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 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 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.
 

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“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 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 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.
 

 
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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