Exhibit 10.1

 

 

FIFTH AMENDMENT TO CREDIT AGREEMENT, FIRST AMENDMENT TO AMENDED
AND RESTATED REVOLVING NOTE AND WAIVER OF EVENTS OF DEFAULT

This Fifth Amendment to Credit Agreement, First Amendment to Amended and
Restated Revolving Note and Waiver of Event of Default (this “Amendment”), dated
as of August 7, 2015, is entered into by and between COMMUNICATIONS SYSTEMS,
INC., a Minnesota corporation (“Communications Systems”), JDL TECHNOLOGIES,
INCORPORATED, a Minnesota corporation (“JDL”), TRANSITION NETWORKS, INC., a
Minnesota corporation (“Transition Networks”), and SUTTLE, INC., a Minnesota
corporation (“Suttle”; together with Communications Systems, JDL and Transition
Networks, “Borrowers” and each a “Borrower”), and WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Bank”).

Recitals

Borrowers and Bank are parties to a Credit Agreement dated as of October 28,
2011, as amended by a First Amendment to Credit Agreement and Waiver of Event of
Default dated as of November 28, 2012, a Second Amendment to Credit Agreement
and Waiver of Event of Default dated as of November 14, 2013, a Third Amendment
to Credit Agreement and First Amendment to Amended and Restated Revolving Note
dated as of October 31, 2014 and a Fourth Amendment to Credit Agreement and
Waiver of Event of Default dated as of May 7, 2015 (as so amended, and as the
same may be further amended, restated, supplemented or otherwise modified 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.

In addition, Borrowers have executed in favor of Bank that certain Amended and
Restated Revolving Note dated May 7, 2015 in the original principal amount of
$10,000,000 (as amended, restated, extended, renewed, replaced, supplemented or
otherwise modified from time to time, the “Revolving Note”).

Borrowers have requested that Bank waive certain Events of Default arising under
the Credit Agreement and agree to certain amendments to the Credit Agreement and
the Revolving Note, and Bank has agreed to grant such waiver and make such
amendments on 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.  Capitalized terms used in this Amendment
(including in the Recitals) have the meanings given to them in the Credit
Agreement unless otherwise expressly defined in this Amendment.

2.                 Amendments to Credit Agreement.

(a)               Effective as of August 10, 2015, clause (a) of Section 1.1 of
the Credit Agreement is amended and restated in its entirety, to read as
follows:

(a)               Line of Credit.

 

   

 

(i)               Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make advances to Borrowers from time to time up to and
including November 1, 2016, not to exceed at any time the lesser of (A) an
aggregate principal amount of Ten Million Dollars ($10,000,000) (the “Maximum
Line Amount”) and (B) the Applicable Advance Rate times the Market Value of the
Eligible Pledged Cash and Securities less Reserves (the “Borrowing Base”) (such
lesser amount under the foregoing clauses (A) and (B), the “Line of Credit”).
All proceeds of the Line of Credit shall be used for working capital and other
general corporate purposes of Borrowers. Borrowers’ obligation to repay advances
under the Line of Credit shall be evidenced by a promissory note dated as of
November 28, 2012 (as amended, restated, supplemented, extended, replaced,
renewed or otherwise modified from time to time, the “Revolving Note”), all
terms of which are incorporated herein by this reference. Each Borrower jointly
and severally promises to pay the debts, liabilities and obligations arising
under or in connection with this Agreement, the Revolving Note and the other
Loan Documents (including principal, interest, fees, costs, and expenses) in
full on the Maturity Date (as defined in the Revolving Note). If at any time the
aggregate outstanding advances under the Line of Credit exceed the lesser of (i)
the Maximum Line Amount or (ii) the Borrowing Base, Borrowers will immediately
pay Bank such excess.

(ii)               As used herein:

(A)                 “Applicable Advance Rate” means, with respect to each item
consisting of cash, cash equivalents and marketable securities determined by
Bank in its sole discretion to constitute Eligible Pledged Cash and Securities,
the advance rate set forth opposite such category on Exhibit A attached to this
Agreement (as the same may be amended from time to time by Bank in its sole
discretion) and, if no advance rate is noted for such category on Exhibit A, the
advance rate set by Bank in its sole discretion with respect to such category
from time to time.

(B)                 “Eligible Pledged Cash and Securities” means that portion or
types of cash, cash equivalents and marketable securities owned by any Borrower
that is (I) on deposit in a Pledged Account and with respect to which Bank has a
perfected first-priority security interest, and (II) designated as eligible or
otherwise of a type or types determined acceptable to Bank from time to time in
its sole discretion.

(C)                 “Pledged Accounts” means, collectively, (I) that certain
securities account on file maintained by Suttle, Inc. with UBS Financial
Services Inc. so long as such securities account is subject to a presently
effective control agreement in favor of Bank duly executed by UBS Financial
Services Inc. and Suttle, Inc., (II) that certain securities account numbered on
file maintained by Communications Systems with UBS Financial Services Inc. so
long as such securities account is subject to a presently effective control
agreement in favor of Bank duly executed by UBS Financial Services Inc. and
Communications Systems, (III) any securities account maintained by any Borrower
with Bank or any affiliate of Bank so long as such securities account is subject
to a presently effective control agreement in favor of Bank duly executed by the
applicable affiliate of Bank and the applicable Borrower, and (IV) each deposit
account maintained by any Borrower with Bank; in each case together with all
subaccounts thereof and any duplicate, corollary or replacement accounts of any
of the foregoing, and as any of the foregoing may be renewed substituted,
re-numbered or recaptioned from time to time, and each of the foregoing is a
“Pledged Account”.

 

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(D)                 “Market Value” means, with respect to any cash, cash
equivalents or marketable securities constituting Eligible Pledged Cash and
Securities, the market value of such cash, cash equivalents and marketable
securities, in each case as determined by Bank from time to time in its sole
discretion.

(E)                 “Reserves” means an amount or percentage of a specific
category or item that Lender establishes in its sole discretion from time to
time to reduce availability under the Line of Credit to reflect events,
conditions, contingencies, or risks which might affect the assets, business or
prospects of Borrower or any of the collateral or its value or the
enforceability, perfection or priority of Lender’s security interest.

(b)               Effective as of the date hereof, subclauses (i) and (ii) of
Section 4.9(a) of the Credit Agreement are each hereby amended and restated to
read as follows:

(i)                 [Reserved];

(ii)                 [Reserved];

(c)               Effective as of the date hereof, clause (b) of Section 4.9 of
the Credit Agreement is hereby amended and restated to read as follows:

(b)                 [Reserved].

For the avoidance of doubt, this amendment to clause (b) of Section 4.9 of the
Credit Agreement does not in any manner delete or change the hanging paragraph
and definitions following such clause (b).

(d)               Effective as of the date hereof, the following new Sections
4.12 and 4.13 are hereby added to the Credit Agreement immediately following the
existing Section 4.11 of the Credit Agreement, to read as follows:

Section 4.12                 Periodic Statements.  Borrowers will deliver a copy
of each monthly account statement for the Pledged Account to Bank no later than
the 15th day of each month, and each such account statement will contain an
accurate and complete statement of the Pledged Cash and Securities in the
Pledged Account as of the date of such statement.

Section 4.13                 Conditions Subsequent.  No later than August 10,
2015, (a) Suttle, Inc. will deliver to Bank a control agreement, in form and
substance acceptable to Bank in its sole discretion, duly executed by UBS
Financial Services, Inc. and Suttle, Inc., covering securities account no. on
file, and (b) each Borrower will execute and deliver to Bank a security
agreement granting a security interest in all investment property of each
Borrower in favor of Bank, in form and substance acceptable to Bank in its sole
discretion.

 

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(e)               Effective as of the date of this Amendment, a new Exhibit A is
attached to the Credit Agreement in the form of Exhibit A attached to this
Amendment.

3.                 Amendment to Revolving Note.  Clause (a) under the header
“INTEREST” contained in the Revolving Note is hereby amended to replace the
percentage “1.75%” contained therein with the percentage “1.50%”.

4.                 No Other Changes.  Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement, the
Revolving Note and the other Loan Documents remain in full force and effect.

5.                 Waiver of Existing Events of Default.  As a result of the
failure of Borrowers to maintain a minimum Net Profit of $3,000,000 as of the
quarter ending June, 2015, as required by Section 4.9(a)(ii) of the Credit
Agreement, and the failure of Borrowers to achieve a Net Profit of not less than
$500,000 with respect to the fiscal year-to-date period ending June 30, 2015, as
required by Section 4.9(b) of the Credit Agreement, Events of Default have
occurred under Section 6.1(c) of the Credit Agreement (the “Known Events of
Default”). Upon the terms and subject to the conditions set forth in this
Amendment, Bank hereby waives the Known Events of Default. This waiver shall be
effective only in this specific instance and for the specific purpose for which
it is given, and this waiver shall not entitle Borrowers to any other or further
waiver in any similar or other circumstances.

6.                 Amendment Fee.  Borrowers agree to pay Bank no later than the
date of this Amendment a fully-earned, non-refundable fee of $12,500 (the
“Amendment Fee”) in consideration of the amendments and waiver granted
hereunder.

7.                 Conditions Precedent.  This Amendment shall be effective when
Bank shall have received an executed counterpart of this Amendment, together
with each of the following, each in form and substance acceptable to Bank:

(a)               payment of the Amendment Fee, as required by Section 5;

(b)               a certificate of the secretary of each Borrower: (a) attaching
resolutions of the Board of Directors of such Borrower authorizing the
execution, delivery and performance by such Borrower of the Loan Documents,
including this Amendment, (b) certifying that the articles of incorporation of
such Borrower delivered by such Borrower to Bank on October 28, 2011 or May 7,
2015, as applicable, have not been amended or changed in any respect or, if
there has been any amendment or change or if such articles have not yet been
delivered to Bank, certifying that attached to such certificate is a current
copy of such articles of incorporation (certified by the Secretary of State of
formation), (c) certifying that the bylaws of such Borrower delivered by such
Borrower to Bank on October 28, 2011 or May 7, 2015, as applicable, have not
been amended or changed in any respect or, if there has been any amendment or
change or if such bylaws have not yet been delivered to Bank, certifying that
attached to such certificate is a current copy of such bylaws of such Borrower
(if any such bylaws exist), and (d) containing the names of the officer or
officers of such Borrower authorized to sign the Loan Documents, including this
Amendment, together with a sample of the true signature of each such officer,
or, if applicable, affirming that each officer or officers previously certified
to Bank on October 28, 2011 or May 7, 2015, as applicable, remain so authorized;
together with current good standing certificate for each Borrower; and

(c)                 such other matters as Bank may reasonably require.

 

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8.                 Representations and Warranties.  Borrowers hereby represent
and warrant to Bank as follows:

(a)               Each Borrower 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 the Credit Agreement, as amended
by this Amendment, and the other Loan Documents to which such Borrower is a
party have been duly executed and delivered by such Borrower and constitute the
legal, valid and binding obligations of such Borrower, enforceable in accordance
with their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors’ rights generally.

(b)               The execution, delivery and performance by such Borrower of
this Amendment and the Credit Agreement, as amended by this Amendment, and the
other Loan Documents to which such Borrower is a party have been duly authorized
by all necessary corporate action and do not (i) violate any material provision
of federal, state, or local law or regulation applicable to such Borrower, the
governing documents of such Borrower, or any order, judgment, or decree of any
court or other governmental authority binding on such Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any contract, obligation, indenture or other instrument to
which any Borrower is a party or by which any Borrower may be bound,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any assets of any Borrower, or (iv) require any approval of such
Borrower’s shareholders or any approval or consent of any other person or
entity.

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

9.                 References.  All references in the Credit Agreement to “this
Agreement” shall be deemed to refer to the Credit Agreement as amended by this
Amendment; and any and all references in the other Loan Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended by this
Amendment. All references in the Revolving Note to “this Note” shall be deemed
to refer to the Revolving Note as amended by this Amendment; and any and all
references in the other Loan Documents to the Revolving Note shall be deemed to
refer to the Revolving Note as amended by this Amendment.

10.                 No Other Waiver.  Except as expressly set forth herein with
respect to the Known Events of Default, 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 other
Loan Document, whether or not known to Bank and whether or not existing on the
date of this Amendment.

11.                 Release.  Each Borrower hereby absolutely and
unconditionally releases and forever discharges Bank, 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 arising under, in connection with or related to
any of the debts, liabilities or obligations of Borrowers and/or any Borrower
under any of the Loan Documents or any of the Loan Documents, whether arising in
law or equity or upon contract or tort or under any state or federal law or
otherwise, which Borrowers and/or any Borrower has had, now has or has made
claim to have against any such person or entity 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.

 

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12.                 Costs and Expenses.  Borrowers hereby reaffirm their
agreement under Section 7.3 of the Credit Agreement to pay or reimburse Bank
with respect to its costs, expenses and fees, including, without limitation, all
reasonable fees and disbursements of legal counsel incurred the Bank in
connection with this Amendment.

13.                 Miscellaneous.  This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument. Delivery of an executed signature page of this Amendment by
facsimile transmission or in a pdf or similar electronic file shall be effective
as delivery of a manually executed counterpart thereof.

 

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.

 

  BORROWERS:         COMMUNICATIONS SYSTEMS, INC.         By:     Name:    
Title:           JDL TECHNOLOGIES, INCORPORATED         By:     Name:     Title:
          TRANSITION NETWORKS, INC.         By:     Name:     Title:          
SUTTLE, INC.         By:     Name:     Title:  

 

 

 

 

Signature Page to Fifth Amendment to Credit Agreement, First Amendment to
Amended and Restated
Revolving Note and Waiver of Events of Default

 

 

 

 

 

  BANK:         WELLS FARGO BANK, NATIONAL
    ASSOCIATION         By:     Name: Michael M. Lebens   Title: Vice President

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Fifth Amendment to Credit Agreement, First Amendment to
Amended and Restated
Revolving Note and Waiver of Events of Default

 

 

 

 

EXHIBIT A

APPLICABLE ADVANCE RATES

 

Category Applicable Advance Rate Cash 80% Cash Equivalents Wells Fargo CDs held
in Brokerage/Trust/IM&T accounts 100% Cash held in Brokerage/Trust/IM&T accounts
95% Brokered Certificates of Deposit held at Wells Fargo 85% up to the maximum
FDIC
Insurance limit Commercial Paper – A2/P2 or better 80% Individual Bonds/Fixed
Income US Treasuries and Agencies <= 5 years to maturity   90% US Treasuries and
Agencies > 5 years to maturity   80% Investment Grade Corporates and Munis <= 5
years to maturity   80% Investment Grade Corporates and Munis > 5 years to
maturity 70% Bond and Fixed Income - Mutual Funds and ETFs Listed Money Market
Mutual Funds   95% Short and Intermediate Term US Government and Agencies 90%
Long Term US Government and Agencies 80% Short and Intermediate Term Corporate
and Municipal 80%

 

 

 

Exhibit A