**Exhibit 10.1**

 

FIFTH AMENDMENT TOCREDIT AGREEMENT

 

THIS FIFTH AMENDMENT TOCREDIT 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 iscurrently indebted to Bank pursuant to the terms and conditions of that certainAmended and Restated Credit Agreement between Borrower and Bank dated as of December 27,2002, as amended from time to time (“Credit Agreement”).

 

WHEREAS, Bank andBorrower have agreed to certain changes in the terms and conditions set forthin the Credit Agreement and have agreed to amend the Credit Agreement toreflect said changes.

 

NOW, THEREFORE, forvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto agree that the Credit Agreement shall beamended as follows:

 

1.                                       Thedefinition of “Debt Service Coverage Ratio” as set forth in Section 1.1 ofthe Credit Agreement is hereby deleted in its entirety and restated as follows:

 

““Debt Service CoverageRatio” means the ratio of (i) EBITDA less distributions, to (ii) thesum of (A) Current Maturities of Long Term Debt and (B) InterestExpense.”

 

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

 

“(ix) All Inventoryat any location other than the premises owned by the Borrower in Bemidji, MNunless consented to by the Lender in writing and subject to the additionalconditions that (a) such other location must not be outside of the UnitedStates, (b) the Lender shall have conducted a collateral audit on theInventory at such locations, (c) if the premises is leased by theBorrower, Lender shall have received a landlord’s or warehouseman’s waiver inform and substance acceptable to the Lender, and (d) such additionallimitations as the Lender’s collateral auditors shall recommend includingwithout limitations modifications to the Lender’s advance rates with respect tosuch Inventory; and...”

 

3.                                       Thedefinition of “Maturity Date” as set forth in Section 1.1 of the CreditAgreement 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 TermNote and the Real Estate Term Note.”

 

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4.                                       Section 2.12(e) of the CreditAgreement 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) outstandingRevolving Advances and (2) the L/C Amount. The Borrower agrees to pay tothe Lender an unused line fee at the rate of 0.25% per annum on the averagedaily Unused Amount from the date of this Agreement to and including theTermination Date, due and payable monthly in arrears on the first day of themonth and on the Termination Date.

 

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

 

(d)                                 **Projections.** No later than 30 days after the last day ofeach fiscal year, the Borrower will deliver to the Lender the projected balancesheets, income statements, statements of cash flow and projected Availabilityfor each month of the succeeding fiscal year, each in reasonable detail. Suchitems will be certified by the Officer who is the Borrower’s chief financialofficer as being the most accurate projections available and identical to the projectionsused by the Borrower for internal planning purposes and be delivered with astatement of underlying assumptions and such supporting schedules andinformation as the Lender may in its discretion require.

 

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

 

Section 6.2Financial Covenants.

 

(a)                                  **Minimum Debt ServiceCoverage Ratio**. The Borrowerwill maintain, during each period described below, its Debt Service CoverageRatio, determined on a consolidated basis as at the end of each fiscal quarteron a rolling four quarter basis, at not less than the ratio set forth oppositesuch 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 basismaintain its Tangible Net Worth at and as of each fiscal quarter end at anamount not less than $14,000,000.

 

(c)                                  **Maximum Debt to Tangible NetWorth Ratio**. The Borrowerwill 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 Incomedetermined on a consolidated basis as at the end of each fiscal quarter on a rollingfour quarter basis of not less than the greater of (i) $0 or (ii) thesum of the Borrower’s

 

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principalpayments on all indebtedness for borrowed money (including capital leaseobligations), less depreciation and amortization on the same rolling fourquarter basis.

 

(e)                                  **Capital Expenditures**. The Borrower will not incur or contract toincur Capital Expenditures of more than $2,000,000 in the aggregate during anyfiscal year without the lenders written approval for capital items, includingwithout limitation for new building andbuilding expansion projects, new business acquisition and or major unplannedequipment projects..

 

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

 

Theborrower further agrees that the Compliance Certificate attached to the CreditAgreement as Exhibit B is amended in its entirety and replaced by the ComplianceCertificate attached as Exhibit B hereto.

 

7.                                       Section 6.7 of the Credit Agreement ishereby 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 dividendspayable solely in stock of the Borrower) on any class of its stock, or make anypayment on account of the purchase, redemption or other retirement of anyshares of such stock or other securities or evidence of its indebtedness ormake any distribution in respect thereof, either directly or indirectly. Solong as no Default or Event of Default has occurred nor is likely to occur as aresult of such payment, the Borrower may annually during each fiscal year declareand pay cash dividends to the Borrower’s shareholders in an aggregate amountnot to exceed 25% of the Borrowers fiscal year ending Net Income.

 

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

 

9.                                       Borrower hereby remakes all representationsand warranties contained in the Credit Agreement and reaffirms all covenantsset forth therein. Borrower further certifies that as of the date of thisAmendment 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 passageof time or both would constitute any such Event of Default.

 

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INWITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to beexecuted 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 FifthAmendment dated as of February       , 2005***

 

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