# **EXHIBIT 10.3**

**SEVE****NTH AMENDMENT TO CREDITAGREEMENT**

THIS SEVENTH AMENDMENT TOCREDIT AGREEMENT (this “**Amendment**”)is effective as of February 2, 2007, by and between NORTECH SYSTEMSINCORPORATED, a Minnesota corporation (“**Borrower**”),and WELLS FARGO BANK, NATIONAL ASSOCIATION (“**Lender**”).

**RECITALS**

C.            Borrower is currently indebted toLender pursuant to the terms and conditions of that certain Amended andRestated Credit Agreement between Borrower and Lender dated on or aboutDecember 30, 2002, as amended from time to time (“**Credit Agreement**”).

D.            Lender and Borrower have agreed tocertain changes in the terms and conditions set forth in the Credit Agreementand have agreed to amend the Credit Agreement to reflect said changes.

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

15.           **DefinedTerms**. Capitalized terms used in this Amendment that are defined inthe Credit Agreement shall have the same meanings as defined therein, unlessotherwise defined herein.

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

“**Base LIBOR**” means the rate per annum for United Statesdollar deposits quoted by Lender as the Inter-Bank Market Offered Rate, withthe understanding that such rate is quoted by Lender for the purpose ofcalculating effective rates of interest for loans making reference thereto, onthe first day of a Fixed Rate Term for delivery of funds on said date for aperiod of time approximately equal to the number of days in such Fixed RateTerm and in an amount approximately equal to the principal amount to which suchFixed Rate Term applies.  Borrowerunderstands and agrees that Lender may base its quotation of the Inter-BankMarket Offered Rate upon such offers or other market indicators of theInter-Bank Market as Lender in its discretion deems appropriate including, butnot limited to, the rate offered for U.S. dollar deposits on the LondonInter-Bank Market.

“**Borrowing Base**” means atany time the lesser of:

(a)           the Maximum Line; or

(b)           subject to change from time to timein the Lender’s sole discretion, the sum of:

(i)            80% of EligibleAccounts; plus

(ii)                                  the lesser of(aa) 35% of Eligible Inventory constituting raw material, plus 40% of EligibleInventory constituting finished goods, or (bb) $5,000,000.

“**Business Day**” means any day except a Saturday, Sunday or anyother day on which commercial banks in Minnesota are authorized or required bylaw to close.

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Subparagraph (xiii) of the definition for “**Eligible Accounts**” is hereby deleted in its entirety andreplaced with the following:

(xiii)         Accounts owed by an account debtor,regardless of whether otherwise eligible, if 10% (or 25% with respect toAccounts owing by General Electric (“**GE**”)or any GE affiliate or subsidiary of GE or by Semitool, Inc. or NorthropGrumman) or more of the total amount due under Accounts from such debtor isineligible under clauses (i), (ii) or (xi) above; and

Subparagraph (ix)of the definition for “**Eligible Inventory**”is hereby deleted in its entirety and replaced with the following:

(ix)           All Inventory at any location otherthan the premises owned by the Borrower in Bemidji, Minnesota, Fairmont,Minnesota and Garner, Iowa; and

“**Existing****Real Estate Term Note**”means that certain Real Estate Term Note dated April 28, 2006 made payable bythe Borrower to the order of the Lender in the original principal amount of$2,500,000.

“**Fixed Rate Term**” means a period commencing on a Business Dayand continuing for one (1) day.  If anyFixed Rate Term would end on a day which is not a Business Day, then such FixedRate Term shall be extended to the next succeeding Business Day.

“**Floating Rate**”  shall mean an annual interest rate equal tothe Base Rate, which interest rate shall change when and as the Base Ratechanges;

“**LIBOR**” means the rate per annum (rounded upward, ifnecessary, to the nearest whole 1/8 of 1%) and determined pursuant to the followingformula:
|        | LIBOR Rate = | Base LIBOR                       |   |
|--------|--------------|----------------------------------|--------|
|   |         | 100% - LIBOR  Reserve Percentage |   |

 

“**Maturity Date**” meansApril 30, 2009 for the Revolving Note, February 5, 2007 for the Equipment TermNote and May 31, 2012 for the Real Estate Term Note.

“**Maximum Line**” means$15,000,000 unless said amount is reduced pursuant to Section 2.14, inwhich event it means such lower amount.

“**Real Estate Term Note**” means that certain Real Estate TermNote dated February     , 2007 made payable by the Borrowerto the order of the Lender in the original principal amount of $3,348,750 andany note or notes issued in substitution therefore.

“**Total Funded Debt**” shall mean all interest-bearingIndebtedness of Borrower, including, without limitation, any Capital Lease obligations.

16.           **AmendedRevolving Note**.  Inconjunction with this Amendment, Borrower shall execute and deliver thatcertain Amended and Restated Revolving Note of even date herewith made payableto the order of the Lender in the original principal amount of $15,000,000 (ashereinafter amended, modified, supplemented or replaced, the “**Amended Revolving Note**”).  All references to the “Revolving Note”contained in the Credit Agreement shall refer to the Amended Revolving Note.

17.           **TermAdvances**.  The Borrower acknowledgesand agrees that as of the date hereof, the outstanding principal balance of theExisting Real Estate Term Note is $1,680,555.49.  In conjunction 

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with this Amendment,Borrower has requested the Lender to, among other things, extend the maturitydate of the Existing Real Estate Note and to make an additional Term Advance tothe Borrower in the amount of $1,668,194.51 (the “**AdditionalTerm Advance**”), the proceeds of which are to be used by the Borrowerto fund a portion of the purchase price to be paid by the Borrower inconnection with the Suntron Acquisition (as hereinafter defined).  Subject to the terms and conditions set forthin Section 10 below, the Lender shall make the Additional Term Advance to theBorrower.  On the date hereof, the Borrowershall execute and deliver to Lender that certain Amended and Restated RealEstate Term Note of even date herewith made payable to the order of the Lenderin the original principal amount of $3,348,750 (as hereinafter amended,modified, supplemented or replaced, the “**AmendedReal Estate Term Note**”), which Note shall evidence the repayment ofthe Additional Term Advance and has been issued in replacement of andsubstitution for, but not in repayment or satisfaction of the Existing RealEstate Note.  All references to the RealEstate Term Note contained in the Credit Agreement shall hereinafter refer tothe Amended Real Estate Term Note.

18.           **Interest Rates**.** **Section 2.11(a) and(b) of the Credit Agreement are hereby deleted in their entirety and the followingshall be substituted therefore:

### (a)  **RevolvingNote and Real Estate Term Note. **Exceptas provided in Subsections****2.11(d) and (g) below, the principal amount of each Advance evidenced by theRevolving Note and the Real Estate Term Note shall bear interest at a floatingper annum rate of interest equal to LIBOR plus the applicable “Margin” as setforth in Subsection 2.11(b) below (the “**DailyLIBOR Rate**”); ***providedhowever***, that from the period of February 2, 2007 thru andincluding February 2, 2009, principal evidenced by the Real Estate Term Noteshall accrue interest at a fixed, per annum rate of interest equal to Liborrate plus 3.0 percent (8.35%).  Eachchange in the Daily LIBOR Rate shall become effective on the date that (i) eachLIBOR change is announced by the Lender, and (ii) as and when the applicableMargin changes in accordance with Subsection 2.11(b) below.  In the event Lender shall determine thatadequate and reasonable methods do not exist for ascertaining LIBOR, Lendershall promptly provide notice of such determination to Borrower (which shall beconclusive and binding on Borrower).  Insuch event, the interest rate accruing on principal evidenced by each of theRevolving Note and the Real Estate Term Note shall be automatically be modifiedto accrue at the per annum rate equal to the Floating Rate.

### **(b)  Margins. **The Margins through and including the first adjustment occurring asspecified below shall be two and three quarters of one percent (2.75%) forRevolving Advances.  The Margins shall beadjusted each fiscal quarter on the basis of the Total Funded Debt to EBITDARatio of the Borrower as of the end of the previous fiscal quarter, inaccordance 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 ≤ 1.75.**                  | ** ** | **1.75**                | **%**      | **2.00** | **%** |
| ** **                                                                                              | ** ** | ** **              | ** ** | ** ** | ** ** |
| **(ii) Total Funded  Debt to EBITDA is  determined by the  Lender to be > 1.75  and ≤ 2.50.**  | ** ** | **2.00**                | **%**      | **2.25** | **%** |
| ** **                                                                                              | ** ** | ** **              | ** ** | ** ** | ** ** |
| **(iii) Total Funded  Debt to EBITDA is  determined by the  Lender to be > 2.50  and ≤ 3.00.** | ** ** | **2.25**                | **%**      | **2.50** | **%** |
| ** **                                                                                              | ** ** | ** **              | ** ** | ** ** | ** ** |
| **(iv)  Total Funded  Debt to EBITDA is  determined by the  Lender to be > 3.00.**                   | ** ** | **2.75**                | **%**      | **3.00** | **%** |

 

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### Reductions and increases in the Margins will bemade following receipt of the Borrower’s financial statements required underSection 6.1.  Each Margin change shallbecome effective on thefirst calendar day of the month following the month of receipt by the Lender ofthe Borrower’s most recent financial statements. Notwithstanding the foregoing, (i) if the Borrower fails to deliver anyfinancial statements as required under Section 6.1, the Lender may, followingnotice to the Borrower, increase any Margin to the highest Margin set forthabove, in addition to imposingthe Default Rate applicable under the terms of this Agreement, and (ii) noreduction in any Margin will be made if a Default Period exists at the timethat such reduction would otherwise be made.

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

19.           **FinancialCovenants. **Section 6.2 of theCredit Agreement is hereby deleted in its entirety and restated as follows:

### (a)          **Minimum Debt Service Coverage Ratio**.The Borrower will maintain, during each period described below, its DebtService Coverage Ratio, determined on a consolidated basis as at the end ofeach fiscal quarter on a rolling four quarter basis, at not less than the ratioset forth opposite such period:

| Quarter Ended                              | ** ** | **Minimum Debt Service   Coverage Ratio** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Each fiscal quarter up to and including 9/30/07 |       | 1.25 to 1.00                                                  |       |
| 12/31/07 and thereafter                         |       | 1.50 to 1.00                                                  |       |

 

### (b)          **Maximum Total Funded Debt to EBITDA Ratio**.The Borrower will maintain, during each period described below, its ratio ofTotal Funded Debt to EBITDA, determined on a consolidated basis as at the endof each fiscal quarter on a rolling four quarter basis, at not more than theratio set forth opposite such period:

| Quarter Ended                               | ** ** | **Total Funded Debt to EBITDA  Ratio** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|
| Each fiscal  quarter up to and including 9/30/07 |       | 4.25 to 1.00                                               |       |
| 12/31/07 to  and including 6/30/2008        |       | 3.50 to 1.00                                               |       |
| 9/30/08 and thereafter                           |       | 3.00 to 1.00                                               |       |

 

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### (c)           **MinimumNet Income**. The Borrower will achieve Net Income determined on aconsolidated basis as at the end of each fiscal quarter on a rolling fourquarter basis of not less than $1.00.

### (d)          **Capital Expenditures**. Except to theextent reasonably necessary to complete the Suntron Acquisition, the Borrowerwill not incur or contract to incur Capital Expenditures of more than$3,000,000 in the aggregate during any fiscal year without the lenders writtenapproval for capital items, including without limitation for new building andbuilding expansion projects, new business acquisition and or major unplannedequipment projects.

(e)           **WorkingCapital*.***  The Borrower will maintain, during eachperiod described below, determined as at the end of each fiscal quarter, WorkingCapital of not less than $10,000,000.

20.           **Indebtedness**.  Section 6.4 of the Credit Agreement is herebyamended to add the following subsection (d) as Permitted Indebtedness:

(d)           Indebtedness for all leases assumedunder the Suntron Acquisition.

21.           **ComplianceCertificate. **The borrowerfurther agrees that the Compliance Certificate attached to the Credit Agreementas Exhibit B is amended in its entirety and replaced by the ComplianceCertificate attached as ***ExhibitB*** hereto.

22.           **Suntron Asset Acquisition**.  On or about the date hereof, the Borrower hasentered into the certain **[Asset Purchase Agreement]**with Suntron-Iowa, Inc., a Delaware corporation (“**Suntron**”),pursuant to which the Borrower intends to acquire substantially all of theassets and assume certain liabilities of Suntron as specifically provided inthe form of such agreement provided by the Borrower to the Lender (the “**Suntron Acquisition**”). The Lender hereby consents to such transactions and waives anyrestriction thereto as set forth in Sections 6.4 and 6.19 of the CreditAgreement, but does not waive Borrower’s required compliance with any otherterms and provisions under the Credit Agreement and related Loan Documents,except as expressly modified by this Seventh Amendment.  The Lender further agrees that the Borrowermay obtain a Revolving Advance of up to $5,000,000 for funding all or part ofthe purchase price for the assets acquired in the Suntron Acquisition.

23.           **AmendmentFee**. The Borrower shall pay the Lender as of the date hereof a fullyearned, non-refundable fee in the amount of $10,000.00 in consideration of theLender’s execution and delivery of this Amendment.

24.           **ConditionsPrecedent. **Except as otherwise provided below, thisAmendment shall be effective when the Lender shall have received an executedoriginal hereof together with the following, each in form and substanceacceptable to the Lender in its sole discretion:

(a)           Amended Revolving Note executed bythe Borrower;

(b)           Amended Real Estate Term Noteexecuted by the Borrower;

(c)           Second Amendment to Mortgage executedby the Borrower;

(d)           Combination Mortgage, SecurityAgreement, Fixture Financing Statement, and Assignment of Leases and Rentsexecuted by the Borrower in favor of the Lender, granting the Lender a first,perfected lien on the Borrower’s facility in Augusta, Wisconsin;

(e)           Fully paid title insurancedown-dating endorsements with respect to the Lender’s Minnesota Mortgage and atitle insurance policy with respect to its Wisconsin Mortgage;

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(f)            Written evidence and/or acertification from Borrower that the transactions contemplated by the SuntronAcquisition documents have closed or will close contemporaneously with theexecution of this Amendment and/or the funding of the additional loan advancescontemplated under the Credit Agreement as amended by this Seventh Amendment.

(g)           Payment of the feedescribed in Paragraph 8 above; and

(h)           Such other documents as requested bythe Lender.

25.           **NoOther Changes. **Except asspecifically provided herein, all terms and conditions of the Credit Agreementremain in full force and effect, without waiver or modification.  This Amendment and the Credit Agreement shallbe read together, as one document.

26.           **Representationsand Warranties. **Borrowerhereby remakes all representations and warranties contained in the CreditAgreement and reaffirms all covenants set forth therein.  Borrower further certifies that as of thedate of this Amendment there exists no Event of Default as defined in the CreditAgreement, nor any condition, act or event which with the giving of notice orthe passage of time or both would constitute any such Event of Default.

27.           **References**.All references in the Credit Agreement to “this Agreement” shall be deemed torefer to the Credit Agreement as amended hereby; and any and all references inthe Security Documents to the Credit Agreement shall be deemed to refer to theCredit Agreement as amended hereby.

28.           **NoWaiver**. Unless otherwise provided for herein, the execution of this Amendment andacceptance of any documents related hereto shall not be deemed to be a waiverof any Default or Event of Default undereither of the Credit Agreements or breach, default or event of default underany Security Document or other document held by the Lender, whether or notknown to the Lender and whether or not existing on the date of this Amendment.

29.           **Release**.The Borrower hereby absolutely and unconditionally releases and foreverdischarges 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 formerdirectors, officers, agents and employees of any of the foregoing, from any andall 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 orfederal law or otherwise, which the Borrower has had, now has or has made claimto 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 includingthe date of this Amendment, whether such claims, demands and causes of actionare matured or unmatured or known or unknown.

30.           **Costsand Expenses**. The Borrower hereby reaffirms its agreement under theCredit Agreements to pay or reimburse the Lender on demand for all costs andexpenses 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 specificallyagrees to pay all fees and disbursements of counsel to the Lender for theservices performed by such counsel in connection with the preparation of thisAmendment and the documents and instruments incidental hereto. The Borrowerhereby agrees that the Lender may, at any time or from time to time in its solediscretion and without further authorization by the Borrower, make a loan tothe 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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31.           **Miscellaneous**.This Amendment may be executed in any number of counterparts, each of whichwhen so executed and delivered shall be deemed an original and all of whichcounterparts, taken together, shall constitute one and the same instrument.

IN WITNESSWHEREOF, the parties hereto have caused this Seventh Amendment to be executedas of the day and year first written above.
| 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/Treasurer |                        |   |   |                 |             Its  Vice President |                                                                                       |   |

 

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**Exhibit Bto Amended and Restated Credit and Security Agreement**

**ComplianceCertificate**
| To:      |   | Mark T. Lundquist                                                                                                                                                                                                                                                        |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   | Wells Fargo Bank, N.A.                                                                                                                                                                                                                                                   |
| Date:    |   |                                       ,  200      |
| Subject: |   | Nortech Systems, Incorporated                                                                                                                                                                                                                                            |
|     |   | Financial Statements                                                                                                                                                                                                                                                     |

 

## In accordance with our Amended and RestatedCredit and Security Agreement dated as of December 30, 2002, and as amendedfrom time to time (as amended, the “**Credit Agreement**”), attached arethe financial statements of Nortech Systems, Incorporated (the “**Borrower**”) as of and for                       ,200      (the “**ReportingDate**”) and the year-to-date period then ended (the “**Current Financials**”). All termsused in this certificate have the meanings given in the Credit Agreement.

## As of each quarterly reporting period, Icertify that the Current Financials have been prepared in accordance with GAAP,subject to year-end audit adjustments, and fairly present the Borrower’sfinancial condition as of the date thereof.

Eventsof Default. (Check one):

o            Theundersigned does not have knowledge of the occurrence of a Default or Event ofDefault under the Credit Agreement except as previously reported in writing tothe Lender.

o            The undersigned has knowledge of theoccurrence of a Default or Event of Default under the Credit Agreement notpreviously reported in writing to the Lender and attached hereto is a statementof the facts with respect to thereto. The Borrower acknowledges that pursuantto Section 2.10(d) of the Credit Agreement, the Lender may impose the DefaultRate at any time during the resulting Default Period.

FinancialCovenants. I further hereby certify as follows:

### 1.                                       Minimum DebtService Coverage Ratio. Section 5(a) of the Credit Agreement.

### Required Ratio:  1.25 to 1.00 as of the end of each fiscalquarter up to and including 9/30/07.

1.50 to 1.00 as of theend of each fiscal quarter as of 12/31/07 and thereafter.

### As of theReporting Date, Borrower’s quarterly consolidated Debt Service Coverage Ratio(calculated as shown on attached work sheet) was       to 1.00.

### 2.                                       Maximum TotalFunded Debt to EBITDA Ratio. Section 5(b) of the Credit Agreement.

### Required Funded Debt to EBITDA Ratio shall be not more than:

4.25 to 1.00 for eachfiscal quarter up to and including 9/30/07.

3.50 to 1.00 for eachfiscal quarter ending 12/31/07 to and including 6/30/08

3.00to 1.00 for each fiscal quarter ending 9/30/08 and thereafter.

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

### 3.                                       Minimum NetIncome.  Section 5(c) of the CreditAgreement.

### Required Covenant: not less than 1.00 on a consolidated basis at theend of each fiscal quarter on a rolling four quarter basis.

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The Borrower’s consolidated Net Income for theyear-to-date period ending on the Reporting Date was $                        .

### 4.             Capital Expenditures.Section 5(d) of the Credit Agreement.

### RequiredCovenant: No more than $3,000,000 in aggregate per fiscal year, except for expensesreasonably necessary to complete Suntron Acquisition.

### As of the Reporting Date, Borrower’s consolidated year-to-date capitalexpenditures was$                               .

### 5.             Working Capital. Section5(e) of the Credit Agreement.

### RequiredCovenant: $10,000,000 as of the end of each fiscal quarter.

### As of the Reporting Date, Borrower’s Working Capital was$                              .

## Attached toare all relevant facts in reasonable detail to evidence, and the computationsof the financial covenants referred to above. These computations were made inaccordance with GAAP.

 
|        | NORTECH SYSTEMS, INCORPORATED         |                         |
|--------|---------------------------------------|------------------------------|
|   |                                  |                         |
|   | By                                    |                         |   |
|   |                                  | Name: Richard G. Wasielewski |   |
|   | Its Chief Financial Officer/Treasurer |                         |

 

 

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