FORBEARANCE AGREEMENT AND FOURTH AMENDMENT TO LOAN AGREEMENT
EXHIBIT 10.10
FORBEARANCE
AGREEMENT AND
FOURTH
AMENDMENT TO LOAN AGREEMENT
This
Forbearance Agreement and Fourth Amendment to Loan Agreement, dated August 28,
2009, is among ▇▇▇▇▇▇▇ Bank (the “Bank”), Jefferson Electric, Inc. (“Borrower”),
▇▇▇▇▇▇ ▇▇▇▇▇ (“Guarantor”) and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (“▇▇▇▇▇ ▇▇▇▇▇,” and together with
the Borrower and Guarantor, the “Borrower Parties”).
RECITALS
WHEREAS,
Bank and Borrower are parties to that certain Loan and Security Agreement dated
January 2, 2008, as amended by the Amendment to Loan and Security Agreement
dated January 29, 2008, Second Amendment to Loan and Security Agreement dated
May 2, 2008 and Third Amendment to Loan and Security Agreement dated December 3,
2008 (as amended, the “Loan Agreement”); and
WHEREAS,
Borrower is in material default under the Loan Agreement, including but not
limited to failure to pay the Obligations at maturity; and
WHEREAS,
Borrower has informed Bank that it is pursuing certain alternatives for
recapitalizing the Borrower and increasing Borrower’s profitability;
and
WHEREAS,
Bank is entitled to exercise its rights and remedies upon default, including but
not limited to its right to demand payment of the Obligations and realize on its
collateral for the Obligations; and
WHEREAS,
the Bank has agreed to forbear from exercising its rights and remedies upon the
terms and conditions set forth herein, provided that Bank has not agreed to
continue financing Borrower beyond December 31, 2009.
AGREEMENT
NOW,
THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. (a) Capitalized
terms used but not defined herein shall have the meanings ascribed to such terms
in the Loan Agreement.
(b) As
used herein and in the Loan Agreement as amended hereby, the following terms
shall have the following meanings:
“Additional
Advance Amount” means $700,000; provided that such amount shall be reduced to
$0.00 on the earliest of (i) September 5, 2009 if Borrower has not as of such
date met the requirements of Sections 6(c)(i) and 6(c)(ii) hereof or (ii) the
date of Borrower’s receipt of the Recapitalization Funds.
“Excluded
Mexican Inventory” means Borrower’s Inventory that is located in
Mexico.
“Forbearance
Event of Default” means (a) Bank obtaining knowledge of or the occurrence of any
default or Event of Default under the Loan Agreement not now known to Bank, (b)
any default or Event of Default under the Loan Agreement now known to Bank
increasing in scope or magnitude, or (c) the occurrence of any default under
this Agreement.
“Recapitalization
Funds” means amounts received by Borrower as a result of the transactions
contemplated by Section 6(a) hereof.
2. Interest Rate on the
Revolving Note. Section 2.3.1 of the Loan Agreement is amended
in its entirety to read as follows:
“2.3.1 Interest Rate on the
Revolving Note. The interest rate hereunder on the Revolving
Note shall be equal to 8.00% per annum.
3. Collateral-Obligation
Ratio. Section 2.6.2 of the Loan Agreement is amended in its
entirety to read as follows:
“2.6.2 the sum
of (i) Fifty percent (50%) of Qualified Inventory at cost (determined in
accordance with GAAP) or wholesale market value, whichever is lower, plus (ii)
the Additional Advance Amount; less”
4. Borrowing Base
Certificates. Section 5.1.3 of the Loan Agreement is amended
in its entirety to read as follows:
“5.1.3 On
Monday of each week, based on Qualified Accounts and Qualified Inventory figures
as of the end of the day on the prior Friday, and at such other times as
requested by Bank, a report in the form of the attached Exhibit A, or as
otherwise required by Bank, reflecting the Collateral-Obligation Ratio, showing
the value of the Collateral without the Excluded Mexican Inventory, together
with such information relating to the Collateral as Bank may request, certified
by an authorized signatory of Borrower.”
5. Prepayment
Premium. If, on or before December 31, 2009, Borrower pays the
Obligations in full and in good funds on or before December 31, 2009 and the
Revolving Credit Facility is terminated, Bank shall waiver the prepayment
premium set forth in section 2.9 of the Loan Agreement.
6. Additional
Covenants. Borrower and Guarantor shall comply with the
following covenants:
(a) Recapitalization. Borrower
shall diligently pursue recapitalization of the Borrower and (i) on or before
September 30, 2009, provide Lender with a pro forma showing proposed use of the
funds received in such recapitalization, including payment of amounts
satisfactory to Bank on the Revolving Note, (ii) on or before October 31, 2009,
provide Bank with a copy of a letter of intent from a proposed investor who is
satisfactory to Bank reflecting an intent to make a contribution of equity to
Borrower in the amount of at least $3,000,000 on terms and conditions
satisfactory to Bank, and (iii) on or before December 31, 2009, close on such
transaction, obtain additional cash equity in the amount of at least $3,000,000
and make payment on the Revolving Note in the amount of not less than
$700,000. Upon payment of the $700,000 to Bank as required in
this section 6(a), on and after the date of such payment, Borrower must be in
compliance with Section 2.6 of the Loan Agreement as amended hereby, calculated
with the Additional Advance Amount at $0.
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(b) Additional
Notices. Borrower shall notify Bank promptly, and in any event
within one business day, if Borrower, in its good faith judgment, at any time
believes that Borrower will not be able to close in its recapitalization on or
before December 31, 2009.
(c) Mexican
Documentation. Borrower and Guarantor shall
(i) on or
before August 31, 2009, provide to Bank all of the following, in a
form that is executed, and if required by Bank or otherwise required, with
appropriately completed notary acknowledgement, apostille and
authentication, and otherwise suitable for registration in Mexico:
all documents, filings, recordings, certifications and other documents as Bank
may request to perfect and protect Bank’s interest in property of Borrower and
its affiliates that may from time to time be located in Mexico; and
(ii) on
or before September 5, 2009, pay all taxes, fees, costs and expenses, make all
filings, and provided all certifications and other documents and actions as Bank
may request to perfect and protect Bank’s interest in the such
property. Borrower shall, from time to time, take such additional
action as Bank may request with respect to the perfection and protection of
Bank’s interest in such property.
(d) Inventory
Levels. Borrower shall at all times limit the amount of
inventory located in Mexico to the amount reasonably necessary for the operation
of Borrower’s business. Without limitation of the foregoing, Borrower
shall not at any time transfer any inventory to Mexico (i) if Borrower is not in
compliance with Section 2.6 of the Loan Agreement as amended hereby or if such
transfer will cause Borrower to be out of compliance with Section 2.6 of the
Loan Agreement as amended hereby, or (ii) if after such transfer the value of
inventory located in Mexico will exceed $1,600,000.
(e) Facility
Fee. In addition to all other amounts owing by Borrower to
Bank, Borrower shall pay to Bank a facility fee of $25,000.00 (the “Facility
Fee”). The Facility Fee shall be deemed fully earned and owing to
Bank upon execution of this Agreement. The Facility Fee shall be due
and payable on the earlier of the Forbearance Termination Date (as defined
below) or the date of payment in full of the Obligations and termination of the
Revolving Credit Facility.
(f) Debt
Service. Borrower shall maintain for each fiscal month of
Borrower, commencing June, 2009, a ratio of (i) Borrower’s Net Cash Flow, to
(ii) the sum of Borrower’s required principal payments, plus interest expense,
of at least 1.0 to 1.0.
7. Defaults; No
Waiver. Material Events of Default have occurred under the
Loan Agreement and are continuing. Bank has agreed that, subject to
the terms hereof, notwithstanding the existing defaults known to Bank, Bank will
forbear from exercising its rights and remedies and continue to advance funds
under the Revolving Credit Facility prior to the earlier of December 31, 2009 or
the occurrence of any Forbearance Event of Default, provided that Bank shall not
at any time be required to advance any amount in excess of the amount permitted
to be advanced under Section 2.6 of the Loan Agreement as amended
hereby. Bank does not waive any Events of Default. Bank’s
agreement to forbear under this Forbearance Agreement shall terminate on the
earlier of (a) December 31, 2009, or (b) the occurrence of any Forbearance Event
of Default (the earlier to occur of the foregoing, the "Forbearance Termination
Date"). Borrower expressly acknowledges that subject to the terms of
the Loan Agreement as amended hereby, Bank has agreed to forbear exercising its
rights and remedies until the earlier of December 31, 2009 to occurrence of any
Forbearance Event or Default, but in any event, Bank has not agreed to, and is
not obligated to, continue to provide financing to Borrower beyond such
date.
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8.
Effect of Forbearance
Agreement on Loan Documents. Except as amended hereby, the
Loan Documents remain in full force and effect.
9.
Effect of Forbearance
Agreement on Guaranty. Guarantor hereby consents to this
Agreement, and Guarantor hereby ratifies his Guaranty of the
Obligations and all documents by which any of them has granted collateral for
any such Guaranty or any Obligations.
10. Effect of Forbearance
Agreement on Mortgage. Guarantor and ▇▇▇▇▇ ▇▇▇▇▇ hereby ratify
the Real Estate Mortgage securing the Obligations dated December 3, 2008 (the
"▇▇▇▇▇ Mortgage"). In the event Borrower and Guarantor timely
satisfy, to the satisfaction of Bank, the conditions set forth in sections
6(c)(i) and 6(c)(ii) of this Agreement, Bank shall release the ▇▇▇▇▇
Mortgage.
11. Release of
Bank. Borrower acknowledges that its obligations under the
Loan Documents exist and are enforceable in accordance with their
terms. Each of the Borrower Parties, for themselves and all of their
respective past and present principals, officers, directors, members,
shareholders, employees, affiliated entities, guarantors, heirs, successors and
assigns and all persons acting by, through, under, or in concert with any of
them (the “Releasing
Parties”) do hereby release and discharge Bank and all of the Bank’s
officers, directors, managers, employees, successors, predecessors, and assigns
(each a "Released Party")), of and from any and all manner of action or actions,
cause or causes of action, suits, claims, counterclaims, demands, and expenses
(including attorneys’ fees and costs) whatsoever in law or equity, whether known
or unknown, which they have had, now have, or may in the future have against any
Released Party arising out of or relating to any act or omission by Bank or any
other Released Party, on or before the date of this Agreement.
12. Conditions
Precedent. This Forbearance Agreement shall not be effective
until (a) it shall have been executed and delivered by the parties hereto, (b)
Bank shall have received from Borrower (i) fully executed documentation in form
and substance satisfactory to Bank requiring prefunding of all of Borrower’s ACH
transfers, (ii) a copy, certified by the secretary of Borrower to be true and
correct and in full force in effect on the date hereof, of the resolutions
Borrower's board of directors authorizing the execution and delivery of this
Agreement and all documents required to be executed and delivered in connection
herewith and (iii) documentation satisfactory to Bank evidencing the merger of
Jefferson Electric Leasing, LLC into Borrower prior to the date hereof and (c)
Borrower shall have received from Bank an executed consent related to the sale
of certain of Borrower's accounts receivable from Siemens Energy &
Automation, in the form of Exhibit B attached hereto.
13. Attorneys’
Fees. The Borrower agrees to pay all reasonable attorneys’
fees of Bank relating to this Forbearance Agreement and all amendments,
modifications and supplements hereto, which attorneys' fees shall be due and
payable on the earlier of (a) the Forbearance Termination Date or (b) the date
of payment in full of the Obligations and termination of the Revolving Credit
Facility.
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14. Law
Governing. This Forbearance Agreement shall be governed by the
laws of the State of Wisconsin.
15. Binding
Effect. This Forbearance Agreement shall be binding upon the
parties hereto and their respective successors and assigns.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and
year first above written.
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BANK:
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▇▇▇▇▇▇▇
BANK
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By:
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇ | |
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BORROWER
PARTIES:
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JEFFERSON
ELECTRIC, INC.
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By:
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇ | |
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▇▇▇▇▇▇
▇▇▇▇▇, President
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| /s/ ▇▇▇▇▇▇ ▇▇▇▇▇ | ||
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▇▇▇▇▇▇
▇▇▇▇▇, an individual
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| /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ | ||
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▇▇▇▇▇
▇. ▇▇▇▇▇, an individual
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