EXHIBIT 10.11
 
FIRST AMENDED AND RESTATED
FORBEARANCE AGREEMENT AND
FOURTH AMENDMENT TO LOAN AGREEMENT
 
This First Amended and Restated Forbearance Agreement and Fourth Amendment to
Loan Agreement, dated December 8, 2009, is among Johnson Bank (the “Bank”),
Jefferson Electric, Inc. (“Borrower”), Thomas Klink (“Guarantor”) and Diane M.
Klink (“Diane Klink,” 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 Borrower Parties and Lender are parties to a certain Forbearance
Agreement and Fourth Amendment to Loan Agreement dated August 28, 2009 (the
"Forbearance Agreement"), pursuant to which Lender agreed to forbear from
exercising its rights and remedies through December 31, 2009, subject to the
terms and conditions set forth in such agreement; and
 
WHEREAS, the Borrower Parties have requested that the Bank forbear for an
additional period of time beyond December 31, 2009; and
 
WHEREAS, the Bank and the Borrower Parties desire to amend and restate the
Forbearance Agreement.
 
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)December 15, 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.
 

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“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 March 31, 2010, Borrower pays the
Obligations in full and in good funds and the Revolving Credit Facility is
terminated, Bank shall waive 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:
 
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(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 December 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 March 31, 2010, 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.
 
(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 March 31, 2010.
 
(c)           Mexican Documentation.
 
(i)           Borrower shall and Borrower and Guarantor shall cause Nexus
Magnéticos de Mexico, S. de R.L. de C.V. to execute and deliver to the Bank, on
or before December 15, 2009, a pledge agreement for all of Borrower's assets
located in Mexico (the "Pledge Agreement"), in order to perfect and protect the
Bank's interest in the property of Borrower and its affiliates that may from
time to time be located in Mexico.; and
 
(ii)           On or before January 15, 2010, Borrower and Guarantor shall [1]
pay all fees, costs and expenses in connection with the formalization of the
Pledge Agreement before a Mexican notary public and its registration  before the
Public Registry of Commerce in Reynosa, Tamaulipas and [2] cause the deed issued
by such notary public to be properly filed for registration with the Public
Registry of Commerce in Reynosa, Tamaulipas.
 
(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 to have been fully earned and owing to
Bank upon execution of the Forbearance 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.
 
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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 March 31, 2010 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
Agreement shall terminate on the earlier of (a) March 31, 2010, 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 March
31, 2010 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.
 
8.        Effect of this Agreement on Loan Documents.  Except as amended hereby,
the Loan Documents remain in full force and effect.
 
9.        Effect of this 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 this Agreement on Mortgage.  Guarantor and Diane Klink hereby
ratify the Real Estate Mortgage securing the Obligations dated December 3, 2008
(the "Klink 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 Klink 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 Agreement shall not be effective until (a)
it shall have been executed and delivered by the parties hereto and (b) Bank
shall have received from Borrower 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.
 
13.      Attorneys’ Fees.  The Borrower agrees to pay all reasonable attorneys’
fees of Bank relating to the Forbearance Agreement or this Agreement and all
amendments, modifications and supplements thereto, 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 Agreement shall be governed by the laws of the
State of Wisconsin.
 
15.      Binding Effect.  This Agreement shall be binding upon the parties
hereto and their respective successors and assigns.
 
16.      Amendment and Restatement.  The Forbearance Agreement is amended,
restated and superseded by this Agreement.
 
17.      Execution in Counterparts.  This Agreement 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.
 
18.      Electronic and Facsimile Signatures.  Electronic or facsimile copies of
any party's signature hereto shall be deemed effective execution of this
Agreement by such party.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
 

 
BANK:
     
JOHNSON BANK
         
By: 
/s/ Kelly Foster     Kelly Foster

 
 

 
BORROWER PARTIES:
     
JEFFERSON ELECTRIC, INC.
         
By: 
/s/ Thomas Klink    
Thomas Klink, President
        /s/ Thomas Klink  
Thomas Klink, an individual
      /s/ Diane M. Klink  
Diane M. Klink, an individual

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