Exhibit 10.1
 

 
SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
 
This SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (the “Amendment”), dated
January 14, 2010, is entered into by and among MISCOR GROUP, LTD., an Indiana
corporation (“MISCOR”), MAGNETECH INDUSTRIAL SERVICES, INC., an Indiana
corporation (“MIS”), MARTELL ELECTRIC, LLC, an Indiana limited liability company
(“Martell”), HK ENGINE COMPONENTS, LLC, an Indiana limited liability company
(“HK”), IDEAL CONSOLIDATED, INC., an Indiana corporation (“Ideal”), and AMERICAN
MOTIVE POWER, INC., a Nevada corporation (“AMP” and together with MISCOR, MIS,
Martell, HK and Ideal, the “Borrowers” and each a “Borrower”) and WELLS FARGO
BANK, NATIONAL ASSOCIATION (the “Lender”), acting through its Wells Fargo
Business Credit operating division.

RECITALS

The Lender and the Borrowers are parties to a Credit and Security Agreement
dated January 14, 2008, as amended (the “Credit Agreement”).

The Borrowers have advised the Lender that they intend to sell the Construction
and Engineering Services segment of the Borrowers’ business, consisting of
Martell and Ideal (the “CES Sale”) and have requested the Lender’s consent to
the CES Sale, which the Lender is willing to do pursuant to the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, it is agreed as follows:
 
1. Defined Terms.  Capitalized terms used in this Amendment which are defined in
the Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein.  In addition, in the event the CES Sale has not been
consummated on or prior to January 15, 2010, Section 1.1 of the Credit Agreement
shall be amended by amending the following definitions:
 
“Borrowing Base” means at any time the lesser of:
 
(a)           The Maximum Line Amount; or
 
(b)           Subject to change from time to time in the Lender’s sole
discretion, the sum of:
 
(i)           The lesser of (A) the sum of (1) the product of the Accounts
Advance Rate times Eligible Accounts of each of MIS, HK, Martell, Ideal and AMP,
plus (2) the lesser of (y) the product of the Special Accounts Advance Rate
times Eligible Progress Accounts of each of Martell and Ideal, or (z)
$1,450,000; provided, such amount shall be reduced on a weekly basis commencing
January 15, 2010, and on each Friday thereafter by $40,000 per week; or
(B) $5,800,000, less
 

 

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(ii)           The Borrowing Base Reserve, less
 
(iii)           The Personal Property Tax Reserve, less
 
(iv)           The Real Estate Tax Reserve, less
 
(v)           The Landlord Reserve, less
 
(vi)           Indebtedness that any Borrower owes to the Lender that has not
yet been advanced on the Revolving Note, including, without limitation, the L/C
Amount, and the dollar amount that the Lender in its reasonable discretion then
determines to be a reasonable determination of each Borrower’s credit exposure
with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury
management or other similar transaction or arrangement offered to any Borrower
by Lender that is not described in Article II of this Agreement.
 
“Special Accounts Advance Rate” means up to thirty five percent (35%); provided,
such percentage shall be reduced on a weekly basis commencing January 15, 2010
and on each Friday thereafter by one percent (1.0%) per week, or such lesser
rate as the Lender in its sole discretion may deem appropriate from time to
time, including, without limitation, in the event the Borrowers hereafter
request that the Lender make Advances based on Inventory.
 
2.           Amendment of Section 2.6(a).  Section 2.6(a) of the Credit
Agreement shall be amended to read as follows:
 
(a)           In equal monthly installments of Ten Thousand Four Hundred
Seventeen Dollars ($10,417) each, beginning on the first day of the month
following the making of the Real Estate Advance, and on the first day of each
month thereafter, and commencing on January 15, 2010, and on Friday of each week
thereafter, in additional equal weekly installments of Ten Thousand Dollars
($10,000) each, with a final payment of the entire unpaid principal balance of
the Real Estate Note, and all unpaid interest accrued thereon, due on January 1,
2018; and
 
3.           No Other Changes.  Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
 
4.           Consent to CES Sale.  The Borrowers have advised the Lender that
they intend to sell the Construction and Engineering Services segment of their
business through a sale of the capital stock of Ideal and the membership units
of Martell, substantially in accordance with the terms of that certain Letter of
Intent dated December 7, 2009, by John A. Martell and Bonnie M. Martell (the
“LOI”).  Subject to the satisfaction of the following conditions in a manner
satisfactory to the Lender in its sole discretion, the Lender consents to the
CES Sale and agrees to release its liens on the assets of Ideal and Martell, as
well as the capital stock of Ideal and the membership units of Martell, upon
consummation of the CES Sale:
 

 
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(a)           The cash portion of the purchase price payable to MISCOR shall be
sufficient to repay and eliminate the portion of the revolving credit facility
based upon Eligible Progress Accounts of each of Ideal and Martell, and in no
event shall the cash portion of the purchase price be less than One Million
Three Hundred Thousand Dollars ($1,300,000).
 
(b)           The Definitive Acquisition Agreement (as defined in the LOI) shall
be in form and substance acceptable to the Lender in its discretion.
 
5.           Payments to Subordinated Creditor.  Notwithstanding anything to the
contrary in the Credit Agreement or any Subordination Agreement, in connection
with the CES Sale and as partial consideration for the purchase price payable in
the CES Sale, the Lender hereby agrees that not more than Two Million Dollars
($2,000,000) of currently outstanding subordinated debt of the Borrowers owing
to John A. Martell may be forgiven and a new note shall be issued to Mr. Martell
(“New Martell Note”) for the remaining subordinated debt, which Note may also
include any other indebtedness due Mr. Martell by Borrowers, and which Note may
be secured by a blanket security interest (“Martell Security Interest”).
 
The New Martell Note and Martell Security Interest shall be subordinated to the
Indebtedness pursuant to a Subordination Agreement in form and substance
acceptable to the Lender dated as of the date of the New Martell Note.   So long
as any Indebtedness remains outstanding or the Lender has any obligation to make
any Advance, no payment or reduction of any kind may be made on the New Martell
Note without the prior written consent of the Lender, which consent may be
provided in the sole discretion of the Lender.  The Lender hereby acknowledges
that in connection with a sale of the remaining assets of MISCOR’s Rail Services
Segment, it is willing to consider the Borrowers’ request to permit a payment on
the New Martell Note upon the closing of such sale.
 
6.           Additional Conditions.  As a condition to the Lender’s agreements
hereunder, the Borrowers agree to timely comply with each of the following
conditions to the satisfaction of the Lender and the failure to so comply shall
constitute an Event of Default:
 
(a)           Notwithstanding anything to the contrary contained in the Fifth
Amendment to Credit Agreement between Borrowers and Lender dated September 16,
2009 or the letter agreement between Borrowers and Lender dated December 10,
2009, on or before January 27, 2010, the Borrowers shall raise at least One
Million Dollars ($1,000,000) of additional capital, whether in the form of
additional Subordinated Debt, proceeds of asset sales approved by the Lender
and/or cash equity contributions.
 
(b)           On or before January 20, 2010, Keystone Consulting or another
consultant acceptable to the Lender shall provide the Lender a report which
validates the most recent 13-week cash flow forecast of the Borrowers provided
to the Lender under Section 6.1(a) of the Credit Agreement and the Borrowers’
budget for fiscal year 2010.  
 

 
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7.           Conditions Precedent.  This Amendment shall be effective when the
Lender shall have received an executed original hereof, together with each of
the following, each in substance and form acceptable to the Lender in its sole
discretion:
 
(a) The Acknowledgment and Agreement of Subordinated Creditors set forth at the
end of this Amendment, duly executed by each Subordinated Creditor.
 
(b) With respect to each Borrower, a Certificate of the Secretary of the
Borrower certifying as to (i) the resolutions of the board of directors or
manager, as applicable, of the Borrower approving the execution and delivery of
this Amendment, (ii) the fact that the Constituent Documents of the Borrower,
which were certified and delivered to the Lender pursuant to the Certificate of
Authority of the Borrower’s secretary issued in connection with the original
execution of the Credit Agreement, continue in full force and effect and have
not been amended or otherwise modified except as set forth in the Certificate to
be delivered, and (iii) certifying that the officers and agents of the Borrower
who have been previously certified to the Lender as being authorized to sign and
to act on behalf of the Borrower continue to be so authorized or setting forth
the sample signatures of each of the officers and agents of the Borrower
authorized to execute and deliver this Amendment and all other documents,
agreements and certificates on behalf of the Borrower.
 
(c) Such other matters as the Lender may require.
 
8.           Representations and Warranties.  Each Borrower (as to such
Borrower) hereby represents and warrants to the Lender as follows:
 
(a)           The Borrower has all requisite power and authority to execute this
Amendment, and this Amendment, and has been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligations of the
Borrower, enforceable in accordance with its terms.
 
(b)           The execution, delivery and performance by the Borrower of this
Amendment, has been duly authorized by all necessary action and does not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the Constituent Documents of the Borrower, or (iii) result in a
breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Borrower is a
party or by which it or its properties may be bound or affected.
 
(c)           All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
 

 
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9.           References.  All references in the Credit Agreement to “this
Agreement” shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
 
10.           No Waiver.  The execution of this Amendment and the acceptance
of all other agreements and instruments related hereto shall not be deemed to be
a waiver of any Default or Event of Default under the Credit Agreement or a
waiver of any breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.
 
11.           Release.  Each Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which such Borrower had, now has or has
made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
 
12.           Fees, Costs and Expenses.  Each Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Loan
Documents, including without limitation all reasonable fees and disbursements of
legal counsel.  Without limiting the generality of the foregoing, the Borrowers
specifically agree to pay all reasonable fees and disbursements of counsel to
the Lender for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
hereto.  The Borrower hereby agrees that the Lender may, at any time or from
time to time in its sole discretion and without further authorization by the
Borrower, make a loan to the Borrower under the Credit Agreement, or apply the
proceeds of any loan, for the purpose of paying any such fees, disbursements,
costs and expenses.
 
13.           Miscellaneous.  This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
 
Signatures appear on following page.
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION
 
MISCOR GROUP, LTD.
                   
By:
/s/ Daniel J. Manella  
By:
/s/ John A. Martell  
Daniel J. Manella, Vice President
   
John A. Martell, Chief Executive Officer
                   
MAGNETECH INDUSTRIAL SERVICES, INC.
 
MARTELL ELECTRIC, LLC
                   
By:
/s/ John A. Martell  
By:
/s/ John A. Martell  
John A. Martell, Chief Executive Officer
   
John A. Martell, Chief Executive Officer
                   
HK ENGINE COMPONENTS, LLC
                         
By:
/s/ John A. Martell        
John A. Martell, Chief Executive Officer
                         
IDEAL CONSOLIDATED, INC.
                         
By:
/s/ John A. Martell        
John A. Martell, Chief Executive Officer
                         
AMERICAN MOTIVE POWER, INC.
                         
By:
/s/ John A. Martell        
John A. Martell, Chief Executive Officer
     

 
 
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