FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
EXHIBIT 10.13
FIFTH
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND
SECURITY AGREEMENT ("Amendment"), dated as of April 30, 2010, amends and
supplements that certain Loan and Security Agreement dated as of January 2,
2008, as amended to date, between JEFFERSON ELECTRIC, INC., a Delaware
corporation (formerly a Wisconsin corporation) ("Borrower"), and XXXXXXX BANK
("Bank").
RECITALS
A. Borrower
and Bank are parties to that certain Loan and Security Agreement dated January
2, 2008, as amended by an Amendment to Loan and Security Agreement dated January
29, 2008, a Second Amendment to Loan and Security Agreement dated May 2, 2008, a
Third Amendment to Loan and Security Agreement dated December 3, 2008 and a
First Amended and Restated Forbearance Agreement and Fourth Amendment to Loan
Agreement, as amended to date (as so amended, the "Fourth
Amendment"). Such Loan and Security Agreement, as so amended is
referred to herein as the "Loan Agreement."
B. Concurrent
with the Amendment (or immediately prior hereto), (i) Borrower converted
from a Wisconsin corporation to a Delaware corporation and (ii) Borrower
merged with JEI Acquisition Corp. ("Merger Sub"), a Delaware corporation and
wholly owned subsidiary of Pioneer Power Solutions, Inc., a Delaware
corporation, with Borrower as the surviving entity.
C. Borrower
and Bank desire to amend and supplement the Loan Agreement as provided
below.
AGREEMENTS
In consideration of the promises and
agreements set forth in the Loan Agreement, as amended hereby, the parties agree
as follows:
1. Definitions and
References. Capitalized terms not otherwise defined herein
have the meanings assigned in the Loan Agreement. All references to
the Loan Agreement contained in the Loan Documents shall, upon fulfillment of
the conditions specified in Section 3 below, mean the Loan Agreement as
amended by this Amendment.
2. Amendments to Loan
Agreement. The Loan Agreement is amended as
follows:
(a) The
following defined terms are added to Article I of the Loan Agreement to appear
in proper alphabetical order therein:
"Fifth
Amendment" means the Fifth Amendment to this Loan Agreement dated as of April
30, 2010 between Borrower and Bank.
"Fourth
Amendment" has the meaning assigned to such term in the Fifth
Amendment.
"JEM
Holdings" means Jefferson Electric Mexico Holdings, LLC, a Wisconsin limited
liability company.
"Merger
Agreement" means that certain Agreement and Plan of Merger dated as of the date
of the Fifth Amendment among Borrower, Guarantor, PPSI and JEI Acquisition
Corp., a Delaware corporation.
"Nexus
Mexico" means Nexus Magneticos de México, S. de X.X. de C.V., a company
duly organized and operating under the laws of Mexico.
"Nexus
Texas" means Nexus Custom Magnetics, L.L.C., a Texas limited liability
company.
"PPSI"
means Pioneer Power Solutions, Inc., a Delaware corporation.
"PPSI
Advance" means the $3,000,000 advance made by PPSI to Borrower on the date of
the Fifth Amendment.
"Reference
Rate" means the rate of interest announced by Bank from time to time as its
reference rate for interest rate determinations. The Reference Rate
may or may not be the lowest interest rate charged by Bank for loans to its
customers.
(b) The
defined term "Additional Advance Amount" in Article I of the Loan Agreement is
deleted in its entirety.
(c) The
defined term "Company Guarantor" in Article I of the Loan Agreement is deleted
in its entirety. References to Company Guarantor in the Loan
Agreement shall be deemed to refer to Nexus Mexico.
(d) The
defined term "Forbearance Event of Default" in Article I of the Loan Agreement
is deleted in its entirety.
(e) The
defined term "Guarantors" in Article I of the Loan Agreement is amended in its
entirety to read as follows:
"Guarantor"
means Xxxxxx Xxxxx.
(f)
The defined term "Recapitalization Funds" in Article I of the Loan
Agreement is deleted in its entirety.
(g) The
defined term "Release Date" in Article I of the Loan Agreement is deleted in its
entirety.
(h) Section
2.1.1 of the Loan Agreement is amended by deleting the date "June 1, 2009" in
the last sentence thereof and inserting "October 31, 2011" in its
place. Additionally, Section 2.1.1 of the Loan Agreement is amended
by inserting the following sentence at the end thereof:
Borrower and Bank acknowledge that, as
of the date immediately prior to the date of the Fifth Amendment, the
outstanding principal balance of the Revolving Note was
$4,242,516.00.
(i)
Section 2.2 of the Loan Agreement is amended by
deleting the date "January 1, 2013" in the last sentence thereof and inserting
"October 31, 2011" in its place. Additionally, Section 2.2 of the
Loan Agreement is amended by inserting the following sentence at the end
thereof:
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Borrower and Bank acknowledge that, as
of the date immediately prior to the date of the Fifth Amendment, the
outstanding principal balance of the Term Note was $3,455,363.53.
(j)
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 the greater of (a) the Reference Rate plus
2.5% per annum and (b) 6.5% per annum, changing as and when the Reference Rate
changes. As of the date of the Fifth Amendment, the Reference Rate is
3.25%. Bank will advise Borrower of the then-current Reference Rate
upon Borrower's request.
(k) Section
2.6.1 of the Loan Agreement is amended in its entirety to read as
follows:
2.6.1 Eighty
percent (80%) of Qualified Accounts (after deducting payments on Qualified
Accounts which are in the process of collection by the Bank); plus
(l) Section
2.6.2 of the Loan Agreement is amended in its entirety to read as
follows:
2.6.2 Fifty
percent (50%) of Qualified Inventory (which shall not include Excluded Mexican
Inventory) at cost (determined in accordance with GAAP) or wholesale market
value, whichever is lower (Borrower shall value Inventory under revised standard
costs as of December 31, 2009, and Inventory values shall be adjusted for costs
and revalued once per year thereafter); less
(m) Section
2.9 of the Loan Agreement is deleted in its entirety.
(n) Section
4.22 of the Loan Agreement is created to read as follows:
4.22 Affiliated Entities; Nexus
Mexico. Borrower is a wholly-owned subsidiary of
PPSI. Nexus Texas is a wholly-owned subsidiary of
Borrower. Nexus Texas has no operations and the sole asset owned by
Nexus Texas is 2999 shares of Nexus Mexico (representing greater than a 99.9%
interest in Nexus Mexico). JEM Holdings is an affiliate of
Borrower. JEM Holdings has no operations and the sole asset owned by
JEM Holdings is 1 share of Nexus Mexico (representing less than a 0.1% interest
in Nexus Mexico). Nexus Texas and JEM Holdings may be converted to
Delaware entities; provided that Borrower provides Bank prior written notice of
any such conversion.
All assets (other than cash permitted
by this Agreement to be advanced by Borrower to Nexus Mexico) now or hereafter
delivered or otherwise furnished by Borrower to Nexus Mexico shall remain titled
in Borrower's name. Ownership of such assets shall not transfer, be
deemed to have transferred or in any way be represented to have transferred from
Borrower to Nexus Mexico. Without the prior written consent of Bank,
Borrower shall remain Nexus Mexico's sole customer and the nature of the
relationship between Borrower and Nexus Mexico shall not be modified from the
present arrangement in any material way.
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(o) Section
4.23 of the Loan Agreement is created to read as follows:
4.23 Merger. The
Merger Agreement and documents related thereto (the "Merger Documents"), as
delivered to Bank, have not been modified, amended, supplemented or in any
manner changed, and all Merger Documents are true, complete versions of the
documents they purport to be. All terms and conditions set forth in
the Merger Documents have been satisfied by the parties thereto in accordance
with the terms thereof. The parties to the Merger Documents have
obtained all necessary consents from and effected all filings or registrations
with any governmental authority necessary to consummate the terms and conditions
of the Merger Documents and the transactions identified therein. The
parties to the Merger Documents have obtained all other consents necessary to
consummate the terms and conditions of the Merger Documents and the transactions
identified therein.
(p) The
first paragraph of Section 5.1 of the Loan Agreement is amended in its entirety
to read as follows:
5.1
Business Records;
Reports. Borrower shall maintain, and shall cause Nexus Mexico
to maintain, a reasonable system of business records prepared, in the case of
Borrower only, in accordance with GAAP, and shall furnish Bank such reports
respecting the business, assets and financial condition of Borrower and Nexus
Mexico as Bank may reasonably request, all of which reports shall be certified,
in form reasonably satisfactory to Bank, by a principal officer of Borrower or,
when requested by Bank, audited by an independent public accountant who is
reasonably satisfactory to Bank. Bank shall have the right at any
time during normal business hours to verify, check, inspect and make abstracts
and copies of all of Borrower's and Nexus Mexico's books, accounts, records,
audits, orders, correspondence, corporate minute books and other legal records
and such other papers, computer files, discs, tapes, printouts and other media
as Bank may desire. In addition to the foregoing, Borrower agrees to
deliver to Bank:
(q) Section
5.1.3 of the Loan Agreement is amended in its entirety to read as
follows:
5.1.3 Within
twenty-five (25) days after the end of each month, based on Qualified Accounts
and Qualified Inventory figures as of the end of such month, and at such other
times as requested by Bank, a report in the form Exhibit D attached hereto, or
as otherwise required by Bank, together with such information relating thereto
as Bank may request, including accounts receivable and accounts payable agings
and a detailed inventory report, all certified by an authorized signatory of
Borrower.
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(r) Section
5.1.6 of the Loan Agreement is amended in its entirety to read as
follows:
5.1.6 On
or before April 1 of each year, an updated personal financial statement for
Guarantor.
(s) Section
5.1.7 of the Loan Agreement is amended by restating clause (d) therein in its
entirety to read as follows:
(d) Borrower
is in compliance with Sections 5.21, 5.22 and 6.3 of this
Agreement.
(t) Section
5.1.8 of the Loan Agreement is created to read as follows:
5.1.8 Annual
income returns of Borrower and Guarantor within fifteen (15) days after the date
on which such returns are required to be filed, including any extensions
received for the filing of the tax returns.
(u) Section
5.21 of the Loan Agreement is amended in its entirety to read as
follows:
5.21 Tangible Net
Worth. Borrower shall achieve, as of the following dates, a
Tangible Net Worth not less than the following amounts:
|
Date
|
Amount
|
|
June
30, 2010
September
30, 2010
December
31, 2010
March
31, 2011
June
30, 2011
September
30, 2011
|
($4,500,000)
($4,300,000)
($4,000,000)
($3,800,000)
($3,600,000)
($3,400,000)
|
(v) Section
5.22 of the Loan Agreement is amended in its entirety to read as
follows:
5.22 Debt Service Coverage
Ratio. Borrower shall achieve, as of the last day of each
fiscal quarter of Borrower, commencing June 30, 2010, a ratio of (a) Net Cash
Flow to (b) the sum of required principal payments plus interest expense (not
including accrued but unpaid interest expense on subordinated indebtedness owing
to PPSI), all calculated for the four fiscal quarter period ending on the date
of determination, of at least 1.0 to 1.0; provided that, (i) the June 30,
2010 determination shall be calculated for the one fiscal quarter period ending
on that date, (ii) the September 30, 2010 determination shall be calculated
for the two fiscal quarter period ending on that date and (iii) the December 31,
2010 determination shall be calculated for the three fiscal quarter period
ending on that date. In all circumstances, the financial results for
the one month period ended April 30, 2010 shall be excluded.
(w) Section
5.25 of the Loan Agreement is created to read as follows:
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5.25 Guarantor. Borrower
shall retain Guarantor as President of Borrower, pursuant to the terms of the
Employment Agreement entered into concurrently with the Merger Agreement, and
Guarantor shall continue to be responsible for overseeing the management of
Borrower.
(x) Section
6.1 of the Loan Agreement is amended by deleting the period at the end of
subsection 6.1.4 and inserting ": and" in its place and by inserting the
following subsection at the end thereof:
6.1.5 Indebtedness
owing to PPSI, provided that any such Indebtedness shall be contractually
subordinated to Bank in a manner satisfactory to Bank. Bank
acknowledges that PPSI is not obligated to make advances whatsoever to Borrower
other than the PPSI Advance.
(y) Section
6.7 of the Loan Agreement is amended by inserting the following sentence at the
end thereof:
Additionally and notwithstanding the
foregoing or Section 6.10, Borrower may make dividends, distributions, advances
or other transfers of assets to PPSI (in addition to the foregoing tax
distributions) in an amount not to exceed $500,000 per fiscal year to reimburse
PPSI for direct expenses actually incurred by PPSI on Borrower's behalf,
provided, however, that (i) such amounts must represent a reasonable allocation
of expenses by PPSI and (ii) PPSI shall promptly furnish reasonable evidence of
such expenses and allocation upon request of Bank.
(z) Section
6.20 of the Loan Agreement is created to read as follows:
6.20 Mexican
Inventory. 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 if Borrower is not in
compliance with Section 2.6 hereof or if such transfer will cause Borrower
to be out of compliance with Section 2.6 hereof.
(aa) Section
6.21 of the Loan Agreement is created to read as follows:
6.21 Merger
Documents. Consent to any change, modification or amendment to
any Merger Document which constitutes a waiver or is otherwise in any way
materially adverse to Bank without the consent of Bank, which consent will not
be unreasonably withheld.
(bb) Section
7.1.9 of the Loan Agreement is amended in its entirety to read as
follows:
7.1.9 Ownership and Related
Matters. Any representation in Section 4.22 is false in any
material respect.
(cc) The
financial statements required under Section 5.1.1 shall be prepared on a
consolidated and consolidating basis for only Borrower and Nexus
Mexico. The other financial statements and deliveries shall not be
required to be prepared on a consolidated and consolidating basis for Borrower
and Nexus Mexico. Unless expressly stated to the contrary, Nexus
Mexico shall not be included in calculations pursuant to the Loan
Agreement.
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(dd) Borrower
shall cause Nexus Mexico to comply with the covenants contained in Sections
5.10, 5.12, 5.18, 6.1, 6.2, 6.4, 6.5, 6.6, 6.7 (other than distributions to
Borrower which shall not be restricted), 6.9, 6.10, 6.12, 6.13, 6.15, 6.16, 6.17
and 6.18 of the Loan Agreement (but not other covenants of the Loan Agreement)
as if it was also "Borrower" thereunder, except that (i) Bank consents to
Borrower having the organizational structure and affiliates referenced in
Section 4.22 of the Loan Agreement, (ii) Bank consents to transfers of cash,
goods and other property to Borrower and (iii) Bank consents to the
transfer by Borrower of (A) Inventory that may be transferred to Nexus Mexico in
the ordinary course of business for full and adequate consideration and
(B) transfers of cash to Nexus Mexico for its normal operating expenses in
an aggregate amount for all such transfers of cash not to exceed $3,000,000 in
any fiscal year of Borrower and provided that no such transfer may be made if an
Event of Default exists or would be created by such transfer.
(ee) Schedule
4.3 attached hereto shall be deemed an exhibit to the Loan Agreement and shall
replace its predecessor thereto.
(ff) Exhibit
D attached hereto shall be deemed an exhibit to the Loan Agreement.
(gg) Sections
5, 6 (other than Section 6(e)), 7 and 10 (the mortgage referenced therein has
been released) of the Fourth Amendment are deleted in their
entirety. Additionally, the Fourth Amendment shall be renamed "Fourth
Amendment to Loan Agreement" and the phrase "Forbearance Agreement" in the
Fourth Amendment or in the other Loan Documents shall be deleted and shall be
deemed to refer to such "Fourth Amendment to Loan Agreement."
(hh) Bank
consents to the transactions contemplated by the Merger Agreement.
3. Closing
Conditions. This Amendment shall become effective upon the
execution and delivery by Borrower and Bank of this Amendment and receipt by
Bank of:
(a) payment
of (i) the Facility Fee of $25,000 referenced in Section 6(e) of the Fourth
Amendment, (ii) the Undercharged Interest Amount (as defined in that letter
agreement between Bank and Borrower dated January 4, 2010) of $36,944.44 and
(iii) all out-of-pocket costs and expenses related to Borrower paid or incurred
by Bank through the date hereof, including the fees and expenses of Bank's
counsel;
(b) full,
complete and accurate copies of all Merger Documents, together with all consents
required to consummate the transactions identified in the Merger Documents and
confirmation that the parties to the Merger Documents shall have comported with
all requirements of law, including those of any applicable state department of
revenue, labor or other taxing authority;
(c) evidence
that the transactions contemplated by the Merger Agreement have occurred,
including the PPSI Advance, repayment of $700,000 of the outstanding principal
of the Revolving Note and repayment of the Term Note in an amount equal to
$200,000;
(d) an
assignment and assumption of pledge, duly executed by JE Mexican Holdings, Inc.,
a Delaware corporation ("JEMHI"), related the equity interests in JEM
Holdings;
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(e) a
subordination agreement, duly executed by PPSI;
(f) an
amendment to guaranty, duly executed by Guarantor;
(g) a
collateral pledge of Guarantor's equity interests in PPSI, including warrants,
together with the original stock certificate, warrant and blank stock powers and
assignments, as applicable, duly executed by Guarantor;
(h) all
financing statements or amendments to existing financing statements and other
instruments required to perfect or continue perfection of the liens granted to
Bank securing the Obligations;
(i) searches
of the appropriate public offices demonstrating that no lien is of record
affecting Borrower, Merger Sub, JEMHI, Guarantor or their respective properties
(limited in the case of Guarantor to equity interests, including warrants, in
PPSI), except Authorized Security Interests;
(j) an
updated Schedule 4.3 to the Loan Agreement, together with landlord consent and
waivers, to the extent not previously furnished to Bank, for each Collateral
location not owned by Borrower;
(k) a
borrowing base report in the form of Exhibit D attached hereto (and utilizing
the revised standard costs for Inventory), duly executed by Borrower; provided
that the Bank agrees that such borrowing base report may be furnished to Bank on
May 3, 2010 showing the calculations as of April 30, 2010;
(l) evidence
of insurance coverage as required by the Loan Documents;
(m) copies,
certified by a duly authorized representative of Borrower, PPSI, Merger Sub and
JEMHI, to be true and correct and in full force and effect on the date hereof,
of (i) the charter documents of such entity; (ii) resolutions of such
entity authorizing the issuance, execution and delivery of the Loan Documents to
which such entity is a party; and (iii) a statement containing the names and
titles of the representatives of such entity authorized to sign such Loan
Documents, together with true signatures of such persons; and
(n) such
other documents as Bank may reasonably request; and all proceedings taken in
connection with the transactions contemplated by this Amendment, and all
instruments, authorizations and other documents applicable thereto, shall be
reasonably satisfactory to Bank.
4. Limited
Waiver. Bank hereby waives any Events of Default existing
under the Loan Agreement as of the date hereof; provided that such waiver does
not in any way extend to Borrower's compliance with the Loan Agreement, as
amended hereby, after the date of this Amendment. Borrower further
agrees that nothing contained herein shall impair the right of Bank to require
strict performance by Borrower of the Loan Agreement.
5. Representations and
Warranties. Borrower represents and warrants to Bank
that:
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(a) The
execution and delivery of this Amendment and the other Loan Documents referenced
herein is within its corporate power, has been duly authorized by proper
corporate action on the part of Borrower, is not in violation of any existing
law, rule or regulation of any governmental agency or authority, any order or
decision of any court, the charter documents of Borrower or the terms of any
agreement, restriction or undertaking to which Borrower is a party or by which
it is bound, and do not require the approval or consent of any governmental
body, agency or authority or any other person or entity; and
(b) The
representations and warranties of Borrower contained in the Loan Documents are
true and correct in all material respects as of the date of this Amendment
(except to the extent that such representations and warranties specifically
refer only to another date).
6. Costs and
Expenses. Borrower agrees to pay on demand all reasonable
out-of-pocket costs and expenses paid or incurred by Bank in connection with the
negotiation, preparation, execution and delivery of this Amendment and all
documents, instruments and agreements related hereto and thereto, including the
reasonable fees and expenses of Bank's counsel.
7. Full Force and
Effect. The Loan Agreement, except as otherwise expressly
amended hereby, remains in full force and effect.
8. Execution in
Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
[remainder
of page intentionally left blank]
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9. Facsimile
Signatures. Facsimile copies of any party's signature hereto
shall be deemed effective execution of this Amendment by such
party.
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JEFFERSON
ELECTRIC, INC.
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|
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BY
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/s/ Xxxxxx Xxxxx | ||
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Its
|
President | |||
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XXXXXXX
BANK
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BY
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/s/ Xxxxxx Xxxxxxx | |||
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Its
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