EXHIBIT 10.4

 

EIGHTH AMENDMENT TO CREDIT AGREEMENT

 

THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is effective as of
August         , 2008, by and between NORTECH SYSTEMS INCORPORATED, a Minnesota
corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Lender”).

 

RECITALS

 

A.    Borrower is currently indebted to Lender pursuant to the terms and
conditions of that certain Amended and Restated Credit Agreement between
Borrower and Lender dated on or about December 30, 2002, as amended from time to
time (“Credit Agreement”).

 

B.    Lender and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect said changes.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree that the Credit Agreement
shall be amended as follows:

 

1.     Defined Terms. Capitalized terms used in this Amendment that are defined
in the Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein.

 

In addition, Section 1.1 of the Credit Agreement is amended by adding or
amending, as the case may be, the following definitions:

 

The definition of “Debt Service Coverage Ratio” is hereby deleted.

 

“Fixed Charge Coverage Ratio” means, for any period, the ratio of (i) the sum of
(A) Net Income, plus (B) depreciation and amortization, plus/minus (C) Net
Distributions, to (ii) Current Maturities of Long Term Debt.

 

“Net Distributions” means, for any period, the sum of (a) all proceeds from the
sale or issuance of any equity securities of Borrower actually received during
such period, plus (b) additional equity contributions actually received by
Borrower for such period, minus (c) all distributions with respect to its equity
paid by Borrower during such period, and (d) any change in Subordinated Debt, if
any.

 

 “Maturity Date” means June 30, 2010 for the Revolving Note and May 31, 2012 for
the Real Estate Term Note.

 

2.     Interest Rates.  Section 2.11 (b) of the Credit Agreement is hereby
deleted in its entirety and the following shall be substituted therefor:

 

(B)  MARGINS.  THE MARGINS THROUGH AND INCLUDING THE FIRST ADJUSTMENT OCCURRING
AS SPECIFIED BELOW SHALL BE ONE AND THREE QUARTERS OF ONE PERCENT (1.75%) FOR
REVOLVING ADVANCES AND TWO PERCENT (2.0%) FOR TERM ADVANCES.  COMMENCING
JUNE 30, 2008, THE MARGINS SHALL BE ADJUSTED EACH FISCAL QUARTER ON THE

 

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BASIS OF THE TOTAL FUNDED DEBT TO EBITDA RATIO OF THE BORROWER AS OF THE END OF
THE PREVIOUS FISCAL QUARTER, IN ACCORDANCE WITH THE FOLLOWING TABLE:

 

 

 

Margins

FINANCIAL TEST

 

Revolving Note

 

Real Estate Term Note

 

 

 

 

 

(i) Total Funded Debt to EBITDA is determined by the Lender to be < 2.50.

 

1.75%

 

2.00%

 

 

 

 

 

(ii) Total Funded Debt to EBITDA is determined by the Lender to be > 2.50.

 

2.00%

 

2.25%

 

REDUCTIONS AND INCREASES IN THE MARGINS WILL BE MADE FOLLOWING RECEIPT OF THE
BORROWER’S FINANCIAL STATEMENTS REQUIRED UNDER SECTION 6.1.  EACH MARGIN CHANGE
SHALL BECOME EFFECTIVE ON THE FIRST CALENDAR DAY OF THE MONTH FOLLOWING THE
MONTH OF RECEIPT BY THE LENDER OF THE BORROWER’S MOST RECENT FINANCIAL
STATEMENTS.  NOTWITHSTANDING THE FOREGOING, (I) IF THE BORROWER FAILS TO DELIVER
ANY FINANCIAL STATEMENTS AS REQUIRED UNDER SECTION 6.1, THE LENDER MAY,
FOLLOWING NOTICE TO THE BORROWER, INCREASE ANY MARGIN TO THE HIGHEST MARGIN SET
FORTH ABOVE, IN ADDITION TO IMPOSING THE DEFAULT RATE APPLICABLE UNDER THE TERMS
OF THIS AGREEMENT, AND (II) NO REDUCTION IN ANY MARGIN WILL BE MADE IF A DEFAULT
PERIOD EXISTS AT THE TIME THAT SUCH REDUCTION WOULD OTHERWISE BE MADE.

 

If amended or restated financial statements change previously calculated
Margins, the Lender may reduce or increase the Margins from the date of receipt
of such amended or restated financial statements, to the beginning of the
appropriate fiscal quarter to which the restated statements relate or to the
beginning of the fiscal quarter in which any Event of Default has occurred, as
the Lender in its sole discretion deems appropriate.

 

3.     Financial Covenants.  Section 6.2 of the Credit Agreement is hereby
deleted in its entirety and restated as follows:

 

(A)           MINIMUM FIXED CHARGE COVERAGE RATIO. THE BORROWER WILL MAINTAIN
ITS FIXED CHARGE COVERAGE RATIO, DETERMINED ON A CONSOLIDATED BASIS AS AT THE
END OF EACH FISCAL QUARTER ON A ROLLING FOUR QUARTER BASIS, AT NOT LESS THAN
1.25 TO 1.00.

 

 (B)          MAXIMUM TOTAL FUNDED DEBT TO EBITDA RATIO. THE BORROWER WILL
MAINTAIN ITS RATIO OF TOTAL FUNDED DEBT TO EBITDA, DETERMINED ON A CONSOLIDATED
BASIS AS AT THE END OF EACH FISCAL QUARTER ON A ROLLING FOUR QUARTER BASIS, AT
NOT MORE THAN 3.00 TO 1.00.

 

(C)           MINIMUM NET INCOME. THE BORROWER WILL ACHIEVE NET INCOME
DETERMINED ON A CONSOLIDATED BASIS AS AT THE END OF EACH FISCAL QUARTER ON A
ROLLING FOUR QUARTER BASIS OF NOT LESS THAN $1.00.

 

(D)           CAPITAL EXPENDITURES. EXCEPT TO THE EXTENT REASONABLY NECESSARY TO
COMPLETE THE SUNTRON ACQUISITION, THE BORROWER WILL NOT INCUR OR CONTRACT TO
INCUR CAPITAL EXPENDITURES OF MORE THAN $4,000,000 IN THE AGGREGATE AS AT THE
END OF EACH FISCAL YEAR WITHOUT THE LENDER’S WRITTEN APPROVAL FOR CAPITAL ITEMS,
INCLUDING WITHOUT LIMITATION FOR NEW BUILDING AND BUILDING EXPANSION PROJECTS,
NEW BUSINESS ACQUISITION AND OR MAJOR UNPLANNED EQUIPMENT PROJECTS.

 

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4.     Compliance Certificate.  The Borrower further agrees that the Compliance
Certificate attached to the Credit Agreement as Exhibit B is amended in its
entirety and replaced by the Compliance Certificate attached as Exhibit B
hereto.

 

5.     Conditions Precedent.  Except as otherwise provided below, this Amendment
shall be effective when the Lender shall have received an executed original
hereof together with such other documents as requested by the Lender in form and
substance acceptable to the Lender in its sole discretion.

 

6.     No Other Changes.  Except as specifically provided herein, all terms and
conditions of the Credit Agreement remain in full force and effect, without
waiver or modification.  This Amendment and the Credit Agreement shall be read
together, as one document.

 

7.     Representations and Warranties.  Borrower hereby remakes all
representations and warranties contained in the Credit Agreement and reaffirms
all covenants set forth therein.  Borrower further certifies that as of the date
of this Amendment there exists no Event of Default as defined in the Credit
Agreement, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute any such Event of Default.

 

8.     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.

 

9.     No Waiver. Unless otherwise provided for herein, the execution of this
Amendment and acceptance of any documents related hereto shall not be deemed to
be a waiver of any Default or Event of Default under either of the Credit
Agreements or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.

 

10.   Release. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, 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 Borrower 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.

 

11.   Costs and Expenses. The Borrower hereby reaffirms its agreement under the
Credit Agreements to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender 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 Borrower specifically
agrees to pay all fees and disbursements of counsel to the Lender for the
services performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreements, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.

 

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12.   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.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Eighth Amendment to be
executed as of the day and year first written above.

 

 

NORTECH SYSTEMS

 

 

WELLS FARGO BANK,

 

INCORPORATED

 

 

NATIONAL ASSOCIATION

 

 

 

 

 

 

 

 

 

 

 

NORTECH SYSTEMS INCORPORATED

 

WELLS FARGO BANK,

 

 

 

 

NATIONAL ASSOCIATION

 

 

 

 

 

By:

/s/ Richard G. Wasielewski

 

By:

/s/ Mark T. Lundquist

Name:

Richard G. Wasielewski

 

 

Mark T. Lundquist

 

Its Chief Financial Officer

 

 

Its Vice President

 

Signature page to Eighth Amendment dated as of July     , 2008

 

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Exhibit B to Amended and Restated Credit and Security Agreement

 

Compliance Certificate

 

To:

 

Mark T. Lundquist

 

 

Wells Fargo Bank, N.A.

Date:

 

                             , 200     

Subject:

 

Nortech Systems Incorporated

 

 

Financial Statements

 

IN ACCORDANCE WITH OUR AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT DATED
AS OF DECEMBER 30, 2002, AND AS AMENDED FROM TIME TO TIME (AS AMENDED, THE
“CREDIT AGREEMENT”), ATTACHED ARE THE FINANCIAL STATEMENTS OF NORTECH SYSTEMS
INCORPORATED (THE “BORROWER”) AS OF AND FOR                                 ,
200       (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.

 

AS OF EACH QUARTERLY REPORTING PERIOD, 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):

 

o            The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement except as previously
reported in writing to the Lender.

 

o            The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement not previously reported in writing
to the Lender and attached hereto is a statement of the facts with respect to
thereto. The Borrower acknowledges that pursuant to Section 2.11(d) of the
Credit Agreement, the Lender may impose the Default Rate at any time during the
resulting Default Period.

 

Financial Covenants. I further hereby certify as follows:

 

1.             MINIMUM FIXED CHARGE COVERAGE RATIO. SECTION 6.2(A) OF THE CREDIT
AGREEMENT.

REQUIRED RATIO: 1.25 TO 1.00 AS OF THE END OF EACH FISCAL QUARTER.

AS OF THE REPORTING DATE, BORROWER’S QUARTERLY CONSOLIDATED FIXED CHARGE
COVERAGE RATIO (CALCULATED AS SHOWN ON ATTACHED WORK SHEET) WAS            TO
1.00.

 

2.             MAXIMUM TOTAL FUNDED DEBT TO EBITDA RATIO. SECTION 6.2(B) OF THE
CREDIT AGREEMENT.

REQUIRED FUNDED DEBT TO EBITDA RATIO SHALL BE NOT MORE THAN:

 

3.00 to 1.00 as of the end of each fiscal quarter.

 

As of the Reporting Date, Borrower’s Total Funded Debt to EBITDA Ratio was
         to 1.00.

 

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3.             Minimum Net Income.  Section 6.2(c) of the Credit Agreement.

REQUIRED COVENANT: NOT LESS THAN $1.00 ON A CONSOLIDATED BASIS AS AT THE END OF
EACH FISCAL QUARTER ON A ROLLING FOUR QUARTER BASIS.

 

The Borrower’s consolidated Net Income for the rolling, four quarter period
ending on the Reporting Date was $                          .

 

4.             CAPITAL EXPENDITURES. SECTION 6.2(D) OF THE CREDIT AGREEMENT.

REQUIRED COVENANT: NO MORE THAN $4,000,000 IN AGGREGATE AS AT THE END OF EACH
FISCAL YEAR, EXCEPT FOR EXPENSES REASONABLY NECESSARY TO COMPLETE SUNTRON
ACQUISITION.

AS OF THE REPORTING DATE, BORROWER’S CONSOLIDATED YEAR-TO-DATE CAPITAL
EXPENDITURES WAS $                          .

 

ATTACHED TO 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.

 

 

NORTECH SYSTEMS, INCORPORATED

 

 

 

 

By

 

 

 

Name: Richard G. Wasielewski

 

 

Its Chief Financial Officer/Treasurer

 

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