Document:

Exhibit 10.1

	
        CREDIT
        AGREEMENT

        among

        COMMUNICATIONS
        Systems, Inc.,

        JDL TECHNOLOGIES,
        INCORPORATED and TRANSITION
        NETWORKS, INC.,

        as Borrowers,

        and

        WELLS FARGO
        BANK, NATIONAL ASSOCIATION

        as Bank

        Closing Date:
        October 28, 2011
 
 

 

 

 

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TABLE OF CONTENTS

	ARTICLE I CREDIT TERMS	1
	Section 1.1 Line of Credit	1
	Section 1.2  Interest/Fees	2
	Section 1.3  Collection of Payments	2
	Section 1.4  Collateral	3
	Section 1.5  Additional Definition	3
	 	 
	ARTICLE II REPRESENTATIONS AND WARRANTIES	3
	Section 2.1  Legal Status	3
	Section 2.2  Authorization and Validity	3
	Section 2.3  No Violation	3
	Section 2.4  Litigation	4
	Section 2.5  Correctness of Financial Statement	4
	Section 2.6  Income Tax Returns	4
	Section 2.7  No Subordination	4
	Section 2.8  Permits, Franchises	4
	Section 2.9  ERISA	4
	Section 2.10  Other Obligations	5
	Section 2.11  Environmental Matters	5
	Section 2.12  Real Property	5
	Section 2.13  Adverse Change	5
	Section 2.14  Intellectual Property Rights	5
	 	 
	ARTICLE III CONDITIONS	5
	Section 3.1  Conditions of Initial Extension of Credit	5
	Section 3.2  Conditions of Each Extension of Credit	7
	 	 
	ARTICLE IV AFFIRMATIVE COVENANTS	7
	Section 4.1  Punctual Payments	7
	Section 4.2  Accounting Records	7
	Section 4.3  Financial Statements	7
	Section 4.4  Compliance	8
	Section 4.5  Insurance	8
	Section 4.6  Facilities	8
	Section 4.7  Taxes and Other Liabilities	9
	Section 4.8  Litigation	9
	Section 4.9  Financial Condition	9
	Section 4.10  Notice to Bank	9
	 	 
	ARTICLE V NEGATIVE COVENANTS	10
	Section 5.1  Use of Funds	10
	Section 5.2  Other Indebtedness	10
	Section 5.3  Merger, Consolidation, Transfer of Assets	10
	Section 5.4  Guaranties	10

 

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	Section 5.5  Loans, Advances, Investments	11
	Section 5.6  Pledge of Assets	11
	 	 
	ARTICLE VI EVENTS OF DEFAULT	11
	Section 6.1  Event of Default	11
	Section 6.2  Remedies	12
	Section 6.3  Right of Setoff	12
	 	 
	ARTICLE VII MISCELLANEOUS	13
	Section 7.1  No Waiver	13
	Section 7.2  Notices	13
	Section 7.3  Costs, Expenses and Attorneys’ Fees	13
	Section 7.4  Successors, Assignment	14
	Section 7.5  Entire Agreement; Amendment	14
	Section 7.6  No Third Party Beneficiaries	14
	Section 7.7  Time	14
	Section 7.8  Severability of Provisions	14
	Section 7.9  Counterparts	14
	Section 7.10  Governing Law	14
	Section 7.11  Arbitration	14
	Section 7.12  Joint and Several Liability	16

 

 

 

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”)
is entered into as of October 28, 2011 by and among COMMUNICATIONS Systems, Inc.,
a Minnesota corporation (“Communications Systems”), JDL TECHNOLOGIES, INCORPORATED, a Minnesota corporation
(“JDL”), TRANSITION NETWORKS, INC., a Minnesota corporation (“Transition Networks”; together
with Communications Systems and JDL, “Borrowers” and each a “Borrower”), and WELLS FARGO
BANK, NATIONAL ASSOCIATION, a national banking association (“Bank”).

RECITALS

Borrowers have requested that Bank extend
credit to Borrowers as described below, and Bank has agreed to provide such credit to Borrowers on the terms and conditions contained
herein.

NOW, THEREFORE, for valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Bank and Borrowers hereby agree as follows:

ARTICLE I

CREDIT TERMS

Section 1.1 Line of Credit.

(a)Line of Credit.
Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrowers from time to time up to
and including November 1, 2013, not to exceed at any time the aggregate principal amount of Ten Million Dollars ($10,000,000) (the
“Line of Credit”), the proceeds of which shall be used for working capital and other general corporate purposes.
Borrower’s obligation to repay advances under the Line of Credit shall be evidenced by a promissory note of even date herewith
(as amended, restated, supplemented, extended, replaced, renewed or otherwise modified from time to time, the “Revolving
Note”), all terms of which are incorporated herein by this reference. Each Borrower jointly and severally promises to
pay the debts, liabilities and obligations arising under or in connection with this Agreement, the Revolving Note and the other
Loan Documents (including principal, interest, fees, costs, and expenses) in full on the Maturity Date (as defined in the Revolving
Note).

(b)Letter of Credit
Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause
an affiliate to issue standby or commercial letters of credit for the account of a Borrower (each, a “Letter of Credit”
and collectively, “Letters of Credit”); provided however, that the aggregate undrawn amount of all outstanding
Letters of Credit shall not at any time exceed Ten Million Dollars ($10,000,000); and provided, further, that no Letter of Credit
shall be issued hereunder if, after giving effect to the issuance of such Letter of Credit, the Aggregate Outstanding Amount would
exceed the amount of the Line of Credit. The form and substance of each Letter of Credit shall be subject to approval by Bank,
in its sole discretion. Each Letter of Credit shall be issued for a term not to exceed one (1) year, as designated by Borrower;
provided however, that no Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of Credit.
The undrawn amount of all issued and outstanding Letters of Credit shall be reserved under the Line of Credit and shall not be
available for borrowings thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of such letter
of credit agreements, applications and any related documents required by Bank in connection with the issuance thereof. Each drawing
paid under a Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by

 

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Borrowers in accordance with
the terms and conditions of this Agreement applicable to such advances; provided however, that if advances under the Line of Credit
are not available, for any reason, at the time any drawing is paid, then Borrowers shall immediately pay to Bank the full amount
drawn, together with interest thereon from the date such drawing is paid to the date such amount is fully repaid by Borrowers,
at the rate of interest applicable to advances under the Line of Credit. In such event Borrowers agree that Bank, in its sole discretion,
may debit any account maintained by any Borrower with Bank for the amount of any such drawing. As used herein, “Aggregate
Outstanding Amount” means the sum of (i) the aggregate principal amount of all outstanding advances made by Bank under
the foregoing clause (a) and (ii) the aggregate remaining available amount of all issued and outstanding Letters of Credit and
Borrowers’ obligation to pay amounts drawn under Letters of Credit which have not yet been reimbursed with proceeds of an
advance or otherwise.

(c)Borrowing and
Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Revolving Note; provided
however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount
available thereunder, as set forth above.

Section 1.2 Interest/Fees.

(a)Interest.
The outstanding principal balance of advances under the Line of Credit, and the amount of each drawing paid under any Letter of
Credit, shall bear interest at the rate of interest set forth in the Revolving Note.

(b)Computation and
Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Revolving Note or other instrument or document required hereby.

(c)Unused Fee.
Borrowers shall pay to Bank a fee equal to 0.125% per annum, computed on the basis of a 360-day year, actual days elapsed, on the
average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis and shall be due and payable
by Borrowers on the last business day of each quarter. Any portion of the unused fee under this clause (c) remaining unpaid on
the Maturity Date shall be due and payable on such date.

(d)Letter of Credit
Fees. Borrowers shall pay to Bank (i) fees upon the issuance or renewal of each Letter of Credit equal to the greater of (A)
$500 and (B) one and one-tenth of one percent (1.10%) (computed on the basis of a 360-day year, actual days elapsed) of the face
amount of such Letter of Credit, and (ii) fees upon the payment or negotiation of each drawing under each Letter of Credit and
upon the occurrence of any other activity with respect to any Letter of Credit (including, without limitation, the transfer, amendment
or cancellation of any Letter of Credit) determined in accordance with Bank’s standard fees and charges then in effect for
such activity.

Section 1.3 Collection of Payments.
Borrowers authorize Bank to collect all principal, interest and fees and other amounts due under or in connection with this Agreement,
the Revolving Note or the other Loan Documents by charging Communications System’s deposit account number 4124303454 with
Bank, or any other deposit account maintained by any Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrowers.

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Section 1.4 Collateral. As
security for all indebtedness and other debts, liabilities and obligations of Borrowers to Bank, each Borrower hereby grants to
Bank security interests of first priority (except as otherwise permitted by this Agreement) in all of such Borrower’s property.
The foregoing shall be evidenced by and subject to the terms of such additional security agreements, financing statements, deeds
or mortgages, and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrowers shall
pay to Bank immediately upon demand the full amount of all charges, costs and expenses (to include fees paid to third parties and
all allocated costs of Bank personnel), expended or incurred by Bank in connection with any of the foregoing security interest
or agreements and documents, including without limitation, filing and recording fees and costs of appraisals, audits and title
insurance.

Section 1.5 Additional Definition.
As used herein, “Subsidiary” means any corporation, partnership, limited liability company or other entity of
which more than 50% of the outstanding capital stock having general voting power under ordinary circumstances to elect a majority
of the governing board of such entity (irrespective of whether or not at the time stock or membership interests of any other class
or classes shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly
owned by any Borrower. Unless otherwise specified, “Subsidiary” means a Subsidiary of a Borrower.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Borrowers make the following representations
and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in
full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrowers to Bank
subject to this Agreement.

Section 2.1 Legal Status.
Communications Systems, JDL and Transition Networks are each a corporation, duly organized and existing and in good standing under
the laws of Minnesota, and each is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable)
in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrowers.

Section 2.2 Authorization and
Validity. This Agreement, the Revolving Note and each contract, instrument and other document required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the “Loan Documents”) have been duly authorized,
and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements
and obligations of Borrowers or the party which executes the same, enforceable in accordance with their respective terms.

Section 2.3 No Violation.
The execution, delivery and performance by Borrowers of each of the Loan Documents do not and will not violate any provision of
any law or regulation, or contravene any provision of the articles of incorporation or bylaws of any Borrower, or result in any
breach of or default under any contract, obligation, indenture or other instrument to which any Borrower is a party or by which
any Borrower may be bound, or require any authorization, consent or approval which has not been obtained prior to the date hereof,
or require any authorization, consent or approval by, or registration, declaration or filing (other than filing of financing statements
and recording of mortgages as contemplated hereunder) with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior to

 

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the date hereof, or violate any
provision of any law, rule or regulation (including but not limited to Regulations T, U or X of the Board of Governors of
the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to any Borrower
or of the articles of incorporation or bylaws of any Borrower.

Section 2.4 Litigation. Except
as set forth in Schedule 2.4, there are no pending, or to the best of any Borrower’s knowledge threatened, actions, claims,
investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which
could have a material adverse effect on the financial condition or operation of any Borrower other than those disclosed by Borrowers
to Bank in writing prior to the date hereof.

Section 2.5 Correctness of Financial
Statement. The annual financial statements of Borrowers dated December 31, 2010, and all interim financial statements delivered
to Bank since said date, true copies of which have been delivered by Borrowers to Bank prior to the date hereof, (a) are complete
and correct and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrowers that are required
to be reflected or reserved against under generally accepted accounting principles consistently applied (“GAAP”),
whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with GAAP. Since the dates
of such financial statements there has been no material adverse change in the financial condition of Borrowers, nor has any Borrower
mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank
or as otherwise permitted by Bank in writing.

Section 2.6 Income Tax Returns.
Borrowers have no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year, and each
Borrower has paid or caused to be paid to the proper authorities when due all federal, state, foreign and local taxes required
to be withheld by it. Each Borrower has filed all federal, state and local tax returns which are required to be filed, and each
Borrower has paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment
received by it to the extent such taxes have become due, except for any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested by such Borrower in good faith and by proper proceedings and for which such Borrower shall have
set aside adequate reserves in accordance with GAAP.

Section 2.7 No Subordination.
There is no agreement, indenture, contract or instrument to which any Borrower is a party or by which any Borrower may be bound
that requires the subordination in right of payment of any of such Borrower’s obligations subject to this Agreement to any
other obligation of such Borrower.

Section 2.8 Permits, Franchises.
Each Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights
to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which
it is now engaged in compliance with applicable law.

Section 2.9 ERISA. Each Borrower
is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974,
as amended or recodified from time to time (“ERISA”); no Borrower has violated any provision of any defined
employee pension benefit plan (as defined in ERISA) maintained or contributed to by such Borrower (each, a “Plan”);
no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by any Borrower; each
Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill
its benefit obligations as they come due in accordance with the Plan documents and under GAAP.

 

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Section 2.10 Other Obligations.
No Borrower is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment,
contract, instrument or obligation.

Section 2.11 Environmental Matters.
Except as set forth in Schedule 2.11, to the best of each Borrower’s knowledge, such Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of any Borrower’s operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of
the same may be amended, modified or supplemented from time to time. To the best of each Borrower’s knowledge, none of the
operations of such Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. No
Borrower has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into
the environment.

Section 2.12 Real Property.
Set forth and described in Schedule 2.12 is a correct and complete list of all interests (including, but not limited to, all fee
simple and leasehold interests) of each Borrower in any real property or fixtures, wherever located.

Section 2.13 Adverse Change. There has
been no material adverse change in the business, properties or condition (financial or otherwise) of Borrowers since the date of
the last financial statement referred to in Section 2.5.

Section 2.14 Intellectual Property Rights.
Schedule 2.14 is a complete list of all intellectual property or other proprietary rights, including all rights arising in connection
with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works, applications, and material
unregistered copyrights and service marks (collectively, the “Intellectual Property”) owned by each Borrower,
including the application, registration or patent number of each item. Borrowers own the Intellectual Property free and clear of
all restrictions (including covenants not to sue a third person and entity), court orders, injunctions, decrees, writs or security
interests, liens, charges or other encumbrances (other than those specifically permitted by this Agreement), whether by written
agreement or otherwise, (i) no person or entity other than a Borrower owns or has been granted any right in the Intellectual
Property, (ii) all Intellectual Property is valid, subsisting and enforceable, and (iii) each Borrower has taken all
commercially reasonable action necessary to maintain, protect and enforce the Intellectual Property owned by it.

 

ARTICLE III

CONDITIONS

Section 3.1 Conditions of Initial
Extension of Credit. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment
to Bank’s satisfaction of all of the following conditions:

(a)Approval of Bank
Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank’s counsel.

(b)Documentation.
Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed by the parties thereto:

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(i)This Agreement.

(ii)The Revolving Note.

(iii)The Security Agreement
between Borrowers and Bank.

(iv)The Standby Letter
of Credit Agreements.

(v)The Commercial Letter
of Credit Agreements.

(vi)Financing statements
with respect to each Borrower to be filed in each jurisdiction which, in the opinion of Bank, is reasonably necessary to perfect
the security interests and liens created by the Security Agreement, to the extent such security interests and liens can be perfected
by filing.

(vii)Current searches
of appropriate filing offices in the jurisdiction in which the Borrowers are organized, has an office or otherwise conducts business
(including but not limited to patent and trademark offices, secretaries of state and county recorders) showing that no state or
federal tax liens have been filed and remain in effect against Borrower, and that no financing statements or other notifications
or filings have been filed and remain in effect against Borrower, other than those for which Bank has received an appropriate release,
termination or satisfaction or those permitted in accordance with this Agreement.

(viii)Certificate of the
secretary or other appropriate officer of each Borrower (A) certifying that the execution, delivery and performance of this
Agreement, the Revolving Note and other documents contemplated hereunder to which such Borrower is a party have been duly approved
by all necessary action of the board of directors of such Borrower, and attaching true and correct copies of the applicable resolutions
granting such approval, and (B) certifying that attached to such certificate are true and correct copies of such Borrower’s
articles of incorporation and bylaws, together with such copies, together with a certification of the names of the officers of
such Borrower that are authorized to sign this Agreement, the Revolving Note and other documents contemplated hereunder, together
with the true signatures of such officers. Bank may conclusively rely on such certificate until Bank receives a further certificate
of the secretary or assistant secretary of such Borrower canceling or amending the prior certificate and submitting the signatures
of the officers named in such further certificate.

(ix) A certificate of
good standing for each Borrower from the Secretary of State (or the appropriate official) of the state of formation of such Borrower,
dated not more than 30 days prior to the Closing Date.

(x)Such other documents as Bank
may require under any other section of this Agreement.

 

(c)Financial Condition.
There shall have been no material adverse change, as determined by Bank, in the financial condition or business of any Borrower,
nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material
portion of the assets of any Borrower.

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(d)Insurance.
Borrowers shall have delivered to Bank evidence of insurance coverage on all of each Borrower’s property, in form, substance,
amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with lender’s loss payable
and additional insured endorsements in favor of Bank.

(e)Costs and Expenses.
Payment of all fees and expenses then due and payable pursuant to this Agreement.

Section 3.2 Conditions of Each
Extension of Credit. The obligation of Bank to make each extension of credit requested by Borrowers hereunder shall be subject
to the fulfillment to Bank’s satisfaction of each of the following conditions:

(a)Compliance.
The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date
of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though
such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined
herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

(b)Documentation.
Bank shall have received all additional documents which may be required in connection with such extension of credit.

ARTICLE IV

AFFIRMATIVE COVENANTS

Each Borrower covenants that so long as
Bank remains committed to extend credit to Borrowers pursuant hereto, or any liabilities (whether direct or contingent, liquidated
or unliquidated) of Borrowers to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations
of Borrowers subject hereto, Borrowers shall, and shall cause each Subsidiary to, unless Bank otherwise consents in writing:

Section 4.1 Punctual Payments.
Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein , and immediately upon demand by Bank, the amount by which the outstanding principal balance of
any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.

Section 4.2 Accounting Records.
Maintain adequate books and records in accordance with GAAP consistently applied, and permit any representative of Bank, upon advance
notice and at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect
the properties of each Borrower.

Section 4.3 Financial Statements.
Provide to Bank all of the following, in form and detail satisfactory to Bank:

(a)as soon as available, and in any event not later than 120 days after and as of the end of
each fiscal year, audited annual financial statements of Borrowers and an unqualified opinion, prepared by independent certified
public accountants acceptable to Bank, to include balance sheets as of the end of such fiscal year and the related statements of
income, retained earnings and cash flows of the Borrowers for the fiscal year then ended, prepared on a 

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consolidating and consolidated
basis, all in reasonable detail and prepared in accordance with GAAP;

(b)not later than 45
days after and as of the end of each fiscal quarter, financial statements of Borrowers, prepared by Borrowers, including an unaudited
internal balance sheets and statements of income, cash flow and retained earnings of Borrowers as at the end of such quarter and
for the year-to-date period then ended, prepared on a consolidating and consolidated basis, in reasonable detail, all prepared
in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes;

(c)not later than 45
days after and as of the end of each fiscal quarter, in form and substance acceptable to Bank, a compliance certificate;

(d)contemporaneously
with each annual and quarterly financial statement of Borrowers required hereby, a certificate of the president or chief financial
officer of each Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition,
act or event which with the giving of notice or the passage of time or both would constitute an Event of Default or, if such officer
has knowledge of the occurrence of any Event of Default or any condition, act or event which with the giving of notice or the passage
of time or both would constitute an Event of Default, stating in reasonable detail the facts with respect thereto;

(e)not later than 120
days after the commencement of each fiscal year, the projected balance sheets, income statements, capital expenditures budget,
and cash flow statements of Borrowers for each month of such year, each in reasonable detail, representing the good faith projections
of Borrowers for each such month, and certified by each Borrower’s president or chief financial officer as being the most
accurate projections available, together with such supporting schedules and information as Bank from time to time may reasonably
request; and

(f)from time to time
such other information as Bank may reasonably request.

Section 4.4 Compliance. Preserve
and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents pursuant to which each Borrower is organized and/or which govern such
Borrower’s continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority
applicable to any Borrower and/or its business.

Section 4.5 Insurance. Maintain
and keep in force, for each business in which each Borrower is engaged, insurance of the types and in amounts customarily carried
in similar lines of business, including but not limited to fire, extended coverage, public liability, flood, property damage and
workers’ compensation, with all such insurance carried with companies and in amounts satisfactory to Bank and including such
lender’s loss payable and additional insured endorsements as Bank may request, and deliver to Bank from time to time at Bank’s
request schedules setting forth all insurance then in effect.

Section 4.6 Facilities. Keep
all properties useful or necessary to each Borrower’s business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. At
any time upon Bank’s request, obtain a consent and waiver agreement, in form and substance acceptable to Bank, signed by
each landlord with respect to any Borrower’s leased locations as shown on Schedule

 

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2.12, acknowledging Bank’s
prior security interest in all personal property located on such leased site and allowing Bank to enter upon such leased site to
remove such personal property at any time.

Section 4.7 Taxes and Other Liabilities.
Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without
limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as a Borrower
may in good faith contest or as to which a bona fide dispute may arise, and (b) for which such Borrower has made provision,
to Bank’s satisfaction, for eventual payment thereof in the event such Borrower is obligated to make such payment.

Section 4.8 Litigation. Promptly
give notice in writing to Bank of any litigation pending or threatened against any Borrower with a claim in excess of $250,000.

Section 4.9 Financial Condition.
Maintain Borrowers’ financial condition as follows using GAAP (except to the extent modified by the definitions herein),
with compliance determined as of each fiscal quarter end, determined on a rolling four-quarter basis, commencing with financial
statements for the quarter ending December 31, 2011:

(a) a minimum Current Ratio not less than 1.75 to 1.0;

(b) a minimum Net Profit of $3,000,000; 

(c) a minimum Tangible Net Worth of not less than $60,000,000; and

(d) no two consecutive quarterly losses.

As used herein:

(v) “Current
Ratio” means, with respect to the applicable computation period, the ratio of (i) current assets owned by such entity
to (ii) current liabilities of such entity, plus the sum of all outstanding working capital borrowings under the
Line of Credit and Letters of Credit issued under this Agreement;

(x) “Net Profit”
means net profit of an entity before tax;

(y) “Tangible
Net Worth” means the sum of (i) an entity’s total net worth less (ii) any intangible assets owned by such
entity, plus the sum of all Subordinated Debt; and

(z) “Subordinated
Debt” means debt of a person or entity that is subordinated to the payment of all debts, liabilities and obligations
of Borrowers arising under or in connection with this Agreement and any other Loan Documents and all rights and remedies granted
to Bank under or in connection with this Agreement and any other Loan Documents pursuant to a subordination agreement in form and
substance acceptable to Bank in its sole discretion, executed and delivered by each holder of such subordinated debt in favor of
Bank.

Section 4.10 Notice to Bank.
Promptly (but in no event more than five business (5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the
giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational
structure of any Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined
in ERISA, or any funding deficiency with respect to any Plan; or

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(d) any termination or cancellation
of any insurance policy which any Borrower is required to maintain, or any uninsured or partially uninsured loss through liability
or property damage, or through fire, theft or any other cause affecting any Borrower’s property in excess of an aggregate
of $250,000.

Section 4.11 UCC Terminations.
No later than thirty days following the date of this Agreement, Borrowers will deliver to Bank a filed UCC-3 termination statement
with respect to each of the following UCC-1 financing statements: (a) UCC-1 Financing Statement filed as filing number 201020348066
on May 24, 2010 with the Minnesota Secretary of State, naming Communications Systems as debtor and US Bancorp as secured party;
and (b) UCC-1 Financing Statement filed as filing number 200916106668 on May 15, 2009 with the Minnesota Secretary of State, naming
JDL as debtor and GE Commercial Distribution Finance Corporation as secured party.

 

ARTICLE V

NEGATIVE COVENANTS

Borrowers further covenant that so long
as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated
or unliquidated) of Borrowers to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations
of Borrowers subject hereto, Borrowers will not, and will not permit any Subsidiary to, without Bank’s prior written consent:

Section 5.1 Use of Funds.
Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

Section 5.2 Other Indebtedness.
Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether
secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrowers
to Bank; (b) any other debts, liabilities or obligations of Borrowers existing as of the date of this Agreement and set forth
in Schedule 5.2 hereto; (c) debts of Borrowers secured by purchase money liens not to exceed $500,000 in the aggregate at
any time outstanding; (d) any indebtedness arising from any Permitted Acquisition. As used herein, “Permitted Acquisition”
means an acquisition by a Borrower of (x) assets constituting a business, division or product line of any entity not already
a Subsidiary, or (y) the capital stock or equity of any such entity (including by way of merger) as a result of which stock
acquisition such entity shall become a Subsidiary of such Borrower or shall be merged with and into a Subsidiary of such Borrower,
provided that (in each case), the business activities of the acquired entity are substantially similar to the business activities
conducted by any Borrower or its Subsidiaries at the time of the transaction or a reasonable extension thereof and, in the case
of any consolidation or merger, a Borrower or an existing Subsidiary shall be the continuing or surviving corporation (provided,
however, that under no circumstances may a Borrower merge into or consolidate with any Subsidiary).

Section 5.3 Merger, Consolidation, Transfer
of Assets. Merge into or consolidate with any other entity; make any substantial change in the nature of any Borrower’s
business as conducted as of the date hereof; sell, lease, transfer or otherwise dispose of all or a substantial or material portion
of Borrower’s assets except in the ordinary course of its business.

 

Section 5.4 Guaranties. Guarantee
or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in
the ordinary course of business), accommodation endorser or otherwise for, or pledge or hypothecate any assets of any Borrower
as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank.

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Section 5.5 Loans, Advances,
Investments. Make any loans or advances in excess of $250,000 in the aggregate per fiscal year to any person or entity or make,
purchase, hold or permit to exist any other investments of any kind, except any of the foregoing existing as of the date of this
Agreement and set forth on Schedule 5.6 hereto.

Section 5.6 Pledge of Assets.
Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of its assets now owned or
hereafter acquired, except (a) any of the foregoing in favor of Bank or (b) which is existing as of the date of this
Agreement and set forth on Schedule 5.7 hereto or (c) which constitute purchase money liens securing indebtedness permitted
under Section 5.2 hereof, provided that such purchase money liens do not extend to or cover any property of a Borrower or a Subsidiary
other than the property then being acquired and the aggregate principal amount of the indebtedness secured by such lien does not
exceed the cost of the property so acquired in connection therewith.

ARTICLE VI

EVENTS OF DEFAULT

Section 6.1 Event of Default.
The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:

(a)Any Borrower shall
fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

(b)Any financial statement
or certificate furnished to Bank in connection with, or any representation or warranty made by any Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished
or made.

(c)Any default in the
performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other
than those specifically described as an “Event of Default” in this Section 6.1), and with respect to any such
default that by its nature can be cured, such default shall continue for a period of thirty (30) days from its occurrence.

(d)Any default in the
payment or performance of any obligation, or any defined event of default, under the terms of any contract, instrument or document
(other than any of the Loan Documents) pursuant to which any Borrower, any guarantor hereunder or any general partner or joint
venturer in any Borrower if a partnership or joint venture (with each such guarantor, general partner and/or joint venturer referred
to herein as a “Third Party Obligor”) has incurred any debt or other liability to any person or entity, including
Bank, and with respect to any such default that by its nature can be cured, such default shall continue for a period of thirty
(30) days from its occurrence; provided, however, that any default which causes or results in the acceleration of any debt or other
liability shall not be considered a default that by its nature can be cured, and shall result in an immediate Event of Default
hereunder.

(e)Any Borrower or any
Third Party Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall
make a general assignment for the benefit of creditors; any Borrower or any Third Party Obligor shall file a voluntary petition
in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under
the Bankruptcy Reform Act, Title 11 of the

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United States Code, as amended
or recodified from time to time (“Bankruptcy Code”), or under any state or federal law granting relief to debtors,
whether now or hereafter in effect; or any Borrower or any Third Party Obligor shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition; or any Borrower or any Third Party Obligor shall be adjudicated
a bankrupt, or an order for relief shall be entered against any Borrower or any Third Party Obligor by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for
debtors.

(f)The filing of a notice
of judgment lien against any Borrower or any Third Party Obligor; or the recording of any abstract of judgment against any Borrower
or any Third Party Obligor in any county in which such Borrower or such Third Party Obligor has an interest in real property; or
the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of any Borrower
or any Third Party Obligor; or the entry of a judgment against any Borrower or any Third Party Obligor; or any involuntary petition
or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors is filed or commenced against any Borrower or any Third Party Obligor.

(g)There shall exist
or occur any event or condition that Bank in good faith believes likely to materially impair, or is substantially likely to materially
impair, the prospect of payment or performance by any Borrower, any Third Party Obligor, or the general partner of either if such
entity is a partnership, of its obligations under any of the Loan Documents.

(h)The dissolution or
liquidation of any Borrower or any Third Party Obligor if a corporation, partnership, joint venture or other type of entity; or
any Borrower or any such Third Party Obligor, or any of its directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of such Borrower or such Third Party Obligor.

Section 6.2 Remedies. Upon
the occurrence of any Event of Default, Bank may exercise any or all of the following rights and remedies: (a) all indebtedness
of Borrowers under each of the Loan Documents, any term thereof to the contrary notwithstanding, may at Bank’s option and
without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are
hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents may immediately cease and terminate; (c) Bank may have all rights, powers and remedies available under each
of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit
subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law; and (d) Bank
may apply for the appointment of, or taking possession by, a trustee, receiver, liquidator or other similar official of any Borrower
to hold or liquidate all or any substantial part of the properties or assets of such Borrower. Borrowers hereby consent to such
appointment and agrees to execute and deliver any and all documents requested by Bank relating to the appointment of such trustee,
receiver, liquidator or other similar official (whether by joining in a petition for the appointment of such an official, by entering
no contest to a petition for the appointment of such an official, or otherwise, as appropriate under applicable law). All rights,
powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

Section 6.3 Right of Setoff. If an Event
of Default shall have occurred, Bank and each of its Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional

 

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or final, in whatever currency) at any time held and other obligations
(in whatever currency) at any time owing by Bank or any such affiliate to or for the credit or the account of Borrowers against
any and all of the obligations of Borrowers now or hereafter existing under this Agreement or any other Loan Document to Bank or
any such affiliate, irrespective of whether or not Bank shall have made any demand under this Agreement or any other Loan Document
and although such obligations of Borrowers may be contingent or unmatured or are owed to a branch or office of Bank different from
the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender Party and its affiliates
under this Section are in addition to other rights and remedies (including other rights of setoff) that Bank or its affiliates
may have. Bank will notify Borrowers promptly after any such setoff and application; provided, however, that the failure to give
such notice shall not affect the validity of such setoff and application.

 

ARTICLE VII

MISCELLANEOUS

Section 7.1 No Waiver. No
delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect
or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.

Section 7.2 Notices. All
notices, requests and demands which any party is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:

BORROWERS:

 

Communications Systems, Inc.

10900 Red Circle Drive

Minnetonka, MN 55343

 

BANK:

 

Wells Fargo Bank, National Association

MAC N9307-230

7900 Xerxes Avenue S., Suite 2300

Bloomington, MN 55431

or to such other address as any party may designate by written
notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by
hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

Section 7.3 Costs, Expenses and
Attorneys’ Fees. Borrowers shall pay to Bank 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 Bank’s
in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and
the other Loan Documents (which the parties hereto agree shall not exceed $2,500), Bank’s continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement and protection of Bank’s
rights and remedies and/or the collection

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of any amounts which become due
to Bank under any of the Loan Documents, by law or otherwise, and (c) the prosecution or defense of any action in any way
related to any of the Loan Documents, 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 any Borrower or any other person or entity.

Section 7.4 Successors, Assignment.
This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors
and assigns of the parties; provided however, that no Borrower may assign or transfer its interests or rights hereunder without
Bank’s prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Bank’s rights and benefits under each of the Loan Documents. In connection therewith,
Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto,
any Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder.

Section 7.5 Entire Agreement;
Amendment. This Agreement and the other Loan Documents constitute the entire agreement between Borrowers and Bank with respect
to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the
subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.

Section 7.6 No Third Party Beneficiaries.
This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted
successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause
of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

Section 7.7 Time. Time is
of the essence of each and every provision of this Agreement and each other of the Loan Documents.

Section 7.8 Severability of Provisions.
If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions
of this Agreement.

Section 7.9 Counterparts.
This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same Agreement.

Section 7.10 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota.

Section 7.11 Arbitration.

(a)
 Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims,
disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto,
or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, 

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modification, extension, substitution,
formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b)Governing Rules.
Any arbitration proceeding will (i) proceed in a location in Minnesota selected by the American Arbitration Association (“AAA”);
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice
of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator
as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the
claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable,
as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures
set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall
bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall
be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar
applicable state law.

(c)No Waiver of Provisional
Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral
such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment
or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute
a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising
from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d)Arbitrator Qualifications
and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which
the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however,
that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney
licensed in the State of Minnesota or a neutral retired judge of the state or federal judiciary of Minnesota, in either case with
a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The
arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining
any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary
adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Minnesota and may grant any remedy
or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions
and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Minnesota Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of
a provisional or ancillary remedy shall not constitute a

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waiver of the right of any
party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial
relief.

(e)Discovery.
In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date.
Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the
arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative
means for obtaining information is available.

(f)Class Proceedings
and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration,
except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member
of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.

(g)Payment Of Arbitration
Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h)Miscellaneous.
To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding
may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary
course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of
the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.

Section 7.12 Joint and Several Liability.
Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Bank the prompt
payment and performance of, all loans, debts, principal, interest, reimbursement or indemnification obligations, premiums, liabilities,
obligations, fees, expenses, guaranties and all covenants and duties of any other kind and description owing by any Borrower, whether
direct or indirect, absolute or contingent, due or to become due, sole, joint, several or joint and several, now existing or hereafter
arising, pursuant to or evidenced by this Agreement or any other Loan Document. Each Borrower agrees that its guaranty obligations
hereunder constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until
cash payment in full of the obligations, and that such obligations are absolute and unconditional, irrespective of (a) the genuineness,
validity, regularity, enforceability, subordination or any future modification of, or change in, any obligations or Loan Document,
or any other document, instrument or agreement to which any Borrower is or may become a party or be bound; (b) the absence of any
action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any
kind by Bank with respect thereto; (c) the existence, value or condition of, or failure to perfect any of Bank’s liens or
to preserve rights against, any security or guaranty for the obligations or any action, or the absence of any action, by Bank in
respect thereof (including the release of any security or guaranty); (d) the insolvency of any Borrower; (e) any election by Bank
in an insolvency proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of
a lien, security interest or other encumbrance by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy
Code or otherwise; (g) the disallowance of any claims of Bank against any Borrower for the repayment of any obligations under Section 502
of the Bankruptcy Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, except cash payment in full of all obligations.

 

Signature pages follow

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

	 	COMMUNICATIONS SYSTEMS, INC.
	 	By:    /s/ David T. McGraw
	 	Name: David T. McGraw
	 	Title: Chief Financial Officer
	 	 
	 	 
	 	JDL TECHNOLOGIES, INCORPORATED
	 	By:    /s/ David T. McGraw
	 	Name: David T. McGraw
	 	Title: Chief Financial Officer
	 	 
	 	 
	 	TRANSITION NETWORKS, INC.
	 	By:    /s/ David T. McGraw
	 	Name: David T. McGraw
	 	Title: Chief Financial Officer

 

 

 

 

 

 

 

 

Signature Page to Credit Agreement

 

 

    	 

    	 

    

 

	 	WELLS FARGO BANK, NATIONAL
     ASSOCIATION
	 	By:    /s/ Michael M. Lebens
	 	Name: Michael M. Lebens
	 	Title: Vice President
	 	 
	 	 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit Agreement

 

 

 

    	 

    	 

    

 

Schedule 2.4

 

Litigation

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 2.4

 

    	 

    	 

    

 

Schedule 2.11

 

Environmental Matters

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 2.11

 

 

 

    	 

    	 

    

 

Schedule 2.12

 

Real Property

 

Owned:

Communications Systems: 10900 Red Circle Drive, Minnetonka,
MN 55343

Communications Systems (Suttle): 1001 Highway 212, Hector,
MN 55342

Communications Systems (Suttle): 951 Building, Hector,
MN 55342

Communications Systems (Suttle): 901 Building, Hector,
MN 55342

Communications Systems (Suttle): 230 Elm Street, Hector,
MN 55342

Communications Systems (Suttle): 213 Main Street, Hector,
MN 55342

Communications Systems (Suttle): 541 8th Street
NE, Hector, MN 55342

 

Leased:

5450 Northwest 33rd Avenue, Ft. Lauderdale,
FL

 

 

Foreign Locations:

Leased: 9F AAE Plaza No. 28, Jiangchange No. 3 Rd., Shanghai,
China

Leased: 1030 Moorpark Avenue Sutie 232, San Jose, CA

Leased: Costa Rica property

Owned: Austin Taylor, Bethesda, Gwynedd, North Wales,
United Kingdom, LL57 3BX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 2.12

 

 

    	 

    	 

    

 

Schedule 2.14

 

Intellectual Property

 

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 2.14

 

    	 

    	 

    

 

Schedule 5.2

 

Existing Indebtedness

 

 

Building Loan by Monumental Life Insurance Company, as
lender, to Transition Networks, with a principal balance as of June 30, 2011 of $2,205,345 and maturing on March 1, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 5.2

 

    	 

    	 

    

 

Schedule 5.6

 

Existing Loans, Advances and Investments

 

Loan(s) by Communications Systems to Austin Taylor, in
an amount not to exceed $3,297,077, as evidenced by that certain Demand Promissory Note of Austin Taylor dated July 1, 2011 payable
to Communications Systems.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule 5.6

 

    	 

    	 

    

 

Schedule 5.7

 

Existing Liens

	

Debtor Searched
 [Debtor Found]	Jurisdiction	Secured Party	Filing No.	Filing Date	Lien Description
	 	 	 	 	 	 
	Communications Systems Inc	 Minnesota Secretary of State	US Bancorp	201020348066	05/24/10	Specific equipment
	JDL Technologies, Incorporated	 Minnesota Secretary of State	Mitel Networks, Inc.	200813949308	11/20/08	Inventory acquired from Mitel Networks, Inc., Proceeds, Accounts Receivable and Contract Rights, all pertaining to Inventory acquired from Mitel Networks, Inc.
	JDL Technologies, Incorporated	 Minnesota Secretary of State	Mitel Leasing, Inc.	200915220890	03/06/09	Axxcessory Talk VM System (Rental)
	JDL Technologies, Incorporated	 Minnesota Secretary of State	GE Commercial Distribution Finance Corporation	200916106668	05/15/09	All personal property of Debtor, whether such property or Debtor’s right, title or interest therein or thereto is now owned or existing or hereafter acquired or arising, and wherever located, including, without limitation, all accounts, inventory, equipment, fixtures, other goods, general intangibles, chattel paper, instruments, deposit accounts, investment property and documents, and all products and proceeds of the foregoing

 

 

 Schedule 5.7

  

    	 

    	 

    
 

 

 

	

Debtor Searched
 [Debtor Found]	Jurisdiction	Secured Party	Filing No.	Filing Date	Lien Description
	Transition Networks, Inc.	 Minnesota Secretary of State	Monumental Life Insurance Company	200718510660	10/09/07	All those assets that relate to the property commonly known as 10900 Red Circle Dr, Minnetonka, MN (and legally described as Lots 7 and 8, Block 1, and that part of Lot 6, Block 1, Opus 2 Eighth Addition, Hennepin Co, MN) and more particularly described in that certain Mortgage; covered assets include Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Goods, Instruments, General Intangibles, Investment Property, and Letter of Credit Rights

 

 

 

 

 

 

 

 

 

 

 

Schedule 5.7Exhibit 10.2

REVOLVING
LINE OF CREDIT NOTE

 

 

	$10,000,000	
        Minnetonka, Minnesota

        October 28, 2011

 

FOR VALUE RECEIVED, the undersigned COMMUNICATIONS
Systems, Inc., a Minnesota corporation (“Communications Systems”), JDL TECHNOLOGIES, INCORPORATED, a
Minnesota corporation (“JDL”), TRANSITION NETWORKS, INC., a Minnesota corporation (“Transition Networks”;
together with Communications Systems and JDL, “Borrowers” and each a “Borrower”), promises
to pay on November 1, 2013 (the “Maturity Date”) to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”)
at its office at 7900 Xerxes Avenue S., Suite 2300, Bloomington, MN 55431, Minnesota, 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 TEN MILLION
Dollars ($10,000,000), or so much thereof as may be advanced and be outstanding, 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)        “Business Day” means
any day except a Saturday, Sunday or any other day on which commercial banks in Minnesota are authorized or required by law to
close.

 

(b)        “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.

 

(c)        “LIBOR” means the
rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

 

	LIBOR =	Base LIBOR	 
	 	100% - LIBOR Reserve Percentage	 

 

(i)        “Base LIBOR” means the
rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that
such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, for
delivery of funds for one (1) month in an amount equal to the outstanding principal balance of this Note. Borrower understands
and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar
deposits on the London Inter-Bank Market.

 

(ii)        “LIBOR Reserve Percentage”
means the reserve percentage 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), adjusted by Bank for expected changes
in such reserve percentage during the term of this Note.

 

 

 

    	 

    	 

    

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 one and one-tenth of one percent (1.10%) above Daily One Month LIBOR in effect from time to time.
Each change in the rate of interest hereunder shall become effective on each Business Day a change in Daily One Month LIBOR is
announced within Bank. 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. Borrowers shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due
hereunder, any and all (i) 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) future, supplemental, emergency
or other changes in the LIBOR Reserve Percentage, 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 to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable
to any LIBOR option available to Borrowers hereunder, any reasonable allocation made by Bank among its operations shall be conclusive
and binding upon Borrower.

 

(c)        Payment of Interest. Interest
accrued on this Note shall be payable on the first day of each month, commencing December 1, 2011.

 

(d)        Default Interest. From and after
the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or
otherwise, or at Bank’s option upon the occurrence, and during the continuance of an Event of Default, the outstanding principal
balance of this Note shall 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.

 

BORROWING AND REPAYMENT:

 

(a)        Borrowing and Repayment. Borrowers
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. 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 Borrowers, 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 the Maturity Date.

 

(b)        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 any officer
of any Borrower, 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 any Borrower, which advances, when
so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrowers 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 Borrowers.

 

 

	
        fb.us.7396315.02: Revolving Line;

        Daily One Month LIBOR (Rev. 05/09)
	-2-	 

    	 

    	 

    

(c)        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.

 

EVENTS OF DEFAULT:

 

This Note is made pursuant to and is subject
to the terms and conditions of that certain Credit Agreement among Borrowers and Bank dated as of October 28, 2011 (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 the occurrence of any Event of Default (as defined in the Credit Agreement)
under the Credit Agreement, shall constitute an “Event of Default” under this Note.

 

MISCELLANEOUS:

 

(a)        Remedies. 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 each Borrower, and the obligation, if any, of the holder to
extend any further credit hereunder shall immediately cease and terminate. Borrowers 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, 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 Borrowers or any other person or entity.

 

(b)        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.

 

(c)        Governing Law. This Note shall
be governed by and construed in accordance with the laws of the State of Minnesota.

Signature page follows

 

 

 

 

 

 

	
        fb.us.7396315.02: Revolving Line;

        Daily One Month LIBOR (Rev. 05/09)
	-3-	 

    	 

    	 

    

IN WITNESS WHEREOF, the undersigned has executed
this Note as of the date first written above.

 

	 	COMMUNICATIONS SYSTEMS, INC.	 
	 	 	 	 
	 	 	 	 
	 	By: 	/s/ David T. McGraw	 
	 	Name: 	David T. McGraw	 
	 	Title:	Chief Financial Officer	 
	 	 	 	 
	 	JDL TECHNOLOGIES, INCORPORATED	 
	 	 	 	 
	 	 	 	 
	 	By:	/s/ David T. McGraw	 
	 	Name: 	David T. McGraw	 
	 	Title:	Chief Financial Officer	 
	 	 	 	 
	 	 	 	 
	 	TRANSITION NETWORKS, INC.	 
	 	 	 	 
	 	By:	/s/ David T. McGraw	 
	 	Name: 	David T. McGraw	 
	 	Title:	Chief Financial Officer	 

 

 

 

 

 

 

Signature Page to Revolving Note

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