Document:

Unassociated Document

 

SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment"), dated as of October 31, 2011, amends and supplements that certain Loan and Security Agreement dated as of January 2, 2008, as amended to date (as so amended, the "Loan Agreement"), between JEFFERSON ELECTRIC, INC., a Delaware corporation ("Borrower"), and JOHNSON BANK ("Bank").

 

RECITALS

 

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 term is added to Article I of the Loan Agreement to appear in proper alphabetical order therein:

 

"Seventh Amendment" means the Seventh Amendment to this Loan Agreement dated as of October 31, 2011 between Borrower and Bank.

 

(b)           The defined term "Guarantor" in Article I of the Loan Agreement is amended in its entirety to read as follows:

 

"Guarantor" means Thomas Klink or PPSI and "Guarantors" means both Thomas Klink and PPSI.

 

(c)           The defined term "Loan Amount" in Article I of the Loan Agreement is amended in its entirety to read as follows:

 

"Loan Amount" means $6,000,000 plus the outstanding balance of the Term Note.

 

  

  

  

 

(d)           The defined term "Qualified Inventory" in Article I of the Loan Agreement is amended by inserting the phrase "and work-in-process" after the phrase "office supplies" in the first sentence therein.

 

(e)           Section 2.1.1 of the Loan Agreement is amended by (i) deleting the phrase "Five Million Dollars ($5,000,000)" in the first sentence therein and inserting "Six Million Dollars ($6,000,000)" in its place and (ii) deleting the date "October 31, 2011" in the last sentence thereof and inserting "October 31, 2012" in its place.

 

(f)           Section 2.2 of the Loan Agreement is amended by deleting the last two sentences therein and inserting the following in their place:

 

Borrower promises to pay to Bank the outstanding principal and accrued interest and unpaid interest under the Term Note as of the date of the Seventh Amendment as follows:

 

(1)           a single payment of principal and interest in the amount of $72,023.90 on November 1, 2011,

 

(2)           payments of principal and interest in the amount of $38,202.83 each on December 1, 2011 and January 1, 2012,

 

(3)           monthly payments of principal and interest in the amount of $23,178.31 each, commencing on February 1, 2012 and on the first day of each month thereafter, and

 

(4)           a final payment of all outstanding principal and accrued but unpaid interest on October 31, 2012.

 

Borrower and Bank acknowledge that, as of November 14, 2011, the outstanding principal balance of the Term Note (after taking into account the prepayment of the Term Note on November 14, 2011 as referenced in the Seventh Amendment) will be $1,962,296.22.

 

(g)           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 Reference Rate plus 2.0% per annum, changing as and when the Reference Rate changes.  As of the date of the Seventh Amendment, the Reference Rate is 3.25%.  Bank will advise Borrower of the then-current Reference Rate upon Borrower's request.

 

  

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(h)           Section 2.3.2 of the Loan Agreement is amended in its entirety to read as follows:

 

2.3.2           Interest Rate on the  Term Note.  The interest rate hereunder on the Term Note shall Six and 00/100 percentage points (6.0%) per annum.

 

(i)           Section 2.6 of the Loan Agreement is amended by deleting the amount "$5,000,000" in the first sentence therein and inserting "$6,000,000" in its place.

 

(j)           Section 5.1.1 of the Loan Agreement is amended in its entirety to read as follows:

 

5.1.1           Within ninety (90) days after the end of each fiscal year of PPSI, a balance sheet of PPSI as of the close of such fiscal year and related statements of earnings, retained earnings and statements of cash flows for such year, each with comparative figures for the preceding fiscal year, all in reasonable detail satisfactory to the Bank, prepared in accordance with GAAP, audited by PPSI's current accountants or by independent certified public accountants reasonably satisfactory to Bank.  Such statements shall be prepared on a consolidated and consolidating basis for PPSI and its subsidiaries, and shall include separate statements for Borrower prepared on a consolidated and consolidating basis for only Borrower and Nexus Mexico.

 

(k)           Section 5.1.5 of the Loan Agreement is amended in its entirety to read as follows:

 

5.1.5           Upon receipt by PPSI or Borrower, copies of all management letters and detailed reports submitted to PPSI or Borrower by independent accountants.

 

(l)           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 of Thomas Klink.

 

(m)           Section 5.1.8 of the Loan Agreement is amended its entirety to read as follows:

 

5.1.8           Annual income tax returns of Thomas Klink 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.

 

  

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(n)           Section 5.21 of the Loan Agreement is amended in its entirety to read as follows:

 

5.21           Tangible Net Worth Plus Subordinated Debt Plus Deferred Tax.  Borrower shall achieve, as of the following dates, a Tangible Net Worth plus indebtedness contractually subordinated to Bank in a manner satisfactory to Bank plus deferred income tax (calculated in accordance with Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 109) of not less than the following amounts:

 

	
Date

	
Amount

	 	 
	
September 30, 2011

	
($3,400,000)

	
December 31, 2011

	
($1,500,000)

	
March 31, 2012

	
($1,000,000)

	
June 30, 2012 and each

	  
	
  fiscal quarter-end

	  
	
  thereafter

	
($750,000)

 

(o)           Section 5.25 of the Loan Agreement is amended in its entirety to read as follows:

 

5.25           Management.  Borrower shall continue to retain Thomas Klink as President of Borrower, pursuant to the terms of the Employment Agreement entered into concurrently with the Merger Agreement, and Thomas Klink shall continue to be responsible for overseeing the management of Borrower.

 

(p)           Section 5.26 of the Loan Agreement is created to read as follows:

 

5.26           Additional Subordinated Debt.  During the period from the day after the date of the Seventh Amendment to January 31, 2012, Borrower shall cause PPSI to make additional loans to Borrower (which loans shall be contractually subordinated to Bank in a manner satisfactory to Bank) in an aggregate amount equal to $750,000; and Borrower shall promptly apply the proceeds of such loans to prepayment of the Term Note.

 

  

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(q)           Section 5.27 of the Loan Agreement is created to read as follows:

 

5.27           Field Audit.  Borrower shall cooperate with Lender's conducting a field audit examination (at Borrower's expense) of Borrower's assets, liabilities, books and records at a time to be determined by the Lender after April 1, 2012.

 

(r)           Section 5.28 of the Loan Agreement is created to read as follows:

 

5.28           Collateral Locations.  Borrower shall obtain, within 30 days after the date of the Seventh Amendment, landlord consent and waivers or similar collateral letters, to the extent not previously furnished to Bank, for each Collateral location not owned by Borrower.

 

(s)           Section 6.1.5 of the Loan Agreement is amended in its entirety to read as follows:

 

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, the $250,000 loan made to the Borrower on the date of the Seventh Amendment and the loans referenced in Section 5.26 hereof.

 

(t)           Schedule 4.3 attached hereto shall be deemed an exhibit to the Loan Agreement and shall replace its predecessor thereto.

 

(u)           Exhibit A attached hereto shall be deemed an exhibit to the Loan Agreement and shall replace its predecessor thereto.

 

(v)           Exhibit D attached hereto shall be deemed an exhibit to the Loan Agreement and shall replace its predecessor thereto.

 

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)            prepayment by Borrower of the Term Note in an amount equal to $250,000, funded from the proceeds of an additional loan from PPSI to Borrower (which loan shall be contractually subordinated to Bank in a manner satisfactory to Bank);

 

(b)            a guaranty, duly executed by PPSI;

 

(c)            a reaffirmation of subordination agreement, duly executed by PPSI;

 

  

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(d)            a reaffirmation of guaranty, duly executed by Thomas Klink;

 

(e)            a collateral pledge of Thomas Klink'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 Thomas Klink, securing indebtedness of TAC Management, LLC to Bank (in connection with such collateral pledge, Bank shall release the collateral pledge of such equity interests as collateral for the Obligations);

 

(f)            a collateral assignment of Borrower's rights under and a subordination of payments due under an equipment lease between Borrower and Bemag Transformer Inc., duly executed by Borrower and Bemag Transformer Inc.;

 

(g)           searches of the appropriate public offices demonstrating that no lien is of record affecting Borrower or its properties, except Authorized Security Interests;

 

(h)           an updated Schedule 4.3 to the Loan Agreement;

 

(i)           evidence that the life insurance policy referenced in Section 5.24 of the Loan Agreement remains in full force and effect, subject to Bank's first priority lien thereon;

 

(j)           copies, certified by duly authorized representatives of Borrower and PPSI 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;

 

(k)           a legal opinion of PPSI's counsel; and

 

(l)           the replacement Revolving Note, in the form attached hereto as Exhibit A, duly executed by Borrower; 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.           No Waiver.  Borrower agrees that nothing contained herein shall be construed by Borrower as a waiver by Bank of Borrower's compliance with any representation, warranty or covenant contained in the Loan Agreement and that no waiver of any provision of the Loan Agreement by Bank has occurred.  Borrower further agrees that nothing contained herein shall impair the right of Bank to require strict performance by Borrower of the Loan Agreement.

 

  

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5.           Representations and Warranties.  Borrower represents and warrants to Bank that:

 

(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.

 

 

	 	 
JEFFERSON ELECTRIC, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
 
BY

	/s/ Thomas Klink	 
	 	 	 
Its President

	 
	 	 	 	 
	 	 	 	 
	 	 
JOHNSON BANK

	 
	 	 	 	 
	 	 	 	 
	 	 
BY  

	/s/ Robert Bell	 
	 	 	 
Its Senior Vice President

	 

 

  

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SCHEDULE 4.3

 

Locations of Collateral

 

[attached hereto]

 

  

  

  

 

EXHIBIT A

 

Form of Revolving Note

 

REVOLVING NOTE

 

	

$6,000,000.00 

	 	 	

Milwaukee, Wisconsin

October 31, 2011

 

FOR VALUE RECEIVED, on or before the date specified in Section 2.1.1 of the Loan Agreement (as defined below) as the date final payment of all outstanding principal and accrued interest on this Note is due, the undersigned, JEFFERSON ELECTRIC, INC., a Delaware corporation, promises to pay to the order of JOHNSON BANK (the "Bank") the principal sum of Six Million and 00/100 Dollars ($6,000,000.00), or such lesser amount as is shown to be outstanding according to the records of the Bank, together with interest on the principal balance outstanding from time to time at such rates and payable at such times as set forth in the Loan Agreement.

 

Payments of both principal and interest are to be made in immediately available funds in lawful currency of the United States of America at the office of the Bank, 333 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or such other place as the holder hereof shall designate to the undersigned in writing.

 

This Note is the Revolving Note issued pursuant to a Loan and Security Agreement dated as of January 2, 2008, as amended to date (as so amended, the "Loan Agreement"), between the undersigned and the Bank, to which Loan Agreement reference is made for rights and obligations as to prepayment and acceleration of maturity.  This Note replaces that certain Revolving Note in the stated principal amount of $5,000,000 dated December 3, 2008 from the undersigned and payable to the Bank, and the undersigned acknowledges that the indebtedness evidenced thereby has not been extinguished and that no novation has occurred.

 

The undersigned agrees to pay all costs of collection, including reasonable attorneys' fees.

 

 

JEFFERSON ELECTRIC, INC.

 

BY_____________________________

Its__________________________

 

  

  

  

 

EXHIBIT D

 

Form of Borrowing Base Report

 

TO: Johnson Bank

 

Pursuant to a Loan and Security Agreement between you and the undersigned dated January 2, 2008, as amended, which defines terms used herein, the undersigned certifies that as of this date:

 

	
1.

	
INVENTORY (loan ratio based on Qualified Inventory without Excluded Mexican Inventory)

	 	 
	  	  	  	  	
Loan Percentage

	
Gross Value*

	
Loan Value

	 	 	 	 	 	 	 
	  	
A.

	
(1)

	
Qualified Raw Material

	
50%

	
$__________

	
$__________

	  	  	
(2)

	
Qualified Finished Goods

	
50%

	
$__________

	
$__________

	 	 	 	 
	  	
B.

	
The loan value of Qualified Inventory is:

	
$__________

	 	 
	
2.

	
ACCOUNTS (loan ratio based on Qualified Accounts)

	 	 	 	 	 	 
	  	
A.

	
(1)

	
Total Accounts

	

$__________

	 
	  	  	
(2)

	
Less Unqualified Accounts

	
$__________

	  
	  	  	
(3)

	
Qualified Accounts

	
$__________

	  
	 	 	 	 
	  	
B.

	
The loan value of Qualified Accounts at 80% is:

	
$__________

	 	 	 	 
	
3.

	
BORROWING BASE (1B+2B)

	
$__________

	  
	 	 	 	 
	
4.

	
REVOLVING LOANS

	  	  
	 	 	 	 
	  	
A.

	
The outstanding balance on the Revolving Note is:

	
$__________

	  
	  	
B.

	
The amount, if any, of additional loans now applied for is:

	
$__________

	  
	  	
C.

	
After such additional loans, the total on the Revolving Note

	  	  	
will be:

	

$__________

	 	 	 
	
5.

	
FORMULA USING BORROWING BASE (3-4C)

	
$__________

	 	 
	
6.

	
If the total on line 5 is negative an Event of

	  	
Default has occurred.  Based on the above, an

	  	
Event of Default ________ (has/has not) occurred.

	 
	
Thomas Klink hereby certifies that the information contained in this report is true and correct and by electronically transmitting this report to Johnson Bank he intends that such action constitutes his signature and that Johnson Bank may rely upon it as if and to the same extent as though he had originally signed such report.

	 
	 
	 	 	 	 	 	 
	  	  	  	  	  	
Thomas Klink

	 
	
*In the case of Inventory, at cost or wholesale market value, whichever is lower.Unassociated Document

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT dated as of October 31, 2011, is made by PIONEER POWER SOLUTIONS, INC., a Delaware corporation (the "Guarantor"), to and for the benefit of JOHNSON BANK (the "Bank").

 

RECITALS

 

The Guarantor acknowledges the following:

 

A.           Pursuant to that certain Loan and Security Agreement dated as of January 2, 2008, as amended to date (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement") between Jefferson Electric, Inc., a Delaware corporation (formerly a Wisconsin corporation) (the "Borrower"), and the Bank, the Bank has agreed to make certain loans available to the Borrower.

 

B.           Pursuant to that certain Seventh Agreement to the Loan Agreement dated as of the date hereof (the "Amendment") between the Bank and the Borrower, the Bank has agreed, on the terms and conditions set forth in the Amendment, to increase the amount of the line of credit provided by the Bank to the Borrower under the Loan Agreement, to extend the maturity of the loans under the Loan Agreement and to make certain other modifications to the Loan Agreement.

 

C.           The Bank requires, as a condition to entering into the Amendment, that the Guarantor guarantee the obligations of the Borrower to the Bank.

 

D.           The Guarantor is willing to execute and deliver this Guaranty in order to induce the Bank to enter into the Amendment.

 

AGREEMENTS

 

In consideration of the Recitals and to induce the Bank to enter into the Amendment, the Guarantor hereby agrees as follows for the benefit of the Bank:

 

1.           Definitions; Interpretation.

 

1.1           Definitions.  Capitalized terms used herein (including the Recitals) not otherwise defined herein shall have the meanings assigned them in the Loan Agreement.  As used in this Guaranty, the following terms shall have the following meanings unless the context otherwise requires:

 

"Guarantied Obligations" has the meaning assigned to that term in section 3.1.

 

  

  

  

 

"Guaranty" means this Guaranty Agreement, as it may be amended, supplemented or otherwise modified from time to time.

 

"payment in full", "paid in full" or any similar term means payment in full of the Guarantied Obligations, including all principal, interest, costs, fees and expenses (including reasonable legal fees and expenses) of the Bank as required under the Loan Documents.

 

	 	
1.2

	
Interpretation.

 

(a)           References to "sections" shall be to sections of this Guaranty unless otherwise specifically provided.

 

(b)           In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Loan Agreement, the terms, conditions and provisions of this Guaranty shall prevail.

 

	
  

	
2.

	
Representations.  The Guarantor represents and warrants that:

 

2.1           Benefit to Guarantor.  The Borrower is a wholly-owned subsidiary of the Guarantor.  The extension of credit by the Bank to the Borrower constitutes good, sufficient and valuable consideration for the assumption by the Guarantor of its obligations hereunder.

 

2.2           Authorization and Binding Effect.  The execution and delivery of this Guaranty, and the performance by the Guarantor of the Guarantor's obligations hereunder, are not in violation of the Guarantor's certificate of incorporation, by-laws, any existing law, rule or regulation of any governmental agency or authority, any order or decision of any court applicable to the Guarantor, or the terms of any material agreement, restriction or undertaking to which the Guarantor is a party or by which the Guarantor is bound, and do not require the approval or consent of the shareholders of the Guarantor, any governmental body, agency or authority or any other person or entity other than such approval or consent as already obtained.  This Guaranty, when executed and delivered, will constitute the valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors' rights and except to the extent that general principles of equity might affect the specific enforcement of this Guaranty.

 

3.           The Guaranty.

 

3.1           Guaranty of the Guarantied Obligations.  The Guarantor hereby irrevocably and unconditionally guarantees to the Bank the due and punctual payment in full by the Borrower of all Guarantied Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)).  The term "Guarantied Obligations" means:

 

  

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(a)           any and all debts, obligations and liabilities of the Borrower, in each case previously, now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising under the Loan Documents, including those arising under the Loan Agreement, and including interest which, but for the filing of a petition in bankruptcy with respect to the Borrower, would have accrued on any Guarantied Obligations, whether or not a claim is allowed against the Borrower for such interest in the related bankruptcy proceeding; and

 

(b)           the expenses referred to in section 3.8 of this Guaranty.

 

3.2           Limitation on Amount Guarantied.  Anything contained in this Guaranty to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of the Guarantor under this Guaranty, such obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the United States Bankruptcy Code or any applicable provision of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws, specifically excluding, however, any liabilities of the Guarantor (a) in respect of intercompany indebtedness to the Borrower or other affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder and (b) under any guaranty of indebtedness of the Borrower, the payment of which is subordinated to the payment of the Guarantied Obligations if such guaranty contains a limitation as to maximum amount similar to that set forth in this section 3.2, pursuant to which the liability of the Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of the Guarantor pursuant to applicable law or pursuant to the terms of any agreement.

 

  

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3.3          Payment by Guarantor; Application of Payments.  The Guarantor hereby agrees, in furtherance of the foregoing and not in limitation of any other right which the Bank may have at law or in equity against the Guarantor by virtue hereof, that upon the failure of the Borrower to pay any of the Guarantied Obligations, after giving effect to any applicable grace periods, when due and payable, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), the Guarantor will pay, or cause to be paid, in cash, within two (2) business days after its receipt of written demand from the Bank to the Guarantor, to the Bank an amount equal to the sum of the unpaid principal amount of all Guarantied Obligations then due as aforesaid, accrued and unpaid interest on such Guarantied Obligations (including interest which, but for the filing of a petition in bankruptcy with respect to the Borrower, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against the Borrower for such interest in the related bankruptcy proceeding) and all other Guarantied Obligations then due and payable to the Bank as aforesaid.  The written demand of the Bank shall set forth the amounts of the Guarantied Obligates due and payable under this section 3.3.  All such payments shall be applied promptly upon receipt by the Bank to the Guarantied Obligations in the manner determined by the Bank in its sole discretion.

 

3.4           Liability of the Guarantor Absolute.  The Guarantor agrees that the Guarantor's obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guarantied Obligations.  In furtherance of the foregoing and without limiting the generality thereof, the Guarantor agrees as follows:

 

(a)           this Guaranty is a guaranty of payment when due and not of collectibility;

 

(b)           the Bank may enforce this Guaranty to the extent a payment is required under section 3.3 above at any time an Event of Default exists under the Loan Agreement or any other Loan Document;

 

(c)           the obligations of the Guarantor hereunder are independent of the obligations of the Borrower under the Loan Documents, and the obligations of any other guarantor of the obligations of the Borrower under the Loan Documents, and a separate action or actions may be brought and prosecuted against the Guarantor whether or not any action is brought against the Borrower or any such other guarantor and whether or not the Borrower or any other guarantor is joined in any such action or actions;

 

(d)           payment by the Guarantor of a portion, but not all, of the Guarantied Obligations shall in no way limit, affect, modify or abridge the Guarantor's liability for any portion of the Guarantied Obligations which has not been paid;

 

  

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(e)           the Bank, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of the Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations, including any change in the rate of interest thereon; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any Loan Document and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any person with respect to the Guarantied Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of the Bank in respect of this Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that the Bank may have against any such security, in each case as the Bank in its discretion may determine consistent with the Loan Agreement and the other Loan Documents, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrower or any security for the Guarantied Obligations; and (vi) exercise any other rights available to it under the Loan Documents; and

 

(f)           this Guaranty and the obligations of the Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guarantied Obligations), including the occurrence of any of the following, whether or not the Guarantor shall have had notice or knowledge of any of them:  (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guarantied Obligations or any Loan Document, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of any Loan Document, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of any Loan Document or any agreement relating to such other guaranty or security; (iii) the Guarantied Obligations, or any Loan Document, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source to the payment of indebtedness other than the Guarantied Obligations, even though the Bank might have elected to apply such payment to any part or all of the Guarantied Obligations; (v) the Bank's consent to the change, reorganization or termination of the organizational structure or existence of the Borrower and to any corresponding restructuring of the Guarantied Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; (vii) any defenses, set-offs or counterclaims which the Borrower may allege or assert against the Bank in respect of the Guarantied Obligations, including failure of consideration, breach of warranty, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) other than the Bank's failure to comply with this Agreement, any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of the Guarantor as an obligor in respect of the Guarantied Obligations.

 

  

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3.5           Waivers by Guarantor.  The Guarantor hereby waives the following solely with respect to its payment obligations under this Guaranty:

 

(a)           any right to require the Bank, as a condition of payment or performance by the Guarantor, to (i) proceed against the Borrower, any other guarantor of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from the Borrower, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of the Bank in favor of the Borrower, any guarantor or any other Person, or (iv) pursue any other remedy in the power of the Bank whatsoever;

 

(b)           any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Borrower including any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any Loan Document or by reason of the cessation of the liability of the Borrower from any cause other than payment in full of the Guarantied Obligations;

 

(c)           any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;

 

(d)           any defense based upon the Bank's errors or omissions in the administration of the Guarantied Obligations, except behavior which amounts to bad faith or result in incorrect recordkeeping with respect to the amount of the Guarantied Obligations that is due and owing;

 

  

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(e)           (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of the Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that the Bank protect, secure, perfect or insure any security interest or lien or any property subject thereto;

 

(f)           other than a notice of demand required in section 3.3 above, notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Loan Agreement or other Loan Documents, notices of any renewal, extension or modification of the Guarantied Obligations or any Loan Document, notices of any extension of credit to the Borrower and notices of any of the matters referred to in section 3.3 and any right to consent to any thereof; and

 

(g)           any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate the Guarantor or sureties, or which may conflict with the terms of this Guaranty.

 

3.6           Guarantor's Rights of Subrogation, Contribution, Etc.  Until all of the Guarantied Obligations have been paid in full, the Guarantor hereby waives any claim, right or remedy, direct or indirect, that the Guarantor now has or may hereafter have against the Borrower or any of its assets in connection with this Guaranty or the performance by the Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including (a) any right of subrogation, reimbursement or indemnification that the Guarantor now has or may hereafter have against the Borrower, (b) any right to enforce, or to participate in, any claim, right or remedy that the Bank now has or may hereafter have against the Borrower and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by the Bank.  In addition, until the Guarantied Obligations shall have been indefeasibly paid in full, the Guarantor shall withhold exercise of any right of contribution the Guarantor may have against any other guarantor of the Guarantied Obligations.  The Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification the Guarantor may have against the Borrower or against any collateral or security, and any rights of contribution the Guarantor may have against any other guarantor shall be junior and subordinate to any rights the Bank may have against the Borrower, to all right, title and interest the Bank may have in any such collateral or security, and to any right the Bank may have against such other guarantor.  If any amount shall be paid to the Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for the Bank and shall forthwith be paid over to the Bank to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms hereof.

 

  

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3.7           Subordination of Other Obligations.  Any indebtedness of the Borrower now or hereafter held by the Guarantor is hereby subordinated in right of payment to the Guarantied Obligations, and any such indebtedness collected or received by the Guarantor after an Event of Default has occurred and is continuing shall be held in trust for the Bank and shall forthwith be paid over to the Bank to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Guarantor under any other provision of this Guaranty.

 

3.8           Expenses.  The Guarantor agrees to pay, or cause to be paid, on demand, and to save the Bank harmless against liability for, any and all documented costs and expenses (including reasonable fees of outside counsel at hourly rates generally provided to the Bank by such counsel and disbursements of outside counsel) incurred or expended by the Bank in connection with the enforcement of any rights under this Guaranty.

 

3.9           Continuing Guaranty.   This Guaranty is a continuing guaranty and shall remain in effect until all of the Guarantied Obligations shall have been paid in full.  The Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guarantied Obligations.

 

3.10           Authority of Guarantor or Borrower.  It is not necessary for the Bank to inquire into the capacity or power of the Guarantor or the Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them.

 

3.11           Financial Condition of the Borrower.  The Guarantied Obligations may be continued from time to time without notice to or authorization from the Guarantor regardless of the financial or other condition of the Borrower at the time of any such grant or continuation.  The Bank shall not have any obligation to disclose or discuss with the Guarantor its assessment, or the Guarantor's assessment, of the financial condition of the Borrower.  The Guarantor has adequate means to obtain information from the Borrower on a continuing basis concerning the financial condition of the Borrower and its ability to perform its obligations under the Loan Documents, and the Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Borrower and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations.  The Guarantor hereby waives and relinquishes any duty on the part of the Bank to disclose any matter, fact or thing relating to the business, operations or conditions of the Borrower now known or hereafter known by the Bank.

 

  

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3.12           Rights Cumulative.  The rights, powers and remedies given to the Bank by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to the Bank by virtue of any statute or rule of law or in any of the other Loan Documents.  Any forbearance or failure to exercise, and any delay by the Bank in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.

 

3.13           Bankruptcy; Post-Petition Interest; Reinstatement of Guaranty.

 

(a)           So long as any Guarantied Obligations remain outstanding, the Guarantor shall not, in its capacity as creditor of the Borrower without the prior written consent of the Bank, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of or against the Borrower.  The obligations of the Guarantor under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of the Borrower or by any defense which the Borrower may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.

 

(b)           The Guarantor acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not been commenced) shall be included in the Guarantied Obligations because it is the intention of the Guarantor and the Bank that the Guarantied Obligations which are guarantied by the Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve the Borrower of any portion of such Guarantied Obligations.  The Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Bank, or allow the claim of the Bank in respect of, any such interest accruing after the date on which such proceeding is commenced.

 

(c)           In the event that all or any portion of the Guarantied Obligations are paid by the Borrower, the obligations of the Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from the Bank as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Guaranty.

 

  

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3.14           Set Off.  In addition to any other rights the Bank may have under law or in equity, at any time after the Guarantor fails to comply with section 3.3 above, the Bank is authorized at any time or from time to time, without notice (but without limiting the notice requirement in section 3.3 above), to set off and to appropriate and to apply any and all deposits (general or special, including indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of the Bank owing to the Guarantor and any other property of the Guarantor held by the Bank to or for the credit or the account of the Guarantor against and on account of the Guarantied Obligations and liabilities of the Guarantor to the Bank under this Guaranty.

 

4.           Miscellaneous.

 

4.1           [Reserved].

 

4.2           Survival of Warranties.  All representations and warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents.

 

4.3           Notices.  Any communications between the Bank and the Guarantor and any notices or requests provided herein to be given may be given by mailing the same, postage prepaid, or by facsimile transmission to the Bank at its address set forth in the Loan Agreement and to the Guarantor at its address as set forth on the signature pages of this Guaranty or to such other addresses as each such party may in writing hereafter indicate.  Any notice, request or demand to or upon the Bank or the Guarantor shall not be effective until received.

 

4.4           Severability.  In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

 

4.5           Amendments and Waivers.  No amendment, modification, termination or waiver of any provision of this Guaranty, and no consent to any departure by the Guarantor therefrom, shall in any event be effective without the written concurrence of the Bank and the Guarantor.  Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

 

  

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4.6           Headings.  Section headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect.

 

4.7           Applicable Law; Rules of Construction.  This Guaranty and the rights and obligations of the Guarantor and the Bank hereunder shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of Wisconsin, without regard to conflicts of laws principles.

 

4.8           Successors and Assigns.  This Guaranty is a continuing guaranty and shall be binding upon the Guarantor and the Guarantor's successors and assigns.  This Guaranty shall inure to the benefit of the Bank and its successors and assigns.  The Guarantor shall not assign this Guaranty or any of the rights or obligations of the Guarantor hereunder without the prior written consent of the Bank.  The Bank  may, without notice or consent, assign its interest in this Guaranty in whole or in part.  The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of a Loan Document, or any portion thereof, and in the event of such transfer or assignment the rights and privileges herein conferred upon the Bank shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof.

 

4.9           Consent to Jurisdiction and Service of Process.  To induce the Bank to accept delivery of this Guaranty:

 

(a)           THE GUARANTOR AGREES THAT ALL ACTIONS OR PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MILWAUKEE COUNTY OR THE FEDERAL COURT FOR THE EASTERN DISTRICT OF WISCONSIN AND THE GUARANTOR CONSENTS TO THE JURISDICTION OF SUCH COURTS.  THE GUARANTOR WAIVES ANY OBJECTION SHE MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH COURT AND ANY RIGHT SHE MAY HAVE NOW OR HEREAFTER HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN AN INCONVENIENT COURT; and

 

(b)           The Guarantor consents to the service of process in any such action or proceeding by certified mail sent to the address specified in section 4.3.

 

Nothing contained herein shall affect the right of the Bank to serve process in any other manner permitted by law.

 

  

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4.10           Waiver of Trial by Jury.  THE GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, THE BANK , EACH HEREBY AGREE TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY.  The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims.  The Guarantor and, by its acceptance of the benefits hereof, the Bank, each (i) acknowledges that (A) this waiver is a material inducement for the Guarantor to enter into this Guaranty and the Bank to accept the benefits hereof, and (B) the Guarantor and the Bank have already relied on this waiver in entering into this Guaranty or accepting the benefits hereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 4.10 AND EXECUTED BY THE BANK AND THE GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.  In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court.

 

4.11           No Other Writing.  This writing is intended by the Guarantor and the Bank as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby.  No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty.  There are no conditions to the full effectiveness of this Guaranty.

 

4.12           Further Assurances.  At any time or from time to time, upon the request of the Bank, the Guarantor shall execute and deliver such further documents and do such other acts and things as the Bank may reasonably request in order to effect fully the purposes of this Guaranty.

 

4.13           Effectiveness. This Guaranty shall become effective as to the Guarantor upon the execution and delivery hereof by the Guarantor.

 

(Signature Page Follows)

 

  

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IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of October 31, 2011.

 

 

	 	 
PIONEER POWER SOLUTIONS, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
 
BY  

	/s/ Nathan Mazurek	 
	 	 	 
Its Chief Executive Officer

	 
	 	 	 	 
	 	 
Address: 400 Kelby Street 9th Floor

	 
	 	 
Fort Lee, NY 07024

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