Lender in
exercising any right, power or remedy under the Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy under the Loan Documents. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.

 

Section 9.2 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.

 

Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopier number as set forth below:

 

If to the Borrower:

RF Monolithics, Inc.

4347 Sigma Road

Farmers Branch, Texas 75244

Telecopier: (972) 404-9476

Attention: Chief Accounting Officer

 

Commencing July 1, 2003, the Borrower’s mailing address will change to 4445
Sigma Road, Farmers Branch, Texas
          75244.

 

If to the Lender:

Wells Fargo Bank Minnesota, N.A.

333 South Grand Avenue, Suite 800

Los Angeles, CA 90071

Attention: Brett Marschall

 

or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if

 

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delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article II shall not be effective until received by the
Lender. All requests under Section 9-210 of the UCC (i) shall be made in a
writing signed by a person authorized under Section 2.1(a), (ii) shall be
personally delivered, sent by registered or certified mail, return receipt
requested, or by overnight courier of national reputation, (iii) shall be deemed
to be sent when received by the Lender, and (iv) shall otherwise comply with the
requirements of Section 9-210. The Borrower requests that the Lender respond to
all such requests which on their face appear to come from an authorized
individual and releases the Lender from any liability for so responding. The
Borrower shall pay the Lender the maximum amount allowed by law for responding
to such requests.

 

Section 9.4 Further Documents. The Borrower will from time to time execute and
deliver or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interest or the Lender’s rights under the Loan Documents
(but any failure to request or assure that the Borrower executes, delivers or
endorses any such item shall not affect or impair the validity, sufficiency or
enforceability of the Loan Documents and the Security Interest, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).

 

Section 9.5 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or Chattel Paper, and, as provided by law, the Borrower is
entitled to any surplus and shall remain liable for any deficiency. The Lender’s
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights the Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application.

 

Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses, including (without limitation) reasonable attorneys’ fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.

 

Section 9.7 Indemnity. IN ADDITION TO THE PAYMENT OF EXPENSES PURSUANT TO
SECTION 9.6, THE BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE
LENDER, AND ANY OF ITS PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY
CORPORATIONS, AFFILIATED CORPORATIONS, SUCCESSOR CORPORATIONS, AND ALL PRESENT
AND FUTURE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS OF

 

 

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THE FOREGOING (THE “INDEMNITEES”) FROM AND AGAINST ANY OF THE FOLLOWING
(COLLECTIVELY, “INDEMNIFIED LIABILITIES”):

 

(i) ANY AND ALL TRANSFER TAXES, DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE
BY ANY GOVERNMENTAL AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THE
LOAN DOCUMENTS OR THE MAKING OF THE ADVANCES;

 

(ii) ANY CLAIMS, LOSS OR DAMAGE TO WHICH ANY INDEMNITEE MAY BE SUBJECTED IF ANY
REPRESENTATION OR WARRANTY CONTAINED IN SECTION 5.12 PROVES TO BE INCORRECT IN
ANY RESPECT OR AS A RESULT OF ANY VIOLATION OF THE COVENANT CONTAINED IN SECTION
6.4(B); AND

 

(iii) ANY AND ALL OTHER 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 THE FOREGOING AND ANY OTHER 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 AND THE LOAN DOCUMENTS OR THE USE OR INTENDED USE OF THE
PROCEEDS OF THE ADVANCES (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF THE INDEMNITEE), EXCEPT TO THE EXTENT SUCH LIABILITY, LOSS,
DAMAGE, PENALTY, JUDGMENT, SUIT, CLAIM, COST OR EXPENSE IS FOUND IN A FINAL,
NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED
FROM THE INDEMNITEE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

IF ANY INVESTIGATIVE, JUDICIAL OR ADMINISTRATIVE PROCEEDING ARISING FROM ANY OF
THE FOREGOING IS BROUGHT AGAINST ANY INDEMNITEE, UPON SUCH INDEMNITEE’S REQUEST,
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, AT THE BORROWER’S SOLE COSTS AND
EXPENSE. 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

 

48

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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 9.7 SHALL SURVIVE THE
TERMINATION OF THIS AGREEMENT AND THE DISCHARGE OF THE BORROWER’S OTHER
OBLIGATIONS HEREUNDER. THE BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST THE
LENDER OR ANY OF ITS AFFILIATES OR ITS OR THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS AND ADVISORS, ON ANY THEORY OF LIABILITY, FOR SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING
TO THE LOAN DOCUMENTS.

 

Section 9.8 Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender’s participants, successors or assigns.

 

Section 9.9 Execution in Counterparts. 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.

 

Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender’s prior written consent.
To the extent permitted by law, the Borrower waives and will not assert against
any assignee any claims, defenses or setoffs which the Borrower could assert
against the Lender.

 

Section 9.11 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.

 

Section 9.12 Entire Agreement. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE
SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Section 9.13 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

 

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Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. This
Agreement and the Loan Documents shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Texas. The parties hereto hereby (i) consents to the personal jurisdiction of
the state and federal courts located in the State of Texas in connection with
any controversy related to this Agreement; (ii) waives any argument that venue
in any such forum is not convenient, (iii) agrees 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 Collin County,
Texas, or the United States District Court for the Northern District of Texas;
and (iv) agrees 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.

 

Section 9.15 Confidentiality. Lender shall use its best efforts to hold in
confidence all information, memoranda, or extracts furnished to Lender by
Borrower hereunder or in connection with the negotiation hereof, including
without limitation, the information provided to Lender by Borrower pursuant to
Section 6.1 hereof; provided that the Lender may disclose such information (i)
to its Affiliates, accountants or counsel, (ii) to any regulatory agency having
the authority to examine the Lender, (iii) as required by any legal or
governmental process or otherwise by law (iv) to any Person to which the Lender
sells or proposes to sell an assignment or participation hereunder in accordance
herewith, and (v) to the extent that such information shall be publicly
available or shall have been known to the Lender independently of any disclosure
by the Borrower hereunder or in connection herewith.

 

Section 9.16 Retention of Borrower’s Records. The Lender shall have no
obligation to maintain any electronic records or any documents, schedules,
invoices, agings, or other papers delivered to the Lender by the Borrower or in
connection with the Loan Documents for more than four months after receipt by
the Lender.

 

Section 9.17 Amendment and Restatement. This Agreement amends and restates in
its entirety the Existing Credit Agreement. The execution of this Agreement and
the other Loan Documents executed in connection herewith does not extinguish the
indebtedness outstanding in connection with the Existing Credit Agreement nor
does it constitute a novation with respect to such indebtedness.

 

[Remainder of page intentionally left blank.]

 

50

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.

 

WELLS FARGO BANK MINNESOTA, N.A.

By:

 

/s/ Brett A. Marshall

--------------------------------------------------------------------------------

   

Brett A. Marschall

Vice President

 

RF MONOLITHICS, INC.

By:

 

/s/ David M. Kirk

--------------------------------------------------------------------------------

   

David M. Kirk

President

 

 

 

(Signature Page to Amended and Restated Credit and Security Agreement)

 

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Table of Exhibits and Schedules

 

Exhibit A

  

Form of Revolving Note

Exhibit B

  

Borrower Agreement

Exhibit C

  

Compliance Certificate

Exhibit D

  

Premises

Exhibit E

  

Eligibility Certificate

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Schedule 5.1

  

Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral

Schedule 7.1

  

Permitted Liens

Schedule 7.2

  

Permitted Indebtedness and Guaranties

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Exhibit A to Amended and Restated Credit and Security Agreement

 

AMENDED AND RESTATED REVOLVING NOTE

 

$5,000,000.00

    

February 3, 2003

 

For value received, the undersigned, RF Monolithics, Inc., a Delaware
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, N.A., 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 FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) or, if less, the aggregate unpaid principal amount of
all Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Revolving Note is fully paid at the rate from time to time in effect under
the Amended and Restated Credit and Security Agreement of even date herewith (as
the same may hereafter be amended, supplemented or restated from time to time,
the “Credit Agreement”) by and between the Lender and the Borrower. The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Revolving Note may be prepaid only in
accordance with the Credit Agreement.

 

This Revolving Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Revolving Note
is the Revolving Note referred to in the Credit Agreement. This Revolving Note
is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.

 

The Borrower hereby agrees to pay all costs of collection, including attorneys’
fees and legal expenses in the event this Revolving Note is not paid when due,
whether or not legal proceedings are commenced.

 

Presentment or other demand for payment, notice of acceleration, notice of
intent to accelerate, notice of dishonor and protest and all other notices of
any kind are expressly waived.

--------------------------------------------------------------------------------

 

This Note is given in amendment, restatement and modification, but not in
extinguishment or novation, of the indebtedness evidenced by that certain
Revolving Note in the principal amount of $8,500,000.00, dated December 8, 2000,
executed by the Borrower and payable to the order of the Lender.

 

RF MONOLITHICS, INC.

By

 

 

--------------------------------------------------------------------------------

   

David M. Kirk, President

--------------------------------------------------------------------------------

 

Exhibit B to Amended and Restated Credit and Security Agreement

 

BORROWER AGREEMENT

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Exhibit C to Amended and Restated Credit and Security Agreement

 

COMPLIANCE CERTIFICATE

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Exhibit D to Amended and Restated Credit and Security Agreement

 

PREMISES

 

The Premises referred to in the Amended and Restated Credit and Security
Agreement are described as follows:

 

4343 Sigma Road, Farmers Branch, Texas 75244

 

4441-45 Sigma Road, Farmers Branch, Texas 75244

 

4345-47 Sigma Road, Farmers Branch, Texas 75244

 

As of July 1, 2003, the Borrower’s principal address will be 4445 Sigma Road,
Farmers Branch, Texas 75244. 4341 and 4345 (but not 4347) Sigma Road will be
vacated on or about June 30, 2003.

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Exhibit E to Amended and Restated Credit and Security Agreement

 

ELIGIBILITY CERTIFICATE

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Schedule 5.1 to Amended and Restated Credit and Security Agreement

 

TRADE NAMES, CHIEF EXECUTIVE OFFICE,

PRINCIPAL PLACE OF BUSINESS, AND LOCATIONS OF COLLATERAL

 

Prior Legal Names

 

None

 

Trade Names

 

None

 

Chief Executive Office/Principal Place of Business

 

4347 Sigma Road

Farmers Branch, Texas 75244

 

As of July 1, 2003, the Borrower’s principal address will be 4445 Sigma Road,
Farmers Branch, Texas 75244. 4341 and 4345 (but not 4347) Sigma Road will be
vacated on or about June 30, 2003.

 

Other Inventory and Equipment Locations

 

4343 Sigma Road, Farmers Branch, Texas 75244

 

4441-45 Sigma Road, Farmers Branch, Texas 75244

 

4345-47 Sigma Road, Farmers Branch, Texas 75244

 

See attached charts.

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Schedule 7.1 to Amended and Restated Credit and Security Agreement

 

PERMITTED LIENS

 

Liens in favor of WFBCI

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Schedule 7.2 to Amended and Restated Credit and Security Agreement

 

PERMITTED INDEBTEDNESS AND GUARANTIES

 

Indebtedness to WFBCI

pursuant to the WFBCI Credit Agreement.

 

Also, see attached.