Exhibit 10.3

 

REVOLVING LINE OF CREDIT NOTE

 

$5,000,000 Minneapolis, Minnesota   August 28, 2020

 

This Note amends, restates and supersedes in its entirety, and is given as a
replacement for, and not in satisfaction of or as a novation with respect to,
that certain Amended and Restated Revolving Note in the principal amount of
$15,000,000, executed by Borrower, JDL Technologies, Incorporated, Transition
Networks, Inc. and Suttle, Inc. in favor of Bank and dated August 12, 2016, as
amended to date.

 

FOR VALUE RECEIVED, the undersigned COMMUNICATIONS SYSTEMS, INC., a Minnesota
corporation (“Borrower”) promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”) at its office at 90 South 7th Street, 18th Floor,
Minneapolis, MN 55402, [Account Number Redacted] or at such other place as the
holder hereof may designate, in lawful money of the United States of America and
in immediately available funds, the principal sum of $5,000,000, or so much
thereof as may be advanced and be outstanding pursuant to the terms of the
Credit Agreement, as defined herein, with interest thereon, to be computed on
each advance from the date of its disbursement as set forth herein.

 

DEFINITIONS:

 

As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:

 

(a)           “Daily One Month LIBOR” means, for any day, the rate of interest
equal to LIBOR then in effect for delivery for a one (1) month period.

 

(b)           “LIBOR” means the rate of interest per annum determined by Bank
based on the rate for United States dollar deposits for delivery of funds for
one (1) month as published by the ICE Benchmark Administration Limited, a United
Kingdom company, at approximately 11:00 a.m., London time, or, for any day not a
London Business Day, the immediately preceding London Business Day (or if not so
published, then as determined by Bank from another recognized source or
interbank quotation); provided, however, that if LIBOR determined as provided
above would be less than 0.75%, then LIBOR shall be deemed to be 0.75%.

 

(c)           “London Business Day” means any day that is a day for trading by
and between banks in dollar deposits in the London interbank market.

 

INTEREST:

 

(a)           Interest. The outstanding principal balance of this Note shall
bear interest (computed on the basis of a 360-day year, actual days elapsed) at
a fluctuating rate per annum determined by Bank to be 1.25% above Daily One
Month LIBOR in effect from time to time. Bank is hereby authorized to note the
date and interest rate applicable to this Note and any payments made thereon on
Bank’s books and records (either manually or by electronic entry) and/or on any
schedule attached to this Note, which notations shall be prima facie evidence of
the accuracy of the information noted.

 

(b)           Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i)

 

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withholdings, interest equalization taxes, stamp taxes or other taxes (except
income and franchise taxes) imposed by any domestic or foreign governmental
authority and related in any manner to LIBOR, and (ii) costs, expenses and
liabilities arising from or in connection with reserve percentages prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
“Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve
Board, as amended), assessment rates imposed by the Federal Deposit Insurance
Corporation, or similar requirements or costs imposed by any domestic or foreign
governmental authority or resulting from compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority and related in any manner to LIBOR. In determining
which of the foregoing are attributable to any LIBOR option available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.

 

(c)           Default Interest. The Bank shall have the option in its sole and
absolute discretion to have the outstanding principal balance of this Note bear
interest at an increased rate per annum (computed on the basis of a 360-day
year, actual days elapsed) equal to four percent (4%) above the rate of interest
from time to time applicable to this Note (i) from and after the maturity date
of this Note; (ii) from and after the date prior to the maturity date of this
Note when all principal owing hereunder becomes due and payable by acceleration
or otherwise; and/or (iii) upon the occurrence and during the continuance of any
Event of Default.

 

BENCHMARK REPLACEMENT PROVISIONS:

 

Notwithstanding anything to the contrary contained in this Note or in any
related loan document (for the purposes of these Benchmark Replacement
Provisions, a Swap Agreement is not a loan document):

 

(a)           Benchmark Replacement. If a Benchmark Transition Event or an Early
Opt-in Election, as applicable, occurs, the applicable Benchmark Replacement
will replace the then-current Benchmark for all purposes under this Note or
under any related loan document. Any Benchmark Replacement will become effective
on the applicable Benchmark Replacement Date without any further action or
consent of Borrower.

 

(b)           Benchmark Replacement Conforming Changes. Bank will have the right
to make Benchmark Replacement Conforming Changes from time to time and any
amendments implementing such Benchmark Replacement Conforming Changes will
become effective without any further action or consent of Borrower.

 

(c)           Notices; Standards for Decisions and Determinations. Bank will
promptly notify Borrower of (i) any occurrence of a Benchmark Transition Event
or an Early Opt-in Election, as applicable, (ii) the implementation of any
Benchmark Replacement, and (iii) the effectiveness of any Benchmark Replacement
Conforming Changes. Any determination, decision or election that may be made by
Bank pursuant to these Benchmark Replacement Provisions, including any
determination with respect to a tenor, rate or adjustment or of the occurrence
or non-occurrence of an event, circumstance or date and any decision to take or
refrain from taking any action or any selection, will be conclusive and binding
absent manifest error and will be made in its sole discretion and without
Borrower consent

 

(d)           Certain Defined Terms. As used in this Note, each of the following
capitalized terms has the meaning given to such term below: 

(i)           “Benchmark” means, initially, LIBOR (including Daily One Month
LIBOR, if applicable); provided, however, that if a Benchmark Transition Event
or an Early Opt-in Election, as applicable, has occurred with respect to LIBOR
or the then-current Benchmark, then “Benchmark” means the applicable Benchmark
Replacement to the extent that such Benchmark Replacement has become effective
pursuant to the provisions of this Note.

 

 

 

  

(ii)          “Benchmark Administrator” means, initially, ICE Benchmark
Administration Limited, a United Kingdom company, or any successor administrator
of the then-current Benchmark or any insolvency or resolution official with
authority over such administrator.

 

(iii)          “Benchmark Replacement” means the first alternative set forth in
the order below that can be determined by Bank as of the applicable Benchmark
Replacement Date:

 

(1)           the sum of: (A) Term SOFR or, if Bank determines that Term SOFR
for the Corresponding Tenor cannot be determined, Term SOFR for the longest
tenor that can be determined by Bank that is shorter than the Corresponding
Tenor, and (B) the spread adjustment, or method for calculating or determining
such spread adjustment (which may be a positive or negative value or zero) that
has been selected or recommended by the Relevant Governmental Body for Term
SOFR; provided, however, that this clause (1) shall not apply (i) to any
borrowings under this Note if a Swap Agreement is in effect with respect to all
or any portion of this Note as of the Benchmark Transition Event or Early Opt-in
Election, and (ii) to any borrowings under this Note that bear interest at Daily
One Month LIBOR;

 

(2)           the sum of: (A) the alternate rate of interest that has been
selected by Bank as the replacement for the then-current Benchmark for the
Corresponding Tenor (which, without limitation, may be compounded SOFR in
arrears, term SOFR, Bank’s Prime Rate, or another benchmark selected by Bank);
and (B) the applicable spread adjustment or method for calculating or
determining such spread adjustment, (which may be a positive or negative value
or zero) that has been selected by Bank.

 

With respect to Bank’s decisions under this paragraph (2):

 

(i)           if a Swap Agreement relating to a portion of this Note is in
effect as of the Benchmark Transition Event or Early Opt-in Election, then Bank
may without limitation, select (i) the benchmark referenced in the Swap
Agreement, which may be the sum of a fallback rate and spread adjustment, for
the entire balance of this Note, or (ii) the benchmark referenced in the Swap
Agreement, which may be the sum of a fallback rate and spread adjustment, for
the hedged portion of this Note, and the applicable Benchmark Replacement for
the remaining non-hedged portion of this Note; and

 

(ii)          in the case of a replacement rate for Daily One Month LIBOR, Bank
may, without limitation, select SOFR notwithstanding the availability or
feasibility of determining a daily one month SOFR; and

 

(iii)         Bank’s selection of any applicable Benchmark Replacement shall
give due consideration to (i) any selection or recommendation by the Relevant
Governmental Body at such time for a replacement rate, the mechanism for
determining such a rate, the methodology or conventions applicable to such rate,
or the spread adjustment, or method for calculating or determining such spread
adjustment, for such rate, or (ii) any evolving or then-prevailing market
convention for determining a rate of interest as a replacement to the
then-current Benchmark, the methodology or conventions applicable to such rate,
or the spread adjustment, or method for calculating or determining such spread
adjustment, for such alternate rate for U.S. dollar-denominated syndicated or
bilateral credit facilities at such time.

 

Provided, however, during any period of time that the Benchmark Replacement
would be less than 0.75%, the Benchmark Replacement shall be deemed to be 0.75%
for the purposes of this Note and the related loan documents, subject to any
applicable floor rate provision.

 

(iv)            “Benchmark Replacement Conforming Changes” means any technical,

 

 

 

administrative or operational changes (including, without limitation, changes to
the definition of “Interest Period,” timing and frequency of determining rates
and making payments of interest, prepayment provisions and other administrative
matters) that Bank decides may be appropriate to reflect the adoption and
implementation of such Benchmark Replacement and to permit the administration
thereof by Bank.

 

(v)           “Benchmark Replacement Date” means the date specified by Bank in a
notice to Borrower following a Benchmark Transition Event or Early Opt-in
Election.

 

(vi)           “Benchmark Transition Event” means the occurrence of one or more
of the following events with respect to the then-current Benchmark: a public
statement or publication of information by or on behalf of the Benchmark
Administrator or a regulatory supervisor for the Benchmark Administrator
announcing that (A) the Benchmark Administrator has ceased or will cease to
provide the Benchmark permanently or indefinitely or (B) the Benchmark is no
longer representative of underlying markets.

 

(vii)          “Corresponding Tenor” means a tenor having approximately the same
length as the Interest Period, provided, however, that the Corresponding Tenor
for Daily One Month LIBOR shall be one day.

 

(viii)         “Early Opt-in Election” means the election by Bank to declare
that the Benchmark will be replaced prior to the occurrence of a Benchmark
Transition Event and the provision by Bank of written notice of such election to
Borrower indicating that at least five (5) currently outstanding U.S.
dollar-denominated syndicated credit facilities at such time contain (as a
result of amendment or as originally executed) Term SOFR plus a spread
adjustment that has been selected or recommended by the Relevant Governmental
Body.

 

(ix)          “Interest Period” means, initially, the applicable LIBOR Period,
and if a Benchmark Replacement is applicable, the tenor of the Benchmark
Replacement.

 

(x)           “Relevant Governmental Body” means the Federal Reserve Board
and/or the Federal Reserve Bank of New York, or a committee officially endorsed
or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New
York or any successor thereto.

 

(xi)          “SOFR” with respect to any day means the secured overnight
financing rate published for such day by the Federal Reserve Bank of New York,
as the administrator thereof, (or a successor administrator) on its website.

 

(xii)         “Swap Agreement” means a swap agreement by and between Borrower
and Bank or its affiliates.

 

(xiii)        “Term SOFR” means the forward-looking term rate for the
Corresponding Tenor based on SOFR that has been selected or recommended by the
Relevant Governmental Body.

 

BORROWING AND REPAYMENT:

 

(a)         Borrowing and Repayment of Principal. Borrower may from time to time
during the term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above
or such lesser amount as set forth in the Credit Agreement. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for Borrower, which balance may be endorsed hereon from time to time by
the holder. The outstanding principal balance of this Note shall be due and

 

 

 

 

payable in full on August 28, 2021.

 

(b)           Payment of Interest. Interest accrued on this Note shall be
payable on the first day of each month, commencing October 1, 2020, and on the
maturity date set forth above.

 

(c)           Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) Mark Fandrich or Kristin Hlavka, any one acting alone (subject to any of
Bank’s applicable authentication policies or procedures, which may require that
a particular individual—including another specific individual listed
above—provide verification of the identity of the requestor), who are authorized
to request advances and direct the disposition of any advances until written
notice of the revocation of such authority is received by the holder at the
office designated above, or (ii) any person, with respect to advances deposited
to the credit of any deposit account of Borrower, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of Borrower regardless of the fact that persons other than those
authorized to request advances may have authority to draw against such account.
The holder shall have no obligation to determine whether any person requesting
an advance is or has been authorized by Borrower.

 

(d)           Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.

 

PREPAYMENT:

 

Borrower may prepay principal on this Note at any time, in any amount and
without penalty. If principal under this Note is payable in more than one
installment, then any prepayments of principal shall be applied to the most
remote principal installment or installments then unpaid.

 

EVENTS OF DEFAULT:

 

This Note is made pursuant to and is subject to the terms and conditions of that
certain Credit Agreement of even date herewith between Borrower and Bank (as
amended, restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”). Any default in the payment or performance of any obligation
under this Note, or any “Event of Default” as defined under the Credit
Agreement, shall constitute an “Event of Default” under this Note.

 

 

 

 

MISCELLANEOUS:

 

(a)           Remedies. Upon the sale, transfer, hypothecation, assignment or
other encumbrance, whether voluntary, involuntary or by operation of law, of all
or any interest in any real property securing this Note, if any, or upon the
occurrence of any Event of Default, the holder of this Note, at the holder’s
option, may declare all sums of principal and interest outstanding hereunder to
be immediately due and payable without presentment, demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of which
are expressly waived by Borrower, and the obligation, if any, of the holder to
extend any further credit hereunder shall immediately cease and terminate.
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys’
fees (to include outside counsel fees and all allocated costs of the holder’s
in-house counsel), expended or incurred by the holder in connection with the
enforcement of the holder’s rights and/or the collection of any amounts which
become due to the holder under this Note whether or not suit is brought, and the
prosecution or defense of any action in any way related to this Note, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to Borrower or
any other person or entity.

 

(b)           Collateral Exclusion. No lien or security interest created by or
arising under any deed of trust, mortgage, security deed, or similar real estate
collateral agreement (“Lien Document”) shall secure the Note Obligations unless
such Lien Document specifically describes the promissory note(s), instrument(s)
or agreement(s) evidencing Note Obligations as a part of the indebtedness
secured thereby. This exclusion shall apply notwithstanding (i) the fact that
such Lien Document may appear to secure the Note Obligations by virtue of a
cross-collateralization provision or other provisions expanding the scope of the
secured obligations, and (ii) whether such Lien Document was entered into prior
to, concurrently with, or after the date hereof. As used herein, “Note
Obligations” means any obligations under this Note, as amended, extended,
renewed, refinanced, supplemented or otherwise modified from time to time, or
under any other evidence of indebtedness that has been modified, renewed or
extended in whole or in part by this Note, as amended, extended, renewed,
refinanced, supplemented or otherwise modified from time to time.

 

(c)           Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.

 

(d)           Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Minnesota, but giving effect to federal
laws applicable to national banks, without reference to the conflicts of law or
choice of law principles thereof.

 

(e)           Effective Date. The effective date of this Note shall be the date
that Bank has accepted this Note and all conditions to the effectiveness of the
Credit Agreement have been fulfilled to Bank’s satisfaction. Notwithstanding the
occurrence of the effective date of this Note, Bank shall not be obligated to
extend credit under this Note until all conditions to each extension of credit
set forth in the Credit Agreement have been fulfilled to Bank’s satisfaction.

 

Signature page follows

 

 

 

 

IN WITNESS WHEREOF, the undersigned have executed this Note to be effective as
of the effective date set forth herein.

 

  COMMUNICATIONS SYSTEMS, INC.       By:   [a201385006_v1.jpg]   Name: Mark D.
Fandrich   Title: Chief Financial Officer         WELLS FARGO BANK, NATIONAL
ASSOCIATION         By:     Name: Kael Peterson   Title:   Senior Vice President

 

Signature Page to Revolving Line of Credit Note

 

 

 

  

IN WITNESS WHEREOF, the undersigned have executed this Note to be effective as
of the effective date set forth herein.

 

  COMMUNICATIONS SYSTEMS, INC.       By:                      Name:   Title:    
    WELLS FARGO BANK, NATIONAL ASSOCIATION         By:     Name: Kael Peterson  
Title:   Senior Vice President

 

Signature Page to Revolving Line of Credit Note