Exhibit 10.16

 

TENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT
AND SECURITY AGREEMENT

 

THIS TENTH AMENDMENT (the “Amendment”), dated effective as of January 12, 2017,
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.                                    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.

 

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:

 

“Tenth Amendment” means that certain Tenth Amendment to Third Amended and
Restated Credit and Security Agreement dated as of January 12, 2017, by and
between the Company and Wells Fargo.

 

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

 

(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) 1.05 to 1.00 for the trailing
twelve month period ending December 31, 2016, up to and through the trailing
twelve month period ending on June 30, 2017, and (ii) 1.10 to 1.00 for each
trailing twelve month period thereafter.

 

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

 

4.                                      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 $2,500 payable on the date
of the Tenth Amendment.

 

5.                                      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:

 

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(a)                                 An executed copy of the Ninth Amendment to
Letter of Credit and Reimbursement Agreement; and

 

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

 

6.                                      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 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.

 

7.                                      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.

 

8.                                      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.

 

9.                                      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.

 

10.                               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

 

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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 7 of this Amendment.

 

11.                               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 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, NATIONAL ASSOCIATION

 

NORTECH SYSTEMS INCORPORATED

 

 

 

 

 

 

By:

/s/ Thomas G. Hedberg

 

By:

/s/ Paula M. Graff

 

Thomas G. Hedberg

 

Name:

Paula M. Graff

 

Its Vice President

 

Its:

Vice President and Chief Financial Officer

 

[Signature Page to Tenth 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 1.05 to 1.0 on a trailing twelve month basis measured monthly for
the months ending January 31, 2016 up to and including June 30, 2017, and 1.10
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

 

(a)           $               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; and

 

(b)           $               in affiliate loans or advances due from Nortech
Systems Hong Kong Company, LTD, which o satisfies o does not satisfy the
requirement that Company not have loans or advances to Nortech Systems Hong Kong
Company, LTD, in an aggregate amount in excess of $1,500,000 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.

 

5.             Stock Repurchases, Redemptions.  Pursuant to Section 5.7 of the
Credit Agreement, as of the Reporting Date, for the then-current fiscal year to
date, Company has purchased, redeemed or retired shares of its stock for an
aggregate amount of $                 which o satisfies o does not satisfy the
requirement that Company not exceed $500,000 in aggregate stock repurchases,
redemptions or retirements of its stock in any of each of the fiscal years
ending December 31, 2016 through December 31, 2019.

 

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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