THIRD AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING NOTE

          (a)      The date “November 1, 2014” contained in the first sentence of Section 1.1(a) is hereby amended in its entirety to read as follows: “November 1, 2016”.

          (b)      The phrase “Ten Million Dollars ($10,000,000)” contained in the first sentence of Section 1.1(b) is hereby amended in its entirety to read as follows: “One Million Dollars ($1,000,000)”.

          (c)      Section 4.9 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

          Section 4.9 Financial Condition. Using GAAP (except to the extent modified by the definitions herein):

          (a)     Maintain Borrowers’ financial condition as follows, 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:

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

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

          (iii)    a minimum Tangible Net Worth of not less than $60,000,000.

          (b)     Commencing June 30, 2015 and as of June 30 of each year thereafter, Borrowers will achieve Net Profit of not less than $500,000, with compliance determined as of each such June 30 on a fiscal year-to-date basis.

Notwithstanding the foregoing or anything to the contrary contained in the definitions below, for purposes of determining Borrowers’ compliance with subsections (a)(ii) and (b) of this Section 4.9, up to $5,850,000 of goodwill impairment charges recognized by Borrowers on or about September 30, 2013 in connection with Borrower’s Transition Networks business unit shall be excluded. As used in this Section 4.9:

          (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.

                    4.       No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement, the Revolving Note and the other Loan Documents remain in full force and effect.

                    5.      Conditions Precedent. This Amendment shall be effective when Lender shall have received an executed original of this Amendment, together with each of the following, each in form and substance acceptable to Lender:

          (a)     a certificate of the secretary of each Borrower: (a) attaching resolutions of the Board of Directors of such Borrower authorizing the execution, delivery and performance by such Borrower of the Loan Documents, including this Amendment and the Amended Note, (b) certifying that the articles of incorporation of such Borrower delivered by such Borrower to Lender on October 28, 2011 have not been amended or changed in any respect (or if there has been any amendment or change, certifying that attached to such certificate is a current copy of such articles of incorporation (certified by the Secretary of State of formation)), (c) certifying that the bylaws of such Borrower delivered by such Borrower to Lender on October 28, 2011 have not been amended or changed in any respect (or if there has been any amendment or change, certifying that attached to such certificate is a current copy of such bylaws of such Borrower), and (d) containing the names of the officer or officers of such Borrower authorized to sign the Loan Documents, including this Amendment and the Amended Note, together with a sample of the true signature of each such officer, or affirming that the officer or officers certified to Lender on October 28, 2011 remain so authorized; together with current good standing certificate for such Borrower; and

          (b)     such other matters as Lender may reasonably require.

                    6.       Representations and Warranties. Borrowers hereby represent and warrant to Lender as follows:

          (a)     Each Borrower has all requisite power and authority to execute this Amendment, the Amended Note and any other agreements or instruments required hereunder and to perform all of its obligations hereunder, and the Credit Agreement, as amended by this Amendment, and the other Loan Documents to which such Borrower is a party have been duly executed and delivered by such Borrower and constitute the legal, valid and binding obligations of such Borrower, enforceable in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally.

          (b)     The execution, delivery and performance by such Borrower of Credit Agreement, as amended by this Amendment, and the other Loan Documents to which such Borrower is a party have been duly authorized by all necessary corporate action and do not (i) violate any material provision of federal, state, or local law or regulation applicable to such Borrower, the governing documents of such Borrower, or any order, judgment, or decree of any court or other governmental authority binding on such Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any contract, obligation, indenture or other instrument to which any Borrower is a party or by which any Borrower may be bound, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Borrower, or (iv) require any approval of such Borrower’s shareholders or any approval or consent of any other person or entity.

          (c)     All of the representations and warranties contained in Article II of the Credit Agreement are correct on and as of the date hereof as though made on and as of the date hereof, except to the extent that such representations and warranties relate solely to an earlier date.

BORROWERS:

COMMUNICATIONS SYSTEMS, INC.

By: 

Name:

Title:

JDL TECHNOLOGIES, INCORPORATED

By: 

Name:

Title:

TRANSITION NETWORKS, INC.

By: 

Name:

Title:

LENDER:

▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION

By: 

Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇

Title: Vice President