EXHIBIT 10.18


                                 REVOLVING NOTE

$1,000,000
Minneapolis, Minnesota
                                                                   June 26, 1997

                  For value received, the undersigned, RSI SYSTEMS, INC., a
Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND to the
order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of One Million
Dollars ($1,000,000) or, if less, the aggregate unpaid principal amount of all
Advances made by the Lender to the Borrower under the Credit and Security
Agreement of even date herewith by and between the Lender and the Borrower (as
the same may hereafter be amended, supplemented or restated from time to time,
the "Credit Agreement") together with interest on the principal amount hereunder
remaining unpaid from time to time (computed on the basis of actual days elapsed
in a 360-day year) from the date of the initial Advance until this Note is fully
paid at the rate from time to time in effect under the Credit Agreement.

                  This Note is the Revolving Note as defined in the Credit
Agreement and is subject to the Credit Agreement.

                                             RSI SYSTEMS, INC.


                                             By
                                               --------------------------------
                                               Donald C. Lies
                                               Its President and Chief Executive
                                                    Officer

<PAGE>


                         CREDIT AND SECURITY AGREEMENT

                            Dated as of June 26, 1997

      RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"), and NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as
follows:

                                    ARTICLE I

                                   Definitions

      Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:

            "Accounts" means the aggregate unpaid obligations of customers and
      other account debtors to the Borrower arising out of the sale or lease of
      goods or rendition of services by the Borrower on an open account or
      deferred payment basis, whether now existing or hereafter arising.

            "Advance" means a Revolving Advance.

            "Agreement" means this Credit and Security Agreement, as amended,
      supplemented and restated from time to time.

            "Base Rate" means the rate of interest publicly announced from time
      to time by Norwest Bank Minnesota, National Association as its "base rate"
      or, if such bank ceases to announce a rate so designated, any similar
      successor rate designated by the Lender.

            "Book Net Worth" means the aggregate of the common stockholders'
      equity of the Borrower, determined in accordance with GAAP, but excluding
      any capital stock (including the conversion of debt to equity) for which
      the Borrower has not received readily available funds on approximately the
      same day such capital stock was issued.

            "Borrowing Base" means, at any time and subject to change from time
      to time in the Lender's sole discretion, the lesser of:

                  (a) the Maximum Line less the Norwest Minnesota Revolving
            Advances; or

                  (b) the sum of:

                        (i) the lesser of (A) 75% of Eligible Accounts, plus

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                        (ii) 100% of Eligible Certificates of Deposits.

            "Collateral" has the meaning given in Section 3.1.

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

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

            "Default" means an event that, with giving of notice or passage of
      time or both, would constitute an Event of Default.

            "Default Period" means any period of time beginning on the first day
      of any month during which a Default or Event of Default has occurred and
      ending on the date the Lender notifies the Borrower in writing that such
      Default or Event of Default has been cured or waived.

            "Default Rate" means an annual rate equal to three percent (3%) over
      the Floating Rate, which rate shall change when and as the Floating Rate
      changes.

            "Eligible Accounts" means all unpaid Accounts, net of any credits,
      except the following shall not in any event be deemed Eligible Accounts: 

                  (i) That portion of Accounts over 90 days past invoice date
            [or, if the Lender in its discretion has determined that a
            particular dated Account of 120 days or less from invoice date may
            be eligible, that portion of such Account which is more than 30 days
            past the stated due date];

                  (ii) That portion of Accounts that are disputed or subject to
            a claim of offset or a contra account;

                  (iii) That portion of Accounts not yet earned by the final
            delivery of goods or rendition of services, as applicable, by the
            Borrower to the customer;

                  (iv) Accounts owed by any unit of government, whether foreign
            or domestic (provided, however, that there shall be included in
            Eligible Accounts that portion of Accounts owed by such units of
            government for which the Borrower has provided evidence satisfactory
            to the Lender that (A) the Lender has a first priority perfected
            security interest and (B) such Accounts may be enforced by the
            Lender directly against such unit of government under all applicable
            laws);

<PAGE>


                  (v) Accounts owed by an account debtor located outside the
            United States;

                  (vi) Accounts owed by an account debtor that is the subject
            of bankruptcy proceedings or has gone out of business; 

                  (vii) Accounts owed by a shareholder, subsidiary, affiliate,
            officer or employee of the Borrower;

                  (viii) Accounts not subject to a duly perfected security
            interest in favor of the Lender or which are subject to any lien,
            security interest or claim in favor of any Person other than the
            Lender or Norwest Minnesota;

                  (ix) That portion of Accounts that have been restructured,
            extended, amended or modified;

                  (x) That portion of Accounts that constitutes finance charges,
            service charges or sales or excise taxes;

                  (xi) Accounts owed by an account debtor, regardless of whether
            otherwise eligible, if 10% or more of the total amount due under
            Accounts from such debtor is ineligible under clauses (i), (ii) or
            (ix) above; and

                  (xii) Accounts, or portions thereof, otherwise deemed
            ineligible by the Lender in its sole discretion.

            "Eligible Certificates of Deposit" means those certificates of
      deposit (i) issued by a bank acceptable to the Lender in its sole
      discretion, and (ii) in which the Lender has a first perfected and senior
      security interest, provided, however, that the Lender may deem any or all
      of such certificates of deposits ineligible at any time, in its sole
      discretion.

            "Event of Default" has the meaning specified in Section 7.1.

            "Floating Rate" means an annual rate equal to the sum of the Base
      Rate plus four percent (4%), which annual rate shall change when and as
      the Base Rate changes.

            "GAAP" means generally accepted accounting principles, applied on a
      basis consistent with the accounting practices applied in the financial
      statements described in Section 5.2.

            "Inventory" means all of the Borrower's inventory, as such term is
      defined in the UCC, whether now owned or hereafter acquired.

            "Loan Documents" means this Agreement, the Note, the Security
      Documents and the Disclosure by the Borrower in favor of the Lender of
      even date herewith.

            "Maturity Date" has the meaning given in Section 2.3.

<PAGE>


            "Maximum Line" means $1,000,000.

            "Norwest Bank Credit Agreement" means that certain Credit Agreement
      by and between Norwest Minnesota and the Borrower of even date herewith.

            "Norwest Bank Credit Facility" means the credit facility extended to
      the Borrower pursuant to the Norwest Bank Credit Agreement.

            "Norwest Minnesota" means Norwest Bank Minnesota, National
      Association, a national banking association.

            "Norwest Minnesota Revolving Advances" means the outstanding
      principal balance of the revolving advances as of a given date made by
      Norwest Minnesota to the Borrower pursuant to the Norwest Bank Credit
      Agreement.

            "Note" means the Revolving Note.

            "Obligations" means each and every debt, liability and obligation of
      every type and description which the Borrower may now or at any time
      hereafter owe to the Lender, including all indebtedness arising under this
      Agreement, the Note or any other loan or credit agreement or guaranty
      between the Borrower and the Lender, whether now in effect or hereafter
      entered into.

            "Original Maturity Date" means the one year anniversary of the date
      of this Agreement.

            "Patent and Trademark Security Agreement" means the Patent and
      Trademark Security Agreement by the Borrower in favor of the Lender of
      even date herewith.

            "Permitted Liens" "Permitted Liens" means security interests, liens
      and encumbrances acceptable to the Lender in its sole discretion including
      without limitation those liens described on Exhibit C.

            "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.

            "Premises" means all premises where the Borrower conducts its
      business and has any rights of possession.

            "Revolving Advance" has the meaning given in Section 2.1.

            "Revolving Note" means the Borrower's revolving promissory note,
      payable to the order of the Lender in substantially the form of Exhibit A
      hereto.

<PAGE>


            "Security Documents" means this Agreement and the Patent and
      Trademark Security Agreement, and the Collateral Account Agreement and the
      Lockbox Agreement, each of even date herewith and by and among the
      Borrower, the Lender and Norwest Bank Minnesota, National Association.

            "Security Interest" has the meaning given in Section 3.1.

            "Support Agreement" means the Management Support Agreement by Donald
      Lies, of even date herewith.

            "Termination Date" means the Maturity Date or the date the Lender
      demands payment pursuant to Section 2.3 or Section 7.2, or the Borrower
      terminates the Credit Facility pursuant to Section 2.4, as the case may
      be.

            "UCC" means the Uniform Commercial Code as in effect from time to
      time in the State of Minnesota.

                                   ARTICLE II

                     Amount and Terms of the Credit Facility

      Section 2.1 Revolving Advances. The Lender may, in its sole discretion,
make advances to the Borrower from time to time from the date this Agreement is
signed and delivered to the Termination Date, on the terms and subject to the
conditions herein set forth (each a "Revolving Advance"). The Lender shall not
consider any request for a Revolving Advance if, after giving effect to such
requested Revolving Advance, the sum of the outstanding and unpaid Revolving
Advances would exceed the Borrowing Base. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral. Within the limits set forth in this Section 2.1, the Borrower
may request Revolving Advances, prepay, and request additional Revolving
Advances. The Borrower shall make each request for a Revolving Advance to the
Lender before 11:00 a.m. (Minneapolis time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone.

      Section 2.2 Interest; Default Interest. All interest shall be payable
monthly in arrears on the first day of the month and on demand.

            (a) REVOLVING NOTE. Except as set forth in subsection (c) and (d),
      the outstanding principal balance of the Advances shall bear interest at
      the Floating Rate.

            (b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
      pursuant to subsections (a) and (c), the Borrower shall pay to the Lender
      interest of not less than $56,000 per calendar year during the term of
      this Agreement (prorated for less than full year), and the Borrower shall
      pay any deficiency between (i) such minimum interest charge and (ii) the
      sum of the amount of interest otherwise 

<PAGE>


      calculated under Sections (a) and (c) hereof plus the amount of interest
      paid during the same period under the Norwest Bank Credit Agreement. Such
      minimum interest charge deficiency shall be payable in arrears on the
      first day of the following calendar year.

            (c) DEFAULT INTEREST RATE. At any time during any Default Period,
      in the Lender's sole discretion and without waiving any of its other
      rights and remedies, the principal of the Advances outstanding from time
      to time shall bear interest at the Default Rate, effective for any periods
      designated by the Lender from time to time during that Default Period.

            (d) USURY. In any event no rate change shall be put into effect
      which would result in a rate greater than the highest rate permitted by
      law.

      Section 2.3 Discretionary Nature of Credit Facility; Automatic Renewal.
THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN ADVANCE AND/OR
DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT WHETHER BORROWER IS
OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need not show that an
adverse change has occurred in the Borrower's condition, financial or otherwise,
in order to refuse to make any requested Advance or to demand payment of the
Advances. Unless terminated by the Lender at any time or by the Borrower
pursuant to Section 2.4, this Agreement shall remain in effect until the
Original Maturity Date and, thereafter, shall automatically renew for successive
one year periods. Each such anniversary date is herein referred to as a
"Maturity Date".

      Section 2.4 Termination by Borrower.

            (a) TERMINATION BY BORROWER. The Borrower may terminate this
      Agreement at any time and, subject to payment and performance of all
      Obligations, may obtain any release or termination of the Security
      Interest to which the Borrower is otherwise entitled by law by (i) giving
      at least 30 days' prior written notice to the Lender of the Borrower's
      intention to terminate this Agreement, (ii) terminating the Norwest Bank
      Credit Agreement pursuant to the terms thereof, and (iii) paying the
      Lender a prepayment fee in accordance with subsection (b) if the Borrower
      terminates this Agreement effective as of any date other than a Maturity
      Date.

            (b) PREPAYMENT FEE. If the Borrower desires to terminate this
      Agreement as of any date other than a Maturity Date, or as of a Maturity
      Date but without giving at least 90 days' prior written notice thereof, it
      shall (i) give at least 30 days' prior written notice to the Lender of the
      Borrower's intention to do so, and (ii) pay to the Lender a prepayment fee
      equal to the greater of (A) 2.00% of the Maximum Line, or (B) $56,000 less
      all interest paid since the date hereof, or, if this Agreement is renewed
      pursuant to Section 2.3 hereof, since the last Maturity Date; provided,
      however, that such prepayment fee shall be waived if such prepayment is
      made 

<PAGE>


      because of increased cash flow generated from the Borrower's operations in
      the normal course of business or refinancing by an affiliate of the
      Lender.

      Section 2.5 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.

      Section 2.6 Advances Without Request. The Borrower hereby authorizes the
Lender, in its discretion, at any time or from time to time without the
Borrower's request, to make Revolving Advances to pay accrued interest, fees,
uncollected items that have been applied to the Obligations, and other
Obligations due and payable from time to time.

      Section 2.7 Origination Fee. The Borrower hereby agrees to pay the Lender
a fully earned and non-refundable origination fee of $10,000, due and payable
upon the execution of this Agreement. The Lender acknowledges receipt of $7,500
toward payment of this fee and the fees, costs and expenses described in Section
8.2.

                                   ARTICLE III

                                Security Interest

      Section 3.1 Grant of Security Interest. The Borrower hereby grants to the
Lender a security interest (the "Security Interest") in the following collateral
(the "Collateral"), as security for the payment and performance of the
Obligations:

      INVENTORY: All inventory of Borrower, as such term is defined in the UCC,
      whether now owned or hereafter acquired, whether consisting of whole
      goods, spare parts or components, supplies or materials, whether acquired,
      held or furnished for sale, for lease or under service contracts or for
      manufacture or processing, and wherever located;

      ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower to
      the payment of money, whether such right to payment now exists or
      hereafter arises, whether such right to payment arises out of a sale,
      lease or other disposition of goods or other property, out of a rendering
      of services, out of a loan, out of the overpayment of taxes or other
      liabilities, or otherwise arises under any contract or agreement, whether
      such right to payment is created, generated or earned by Borrower or by
      some other Person who subsequently transfers such Person's interest to
      Borrower, whether such right to payment is or is not already earned by
      performance, and howsoever such right to payment may be evidenced,
      together with all other rights and interests (including all liens and
      security interests) which Borrower may at any time have by law or
      agreement against any account debtor or other obligor obligated to make
      any such payment or against any property of such account debtor or other
      

<PAGE>


      obligor; all including all of Borrower's rights to payment in the form of
      all present and future accounts, contract rights, loans and obligations
      receivable, chattel papers, bonds, notes and other debt instruments, tax
      refunds and rights to payment in the nature of general intangibles;

      EQUIPMENT: All of the Borrower's equipment, as such term is defined in the
      UCC whether now or hereafter owned, including all present and future
      machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
      equipment, office and recordkeeping equipment, parts, tools, supplies, and
      including specifically the goods described in any equipment schedule or
      list herewith or hereafter furnished to the Lender by Borrower;

      GENERAL INTANGIBLES: All of Borrower's general intangibles, as such term
      is defined in the UCC, whether now owned or hereafter acquired, including
      all present and future contract rights, patents, patent applications,
      copyrights, trademarks, trade names, trade secrets, customer or supplier
      lists and contracts, manuals, operating instructions, permits, franchises,
      the right to use Borrower's name, and the goodwill of Borrower's business;
      and

      INVESTMENT PROPERTY: All of Borrower's investment property, as such term
      is defined in the UCC, whether now owned or hereafter acquired, including
      but not limited to all securities, security entitlements, securities
      accounts, commodity contracts, commodity accounts, stocks, bonds, mutual
      fund shares, money market shares and U.S. Government securities;

      together with all substitutions and replacements for and products of any
      of the foregoing property and together with proceeds of any and all of the
      foregoing property and, in the case of all tangible property, together
      with all accessions and together with (i) all accessories, attachments,
      parts, equipment and repairs now or hereafter attached or affixed to or
      used in connection with any such goods, and (ii) all warehouse receipts,
      bills of lading and other documents of title now or hereafter covering
      such goods.

      Section 3.2 Notification of Account Debtors and Other Obligors. The Lender
may at any time (either before or after the occurrence of an Event of Default)
notify any account debtor or other Person obligated to pay the amount due that
such right to payment has been assigned or transferred to the Lender for
security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and 

<PAGE>


holding all other mail for the Borrower's account or forwarding such mail to the
Borrower's last known address.

      Section 3.3 Occupancy.

            (a) The Borrower hereby irrevocably grants to the Lender the right
      to take possession of each premises where Borrower conducts its business
      and has any rights of possession (the "Premises") at any time during any
      Default Period.

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

            (c) The Lender's right to hold the Premises shall terminate upon the
      earlier of payment in full of all Obligations, or final sale or
      disposition of all goods constituting Collateral and delivery of all such
      goods to purchasers.

            (d) The Lender shall not be obligated to pay or account for any rent
      or other compensation for the possession or use of any of the Premises;
      provided, however, that if the Lender does pay or account for any rent or
      other compensation for the possession or use of any of the Premises, the
      Borrower shall reimburse the Lender promptly for the full amount thereof.

      Section 3.4 License. Without limiting the generality of the Patent and
Trademark Security Agreement, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use, sub-license or
otherwise exploit all trademarks, franchises, trade names, copyrights and
patents of the Borrower for the purpose of selling, leasing or otherwise
disposing of any or all Collateral following an Event of Default.

      Section 3.5 Filing a Copy. A carbon, photographic, or other reproduction
of this Agreement or of a financing statement signed by Borrower is sufficient
as a financing statement.

                                   ARTICLE IV

                              Conditions of Lending

      Section 4. 1 Conditions Precedent to the Lender's Willingness to Consider
Making Advances. The Lender's willingness to consider making an initial Advance
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:

            (a) This Agreement, properly executed by the Borrower.

            (b) The Note, properly executed by the Borrower.

<PAGE>


            (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 in favor of the
      Lender and Norwest Minnesota.

            (d) A true and correct copy of any and all agreements pursuant to
      which the Borrower's property is in the possession of any Person other
      than the Borrower, together with, in the case of any goods held by such
      Person for resale, (i) a consignee's acknowledgment and waiver of liens,
      (ii) UCC financing statements sufficient to protect the Borrower's and the
      Lender's interests in such goods, and (iii) UCC searches showing that no
      other secured party has filed a financing statement against such Person
      and covering property similar to the Borrower's other than the Borrower,
      or if there exists any such secured party, evidence that each such secured
      party has received notice from the Borrower and the Lender sufficient to
      protect the Borrower's and the Lender's interests in the Borrower's goods
      from any claim by such secured party.

            (e) An acknowledgment and waiver of liens from each warehouse in
      which the Borrower is storing Inventory.

            (f) A true and correct copy of any and all agreements pursuant to
      which the Borrower's property is in the possession of any Person other
      than the Borrower, together with, (i) an acknowledgment and waiver of
      liens from each subcontractor who has possession of the Borrower's goods
      from time to time, (ii) UCC financing statements sufficient to protect the
      Borrower's and the Lender's interests in such goods, and (iii) UCC
      searches showing that no other secured party has filed a financing
      statement covering such Person's property other than the Borrower, or if
      there exists any such secured party, evidence that each such secured party
      has received notice from the Borrower and the Lender sufficient to protect
      the Borrower's and the Lender's interests in the Borrower's goods from any
      claim by such secured party.

            (g) An acknowledgment and agreement from each licensor in favor of
      the Lender, together with a true, correct and complete copy of all license
      agreements in favor of the Lender and Norwest Minnesota.

            (h) The Collateral Account Agreement, properly executed by the
      Borrower and Norwest Minnesota.

            (i) The Lockbox Agreement, properly executed by the Borrower and
      Norwest Minnesota.

            (j) The Patent and Trademark Security Agreement, properly executed
      by the Borrower.

            (k) 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 

<PAGE>


      financing statements or assignments of patents, trademarks or copyrights
      have been filed and remain in effect against the Borrower except Permitted
      Liens or liens held by Persons who have agreed in writing that upon
      receipt of proceeds of the Advances, they will deliver UCC releases and/or
      terminations and releases of such assignments of patents, trademarks or
      copyrights satisfactory to the Lender, and (iii) the Lender has duly filed
      all financing statements necessary to perfect the Security Interest, to
      the extent the Security Interest is capable of being perfected by filing.

            (l) 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
      agents authorized to execute and deliver the Loan Documents and other
      instruments, agreements and certificates, including Advance requests, on
      the Borrower's behalf.

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

            (n) Evidence that the Borrower is duly licensed or qualified to
      transact business in all jurisdictions where the character of the property
      owned or leased or the nature of the business transacted by it makes such
      licensing or qualification necessary.

            (o) A certificate of Good Standing of the Borrower confirming, in
      his personal capacity, the representations and warranties set forth in
      Article V and the Disclosure.

            (p) A support agreement in favor of the Lender and Norwest
      Minnesota, properly executed by Donald C. Lies, the Borrower's President
      and Chief Executive Officer, in his personal capacity.

            (q) An opinion of counsel to the Borrower, addressed to the Lender.

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

            (s) Delivery to the Lender of all certificates of deposit which the
      Borrower requests the Lender designate as Eligible Certificates of
      Deposit, together with a Collateral Pledge Agreement for each such
      certificate of deposit, and any other security document or agreement which
      the Lender may request.

            (t) A copy of the Norwest Bank Credit Agreement, executed by Norwest
      Minnesota and the Borrower, and evidence that of all documents required
      pursuant to 

<PAGE>


      the terms of the Norwest Bank Credit Agreement have been duly executed and
      delivered.

            (u) Payment of the fees and commissions due through the date of the
      initial Advance and expenses incurred by the Lender through such date and
      required to be paid by the Borrower under Section 8.2, including all legal
      expenses incurred through the date of this Agreement.

            (v) Such other documents as the Lender in its sole discretion may
      require.

      Section 4.2 Conditions Precedent to All Advances. The Lender will not
consider any request for an Advance unless on such date:

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

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

                                    ARTICLE V

                         Representations and Warranties

      The Borrower represents and warrants to the Lender as follows:

      Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During its
existence, the Borrower has done business solely under its corporate name as set
forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.

      Section 5.2 Financial Condition; No Adverse Change. Before this Agreement
was signed and delivered, the Borrower furnished the Lender its audited
financial statements for its fiscal year ended June 30, 1996 and its unaudited
financial statements for the fiscal year to day ending March 31, 1997, each
certified by the Borrower. Those statements fairly present the Borrower's
financial condition as of the dates indicated therein and the results of its
operations for the periods then ended and were prepared in accordance with GAAP.
Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.

<PAGE>


                                   ARTICLE VI

                            Covenants of the Borrower

      So long as the Advances or any amount owing to Lender hereunder shall
remain unpaid, the Borrower will comply with the requirements in this Article,
unless the Lender shall otherwise consent in writing.

      Section 6.1 Reporting Requirements. The Borrower will deliver to the
Lender each of the following in form and detail acceptable to the Lender:

            (a) as soon as available, and in any event within 90 days after the
      end of each fiscal year of the Borrower, the Borrower's audited financial
      statements prepared in accordance with GAAP; together with (i) copies of
      all management letters prepared by such accountants; (ii) a report signed
      by such accountants stating that in making the investigations necessary
      for said opinion they obtained no knowledge, except as specifically
      stated, of any Default or Event of Default hereunder and all relevant
      facts in reasonable detail to evidence, and the computations as to,
      whether or not the Borrower is in compliance with the requirements set
      forth in Sections 6.7 and 6.8 and (iii) a certificate of the Borrower's
      chief financial officer stating that such financial statements have been
      prepared in accordance with GAAP, that they fairly present the Borrower's
      financial condition and the results of its operations, and whether or not
      such officer has knowledge of the occurrence of any Default or Event of
      Default hereunder and, if so, stating in reasonable detail the facts with
      respect thereto;

            (b) as soon as available and in any event within 20 days after the
      end of each month, an unaudited/internal balance sheet and statement of
      income and retained earnings of the Borrower as at the end of and for such
      month and for the year to date period then ended, prepared in accordance
      with GAAP, subject to year-end audit adjustments; and accompanied by a
      certificate of the Borrower's chief financial officer, substantially in
      the form of Exhibit B hereto stating (i) that such financial statements
      have been prepared in accordance with GAAP, subject to year-end audit
      adjustments and fairly represent the Borrower's financial condition and
      the results of its operations, (ii) whether or not such officer has
      knowledge of the occurrence of any Default or Event of Default hereunder
      not theretofore reported and remedied and, if so, stating in reasonable
      detail the facts with respect thereto, and (iii) all relevant facts in
      reasonable detail to evidence, and the computations as to, whether or not
      the Borrower is in compliance with the requirements set forth in Sections
      6.7 and 6.8;

            (c) within 15 days after the end of each month, agings of the
      Borrower's accounts receivable and accounts payable and an accounts
      receivable certification as of the end of such month;

<PAGE>


            (d) as soon as available and in any event within 15 days of receipt
      thereof, a copy of the checking account statement of the Borrower as of
      the last day of each month from each bank with which Borrower maintains a
      checking account, such statements to be provided to the Lender directly by
      each such bank or by the Borrower with respect to a bank that is unwilling
      to send them to the Lender;

            (e) at least 30 days before the beginning of each fiscal year of the
      Borrower, the projected balance sheets and income statements for each
      month of such year, each in reasonable detail, representing the Borrower's
      good faith projections and certified by the Borrower's chief financial
      officer as being the most accurate projections available and identical to
      the projections used by the Borrower for internal planning purposes,
      together with such supporting schedules and information as the Lender may
      in its discretion require;

            (f) as soon as available and in any event within three (3) days
      after they are due, copies of tax payments due and paid and written notice
      of any and all taxes due but not paid;

            (g) as soon as possible and in any event within three (3) days after
      it is due, a copy of the Borrower's rent payment to Rice Real Estate
      Company and written notice of any rent due to Rice Real Estate Company but
      not paid;

            (h) from time to time, with reasonable promptness, any and all
      receivables schedules, collection reports, deposit records, equipment
      schedules, copies of invoices to account debtors, shipment documents and
      delivery receipts for goods sold, and such other material, reports,
      records or information as the Lender may request.

      Section 6.2 Inspection. Upon the Lender's request, the Borrower will
permit any officer, employee, attorney, agent or accountant for the Lender to
audit, review, make extracts from or copy any and all records of the Borrower
and to inspect the Collateral at all times during ordinary business hours.

      Section 6.3 Account Verification. The Lender may at any time and from time
to time send, or request the Borrower to send, requests for verification of
Accounts or notices of assignment to account debtors and other obligors. The
Borrower authorizes the Lender to verify Accounts as frequently as daily and the
Borrower understands the Lender intends to do so by telephone and/or in writing.

      Section 6.4 No Other Liens. The Borrower will keep all Collateral free and
clear of all security interests, liens and encumbrances except the Security
Interest, the Permitted Liens, purchase money security interests in equipment,
and other security interests approved by the Lender in writing.

      Section 6.5 Insurance. The Borrower will at all times keep all tangible
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision 

<PAGE>


(for Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with a lender's loss payable
clause in favor of Lender to the extent of its interest.

      Section 6.6 Lockbox; Collateral Account. The Borrower has provided the
Lender with agreements regarding a lockbox and a collateral account in
connection with the collection of Accounts.

      Section 6.7 Minimum Tangible Net Worth. The Borrower will maintain its
Tangible Net Worth, determined as at the end of each month, at an amount not
less than $350,000.

      Section 6.8 Minimum Book Net Worth. The Borrower will maintain, during
each period described below, its Book Net Worth determined as at the end of each
month, at an amount not less than the amount set forth opposite such period:

              PERIOD                 MINIMUM BOOK NET WORTH
              ------                 ----------------------
        May, 1997 through
         September, 1997                    $850,000

          October, 1997                     $950,000

      November, 1997 through
          December, 1997                   $1,100,000

      Section 6.9 Renewal of Financial Covenants. On or before December 31 of
each year, the Lender shall establish acceptable covenant levels for Sections
6.7 and 6.8 based upon the Borrower's projections for such periods. The Lender
shall negotiate in good faith with the Borrower to establish such covenant
levels, provided that (a) in no event shall such covenant levels be less
stringent than the present levels and (b) if for any reason the Borrower and the
Lender do not enter into legally binding documentation establishing such
covenants at levels acceptable to the Lender in its reasonable discretion on or
prior to December 31 of such year, such failure shall constitute an Event of
Default hereunder.

      Section 6.10 No Sale or Transfer of Collateral and Other Assets. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (a) the
stock of any subsidiary, (b) all or a substantial part of its assets, or (c) any
Collateral or any interest therein (whether in one transaction or in a series of
transactions) to anyone other than the sale of Inventory in the ordinary course
of business.

      Section 6.11 Place of Business; Name. The Borrower will not change the
location of its chief executive office or principal place of business from that
disclosed pursuant to Section 5.1 unless the Borrower has delivered written
notice to the Lender at least thirty (30) days prior to such change. The
Borrower will not permit any tangible Collateral to 

<PAGE>


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 unless the Borrower has delivered written notice to the
Lender at least thirty (30) days prior to such name change.

                                   ARTICLE VII

                     Events of Default, Rights and Remedies

      Section 7.1 Events of Default. An "Event of Default" as used herein shall
mean any of the following:

            (a) Failure to pay the Note when demanded, and in this connection
      Borrower hereby waives presentment, notice of dishonor and protest;

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

            (c) Default in the performance, or breach, of any covenant or
      agreement of the Borrower contained in any Loan Document.

            (d) Default in the performance, or breach, of any covenant or
      agreement of the Borrower contained in the Norwest Bank Credit Agreement.

      Section 7.2 Rights and Remedies. As provided in Section 2.3, the Lender
may, at any time and for any reason, refuse to make any requested Advance or
demand payment of the Obligations. In addition, upon the occurrence of an Event
of Default or at any time thereafter, the Lender may exercise any or all of the
following rights and remedies:

            (a) The Lender may exercise and enforce any and all rights and
      remedies available upon default to a secured party under the UCC,
      including the right to take possession of Collateral, or any evidence
      thereof, proceeding without judicial process or by judicial process
      (without a prior hearing or notice thereof, which the Borrower hereby
      expressly waives) and the right to sell, lease or otherwise dispose of any
      or all of the Collateral, and in connection therewith, the Borrower will
      on demand assemble the Collateral and make it available to the Lender at a
      place to be designated by the Lender which is reasonably convenient to
      both parties;

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

The remedies provided hereunder are cumulative.

<PAGE>


      Section 7.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 8.1) at least 10 calendar days before
the date of intended disposition or other action.

                                  ARTICLE VIII

                                  Miscellaneous

      Section 8.1 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be (i) personally
delivered, (ii) sent by first class United States mail, (iii) sent by overnight
courier of national reputation, or (iv) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.

      Section 8.2 Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses (including legal fees) incurred by the Lender in connection
with the Loan Documents and any other document or agreement related thereto, and
the transactions contemplated hereby, including wire transfer and ACH charges,
the cost of credit reports, overadvance fees, the expense of any auditors (at
the rate established from time to time by the Lender as its audit fees, which
fees are currently $62.50 per hour per auditor, plus out of pocket expenses),
and fees and expenses in enforcing this Agreement.

      Section 8.3 Indemnity. In addition to the payment of expenses pursuant to
Section 8.2, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):

            (i) any and all transfer taxes, documentary taxes, assessments or
      charges made by any governmental authority by reason of the execution and
      delivery of this Agreement and the other Loan Documents or the making of
      the Advances;

            (ii) any and all liabilities, losses, damages, penalties, judgments,
      suits, claims, costs and expenses of any kind or nature whatsoever
      (including, without limitation, the reasonable fees and disbursements of
      counsel) in connection with any investigative, administrative or judicial
      proceedings, whether or not such Indemnitee shall be designated a party
      thereto, which may be imposed on, incurred by or asserted against any such
      Indemnitee, in any manner related to or arising out of or in connection
      with the making of the 

<PAGE>


      Advances, this Agreement and the other Loan Documents or the use or
      intended use of the proceeds of the Advances; and

            (iii) any claim, loss or damage to which any Indemnitee may be
      subjected as a result of any violation of any federal, state, local or
      other governmental statute, regulation, law, or ordinance dealing with the
      protection of human health and the environment.

If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, then the Borrower or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.3 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.

      Section 8.4 Binding Effect; Assignment; Counterparts; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.

      Section 8.5 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. This
Agreement and the Note shall be governed by and construed in accordance with the
laws (other than conflict laws) of the State of Minnesota. Each party consents
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection with any controversy related to this Agreement,
waives any argument that venue in any such forum is not convenient and agrees
that any litigation initiated by any of them in connection with this Agreement
shall be venued in either the District Court of Hennepin County, Minnesota
located in Minneapolis, Minnesota, or the United States District Court, District
of Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN
ANY 

<PAGE>


ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

      IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first above written.

NORWEST BUSINESS CREDIT, INC.                RSI SYSTEMS, INC.


By /s/ Roger A. Pfiffner                     By /s/ Donald C. Lies
   --------------------------------             --------------------------------
   Roger A. Pfiffner                            Donald C. Lies
   Its Vice President                           Its President and 
                                                Chief Executive Officer

Address:                                     Address:

    Norwest Center                               7400 Metro Blvd.
    Sixth Street and Marquette Avenue            Suite 475
    Minneapolis, Minnesota 55479-0152            Edina, Minnesota  55439

Telecopy No. 612/341-2472                    Telecopy No. (612) 896-3030

Federal Tax ID No. 41-1712687                Federal Tax I.D. No. 41-1767211

<PAGE>


                                     Exhibit  A to Credit and Security Agreement

                                 REVOLVING NOTE

$1,000,000
Minneapolis, Minnesota                                             June 26, 1997

      For value received, the undersigned, RSI SYSTEMS, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay ON DEMAND to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of One Million Dollars
($1,000,000) or, if less, the aggregate unpaid principal amount of all Advances
made by the Lender to the Borrower under the Credit and Security Agreement of
even date herewith by and between the Lender and the Borrower (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") together with interest on the principal amount hereunder remaining
unpaid from time to time (computed on the basis of actual days elapsed in a
360-day year) from the date of the initial Advance until this Note is fully paid
at the rate from time to time in effect under the Credit Agreement.

      This Note is the Revolving Note as defined in the Credit Agreement and is
subject to the Credit Agreement.

                                             RSI SYSTEMS, INC.


                                             By 
                                                --------------------------------
                                                Donald C. Lies
                                                Its President and 
                                                Chief Executive Officer

<PAGE>


                                      Exhibit B to Credit and Security Agreement

                             COMPLIANCE CERTIFICATE

To:   Roger A. Pfiffner
      Norwest Business Credit, Inc.

Date: __________________, 199___

Subject:   RSI Systems, Inc.
           Financial Statements

      In accordance with our Credit and Security Agreement dated as of June 26,
1997 (the "Credit Agreement"), attached are the financial statements of RSI
Systems, Inc. (the "Borrower") as of and for ________________, 19___ (the
"Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.

      I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.

            Events of Default. (Check one):

      |_|   The undersigned does not have knowledge of the occurrence of a
            Default or Event of Default under the Credit Agreement.

      |_|   The undersigned has knowledge of the occurrence of a Default or
            Event of Default under the Credit Agreement and attached hereto is a
            statement of the facts with respect to thereto.

            Financial Covenants. I further hereby certify as follows:

            1. Minimum Tangible Net Worth. Pursuant to Section 6.7 of the Credit
      Agreement, as of the Reporting Date the Borrower's Tangible Net Worth was
      $____________ which |_| satisfies |_| does not satisfy the requirement
      that such amount be not less than $350,000.

            2. Minimum Book Net Worth. Pursuant to Section 6.8 of the Credit
      Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
      $____________ which |_| satisfies |_| does not satisfy the requirement
      that such amount be not less than $_____________ on the Reporting Date [as
      set forth in table below:

<PAGE>


                   Period              Minimum Book Net Worth
                   ------              ----------------------
             May, 1997 through 
              September, 1997                 $850,000

               October, 1997                  $950,000

          November, 1997 through
              December, 1997                 $1,100,000

      Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP. 

                                             RSI SYSTEMS, INC.


                                             By ________________________________

                                                Its Chief Financial Officer

<PAGE>


                                      Exhibit C to Credit and Security Agreement

                                 PERMITTED LIENS
                                 ---------------
   Creditor     Collateral     Jurisdiction     Filing Date     Filing No.
   --------     ----------     ------------     -----------     ----------

                                  NONE

<PAGE>


                                   DISCLOSURE

                                RSI Systems, Inc.

      The Borrower signing below hereby makes the following disclosures to
Norwest Business Credit, Inc. in connection with a Credit and Security Agreement
between them dated on or about the date hereof:

      1. Legal Names. During its existence, the legal name of the Borrower has
been its legal name as disclosed in the Credit Agreement and the following
predecessor legal names (insert "None" if none"):

      Rocket Science, Inc.

      2. Assumed Names. During its existence, the Borrower has done business
under the following trade names other than the legal names disclosed in
paragraph 1 above (insert "None" if none):

      None.

      3. Inventory Locations. All of the Borrower's inventory is located at the
address of the chief executive office of the Borrower as disclosed in the Credit
Agreement and at the following additional locations (insert "None" if none):

      Eden Prairie Metro RV and Mini-Storage
      6852 Flying Cloud Drive, Suite B
      Eden Prairie, Minnesota 55344

      Altron, Inc. 
      6700 Industry Avenue 
      Anoka, Minnesota 55303-4595

      4. Subsidiaries. The Borrower has no subsidiaries other than as follows
(insert "None" if none):

      RSI Systems Export Corporation

      5. Payment of Taxes. The Borrower has paid to the proper authorities when
due all federal, state, and local income taxes and taxes required to be withheld
by Borrower, and no claim is being made against Borrower for any such taxes by
any taxing authority except as follows (insert "None" if none):

      None.

      6. Environmental. To the best of Borrower's knowledge, the Borrower has
conducted and is conducting its business in compliance with all federal, state,
and local 

<PAGE>


statutes, regulations, laws, and ordinances dealing with the protection of human
health and the environment ("Environmental Laws"), and there are no claims,
investigations, lawsuits, or administrative proceedings against Borrower or
relating to any real estate owned or operated by Borrower alleging a violation
of any Environmental Law except as follows (insert "None" if none):

      None.

      7. Litigation. Other than as disclosed above with respect to Environmental
Laws, there are no lawsuits or proceedings pending, or to the best knowledge of
the Borrower threatened, against or affecting the Borrower or its properties
except as follows (insert "None" if none):

      None.

Dated: June 26, 1997                         RSI SYSTEMS, INC.



                                             By /s/ Donald C. Lies
                                                --------------------------------
                                                Donald C. Lies
                                                Its President and
                                                Chief Executive Officer

<PAGE>


                            CERTIFICATE OF AUTHORITY

      I, James D. Hanzlik, do hereby certify that I am secretary or assistant
secretary of RSI Systems, Inc., a Minnesota corporation; that the following is a
true, complete and correct copy of the resolution duly adopted (check one):

      |X|   at a meeting of the directors of said corporation duly and properly
            called and held on the 4th day of June 1997, at which
            a quorum was present and acting throughout;

      |_|   by unanimous written action duly and lawfully taken, subscribed by
            all the directors of said corporation;

and I further certify that said resolution is now in full force and effect:

                                   Resolution

      RESOLVED, that the Chief Executive Officer, President and Chief Financial
      Officer of the Company be and hereby are authorized and directed to
      negotiate the final documents with respect to the proposed credit
      facilities with Norwest Business Credit and Norwest Bank Minnesota in
      order to secure for the Company a $1,000,000 and a $500,000, respectively,
      of credit and such officers are hereby authorized and directed on behalf
      of the Company to execute and deliver the credit agreements so negotiated
      together with such security and pledge agreements and other agreements,
      instruments, certificates and documents as may be necessary or desirable
      to achieve the purposes of this resolution.

      I further certify that the directors of said Corporation have, and at the
time of adoption of the foregoing resolution had, full power and lawful
authority to adopt the foregoing resolution and to confer the powers therein
granted to the persons named and that such persons have full power and authority
to exercise same. I further certify that the signatures appearing below are the
authentic and official signatures of the officers and agents referred to in the
foregoing resolution, that the persons named below as officers have been duly
elected to and now hold the offices in said Corporation set forth opposite their
respective names, and that the persons named as agents below have been duly
authorized to sign and to act on behalf of said Corporation pursuant to the
foregoing resolution:


<PAGE>


            Name                     Title                 Sample Signature
            ----                     -----                 ----------------

       Donald C. Lies         President and Chief         /s/ Donald C. Lies
                               Executive Officer          --------------------

      James D. Hanzlik        Secretary and Chief         /s/ James D. Hanzlik
                              Financial Officer           --------------------

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

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

      I further certify (check one):

      |X|   that the foregoing resolution was duly approved by the shareholders
            of said Corporation at a meeting duly and properly called and held
            on the 4th day of June 1997, at which a quorum was
            present and acting throughout, or otherwise as permitted by law;

      |_|   that the foregoing resolution is effective and binding on said
            Corporation without approval by its shareholders.

      I further certify that the forms of Credit and Security Agreement and the
other Loan Documents, and any other writings relating to the credit facility
with Norwest Business Credit, Inc., executed on behalf of said Corporation by
its President and Chief Executive Officer and delivered to the Lender are the
agreements and writings referred to in and approved by the Resolution set forth
above.

      I further certify that attached hereto as Exhibit A, are true, correct and
complete copies of the articles of incorporation and bylaws of said Corporation,
which articles of incorporation and bylaws are in full force and effect and have
not been altered, amended or revised. I further certify that attached hereto as
Exhibit B is a Certificate of Good Standing of the Corporation not more than ten
days old.

      IN WITNESS WHEREOF, I have hereunto subscribed my name this 26th day of
June, 1997.

                                             /s/ James D. Hanzlik
                                             -----------------------------------
                                             James D. Hanzlik, Secretary
                                             RSI Systems, Inc.

Attest by One Other Officer

/s/ Donald C. Lies
-----------------------------------

<PAGE>


                     PATENT AND TRADEMARK SECURITY AGREEMENT

      This Agreement, dated as of June 26, 1997, is made by and between RSI
SYSTEMS, INC., a Minnesota corporation whose address and principal place of
business is 7400 Metro Blvd., Suite 475, Edina, Minnesota 55439 (the "Debtor"),
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation whose address and
principal place of business is Norwest Center, Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479-0152 (the "Secured Party").

                                    Recitals

      The Debtor and the Secured Party have entered into a 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") setting
forth the terms on which the Secured Party may now or hereafter make certain
loans or other financial accommodations to or for the account of the Debtor.

      As a further condition to making any loan or other financial accommodation
under the Credit Agreement or otherwise, the Secured Party has required the
execution and delivery of this Agreement by the Debtor.

      ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:

      1. Definitions. All terms defined in the Recitals hereto or in the Credit
Agreement that are not otherwise defined herein shall have the meanings given to
them therein. In addition, the following terms have the meanings set forth
below:

            "Obligations" means each and every debt, liability and obligation of
      every type and description arising under or in connection with any Loan
      Document (as defined in the Credit Agreement) which the Debtor may now or
      at any time hereafter owe to the Secured Party, whether such debt,
      liability or obligation now exists or is hereafter created or incurred and
      whether it is or may be direct or indirect, due or to become due, absolute
      or contingent, primary or secondary, liquidated or unliquidated,
      independent, joint, several or joint and several, and including
      specifically, but not limited to, the Obligations (as defined in the
      Credit Agreement).

            "Patents" means all of the Debtor's right, title and interest in and
      to patents or applications for patents, fees or royalties with respect to
      each, and including without limitation the right to sue for past
      infringement and damages therefor, and licenses thereunder, all as
      presently existing or hereafter arising or acquired, including without
      limitation the patents listed on Exhibit A.

<PAGE>


            "Trademarks" means all of the Debtor's right, title and interest in
      and to trademarks, service marks, collective membership marks, the
      respective goodwill associated with each, and licenses thereunder, all as
      presently existing or hereafter arising or acquired, including, without
      limitation, the marks listed on Exhibit B.

      2. Security Interest. The Debtor hereby irrevocably assigns to and grants
to the Secured Party a security interest with power of sale to the extent
permitted by law (the "Security Interest") in the Patents and in the Trademarks
to secure payment of the Obligations.

      3. Representations, Warranties and Agreements. The Debtor hereby
represents, warrants and agrees as follows:

            (a) EXISTENCE; AUTHORITY. The Debtor is a corporation, having full
      power to and authority to make and deliver this Agreement. The execution,
      delivery and performance of this Agreement by the Debtor have been duly
      authorized by all necessary action of the Debtor's directors and
      shareholders and do not and will not violate the provisions of, or
      constitute a default under, any presently applicable law or its articles
      of incorporation and bylaws or any agreement presently binding on it. This
      Agreement has been duly executed and delivered by the Debtor and
      constitutes the Debtor's lawful, binding and legally enforceable
      obligation. The correct name of the Debtor is RSI Systems, Inc.. The
      authorization, execution, delivery and performance of this Agreement do
      not require notification to, registration with, or consent or approval by,
      any federal, state or local regulatory body or administrative agency.

            (b) PATENTS. Exhibit A accurately lists all Patents owned or
      controlled by the Debtor as of the date hereof and accurately reflects the
      existence and status of registrations pertaining to the Patents as of the
      date hereof.

            (c) TRADEMARKS. Exhibit B accurately lists all Trademarks owned or
      controlled by the Debtor as of the date hereof and accurately reflects the
      existence and status of Trademarks and all registrations pertaining
      thereto as of the date hereof.

            (d) TITLE. The Debtor has absolute title to each Patent and each
      Trademark listed on Exhibits A and B, free and clear of all security
      interests, liens and encumbrances, except the Security Interest. The
      Debtor (i) will have, at the time the Debtor acquires any rights in
      Patents or Trademarks hereafter arising, absolute title to each such
      Patent or Trademark free and clear of all security interests, liens and
      encumbrances, except the Security Interest, and ( ii) will keep all
      Patents and Trademarks free and clear of all security interests, liens and
      encumbrances except the Security Interest.

            (e) NO SALE. The Debtor will not sell or otherwise dispose of the
      Patents or Trademarks, or any interest therein, without the Secured
      Party's prior written consent.

<PAGE>


            (f) DEFENSE. The Debtor will at its own expense, and using its best
      efforts, protect and defend the Patents and Trademarks against all claims
      or demands of all persons other than the Secured Party.

            (g) MAINTENANCE. The Debtor will at its own expense maintain the
      Patents and the Trademarks to the extent reasonably advisable in its
      business including, but not limited to, filing all applications to
      register and all affidavits and renewals possible with respect to issued
      registrations. The Debtor covenants that it will not abandon nor fail to
      pay any maintenance fee or annuity due and payable on any Patent or
      Trademark, nor fail to file any required affidavit in support thereof,
      without first providing the Secured Party: (i) sufficient written notice,
      as provided in the Credit Agreement, to allow the Secured Party to timely
      pay any such maintenance fees or annuity which may become due on any of
      said Patents or Trademarks, or to file any affidavit with respect thereto,
      and (ii) a separate written power of attorney or other authorization to
      pay such maintenance fees or annuities, or to file such affidavit, should
      such be necessary or desirable.

            (h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor fails to
      perform or observe any of its covenants or agreements set forth in this
      Section 3, and if such failure continues for a period of ten (10) calendar
      days after the Secured Party gives the Debtor written notice thereof (or,
      in the case of the agreements contained in subsection (g), immediately
      upon the occurrence of such failure, without notice or lapse of time), or
      if the Debtor notifies the Secured Party that it intends to abandon a
      Patent or Trademark, the Secured Party may (but need not) perform or
      observe such covenant or agreement on behalf and in the name, place and
      stead of the Debtor (or, at the Secured Party's option, in the Secured
      Party's own name) and may (but need not) take any and all other actions
      which the Secured Party may reasonably deem necessary to cure or correct
      such failure.

            (i) COSTS AND EXPENSES. Except to the extent that the effect of such
      payment would be to render any loan or forbearance of money usurious or
      otherwise illegal under any applicable law, the Debtor shall pay the
      Secured Party on demand the amount of all moneys expended and all costs
      and expenses (including reasonable attorneys' fees) incurred by the
      Secured Party in connection with or as a result of the Secured Party's
      taking action under subsection (h) or exercising its rights under Section
      6, together with interest thereon from the date expended or incurred by
      the Secured Party at the highest rate then applicable to any of the
      Obligations.

            (j) POWER OF ATTORNEY. To facilitate the Secured Party's taking
      action under subsection (h) and exercising its rights under Section 6, the
      Debtor hereby irrevocably appoints (which appointment is coupled with an
      interest) the Secured Party, or its delegate, as the attorney-in-fact of
      the Debtor 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 Debtor, any and all instruments, documents, applications,

<PAGE>


      financing statements, and other agreements and writings required to be
      obtained, executed, delivered or endorsed by the Debtor under this Section
      3, or, necessary for the Secured Party, after an Event of Default, to
      enforce or use the Patents or Trademarks or to grant or issue any
      exclusive or non-exclusive license under the Patents or Trademarks to any
      third party, or to sell, assign, transfer, pledge, encumber or otherwise
      transfer title in or dispose of the Patents or Trademarks to any third
      party. The Debtor hereby ratifies all that such attorney shall lawfully do
      or cause to be done by virtue hereof. The power of attorney granted herein
      shall terminate upon the termination of the Credit Agreement as provided
      therein and the payment and performance of all Obligations (as defined
      therein).

      4. Debtor's Use of the Patents and Trademarks. The Debtor shall be
permitted to control and manage the Patents and Trademarks, including the right
to exclude others from making, using or selling items covered by the Patents and
Trademarks and any licenses thereunder, in the same manner and with the same
effect as if this Agreement had not been entered into, so long as no Event of
Default occurs and remains uncured.

      5. Events of Default. Each of the following occurrences shall constitute
an event of default under this Agreement (herein called "Event of Default"): (a)
an Event of Default, as defined in the Credit Agreement, shall occur; or (b) the
Debtor shall fail promptly to observe or perform any covenant or agreement
herein binding on it; or (c) any of the representations or warranties contained
in Section 3 shall prove to have been incorrect in any material respect when
made.

      6. Remedies. Upon the occurrence of an Event of Default and at any time
thereafter, the Secured Party may, at its option, take any or all of the
following actions:

            (a) The Secured Party may exercise any or all remedies available
      under the Credit Agreement.

            (b) The Secured Party may sell, assign, transfer, pledge, encumber
      or otherwise dispose of the Patents and Trademarks.

            (c) The Secured Party may enforce the Patents and Trademarks and any
      licenses thereunder, and if Secured Party shall commence any suit for such
      enforcement, the Debtor shall, at the request of Secured Party, do any and
      all lawful acts and execute any and all proper documents required by
      Secured Party in aid of such enforcement.

Notwithstanding the foregoing, the Secured Party will not take any of the
foregoing actions if a third person pledges, assigns and transfers within one
(1) day after the occurrence of an Event of Default, as additional collateral to
secure the Obligations, negotiable certificates of deposit, equity securities
that are traded on any national securities exchange or on the NASDAQ National
Market System and/or cash or the equivalent, which in the aggregate have 

<PAGE>


and will continue to have a fair market value equal to or greater than the
outstanding Obligations under the Credit Agreement at the time such Event of
Default arises. Such person must execute and deliver all security agreements and
related documents and transfer possession and control of such additional
collateral as the Secured Party may request in its sole discretion, and such
additional collateral shall be in form and substance acceptable to the Secured
Party in its sole discretion.

      7. Miscellaneous. This Agreement has been duly and validly authorized by
all necessary action, corporate or otherwise. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured Party
shall not be obligated to preserve any rights the Debtor may have against prior
parties, to realize on the Patents and Trademarks at all or in any particular
manner or order, or to apply any cash proceeds of Patents and Trademarks in any
particular order of application. This Agreement shall be binding upon and inure
to the benefit of the Debtor and the Secured Party and their respective
participants, successors and assigns and shall take effect when signed by the
Debtor and delivered to the Secured Party, and the Debtor waives notice of the
Secured Party's acceptance hereof. The Secured Party may execute this Agreement
if appropriate for the purpose of filing, but the failure of the Secured Party
to execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other reproduction of
this Agreement or of any financing statement signed by the Debtor shall have the
same force and effect as the original for all purposes of a financing statement.
This Agreement shall be governed by the internal law of Minnesota without regard
to conflicts of law provisions. If any provision or application of this
Agreement is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.

<PAGE>


      THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.

      IN WITNESS WHEREOF, the parties have executed this Patent and Trademark
Security Agreement as of the date written above.

NORWEST BUSINESS CREDIT, INC.                RSI SYSTEMS, INC.


By /s/ Roger A. Pfiffner                     By /s/ Donald C. Lies
   -------------------------------              --------------------------------
   Roger A. Pfiffner                            Donald C. Lies
   Its Vice President                           Its President and
                                                Chief Executive Officer

STATE OF MINNESOTA   )
                     )
COUNTY OF HENNEPIN   )

      The foregoing instrument was acknowledged before me this 26th day of June,
1997, by Donald C. Lies, the President and Chief Executive Officer of RSI
Systems, Inc., a Minnesota corporation, on behalf of the corporation.

[SEAL]                                       /s/ Robert J. Weierman, Jr.
ROBERT J. WEIERMAN JR.                       -----------------------------------
NOTARY PUBLIC-MINNESOTA                              Notary Public
My Commission Expires Jan. 31, 2000



STATE OF MINNESOTA   )
                     )
COUNTY OF HENNEPIN   )

      The foregoing instrument was acknowledged before me this 26th day of June,
1997, by Roger A. Pfiffner, a Vice President of Norwest Business Credit, Inc., a
Minnesota corporation, on behalf of the corporation.

[SEAL]                                       /s/ Robert J. Weierman, Jr.
ROBERT J. WEIERMAN JR.                       -----------------------------------
NOTARY PUBLIC-MINNESOTA                              Notary Public
My Commission Expires Jan. 31, 2000

<PAGE>


                                    EXHIBIT A
                                    ---------
                          UNITED STATES ISSUED PATENTS
                          ----------------------------

             Title                         Patent Number           Issue Date
             -----                         -------------           ----------
Peripheral Video Conferencing Unit          Des. 370,010          May 21, 1996



                        UNITED STATES PATENT APPLICATIONS
                        ---------------------------------

                                        Patent Application
             Title                            Number             Issue Date
             -----                      ------------------       ----------
Peripheral Video Conferencing System      Application No.     September 7, 1994
                                         PCT/US95/11390



                             FOREIGN ISSUED PATENTS
                             ----------------------
            Title                   Country      Patent Number      Issue Date
            -----                   -------      -------------      ----------
Stand alone peripheral video           WO          9608110        March 14, 1996
conferencing system - allows 
communication with analogue or 
digital communications channel
and separate host computer
system

Same                                   AU          9535484           March 27,
                                                                       1996

Same                                   AU          127747          September 6,
                                                                       1996

Same                                   CA          78379            May 9, 1996

Same                                   DE        M9503539.7        July 19, 1995

Same                                   FR          952365         April 21, 1995

Same                                   GB          2046903

Same                                   JP          Pending        April 21, 1995

<PAGE>


                                    EXHIBIT B
                                    ---------
                 UNITED STATES ISSUED TRADEMARKS, SERVICE MARKS

                         AND COLLECTIVE MEMBERSHIP MARKS

                                  REGISTRATIONS
                                  -------------
          Mark                     Registration Number         Registration Date
          ----                     -------------------         -----------------
Eris                                   1,997,487               August 27, 1996


                                  APPLICATIONS
                                  ------------
          Mark                     Application Number         Registration Date
          ----                     ------------------         -----------------
Computer Free                          75-183,232              October 17, 1996

Video Airline                          75-183,056              October 17, 1996

Eris Video Flyer                       75-178,355              October 8, 1996

                           COLLECTIVE MEMBERSHIP MARKS
                           ---------------------------

                                      None

                               UNREGISTERED MARKS
                               ------------------

                                      None

<PAGE>


                          COLLATERAL ACCOUNT AGREEMENT

                                  June 26, 1997

TO:   Norwest Business Credit, Inc.
      Norwest Center
      Sixth Street and Marquette Avenue
      Minneapolis, Minnesota 55479-0152

      Re: Account No. 3974360702 maintained by Norwest Bank Minnesota,
          National Association (the "Bank")

Ladies and Gentlemen:

      RSI Systems, Inc., a Minnesota corporation (the "Client"), and the Bank
are writing to confirm that they have agreed as follows:

      1. The Client will cause all of its account debtors located outside the
United States of America to wire transfer to the referenced account (the
"Collateral Account") all payments for goods and services sold to them.

      2. The Collateral Account will be operated and maintained exclusively for
the benefit of Norwest Bank Minnesota, National Association, a national banking
association (the "Lender"). Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the Client, except
after full payment and discharge of all obligations to the Lender and
termination of all related credit facilities. The Client shall have no right to
make or countermand withdrawals from the Collateral Account.

      3. The Client hereby pledges to and grants the Lender a security interest
in all funds on deposit in the Collateral Account from time to time and all
proceeds thereof, to secure payment of all of the Client's obligations to the
Lender whether now existing or hereafter arising.

      4. After allowing two (2) days for collection of items deposited in the
Collateral Account, the Bank is authorized and agrees to transmit deposited
funds in the amount of the deposit to Norwest Bank Minnesota, National
Association for the Lender's account, account No. 6355010053. Following deposit
in the Lender's account, the Lender shall apply the amount deposited to payment
of the Borrower's obligations to the Lender.

      5. The Client may not terminate this Agreement without obtaining the
Lender's prior written consent. The Bank may not terminate this Agreement
without 60 days' prior written notice to the Lender. The Lender may terminate
this Agreement at any time, with or without cause.

<PAGE>


      6. This Agreement shall be enforceable against the Client and the Bank by
the Lender and the Lender's participants, successors and assigns. The Client and
the Bank waive notice of the Lender's acceptance hereof.

      7. This Agreement 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. This Agreement shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of Minnesota. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the District Court of
Hennepin County, Minnesota, or the United States District Court, District of
Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.



NORWEST BANK MINNESOTA,                      RSI SYSTEMS, INC.
   NATIONAL ASSOCIATION


By /s/ Signature Illegible                   By /s/ Donald C. Lies
   ---------------------------------            --------------------------------
   Its Vice President                           Donald C. Lies
                                                Its President and 
                                                Chief Executive Officer

Accepted:

NORWEST BUSINESS CREDIT, INC.


By /s/ Roger A. Pfiffner
   ---------------------------------
   Roger A. Pfiffner
   Its Vice President

<PAGE>


                         AGREEMENT AS TO LOCKBOX SERVICE

      This Agreement, dated as of June 26, 1997, is made by and among RSI
SYSTEMS, INC., a Minnesota corporation (the "Customer"), NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Secured Party"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Agent").

      The Secured Party has required the execution of this Agreement as a
condition to the Secured Party's consideration of making any advances to the
Customer under the terms of the Credit and Security Agreement of even date
herewith, by and between the Customer and the Secured Party.

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

      1. Definitions. As used in this Agreement, the following terms shall have
the meanings given to them in this paragraph:

            "Collateral" means all of the Customer's equipment, inventory,
      accounts, instruments, chattel paper, other rights to payment, money and
      general intangibles, now or hereafter acquired, together with all products
      and proceeds thereof.

            "Collateral Account" means account No. 3974360702 maintained by the
      Agent for the benefit of the Secured Party pursuant to the terms of the
      Collateral Account Agreement of even date herewith, given to the Secured
      Party by the Customer and the Agent.

            "Lockbox" means the lockbox to be administered by the Agent for the
      benefit of the Secured Party, to which the Customer shall direct account
      debtors and other persons obligated to make payments constituting
      Collateral to make such payments.

      2. Notification to Account Debtors. The address of the Lockbox shall be as
follows:

      RSI Systems, Inc. 
      NW-__________  
      P.O. Box 1450
      Minneapolis, Minnesota 55485-______

Immediately upon the execution of this Agreement, and as the Collateral is
generated in the future, the Customer shall give written notification to all
persons obligated to make payments constituting Collateral, directing them to
make such payments to the address of the Lockbox. The Customer shall not revoke
or rescind any such notification and shall not take any action inconsistent with
this Agreement. The Customer agrees to deposit any and all collections of

<PAGE>


accounts receivable and any and all other proceeds of Collateral received
directly by it in the Collateral Account.

      3. Control of Lockbox. The Lockbox shall be under the sole and exclusive
control of the Secured Party. All items in the Lockbox shall constitute proceeds
of Collateral upon their deposit therein.

      4. Delivery of Contents of Lockbox to Operations Center. Each business
day, the Agent or its authorized designees shall remove the contents of the
Lockbox and deliver them to the Agent's Operations Center in Minneapolis,
Minnesota ("Operations Center"). Every day is a business day except Saturdays,
Sundays and holidays observed by the Agent. The Agent may, at its option,
perform the services set forth in this Agreement on a day other than a business
day.

      5. Processing Contents of Lockbox. The Agent will process the mail removed
from the Lockbox ("items") and delivered to its Operations Center. Standard
processing of the items will generally include the following:

            (a) All items will be opened and inspected.

            (b) Each check will be examined for date, payee, signature,
      consistency of written and numerical amounts on the face of the check, and
      legends.

                  (i) Any check that is undated will be dated by the Agent with
            the date shown on the envelope in which it was received, and will be
            processed as if correctly dated.

                  (ii) The Agent will estimate the collection time associated
            with presenting postdated checks to the paying or payable-through
            bank (the "payor"). A postdated check will be processed if, in the
            Agent's judgment, the check will reach the payor on or after the
            date on the check; otherwise, the check will be delivered to the
            Customer with a written notice thereof sent to the Secured Party.
            Notwithstanding the foregoing, the Agent shall have no liability for
            incorrectly estimating the time it takes to present the check to the
            payor.

                  (iii) Any check whose written and numerical amounts disagree
            will be compared with the invoice or other materials with which it
            is received. If the correct amounts can be determined from the
            invoice or other material, such check will be deposited and the
            Collateral Account will be credited for what appears to be the
            correct amount; otherwise, the check will be delivered to the
            Customer with a written notice thereof sent to the Secured Party.

<PAGE>


                  (iv) A request to obtain proper signature or authority to pay
            will be stamped on any unsigned check, and such check will be
            deposited to the Collateral Account.

                  (v) If a check contains the legend "paid in full" or any other
            language that is intended to modify the Customer's contractual
            rights, or is payable to a payee other than the Customer, the check
            will be delivered to the Customer with a written notice thereof sent
            to the Secured Party. Notwithstanding the foregoing, the Agent shall
            have no liability for processing a check that contains the legend
            "paid in full" or any other language that is intended to modify the
            Customer's contractual rights.

                  (vi) Mail that does not contain any checks will be delivered
            to the Customer.

                  (vii) If the amount of any check differs from the amount of
            the invoice received in the same envelope, the amount on the invoice
            will be crossed out and the amount of the check will be inserted.

                  (viii) If a check is received without an accompanying invoice,
            any related correspondence and other material received with such
            check will be stapled to the envelope in which it is received.

                  (ix) Each business day, copies of all deposit tickets, all
            tape listings, all rejected checks, and all other instruments and
            papers referred to in this paragraph will be delivered to the
            Customer at a time and place to be separately agreed upon by the
            Agent and the Customer.

      6. Depositing Checks to the Collateral Account. For all processed checks,
other than those with respect to which Paragraph 5 provides a different
procedure, the Customer authorizes the Agent to endorse the checks and to
deposit them to the Collateral Account on the business day of receipt; provided,
however, that for this purpose checks received by the Agent at its Operations
Center after 9:00 a.m. on a business day will be deemed to have been received on
the following business day.

      7. Limitation of Liability. The Agent's and the Secured Party's liability
in connection with the performance of the transactions covered by this Agreement
shall be strictly limited as follows:

            (a) The Agent shall exercise ordinary care in selecting agents and
      independent contractors to pick up and deliver the contents of the Lockbox
      (the "Agent's Designees") but shall not be liable for loss caused by the
      Agent's Designees' negligence or misconduct. In the event of such loss,
      the Agent will exercise its best 

<PAGE>


      efforts, at the Customer's cost and expense, to assist the Customer in
      obtaining redress from the responsible party.

            (b) The Agent shall exercise its best efforts in determining the
      optimum time to pick up mail at the Lockbox and the best carrier to
      deliver that mail to its Operations Center. However, the Agent shall not
      be liable if the chosen pickup time and carrier prove not to result in the
      earliest possible availability of funds.

            (c) In performing its duties hereunder, the Agent will exercise
      ordinary care and will act in good faith. The Agent will not be
      accountable for its failure to perform any of its obligations hereunder,
      except for its gross negligence or willful misconduct, or that of its
      employees, officers, or agents. If, as a result of such gross negligence
      or willful misconduct, the Agent is liable for mishandling any item, such
      liability shall be limited to the lesser of the face amount of any check
      involved or the amount of the Customer's direct loss as a result of such
      mishandling, and in no event shall the Agent be responsible for any
      incidental or consequential damages. IN NO EVENT SHALL THE AGENT BE LIABLE
      FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSS OF PROFIT,
      NOTWITHSTANDING NOTICE TO THE AGENT OF THE POSSIBILITY OF SUCH DAMAGES OR
      LOSSES.

            (d) Neither the Secured Party nor its present, former or future
      shareholders, directors, officers, employees, agents, attorneys,
      predecessors, successors, divisions, parent, subsidiaries, affiliates,
      participants and assigns (together with the Secured Party, collectively
      the "Indemnitees") shall be liable for, and the Customer hereby assumes
      full responsibility for and agrees to indemnify and hold harmless the
      Indemnitees from and against, any and all of the Customer's or any other
      person's losses, liabilities, damages, claims, demands, causes of action,
      lawsuits, judgments, costs and expenses (including without limitation
      attorneys' fees) relating in any way to this Agreement. The foregoing
      indemnification agreement shall survive the termination of this Agreement,
      the closing of the Lockbox and the payment of the Customer's indebtedness
      to the Secured Party. IN NO EVENT SHALL THE SECURED PARTY BE LIABLE FOR
      ANY INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSS OF PROFIT, NOTWITHSTANDING
      NOTICE TO THE SECURED PARTY OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES.

      8. Fees. For the services to be provided by the Agent, the Customer will
pay the Agent in accordance with the Agent's standard rates for the services
contemplated hereby as set forth on such fee schedules as the Agent may from
time to time deliver to the Customer.

      9. Term and Termination. This Agreement shall be effective when a copy of
the Agreement executed by all parties has been delivered to the Agent. The
Customer may 

<PAGE>


not terminate this Agreement without the written consent of the Secured Party
and 30 days' written notice to the Agent. The Secured Party may terminate this
Agreement at any time, with or without cause, upon 30 days' written notice to
the other parties. The Agent may terminate this Agreement at any time, with or
without cause, upon 30 days' written notice to the Customer and the Secured
Party. The Agent may terminate this Agreement immediately upon written notice to
the Customer and the Secured Party if it in good faith believes that it is at
significant risk of loss by continuing its obligations under this Agreement.

      10. Notice. Any notice required or permitted by this Agreement shall be
deemed to have been given when mailed, postage prepaid, or when delivered to the
following address:

                  If to the Agent:

                  Norwest Bank Minnesota, National Association
                  Sixth and Marquette
                  Minneapolis, Minnesota 55479

                  Attention: /s/ Signature Illegible
                             -----------------------
                  If to the Customer:

                  RSI Systems, Inc.
                  7400 Metro Blvd.
                  Suite 475
                  Edina, Minnesota  55439
                  Attention: Donald C. Lies

                  If to the Secured Party:

                  Norwest Business Credit, Inc.
                  Norwest Center
                  Sixth Street and Marquette Avenue
                  Minneapolis, Minnesota 55479-0152
                  Attention: Roger A. Pfiffner

      11. Governing Law; Waiver of Jury Trial. This Agreement shall be governed
by and construed in accordance with the substantive laws (other than conflict
laws) of the State of Minnesota. Each party consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Agreement, waives any
argument that venue in any such forum is not convenient, and agrees that any
litigation initiated by any of them in connection with this Agreement shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States

<PAGE>


District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.

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

NORWEST BANK MINNESOTA,                      RSI SYSTEMS, INC.
   NATIONAL ASSOCIATION


By /s/ Signature Illegible                   By /s/ Donald C. Lies
   ---------------------------------            --------------------------------
   Its Vice President                           Donald C. Lies
                                                Its President and 
                                                Chief Executive Officer


NORWEST BUSINESS CREDIT, INC.

By /s/ Roger A. Pfiffner
   ---------------------------------
   Roger A. Pfiffner
   Its Vice President

<PAGE>


                              OFFICER'S CERTIFICATE

TO:   Norwest Business Credit, Inc.
      Norwest Center
      Sixth Street and Marquette Avenue
      Minneapolis, Minnesota 55479-0152

      To induce you, at your sole discretion, to make one or more loans from
time to time to RSI Systems, Inc., a Minnesota corporation (the "Borrower"), in
accordance with the Credit and Security Agreement dated June 26, 1997 between it
and you (the "Credit Agreement") and all other Loan Documents (as defined in the
Credit Agreement), I hereby represent and warrant to you, in my individual
capacity, that each and every representation and warranty set forth in Article V
of the Credit Agreement is true and correct as of the date hereof.

Dated: June 26, 1997

                                             Very truly yours,


                                                    /s/ Donald C. Lies
                                             -----------------------------------
                                                       Donald C. Lies

<PAGE>


                                SUPPORT AGREEMENT

      This Agreement, dated as of June 26, 1997, is made by Donald C. Lies (the
"Officer"), and RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"), for
the benefit of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation ("NBCI")
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
("Norwest" and together with NBCI, the "Lenders").

                                    Recitals

      NBCI and the Borrower have entered into a Credit and Security Agreement
(together with all amendments, supplements and restatements, the "NBCI Credit
Agreement") of even date herewith, pursuant to which NBCI may make revolving
advances and extend other financial accommodations to or for the benefit of the
Borrower.

      Norwest and the Borrower have entered into a Credit and Security Agreement
(together with all amendments, supplements and restatements, the "Norwest Credit
Agreement" and together with the NBCI Credit Agreement, the "Credit Agreements")
of even date herewith, pursuant to which Norwest may make revolving advances and
extend other financial accommodations to or for the benefit of the Borrower.

      The Officer is the duly elected, qualified and acting President and Chief
Executive Officer of the Borrower and is fully familiar with all of the
Borrower's business and financial affairs.

      To induce the Lenders to make advances and extend other financial
accommodations to or for the account of the Borrower under the Credit Agreements
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Officer, the Borrower and the Lenders agree
as follows:

      1. Definitions. Capitalized terms used in this Agreement which are not
defined in this Agreement have the meanings given to them in the NBCI Credit
Agreement.

      2. Officer to Dispose of Collateral. The Officer and the Borrower agree
that if (i) the Lenders come into possession of any or all of the tangible
Collateral or are collecting the Borrower's Accounts or otherwise disposing of
Collateral because an Event of Default has occurred; and (ii) the Lenders have
given notice of an acceleration of all of the obligations owed to either Lender;

            (a) if the Officer is still employed by the Borrower, the Borrower
      will, upon the Lenders' request, cause the Officer so long as he is
      employed by the Borrower, to exert his best efforts and devote reasonable
      working hours, and in any event not less than 20 hours per week, to obtain
      sales of the Collateral at the best commercially 

<PAGE>


      obtainable prices and terms and to collect the Accounts at their full face
      value to the extent commercially reasonable; and

            (b) if the Officer ceases to be employed by the Borrower or has
      ceased to be employed by the Borrower, at the Lenders' option and upon the
      Lenders' request, the Officer shall assist the Lenders as the Lenders'
      independent contractor, for a period not to exceed six months, for the
      sole purpose of disposing of the Collateral and collecting the Accounts,
      or assisting the Lenders in disposing of the Collateral and collecting the
      Accounts. During the period of such employment the Officer shall exert his
      best efforts and devote reasonable working hours, and in any event not
      less than 20 hours per week, to obtain sales of the Collateral at the best
      commercially obtainable prices and terms and to collect the Accounts at
      their full face value.

      3. Lenders' Right to Terminate Officer's Employment. The Lenders shall
have the right to terminate the Officer's employment or other assistance
described in Paragraph 2 hereof at any time on 90 days' notice, for any cause or
without cause.

      4. Officer's Compensation. The Officer's sole compensation for any
employment or assistance rendered pursuant to Paragraph 2 hereof shall be a
weekly salary paid at the same rate as the average total cash compensation (on a
weekly basis) paid to such person by the Borrower in the twelve (12) months
immediately preceding the commencement of such employment or activities. Such
compensation shall be prorated for partial weeks of service.

      5. Officer Shall Not Bind Lenders. In connection with such employment, the
Officer shall not have any authority to bind the Lenders, except such specific
authority as the Lenders may grant in writing.

      6. Lenders' Remedies Against Officer; Liquidated Damages. Until
termination pursuant to Paragraph 9, if the Officer fails to comply with the
provisions of Paragraph 2 hereof, unless such failure occurs as a result of
death or mental or physical incapacity, the Officer shall pay the Lenders an
amount equal to the lesser of (a) $50,000 or (b) the Officer's total cash
compensation for the most recently completed calendar year, as liquidated
damages, but not as a penalty, because of the difficulty of proving actual
damages for the breach of promises of the type contained herein. Such liquidated
damages shall be immediately due and payable upon the Officer's failure to
comply with the provisions of Paragraph 2 above. In addition, the Officer shall
be liable for the Lenders' costs and expenses (including reasonable attorneys'
fees and legal expenses) incurred in enforcing the liquidated damages provision.
In any event, however, the Officer shall not be liable for more than the
Lenders' actual damages (excluding consequential and punitive damages), plus the
Lenders' costs of enforcement of this Agreement.

<PAGE>


      7. Officer Remains Liable for Fraud and Misrepresentation. Notwithstanding
paragraph 9 hereof, the Officer shall hold the Lenders harmless for any actual
loss, cost, expense, claim and damage (including any reasonable attorney fees
but excluding consequential and punitive damages) arising out of fraud or
misrepresentation made by the Borrower or its agents with respect to the
Collateral or the Borrower's financial statements while the Officer is employed
by the Borrower or the Lenders. This paragraph 7 shall remain in full force and
effect so long as any obligations owed to either Lender remain outstanding or
until otherwise agreed by an amendment to this Agreement signed by the Lenders,
the Borrower and the Officer.

      8. Borrower to Find Replacement for Officer. If the Officer dies, becomes
mentally or physically incapacitated, or ceases to be employed by either Lender,
the Borrower shall obtain a replacement for the Officer and the Borrower shall
use its best efforts to cause such replacement to execute a support agreement
substantially in the form of this Agreement.

      9. Termination of Officer's Obligations. This Agreement shall remain in
full force and effect until

            (a) the Credit Agreement is no longer outstanding and all
      obligations owed to either Lender have been paid in full; or

            (b) the Officer shall have ceased to be employed by the Borrower for
      more than thirty (30) business days before the occurrence of the events
      described in clauses (i) and (ii) of Paragraph 2 hereof, and shall have
      given notice of such cessation of employment to the Lenders at least
      thirty (30) business days before the occurrence of such events.

            10. Miscellaneous. The provisions of this Agreement are declared to
      be severable. If any provision of this Agreement shall be held to be
      invalid, illegal or unenforceable, such invalidity, illegality or
      unenforceability shall not affect any other provisions of this Agreement.
      The Officer and the Borrower waive notice of the Lenders' acceptance
      hereof.

<PAGE>


            11. Governing Law; Waiver of Jury Trial. This Agreement shall be
      governed by and construed in accordance with the substantive laws (other
      than conflict laws) of the State of Minnesota. THE PARTIES WAIVE ANY RIGHT
      TO TRIAL BY JURY IN ANY CLAIM, COUNTERCLAIM, ACTION OR PROCEEDING BASED ON
      OR PERTAINING TO THIS AGREEMENT.

            IN WITNESS WHEREOF, the Officer and the Borrower have executed this
      Agreement as of the date first written above.

                                             RSI SYSTEMS, INC.

       /s/ Donald C. Lies
------------------------------------
         Donald C. Lies                      
                                             By /s/ Donald C. Lies
                                                --------------------------------
                                                Donald C. Lies
                                                Its President and 
                                                Chief Executive Officer

Accepted:

NORWEST BUSINESS CREDIT, INC.


By /s/ Roger A. Pfiffner
   ---------------------------------
   Roger A. Pfiffner
   Its Vice President



NORWEST BANK MINNESOTA, 
NATIONAL ASSOCIATION


By /s/ Christopher A. Cudak
   ---------------------------------
   Christopher A. Cudak
   Its Vice President

<PAGE>


                           ACKNOWLEDGMENT OF OWNERSHIP
                                       AND
                                 WAIVER OF LIENS
                                 (SUBCONTRACTOR)

                                  June 25, 1997

TO:  Norwest Bank Minnesota, National Association
     Norwest Center
     Sixth Street and Marquette Avenue
     Minneapolis, Minnesota 55479-0085
     Attention: Christopher A. Cudak

     Norwest Business Credit, Inc.
     Norwest Center
     Sixth Street and Marquette Avenue
     Minneapolis, Minnesota 55479-0152
     Attention: Roger A. Pfiffner

          Re:  Goods Located At:

               Altron Inc.
               6700 Industry Avenue
               Anoka, MN 55303-4595

      To induce you, Norwest Bank Minnesota, National Association and Norwest
Business Credit, Inc., at any time or from time to time to make loans or extend
financial accommodations to RSI Systems, Inc., a Minnesota corporation (the
"Owner"), and in consideration thereof, the undersigned, Altron, Inc. (the
"Subcontractor") hereby confirms and agrees that:

      1. Receipt of Goods; Notice of Security Interest. The Subcontractor has
received, and may from time to time hereafter receive, possession of goods and
inventory (the "Goods") including (without limitation):

      Parts and Components for production of ERIS and Video flyer,
      fixture to test the same.

The Goods are owned by the Owner. The Subcontractor acknowledges receipt of
notice that each of you have a security interest in the Goods.

      2. Waiver of Subcontractor's Liens. The Owner has delivered and may in the
future deliver the Goods to the Subcontractor solely to facilitate the
Subcontractor's manufacture of certain products that the Owner may order from
the Subcontractor from time 

<PAGE>


to time. The Goods are not for sale by the Subcontractor and will continue to be
owned solely and exclusively by the Owner, subject to your security interest,
and the Subcontractor does not and shall not have any interest therein or lien
or claim thereon. Without limiting the generality of the foregoing, the
Subcontractor specifically waives and releases all present and future liens,
claims and charges arising out of any improvement, repair, carriage, storage or
service to the Goods provided by the Subcontractor and each and all other
security interests, liens, claims and charges now or at any time hereafter
available to the Subcontractor with respect to the Goods.

      3. Limited Use of Goods; Covenant Not to Transfer Interest. The
Subcontractor will use the Goods solely to manufacture products to be delivered
to the Owner from time to time pursuant to purchase orders submitted to the
Subcontractor by the Owner. The Subcontractor will not use the Goods to
manufacture any other product or for any other purpose. The Subcontractor has no
right to, and will not sell, lease, create security interests in or otherwise
transfer or encumber any of the Goods. If in the course of manufacturing such
products the Subcontractor improves or makes accessions to the Goods, or
incorporates the Goods in any other goods, the Owner shall continue to own the
Goods so improved or to which accessions are made and the goods or products in
which the Goods may be incorporated, as the case may be, subject only to your
security interest therein.

      4. Identification of Goods; Financing Statements. The Subcontractor will
assure that the Goods are at all times readily identifiable and will not mix or
commingle any Goods with any property of the Subcontractor or any other person.
The Subcontractor will assure that the Goods are marked as property of the Owner
in any manner reasonably requested by the Owner or by you at any time or from
time to time. If requested by the Owner or by you, the Subcontractor will sign
financing statements under the Uniform Commercial Code describing the Goods, but
such financing statements shall not be construed as evidence of an intention
that the Subcontractor owns any interest in the Goods and, if filed, will be
filed merely to make the Owner's ownership a matter of public record.

      5. Safekeeping; Inspection. The Goods will be kept only at the address set
forth above. The Subcontractor will exercise reasonable care in storing,
processing or using the Goods and will maintain the Goods in good condition,
reasonable wear and tear excepted. Either or both of you may inspect the Goods
at any time and from time to time during business hours.

      6. Return Goods Upon Direction. The Subcontractor acknowledges that it may
keep and use the Goods solely at the sufferance of the Owner and you. Either the
Owner or either of you may at any time require the Subcontractor to return the
Goods by written notice given, mailed or telecopied to the Subcontractor at its
mailing address or telecopier number stated below, and the Subcontractor will
deliver the Goods as directed in such notice immediately upon receipt of such
notice; provided, however, that the Owner's right to the return or delivery of
the Goods shall terminate upon notice from Norwest Business Credit, Inc. to the
Subcontractor pursuant to paragraph 7 hereof. Such delivery shall not affect

<PAGE>


whatever right the Subcontractor may otherwise have to make and enforce an
unsecured claim against the Owner (but not against you) for any work performed
with respect to the Goods prior to receipt of such notice.

      7. Notice Not to Deliver Goods to Owner. At all times after your written
or oral notice given, mailed or telecopied to the Subcontractor at the mailing
address, telecopier number or telephone number stated below, the Subcontractor
shall refuse to release the Goods to or upon the instructions of the Owner or
any other person except you.

      8. No Responsibility for Owner's Debts. Both of you are interested in the
Goods solely as secured parties holding security interests therein, and neither
of you shall be responsible for any debts, liabilities or obligations of the
Owner or for any improvements, repairs, carriage, storage, or services which the
Subcontractor may provide to the Goods.

      9. Miscellaneous. This Acknowledgment is binding upon the Subcontractor
and the heirs, representatives, successors and assigns of the Subcontractor, and
may be enforced, without further act or notice of acceptance, by either of you
and your participants, successors and assigns. The agreements herein shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. Each party consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this Acknowledgment waives any
argument that venue in any such forum is not convenient, and agrees that any
litigation initiated by any of them in connection with this Acknowledgment shall
be venued in either the District Court of Hennepin County, Minnesota, or the
United States District Court, District of Minnesota, Fourth Division. THE
PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.

                                             ALTRON INC.


                                             By /s/ Alan C. Phillips
                                                --------------------------------
                                                Its President

                            Mailing Address: Altron Inc.
                                             6700 Industry Ave. NW
                                             Anoka, Minnesota 55303
                             Telecopier No.: (612) 427-3980
                              Telephone No.: (612) 427-7735

                                 OWNER'S CONSENT

      RSI Systems, Inc., a Minnesota corporation, the Owner identified in the
foregoing Acknowledgment, hereby consents to all of the terms and provisions
therein and agrees that the Subcontractor shall have no liability to the Owner
if it complies with the instructions of Norwest Bank Minnesota, National
Association and/or Norwest Business 

<PAGE>


Credit, Inc. described therein. The Owner further agrees that it will continue
to pay all fees and other expenses related to the improvement, repair, storage,
carriage or service of the Goods and will reimburse the Subcontractor for all
reasonable costs and expenses incurred as a direct result of its compliance with
the terms and provisions of the foregoing Acknowledgment. In addition, the Owner
agrees that any payments the Lenders may make to the Subcontractor pursuant to
this Acknowledgment shall constitute additional Obligations under the Credit and
Security Agreements.

                                             RSI SYSTEMS, INC.


                                             By /s/ Donald C. Lies
                                                --------------------------------
                                                Donald C. Lies
                                                Its President and 
                                                Chief Executive Officer

Accepted on June 26, 1997


NORWEST BANK MINNESOTA, 
   NATIONAL ASSOCIATION

By /s/ Christopher A. Cudak
   --------------------------------
   Christopher A. Cudak
   Its Vice President


NORWEST BUSINESS CREDIT, INC.

By /s/ Roger A. Pfiffner
   --------------------------------
     Roger A. Pfiffner
     Its Vice President

<PAGE>


                                 REVOLVING NOTE

$500,000
Minneapolis, Minnesota
                                                                   June 26, 1997

                  For value received, the undersigned, RSI SYSTEMS, INC., a
Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND, and if
demand is not sooner made, then as provided in the Credit Agreement (defined
below) to the order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Five Hundred Thousand Dollars ($500,000) or, if less, the
aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Credit and Security Agreement of even date herewith by and
between the Lender and the Borrower (as the same may hereafter be amended,
supplemented or restated from time to time, the "Credit Agreement") together
with interest on the principal amount hereunder remaining unpaid from time to
time (computed on the basis of actual days elapsed in a 360-day year) from the
date of the initial Advance until this Note is fully paid at the rate from time
to time in effect under the Credit Agreement.

                  This Note is the Revolving Note as defined in the Credit
Agreement and is subject to the Credit Agreement. 

                                            RSI SYSTEMS, INC.



                                            By 
                                               ---------------------------------
                                               Donald C. Lies
                                               Its President and Chief Executive
                                                    Officer

<PAGE>


                          CREDIT AND SECURITY AGREEMENT

                    (Eximbank Guaranteed Loan No. AP072433XX)

                            Dated as of June 26, 1997

                  RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"),
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Lender"), hereby agree as follows:

                                    ARTICLE I

                                   Definitions

                  Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:

                  "Accounts" means the aggregate unpaid obligations of customers
         and other account debtors to the Borrower arising out of the sale or
         lease of goods or rendition of services by the Borrower on an open
         account or deferred payment basis, whether now existing or hereafter
         arising.

                  "Advance" means a Revolving Advance.

                  "Affiliate" or "Affiliates" means any Person controlled by,
         controlling or under common control with the Borrower, including
         (without limitation) any subsidiary of the Borrower. For purposes of
         this definition, "control," when used with respect to any specified
         Person, means the power to direct the management and policies of such
         Person, directly or indirectly, whether through the ownership of voting
         securities, by contract or otherwise.

                  "Agreement" means this Credit and Security Agreement, as
         amended, supplemented and restated from time to time.

                  "Availability" means the Borrowing Base less the outstanding
         principal balance of the Revolving Advances.

                  "Base Rate" means the rate of interest publicly announced from
         time to time by the Lender as its "base rate" or, if such bank ceases
         to announce a rate so designated, any similar successor rate designated
         by the Lender.

                  "Book Net Worth" means the aggregate of the common and
         preferred stockholders' equity of the Borrower, determined in
         accordance with GAAP.

<PAGE>


                  "Borrower Agreement" means the Borrower Agreement of even date
         herewith by and between the Borrower and the Lender in the form
         attached hereto as Exhibit B.

                  "Borrowing Base" means, at any time and subject to change from
         time to time in the Lender's sole discretion, the least of

                  (a)      the Maximum Line; or

                  (b)      the difference of $1,000,000 and the NBCI Revolving
                           Advances; or

                  (c)      the sum of:

                           (i)      80% of Eligible Foreign Accounts; and

                           (ii)     60% of Eligible Export Inventory;

         provided, however, that the Lender and/or the Servicer may, in their
         sole discretion, establish reserves for fees which have become or may
         become due pursuant to any or all of the Borrower's license agreements
         with licensor's with whom the Lender has not entered into a License
         Acknowledgment and Agreement, in form and substance acceptable to the
         Lender.

                  "Borrowing Base Certificate" means a certificate,
         substantially in the form attached hereto as Exhibit D, executed by the
         Borrower and accepted by the Lender.

                  "Business Day" means any day on which the Federal Reserve Bank
         of New York is open for business.

                  "Closing Date" means the date of this Agreement.

                  "Collateral" has the meaning given in Section 3.1.

                  "Collateral Account" has the meaning given in the Collateral
         Account Agreement.

                  "Collateral Account Agreement" means the Collateral Account
         Agreement by and among the Borrower, Norwest Bank International New
         York Branch and the Lender of even date herewith, as the same may
         hereafter be amended, supplemented or restated from time to time.

                  "Country Limitation Schedule" shall mean 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 discretionary credit facility made
         available to the Borrower pursuant to Article II.

<PAGE>


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

                  "Default" means an event that, with giving of notice or
         passage of time or both, would constitute an Event of Default.

                  "Default Period" means any period of time beginning on the
         first day of any month during which a Default or Event of Default has
         occurred and ending on the date the Lender notifies the Borrower in
         writing that such Default or Event of Default has been cured or waived.

                  "Default Rate" means an annual rate equal to three percent
         (3%) over the Floating Rate, which rate shall change when and as the
         Floating Rate changes.

                  "Eligible Export Inventory" means all Inventory consisting of
         Items, raw materials and components to be used to manufacture or
         assemble Items, and work-in-process relating to Items, and raw
         materials and components the Borrower must purchase to manufacture or
         assemble Items, at the lower of cost or market value as determined in
         accordance with GAAP; provided, however, that the following shall not
         in any event be deemed Eligible Export Inventory:

                           (i) Inventory that is: in-transit; located at any
                  warehouse or other premises not approved by the Lender in
                  writing; located outside of the states, or localities, as
                  applicable, in which the Lender has filed financing statements
                  to perfect a first priority security interest in such
                  Inventory; covered by any negotiable or non-negotiable
                  warehouse receipt, bill of lading or other document of title;
                  on consignment from any Person; on consignment to any Person
                  or subject to any bailment;

                           (ii) Inventory consisting of proprietary software;

                           (iii) Inventory 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;

                           (iv) Inventory that is perishable or live;

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

                           (vi) Inventory that is subject to a security interest
                  in favor of any Person other than the Lender or NBCI;

                           (vii) Sample or demonstration Inventory;

<PAGE>


                           (viii) Inventory which has been previously exported
                  from the US;

                           (ix) Inventory which constitutes defense articles or
                  defense services;

                           (x) Inventory consisting of or to be incorporated
                  into Items destined for shipment to a Prohibited Country;

                           (xi) The Foreign Content portion of Items containing
                  less than fifty percent (50%) US Content;

                           (xii) For Items containing at least fifty percent
                  (50%) US Content, any Foreign Content not incorporated into
                  such Items in the US;

                           (xiii) That portion of Inventory consisting of or to
                  be incorporated into Items whose sale would result in an
                  Account deemed ineligible under clauses (ii), (viii), (x), or
                  (xi) of the definition of "Eligible Foreign Accounts"; and

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

                  "Eligible Foreign Accounts" means all Accounts owed by Account
         debtors located outside the US for the sale or provision of Items,
         except the following shall not in any event be deemed Eligible Foreign
         Accounts:

                           (i) That portion of Accounts not yet earned by the
                  final delivery of goods or rendition of services, as
                  applicable, by the Borrower to the customer;

                           (ii) That portion of Accounts not providing for
                  payment in full within 180 days of shipment date;

                           (iii) That portion of Accounts (A) over 60 days past
                  the original due date, (B) over 90 days past the original due
                  date if insured through Eximbank export credit insurance for
                  comprehensive commercial and political risk or through an
                  Eximbank approved private insurer for comparable coverage, or
                  (C) or over 180 days past shipping date;

                           (iv) Accounts owed by a shareholder, Affiliate,
                  officer or employee of the Borrower;

                           (v) Accounts owed by an account debtor that is
                  insolvent, the subject of bankruptcy proceedings or has gone
                  out of business;

                           (vi) Accounts not subject to a duly perfected
                  security interest in favor of the Lender or which are subject
                  to any lien, security interest or claim in favor of any Person
                  other than the Lender or NBCI;

                           (vii) That portion of Accounts that constitutes
                  finance charges, service charges or sales or excise taxes;

                           (viii) That portion of Accounts that is payable in a
                  currency other than US Dollars unless prior written approval
                  has been received from Eximbank;

<PAGE>


                           (ix) That portion of Accounts owed by military buyers
                  or for defense articles or services, except as may be approved
                  in writing by the Lender and Eximbank;

                           (x) That portion of Accounts due and collectible
                  outside the US;

                           (xi) That portion of Accounts owed by Account debtors
                  located in, or arising from sales of Items delivered to a
                  Prohibited Country;

                           (xii) That portion of Accounts, or portions thereof,
                  otherwise deemed uncollectible for any reason by the Lender or
                  Eximbank in its discretion.

                  "Event of Default" has the meaning specified in Section 7.1.

                  "Eximbank" means the Export-Import Bank of the United States.

                  "Export Order" means a bona fide written export order or
         contract to purchase Items from the Borrower from a customer outside
         the US.

                  "Floating Rate" means an annual rate equal to the sum of the
         Base Rate plus four percent (4%), which annual rate shall change when
         and as the Base Rate changes. 

                  "Foreign Content" means that portion of the cost of an Item
         arising from materials which are not of US origin or from labor and
         services not performed in the US.

                  "Funding Date" has the meaning given in Section 2.1.

                  "GAAP" means generally accepted accounting principles, applied
         on a basis consistent with the accounting practices applied in the
         financial statements described in Section 5.2.

                  "Inventory" means all of the Borrower's inventory, as such
         term is defined in the UCC, whether now owned or hereafter acquired.

                  "Items" means the goods and services to be sold by the
         Borrower to customers located outside the US pursuant to Export Orders.

                  "Loan Documents" means this Agreement, the Note, the Borrower
         Agreement, the Security Documents and the Disclosure by the Borrower in
         favor of the Lender of even date herewith.

                  "Master Guaranty" means that certain Master Guaranty Agreement
         No. MN-MGA-96-001, dated as of November 13, 1996, by and between the
         Lender and Eximbank.

                  "Maturity Date" means June 25, 1998.

<PAGE>


                  "Maximum Line" means $500,000.

                  "Minimum Interest Charge" has the meaning given in Section
         2.3(b).

                  "NBCI" means Norwest Business Credit, Inc., a Minnesota
         corporation.

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

                  "NBCI Credit Facility" means the credit facility extended to
         the Borrower pursuant to the NBCI Credit Agreement.

                  "NBCI Revolving Advances" means the Revolving Advances as
         defined in the NBCI Credit Agreement, or as the context requires, the
         outstanding principal balance thereof.

                  "Note" means the Revolving Note.

                  "Obligations" means each and every debt, liability and
         obligation of every type and description which the Borrower may now or
         at any time hereafter owe to the Lender, including all indebtedness
         arising under this Agreement, the Note or any other loan or credit
         agreement or guaranty between the Borrower and the Lender, whether now
         in effect or hereafter entered into.

                  "Patent and Trademark Security Agreement" means the Patent and
         Trademark Security Agreement by the Borrower in favor of the Lender and
         NBCI of even date herewith, as the same may hereafter be amended,
         supplemented or restated from time to time.

                  "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.

                  "Permitted Liens" means security interests, liens and
         encumbrances acceptable to the Lender in its sole discretion including
         without limitation those liens described on Exhibit E.

                  "Premises" means all premises where the Borrower conducts its
         business and has any rights of possession.

                  "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.

                  "Revolving Advance" has the meaning given in Section 2.1.

<PAGE>


                  "Revolving Note" means the Borrower's revolving promissory
         note, payable to the order of the Lender in substantially the form of
         Exhibit A hereto.

                  "Security Documents" means this Agreement and the Patent and
         Trademark Security Agreement, and the Collateral Account Agreement,
         each of even date herewith and by and among the Borrower, the Lender
         and Norwest Bank Minnesota, National Association.

                  "Security Interest" has the meaning given in Section 3.1.

                  "Servicer" means NBCI.

                  "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 US or entitled to be used as a credit against federal
         income tax liabilities, non-compete agreements and any other assets
         designated from time to time by the Lender, in its sole discretion.

                  "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.

                  "UCC" means the Uniform Commercial Code as in effect from time
         to time in the State of Minnesota.

                  "US" means the United States of America.

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

                                   ARTICLE II

                     Amount and Terms of the Credit Facility

                  Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances (each a "Revolving Advance") to the Borrower from time
to time from the date all of the conditions set forth in Section 4.1 are
satisfied (the "Funding Date") to the Termination Date, on the terms and subject
to the conditions herein set forth, to provide the Borrower with working capital
to fulfill Export Orders. The Lender shall not consider any request for a

<PAGE>


Revolving Advance to the extent that the amount of the requested Revolving
Advance exceeds Availability. The Borrower's obligation to pay the Revolving
Advances shall be evidenced by the Revolving Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.1, the Borrower may
request Revolving Advances, prepay, and request additional Revolving Advances.

                  Section 2.2 Requests for Advances. The Borrower shall make
each request for a Revolving Advance to the Lender before 11:00 a.m.
(Minneapolis time) of the day of the requested Revolving Advance. Requests may
be made in writing or by telephone. The Lender will not consider any request for
a Revolving Advance unless the Lender has received from the Borrower, among
other things, a Borrowing Base Certificate as of a date not more than five (5)
Business Days before the date of the requested Advance and copies of the Export
Orders (or a summary thereof) against which the Borrower is requesting such
Advance. Whenever the Borrower makes a request for an Advance based on Eligible
Export Inventory, it shall also indicate in its books and records that such
Inventory has been designated to fulfill an Export Order and shall no longer be
considered Eligible Inventory under the NBCI Credit Facility. Any request for an
Advance shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the date of the
request.

                  Section 2.3 Interest; Minimum Interest Charge; Default
Interest. All interest shall be payable monthly in arrears on the first day of
the month and on demand.

                  (a) REVOLVING NOTE. Except as set forth in subsection (c) and
         (d), the outstanding principal balance of the Advances shall bear
         interest at the Floating Rate.

                  (b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
         payable pursuant to subsections (a) and (c), the Borrower shall pay to
         the Lender interest of not less than $56,000 per calendar year during
         the term of this Agreement (prorated for less than a full year), and
         the Borrower shall pay any deficiency between such minimum interest
         charge and the amount of interest otherwise calculated under Sections
         (a) and (c) in arrears on the first day of the following calendar year,
         provided that the sum of the Minimum Interest Charge and the Minimum
         Interest Charge under the NBCI Credit Facility shall not exceed $56,000
         per calendar year.

                  (c) DEFAULT INTEREST RATE. At any time during any Default
         Period, in the Lender's sole discretion and without waiving any of its
         other rights and remedies, the principal of the Advances outstanding
         from time to time shall bear interest at the Default Rate, effective
         for any periods designated by the Lender from time to time during that
         Default Period.

                  (d) USURY. In any event no rate change shall be put into
         effect which would result in a rate greater than the highest rate
         permitted by law.

<PAGE>


                  Section 2.4 Fees.

                  (a) ORIGINATION FEE. The Borrower hereby agrees to pay the
         Lender a fully earned and non-refundable origination fee of $5,000, due
         and payable upon the execution of this Agreement, provided that the sum
         of this fee and the origination fee under the NBCI Credit Facility
         shall not exceed $10,000.

                  (b) FACILITY FEES. The Borrower hereby agrees to pay the
         Lender a fully earned and non-refundable facility fee equal to one
         percent (1.00%) of the Maximum Line, due and payable upon the execution
         of this Agreement. In addition, if the Credit Facility is renewed the
         Borrower shall pay the Lender a fee equal to one percent (1.00%) of the
         Maximum Line, due and payable 60 days in advance of the Maturity 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 $62.50 per hour per auditor),
         together with all actual out-of-pocket costs and expenses incurred in
         conducting any such audit or inspection; provided that so long as NBCI
         is the Servicer the Borrower shall not have to reimburse such costs and
         expenses to the extent it has already done so pursuant to the NBCI
         Credit Facility.

                  Section 2.5 Discretionary Nature of Credit Facility. THE
LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN ADVANCE AND/OR
DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT WHETHER BORROWER IS
OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need not show that an
adverse change has occurred in the Borrower's condition, financial or otherwise,
in order to refuse to make any requested Advance or to demand payment of the
Advances. Unless terminated by the Lender at any time or by the Borrower
pursuant to Section 2.6, this Agreement shall remain in effect until the
Maturity Date.

                  Section 2.6 Termination by Borrower. The Borrower may
terminate this Agreement at any time and, subject to payment and performance of
all Obligations, may obtain any release or termination of the Security Interest
to which the Borrower is otherwise entitled by law by: (i) giving at least 30
days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement, and (ii) terminating the NBCI Credit Agreement
pursuant to the terms thereof.

                  Section 2.7 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.

<PAGE>


                  Section 2.8 Advances Without Request. The Borrower hereby
authorizes the Lender, in its discretion, at any time or from time to time
without the Borrower's request, to make Revolving Advances to pay accrued
interest, fees, uncollected items that have been applied to the Obligations, and
other Obligations due and payable from time to time.

                  Section 2.9 Use of Proceeds. The Borrower shall use the
proceeds of Advances for working capital to finance the manufacture, assembly,
production or purchase and subsequent sale of Items only. Without limiting the
generality of the foregoing, the Borrower shall not use any proceeds of Advances
for any purpose prohibited by the Borrower Agreement or (i) to acquire fixed
assets or capital goods for use in the Borrower's business; (ii) to acquire,
equip or rent commercial space overseas; (iii) to employ non-US residents in
offices outside the US; (iv) to serve as a retainage or warranty bond; or (v) to
repay pre-existing Debt or future indebtedness of the Borrower unrelated to the
Advances.

                  Section 2.10 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, the provision that is the more stringent
on the Borrower shall control.

                                   ARTICLE III

                                Security Interest

                  Section 3.1 Grant of Security Interest. The Borrower hereby
grants to the Lender a security interest (the "Security Interest") in the
following collateral (the "Collateral"), as security for the payment and
performance of the Obligations:

         INVENTORY: All inventory of the Borrower, as such term is defined in
         the UCC, whether now owned or hereafter acquired, whether consisting of
         whole goods, spare parts or components, supplies or materials, whether
         acquired, held or furnished for sale, for lease or under service
         contracts or for manufacture or processing, and wherever located;

         ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of 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

<PAGE>


         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 all of the Borrower's rights to payment in the
         form of all present and future accounts, contract rights, loans and
         obligations receivable, chattel papers, bonds, notes and other debt
         instruments, tax refunds and rights to payment in the nature of general
         intangibles;

         EQUIPMENT: All of the Borrower's equipment, as such term is defined in
         the UCC whether now or hereafter owned, including all present and
         future machinery, vehicles, furniture, fixtures, manufacturing
         equipment, shop equipment, office and recordkeeping equipment, parts,
         tools, supplies, and including specifically the goods described in any
         equipment schedule or list herewith or hereafter furnished to the
         Lender by the Borrower;

         GENERAL INTANGIBLES: All of the Borrower's general intangibles, as such
         term is defined in the UCC, whether now owned or hereafter acquired,
         including all present and future contract rights, patents, patent
         applications, copyrights, trademarks, trade names, trade secrets,
         customer or supplier lists and contracts, manuals, operating
         instructions, permits, franchises, the right to use the Borrower's
         name, and the goodwill of the Borrower's business; and

         INVESTMENT PROPERTY: All of the Borrower's investment property, as such
         term is defined in the UCC, whether now owned or hereafter acquired,
         including but not limited to all securities, security entitlements,
         securities accounts, commodity contracts, commodity accounts, stocks,
         bonds, mutual fund shares, money market shares and U.S. Government
         securities;

         together with all substitutions and replacements for and products of
         any of the foregoing property and together with proceeds of any and all
         of the foregoing property and, in the case of all tangible property,
         together with all accessions and together with (i) all accessories,
         attachments, parts, equipment and repairs now or hereafter attached or
         affixed to or used in connection with any such goods, and (ii) all
         warehouse receipts, bills of lading and other documents of title now or
         hereafter covering such goods.

                  Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (either before or after the occurrence of
an Event of Default) notify any account debtor or other Person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, as the Borrower's agent and attorney-in-fact,
notify the US Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the

<PAGE>


Lender, otherwise intercept the Borrower's mail, and receive, open and dispose
of the Borrower's mail, applying all Collateral as permitted under this
Agreement and holding all other mail for the Borrower's account or forwarding
such mail to the Borrower's last known address.

                  Section 3.3 Occupancy.

                  (a) The Borrower hereby irrevocably grants to the Lender the
         right to take possession of each premises where Borrower conducts its
         business and has any rights of possession (the "Premises") at any time
         during any Default Period.

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

                  (c) The Lender's right to hold the Premises shall terminate
         upon the earlier of payment in full of all Obligations and termination
         of the Commitment, or final sale or disposition of all goods
         constituting Collateral and delivery of all such goods to purchasers.

                  (d) The Lender shall not be obligated to pay or account for
         any rent or other compensation for the possession or use of any of the
         Premises; provided, however, that if the Lender does pay or account for
         any rent or other compensation for the possession or use of any of the
         Premises, the Borrower shall reimburse the Lender promptly for the full
         amount thereof.

                  Section 3.4 License. Without limiting the generality of the
Patent and Trademark Security Agreement, the Borrower hereby grants to the
Lender a non-exclusive, worldwide and royalty-free license to use, sub-license
or otherwise exploit all trademarks, franchises, trade names, copyrights and
patents of the Borrower for the purpose of selling, leasing or otherwise
disposing of any or all Collateral following an Event of Default.

                  Section 3.5 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.

                                   ARTICLE IV

                              Conditions of Lending

                  Section 4.1 Conditions Precedent to Lender's Willingness to
Consider Making the Initial Revolving Advance. The Lender's willingness to
consider making the initial Revolving Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:

<PAGE>


                  (a) This Agreement, properly executed by the Borrower.

                  (b) The Note, properly executed by the Borrower.

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

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

                  (e) A properly completed and executed Borrowing Base
         Certificate as of a date not more than five (5) Business Days before
         the date of this Agreement.

                  (f) An Exceptions Approval Letter, properly signed by
         Eximbank.

                  (g) A participation and servicing agreement, properly signed
         by the Servicer.

                  (h) Copies of the Borrower's audited financial statements with
         full disclosure for the last three (3) fiscal years.

                  (i) Copies of the Borrower's federal tax returns for the last
         year together with all schedules thereto.

                  (j) 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 in favor of the
         Lender and NBCI.

                  (k) A true and correct copy of any and all agreements pursuant
         to which the Borrower's property is in the possession of any Person
         other than the Borrower, together with, in the case of any goods held
         by such Person for resale, (i) a consignee's acknowledgment and waiver
         of liens, (ii) UCC financing statements sufficient to protect the
         Borrower's and the Lender's interests in such goods, and (iii) UCC
         searches showing that no other secured party has filed a financing
         statement against such Person and covering property similar to the
         Borrower's other than the Borrower, or if there exists any such secured
         party, evidence that each such secured party has received notice from
         the Borrower and the Lender sufficient to protect the Borrower's and
         the Lender's interests in the Borrower's goods from any claim by such
         secured party.

                  (l) An acknowledgment and waiver of liens from each warehouse
         in which the Borrower is storing Inventory in favor of the Lender and
         NBCI.

                  (m) A true and correct copy of any and all agreements pursuant
         to which the Borrower's property is in the possession of any Person
         other than the Borrower, together with, (i) an acknowledgment and
         waiver of liens from each subcontractor

<PAGE>


         who has possession of the Borrower's goods from time to time, (ii) UCC
         financing statements sufficient to protect the Borrower's and the
         Lender's interests in such goods, and (iii) UCC searches showing that
         no other secured party has filed a financing statement covering such
         Person's property other than the Borrower, or if there exists any such
         secured party, evidence that each such secured party has received
         notice from the Borrower and the Lender sufficient to protect the
         Borrower's and the Lender's interests in the Borrower's goods from any
         claim by such secured party.

                  (n) An acknowledgment and agreement from each licensor in
         favor of the Lender, together with a true, correct and complete copy of
         all license agreements in favor of the Lender and NBCI.

                  (o) The Collateral Account Agreement, properly executed by the
         Borrower.

                  (p) The Patent and Trademark Security Agreement, properly
         executed by the Borrower.

                  (q) Current searches of appropriate filing offices showing
         that (i) no state or federal tax liens have been filed and remain in
         effect against the Borrower, (ii) no financing statements or
         assignments of patents, trademarks or copyrights have been filed and
         remain in effect against the Borrower except those financing statements
         and assignments of patents, trademarks or copyrights relating to
         Permitted Liens or to liens held by Persons who have agreed in writing
         that upon receipt of proceeds of the Advances, they will deliver UCC
         releases and/or terminations and releases of such assignments of
         patents, trademarks or copyrights satisfactory to the Lender, and (iii)
         the Lender has duly filed all financing statements necessary to perfect
         the Security Interest, to the extent the Security Interest is capable
         of being perfected by filing.

                  (r) 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 Advance requests, on the Borrower's behalf.

                  (s) A current certificate issued by the Secretary of State of
         Minnesota, certifying that the Borrower is in compliance with all
         applicable organizational requirements of the State of Minnesota.

                  (t) Evidence that the Borrower is duly licensed or qualified
         to transact business in all jurisdictions where the character of the
         property owned or leased or the nature of the business transacted by it
         makes such licensing or qualification necessary.

<PAGE>


                  (u) A certificate of an officer of the Borrower confirming, in
         his personal capacity, the representations and warranties set forth in
         the Disclosure by the Borrower of even date herewith.

                  (v) A support agreement in favor of the Lender and NBCI,
         properly executed by Donald C. Lies, the Borrower's President and Chief
         Executive Officer, in his personal capacity.

                  (w) An opinion of counsel to the Borrower, addressed to the
         Lender.

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

                  (y) Payment of the fees and commissions due through the date
         of the initial Advance and expenses incurred by the Lender through such
         date and required to be paid by the Borrower under Section 8.3,
         including all legal expenses incurred through the Closing Date.

                  (z) Such other documents as the Lender in its sole discretion
         may require.

                  Section 4.2 Conditions Precedent to All Advances. The Lender
will not consider any request for an Advance unless on such date:

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

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

                                    ARTICLE V

                         Representations and Warranties

                  The Borrower represents and warrants to the Lender as follows:

                  Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During
its existence, the Borrower has done business solely under its corporate name as
set forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The

<PAGE>


Borrower has no subsidiaries except as disclosed to Lender in writing before
this Agreement is signed and delivered.

                  Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender its
audited financial statements for its fiscal year ended June 30, 1996 and its
unaudited financial statements for the fiscal year to day ending March 31, 1997,
each certified by the Borrower. Those statements fairly present the Borrower's
financial condition as of the dates indicated therein and the results of its
operations for the periods then ended and were prepared in accordance with GAAP.
Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.

                  Section 5.3. Suspension and Debarment, etc. On the date of
this Agreement neither the Borrower nor any of its Principals (as defined below)
are (A) debarred, suspended, proposed for debarment with a final determination
skill 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 5.3 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.

<PAGE>


                                   ARTICLE VI

                            Covenants of the Borrower

                  So long as the Advances or any amount owing to Lender
hereunder shall remain unpaid, the Borrower will comply with the requirements in
this Article, unless the Lender shall otherwise consent in writing.

                  Section 6.1 Reporting Requirements. The Borrower will deliver
to the Lender each of the following in form and detail acceptable to the Lender:

                  (a) as soon as available, and in any event within 90 days
         after the end of each fiscal year of the Borrower, the Borrower's
         audited financial statements prepared in accordance with GAAP; together
         with (i) copies of all management letters prepared by such
         accountants; (ii) a report signed by such accountants stating that in
         making the investigations necessary for said opinion they obtained no
         knowledge, except as specifically stated, of any Default or Event of
         Default hereunder and all relevant facts in reasonable detail to
         evidence, and the computations as to, whether or not the Borrower is in
         compliance with the requirements set forth in Section 6.8 and (iii) a
         certificate of the Borrower's chief financial officer stating that such
         financial statements have been prepared in accordance with GAAP, that
         they fairly present the Borrower's financial condition and the results
         of its operations, and whether or not such officer has knowledge of the
         occurrence of any Default or Event of Default hereunder and, if so,
         stating in reasonable detail the facts with respect thereto;

                  (b) as soon as available and in any event within 20 days
         after the end of each month, an unaudited/internal balance sheet and
         statement of income and retained earnings of the Borrower as at the end
         of and for such month and for the year to date period then ended,
         prepared in accordance with GAAP, subject to year-end audit
         adjustments; and accompanied by a certificate of the Borrower's chief
         financial officer, substantially in the form of Exhibit C hereto
         stating (i) that such financial statements have been prepared in
         accordance with GAAP subject to year-end audit adjustments, and fairly
         represent the Borrower's financial condition and the results of its
         operations, (ii) whether or not such officer has knowledge of the
         occurrence of any Default or Event of Default hereunder not theretofore
         reported and remedied and, if so, stating in reasonable detail the
         facts with respect thereto, and (iii) all relevant facts in reasonable
         detail to evidence, and the computations as to, whether or not the
         Borrower is in compliance with the requirements set forth in Section
         6.8;

                  (c) as soon as available and in any event within five (5)
         Business Days after the end of each month, a properly completed
         Borrowing Base Certificate as at the end of such month, signed by the
         Borrower's chief financial officer;

<PAGE>


                  (d) as soon as available and in any event within five (5)
         Business Days after the end of each month inventory certifications as
         at the end of such month;

                  (e) within five (5) Business Days after the end of each month,
         agings of the Borrower's accounts receivable and accounts payable and
         an accounts receivable certification as of the end of such month;

                  (f) at least 30 days before the beginning of each fiscal year
         of the Borrower, the projected balance sheets and income statements for
         each month of such year, each in reasonable detail, representing the
         Borrower's good faith projections and certified by the Borrower's chief
         financial officer as being the most accurate projections available and
         identical to the projections used by the Borrower for internal planning
         purposes, together with such supporting schedules and information as
         the Lender may in its discretion require;

                  (g) as soon as available and in any event within 15 days of
         receipt thereof, a copy of the checking account statement of the
         Borrower as of the last day of each month from each bank with which
         Borrower maintains a checking account, such statements to be provided
         to the Lender directly by each such bank or by the Borrower with
         respect to a bank that is unwilling to send them to the Lender;

                  (h) as soon as available and in any event within three (3)
         days after they are due, copies of tax payments due and paid and
         written notice of any and all taxes due but not paid;

                  (i) from time to time, with reasonable promptness, any and all
         receivables schedules, collection reports, deposit records, equipment
         schedules, copies of invoices to account debtors, shipment documents
         and delivery receipts for goods sold, and such other material, reports,
         records or information as the Lender may request.

                  (j) promptly upon knowledge thereof, notice of any Items (and
         the corresponding invoice amount) which are articles, services, or
         related technical data that are listed on the United States Munitions
         List (part 121 of title 22 of the Code of Federal Regulations);

                  (k) immediately after a proceeding in bankruptcy or an action
         for debtor's relief is filed by, against, or on behalf of the Borrower;

                  (l) immediately after the Borrower fails to obtain the
         dismissal or termination within thirty (30) calendar days of the
         commencement of any proceeding or action referred to in (k) above; and

                  (m) immediately after the Borrower begins any procedure for
         its dissolution or liquidation, or a procedure therefor has been
         commenced against it.

<PAGE>


So long as the Servicer is actively servicing the Loan Documents on behalf of
the Lender as described in Section 8.2, the Borrower shall provide to the
Servicer all reports required under this Section 6.1.

                  Section 6.2 Inspection. Upon the Lender's request, the
Borrower will permit any officer, employee, attorney, agent or accountant for
the Lender to audit, review, make extracts from or copy any and all records of
the Borrower and to inspect the Collateral at all times during ordinary business
hours.

                  Section 6.3 Account Verification. The Lender may at any time
and from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to verify Accounts as frequently as
daily and the Borrower understands the Lender intends to do so by telephone
and/or in writing.

                  Section 6.4 Account Debtors to Pay to Designated Account;
Pledge of Account. The Borrower shall instruct all of its Account debtors
located outside the US to make all payments for Items directly to the Collateral
Account.

                  Section 6.5 No Other Liens. The Borrower will keep all
Collateral free and clear of all security interests, liens and encumbrances
except the Security Interest, the Permitted Liens, purchase money security
interests in equipment, and other security interests approved by the Lender in
writing.

                  Section 6.6 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.

                  Section 6.7 Collateral Account. The Borrower has provided the
Lender with agreements regarding a collateral account in connection with the
collection of Accounts.

                  Section 6.8 Minimum Tangible Net Worth. The Borrower will
maintain its Tangible Net Worth, determined as at the end of each month, at an
amount not less than $350,000.

                  Section 6.9 No Sale or Transfer of Collateral and Other
Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to anyone other than the sale of
Inventory in the ordinary course of business.

                  Section 6.10 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or

<PAGE>


acquire (in a transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all the assets of any other Person.

                  Section 6.11 Place of Business; Name. The Borrower will not
change the location of its chief executive office or principal place of business
from that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.

                                   ARTICLE VII

                     Events of Default, Rights and Remedies

                  Section 7.1 Events of Default. Notwithstanding that the Lender
may demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, and without waiving or limiting in any respect the
Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it would demand immediate payment of
the Obligations and exercise its remedies. "Event of Default", wherever used
herein, means any one of the following events:

                  (a) Default in the payment of the Obligations on demand or on
         any portion of the Obligations that otherwise becomes due and payable;

                  (b) Any payment default shall occur under any agreement (other
         than this Agreement) between the Borrower and the Lender, or the Lender
         shall accelerate or demand payment of any obligations (other than
         arising under this Agreement) owed to it by the Borrower, or the Lender
         shall begin exercising its remedies against the Borrower;

                  (c) Any payment default shall occur under any agreement
         between the Borrower and the Servicer, or the Servicer shall accelerate
         or demand payment of any obligations owed to it by the Borrower, or the
         Servicer shall begin exercising its remedies against the Borrower;

                  (d) Eximbank shall repudiate, purport to revoke or fail to
         perform its obligations under the Master Guaranty;

                  (e) Any material litigation is commenced against the Borrower
         and is not withdrawn within thirty (30) calendar days of filing;

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

<PAGE>


                  (g) The Borrower begins any procedure for its liquidation or
         dissolution or any such procedure is commenced against it; or

                  (h) Default in the performance, or breach, of any covenant or
         agreement of the Borrower contained in any Loan Document not
         specifically addressed in this Section 7.1, which shall remain uncured
         for 30 days after notice from the Lender.

                  Section 7.2 Rights and Remedies. As provided in Section 2.5,
the Lender may, at any time, refuse to make any requested Advance, demand
payment of the Advances or terminate the Credit Facility, whether or not a
Default Period then exists. In addition, during any Default Period, the Lender
may exercise any or all of the following rights and remedies:

                  (a) The Lender may exercise and enforce any and all rights and
         remedies available upon default to a secured party under the UCC,
         including the right to take possession of Collateral, or any evidence
         thereof, proceeding without judicial process or by judicial process
         (without a prior hearing or notice thereof, which the Borrower hereby
         expressly waives) and the right to sell, lease or otherwise dispose of
         any or all of the Collateral, and in connection therewith, the Borrower
         will on demand assemble the Collateral and make it available to the
         Lender at a place to be designated by the Lender which is reasonably
         convenient to both parties;

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

The remedies provided hereunder are cumulative.

                  Section 7.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.1) at least 10
calendar days before the date of intended disposition or other action.

                                  ARTICLE VIII

                                  Miscellaneous

                  Section 8.1 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class US mail, (iii) sent by overnight
courier of national reputation, or (iv) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.

<PAGE>


                  Section 8.2 Servicing of Credit Facility.

                  (a) The Lender has requested that the Servicer service and
         enforce the Loan Documents, make all Advances and collect all
         Obligations on the Lender's behalf and the Servicer has agreed to do
         so. The Borrower acknowledges and accepts the Servicer's appointment as
         such.

                  (b) The Servicer shall have no duties or responsibilities to
         the Borrower hereunder, but only to the Lender. Neither the Servicer
         nor any of its officers, directors, employees or agents shall be liable
         for any action taken or omitted by them hereunder or in connection
         herewith, unless caused by its or their willful misconduct. The
         Servicer's duties shall be mechanical and administrative in nature;
         nothing in this Agreement, express or implied, is intended to or shall
         be so construed as to impose upon the Servicer any obligations with
         respect to the Loan Documents except as expressly set forth herein. The
         Borrower shall not in any way be construed to be a third party
         beneficiary of any relationship between the Servicer and the Lender.

                  (c) The Servicer shall be entitled to rely, and shall be fully
         protected in relying, upon any communication whether written or oral
         believed by it to be genuine and correct and to have been signed, sent
         or made by the proper Person, and, with respect to all legal matters
         pertaining to this Agreement and its duties hereunder, upon advice of
         counsel selected by it.

                  (d) The Borrower shall be entitled to rely upon any
         communication whether written or oral sent or made by the Servicer for
         and on behalf of the Lender with respect to all matters pertaining to
         the Loan Documents and the Borrower's duties and obligations hereunder,
         unless and until the Borrower receives written notice from the Lender
         that the Servicer is no longer servicing this credit facility.

                  (e) The Servicer shall hold and be the custodian of the Loan
         Documents on the Lender's behalf for so long as the Servicer is
         servicing the Credit Facility.

                  Section 8.3 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents and any other document or agreement related
thereto, and the transactions contemplated hereby, including wire transfer and
ACH charges, the cost of credit reports, overadvance fees, the expense of any
auditors and fees and expenses in enforcing this Agreement.

                  Section 8.4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and

<PAGE>


agents of the foregoing (the "Indemnitees") from and against any of the
following (collectively, "Indemnified Liabilities"):

                           (i) any and all transfer taxes, documentary taxes,
                  assessments or charges made by any governmental authority by
                  reason of the execution and delivery of this Agreement and the
                  other Loan Documents or the making of the Advances; 

                           (ii) any and all liabilities, losses, damages,
                  penalties, judgments, suits, claims, costs and expenses of any
                  kind or nature whatsoever (including, without limitation, the
                  reasonable fees and disbursements of counsel) in connection
                  with any investigative, administrative or judicial
                  proceedings, whether or not such Indemnitee shall be
                  designated a party thereto, which may be imposed on, incurred
                  by or asserted against any such Indemnitee, in any manner
                  related to or arising out of or in connection with the making
                  of the Advances, this Agreement and the other Loan Documents
                  or the use or intended use of the proceeds of the Advances;
                  and

                           (iii) any claim, loss or damage to which any
                  Indemnitee may be subjected as a result of any violation of
                  any federal, state, local or other governmental statute,
                  regulation, law, or ordinance dealing with the protection of
                  human health and the environment.

         If any investigative, judicial or administrative proceeding arising
from any of the foregoing is brought against any Indemnitee, then the Borrower
or counsel designated by the Borrower and satisfactory to the Indemnitee, will
resist and defend such action, suit or proceeding to the extent and in the
manner directed by the Indemnitee. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The Borrower's obligation under this Section 8.4 shall survive the termination
of this Agreement and the discharge of the Borrower's other obligations
hereunder. If Eximbank makes payment of a claim to the Lender under the Master
Guaranty in connection with the Credit Facility, Eximbank shall be assigned all
the Lender's rights and remedies under the Loan Documents and may enforce any
such rights or remedies against the Borrower and the Collateral. Additionally,
the Borrower shall hold Eximbank harmless from agrees to indemnify it against
any and all liabilities, damages, claims, costs and losses incurred or suffered
by it resulting from (a) any materially incorrect certification or statement
knowingly made by or on behalf of the Borrower to Eximbank or the Lender in
connection with an Advance , this Agreement or any of the other Loan Documents
or (b) any breach by the Borrower of the terms and conditions of this Agreement
or any of the other Loan Documents.

<PAGE>


                  Section 8.5 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.

<PAGE>


                  Section 8.6 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of Hennepin
County, Minnesota located in Minneapolis, Minnesota, or the United States
District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.

                  IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.


NORWEST BANK MINNESOTA, NATIONAL          RSI SYSTEMS, INC.
  ASSOCIATION

By /s/ Christopher A. Cudak               By /s/ Donald C. Lies
   -----------------------------------       -----------------------------------
   Christopher A. Cudak                      Donald C. Lies
   Its Vice President                        Its President and Chief Executive
                                             Officer


Address:                                  Address:

Norwest Center                            7400 Metro Blvd.
Sixth Street and Marquette Avenue         Suite 475
Minneapolis, Minnesota 55479-0085         Edina, Minnesota  55439

Telecopy No. 612/667-2269                 Telecopy No. (612) 896-3030

Federal Tax ID No. 41-1592157             Federal Tax I.D. No. 41-1767211

<PAGE>


                                                Exhibit A to Credit and Security
                                                Agreement

                                 REVOLVING NOTE

$500,000                                                  Minneapolis, Minnesota
                                                                   June 26, 1997

         For value received, the undersigned, RSI SYSTEMS, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay ON DEMAND, and if demand is
not sooner made, then as provided in the Credit Agreement (defined below) to the
order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association (the "Lender"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Five Hundred Thousand Dollars ($500,000) or, if less, the aggregate
unpaid principal amount of all Advances made by the Lender to the Borrower under
the Credit and Security Agreement of even date herewith by and between the
Lender and the Borrower (as the same may hereafter be amended, supplemented or
restated from time to time, the "Credit Agreement") together with interest on
the principal amount hereunder remaining unpaid from time to time (computed on
the basis of actual days elapsed in a 360-day year) from the date of the initial
Advance until this Note is fully paid at the rate from time to time in effect
under the Credit Agreement.

         This Note is the Revolving Note as defined in the Credit Agreement and
is subject to the Credit Agreement.

                                    RSI SYSTEMS, INC.

                                    By _________________________________________
                                       Donald C. Lies
                                       Its President and Chief Executive Officer

<PAGE>


                                                         Exhibit B to Credit and
                                                              Security Agreement


                     EXPORT-IMPORT BANK OF THE UNITED STATES
                        WORKING CAPITAL GUARANTEE PROGRAM
                               BORROWER AGREEMENT

         THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by
RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"), and is acknowledged
by NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Lender").

                                    RECITALS

         A. The Lender shall make a loan (the "Loan") to the Borrower for the
purpose of providing the Borrower with pre-export working capital to finance the
manufacture, production or purchase and subsequent export sale of the Items (as
hereinafter defined).

         B. The Loan shall be in a principal amount (the "Loan Amount") not to
exceed at any time outstanding the amount specified in Section (5)(A) of the
Loan Authorization Agreement between the Lender and the Export-Import Bank of
the United States ("Eximbank") which is attached hereto as Exhibit A and
incorporated herein as a part of this Agreement. If the Loan is being made
pursuant to the Lender's Delegated Authority from Eximbank, all references
herein to the Loan Authorization Agreement shall be deemed to be to the Loan
Authorization Notice provided to Eximbank and the Borrower by the Lender.

         C. The Loan shall be evidenced by a valid and enforceable promissory
note payable by the Borrower to the order of the Lender (the "Note") and shall
be made pursuant to a written agreement related solely thereto between the
Borrower and the Lender (the "Loan Agreement").

         D. A condition precedent to the making of the Loan by the Lender is
that Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount
and all interest accrued thereon, subject to the terms and conditions of a
master guarantee agreement (the "Master Guarantee Agreement") between Eximbank
and the Lender.

         E. In consideration for and as a condition precedent to the Lender's
making the Loan and Eximbank's entering into the Master Guarantee Agreement, the
Borrower shall execute this Agreement for the benefit of the Lender and
Eximbank.

<PAGE>


          NOW, THEREFORE, the Borrower hereby agrees as follows:

                                    ARTICLE I

                                   DEFINITIONS

          "Accounts Receivable" shall mean those trade accounts from the sale of
the Items due and payable to the Borrower in the United States and any notes,
drafts, letters of credit or insurance proceeds supporting payment thereof.

          "Availability Date" shall mean the last date on which the Lender may
make a Disbursement as set forth in Section (10) of the Loan Authorization
Agreement or, if such date is not a Business Day, the next Business Day
thereafter.

          "Borrowing Base" shall mean the Collateral Value as discounted by the
applicable Disbursement Rate(s).

          "Borrowing Base Certificate" shall mean the certificate in form
provided by the Lender and executed by the Borrower setting forth the Borrowing
Base supporting one or more Disbursements.

          "Business Day" shall mean any day on which the Federal Reserve Bank of
New York is open for business.

          "Buyer" shall mean an entity which has entered into one or more Export
Orders with the Borrower.

          "Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.

          "Collateral" shall mean the property of the Borrower in which the
Borrower has granted to the Lender a valid and enforceable security interest as
security for the payment of all principal and interest due under the Loan, and
which is identified in Section (6) of the Loan Authorization Agreement,
including all proceeds (cash and non-cash) thereof.

           "Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in Section
(5)(C) of the Loan Authorization Agreement, valued according to GAAP.

          "Country Limitation Schedule" shall mean 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.

          "Debarment Regulations" shall have the meaning set forth in Section
2.16.

<PAGE>


          "Disbursed Amount" shall mean the aggregate outstanding amount of the
Disbursements.

          "Disbursement" shall mean an advance of the Loan from the Lender to
the Borrower under the Loan Agreement.

          "Disbursement Rate" shall mean the rate specified in Section (5)(C) of
the Loan Authorization Agreement for each category of Collateral.

          "Dollars" or "$" shall mean the lawful money of the United States of
America.

          "Export Order" shall mean a written export order or contract for the
purchase by the Buyer from the Borrower of any of the Items.

          "GAAP" shall mean the generally accepted accounting principles issued
by the American Institute of Certified Public Accountants.

          "Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee (jointly and
severally if more than one) the Borrower's obligation to repay all amounts
outstanding under the Note.

          "Inventory" shall mean the raw materials, work-in-process and finished
goods purchased or manufactured by the Borrower for resale and located in the
United States.

          "Items" shall mean the finished goods or services which are intended
for export, as specified in Section (4)(A) of the Loan Authorization Agreement.

          "Letter of Credit" shall mean an irrevocable letter of credit subject
to UCP 500, payable in the United States or at the issuing bank and issued
either: (i) for the benefit of the Borrower on behalf of a Buyer in connection
with the purchase of the Items; or (ii) for the benefit of United States
supplier(s) on behalf of the Borrower in connection with the purchase of goods
or services from the supplier by the Borrower, which purchase is in support of
the export sales financed under the Loan.

          "Loan Documents" shall mean the Note, the Loan Agreement, this
Agreement and any other instrument, agreement or document previously,
simultaneously or hereafter executed by the Borrower or any Guarantors
evidencing, securing, guaranteeing or in connection with the Loan.

          "Principals" shall have the meaning set forth in Section 2.16.

          "Revolving Loan" shall mean a Loan under which amounts disbursed and
repaid may be disbursed on a continuous basis during the term of the Loan.

          "Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.

<PAGE>


          "U.S." or "United States" shall mean the United States of America and
its territorial possessions.

          "U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and which are
incorporated into an Item in the United States

                                   ARTICLE II

                           OBLIGATIONS OF THE BORROWER

          Until payment in full of the Loan, the Borrower agrees to the
following:

          Section 2.1 Use of Disbursements. The Borrower shall use Disbursements
only for the purpose of enabling the Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. The Borrower may not
use Disbursements for the purpose of: (a) servicing any of the Borrower's
pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed
assets or capital goods for use in the Borrower's business; (c) acquiring,
equipping or renting commercial space outside of the United States; (d) paying
the salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in offices outside the United States; or (e) serving as a retainage or
warranty bond.

          In addition, Disbursements may not be used to finance the manufacture,
purchase or sale of any of the following:

          (a) Items to be sold to a Buyer located in a country in which Eximbank
is legally prohibited from doing business as designated in the Country
Limitation Schedule;

          (b) that part of the cost of the Items which is not U.S. Content
unless such part is not greater than fifty percent (50%) of the cost of the
Items and is incorporated into the Items in the United States;

          (c) defense articles or defense services; or

          (d) without Eximbank's prior written consent, any Items to be used in
the construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water Production facilities.

          Section 2.2 Borrowing Base Certificates and Export Orders. In order to
receive a Disbursement under the Loan, the Borrower shall deliver to the Lender
a Borrowing Base Certificate current within the past five (5) Business Days and
a copy of the Export Order(s) (or, for Revolving Loans, if permitted by the
Lender, a written summary of the Export Orders) against which the Borrower is
requesting a Disbursement. If the Lender permits summaries of Export Orders, the
Borrower shall also deliver promptly to the Lender copies of any Export Orders
requested by the Lender. Additionally, the Borrower shall deliver to the Lender
at least

<PAGE>


once every thirty (30) calendar days a Borrowing Base Certificate current within
the past five (5) Business Days, which requirement may be satisfied by
submission of a Borrowing Base Certificate when requesting a Disbursement.

          Section 2.3 Exclusions from the Borrowing Base. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:

          (a) any Inventory which is not located in the United States;

          (b) any demonstration Inventory or Inventory sold on consignment;

          (c) any Inventory consisting of proprietary software;

          (d) any Inventory which is damaged, obsolete, returned, defective,
recalled or unfit for further processing;

          (e) any Inventory which has been previously exported from the United
States;

          (f) any Inventory which constitutes defense articles or defense
services or any Accounts Receivable generated by sales of such Inventory;

          (g) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank is legally prohibited from doing business as
designated in the Country Limitation Schedule;

          (h) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only to the extent
that such Items are to be sold to such country on terms of a Letter of Credit
confirmed by a bank acceptable to Eximbank:

          (i) any Inventory which is to be incorporated into Items whose sale
would result in an ineligible Account Receivable;

          (j) any Account Receivable with a term in excess of net one hundred
eighty (180) days;

          (k) any Account Receivable which is more than sixty (60) calendar days
past the 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 ninety (90)
calendar days shall apply;

          (l) any intra-company Account Receivable or any Account Receivable
from a subsidiary of the Borrower, from a person or entity with a controlling
interest in the Borrower or from an entity which shares common controlling
ownership with the Borrower;

<PAGE>


          (m) any Account Receivable evidenced by a Letter of Credit, until the
date of shipment of the Items covered by the subject Letter of Credit;

          (n) any Account Receivable which the Lender or Eximbank, in its
reasonable judgment, deems uncollectible for any reason;

          (o) any Account Receivable payable in a currency other than Dollars,
except as may be approved in writing by Eximbank;

          (p) any Account Receivable from a military Buyer, except as may be
approved in writing by Eximbank; and

          (q) any Account Receivable due and collectible outside the United
States, except as may be approved in writing by Eximbank.

          Section 2.4 Schedules, Reports and Other Statements. The Borrower
shall submit to the Lender in writing each month (a) an Inventory schedule for
the preceding month and (b) an Accounts Receivable aging report for the
preceding month detailing, the terms of the amounts due from each Buyer. The
Borrower shall also furnish to the Lender promptly upon request such
information, reports, contracts, invoices and other data concerning the
Collateral as the Lender may from time to time specify.

          Section 2.5 Additional Security or Payment. The Borrower shall at all
times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed
by the Lender or if the Borrower otherwise has actual knowledge that the
Borrowing Base is at any time less than the Disbursed Amount, the Borrower
shall, within five (5) Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b)
pay to the Lender an amount equal to the difference between the Disbursed Amount
and the Borrowing Base.

          Section 2.6 Continued Security Interest. The Borrower shall notify the
Lender in writing within five (5) Business Days if (a) the Borrower changes its
name or identity in any manner, (b) the Borrower changes the location of its
principal place of business, (c) the nature of any of the Collateral is changed
or any of the Collateral is transferred to another location or (d) any of the
books or records related to the Collateral are transferred to another location.
The Borrower shall execute such additional financing statements or other
documents as the Lender may reasonably request in order to maintain its
perfected security interest in the Collateral.

          Section 2.7 Inspection of Collateral. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during normal
business hours reasonable inspections of the Collateral and of the Borrower's
facilities, activities, and books and records, and shall cause its officers and
employees to give full cooperation and assistance in connection therewith.

<PAGE>


          Section 2.8 Notice of Debtor's Relief, Dissolution and Litigation. The
Borrower shall notify the Lender in writing within five (5) Business Days of the
occurrence of any of the following:

          (a) a proceeding in bankruptcy or an action for debtor's relief is
filed by, against, or on behalf of the Borrower;

          (b) the Borrower fails to obtain the dismissal or termination within
thirty (30) calendar days of the commencement of any proceeding or action
referred to in (a) above;

          (c) the Borrower begins any procedure for its dissolution or
liquidation, or a procedure therefore has been commenced against it; or

          (d) any material litigation is filed against the Borrower.

          Section 2.9 Insurance. The Borrower shall maintain insurance coverage
in the manner and to the extent customary in businesses of similar character.

          Section 2.10 Merger or Consolidation. Without the prior written
consent of Eximbank and the Lender, the Borrower shall not (a) merge or
consolidate with any other entity, (b) sell, lease, transfer or otherwise
dispose of any substantial part of its assets, or any part of its assets which
are essential to the conduct of its business or operations, (c) make any
material change in its organizational structure or identity, or (d) enter into
any agreement to do any of the foregoing.

          Section 2.11 Reborrowings and Repayment Terms. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any of the
Loan Documents, the Borrower may borrow, repay and reborrow amounts under the
Loan until the close of business on the Availability Date. Unless the Revolving
Loan is renewed or extended by the Lender, the Borrower shall pay in full the
outstanding Loan Amount and all accrued and unpaid interest thereon no later
than the first Business Day after the Availability Date.

          (b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender (for
application against the outstanding Loan Amount and accrued and unpaid interest
thereon) all checks, drafts, cash and other remittances it may receive in
payment or on account of the Accounts Receivable or any other Collateral, in
precisely the form received (except for the endorsement of the Borrower where
necessary). Pending such deposit, the Borrower shall not commingle any such
items of payment with any of its other funds or property, but will hold them
separate and apart.

          Section 2.12 Cross Default. The Borrower shall be deemed in default
under the Loan if the Borrower fails to pay when due any amount payable to the
Lender under any loan to the Borrower not guaranteed by Eximbank.

<PAGE>


          Section 2.13 Financial Statements. The Borrower shall provide
quarterly financial statements to the Lender no later than forty-five (45) days
after the end of each quarter. This is in addition to any other financial
statements that may be required by the Lender under the Loan Agreement.

          Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain
current on all of its federal, state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any judgment is rendered
against the Borrower, or (ii) any lien is filed against any of the assets of the
Borrower.

          Section 2.15 Munitions List. If any of the Items are articles,
services, or related technical data that are listed on the United States
Munitions List (part 121 of title 22 of the Code of Federal Regulations), the
Borrower shall send a written notice promptly to the Lender describing the
Item(s) and the corresponding invoice amount.

          Section 2.16 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor its Principals (as defined below) are (A)
debarred, suspended, proposed for debarment with a final determination skill
pending, declared ineligible or voluntarily excluded (as such terms are defined
under any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations (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 United States federal government department or agency pursuant to any of the
Debarment Regulations. The Borrower will provide immediate written notice to the
Lender if at any time it learns that the certification set forth in this Section
2.16 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 Governmentwide 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
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).

          Section 2.17 Special Conditions. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.

<PAGE>


                                   ARTICLE III

                               RIGHTS AND REMEDIES

          Section 3.1 Indemnification. Upon Eximbank's payment of a claim to the
Lender in connection with the Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the Lender under the Loan
Documents and may enforce any such rights or remedies against the Borrower, the
Collateral and any Guarantors. Additionally, the Borrower shall hold Eximbank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Eximbank or the Lender in connection with
the Loan, this Agreement or any of the other Loan Documents or (b) any material
breach by the Borrower of the terms and conditions of this Agreement or any of
the other Loan Documents. The Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the Loan
is subject to the penalties provided in Article 18 U.S.C. Section 1001.

                                   ARTICLE IV

                                  MISCELLANEOUS

          Section 4.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United States of
America.

          Section 4.2 Notification. All notifications required by this Agreement
shall be given in the manner provided in the Loan Agreement.

          Section 4.3 Partial Invalidity. If at any time any of the provisions
of this Agreement becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be affected
or impaired.

<PAGE>


         IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed as of the 26th day of June, 1997.

                                RSI SYSTEMS, INC.

                                By_____________________________________________
                                  Donald C. Lies
                                  Its President and Chief Executive Officer

ACKNOWLEDGED:

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION

By___________________________________________________
  Christopher A. Cudak
  Its Vice President

Guaranteed Loan No. ____________________

<PAGE>


                                                         EXHIBIT B TO CREDIT AND
                                                              SECURITY AGREEMENT


                                    Exhibit A

                          Loan Authorization Agreement

<PAGE>


                                                Exhibit C to Credit and Security
                                                Agreement

                             COMPLIANCE CERTIFICATE

To:     Roger A. Pfiffner
        Norwest Business Credit, Inc., as Servicer
        Christopher A. Cudak
        Norwest Bank Minnesota, National Association

Date:   ______________________, 199___

Subject:  RSI Systems, Inc.

          Financial Statements

          In accordance with our Credit and Security Agreement dated as of June
26, 1997 (the "Credit Agreement"), attached are the financial statements of RSI
Systems, Inc. (the "Borrower") as of and for ________________, 19___ (the
"Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.

          I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.

          Events of Default. (Check one):

    |_|   The undersigned does not have knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement.

    |_|   The undersigned has knowledge of the occurrence of a Default or Event
          of Default under the Credit Agreement and attached hereto is a
          statement of the facts with respect to thereto.

          Financial Covenants. I further hereby certify as follows:

<PAGE>


          1. Minimum Tangible Net Worth. Pursuant to Section 6.8 of the Credit
Agreement, as of the Reporting Date the Borrower's Tangible Net Worth was
$____________ which |_| satisfies |_| does not satisfy the requirement that such
amount be not less than $350,000.

          Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.

                                     RSI SYSTEMS, INC.

                                     By ____________________________

                                        Its Chief Financial Officer

<PAGE>


                                                Exhibit D to Credit and Security
                                                Agreement

                       FORM OF BORROWING BASE CERTIFICATE

M1:0264849.06

9/22/97 3:12 PM

<PAGE>


                                                Exhibit E to Credit and Security
                                                Agreement

                                 PERMITTED LIENS

Creditor       Collateral       Jurisdiction       Filing Date       Filing No.
--------       ----------       ------------       -----------       ----------

                                    NONE

<PAGE>


                                   DISCLOSURE

                                RSI Systems, Inc.

                  The Borrower signing below hereby makes the following
disclosures to Norwest Bank Minnesota, National Association in connection with a
Credit and Security Agreement between them dated on or about the date hereof:

                  1. Legal Names. During its existence, the legal name of the
Borrower has been its legal name as disclosed in the Credit Agreement and the
following predecessor legal names (insert "None" if none"):

                  Rocket Science, Inc.

                  2. Assumed Names. During its existence, the Borrower has done
business under the following trade names other than the legal names disclosed in
paragraph 1 above (insert "None" if none):

                  None.

                  3. Inventory Locations. All of the Borrower's inventory is
located at the address of the chief executive office of the Borrower as
disclosed in the Credit Agreement and at the following additional locations
(insert "None" if none):

                  Eden Prairie Metro RV and Mini-Storage
                  6852 Flying Cloud Drive, Suite B
                  Eden Prairie, Minnesota 55344

                  Altron, Inc.
                  6700 Industry Avenue
                  Anoka, Minnesota 55303-4595

                  4. Subsidiaries. The Borrower has no subsidiaries other than
as follows (insert "None" if none):

                  RSI Systems Export Corporation

                  5. Payment of Taxes. The Borrower has paid to the proper
authorities when due all federal, state, and local income taxes and taxes
required to be withheld by Borrower, and no claim is being made against Borrower
for any such taxes by any taxing authority except as follows (insert "None" if
none):

                  None.

<PAGE>


                  6. Environmental. To the best of Borrower's knowledge, the
Borrower has conducted and is conducting its business in compliance with all
federal, state, and local statutes, regulations, laws, and ordinances dealing
with the protection of human health and the environment ("Environmental Laws"),
and there are no claims, investigations, lawsuits, or administrative proceedings
against Borrower or relating to any real estate owned or operated by Borrower
alleging a violation of any Environmental Law except as follows (insert "None"
if none):

                  None.

                  7. Litigation. Other than as disclosed above with respect to
Environmental Laws, there are no lawsuits or proceedings pending, or to the best
knowledge of the Borrower threatened, against or affecting the Borrower or its
properties except as follows (insert "None" if none):

                  None.

Dated: June 26, 1997                RSI SYSTEMS, INC.



                                    By /s/ Donald C. Lies
                                       ----------------------------------------
                                       Donald C. Lies
                                       Its President and Chief Executive Officer

<PAGE>


                            CERTIFICATE OF AUTHORITY

                  I, James D. Hanzlik, do hereby certify that I am secretary or
assistant secretary of RSI Systems, Inc., a Minnesota corporation; that the
following is a true, complete and correct copy of the resolutions duly adopted
(check one):

         |X|      at a meeting of the directors of said corporation duly and
                  properly called and held on the 4th day of June, 1997, at
                  which a quorum was present and acting throughout;

         |_|      by unanimous written action duly and lawfully taken,
                  subscribed by all the directors of said corporation;

and I further certify that said resolutions are now in full force and effect:

                                   Resolutions

         RESOLVED, that the Chief Executive Officer, President and Chief
         Financial Officer of the Company be and hereby are authorized and
         directed to negotiate the final documents with respect to the proposed
         credit facilities with Norwest Business Credit and Norwest Bank
         Minnesota in order to secure for the Company a $1,000,000 and a
         $500,000, respectively, of credit and such officers are hereby
         authorized and directed on behalf of the Company to execute and deliver
         the credit agreements so negotiated together with such security and
         pledge agreements and other agreements, instruments, certificates and
         documents as may be necessary or desirable to achieve the purposes of
         this resolution.

         RESOLVED, that Norwest Bank International is hereby designated as the
         Company depository for foreign funds and transfers in connection with
         international sales and the Company's Chief Executive Officer and Chief
         Financial Officer are hereby authorized and directed to establish an
         account or accounts at Norwest Bank International for such purpose and
         are each authorized to execute funds, transfers and otherwise deal with
         such accounts and to execute such agreements, certificates and other
         documents as may be necessary or desirable to effectuate the purpose of
         this resolution.

                  I further certify that the directors of said Corporation have,
and at the time of adoption of the foregoing resolutions had, full power and
lawful authority to adopt the foregoing resolutions and to confer the powers
therein granted to the persons named and that such persons have full power and
authority to exercise same. I further certify that the signatures appearing
below are the authentic and official signatures of the officers and agents
referred to in the foregoing resolutions, that the persons named below as
officers have been duly elected to and now hold the offices in said Corporation
set forth opposite their respective

<PAGE>


names, and that the persons named as agents below have been duly authorized to
sign and to act on behalf of said Corporation pursuant to the foregoing
resolutions:

           Name                      Title                  Sample Signature
           ----                      -----                  ----------------

      Donald C. Lies          President and Chief         /s/ Donald C. Lies
                               Executive Officer

     James D. Hanzlik         Secretary and Chief         /s/ James D. Hanzlik
                               Financial Officer

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

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

                  I further certify (check one):

         |X|      that the foregoing resolutions were duly approved by the
                  shareholders of said Corporation at a meeting duly and
                  properly called and held on the 4th day of June, 1997, at
                  which a quorum was present and acting throughout, or otherwise
                  as permitted by law;

         |_|      that the foregoing resolutions are effective and binding on
                  said Corporation without approval by its shareholders.

                  I further certify that the forms of Credit and Security
Agreement and the other Loan Documents, and any other writings relating to the
credit facility with Norwest Bank Minnesota, National Association, executed on
behalf of said Corporation by its President and Chief Executive Officer and
delivered to the Lender are the agreements and writings referred to in and
approved by the Resolutions set forth above.

<PAGE>


                  I further certify that attached hereto as Exhibit A, are true,
correct and complete copies of the articles of incorporation and bylaws of said
Corporation, which articles of incorporation and bylaws are in full force and
effect and have not been altered, amended or revised. I further certify that
attached hereto as Exhibit B is a Certificate of Good Standing of the
Corporation not more than ten days old.

                  IN WITNESS WHEREOF, I have hereunto subscribed my name this
26th day of June, 1997.

                                          /s/ James D. Hanzlik
                                          -------------------------------------
                                          James D. Hanzlik, Secretary
                                          RSI Systems, Inc.

Attest by One Other Officer

/s/ Donald C. Lies
-----------------------------------

<PAGE>


                               STATE OF MINNESOTA

                               SECRETARY OF STATE


                          CERTIFICATE OF INCORPORATION


         I, Joan Anderson Growe, Secretary of State of Minnesota do certify
that: Articles of Incorporation duly signed and acknowledged under oath have
been filed on this date in the Office of the Secretary of State for the
incorporation of the following corporation under and in accordance with the
provisions of the chapter of Minnesota Statutes listed below.

         This corporation is now legally organized under the laws of Minnesota.

      Corporate Name: Rocket Science, Inc.

      Corporate Charter Number: 8B-189

      Chapter Formed Under: 302A

      This certificate has been issued on 12/21/1993.


[STAMP]

THE GREAT SEAL OF THE STATE OF MINNESOTA * 1858 *


                                             /s/ Joan Anderson Growe
                                             -----------------------------------
                                                              Secretary of State

<PAGE>


                               STATE OF MINNESOTA

                              DEPARTMENT OF STATE

   I hereby certify that this is a true and complete copy of the document as 
filed for record in this office.

DATED 6-12-1997


   /s/ Joan Anderson Growe
   -----------------------------------
               Secretary of State



   /s/ {illegible}
   -----------------------------------

<PAGE>


                      Exhibit A to Secretary's Certificate

                      ARTICLES OF INCORPORATION AND BYLAWS

                          [TO BE PROVIDED BY BORROWER]

M10264894.02

6/26/97 10:07 AM


<PAGE>




                      Exhibit B to Secretary's Certificate

                          CERTIFICATE OF GOOD STANDING

                          [TO BE PROVIDED BY BORROWER]

M1:0264894.02

6/26/97 10:07 AM

<PAGE>


                     PATENT AND TRADEMARK SECURITY AGREEMENT

                  This Agreement, dated as of June 26, 1997, is made by and
between RSI SYSTEMS, INC., a Minnesota corporation whose address and principal
place of business is 7400 Metro Blvd., Suite 475, Edina, Minnesota 55439 (the
"Debtor"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association whose address and principal place of business is Norwest Center,
Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-0085 (the
"Secured Party").

                                    Recitals

                  The Debtor and the Secured Party have entered into a 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")
setting forth the terms on which the Secured Party may now or hereafter make
certain loans or other financial accommodations to or for the account of the
Debtor.

                  As a further condition to making any loan or other financial
accommodation under the Credit Agreement or otherwise, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.

                  ACCORDINGLY, in consideration of the mutual covenants
contained in the Credit Agreement and herein, the parties hereby agree as
follows:

                  1. Definitions. All terms defined in the Recitals hereto or in
the Credit Agreement that are not otherwise defined herein shall have the
meanings given to them therein. In addition, the following terms have the
meanings set forth below:

                  "Obligations" means each and every debt, liability and
         obligation of every type and description arising under or in connection
         with any Loan Document (as defined in the Credit Agreement) which the
         Debtor may now or at any time hereafter owe to the Secured Party,
         whether such debt, liability or obligation now exists or is hereafter
         created or incurred and whether it is or may be direct or indirect, due
         or to become due, absolute or contingent, primary or secondary,
         liquidated or unliquidated, independent, joint, several or joint and
         several, and including specifically, but not limited to, the
         Obligations (as defined in the Credit Agreement).

                  "Patents" means all of the Debtor's right, title and interest
         in and to patents or applications for patents, fees or royalties with
         respect to each, and including without limitation the right to sue for
         past infringement and damages therefor, and licenses thereunder, all as
         presently existing or hereafter arising or acquired, including without
         limitation the patents listed on Exhibit A.

<PAGE>


                  "Trademarks" means all of the Debtor's right, title and
         interest in and to trademarks, service marks, collective membership
         marks, the respective goodwill associated with each, and licenses
         thereunder, all as presently existing or hereafter arising or acquired,
         including, without limitation, the marks listed on Exhibit B.

                  2. Security Interest. The Debtor hereby irrevocably assigns to
and grants to the Secured Party a security interest with power of sale to the
extent permitted by law (the "Security Interest") in the Patents and in the
Trademarks to secure payment of the Obligations.

                  3. Representations, Warranties and Agreements. The Debtor
hereby represents, warrants and agrees as follows:

                  (a) EXISTENCE; AUTHORITY. The Debtor is a corporation, having
         full power to and authority to make and deliver this Agreement. The
         execution, delivery and performance of this Agreement by the Debtor
         have been duly authorized by all necessary action of the Debtor's
         directors and shareholders and do not and will not violate the
         provisions of, or constitute a default under, any presently applicable
         law or its articles of incorporation and bylaws or any agreement
         presently binding on it. This Agreement has been duly executed and
         delivered by the Debtor and constitutes the Debtor's lawful, binding
         and legally enforceable obligation. The correct name of the Debtor is
         RSI Systems, Inc.. The authorization, execution, delivery and
         performance of this Agreement do not require notification to,
         registration with, or consent or approval by, any federal, state or
         local regulatory body or administrative agency.

                  (b) PATENTS. Exhibit A accurately lists all Patents owned or
         controlled by the Debtor as of the date hereof and accurately reflects
         the existence and status of registrations pertaining to the Patents as
         of the date hereof.

                  (c) TRADEMARKS. Exhibit B accurately lists all Trademarks
         owned or controlled by the Debtor as of the date hereof and accurately
         reflects the existence and status of Trademarks and all registrations
         pertaining thereto as of the date hereof.

                  (d) TITLE. The Debtor has absolute title to each Patent and
         each Trademark listed on Exhibits A and B, free and clear of all
         security interests, liens and encumbrances, except the Security
         Interest. The Debtor (i) will have, at the time the Debtor acquires any
         rights in Patents or Trademarks hereafter arising, absolute title to
         each such Patent or Trademark free and clear of all security interests,
         liens and encumbrances, except the Security Interest, and (ii) will
         keep all Patents and Trademarks free and clear of all security
         interests, liens and encumbrances except the Security Interest.

                  (e) NO SALE. The Debtor will not sell or otherwise dispose of
         the Patents or Trademarks, or any interest therein, without the Secured
         Party's prior written consent.

<PAGE>


                  (f) DEFENSE. The Debtor will at its own expense, and using its
         best efforts, protect and defend the Patents and Trademarks against all
         claims or demands of all persons other than the Secured Party.

                  (g) MAINTENANCE. The Debtor will at its own expense maintain
         the Patents and the Trademarks to the extent reasonably advisable in
         its business including, but not limited to, filing all applications to
         register and all affidavits and renewals possible with respect to
         issued registrations. The Debtor covenants that it will not abandon nor
         fail to pay any maintenance fee or annuity due and payable on any
         Patent or Trademark, nor fail to file any required affidavit in support
         thereof, without first providing the Secured Party: (i) sufficient
         written notice, as provided in the Credit Agreement, to allow the
         Secured Party to timely pay any such maintenance fees or annuity which
         may become due on any of said Patents or Trademarks, or to file any
         affidavit with respect thereto, and (ii) a separate written power of
         attorney or other authorization to pay such maintenance fees or
         annuities, or to file such affidavit, should such be necessary or
         desirable.

                  (h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor fails
         to perform or observe any of its covenants or agreements set forth in
         this Section 3, and if such failure continues for a period of ten (10)
         calendar days after the Secured Party gives the Debtor written notice
         thereof (or, in the case of the agreements contained in subsection (g),
         immediately upon the occurrence of such failure, without notice or
         lapse of time), or if the Debtor notifies the Secured Party that it
         intends to abandon a Patent or Trademark, the Secured Party may (but
         need not) perform or observe such covenant or agreement on behalf and
         in the name, place and stead of the Debtor (or, at the Secured Party's
         option, in the Secured Party's own name) and may (but need not) take
         any and all other actions which the Secured Party may reasonably deem
         necessary to cure or correct such failure.

                  (i) COSTS AND EXPENSES. Except to the extent that the effect
         of such payment would be to render any loan or forbearance of money
         usurious or otherwise illegal under any applicable law, the Debtor
         shall pay the Secured Party on demand the amount of all moneys expended
         and all costs and expenses (including reasonable attorneys' fees)
         incurred by the Secured Party in connection with or as a result of the
         Secured Party's taking action under subsection (h) or exercising its
         rights under Section 6, together with interest thereon from the date
         expended or incurred by the Secured Party at the highest rate then
         applicable to any of the Obligations.

                  (j) POWER OF ATTORNEY. To facilitate the Secured Party's
         taking action under subsection (h) and exercising its rights under
         Section 6, the Debtor hereby irrevocably appoints (which appointment is
         coupled with an interest) the Secured Party, or its delegate, as the
         attorney-in-fact of the Debtor 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 Debtor, any and all instruments,
         documents, applications, 

<PAGE>


         financing statements, and other agreements and writings required to be
         obtained, executed, delivered or endorsed by the Debtor under this
         Section 3, or, necessary for the Secured Party, after an Event of
         Default, to enforce or use the Patents or Trademarks or to grant or
         issue any exclusive or non-exclusive license under the Patents or
         Trademarks to any third party, or to sell, assign, transfer, pledge,
         encumber or otherwise transfer title in or dispose of the Patents or
         Trademarks to any third party. The Debtor hereby ratifies all that such
         attorney shall lawfully do or cause to be done by virtue hereof. The
         power of attorney granted herein shall terminate upon the termination
         of the Credit Agreement as provided therein and the payment and
         performance of all Obligations (as defined therein).

                  4. Debtor's Use of the Patents and Trademarks. The Debtor
shall be permitted to control and manage the Patents and Trademarks, including
the right to exclude others from making, using or selling items covered by the
Patents and Trademarks and any licenses thereunder, in the same manner and with
the same effect as if this Agreement had not been entered into, so long as no
Event of Default occurs and remains uncured.

                  5. Events of Default. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called "Event of
Default"): (a) an Event of Default, as defined in the Credit Agreement, shall
occur; or (b) the Debtor shall fail promptly to observe or perform any covenant
or agreement herein binding on it; or (c) any of the representations or
warranties contained in Section 3 shall prove to have been incorrect in any
material respect when made.

                  6. Remedies. Upon the occurrence of an Event of Default and at
any time thereafter, the Secured Party may, at its option, take any or all of
the following actions:

                  (a) The Secured Party may exercise any or all remedies
         available under the Credit Agreement.

                  (b) The Secured Party may sell, assign, transfer, pledge,
         encumber or otherwise dispose of the Patents and Trademarks.

                  (c) The Secured Party may enforce the Patents and Trademarks
         and any licenses thereunder, and if Secured Party shall commence any
         suit for such enforcement, the Debtor shall, at the request of Secured
         Party, do any and all lawful acts and execute any and all proper
         documents required by Secured Party in aid of such enforcement.

Notwithstanding the foregoing, the Secured Party will not take any of the
foregoing actions if a third person pledges, assigns and transfers within one
(1) day after the occurrence of an Event of Default, as additional collateral to
secure the Obligations, negotiable certificates of deposit, equity securities
that are traded on any national securities exchange or on the NASDAQ National
Market System and/or cash or the equivalent, which in the aggregate have

<PAGE>


and will continue to have a fair market value equal to or greater than the
outstanding Obligations under the Credit Agreement at the time such Event of
Default arises. Such person must execute and deliver all security agreements and
related documents and transfer possession and control of such additional
collateral as the Secured Party may request in its sole discretion, and such
additional collateral shall be in form and substance acceptable to the Secured
Party in its sole discretion.

                  7. Miscellaneous. This Agreement has been duly and validly
authorized by all necessary action, corporate or otherwise. This Agreement can
be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. The Secured Party shall not be obligated to preserve any rights the
Debtor may have against prior parties, to realize on the Patents and Trademarks
at all or in any particular manner or order, or to apply any cash proceeds of
Patents and Trademarks in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of the Debtor and the Secured
Party and their respective participants, successors and assigns and shall take
effect when signed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Party's acceptance hereof. The Secured Party
may execute this Agreement if appropriate for the purpose of filing, but the
failure of the Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. A carbon, photographic
or other reproduction of this Agreement or of any financing statement signed by
the Debtor shall have the same force and effect as the original for all purposes
of a financing statement. This Agreement shall be governed by the internal law
of Minnesota without regard to conflicts of law provisions. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.

<PAGE>


                  THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

                  IN WITNESS WHEREOF, the parties have executed this Patent and
Trademark Security Agreement as of the date written above.

NORWEST BANK MINNESOTA,               RSI SYSTEMS, INC.
  NATIONAL ASSOCIATION                

By /s/ Christopher A. Cudak               By /s/ Donald C. Lies
   -----------------------------------       -----------------------------------
   Christopher A. Cudak                      Donald C. Lies
   Its Vice President                        Its President and Chief Executive
                                                 Officer

STATE OF MINNESOTA         )
                           )
COUNTY OF HENNEPIN         )

                  The foregoing instrument was acknowledged before me this 26th
day of June, 1997, by Donald C. Lies, the President and Chief Executive Officer
of RSI Systems, Inc., a Minnesota corporation, on behalf of the corporation.


[STAMP]
ROBERT J. WEIERMAN JR.
NOTARY PUBLIC - MINNESOTA                    /s/ Robert J. Weierman Jr.
MY COMMISSION EXPIRES JAN. 31, 2000          -----------------------------------
                                             Notary Public


STATE OF MINNESOTA         )
                           )
COUNTY OF HENNEPIN         )

                  The foregoing instrument was acknowledged before me this 26th
day of June, 1997, by Christopher A. Cudak, a Vice President of Norwest Bank
Minnesota, National Association, a national banking association, on behalf of
the bank.


[STAMP]
ROBERT J. WEIERMAN JR.
NOTARY PUBLIC - MINNESOTA                    /s/ Robert J. Weierman Jr.
MY COMMISSION EXPIRES JAN. 31, 2000          -----------------------------------
                                             Notary Public

<PAGE>


                                    EXHIBIT A

                          UNITED STATES ISSUED PATENTS

              Title                         Patent Number            Issue Date
              -----                         -------------            ----------

Peripheral Video Conferencing Unit          Des. 370,010            May 21, 1996



                        UNITED STATES PATENT APPLICATIONS

               Title                     Patent Application      Issue Date
               -----                     ------------------      ----------
                                               Number
                                               ------

Peripheral Video Conferencing System       Application No.     September 7, 1994
                                           PCT/US95/11390



                             FOREIGN ISSUED PATENTS

                        Title             Country   Patent Number   Issue Date
                        -----             -------   -------------   ----------

Stand alone peripheral video conferencing    WO        9608110      March 14,
system - allows communication with                                     1996
analogue or digital communications
channel and separate host computer
system


Same                                         AU        9535484       March 27,
                                                                       1996

Same                                         AU         127747      September 6,
                                                                        1996

Same                                         CA         78379        May 9, 1996

Same                                         DE       M9503539.7   July 19, 1995

Same                                         FR         952365    April 21, 1995

Same                                         GB        2046903

Same                                         JP        Pending    April 21, 1995

<PAGE>


                                    EXHIBIT B

                 UNITED STATES ISSUED TRADEMARKS, SERVICE MARKS

                         AND COLLECTIVE MEMBERSHIP MARKS

                                  REGISTRATIONS

                  Mark                Registration Number      Registration Date
                  ----                -------------------      -----------------

Eris                                       1,997,487            August 27, 1996


                                  APPLICATIONS

                  Mark                 Application Number      Registration Date
                  ----                 ------------------      -----------------

Computer Free                              75-183,232          October 17, 1996

Video Airline                              75-183,056          October 17, 1996

Eris Video Flyer                           75-178,355          October 8, 1996


                           COLLECTIVE MEMBERSHIP MARKS

                                      NONE



                               UNREGISTERED MARKS

                                      NONE

<PAGE>


                          COLLATERAL ACCOUNT AGREEMENT

                                  June 26, 1997

TO:      Norwest Bank Minnesota, National Association
         Norwest Center
         Sixth Street and Marquette Avenue
         Minneapolis, Minnesota 55479-0085

                  Re:  Account No. 335644 maintained by Norwest Bank
                       International New York Branch (the "Bank")

Ladies and Gentlemen:

                  RSI Systems, Inc., a Minnesota corporation (the "Client"), and
the Bank are writing to confirm that they have agreed as follows:

                  1. The Client will cause all of its account debtors located
outside the United States of America to wire transfer to the referenced account
(the "Collateral Account") all payments for goods and services sold to them.

                  2. The Collateral Account will be operated and maintained
exclusively for the benefit of Norwest Bank Minnesota, National Association, a
national banking association (the "Lender"). Amounts deposited in the Collateral
Account shall not bear interest and shall not be subject to withdrawal by the
Client, except after full payment and discharge of all obligations to the Lender
and termination of all related credit facilities. The Client shall have no right
to make or countermand withdrawals from the Collateral Account.

                  3. The Client hereby pledges to and grants the Lender a
security interest in all funds on deposit in the Collateral Account from time to
time and all proceeds thereof, to secure payment of all of the Client's
obligations to the Lender whether now existing or hereafter arising.

                  4. The Bank shall transmit all funds in the Collateral Account
at the end of each business day to Norwest Business Credit, Inc., Account No.
6355010053.

                  5. The Client may not terminate this Agreement without
obtaining the Lender's prior written consent. The Bank may not terminate this
Agreement without 60 days' prior written notice to the Lender. The Lender may
terminate this Agreement at any time, with or without cause.

                  6. This Agreement shall be enforceable against the Client and
the Bank by the Lender and the Lender's participants, successors and assigns.
The Client and the Bank waive notice of the Lender's acceptance hereof.

<PAGE>


                  7. This Agreement 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. This Agreement shall be governed by and construed
in accordance with the substantive laws (other than conflict laws) of the State
of Minnesota. Each party consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement waives any argument that venue in any such
forum is not convenient, and agrees that any litigation initiated by any of them
in connection with this Agreement shall be venued in either the District Court
of Hennepin County, Minnesota, or the United States District Court, District of
Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

NORWEST BANK INTERNATIONAL               RSI SYSTEMS, INC.
  NEW YORK BRANCH                  


By {illegible}                           By /s/ Donald C. Lies
   -----------------------------------      -----------------------------------
   Its Vice President                       Donald C. Lies
                                            Its President and Chief Executive
                                                Officer

Accepted:

NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION


By /s/ Christopher A. Cudak
   ----------------------------------
   Christopher A. Cudak
   Its Vice President

<PAGE>


                              OFFICER'S CERTIFICATE


TO:      Norwest Bank Minnesota, National Association
         Norwest Center
         Sixth Street and Marquette Avenue
         Minneapolis, Minnesota 55479-0085

                  To induce you, at your sole discretion, to make one or more
loans from time to time to RSI Systems, Inc., a Minnesota corporation (the
"Borrower"), in accordance with the Credit and Security Agreement dated June 26,
1997 between it and you (the "Credit Agreement") and all other Loan Documents
(as defined in the Credit Agreement), I hereby represent and warrant to you, in
my individual capacity, that each and every representation and warranty set
forth in Article V of the Credit Agreement is true and correct as of the date
hereof.

Dated: June 26, 1997


                                          Very truly yours,


                                          /s/ Donald C. Lies
                                          --------------------------------------
                                          Donald C. Lies

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                   OMB NO. 3048-0003
                                                                                                             EXPIRES AUGUST 31, 1997
<S>      <C>
------------------------------------------------------------------------------------------------------------------------------------
         (SBA Use Only)                                                                                      (EXIMBANK USE ONLY)
 Date Received                                   U.S. SMALL BUSINESS ADMINISTRATION                 Lender              Transaction
                                              EXPORT-IMPORT BANK OF THE UNITED STATES                 PLP     DA Level A  PLP
 C.I.D. No.                                    JOINT APPLICATION FOR WORKING CAPITAL                  PEFCO   DA Level B  DA
                                                             GUARANTEE                                                    Regular
------------------------------------------------------------------------------------------------------------------------------------
                                                    PART A. PRINCIPAL PARTIES
------------------------------------------------------------------------------------------------------------------------------------
1.   BORROWER/EXPORTER
------------------------------------------------------------------------------------------------------------------------------------
Company Name                                                          D&B No.                          Telephone
RSI Systems, Inc.                                                     87-633-0945                      612-896-3026
------------------------------------------------------------------------------------------------------------------------------------
Name and Title of Contact Person                                      Federal ID No.                   FAX
James D. Hanzlik, President                                           41-1767211                       612-896-3030
------------------------------------------------------------------------------------------------------------------------------------
Address                                                               City                             State             Zip
7400 West Metro Boulevard, Suite 475                                  Edina                            Minnesota         55439
------------------------------------------------------------------------------------------------------------------------------------
Gross Sales                                        No. Of Full-Time Employees                   Primary SIC Code
$1,625,720                                         18                                           4822-06, 3577
------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT (Proprietors, partners, officers, directors and all holders of outstanding stock - 100% of ownership must be shown).
Use separate sheet if necessary.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   %        *Military Service
                                                                                            -----------------
Name and Social Security Number                    Complete Address              Owned        From       To        *Race      *Sex
------------------------------------------------------------------------------------------------------------------------------------
See Exhibit A attached hereto
------------------------------------------------------------------------------------------------------------------------------------

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

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

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

------------------------------------------------------------------------------------------------------------------------------------
*This information is collected for statistical purposes only. It has no bearing on the credit decision to approve or decline 
this application.

------------------------------------------------------------------------------------------------------------------------------------
2.   PERSONAL GUARANTOR

------------------------------------------------------------------------------------------------------------------------------------
Name                                                   SSN                                        Telephone

------------------------------------------------------------------------------------------------------------------------------------
Address                                       City               State        Zip                 FAX

------------------------------------------------------------------------------------------------------------------------------------
3.   LENDER
------------------------------------------------------------------------------------------------------------------------------------
Name                                                                    Federal ID No.                     Telephone
Norwest Bank Minnesota, National Association                            41-1592157                         612-667-3504
------------------------------------------------------------------------------------------------------------------------------------
Address                                           City                  State          Zip                 FAX
Norwest Center, Sixth St & Marquette Ave          Minneapolis           MN             554795              612-667-2269
------------------------------------------------------------------------------------------------------------------------------------
                                           PART B. INFORMATION ABOUT THE TRANSACTION
------------------------------------------------------------------------------------------------------------------------------------
Loan Amount                                                                            Type (check one)
$500,000                                                                                  Revolving  |X|
------------------------------------------------------------------------------------   Transaction(S) Specific  |_|
Terms and Fees                                                                            
     |_| 6 months          |X| 1 YEAR            |_| Other (SPECIFY)                   Renewal?      |_| Y  |X| N
------------------------------------------------------------------------------------
Interest Rate to be Charged              Other Fees or Charges (TYPE AND AMOUNT)       Conversion of Preliminary Commitment?
                                         Origination Fee - 1%                          |_| Y    |X| N
Norwest MN Base Rate + 4%                Facility Fee - 1%                             If Yes, #_____________
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

IB-SBA Form 84-1
ev. 8/94

<PAGE>


                             PART C. CERTIFICATIONS

1. BORROWER/EXPORTER CERTIFICATION

      The Borrower/Exporter certifies that the representations made and the
facts stated by it in the application for a Working Capital Guarantee by the
Export-Import Bank of the United States (EXIMBANK) or the Small Business
Administration (SBA) are true, and that it has not misrepresented or omitted any
material facts relevant to said representations. The Borrower/Exporter agrees
that the validity and completeness of such representations and facts shall be a
condition precedent to any liability of Eximbank or SBA under any guarantee
issued. The Borrower/Exporter certifies that it does not have any actual
knowledge and further certifies that is does not have any actual knowledge and
further certifies did not withhold any actual knowledge which could reasonably
be expected to cause or tend to cause a loss to Eximbank or SBA under its
guarantee. If after the date of this Application, the Borrower/Exporter comes
into possession of any such knowledge, the Borrower/Exporter agrees not to
withhold it, and the undersigned agrees to immediately communicate such
knowledge to Eximbank or SBA by facsimile or letter, as appropriate. Attach
complete information for any box marked "yes".

1.    Are there any pending or threatened liens, judgments or material
      litigation against the:

      Borrower    |_| YES    |X| NO      Guarantor    |_| YES    |X| NO

2.    Has the Borrower/Exporter or its owner(S), or the Guarantor ever filed for
      protection under U.S. bankruptcy laws? Has either had an involuntary
      bankruptcy petition filed against it?

      Borrower    |_| YES    |X| NO      Guarantor    |_| YES    |X| NO

3.    Has the Borrower/Exporter or its owner(S) or affiliates ever previously
      requested U.S. Government financing? 

      Borrower    |_| YES    |X| NO      Guarantor    |_| YES    |X| NO

4.    Are any of the individuals listed in Part A (a) presently under
      indictment, on parole or probation, or have they ever been (b) charged for
      any criminal offense other than a minor vehicle violation, or (c)
      convicted, placed on pretrial diversion, or placed on any form of
      probation including adjudication withheld pending probation for any
      criminal offense other than a minor vehicle violation?

      |_| YES    |X| NO     If YES, SBA Form 912 must be submitted with this
                            application (SBA APPLICANTS ONLY).

Name of Borrower/Exporter RSI SYSTEMS, INC.
--------------------------------------------------------------------------------
Signature  /s/ Donald C. Lies                          Date June 26, 1997
--------------------------------------------------------------------------------
Name and Title (PRINT OR TYPE) Donald C. Lies, President
--------------------------------------------------------------------------------
2. LENDER CERTIFICATION
--------------------------------------------------------------------------------

      The Lender certifies that the representations made and the facts stated by
it in the application for a Working Capital Guarantee by the Export-Import Bank
of the United States (EXIMBANK) or the Small Business Administration (SBA) are
true to the best of its knowledge and belief, and that it has not misrepresented
or omitted any material facts relevant to said representations. The Lender
agrees that such representations and facts shall be a condition precedent to any
liability of Eximbank or SBA thereunder. The Lender certifies that it does not
have any actual knowledge and further certifies that it did not withhold any
knowledge which could reasonably be expected to cause or tend to cause a loss to
Eximbank or SBA under its guarantee. If after the date of this Application, the
Lender comes into possession of any such knowledge, the Lender agrees not to
withhold it, and the undersigned agrees to immediately communicate such
knowledge to Eximbank or SBA by facsimile or letter as appropriate. By signing
and submitting this application, the Lender certifies that it would not be
willing to make this loan without a guarantee of Eximbank or SBA.

      The Lender further certifies to the best of his or her knowledge and
belief, that if any funds have been paid or will be paid to any person for
influencing or attempting to influence an officer or employee of any agency, a
member of Congress, an officer or employee of Congress, or an employee of a
member of Congress in connection with this commitment providing for the United
States to guarantee a loan, the undersigned shall complete and submit a Standard
Form-LLL, "Disclosure Form to Report Lobbying" in accordance with its
instructions. Submission of this statement is a prerequisite for making or
entering into this transaction imposed by Section 1352, Title 31, US Code. Any
person who fails to file the required statement shall be subject to a civil
penalty of not less than $10,000 and not more than $100,000 for each such
failure. If Standard Form-LLL is necessary, it may be obtained from Eximbank or
SBA.

Name of Lender     NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION

Signature  /s/ Christopher A. Cudak                    Date June 26, 1997
--------------------------------------------------------------------------------
Name and Title (PRINT OR TYPE) Christopher A. Cudak, Vice President
--------------------------------------------------------------------------------

<PAGE>


                            APPLICATION INSTRUCTIONS

PART A.  PRINCIPAL PARTIES

1.    BORROWER/EXPORTER. Complete this section with information on the
      individual or corporate borrower. Provide the preliminary SIC cord of the
      borrower, rather than the product being exported.

      MANAGEMENT. Complete this section for each proprietor, partner, officer or
      director owning 20% or more of the company.

2.    PERSONAL GUARANTOR(S). The personal guarantee of the owner(s) is required
      in most cases.

3.    LENDER. Leave blank if you are applying for a Preliminary Commitment and a
      prospective lender has not been identified.

PART B. INFORMATION ABOUT THE TRANSACTION 

Provide the loan amount, term and type of loan requested. (See also Checklist
item 3 below.)

PART C.  CERTIFICATIONS

This section must be signed by an authorized representative of the borrower and,
if a request for a final commitment, an authorized representative of the lender.

                     CHECKLIST OF INFORMATION TO BE ATTACHED

BACKGROUND                                                           YES    N/A

1.    Brief resume of principals and key employees.

2.    History of business; copy of business plan, if available; identify whether
      sole proprietorship, general partnership, corporation and/or subchapter-S
      corporation.

3.    Explanation of use of proceeds and benefits of the loan guarantee,
      including details of the underlying transaction(s) for which loan is
      needed, including country(s) where the buyers are located.

4.    Products to be exported are on the United States Munitions Control List
      (Part 121 of Title 22 of the Code of Federal Regulations), OR require a
      validated export license from the Bureau of Export Administration; If Yes,
      please attach explanation. If uncertain whether a validated export license
      is required, written verification from the appropriate licensing agency
      may be required before loan approval.

TRANSACTION

5.    Description of products/services to be exported, including SIC codes and
      literature. (Indicate the percentage of foreign content.)

6.    Copy of letter of credit and/or copy of buyer's order/contract, if
      available.

7.    Export credit insurance-related material (policy, application, buyer
      credit limit), if applicable. 8. Copy of export license, if required.

FINANCIAL INFORMATION

9.    Business financial statements (Balance Sheet, Income Statement, statement
      of Cash Flows) for the last three (3) years, if applicable.

10.   Current financial statement (interim) dated within ninety (90) days of the
      date of application filing. 11. Aging of accounts receivable and accounts
      payable.

12.   The most recent Federal income tax return for the business.

13.   Schedule of all principal officer/owner's compensation for the past three
      (3) years and current year to date [if none, please indicate].

14.   Signed personal financial statement(s) of the major
      shareholder(s)/partner(s) of the company (over 20%) and their most recent
      federal income tax return; (not required for venture capital partners).

15.   Estimate of monthly cash flow for the term of the loan, highlighting the
      proposed export transaction.

16.   Description of type and value of proposed collateral to support the loan
      (company assets/export product, i.e., inventory, accounts receivable,
      other).

17.   Credit memorandum attached, if the Lender is the applicant.

18.   Nonrefundable $100 check or money order made out to the Eximbank or the
      SBA, as appropriate. Eximbank application fee for a Preliminary Commitment
      is $500.

<PAGE>


                         MAILING/FORWARDING INSTRUCTIONS

1. IF SUBMITTED BY A BORROWER/EXPORTER

      a. Is Borrower/Exporter's requested loan                  YES      NO
         amount in Part B, $833,333 or less.                              X

      b. Is Borrower/Exporter a small business,                 YES      NO
         as defined by Title 13 CFR Part 121.601,                X

IF ANSWER TO BOTH OF THE ABOVE IS YES, SEND ENTIRE 
SET OF MATERIALS TO SBA DISTRICT OFFICE NEAREST YOU. 
CALL (800) 827-5722 FOR THE ADDRESS.

SEND YOUR APPLICATION TO EXIMBANK IN ALL OTHER SITUATIONS:

EXPORT-IMPORT BANK OF THE U.S.
QUALITY REVIEW UNIT
811 VERMONT AVENUE, NW
WASHINGTON, DC  20571

2. IF SUBMITTED BY A LENDER.

Is Lender using its Eximbank Delegated Authority?               YES      NO
                                                                 X

IF YES, SEND THE APPLICATION, THE LOAN AUTHORIZATION NOTICE
AND THE $100 APPLICATION FEE TO THE EXIMBANK ADDRESS ABOVE,
IRRESPECTIVE OF THE GUARANTEE AMOUNT.


      If you knowingly make a false statement or over value a security in order
      to obtain a guaranteed loan from SBA or Eximbank, you can be fined up to
      $10,000 or imprisoned for not more than five years (or both) under 18 USC
      1001.

      PUBLIC BURDEN STATEMENTS
      Public burden reporting for this collection of information is estimated to
      average 2 hours per response, including time required for searching
      existing data sources, gathering the necessary data, providing the
      information required, and reviewing the final collection. Send comments on
      the accuracy of this estimate of the burden and recommendations for
      reducing it to: The Office of Management and Budget, Paperwork Reduction
      Project (3048-0003), Washington, DC 20503.

<PAGE>


                                                               OMB NO. 3048-0003
                                                         EXPIRES AUGUST 31, 1997
<TABLE>
<CAPTION>
                                                                   Exhibit A to Joint Application


                       Ownership and Management Structure

                                                              MILITARY SERVICE
NAME AND                                                      ----------------
SOCIAL SECURITY NUMBER    COMPLETE ADDRESS        % OWNED(1)    FROM       TO      *RACE     *SEX
-------------------------------------------------------------------------------------------------
<S>                      <C>                       <C>       <C>         <C>       <C>        <C>
Richard F. Craven         3045 Sussex Road          16.7%       N/A        N/A      Cauc.      M
###-##-####               Orono, MN 55356                                                    

Byron Gary Shaffer        6124 Scotia Drive          4.6%      (Navy)     (Navy)    Cauc.      M
###-##-####               Edina, MN 55439                     June '54   June '56

David W. Stassen          6516 Stauder Circle         <1%       N/A        N/A      Cauc.      M
###-##-####               Edina, MN 55136                                                    

William J. Brummond       7665 Gibralter Terrace     1.4%       N/A        N/A      Cauc.      M
###-##-####               Apple Valley, MN 55124                                             

Donald C. Lies            9425 Toledo Avenue         2.8%       N/A        N/A      Cauc.      M
###-##-####               Bloomington, MN 55437                                              

Richard J. Braun          18710 24th Avenue          2.0%      Army       Army      Cauc.      M
###-##-####               Plymouth, MN 55447                   1968       1970                      

Dennis A. Leese           5608 Brookview Avenue      8.4%       N/A        N/A      Cauc.      M
###-##-####               Edina, MN 55424                                                    

James D. Hanzlik          9650 Summit Place            0%       N/A        N/A      Cauc.      M
###-##-####               Chaska, MN 55318                                                   
                                                                        
</TABLE>
---------------------
(1) RSI 1996 Annual Report, page 16.

<PAGE>


                                                                        ANNEX A2

                   [Two originals to be provided to Eximbank]


To:      Export-Import Bank of the United States
         811 Vermont Avenue, N.W.
         Washington, D.C. 20571
         Attention: Vice President - United States Division

                            LOAN AUTHORIZATION NOTICE

         We hereby notify the Export-Import Bank of the United States
("Eximbank") that, pursuant to the delegated authority granted by Eximbank to
the undersigned institution (the "Lender") under the Delegated Authority Letter
Agreement referred to below between the Leader and Eximbank, we have issued an
Eximbank Guarantee under the Master Guarantee Agreement between Eximbank and the
Lender, of the loan identified below from the Lender to the Borrower (the
"Loans"). The Loan is subject to the specific terms and conditions set forth
below. Unless otherwise defined, the capitalized terms used herein shall have
the meanings set forth in the Master Guarantee Agreement.

(1)      Documentation and Location of Loan Documents:

         Name of Lender:  Norwest Bank Minnesota, National Association

         Delegated Authority Letter Agreement Number:  MN____-DA- 96-A-001

         Master Guarantee Agreement Number:  MN___-MGA- 96-001

         Borrower Agreement Date: June __, 1997

         Location of Loan Documents: Norwest Business Credit, Inc., Norwest
         Center, Sixth Street and Marquette Avenue, Minneapolis, Minnesota
         55479-0152

         If the Borrower was assisted by a city/state export agency, please
         provide the name of the agency, contact person, and telephone number.

               No

<PAGE>


(2)      Borrower's Name and Address: The full name, address, contact person,
         telephone and telefax numbers of the Borrower are as follows:

                  RSI Systems, Inc.                       Tel: (612) 896-3026
                  7400 West Metro Boulevard, Suite 475
                  Edina, Minnesota 55439                  Fax: (612) 896-3030
                  Attention: James D. Hanzlik

         IS THE BORROWER A SMALL BUSINESS AS STIPULATED BY SBA GUIDELINES ?

         __X__ YES _____ NO

(3)      Guarantor's Name and Address: The full name, address, telephone and
         telefax numbers of each Guarantor are as follows:

                  None

         [If there are no guarantors, the word "None" must be inserted above in
         order for this Notice to be considered complete.]

(4)      The Items to be financed:

         A.       The Items: (Complete description of goods and services to be
                  exported, e.g. machine tools, electronic components, logs,
                  etc.)

                  ERI's Video Conferencing Systems
                  Video Flyer Video Conferencing Systems

                  SIC Codes  4822-06, 3577, 7373

         B.       Are Performance Guarantees (e.g. bid bonds, performance bonds,
                  advance payment guarantees in the form of stand-by letters of
                  credit) to be issued under this Loan?

                  |_|      Yes      If yes, approximately what percentage of the
                                    Loan will be utilized for performance
                                    guarantees? _________ 

                  |X|      No

(5)      Loan Amount, Disbursement Terms and Conditions and Disbursement Rates:

         A.       Loan Amount: $500,000

         B.       Disbursement Terms and Conditions:

<PAGE>


                  |X|      Disbursements will be made against multiple Export
                           Orders.

                  |_|      Disbursements will be made against a specific
                           contract.

         C.       Disbursement Rates by Categories of Collateral:

                  1.       Inventory: The Disbursement Rate for Collateral
                           categorized as Inventory shall be as follows:

                                               __60%__ percent

                  2.       Accounts Receivable: The Disbursement Rate for
                           Collateral categorized as Accounts Receivable shall
                           be as follows:

                                               __80%__ percent

                  3.       Other (specify) ___________________________________

                                               _____ percent

         D.       Type of Loan:

         |X|      The Loan is a Revolving Loan.

                  For Revolving Loans identify the top three countries of
                  export:

                  Germany (5%)
                  Singapore (5%)
                  Malaysia (5%)

                  Estimated Total Export Sales to be supported by this Loan:
                  $1,000,000

         |_|      The Loan is a Transaction Specific Loan.

                  For Transaction Specific Loans identify contract or purchase
                  order:

                          Country of Export: _____________________

                          Contract Price: $_______________________

                          Contract Number: _______________________

<PAGE>


                          Contract Date: _________________________

                          Parties: _______________________________

(6)      Security Interests in the Load Collateral:

         Valid and enforceable, perfected security interests in the following
         Collateral, and the proceeds thereof:

         A.       First priority in the following;

                  |_|      All Inventory.

                  |X|      All Export-related Inventory.

                  |_|      Contract-related Inventory.

                  |_|      All Accounts Receivable.

                  |X|      All Export-related Accounts Receivable.

                  |_|      Contract-related Accounts Receivable.

                  |_|      Other collateral, please specify.

                           ____________________________________________________

         B.       Additional Collateral:

                  |_|      Other, please specify. Junior lien on all other
                           assets

                  To the extent applicable, "Export-related Inventory" shall
                  mean all of the Borrower's Inventory which is intended to be
                  sold pursuant to Export Orders. Unless the Export-related
                  Inventory can be effectively segregated, for purposes of claim
                  recoveries under the Master Guarantee Agreement, the
                  Export-related Inventory will be determined on a PRO-RATA
                  basis comparing as of the date of default the amount
                  outstanding under the Loan with the aggregate amount
                  outstanding under all other short term inventory financing of
                  the Borrower. IF THE LENDER ELECTS TO SEPARATELY COLLATERALIZE
                  THE TEN PERCENT (10%) PORTION OF THE LOAN NOT GUARANTEED BY
                  EXIMBANK, THE LENDER SHALL FULLY DESCRIBE SUCH SEPARATE
                  COLLATERAL IN SECTION 8 OF THIS NOTICE IN ORDER FOR THIS
                  NOTICE TO BE CONSIDERED COMPLETE.

<PAGE>


(7)      Terms of Sale (not to exceed 180 days; check all that apply; at least
         one must be checked in order for this Notice to be considered
         complete):

         |X|      Confirmed irrevocable letters of credit.

         |X|      Irrevocable letters of credit.

         |_|      Open account insured through Eximbank export credit insurance
                  for comprehensive and political risk.

         |_|      Open account insured through non-Eximbank export credit
                  insurance for comprehensive commercial and political risk.

         |X|      Cash payment received prior to shipment.

         |X|      Open account uninsured.

         |X|      Sight drafts documents against payment (also known as
                  "documentary collections").

         |_|      Other terms. [If checked, any such terms of sale must be fully
                  described on an attached addendum in order for this Notice to
                  be considered complete.]

(8)      Lender's Interest Rate:     Norwest MN Base Rate + 4%

         Other Fees: _Facility Fee - 1%; Origination Fee - 1%

         Are you separately collateralizing the 10% portion of this Loan? No _x_
         __ Yes      If yes, please specify separate collateral. _______________
         _______________________________________________________________________

         Note: The Lender cannot collateralize its retained 10% risk with cash,
         cash equivalents or marketable securities from either the Borrower, any
         Guarantor, or any of the Exporter's Affiliates (as defined in Section
         7(b) of the Delegated Authority Letter Agreement) or any third party
         guarantors.

(9)      Facility Fee:

         |X|      Loan Amount is less than or equal to $2,000,000: In connection
                  with the commitment of the Guarantee, the Lender shall charge
                  the Borrower a Facility Fee equal to 75 basis points of the
                  total Loan Amount for a term of up to six (6) months or less,
                  or 150 basis points of the total Loan Amount for a term of
                  greater than six (6) and up to twelve (12) months. In all
                  cases, the Lender shall

<PAGE>


                  remit 25 basis points of the total Loan Amount to Eximbank
                  within five (5) Business Days after the Closing Date.
                          Facility Fee remitted: $1,250

         |_|      Loan amount is for more than $2,000,000: In connection with
                  the commitment of the Guarantee, the Lender shall charge the
                  Borrower a Facility Fee as shown in the chart below:

--------------------------------------------------------------------------------
                                                      EXIMBANK   
TERM OF LOAN          LOAN AMOUNT:   FACILITY FEE =   RECEIVES +  LENDER RETAINS

Up to six months
     First            $2,000,000     75 b.p.          25 b.p.     50 b.p.
     Portion over     $2,000,000     75 b.p.          37.5 b.p.   37.5 b.p.

Greater than 6
months, up to 12
months
     First            $2,000,000     150 b.p.         25 b.p.     125 b.p.
     Portion over     $2,000,000     150 b.p.         75 b.p.     75 b.p. 
b.p. = basis point

For a Guarantee with a term exceeding 12 months, the Facility Fee will be
pro-rated accordingly.
--------------------------------------------------------------------------------


                  Facility Fee on first $2,000,000          $___________________

                  Facility Fee on portion over $2,000,000   +___________________

                  Total Facility Fee remitted:              $___________________

(10)     Availability Date: June 25, 1998.

(11)     Country Limitation Schedule: [From time to time, Eximbank will provide
         updated Country Limitation Schedules to all Lenders active in the
         Working Capital Guarantee Program, and to all Delegated Authority
         Lenders. It is the Lender's responsibility to provide a copy to the
         Exporter within seven (7) Business Days of receipt. The updated Country
         Limitation Schedule will supersede the previous Country Limitation
         Schedule.]

<PAGE>


         IN WITNESS WHEREOF, the Lender has caused this instrument to be sealed
this 26th day of June, 1997.


Name of Lender:            NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION

         By:               /s/ Christopher A. Cudak
                           -------------------------
                                (Signature)

         Name:             Christopher A. Cudak
                           -------------------------
                                (Print or Type)

         Title:            Vice President
                           -------------------------
                                (Print or Type)

Address:                                             Telephone: (612) 667-3504

Norwest Center, Sixth St. & Marquette Ave.
Minneapolis, Minnesota 55479-0085                    Telefax: (612) 667-2269

Receipt acknowledged by:

EXPORT-IMPORT BANK OF THE UNITED STATES

By: /s/ Sam Z. Zytcer
    ----------------------------------
                (Signature)

Name: Sam Z. Zytcer
      --------------------------------
                (Print or Type)

Title: Vice President
       -------------------------------
                (Print or Type)

Date: July 9, 1997
      --------------------------------

Eximbank hereby designates the Loan referred to in this Loan Authorization
Notice as Guaranteed Loan No. APO72433XX.

                                                         (Revised April 1, 1996)

<PAGE>


Reminders:

     1)   Did you include the completed application, signed by Exporter and
          Lender?

     2)   Did you include the $100 Application Fee?

     3)   Did you include the appropriate Facility Fee?

     4)   Have you completed the Loan Authorization Notice and submitted TWO
          originals?

If you need assistance in completing this document, please do not hesitate to
contact the U.S. Division directly at 202/565-3780.

<PAGE>


                     EXPORT-IMPORT BANK OF THE UNITED STATES
                        WORKING CAPITAL GUARANTEE PROGRAM
                               BORROWER AGREEMENT

         THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by
RSI SYSTEMS, INC., a Minnesota corporation (the "Borrower"), and is acknowledged
by NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Lender").

                                    RECITALS

         A. The Lender shall make a loan (the "Loan") to the Borrower for the
purpose of providing the Borrower with pre-export working capital to finance the
manufacture, production or purchase and subsequent export sale of the Items (as
hereinafter defined).

         B. The Loan shall be in a principal amount (the "Loan Amount") not to
exceed at any time outstanding the amount specified in Section (5)(A) of the
Loan Authorization Agreement between the Lender and the Export-Import Bank of
the United States ("Eximbank") which is attached hereto as Exhibit A and
incorporated herein as a part of this Agreement. If the Loan is being made
pursuant to the Lender's Delegated Authority from Eximbank, all references
herein to the Loan Authorization Agreement shall be deemed to be to the Loan
Authorization Notice provided to Eximbank and the Borrower by the Lender.

         C. The Loan shall be evidenced by a valid and enforceable promissory
note payable by the Borrower to the order of the Lender (the "Note") and shall
be made pursuant to a written agreement related solely thereto between the
Borrower and the Lender (the "Loan Agreement").

         D. A condition precedent to the making of the Loan by the Lender is
that Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount
and all interest accrued thereon, subject to the terms and conditions of a
master guarantee agreement (the "Master Guarantee Agreement") between Eximbank
and the Lender.

         E. In consideration for and as a condition precedent to the Lender's
making the Loan and Eximbank's entering into the Master Guarantee Agreement, the
Borrower shall execute this Agreement for the benefit of the Lender and
Eximbank.

<PAGE>


          NOW, THEREFORE, the Borrower hereby agrees as follows:

                                    ARTICLE I

                                   DEFINITIONS

          "Accounts Receivable" shall mean those trade accounts from the sale of
the Items due and payable to the Borrower in the United States and any notes,
drafts, letters of credit or insurance proceeds supporting payment thereof.

          "Availability Date" shall mean the last date on which the Lender may
make a Disbursement as set forth in Section (10) of the Loan Authorization
Agreement or, if such date is not a Business Day, the next Business Day
thereafter.

          "Borrowing Base" shall mean the Collateral Value as discounted by the
applicable Disbursement Rate(s).

          "Borrowing Base Certificate" shall mean the certificate in form
provided by the Lender and executed by the Borrower setting forth the Borrowing
Base supporting one or more Disbursements.

          "Business Day" shall mean any day on which the Federal Reserve Bank of
New York is open for business.

          "Buyer" shall mean an entity which has entered into one or more Export
Orders with the Borrower.

          "Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.

          "Collateral" shall mean the property of the Borrower in which the
Borrower has granted to the Lender a valid and enforceable security interest as
security for the payment of all principal and interest due under the Loan, and
which is identified in Section (6) of the Loan Authorization Agreement,
including all proceeds (cash and non-cash) thereof.

           "Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in Section
(5)(C) of the Loan Authorization Agreement, valued according to GAAP.

          "Country Limitation Schedule" shall mean 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.

          "Debarment Regulations" shall have the meaning set forth in Section
2.16.

<PAGE>


          "Disbursed Amount" shall mean the aggregate outstanding amount of the
Disbursements.

          "Disbursement" shall mean an advance of the Loan from the Lender to
the Borrower under the Loan Agreement.

          "Disbursement Rate" shall mean the rate specified in Section (5)(C) of
the Loan Authorization Agreement for each category of Collateral.

          "Dollars" or "$" shall mean the lawful money of the United States of
America.

          "Export Order" shall mean a written export order or contract for the
purchase by the Buyer from the Borrower of any of the Items.

          "GAAP" shall mean the generally accepted accounting principles issued
by the American Institute of Certified Public Accountants.

          "Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee (jointly and
severally if more than one) the Borrower's obligation to repay all amounts
outstanding under the Note.

          "Inventory" shall mean the raw materials, work-in-process and finished
goods purchased or manufactured by the Borrower for resale and located in the
United States.

          "Items" shall mean the finished goods or services which are intended
for export, as specified in Section (4)(A) of the Loan Authorization Agreement.

          "Letter of Credit" shall mean an irrevocable letter of credit subject
to UCP 500, payable in the United States or at the issuing bank and issued
either: (i) for the benefit of the Borrower on behalf of a Buyer in connection
with the purchase of the Items; or (ii) for the benefit of United States
supplier(s) on behalf of the Borrower in connection with the purchase of goods
or services from the supplier by the Borrower, which purchase is in support of
the export sales financed under the Loan.

          "Loan Documents" shall mean the Note, the Loan Agreement, this
Agreement and any other instrument, agreement or document previously,
simultaneously or hereafter executed by the Borrower or any Guarantors
evidencing, securing, guaranteeing or in connection with the Loan.

          "Principals" shall have the meaning set forth in Section 2.16.

          "Revolving Loan" shall mean a Loan under which amounts disbursed and
repaid may be disbursed on a continuous basis during the term of the Loan.

          "Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.

<PAGE>


          "U.S." or "United States" shall mean the United States of America and
its territorial possessions.

          "U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and which are
incorporated into an Item in the United States

                                   ARTICLE II

                           OBLIGATIONS OF THE BORROWER

          Until payment in full of the Loan, the Borrower agrees to the
following:

          Section 2.1 Use of Disbursements. The Borrower shall use Disbursements
only for the purpose of enabling the Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. The Borrower may not
use Disbursements for the purpose of: (a) servicing any of the Borrower's
pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed
assets or capital goods for use in the Borrower's business; (c) acquiring,
equipping or renting commercial space outside of the United States; (d) paying
the salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in offices outside the United States; or (e) serving as a retainage or
warranty bond.

          In addition, Disbursements may not be used to finance the manufacture,
purchase or sale of any of the following:

          (a) Items to be sold to a Buyer located in a country in which Eximbank
is legally prohibited from doing business as designated in the Country
Limitation Schedule;

          (b) that part of the cost of the Items which is not U.S. Content
unless such part is not greater than fifty percent (50%) of the cost of the
Items and is incorporated into the Items in the United States;

          (c) defense articles or defense services; or

          (d) without Eximbank's prior written consent, any Items to be used in
the construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water Production facilities.

          Section 2.2 Borrowing Base Certificates and Export Orders. In order to
receive a Disbursement under the Loan, the Borrower shall deliver to the Lender
a Borrowing Base Certificate current within the past five (5) Business Days and
a copy of the Export Order(s) (or, for Revolving Loans, if permitted by the
Lender, a written summary of the Export Orders) against which the Borrower is
requesting a Disbursement. If the Lender permits summaries of Export Orders, the
Borrower shall also deliver promptly to the Lender copies of any Export Orders
requested by the Lender. Additionally, the Borrower shall deliver to the Lender
at least

<PAGE>


once every thirty (30) calendar days a Borrowing Base Certificate current within
the past five (5) Business Days, which requirement may be satisfied by
submission of a Borrowing Base Certificate when requesting a Disbursement.

          Section 2.3 Exclusions from the Borrowing Base. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:

          (a) any Inventory which is not located in the United States;

          (b) any demonstration Inventory or Inventory sold on consignment;

          (c) any Inventory consisting of proprietary software;

          (d) any Inventory which is damaged, obsolete, returned, defective,
recalled or unfit for further processing;

          (e) any Inventory which has been previously exported from the United
States;

          (f) any Inventory which constitutes defense articles or defense
services or any Accounts Receivable generated by sales of such Inventory;

          (g) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank is legally prohibited from doing business as
designated in the Country Limitation Schedule;

          (h) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only to the extent
that such Items are to be sold to such country on terms of a Letter of Credit
confirmed by a bank acceptable to Eximbank:

          (i) any Inventory which is to be incorporated into Items whose sale
would result in an ineligible Account Receivable;

          (j) any Account Receivable with a term in excess of net one hundred
eighty (180) days;

          (k) any Account Receivable which is more than sixty (60) calendar days
past the 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 ninety (90)
calendar days shall apply;

          (l) any intra-company Account Receivable or any Account Receivable
from a subsidiary of the Borrower, from a person or entity with a controlling
interest in the Borrower or from an entity which shares common controlling
ownership with the Borrower;

<PAGE>


          (m) any Account Receivable evidenced by a Letter of Credit, until the
date of shipment of the Items covered by the subject Letter of Credit;

          (n) any Account Receivable which the Lender or Eximbank, in its
reasonable judgment, deems uncollectible for any reason;

          (o) any Account Receivable payable in a currency other than Dollars,
except as may be approved in writing by Eximbank;

          (p) any Account Receivable from a military Buyer, except as may be
approved in writing by Eximbank; and

          (q) any Account Receivable due and collectible outside the United
States, except as may be approved in writing by Eximbank.

          Section 2.4 Schedules, Reports and Other Statements. The Borrower
shall submit to the Lender in writing each month (a) an Inventory schedule for
the preceding month and (b) an Accounts Receivable aging report for the
preceding month detailing, the terms of the amounts due from each Buyer. The
Borrower shall also furnish to the Lender promptly upon request such
information, reports, contracts, invoices and other data concerning the
Collateral as the Lender may from time to time specify.

          Section 2.5 Additional Security or Payment. The Borrower shall at all
times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed
by the Lender or if the Borrower otherwise has actual knowledge that the
Borrowing Base is at any time less than the Disbursed Amount, the Borrower
shall, within five (5) Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b)
pay to the Lender an amount equal to the difference between the Disbursed Amount
and the Borrowing Base.

          Section 2.6 Continued Security Interest. The Borrower shall notify the
Lender in writing within five (5) Business Days if (a) the Borrower changes its
name or identity in any manner, (b) the Borrower changes the location of its
principal place of business, (c) the nature of any of the Collateral is changed
or any of the Collateral is transferred to another location or (d) any of the
books or records related to the Collateral are transferred to another location.
The Borrower shall execute such additional financing statements or other
documents as the Lender may reasonably request in order to maintain its
perfected security interest in the Collateral.

          Section 2.7 Inspection of Collateral. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during normal
business hours reasonable inspections of the Collateral and of the Borrower's
facilities, activities, and books and records, and shall cause its officers and
employees to give full cooperation and assistance in connection therewith.

<PAGE>


          Section 2.8 Notice of Debtor's Relief, Dissolution and Litigation. The
Borrower shall notify the Lender in writing within five (5) Business Days of the
occurrence of any of the following:

          (a) a proceeding in bankruptcy or an action for debtor's relief is
filed by, against, or on behalf of the Borrower;

          (b) the Borrower fails to obtain the dismissal or termination within
thirty (30) calendar days of the commencement of any proceeding or action
referred to in (a) above;

          (c) the Borrower begins any procedure for its dissolution or
liquidation, or a procedure therefore has been commenced against it; or

          (d) any material litigation is filed against the Borrower.

          Section 2.9 Insurance. The Borrower shall maintain insurance coverage
in the manner and to the extent customary in businesses of similar character.

          Section 2.10 Merger or Consolidation. Without the prior written
consent of Eximbank and the Lender, the Borrower shall not (a) merge or
consolidate with any other entity, (b) sell, lease, transfer or otherwise
dispose of any substantial part of its assets, or any part of its assets which
are essential to the conduct of its business or operations, (c) make any
material change in its organizational structure or identity, or (d) enter into
any agreement to do any of the foregoing.

          Section 2.11 Reborrowings and Repayment Terms. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any of the
Loan Documents, the Borrower may borrow, repay and reborrow amounts under the
Loan until the close of business on the Availability Date. Unless the Revolving
Loan is renewed or extended by the Lender, the Borrower shall pay in full the
outstanding Loan Amount and all accrued and unpaid interest thereon no later
than the first Business Day after the Availability Date.

          (b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender (for
application against the outstanding Loan Amount and accrued and unpaid interest
thereon) all checks, drafts, cash and other remittances it may receive in
payment or on account of the Accounts Receivable or any other Collateral, in
precisely the form received (except for the endorsement of the Borrower where
necessary). Pending such deposit, the Borrower shall not commingle any such
items of payment with any of its other funds or property, but will hold them
separate and apart.

          Section 2.12 Cross Default. The Borrower shall be deemed in default
under the Loan if the Borrower fails to pay when due any amount payable to the
Lender under any loan to the Borrower not guaranteed by Eximbank.

<PAGE>


          Section 2.13 Financial Statements. The Borrower shall provide
quarterly financial statements to the Lender no later than forty-five (45) days
after the end of each quarter. This is in addition to any other financial
statements that may be required by the Lender under the Loan Agreement.

          Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain
current on all of its federal, state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any judgment is rendered
against the Borrower, or (ii) any lien is filed against any of the assets of the
Borrower.

          Section 2.15 Munitions List. If any of the Items are articles,
services, or related technical data that are listed on the United States
Munitions List (part 121 of title 22 of the Code of Federal Regulations), the
Borrower shall send a written notice promptly to the Lender describing the
Item(s) and the corresponding invoice amount.

          Section 2.16 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor its Principals (as defined below) are (A)
debarred, suspended, proposed for debarment with a final determination skill
pending, declared ineligible or voluntarily excluded (as such terms are defined
under any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations (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 United States federal government department or agency pursuant to any of the
Debarment Regulations. The Borrower will provide immediate written notice to the
Lender if at any time it learns that the certification set forth in this Section
2.16 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 Governmentwide 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
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).

          Section 2.17 Special Conditions. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.

<PAGE>


                                   ARTICLE III

                               RIGHTS AND REMEDIES

          Section 3.1 Indemnification. Upon Eximbank's payment of a claim to the
Lender in connection with the Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the Lender under the Loan
Documents and may enforce any such rights or remedies against the Borrower, the
Collateral and any Guarantors. Additionally, the Borrower shall hold Eximbank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Eximbank or the Lender in connection with
the Loan, this Agreement or any of the other Loan Documents or (b) any material
breach by the Borrower of the terms and conditions of this Agreement or any of
the other Loan Documents. The Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the Loan
is subject to the penalties provided in Article 18 U.S.C. Section 1001.

                                   ARTICLE IV

                                  MISCELLANEOUS

          Section 4.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United States of
America.

          Section 4.2 Notification. All notifications required by this Agreement
shall be given in the manner provided in the Loan Agreement.

          Section 4.3 Partial Invalidity. If at any time any of the provisions
of this Agreement becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be affected
or impaired.

<PAGE>


         IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed as of the 26th day of June, 1997.

                                   RSI SYSTEMS, INC.

                                   By /s/ Donald C. Lies
                                      -----------------------------------------
                                      Donald C. Lies
                                      Its President and Chief Executive Officer

ACKNOWLEDGED:

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION

By /s/ Christopher A. Cudak
   ------------------------------------
   Christopher A. Cudak
   Its Vice President

Guaranteed Loan No. APO72933XX

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                                    Exhibit A

                          Loan Authorization Agreement