Exhibit 10.1

 

SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT

AND SECURITY AGREEMENT

 

THIS SEVENTH AMENDMENT (the “Amendment”), dated effective as of May 7, 2015, is
entered into by and between NORTECH SYSTEMS INCORPORATED, a Minnesota
corporation (“Company”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells
Fargo”), acting through its Wells Fargo Business Credit operating division.

 

RECITALS

 

A.                                    Company and Wells Fargo are parties to a
Third Amended and Restated Credit and Security Agreement dated May 27, 2010 (as
amended from time to time, the “Credit Agreement”). Capitalized terms used in
these recitals have the meanings given to them in the Credit Agreement unless
otherwise specified.

 

B.                                    Wells Fargo previously made (a) a
revolving loan to the Company evidenced by that certain Second Amended and
Restated Revolving Note dated as of January 6, 2011 made payable to the order of
Wells Fargo in the original principal amount of $13,500,000.00 (the “Existing
Revolving Note”); (b) equipment loans to the Company evidenced by:  (i) that
certain Equipment Term Note dated January 6, 2011 in the original principal
amount of $475,000.00; (ii) that certain Amended and Restated Capex Term Note
dated May 12, 2012 in the original principal amount of $2,000,000; and
(iii) that certain 2014 Capex Term Note dated May 16, 2014 in the original
principal amount of $1,000,000 (collectively, the “Existing M&E Term Loans” and
the “Existing M&E Term Notes,” respectively); and (c) real estate term loans to
the company evidenced by:  (i) that certain Amended and Restated Real Estate
Term Note dated December 31, 2012 in the original principal amount of
$1,707,894.46; and (ii) that certain 2012 Real Estate Term Note dated
December 31, 2012, in the original principal amount of $1,674,000.00.

 

C.                                    The Company has requested that certain
amendments be made to the Credit Agreement, which Wells Fargo is willing to make
pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:

 

1.                                      Definitions.  The following definitions
are hereby amended or added to Exhibit A to the Credit Agreement as appropriate:

 

“EBITDA” means, with respect to any fiscal period, the net income (or loss), of
the Company, minus extraordinary gains, interest income, non-operating income
and income tax benefits and decreases in any change in LIFO reserves, plus
non-cash extraordinary losses, interest expense, income taxes, depreciation and
amortization and increases in any change in LIFO reserves for such period, in
each case, determined in accordance with GAAP.

 

“Fixed Charge Coverage Ratio” means, with respect to the Company and its
Subsidiaries for any period, the ratio of (i) EBITDA for such period, minus
(a) non-financed Capital Expenditures made (to the extent not already incurred
in a prior period) or incurred during such period, and (b) cash taxes paid
during such period, to the extent greater than zero, to (ii) Fixed Charges for
such period.

 

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“Fixed Charges” means, with respect to any fiscal period and with respect to the
Company and its Subsidiaries determined in accordance with GAAP, the sum,
without duplication, of (a) cash interest expense paid during such period (other
than interest paid-in-kind, amortization of financing fees, and other non-cash
interest expense), (b) principal payments paid in cash in respect of
Indebtedness paid during such period, including cash payments with respect to
capital leases, but excluding principal payments made with respect to the Lind
of Credit, and (c) all dividends and distributions (other than Pass-Through Tax
Liabilities) paid in cash during such period.

 

“Line of Credit” means the $15,000,000 Line of Credit as set forth in
Section 1.3.

 

“Non-Financed Capital Expenditures” means Capital Expenditures not financed by
the seller of the capital asset, by a third party lender or by means of any
extension of credit by Lender other than by means of an Advance under the Line
of Credit.

 

“Maturity Date” means (a) with respect to the Line of Credit, May 31, 2018,
(b) with respect to the Term Loan, March 31, 2027, (c) with respect to the 2015
Equipment Term Loan, May 31, 2018, (d) with respect to the 2012 Real Estate Term
Loan, December 31, 2027 and (e) with respect to the 2015 Capex Term Loan,
May 31, 2018.

 

“Seventh Amendment” means that certain Seventh Amendment to Third Amended and
Restated Credit and Security Agreement dated as of May 7, 2015, by and between
the Company and Wells Fargo.

 

“Term Loans” means collectively, the Term Loan, the Equipment Term Loan, the
2012 Real Estate Term Loan and the 2015 Capex Term Loan.

 

“Term Notes” means collectively, the Term Note, the 2015 Equipment Term Note,
the the 2012 Real Estate Term Note and the 2015 Capex Term Note.

 

2.                                      Line of Credit; Limitations on
Borrowings; Termination Date; Use of Proceeds.  Section 1.1(a) and 1.1(b) are
hereby deleted in their entirety and replaced with the following:

 

(a)                                 Existing Advances.  Wells Fargo has made
various revolving advances to the Borrower (the “Existing Revolving Advances”)
as evidenced by the Credit Agreement and the Existing Revolving Note.  As of the
date of the Seventh Amendment, the outstanding principal balance of the Existing
Revolving Advances was $[7,903,975.80].  As of the effective date of the Seventh
Amendment the Existing Revolving Advances shall be deemed to be Advances made
pursuant to Section 1.1(b) and shall be evidenced by and repayable in accordance
with that certain Third Amended and Restated Revolving Note dated as of May 7,
2015 and made payable to the order of Wells Fargo in an original principal
amount of up to Fifteen Million and No/100 Dollars ($15,000,000) (as renewed,
amended, substituted or replaced from time to time, the “Revolving Note”).

 

(b)                                 Line of Credit and Limitations on
Borrowing.  Wells Fargo shall make Advances to Company under the Line of Credit
that, together with the L/C Amount, shall not at any time exceed in the
aggregate the lesser of (i) $15,000,000 (the “Maximum Line Amount”), or (ii) the
Borrowing Base limitations described in Section 1.2.  Within these limits,
Company may periodically borrow, prepay in whole or in part, and reborrow. 
Wells Fargo has no obligation to make an Advance during a Default Period or at
any time Wells Fargo believes that an Advance would result in an Event of
Default.

 

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3.                                      Borrowing Base.  Section 1.2 of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:

 

1.2                               Borrowing Base; Mandatory Prepayment.

 

(a)                                 Borrowing Base.  The borrowing base (the
“Borrowing Base”) is an amount equal to:

 

(i)                                     85% or such lesser percentage of
Eligible Accounts as Wells Fargo in its sole discretion may deem appropriate;
provided that this rate may be reduced at any time by Wells Fargo’s in its sole
discretion by one (1) percent for each percentage point by which Dilution on the
date of determination is in excess of five percent (5.00%), plus

 

(ii)                                  the lesser of $2,000,000 or 85% or such
lesser percentage of Eligible Foreign Accounts as Wells Fargo in its sole
discretion may deem appropriate; provided that this rate may be reduced at any
time by Wells Fargo in its sole discretion by on percent (1.0%) for each
percentage point by which Dilution on the date of determination is in excss of
five percent (5.0%), plus

 

(iii)                               the lesser of $5,000,000 or the sum of:

 

a.                                      37.9% or such lesser percentage of
Eligible Finished Goods Inventory as Wells Fargo in its sole discretion may deem
appropriate, plus

 

b.                                      the lesser of $3,000,000, or 35.9% or
such lesser percentage of Eligible Raw Materials Inventory as Wells Fargo in its
sole discretion may deem appropriate; less

 

(iv)                              the Availability Reserve; less

 

(v)                                 the Borrowing Base Reserve, less

 

(vi)                              the Foreign Receivable Reserve, less

 

(vii)                           the L/C Amount, less

 

(viii)                        Indebtedness (other than the L/C Amount and
Indebtedness evidenced by the Term Note and/or the Reimbursement Agreement) that
Company owes Wells Fargo that has not been advanced on the Revolving Note, less

 

(ix)                              Indebtedness (other than the L/C Amount and
Indebtedness evidenced by the Term Note and/or the Reimbursement Agreement) that
is not otherwise described in Section 1, including Indebtedness that Wells Fargo
in its sole discretion finds on the date of determination to be equal to Wells
Fargo’s net credit exposure with respect to any Rate Hedge Agreement,
derivative, foreign exchange, deposit, treasury management or similar
transaction or arrangement extended to Company by Wells Fargo.

 

4.                                      2015 Equipment Term Loan.  Section 1.7A
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

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1.7A                      2015 Equipment Term Loan.

 

(a)                                 Existing Term Loans/Additional Term Loan
Advance.  Wells Fargo previously extended the Existing M&E Term Loans to the
Company as evidenced by the Existing M&E Term Notes repayable in accordance with
the terms set forth therein and in this Agreement.  As of the date of the
Seventh Amendment the outstanding principal balance under the Existing M&E Term
Notes is $1,729,641.45.  Contemporaneously with the execution and delivery of
the Seventh Amendment, Wells Fargo will make an additional Term Loan Advance to
Company in an amount not to exceed [$1,005,158.55.]   All Advances outstanding
under the Existing M&E Term Notes shall be deemed to be Advances under the 2015
Equipment Term Note Advances under the 2015 Equipment Term Note (including those
previously made under the Existing M&E Term Notes shall not in any event exceed
the lesser of:  (i) $2,734,800 or (ii) 85% of the net orderly liquidation value
of the Company’s Equipment.

 

(b)                                 Equipment Term Note.  Company’s obligation
to repay the 2015 Equipment Term Loan (including the Advances previously made
under the Existing M&E Term Notes) and each 2015 Equipment Term Loan Advance
shall be evidenced by an installment promissory note in the original principal
amount of $2,734,800.00 (as renewed, amended, or replaced from time to time, the
“2015 Equipment Term Note”).  The 2015 Equipment Term Note shall be delivered in
replacement of and substitution for (but not in repayment or satisfaction of)
the Existing M&E Term Notes.

 

(c)                                  Term Loan Advance and Disbursement. 
Company must request the Equipment Term Loan Advance no later than 11:59 a.m.
Central Time on the Business Day on which Company wishes the Advance to be
disbursed. Wells Fargo shall deposit the proceeds of each Term Loan Advance or
to Company’s Operating Account, or disburse the proceeds in such other manner as
the parties may agree in an Authenticated Record.  Upon request, Company shall
confirm its request for an Advance in an Authenticated Record, and agrees that
it shall repay the Term Loan even if the Person requesting any Term Loan Advance
on behalf of Company lacked authorization.

 

(d)                                 Payments and Adjustments to Payments.  The
unpaid principal amount of the 2015 Equipment Term Note shall be paid in equal
monthly installments of $45,580.00, beginning on May 31, 2015, and on the last
calendar day of each succeeding month until the earlier of the Maturity Date or
the Termination Date, when the unpaid principal and interest evidenced by the
2015 Equipment Term Note shall be fully due and payable.  Installment payments
may be adjusted by Wells Fargo from time to time to an amount that would fully
amortize the Equipment Term Note in substantially equal payments of principal
through April 30, 2020 (the “Assumed Maturity Date”).  Payments shall be
collected by Wells Fargo through a debit to the 2015 Equipment Term Note and a
simultaneous Line of Credit Advance in the same amount, or by such other method
as the parties may agree in an Authenticated Record.  Proceeds from the
liquidation of Collateral acquired with 2015 Equipment Term Loan proceeds will
be applied to the 2015 Equipment Term Note.

 

(e)                                  Prepayments and Mandatory Prepayments. 
Company may prepay the 2015 Equipment Term Loan at any time.  If Wells Fargo
obtains an appraisal of the Equipment at any time as permitted under this
Agreement, and the appraisal shows the aggregate unpaid principal amount of the
2015 Equipment Term Note to exceed (i) eighty-five percent (85%) of the Net
Orderly Liquidation Value or (ii) one hundred percent (100%)  Net Forced
Liquidation Value of Eligible Equipment, then Company, shall immediately prepay
the unpaid principal of the 2015 Equipment Term Note in the amount of such
excess.

 

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(f)                                   Collection of Prepayments and Related
Fees.  All Term Loan prepayments, including mandatory prepayments and
prepayments due on the Termination Date, must be accompanied by any prepayment
and Fixed Rate Advance breakage fees payable under this Agreement, which will be
applied to the most remote principal installments then due and payable.  Any
prepayment of principal and any related fees shall be collected by Wells Fargo
through a debit to the Term Note and a simultaneous Line of Credit Advance in
the same amount, or by such other method as the parties may agree.

 

5.                                      Capex Loan.  Section 1.7B of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:

 

Section 1.7B                           Intentionally Omitted.

 

6.                                      2015 Capex Term Loan.  Section 1.7D of
the Credit Agreement is hereby deleted in its entirety and replaced with the
following:

 

Section 1.7D                          2015 Capex Term Loan.

 

(a)                                 2015 Capex Term Loan.  Wells Fargo shall
extend the 2015 Capex Term Loan to Company through one or more Advances (each a
“2015 Capex Term Loan Advance”) which must be requested no later than May 31,
2018, in an aggregate amount not in excess of One Million Dollars ($1,000,000). 
Each Advance must be in multiples of $1,000 and in the minimum amount of at
least $100,000, provided, however, that Wells Fargo shall make no 2015 Capex
Term Loan Advance if, after making it, the unpaid principal amount of the 2015
Capex Term Note would exceed the lesser of (i) ninety percent (90%) of the Hard
Costs of the newly acquired Eligible Equipment, (ii) eighty-five percent (85%)
of the Net Orderly Liquidation Value of the newly acquired Eligible Equipment,
and (iii) one hundred percent (100%) of the Net Forced Liquidation Value of the
newly acquired Eligible Equipment.

 

(b)                                 2015 Capex Term Note.  Company’s obligation
to repay the 2015 Capex Term Loan and each 2015 Capex Term Loan Advance shall be
evidenced by an installment promissory note (as renewed, amended, or replaced
from time to time, the “2015 Capex Term Note”).

 

(c)                                  2015 Capex Term Loan Advances and
Disbursements.  Company must request each 2015 Capex Term Loan Advance no later
than 11:59 a.m. Central Time on the Business Day on which Company wishes the
Advance to be disbursed. Wells Fargo shall deposit the proceeds of each 2015
Capex Term Loan Advance or to Company’s Operating Account, or disburse the
proceeds in such other manner as the parties may agree in an Authenticated
Record.  Upon request, Company shall confirm its request for a 2015 Capex Term
Loan Advance in an Authenticated Record, and agrees that it shall repay the 2015
Capex Term Loan even if the Person requesting any 2015 Capex Term Loan Advance
on behalf of Company lacked authorization.

 

(d)                                 Payments and Adjustments to Payments.  The
unpaid principal amount of each 2015 Capex Term Loan Advance made under the 2015
Capex Term Note shall be paid in sixty equal monthly installments, beginning on
the last day of the month following the month in which the 2015 Capex Term Loan
Advance was made and on the last calendar day of each succeeding month until the
earlier of the Maturity Date, or the Termination Date, when the unpaid principal
and interest evidenced by the 2015 Capex Term Note shall be fully due and
payable.  Installment payments may be adjusted by Wells Fargo from time to time
to an amount that would fully amortize the Term Note in sixty (60) equal
payments of principal commencing on the date of the

 

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most recent Advance (the “Assumed Maturity Date”).  If Wells Fargo disburses
multiple 2015 Capex Term Loan Advances, the amount of subsequent payments may be
increased to fully amortize the Term Note by the Assumed Maturity Date. 
Payments shall be collected by Wells Fargo through a debit to the 2015 Capex
Term Note and a simultaneous Line of Credit Advance in the same amount, or by
such other method as the parties may agree in an Authenticated Record.  Proceeds
from the liquidation of Collateral acquired with 2015 Capex Term Loan proceeds
will be applied to the 2015  Capex Term Note.

 

(e)                                  Prepayments and Mandatory Prepayments. 
Company may prepay the 2015 Capex Term Loan at any time.  If Wells Fargo obtains
an appraisal of the Equipment at any time as permitted under this Agreement, and
the appraisal shows the aggregate unpaid principal amount of the 2015 Capex Term
Note to exceed the lesser of (a) eighty-five percent (85%) of the Net Orderly
Liquidation Value of Eligible Equipment acquired with the proceeds of the 2015
Capex Term Loan or (b) one hundred percent (100%) of the Net Forced Liquidation
Value of Eligible Equipment acquired with the proceeds of the 2015 Capex Term
Loan, then Company, shall immediately prepay the unpaid principal of the 2015
Capex Term Note in the amount of such excess.

 

(f)                                   Collection of Prepayments and Related
Fees.  All 2015 Capex Term Loan prepayments, including mandatory prepayments and
prepayments due on the Termination Date, must be accompanied by any prepayment
and Fixed Rate Advance breakage fees (if any) payable under this Agreement,
which will be applied to the most remote principal installments then due and
payable.  Any prepayments of principal and any related fees shall be collected
by Wells Fargo through a debit to the 2015 Capex Term Note and a simultaneous
Line of Credit Advance in the same amount, or by such other method as the
parties may agree.

 

7.                                      Interest and Interest Related Matters. 
Section 1.8(a) of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:

 

1.8                               Interest and Interest Related Matters.

 

(a)                                 Interest Rates Applicable to Line of Credit
and Term Loan.  Except as otherwise provided in this Agreement, the unpaid
principal amount of each Line of Credit Advance evidenced by the Revolving Note,
and the unpaid principal balance of the Term Loans evidenced by the Term Notes,
shall accrue interest at an annual interest rate calculated as follows:

 

Floating Rate Pricing

 

(i)                                     The “Floating Rate” for Line of Credit
Advances = An interest rate equal to Daily Three Month LIBOR plus two and
one-quarter of one percent (2.25%), which interest rate shall change whenever
Daily Three Month LIBOR changes;

 

(ii)                                  The “Floating Rate” for the Term Loans =
An interest rate equal to Daily Three Month LIBOR plus two and three quarters of
one percent (2.75%), which interest rate shall change whenever Daily Three Month
LIBOR changes;

 

8.                                      Interest Payments and Interest Accrual. 
Section 1.10(a) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:

 

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(a)                                 Interest Payments and Interest Accrual. 
Accrued and unpaid interest under the Revolving Note and the Term Notes on
Floating Rate Advances shall be due and payable on the first day of each month
(each an “Interest Payment Date”) and on the Termination Date, and shall be paid
in the manner provided in Section 1.6(c) and Sections 1.7(c), 1.7A(d), and
1.7C(d) and 1.7D(d).  Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
Advance to the Interest Payment Date.

 

9.                                      Financial Covenants.  Section 5.2 of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:

 

5.2                               Financial Covenants.  Company agrees to comply
with the financial covenants described below, which shall be calculated using
GAAP consistently applied.

 

(a)                                 Minimum Fixed Charge Coverage Ratio. 
Company shall maintain on a trailing twelve month basis, measured monthly, a
Fixed Charge Coverage Ratio of not less than (i) 1.10 to 1.00 for the trailing
twelve month period ending January 31, 2015, up to and including September 30,
2015, and (ii) 1.20 to 1.00 for each period thereafter.

 

(b)                             Stop Loss.  Company shall not, during any single
month, suffer a pre-tax Net Loss in excess of $250,000.00.

 

10.                               Compliance Certificate.  Exhibit E to the
Credit Agreement is hereby replaced with Exhibit E attached hereto.

 

11.                               Amendment Fee.  In consideration of Wells
Fargo entering into this Amendment, the Company agrees to pay to Wells Fargo a
fully earned non-refundable amendment fee of $5,000 payable on the date of the
Seventh Amendment.

 

12.                               Conditions Precedent. This Amendment shall be
effective when Wells Fargo shall have received an executed original hereof,
together with executed copies (as applicable) of the following:

 

(a)                                 A $15,000,000 Revolving Note;

 

(b)                                 A 2015 Equipment Term Note;

 

(c)                                  A 2015 Capex Term Note;

 

(d)                                 A Seventh Amendment to Letter of Credit and
Reimbursement Agreement;

 

(e)                                  A Certificate of Authority of the Company;

 

(f)                                   Amendments to each of the Mortgages;

 

(g)                                  Such other matters as Wells Fargo may
require.

 

13.                               Representations and Warranties. The Company
hereby represents and warrants to Wells Fargo as follows:

 

(a)                                 The Company has all requisite power and
authority to execute this Amendment and any other agreements or instruments
required hereunder and to perform all of its obligations hereunder, and this
Amendment and all such other agreements and instruments has been duly

 

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executed and delivered by the Company and constitute the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.

 

(b)                                 The execution, delivery and performance by
the Company of this Amendment and any other agreements or instruments required
hereunder have been duly authorized by all necessary corporate action and do not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Company, or the articles of incorporation or by-laws of the Company, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Company is a party or by which it or its properties may be bound or affected.

 

(c)                                  All of the representations and warranties
contained in Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.

 

14.                               References.  All references in the Credit
Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement
as amended hereby; and any and all references in the Security Documents to the
Credit Agreement shall be deemed to refer to the Credit Agreement as amended
hereby.

 

15.                               No Other Waiver.  The execution of this
Amendment and the acceptance of all other agreements and instruments related
hereto shall not be deemed to be a waiver of any Default or Event of Default
under the Credit Agreement or a waiver of any breach, default or event of
default under any Security Document or other document held by Wells Fargo,
whether or not known to Wells Fargo and whether or not existing on the date of
this Amendment.

 

16.                               Release. The Company hereby absolutely and
unconditionally releases and forever discharges Wells Fargo, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Company has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.

 

17.                               Costs and Expenses. The Company hereby
reaffirms its agreement under the Credit Agreement to pay or reimburse Wells
Fargo on demand for all costs and expenses incurred by Wells Fargo in connection
with the Loan Documents, including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the
foregoing, the Company specifically agrees to pay all fees and disbursements of
counsel to Wells Fargo for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental hereto. The Company hereby agrees that Wells Fargo may, at any time
or from time to time in its sole discretion and without further authorization by
the Company, make a loan to the Company under the Credit Agreement, or apply the
proceeds of any loan, for the purpose of paying any such fees, disbursements,
costs and expenses and the fee required under Paragraph 10 of this Amendment.

 

18.                               Miscellaneous. This Amendment may be executed
in any number of counterparts including by facsimile or electronic (pdf)
transmission, each of which when so executed and delivered

 

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shall be deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.

 

[Signature Page Follows]

 

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

 

WELLS FARGO BANK,

NORTECH SYSTEMS INCORPORATED

 NATIONAL ASSOCIATION

 

 

 

 

 

 

By:

 

 

By:

 

 

Thomas G. Hedberg

 

Name:

Paula M. Graff

 

Its Vice President

Its:

Vice President and Chief Financial Officer

 

[Signature Page to Seventh Amendment to Third Amended
and Restated Credit and Security Agreement]

 

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Exhibit E to Credit and Security Agreement

 

COMPLIANCE CERTIFICATE

 

To:                                       Wells Fargo Bank, National Association

Date:                                                             , 201  

Subject:             Financial Statements

 

In accordance with our Third Amended and Restated Credit and Security Agreement
dated May 27, 2010 (as amended from time to time, the “Credit Agreement”),
attached are the financial statements of Nortech Systems Incorporated (the
“Company”) dated [                              , 201    ] (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.

 

A.                                    Preparation and Accuracy of Financial
Statements.  I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
Company’s financial condition as of the Reporting Date.

 

B.                                    Name of Company; Merger and
Consolidation.  I certify that:

 

(Check one)

 

o                                    Company has not, since the date of the
Credit Agreement, changed its name or jurisdiction of organization, nor has it
consolidated or merged with another Person.

 

o                                    Company has, since the date of the Credit
Agreement, either changed its name or jurisdiction of organization, or both, or
has consolidated or merged with another Person, which change, consolidation or
merger: o was consented to in advance by Wells Fargo in an Authenticated Record,
and/or o is more fully described in the statement of facts attached to this
Certificate.

 

C.                                    Events of Default.  I certify that:

 

(Check one)

 

o                                    I have no knowledge of the occurrence of an
Event of Default under the Credit Agreement, except as previously reported to
Wells Fargo in a Record.

 

o                                    I have knowledge of an Event of Default
under the Credit Agreement not previously reported to Wells Fargo in a Record,
as more fully described in the statement of facts attached to this Certificate,
and further, I acknowledge that Wells Fargo may under the terms of the Credit
Agreement impose the Default Rate at any time during the resulting Default
Period.

 

D.                                    Litigation Matters.  I certify that:

 

(Check one)

 

o                                    I have no knowledge of any material adverse
change to the litigation exposure of Company or any of its Affiliates or of any
Guarantor.

 

o                                    I have knowledge of material adverse
changes to the litigation exposure of Company or any of its Affiliates or of any
Guarantor not previously disclosed in Exhibit D, as more fully described in the
statement of facts attached to this Certificate.

 

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E.                                     Financial Covenants.  I further certify
that:

 

(Check and complete each of the following)

 

1.                                      Minimum Fixed Charge Coverage Ratio. 
Pursuant to Section 5.2(a) of the Credit Agreement, Company’s Fixed Charge
Coverage Ratio for the trailing twelve month period ending on the Reporting
Date, was          to 1.00, which o  satisfies o  does not satisfy the
requirement that such ratio be not less than 1.10 to 1.0 on a trailing twelve
month basis measured monthly for the months ending January 31, 2015 up to and
including September 30, 2015, and 1.20 to 1.0 on a trailing twelve month basis
measured monthly thereafter.

 

2.                                      Stop Loss.  Pursuant to
Section 5.2(d) of the Credit Agreement, for the month ending on the Reporting
Date, Company has suffered a Net Loss of $                            , which
o satisfies o does not satisfy the requirement that Company suffer a Net Loss in
any single month not in excess of $250,000.

 

3.                                      Due From Affiliate.  Pursuant to
Section 5.6(d) of the Credit Agreement, as of the Reporting Date, Company has
$                             in affiliate loans or advances due from
Manufacturing & Assembly Solutions of Monterrey S DE RL DE CV, which o satisfies
o does not satisfy the requirement that Company not have loans or advances to
Manufacturing & Assembly Solutions of Monterrey S DE RL DE CV, in an aggregate
amount in excess of $10,750,000 at any time.

 

4.                                      Salaries.  Company o has o has not paid
excessive or unreasonable salaries, bonuses, commissions, consultant fees or
other compensation to any Director, Officer or consultant, or any member of
their families, as of the Reporting Date, and o has o has not paid any increase
in such amounts (on a year over year basis, as of the Reporting Date) from any
source other than profits earned in the year of payment, and as a consequence
Company o is o is not in compliance with Section 5.8 of the Credit Agreement.

 

Attached are statements of all relevant facts and computations in reasonable
detail sufficient to evidence Company’s compliance with the financial covenants
referred to above, which computations were made in accordance with GAAP.

 

 

By:

 

 

 

Its: Chief Financial Officer

 

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