Exhibit 10.1


 


FIFTH AMENDMENT TO
CREDIT AGREEMENT


 


THIS FIFTH AMENDMENT TO
CREDIT AGREEMENT (this “Amendment”) is entered into as of March 4, 2005,
by and between NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (“Borrower”),
and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).


 


RECITALS


 


WHEREAS, Borrower is
currently indebted to Bank pursuant to the terms and conditions of that certain
Amended and Restated Credit Agreement between Borrower and Bank dated as of December 27,
2002, as amended from time to time (“Credit Agreement”).


 


WHEREAS, Bank 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.                                       The
definition of “Debt Service Coverage Ratio” as set forth in Section 1.1 of
the Credit Agreement is hereby deleted in its entirety and restated as follows:


 


““Debt Service Coverage
Ratio” means the ratio of (i) EBITDA less distributions, to (ii) the
sum of (A) Current Maturities of Long Term Debt and (B) Interest
Expense.”


 


2.                                       Clause
(ix) of the definition of “Eligible Inventory” as set forth in Section 1.1
of the Credit Agreement is hereby deleted in its entirety and restated as
follows:


 


“(ix) All Inventory
at any location other than the premises owned by the Borrower in Bemidji, MN
unless consented to by the Lender in writing and subject to the additional
conditions that (a) such other location must not be outside of the United
States, (b) the Lender shall have conducted a collateral audit on the
Inventory at such locations, (c) if the premises is leased by the
Borrower, Lender shall have received a landlord’s or warehouseman’s waiver in
form and substance acceptable to the Lender, and (d) such additional
limitations as the Lender’s collateral auditors shall recommend including
without limitations modifications to the Lender’s advance rates with respect to
such Inventory; and...”


 


3.                                       The
definition of “Maturity Date” as set forth in Section 1.1 of the Credit
Agreement is hereby deleted in its entirety and restated as follows:


 


““Maturity Date” means January 31,
2007 for the Revolving Note and February 5, 2007 for the Equipment Term
Note and the Real Estate Term Note.”


 


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4.                                       Section 2.12(e) of the Credit
Agreement is hereby deleted in its entirety and restated as follows:


 


(e)                                  Unused Line Fee. For the purposes of this Section 2.12(e),
“Unused Amount” means the Maximum Line reduced by the sum of (1) outstanding
Revolving Advances and (2) the L/C Amount. The Borrower agrees to pay to
the Lender an unused line fee at the rate of 0.25% per annum on the average
daily Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day of the
month and on the Termination Date.


 


5.                                       The following Subsection 6.1 (r) shall
be added to the Credit Agreement:


 


(d)                                 Projections. No later than 30 days after the last day of
each fiscal year, the Borrower will deliver to the Lender the projected balance
sheets, income statements, statements of cash flow and projected Availability
for each month of the succeeding fiscal year, each in reasonable detail. Such
items will be certified by the Officer who is the Borrower’s chief financial
officer as being the most accurate projections available and identical to the projections
used by the Borrower for internal planning purposes and be delivered with a
statement of underlying assumptions and such supporting schedules and
information as the Lender may in its discretion require.


 


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


 


Section 6.2
Financial Covenants.


 


(a)                                  Minimum Debt Service
Coverage Ratio. The Borrower
will maintain, during each period described below, its Debt Service 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 the ratio set forth opposite
such period:


 




	
  Quarter Ended

  	
   

  	
  Minimum Debt Service

  Coverage Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Each
  fiscal quarter

  	
   

  	
  1.50 to 1.00

  	
   

  






 


(b)                                 Minimum Tangible Net Worth. The Borrower will on a consolidated basis
maintain its Tangible Net Worth at and as of each fiscal quarter end at an
amount not less than $14,000,000.


 


(c)                                  Maximum Debt to Tangible Net
Worth Ratio. The Borrower
will on a consolidated basis maintain its Debt to Tangible Net Worth ratio,
determined as at the end of each quarter, at not more than 1.50 to 1.00.


 


(d)                                 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 the greater of (i) $0 or (ii) the
sum of the Borrower’s


 


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principal
payments on all indebtedness for borrowed money (including capital lease
obligations), less depreciation and amortization on the same rolling four
quarter basis.


 


(e)                                  Capital Expenditures. The Borrower will not incur or contract to
incur Capital Expenditures of more than $2,000,000 in the aggregate during any
fiscal year without the lenders written approval for capital items, including
without limitation for new building and
building expansion projects, new business acquisition and or major unplanned
equipment projects..


 


(f)                                    Working Capital. The Borrower will maintain, during each
period described below, determined as at the end of each fiscal quarter,
Working Capital of not less than $8,000,000.


 


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.


 


7.                                       Section 6.7 of the Credit Agreement is
hereby deleted in its entirety and restated as follows:


 


Section 6.7                                      Dividends and Distributions. Except as set forth in this Section 6.7,
the Borrower will not declare or pay any dividends (other than dividends
payable solely in stock of the Borrower) on any class of its stock, or make any
payment on account of the purchase, redemption or other retirement of any
shares of such stock or other securities or evidence of its indebtedness or
make any distribution in respect thereof, either directly or indirectly. So
long as no Default or Event of Default has occurred nor is likely to occur as a
result of such payment, the Borrower may annually during each fiscal year declare
and pay cash dividends to the Borrower’s shareholders in an aggregate amount
not to exceed 25% of the Borrowers fiscal year ending Net Income.


 


8.                                       Except as specifically provided herein, all
terms and conditions of the Credit Agreement remain in full force and effect,
without waiver or modification. All terms defined in the Credit Agreement shall
have the same meaning when used in this Amendment. This Amendment and the
Credit Agreement shall be read together, as one document.


 


9.                                       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.


 


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


 


	
   

  	
  WELLS FARGO BANK,

  
	
  NORTECH SYSTEMS
  INCORPORATED

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  Rich
  Wasielewski

  	
   

  	
   

  	
  Craig
  T. Hansen

  
	
  Its

  	
  Chief
  Financial Officer

  	
   

  	
   

  	
  Its
  Vice President

  
							



 


 


Signature page to Fifth
Amendment dated as of February       , 2005


 


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