10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-155375

PIONEER POWER SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	27-1347616
(State of incorporation)	(I.R.S. Employer Identification No.)

400 Kelby Street, 9th Floor

Fort Lee, New Jersey 07024

(Address of principal executive offices)

(212) 867-0700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes Q No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company Q
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No Q

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

Class	Outstanding at November 13, 2012
Common Stock, $0.001 par value	5,907,255

PIONEER POWER SOLUTIONS, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2012 and 2011	1
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011	2
Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	4
Notes to Consolidated Financial Statements	5
Item 2. Management‘s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 4. Controls and Procedures	18
PART II. OTHER INFORMATION
Item 6. Exhibits	18

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	19,226		$	17,927		$	61,362		$	50,065
Cost of goods sold		15,008			14,110			47,791			38,376
Gross profit		4,218			3,817			13,571			11,689
Operating expenses
Selling, general and administrative		3,216			2,895			9,767			7,991
Foreign exchange (gain) loss		(160	)		48			(245	)		35
Total operating expenses		3,056			2,943			9,522			8,026
Operating income		1,162			874			4,049			3,663
Interest and bank charges		270			207			699			428
Other expense (income)		39			328			69			769
Earnings from continuing operations before income taxes		853			339			3,281			2,466
Provision for income taxes		640			56			1,337			583
Earnings from continuing operations		213			283			1,944			1,883
Earnings (loss) from discontinued operations, net of income taxes		-			(2,029	)		(161	)		(2,440	)
Net earnings	$	213		$	(1,746	)	$	1,783		$	(557	)
Earnings from continuing operations per share:
Basic	$	0.04		$	0.05		$	0.33		$	0.32
Diluted	$	0.04		$	0.05		$	0.33		$	0.32
Earnings per common share:
Basic	$	0.04		$	(0.30	)	$	0.30		$	(0.09	)
Diluted	$	0.04		$	(0.29	)	$	0.30		$	(0.09	)
Weighted average common shares outstanding:
Basic		5,907			5,907			5,907			5,907
Diluted		5,915			5,982			5,910			5,973

The accompanying notes are an integral part of these consolidated financial statements

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PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
Net earnings	$	213	$	(1,746	)	$	1,783	$	(557	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		151		(813	)		48		(560	)
Amortization of net prior service costs and net actuarial losses		34		(124	)		25		(150	)
Other comprehensive income		185		(937	)		73		(710	)
Comprehensive income	$	398	$	(2,683	)	$	1,856	$	(1,267	)

The accompanying notes are an integral part of these consolidated financial statements

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PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands)

	September 30,			December 31,
	2012			2011
ASSETS	(Unaudited)
Current Assets
Cash and cash equivalents	$	83		$	1,398
Accounts receivable		11,827			8,172
Inventories		15,421			13,711
Income taxes receivable		70			517
Deferred income taxes		661			753
Prepaid expenses and other current assets		579			421
Current assets of discontinued operations		40			457
Total current assets		28,681			25,429
Property, plant and equipment		10,842			9,983
Noncurrent deferred income taxes		830			679
Other assets		810			300
Intangible assets		5,416			5,585
Goodwill		6,908			6,862
Total assets	$	53,487		$	48,838
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdrafts	$	966		$	-
Accounts payable and accrued liabilities		11,411			11,316
Current maturities of long-term debt and capital lease obligations		9,343			8,870
Income taxes payable		524			445
Current liabilities of discontinued operations		273			554
Total current liabilities		22,517			21,185
Long-term debt and capital lease obligations, net of current maturities		10,394			9,015
Pension deficit		512			569
Noncurrent deferred income taxes		3,238			3,301
Total liabilities		36,661			34,070
Shareholders' Equity
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued		-			-
Common stock, par value $0.001; 30,000,000 shares authorized; 5,907,255 shares issued and outstanding		6			6
Additional paid-in capital		7,997			7,795
Accumulated other comprehensive income (loss)		(750	)		(823	)
Retained earnings		9,573			7,790
Total shareholders' equity		16,826			14,768
Total liabilities and shareholders' equity	$	53,487		$	48,838

The accompanying notes are an integral part of these consolidated financial statements

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PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Operating activities
Net earnings (loss)	$	1,783		$	(557	)
Depreciation		910			572
Amortization of intangibles		214			174
Deferred tax expense		(147	)		175
Accrued pension		(49	)		(7	)
Stock-based compensation		202			190
Restructuring and asset impairment charges, discontinued operations		49			1,811
Deferred credit		-			(700	)
Changes in current operating assets and liabilities
Accounts receivable, net		(3,420	)		(1,375	)
Inventories		(1,398	)		(2,340	)
Prepaid expenses and other assets		(358	)		(856	)
Income taxes		518			1,121
Accounts payable and accrued liabilities		(92	)		1,762
Discontinued operations assets and liabilities, net		82			(128	)
Net cash provided by (used in) operating activities		(1,706	)		(158	)
Investing activities
Additions to property, plant and equipment		(1,544	)		(714	)
Acquisition of subsidiaries and related assets, net of cash acquired		-			(8,227	)
Note receivable		(300	)		-
Net cash used in investing activities		(1,844	)		(8,941	)
Financing activities
Increase (decrease) in bank overdrafts		949			588
Increase (decrease) in revolving credit facilities		1,071			1,508
Increase in long-term debt		1,074			9,729
Repayment of long-term debt and capital lease obligations		(683	)		(3,373	)
Net cash provided by (used in) financing activities		2,411			8,452
Increase (decrease) in cash and cash equivalents		(1,139	)		(647	)
Effect of foreign exchange on cash and cash equivalents		(176	)		755
Cash and cash equivalents
Beginning of year		1,398			516
End of period	$	83		$	624

The accompanying notes are an integral part of these consolidated financial statements

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1. Basis of Presentation

Unless the context requires otherwise, references in this Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries, including Pioneer Electrogroup Canada Inc., Pioneer Transformers Ltd., Bemag Transformer Inc., Jefferson Electric, Inc. and Pioneer Wind Energy Systems Inc.

These unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation, including amounts related to Pioneer Wind Energy Systems Inc. which are reported as discontinued operations.

These unaudited consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

These unaudited consolidated financial statements should be read in conjunction with the risk factors, audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on March 30, 2012.

Reverse Stock Split

The Company’s board of directors authorized a one-for-five reverse stock split on June 1, 2011, which took effect on June 20, 2011. All share and related stock option and warrant information presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the reduced number of shares resulting from this action.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies were described in Note 2 to our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. There have been no significant changes in the Company’s accounting policies for the first three quarters of 2012.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on our financial statements.

The Company adopted certain amendments to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” effective January 1, 2012. These amendments include a consistent definition of fair value, enhanced disclosure requirements for “Level 3” fair value adjustments and other changes to required disclosures. Their adoption did not have a material impact on the Company’s consolidated financial statements.

The Company adopted the amendments to ASC 220, “Comprehensive Income,” effective January 1, 2012. The amendments pertained to presentation and disclosure only.

The Company adopted the amendments to ASC 350, “Intangibles-Goodwill and Others,” effective January 1, 2012. The amended guidance allows us to do an initial qualitative assessment of relevant events and circumstances to determine if fair value of a reporting unit is more likely than not to be less than its carrying value, prior to performing the two-step quantitative goodwill impairment test. The adoption of these amendments did not have a material impact on the Company’s consolidated financial statements.

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3. Discontinued Operations

During September 2011, the Company committed to a plan to divest or wind down its Pioneer Wind Energy Systems Inc. subsidiary which was established by the Company in 2010 to market its utility scale wind turbine designs, after-sales services and equipment financing to community wind and industrial customers. This decision was part of the Company’s strategy to focus on businesses that create the most shareholder value. Weak domestic wind energy market conditions combined with the inability of the Company to establish an arrangement, on commercially acceptable terms, with a qualified third party to provide outsourced parts procurement and assembly services, caused the Company to reduce and extend further out into the future its projected sales and operating profit of the business. The decision to divest or wind down the business resulted in a non-cash asset impairment charge of $1.6 million to adjust the carrying value of the subsidiary’s assets to their fair value. This impairment charge was recognized in the third quarter of 2011 on certain inventory, property, plant and equipment and other assets. In addition, at the time the Company decided to divest or wind down this business the Company also recognized a $0.6 million charge related to expected future severance, rent and insurance payment obligations associated with this decision.

The results of operations for Pioneer Wind Energy Systems Inc. are reported as discontinued operations for all periods presented and are summarized as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012			2011
Net sales	$	60	$	-		$	170		$	-
(Loss) from operations of discontinued business (1)		-		(2,029	)		(161	)		(2,440	)
Income tax expense		-		-			-			-
Loss from discontinued operations, net of tax	$	-	$	(2,029	)	$	(161	)	$	(2,440	)

(1) Includes $0.1 million of inventory write-down and non-cash asset impairment charges recognized during the nine months ended September 30, 2012.

4. Inventories

The components of inventories are summarized below (in thousands):

	September 30,			December 31,
	2012			2011
Raw materials	$	6,020		$	6,184
Work in process		4,898			2,974
Finished goods		4,798			5,217
Provision for excess and obsolete inventory		(295	)		(664	)
Total inventories	$	15,421		$	13,711

Included in raw materials at September 30, 2012 and December 31, 2011 are goods in transit of approximately $0.3 million, respectively.

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5. Goodwill and Other Intangible Assets

Changes in goodwill and intangible asset balances for the nine months ended September 30, 2012, consisted of the following (in thousands):

			Intangible
	Goodwill		assets
Balance as of December 31, 2011		6,862		5,585
Additions due to acquisitions		-		-
Amortization		-		(214	)
Foreign currency translation		46		45
Balance as of September 30, 2012	$	6,908	$	5,416

The components of intangible assets as of September 30, 2012 are summarized below (in thousands):

	Intangible		Accumulated			Foreign currency			Net book
	assets		amortization			translation			value
Customer relationships	$	2,962	$	(552	)		(19	)	$	2,391
Non-compete agreement		95		(58	)		(1	)	$	36
Trademarks		2,049		-			(5	)		2,044
Technology-related industry accreditations		950		-			(5	)		945
Total intangible assets	$	6,056	$	(610	)	$	(30	)	$	5,416

6. Other Assets

In December 2011 and January 2012, the Company’s Pioneer Transformers Ltd. subsidiary funded two promissory notes, each in the amount of $300,000, from a developer of a renewable energy project in the U.S. The promissory notes accrue interest at a rate of 4.5% per annum with a final payment of all unpaid principal and interest becoming fully due and payable upon the earlier to occur of (i) the four year anniversary of the issuance date of the promissory notes, or (ii) an event of default. As defined in the promissory notes, an event of default includes, but is not limited to, the following: any bankruptcy, reorganization or similar proceeding involving the borrower, a sale or transfer of substantially all the assets of the borrower, a default by the borrower relating to any indebtedness due to third parties, the incurrence of additional indebtedness by the borrower without the Company’s written consent and failure of the borrower to perform its obligations pursuant to its other agreements with the Company, including its purchase order for pad mount transformers.

Also included in Other Assets are deferred financing costs of $0.2 million and $0.0 million for the periods ended September 30, 2012 and December 31, 2011, respectively.

7. Debt

Canadian Credit Facilities

In June 2011, Pioneer Electrogroup Canada Inc., a wholly owned subsidiary of the Company and the parent company of Pioneer Transformers Ltd., Bemag Transformer Inc. and Pioneer Wind Energy Systems Inc. (the “Borrowers”), entered into a letter loan agreement with the Company’s Canadian bank (the “Canadian Facilities”) that replaced and superseded all of the Company’s prior financing arrangements with such bank. Bemag Transformer Inc. became a party to the Canadian Facilities on July 1, 2011, upon the acquisition of all of its capital shares by the Company.

The Canadian Facilities provide for up to $23.0 million CAD (approximately $23.4 million expressed in U.S. dollars) consisting of a $10.0 million demand revolving credit facility (“Facility A”) to finance ongoing operations, a $2.0 million term credit facility (“Facility B”) that financed a plant expansion, a $10.0 million term credit facility (“Facility C”) to finance acquisitions, capital expenditures or to provide funding to the Company, a $50,000 Corporate MasterCard credit facility (“Facility D”) and a $1.0 million foreign exchange settlement risk facility (“Facility E”).

The Canadian Facilities are secured by a first-ranking lien in the amount of approximately $25 million CAD on all of the present and future movable and immovable property of the Borrowers and their subsidiaries.

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The Canadian Facilities require the Borrowers to comply on a consolidated basis with various financial covenants, including maintaining a minimum fixed charge coverage ratio of 1.25, a maximum funded debt to EBITDA ratio of 2.75 and a limitation on funded debt to less than 60% of capitalization. The Canadian Facilities also restrict the ability of the Borrowers to, among other things, (i) provide any funding to any person, including affiliates, in an aggregate amount exceeding $5.0 million CAD or (ii) make distributions in an aggregate amount exceeding 50% of Pioneer Electrogroup Canada Inc.’s previous year’s net income.

Facility A is subject to margin criteria and borrowings bear interest at the bank’s prime rate plus 0.50% per annum on amounts borrowed in Canadian dollars, or the U.S. base rate plus 0.50% per annum or LIBOR plus 2.00% per annum on amounts borrowed in U.S. dollars.

Borrowings under Facility B bear interest at the bank’s prime rate plus 1.00% per annum with principal repayments becoming due on a five year amortization schedule.

Borrowings under Facility C are repayable according to a five year principal amortization schedule and bear interest at the following rates: if the funded debt to EBITDA ratio is equal to or greater than 2.00, the bank’s prime rate plus 1.25% per annum on amounts borrowed in Canadian dollars, or the U.S. base rate plus 1.25% per annum or LIBOR plus 2.50% per annum on amounts borrowed in U.S. dollars; or, if the funded debt to EBITDA ratio is less than 2.00, the bank’s prime rate plus 1.00% per annum on amounts borrowed in Canadian dollars, or the U.S. base rate plus 1.00% per annum or LIBOR plus 2.25% per annum on amounts borrowed in U.S. dollars. In addition, Facility C is subject to a standby fee which is calculated monthly using the unused portion of the facility at either 0.625% per annum if the funded debt to EBITDA ratio is equal to or greater than 2.00, or 0.5625% per annum if the funded debt to EBITDA ratio is less than 2.00.

As of September 30, 2012, the Company had approximately $14.0 million in U.S. dollar equivalents outstanding under the Canadian Facilities and was in compliance with its financial covenant requirements. The Company’s borrowings consisted of approximately $3.1 million outstanding under Facility A, $1.6 million outstanding under Facility B, and $9.3 million outstanding under Facility C.

United States Credit Facilities

In January 2008, the Company’s Jefferson Electric, Inc. subsidiary entered into a bank loan agreement with a U.S. bank that included a revolving credit facility, initially with a borrowing base limit of $5.0 million and a term credit facility (the “U.S. Facilities”). Monthly payments of accrued interest were required under the revolving credit facility and monthly payments of principal and accrued interest were required under the term credit facility. As of April 30, 2010, the date the Company acquired Jefferson Electric, Inc., final payment of all outstanding amounts under the U.S. Facilities became due on October 31, 2011. The interest rate under the revolving credit facility was equal to the greater of the bank’s reference rate or 6.5% per annum. The interest rate under the term credit facility was 7.27% annually. Borrowings under the U.S. Facilities were collateralized by substantially all the assets of Jefferson Electric, Inc. and were guaranteed by its Mexican subsidiary. In addition, an officer of Jefferson Electric, Inc. was a guarantor under the U.S. Facilities and he provided additional collateral to the bank in the form of common stock and a warrant to purchase shares of common stock of the Company held by him.

In November 2011, Jefferson Electric, Inc. revised its financing arrangement and extended the maturity date of the U.S. Facilities to October 31, 2012. The amended loan agreement provided for an increase in the borrowing base limit of the revolving credit facility to $6.0 million and a decrease in the interest rate to the bank’s reference rate (3.25% per annum at the time) plus 2.0%. In connection with the amendment, the Company prepaid $250,000 under the term credit facility in November 2011 and made an additional prepayment of $750,000 in January 2012. The interest rate under the term credit facility was reduced to 6.0% annually, with monthly payments of principal and accrued interest calculated based on an amortization of the then-remaining principal balance outstanding over a hypothetical 5-year term, with a final payment of all outstanding amounts due on October 31, 2012. In addition, the Company entered into a guaranty agreement with respect to Jefferson Electric, Inc.’s obligations under the U.S. Facilities and the bank released the common stock and a warrant previously pledged by the officer of Jefferson Electric, Inc.

In October 2012, Jefferson Electric, Inc. revised its financing arrangement and extended the maturity date of the U.S. Facilities to October 31, 2013. The interest rate under the revolving credit facility was reduced to a floating rate subject to a pricing grid, ranging from 2.25% to 3.50% above one month LIBOR, which can result in increases or decreases to the borrowing spread depending on Jefferson Electric, Inc.’s debt service coverage ratio. The term credit facility, which was repaid in full during July 2012, was removed from the U.S. Facilities in its entirety. Borrowings under the U.S. Facilities continue to be collateralized by substantially all the U.S. assets of Jefferson Electric, Inc., which had a net carrying value of approximately $8.4 million as of September 30, 2012 and an officer of the subsidiary remains a guarantor. The U.S. Facilities, as amended, require Jefferson Electric, Inc. to comply with certain financial covenants, including a requirement to exceed a minimum target for tangible net worth and maintain a minimum debt service coverage ratio. The U.S. Facilities also restrict Jefferson Electric, Inc.’s ability to pay dividends or make distributions, advances or other transfers of assets.

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As of September 30, 2012, Jefferson Electric, Inc. had approximately $4.3 million outstanding under the revolving credit facility and was in compliance with its financial covenant requirements.

Nexus Promissory Note

On July 25, 2012, the Company’s indirect wholly owned Mexican subsidiary, Nexus Magneticos de Mexico, S. de R.L. de C.V. (“Nexus”), entered into a term loan agreement with GE CF Mexico, S.A. de C.V. (“GE Capital Mexico”). At closing, GE Capital Mexico advanced to Nexus $1,652,805 under the term loan agreement, less a non-refundable commission of 1% and less a pledge of cash representing 10% of the loan amount. Immediately upon receiving the term loan advance, Nexus made an intercompany loan in the same principal amount to Jefferson Electric, Inc., its controlling shareholder. In turn, Jefferson Electric, Inc. used the intercompany loan proceeds to repay a portion of its outstanding secured indebtedness owed to its U.S. bank. The net proceeds were used by Jefferson Electric, Inc. to fully repay the principal and accrued interest that was then outstanding under its term credit facility with its U.S. bank, as well as to reduce the outstanding balance under its revolving credit facility.

The term loan from GE Capital Mexico is payable in 60 consecutive monthly installments and bears interest, payable monthly, at a rate of 6.93% per annum. The term loan may be prepaid by Nexus in increments of at least $100,000, subject to the application of certain prepayment and other fees as established in the term loan agreement. The term loan agreement contains customary representations and warranties, affirmative and negative covenants and events of default, including covenants that restrict Nexus’ ability to create certain liens, incur additional liabilities, make certain types of investments, engage in mergers, consolidations, significant asset sales and affiliate transactions, pay dividends, redeem or repurchase outstanding equity and make capital expenditures.

The obligations of Nexus under the term loan are secured by (i) a pledge of cash in the amount of 10% of the term loan amount, (ii) a trust agreement, pursuant to which Nexus and Jefferson Electric, Inc. transferred title to substantially all of their equipment and machinery assets located in Mexico to a Mexican bank as trustee, to serve as security for all of Nexus’ obligations under the term loan agreement, and (iii) a corporate guaranty by the Company of all of Nexus’ obligations under the term loan agreement.

Long-term debt consists of the following (in thousands):

	September 30,			December 31,
	2012			2011
Revolving credit facilities	$	7,361		$	6,199
Term credit facilities		10,930			11,669
Nexus promissory note		1,441			-
Capital lease obligations		5			17
Total debt and capital lease obligations		19,737			17,885
Less current portion		(9,343	)		(8,870	)
Total long-term debt and capital lease obligations	$	10,394		$	9,015

8. Shareholders’ Equity

The Company had common stock, $0.001 par value, outstanding of 5,907,255 shares as of September 30, 2012 and December 31, 2011, respectively.

As of September 30, 2012, the Company had warrants outstanding to purchase 640,000 shares of common stock with an average exercise price of approximately $14.00 per share. The warrants expire on dates beginning on December 2, 2014 and ending on April 30, 2015. No warrants were exercised during the nine months ended September 30, 2012.

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The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders, to issue from time to time up to 5,000,000 shares of preferred stock, $0.001 par value, in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

9. Fair Value Measurement

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy.

Level 1 Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 Valuation is based upon quoted prices for identical or similar instruments such as interest rates, foreign currency exchange rates, commodity rates and yield curves, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The carrying values of accounts and notes receivables, and accounts payable approximate fair value. Certain assets, including long-lived assets held and used and assets held for sale are measured at fair value on a non-recurring basis. There were no fair value measurement losses recognized for such assets in the third quarter of 2012.

10. Stock-Based Compensation

A summary of stock option activity under the 2011 Long-Term Incentive Plan as of September 30, 2012, and changes during the nine months ended September 30, 2012, are presented below:

					Weighted
	Stock		Weighted average		average remaining		Aggregate
	options		exercise price		contractual term		intrinsic value
Balance December 31, 2011		118,400	$	15.07		7.0	$	-
Granted		50,000	$	4.22		8.2		72,000
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding as of September 30, 2012		168,400	$	11.85		6.9	$	72,000
Exercisable as of September 30, 2012		78,933	$	15.09		6.3	$	-

As of September 30, 2012, there were 531,600 shares available for future grants under the Company’s 2011 Long-Term Incentive Plan.

Expense for stock-based compensation recorded for the nine months ended September 30, 2012 and 2011 was approximately $202,000 and $190,000, respectively. At September 30, 2012, the Company had total stock-based compensation expense remaining to be recognized in the statement of earnings of approximately $0.2 million.

11. Pension Plan

One of the Company’s Canadian subsidiaries sponsors a defined benefit pension plan in which a majority of its employees are members. The subsidiary funds 100% of all contributions to the plan. The benefits, or the rate per year of credit service, are established by the Company and updated at its discretion.

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The components of the expense the Company incurred under the pension plan are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Current service cost, net of employee contributions	$	9		$	4		$	30		$	21
Interest cost on accrued benefit obligation		36			37			106			111
Expected return on plan assets		(39	)		(39	)		(117	)		(117	)
Amortization of transitional obligation		3			3			10			10
Amortization of past service costs		2			2			7			7
Amortization of net actuarial gain		13			9			37			24
Total cost of benefit	$	24		$	16		$	73		$	56

Cost of Benefits

The Company’s policy is to fund the pension plan at or above the minimum level required by law. The Company made $64,000 and $141,000 of contributions to its defined benefit pension plan during the nine months ended September 30, 2012 and 2011, respectively. Changes in the discount rate and actual investment returns that are lower than the long-term expected return on plan assets could result in the Company making additional contributions.

12. Geographical Information

The Company has one material operating segment, being the sale of electrical equipment. Revenues are attributable to countries based on the location of the Company's customers (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Canada	$	11,794	$	10,064	$	38,005	$	30,445
United States		7,372		7,496		22,965		18,555
Others		60		367		392		1,065
Total	$	19,226	$	17,927	$	61,362	$	50,065

13. Basic and Diluted Earnings Per Share

Basic and diluted earnings per common share are calculated based on the weighted average number of shares outstanding during the period. The Company’s employee and director stock option awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Numerator:
Earnings from continuing operations	$	213	$	283	$	1,944	$	1,883
Denominator:
Weighted average basic shares outstanding		5,907		5,907		5,907		5,907
Effect of dilutive securities -- equity based compensation plans		8		-		3		-
Net dilutive effect of warrants outstanding		-		75		-		66
Denominator for diluted earnings per common share		5,915		5,982		5,910		5,973
Earnings  from continuing operations per common share:
Basic	$	0.04	$	0.05	$	0.33	$	0.32
Diluted	$	0.04	$	0.05	$	0.33	$	0.32
Anti-dilutive securities (excluded from per share calculation):
Equity based compensation plans		118		60		118		110
Warrants		640		410		640		410

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 30, 2012 and is available on the SEC’s website at www.sec.gov.

Unless the context requires otherwise, references in this Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries, including Pioneer Electrogroup Canada Inc., Pioneer Transformers Ltd., Bemag Transformer Inc., Jefferson Electric, Inc. and Pioneer Wind Energy Systems Inc.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

· Our ability to expand our business through strategic acquisitions.

· Our ability to integrate acquisitions and related businesses.

· Many of our competitors are better established and have significantly greater resources, and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers.

· We depend on Hydro-Quebec Utility Company and Siemens Industry, Inc. for a large portion of our business, and any change in the level of orders from Hydro-Quebec Utility Company or Siemens Industry, Inc., could have a significant impact on our results of operations.

· The potential loss or departure of key personnel, including Nathan J. Mazurek, our Chairman, president and chief executive officer.

· A majority of our revenue and a significant portion of our expenditures are derived or spent in Canadian dollars. However, we report our financial condition and results of operations in U.S. dollars. As a result, fluctuations between the U.S. dollar and the Canadian dollar will impact the amount of our revenues.

· Our ability to generate internal growth.

· Market acceptance of existing and new products.

· Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk.

· Restrictive loan covenants or our ability to repay or refinance debt under our credit facilities could limit our future financing options and liquidity position and may limit our ability to grow our business.

· General economic conditions and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries.

· The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets.

· Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability.

· Our chairman controls a majority of our combined voting power, and may have, or may develop in the future, interests that may diverge from yours.

· Future sales of large blocks of our common stock may adversely impact our stock price.

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The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should carefully review the risk factors and other cautionary statements in our Annual Report on Form 10-K for the year ended December 31, 2011 and those described from time to time in our other reports filed with the Securities and Exchange Commission for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.

One-for-Five Reverse Stock Split

Our board of directors authorized a one-for-five reverse stock split on June 1, 2011 which took effect on June 20, 2011. All share and related option and warrant information presented in the following discussion and analysis of our financial condition and results of operations and the accompanying consolidated interim financial statements has been retroactively adjusted to reflect the reduced number of shares outstanding which resulted from this action.

Overview

We are a manufacturer of specialty electrical equipment and provide, through our three operating subsidiaries, Pioneer Transformers Ltd., Jefferson Electric, Inc. and Bemag Transformer Inc., a broad range of custom-engineered and general purpose electrical transformers for applications in the utility, industrial and commercial segments of the electrical transmission and distribution industry. We are headquartered in Fort Lee, New Jersey and presently operate from six other locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales and administration.

On April 30, 2010, we completed the acquisition of Jefferson Electric, Inc., a Wisconsin-based manufacturer and supplier of dry-type transformers. Through transactions completed in June and August 2010 we acquired substantially all the assets and the capital stock of AAER Inc. to form Pioneer Wind Energy Systems Inc., a business which we are currently in the process of winding down or divesting. The results of operations for Pioneer Wind Energy Systems Inc. are reported as discontinued operations for all periods presented in the following discussion and analysis of our financial condition and results of operations.

On July 1, 2011, we completed the acquisition of all the capital stock of Bemag Transformer Inc., a Quebec-based manufacturer of low and medium voltage dry-type transformers and custom magnetics. Also on such date, we acquired all the machinery and equipment assets of Vermont Transformer, Inc., the former U.S. affiliate of Bemag Transformer Inc.

Foreign Currency Exchange Rates

Although we have elected to report our results in accordance with generally accepted accounting principles in the U.S. and in U.S. dollars, our largest subsidiary, Pioneer Electrogroup Canada Inc. (and its subsidiaries including Pioneer Transformers Ltd., Bemag Transformer Inc. and Pioneer Wind Energy Systems Inc.) is a Canadian entity and its functional currency is the Canadian dollar. As such, its financial position, results of operations, cash flows and equity are initially consolidated in Canadian dollars. The subsidiary's assets and liabilities are then translated from Canadian dollars to U.S. dollars by applying the foreign currency exchange rate in effect at the balance sheet date, while the results of our operations and cash flows are translated to U.S. dollars by applying the average foreign currency exchange rate in effect during the reporting period. The resulting translation adjustments are included in other comprehensive income or loss.

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The financial position and operating results of Pioneer Electrogroup Canada Inc. have been translated to U.S. dollars by applying the following exchange rates, expressed as the number of Canadian dollars to one U.S. dollar for each period reported:

	2012						2011
	Consolidated Balance Sheet		Consolidated Statements of Earnings and Comprehensive Income				Consolidated Balance Sheet		Consolidated Statements of Earnings and Comprehensive Income
Quarter Ended	End of Period		Period Average		Cumulative Average		End of Period		Period Average		Cumulative Average
March 31	$	0.9975	$	1.0012	$	1.0012	$	0.9696	$	0.9860	$	0.9860
June 30	$	1.0181	$	1.0102	$	1.0057	$	0.9645	$	0.9676	$	0.9768
September 30	$	0.9832	$	0.9948	$	1.0021	$	1.0482	$	0.9802	$	0.9780

Critical Accounting Policies

Use of Estimates. The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include pension expense, inventory provisions, useful lives and impairment of long-lived assets, warranty accruals, income tax determination, stock-based compensation, allowance for doubtful accounts and estimates related to purchase price allocation. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011

Revenue. For the three months ended September 30, 2012, our consolidated revenue increased by $1.3 million, or 7.2%, to $19.2 million, up from $17.9 million during the three months ended September 30, 2011. Approximately $1.0 million of the revenue increase reflects growth in our dry-type transformer products which increased 10.3% on a year-over-year basis. This growth was led by our OEM sales channels in the U.S. and Canada, which includes shipments of medium voltage transformers, combined with modest increases in our brand label and Canadian distribution volume. Revenue from our liquid-filled transformer products increased by 3.3% during the three months ended September 30, 2012 on stable demand from key utility and industrial customers.

For the nine months ended September 30, 2012, our consolidated revenue increased by $11.3 million, or 22.6%, to $61.4 million, up from $50.1 million during the nine months ended September 30, 2011. Approximately $4.2 million of the increase reflects growth in the transformer businesses we have owned for more than one year. The remaining $7.1 million increase in our revenue resulted from an additional six months of operations for the dry-type transformer business we acquired in July 2011. Excluding the effect of this acquisition, revenue from our dry-type transformer products increased $5.2 million, or 24.3% on a year-over-year basis, while revenue from our liquid-filled transformer products decreased by approximately $1.0 million, or 3.6%, during the nine months ended September 30, 2012.

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Gross Margin. For the three months ended September 30, 2012, our gross margin percentage increased to 21.9% of revenues, compared to 21.3% during the three months ended September 30, 2011. The 0.6% increase in gross margin primarily reflects improvement in our dry-type transformer products which benefited from increased production throughput and sales of higher-margin, engineered-to-order units. In addition, our gross margin percentage for liquid-filled transformer products also increased during the three months ended September 30, 2012, due primarily to favorable product mix, and represented approximately one-third of the overall increase in our gross margin percentage.

For the nine months ended September 30, 2012, our gross margin percentage decreased to 22.1% of revenues, compared to 23.3% during the nine months ended September 30, 2011. The 1.2% decrease in gross margin was due to growth in dry-type transformer sales which represented 55% of our consolidated revenue during the nine months ended September 30, 2012, as compared to only 43% during the same period of 2011. Our gross margin percentage for liquid-filled products remained stable during the first nine months of 2012, as compared to 2011, while our average gross margin percentage on dry-type products declined by 1.4%. This dry-type margin decline in 2012 resulted from increased sales of our less profitable designs, principally catalogue products sold through our distribution network to commercial construction customers, outpacing increases in sales of custom-engineered dry-type products.

Selling, General and Administrative Expense. For the three months ended September 30, 2012, our selling, general and administrative expense increased by approximately $0.3 million, or 11.1%, to $3.2 million, as compared to $2.9 million during the three months ended September 30, 2011. The increase was primarily due to engineering staff additions and, to a lesser extent, an increase in our corporate expenses. As a percentage of total revenue, our selling, general and administrative expense increased to 16.7% during the three months ended September 30, 2012, as compared to 16.1% during the three months ended September 30, 2011.

For the nine months ended September 30, 2012, our selling, general and administrative expense increased by approximately $1.8 million, or 22.2%, to $9.8 million, as compared to $8.0 million during the nine months ended September 30, 2011. Approximately $1.0 million of the increase was due to the inclusion of an additional six months of operations for the dry-type transformer business we acquired in July 2011. The remaining $0.8 million increase was attributable to variable costs associated with higher sales volume and to increased corporate expenses. As a percentage of total revenue, our selling, general and administrative expense decreased slightly to 15.9% during the nine months ended September 30, 2012, as compared to 16.0% during the nine months ended September 30, 2011.

Foreign Exchange (Gain) Loss. During the three and nine month periods ended September 30, 2012, approximately 62% of our consolidated operating revenues were denominated in Canadian dollars and a material percentage of our expenses were denominated and disbursed in U.S. dollars. We have not historically engaged in currency hedging activities. Fluctuations in foreign currency exchange rates between the time we initiate and then settle transactions with our customers and suppliers can have an impact on our operating results. For the three months ended September 30, 2012, we recorded a gain of approximately $160,000 due to currency fluctuations, compared to a loss of approximately $48,000 during the three months ended September 30, 2011. For the nine months ended September 30, 2012, we recorded a gain of approximately $245,000, compared to a loss of approximately $36,000 during the nine months ended September 30, 2011

Interest and Bank Charges. For the three and nine month periods ended September 30, 2012, interest and bank charges were approximately $270,000 and $669,000, as compared to $207,000 and $428,000 during the three and nine month periods ended September 30, 2011. The increase in interest expense was due to higher average borrowings as a result of the acquisition of Bemag Transformer Inc. in July 2011, followed by the purchase of the land and building comprising its manufacturing facility in June 2012, both of which were funded primarily through new bank borrowings.

Other Expense (Income). For the three and nine month periods ended September 30, 2012, other non-operating expense was approximately $39,000 and $69,000, as compared to $328,000 and $769,000 during the three and nine month periods ended September 30, 2011. The 2012 other expense consists primarily of a deposit that was forfeited in connection with withdrawing from a proposed debt financing transaction, as well as professional fees incurred in connection with post-closing requirements related to the acquisition of Bemag Transformer Inc. The 2011 other expense resulted from professional fees and costs incurred in connection with acquisitions, as well as the expenses of our public offering of common stock that was withdrawn due to market conditions.

Provision for Income Taxes. For the three and nine month periods ended September 30, 2012, our provision for income taxes reflects an effective tax rate on earnings before income taxes of 75.0% and 40.8%, respectively, as compared to 16.5% and 23.6% during the three and nine month periods ended September 30, 2011. The increase in our effective tax rate during 2012 primarily reflects a one-time write-off of a $411,000 deferred tax asset which resulted from the transfer of certain manufacturing equipment between our U.S. and Canadian subsidiaries in connection with an equipment financing transaction that closed in July 2012. Without the effect of this non-cash charge, our effective tax rate would have been 26.9% and 28.2% during the three and nine months ended September 30, 2012. In addition, most of our taxable income is derived in Canada where we are subject to lower corporate tax rates relative to our U.S. operations. Therefore, the increase in our effective tax rate during 2012, as compared to 2011, was also due to higher taxable income recognized by our U.S. subsidiaries.

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Earnings from Continuing Operations. We generated earnings from continuing operations of $0.2 million and $1.9 million during the three and nine month periods ended September 30, 2012, respectively, as compared to $0.3 million and $1.9 million during the three and nine month periods ended September 30, 2011. During 2012 as compared to 2011, our earnings from continuing operations benefitted from a higher operating income on increased sales for the reasons described above, partially offset by increased interest expense, a one-time non-cash income tax charge and the effect of a higher effective income tax rate. Earnings from continuing operations per basic and diluted share were $0.04 and $0.33 for the three and nine month periods ended September 30, 2012, respectively, as compared to $0.05 and $0.32 for the three and nine month periods ended September 30, 2011.

Backlog. Our order backlog at September 30, 2012 was $27.7 million, as compared to $24.8 million at December 31, 2011 and $23.4 million at September 30, 2011. Our backlog is based on orders expected to be delivered in the future, most of which is expected to occur during the next six months.

Discontinued Operations

As a result of our plan to divest Pioneer Wind Energy Systems Inc., the assets and liabilities of the business are considered held for sale as at September 30, 2012 and therefore the financial results are reported as discontinued operations in the consolidated financial statements. For the three and nine month periods ended September 30, 2012, our loss from discontinued operations was approximately $0.0 and $0.2 million, respectively, as compared to $2.0 million and $2.4 million during the three and nine month periods ended September 30, 2011. The 2012 net losses reflect ongoing operating and administrative expenses, costs related to asset disposals and a charge of $0.2 million related to doubtful accounts. See Note 3 “Discontinued Operations” in the notes to our consolidated financial statements for further information.

Liquidity and Capital Resources

General. At September 30, 2012, we had $0.1 million of cash and cash equivalents and total debt, including capital lease obligations, of $19.7 million. We have historically met our cash needs through a combination of cash flows from operating activities and short-term bank borrowings. Our cash requirements are generally for operating activities, debt repayment and capital improvements. We believe that working capital, borrowing capacity available under our credit facilities and funds generated from operations should be sufficient to finance our cash requirements for anticipated operating activities, capital improvements and principal repayments of debt through at least the next twelve months.

Cash used by our operating activities was approximately $1.7 million during the nine months ended September 30, 2012, compared to cash used by our operating activities of $0.2 million during the nine months ended September 30, 2011. The principal elements of cash used for operating activities during the nine months ended September 30, 2012 were $4.7 million for working capital to support our revenue growth during the period, $0.2 million related to deferred taxes and pension costs, plus $0.1 million used for discontinued operations. These uses of cash during the period were partially offset by net earnings from continuing operations of $1.9 million and $1.4 million of non-cash expenses consisting of depreciation, amortization and stock-based compensation.

Cash used in investing activities during the nine months ended September 30, 2012 was approximately $1.8 million, as compared to $8.9 million during the nine months ended September 30, 2011. During the nine months ended September 30, 2012 our cash used in investing activities increased primarily due to the purchase of the land and buildings comprising our Canadian dry-type transformer manufacturing facility for approximately $1.1 million. Also during 2012, we made a loan of $0.3 million to the developer of a renewable energy project in the U.S. which was extended for the purpose of securing a purchase order for our transformers. Additions to our property, plant and equipment in the ordinary course of business were $0.5 million during the nine months ended September 30, 2012, as compared to $0.7 million during the nine months ended September 30, 2011.

Cash provided by our financing activities was approximately $2.4 million during the nine months ended September 30, 2012, compared to cash provided of $8.5 million during the nine months ended September 30, 2011. During the 2012 period, the increase in cash from financing activities resulted from $2.0 million of increased bank overdrafts and borrowings under our revolving credit facilities, plus $1.1 million of new term debt for a facility purchase, less approximately $0.7 million which was used to pay down our outstanding term loan bank debt and capital lease obligations. During the nine months ended September 30, 2011, the significant increase in our cash from financing activities resulted from approximately $9.7 million of new borrowings provided by our Canadian credit facilities for the acquisition of Bemag Transformer Inc., the purchase of certain assets from Vermont Transformers, Inc. and to finance the expansion of our liquid-filled transformer manufacturing plant. Also during the 2011 period, our short term bank borrowings and overdrafts increased by $2.1 million and we repaid approximately $3.4 million of long-term debt and capital lease obligations.

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Canadian Credit Facilities. In June 2011, Pioneer Electrogroup Canada Inc., our wholly owned subsidiary and the parent company of Pioneer Transformers Ltd., Bemag Transformer Inc. and Pioneer Wind Energy Systems Inc. entered into a letter loan agreement with our Canadian bank (the “Canadian Facilities”) that replaced and superseded all of our prior financing arrangements with such bank.

The Canadian Facilities provide for up to $23.0 million CAD (approximately $23.4 million expressed in U.S. dollars) consisting of a $10.0 million CAD demand revolving credit facility (“Facility A”) to finance ongoing operations, a $2.0 million CAD term credit facility (“Facility B”) that financed a plant expansion, a $10.0 million CAD term credit facility (“Facility C”) to finance acquisitions, capital expenditures or to provide funding to our U.S. corporations, a $50,000 CAD Corporate MasterCard credit facility and a $1.0 million CAD foreign exchange settlement risk facility.

As of September 30, 2012, we had approximately $3.1 million outstanding under Facility A, $1.6 million outstanding under Facility B and $9.3 million outstanding under Facility C.

United States Credit Facilities. Our Jefferson Electric, Inc. subsidiary has a loan agreement with a U.S. bank that includes a revolving credit facility with a borrowing base limit of $6.0 million. Effective as of October 31, 2012, the credit facility was extended for an additional year and now bears interest according to a pricing grid, ranging from 2.25% to 3.50% above one month LIBOR, depending on Jefferson Electric, Inc.’s debt service coverage ratio. As of September 30, 2012, there was approximately $4.3 million outstanding under the revolving credit facility.

Nexus Promissory Note. On July 25, 2012, Nexus Magneticos de Mexico, S. de R.L. de C.V. (“Nexus”), a subsidiary of Jefferson Electric, Inc., entered into a term loan agreement with GE CF Mexico, S.A. de C.V. (“GE Capital Mexico”). At closing, GE Capital Mexico advanced to Nexus approximately $1.7 million under the term loan agreement, the net proceeds of which were used to fully repay a term note owed by Jefferson Electric, Inc. to its U.S. bank, as well as to reduce the outstanding balance under its revolving credit facility with the bank.

The term loan from GE Capital Mexico is payable in 60 consecutive monthly installments and bears interest, payable monthly, at a rate of 6.93% per annum. The obligations of Nexus under the term loan are secured by (i) a pledge of cash in the amount of 10% of the term loan amount, (ii) a trust agreement, pursuant to which Nexus and Jefferson Electric, Inc. transferred title to substantially all of their equipment and machinery assets located in Mexico to a Mexican bank as trustee, to serve as security for all of Nexus’ obligations under the term loan agreement, and (iii) a corporate guaranty by us of all of Nexus’ obligations under the term loan agreement.

Capital Expenditures. During the last twelve months, we completed the expansion of our liquid-filled transformer manufacturing facility at a cost of approximately $2.0 million and purchased our dry-type transformer facility and land in Canada at a cost of approximately $1.1 million. We are currently formulating a plan to expand and add new production equipment to the dry-type facility we recently purchased, a project which may cost approximately $1.5 million and is likely to commence before the end of the year. Otherwise, we have no major future capital projects planned, or significant replacement spending anticipated, during 2012 and 2013.

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Item 4. Controls and Procedures

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of September 30, 2012, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2012.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits

See Index to Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PIONEER POWER SOLUTIONS, INC.
Date: November 14, 2012	/s/ Nathan J. Mazurek
	Nathan J. Mazurek
	President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer duly authorized to sign on behalf of Registrant)
Date: November 14, 2012	/s/ Andrew Minkow
	Andrew Minkow Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer duly authorized to sign on behalf of Registrant)

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Exhibit No.	Description
3.1	Composite Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Registration Statement on Form S-1 of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on June 21, 2011).
3.2	Bylaws (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on December 2, 2009).
4.1	Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on December 7, 2009).
4.2	Form of $10.00 Warrant (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on December 7, 2009).
4.3	Form of $16.25 Warrant (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on December 7, 2009).
4.4	Warrant to Purchase Common Stock, dated April 30, 2010, issued to Thomas Klink (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on May 4, 2010).
4.5	Warrant to Purchase Common Stock, dated April 26, 2010 (Incorporated by reference to Exhibit 4.6 to Post-Effective Amendment No. 1 to Registration Statement on Form S-1 of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on June 1, 2010).
4.6	Form of Warrant to Purchase Common Stock, dated May 11, 2010, issued to investor relations firm and its designees (Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-1 of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on April 20, 2011).
10.1*	Eighth Amendment to Loan and Security Agreement, dated October 31, 2012, by and between Jefferson Electric, Inc. and Johnson Bank
10.2*	Term Loan Agreement, dated July 25, 2012, by and between Nexus Magneticos S. de R.L. de C.V. and GE CF Mexico, S.A. de C.V.
10.3*	Irrevocable Transfer of Title and Guaranty Trust Agreement, dated July 25, 2012, by and among, Nexus Magneticos S. de R.L. de C.V. and GE CF Mexico, S.A. de C.V., Jefferson Electric, Inc., GE CF Mexico, S.A. de C.V. and Banco Invex, S.A.
10.4*	Corporate Guaranty, dated July 25, 2011, by and between Pioneer Power Solutions, Inc. and GE CF Mexico, S.A. de C.V.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language), (i) Consolidated Statements of Earnings, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Financial Statements.

_______________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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EX-10.1

EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

THIS EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment"), dated as of October 31, 2012, 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 terms are added to Article I of the Loan Agreement to appear in proper alphabetical order therein:

"Applicable Margin" means, for any day, the rate per annum set forth below:

Level	Debt Service Coverage Ratio	Applicable Margin
I	Greater than or equal to 2.00:1.00	2.25%
II	Greater than or equal to 1.75:1.00 but less than 2.00:1.00	2.50%
III	Greater than or equal to 1.50:1.00 but less than 1.75:1.00	2.75%
IV	Greater than or equal to 1.25: 1.00 but less than 1.50:1.00	3.00%
V	Greater than or equal to 1.10:1.00 but less than 1.25:1.00	3.25%
VI	Greater than or equal to than 1.00:1.00 but less than 1.10:1.00	3.50%

The Applicable Margin shall be adjusted quarterly, to the extent applicable, on the fifth (5th) business day after the Borrower provides or is required to provide the financial statements and other information pursuant to Section 5.1.1, or, with respect to any fiscal quarter end, 5.1.2, as applicable, and the related Compliance Certificate, pursuant to Section 5.1.7. Notwithstanding anything contained in this paragraph to the contrary, (i) if the Borrower fails to deliver such financial statements and Compliance Certificate in accordance with the provisions of Sections 5.1.1, 5.1.2 and 5.1.7, the Applicable Margin shall be based upon clause (a) of the definition of Defined Interest Rate until the fifth (5th) business day after such financial statements and Compliance Certificate are actually delivered, whereupon the Applicable Margin shall be determined by the then current Debt Service Coverage Ratio; (ii) no reduction to any Applicable Margin shall become effective at any time when an Event of Default has occurred and is continuing.

"Debt Service Coverage Ratio" shall have the meaning given to such term in Section 5.22 hereof.

"Defined Interest Rate" means (i) prior to the initial determination under clause (ii) hereof after the receipt of the financial statements and Compliance Certificate for the fiscal quarter ending September 30, 2012, the interest rate in effect immediately prior to the effectiveness of the Eighth Amendment and (ii) after the receipt of the financial statements and Compliance Certificate for the fiscal quarter ending September 30, 2012 (subject to clause (i) of the definition of Applicable Margin), (a) if the Debt Service Coverage Ratio as set forth in the most recently delivered Compliance Certificate is less than 1.00:1.00, 5.25% and (b) if the Debt Service Coverage Ratio as set forth in the most recently delivered Compliance Certificate is greater than or equal to 1.00:1.00, LIBOR plus the Applicable Margin.

"Eighth Amendment" means the Eighth Amendment to this Loan Agreement dated as of October 31, 2012 between Borrower and Bank.

"LIBOR" means the per annum rate of interest for a period equal to one month described as the “London interbank offered rate, or Libor” for such period that is in effect two business days prior to the commencement of the applicable calendar month as reported in The Wall Street Journal, “Money Rates” table (and currently defined as the British Bankers’ Association average of interbank offered rates for dollar deposits in the London market) or, if The Wall Street Journal or another authoritative source is not available, as LIBOR is otherwise determined by the Bank in its sole and absolute discretion.

(b) The following defined terms in Article I of the Loan Agreement are amended in their entirety to read as follows:

"Loan Amount" means $6,000,000.

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"Net Cash Flow" for any fiscal period of Borrower, means EBITDA, less the sum of (a) income taxes paid in cash and (b) distributions for income taxes paid in cash.

"Tangible Net Worth" means (i) total assets plus debt which is subordinated to the debt hereunder on terms satisfactory to the Bank, minus (ii) the sum of: intangible assets plus total liabilities, all determined in accordance with GAAP.

(c) Section 2.1.1 of the Loan Agreement is amended by deleting the date "October 31, 2012" in the last sentence thereof and inserting "October 31, 2013" in its place.

(d) Sections 2.2, 2.3.2, 2.9 and 2.8 of the Loan Agreement are deleted in their entirety and replaced with "[Reserved.]"

(e) 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 Defined Interest Rate, changing as and when the Defined Interest Rate changes.

(f) Section 5.1.3 of the Loan Agreement is amended by deleting "and a detailed inventory report" therein.

(g) Section 5.1.7 of the Loan Agreement is amended in its entirety to read as follows:

5.1.7 Within 30 days after the end of each fiscal month, a statement in form satisfactory to the Bank certified by an officer of Borrower representing and warranting that (a) the representations and warranties contained in this Agreement are true and correct as of the date of such statement, except for changes permitted or contemplated by this Agreement which have been disclosed in writing to Bank; (b) no condition, event, act or omission has occurred or exists which constitutes an Event of Default under this Agreement; (c) no condition, event, act or omission has occurred which, with the giving of notice or the passage of time, will constitute an Event of Default under this Agreement; and (d) Borrower is in compliance with Sections 5.21, 5.22 and 6.3 of this Agreement and attaching a computation of each of the financial ratios and amounts referred to in such sections, each in detail satisfactory to the Bank (such statement, a "Compliance Certificate").

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

5.21 Tangible Net Worth. Borrower shall maintain, at all times, a Tangible Net Worth not less than ($1,150,000).

(i) Section 5.22 of the Loan Agreement is amended in its entirety to read as follows:

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5.22 Debt Service Coverage Ratio. Borrower shall achieve, as of the last day of each fiscal quarter of Borrower, commencing September 30, 2012 a ratio of (a) Net Cash Flow to (b) the sum of required principal payments plus interest expense (not including accrued but unpaid interest expense on subordinated indebtedness owing to PPSI), all calculated for the four fiscal quarter period ending on the date of determination (the "Debt Service Coverage Ratio"), of at least 1.0 to 1.0.

(j) Section 5.27 of the Loan Agreement is amended in its entirety 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 the date of the Eighth Amendment.

(j) Section 5.29 of the Loan Agreement is created to read as follows:

5.29 DDA Balance. Borrower shall maintain at all times a balance in its demand deposit account of no less than $100,000.

(l) Section 5.30 of the Loan Agreement is created to read as follows:

5.30 Post-Closing Obligations. Borrower shall deliver to the Bank, promptly after the date of the Eighth Amendment, but in any event within 45 days after such date, 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.

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

(l) The following amounts shall be calculated for the Borrower on a consolidated basis with its subsidiaries: EBITDA, Net Cash Flow, Net Income, pre-Tax Net Income, Tangible Net Worth and the calculations for purposes of Sections 5.21, 5.22 and 6.3 of the Loan Agreement. The reports delivered under Sections 5.1.1, 5.1.2, 5.1.4, 5.1.5 and 5.1.7 of the Loan Agreement shall be prepared for Borrower on a consolidated basis with its subsidiaries.

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) a reaffirmation of subordination agreement, duly executed by PPSI and Bemag Transformer Inc.;

(b) a reaffirmation of guaranty, duly executed by Thomas Klink and PPSI;

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

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(d) 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;

(e) a legal opinion of Borrower's counsel;

(f) the replacement Revolving Note, in the form attached hereto as Exhibit A, duly executed by Borrower; and

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.

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. Term Note. The parties hereto acknowledge that the Term Note as defined in the Loan Agreement prior to the effectiveness of this Amendment has been paid in full, and all referenced in the Loan Agreement to the Term Note shall be deemed to be deleted.

7. 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.

8. Full Force and Effect. The Loan Agreement, except as otherwise expressly amended hereby, remains in full force and effect.

9. 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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10. 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 MacDonald_____________

Its____Vice President_________________

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EXHIBIT A

Form of Revolving Note

REVOLVING NOTE

$6,000,000.00	Milwaukee, Wisconsin
	October 31, 2012

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 and as further amended from time to time, 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 $6,000,000 dated October 31, 2011, from the undersigned and payable to the Bank, which replaced 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___/s/ Thomas Klink________________

Its______President____________________

EX-10.2

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT (“AGREEMENT”) IS ENTERED INTO ON THIS 25th DAY OF JULY, 2012 BY AND BETWEEN, GE CF MEXICO, S.A. DE C.V., AS LENDER (“LENDER”) AND NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V., AS BORROWER ( “BORROWER”).

RECITALS

I.              Borrower makes the following representations:

(a) It is a Mexican mercantile company legally in existence pursuant to the laws of Mexico;

(b) The execution and performance of this agreement does not violate (i) its bylaws, (ii) any contract, agreement, license or order, (iii) any law, regulation, or order whether judicial or administrative;

(c) Its legal representatives possess sufficient and proper authority to bind it to the terms of this agreement;

(d) As of the date hereof, there are no pending or threatened claims or proceedings, whether judicial or extrajudicial, which affect or could affect the validity of this agreement; and

(e) The resources which it uses for its operations derive from legal means.

II.            Lender makes the following representations:

(a) It is a Mexican mercantile company legally in existence pursuant to the laws of Mexico;

(b) The execution and performance of this agreement does not violate (i) its bylaws, (ii) any contract, agreement, license or order, (iii) any law, regulation, or order whether judicial or administrative;

(c) Its legal representatives possess sufficient and proper authority to bind it to the terms of this agreement;

Pursuant to the foregoing, the parties agree as follows:

ARTICLES

FIRST.- Defined Terms.

“Asset or Assets” means, with respect to any Person, the sum of their assets and rights, including but not limited to the plant, equipment, machinery, and real property.

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly controls or is controlled by or is under common control with said Person. For purposes of this Agreement, control means the authority to determine the administration and the policies of said Person, directly or indirectly, whether by means of controlling voting stock, of having the authority to designate most of the members of the board of administration by contract or any other manner.

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“Governmental Authority” means any agency which exercises administrative, executive, legislative, judicial or regulatory authority of or relating to the government.

“Trust Assets” means the machinery contributed in accordance with the Trust Agreement to secure the Loan.

“Substantially Adverse Change” means any change of any nature which substantially and adversely affects the financial or operating condition or the results, business or property of said Person, as well as the fact that this Agreement or any Loan Document becomes illegal, null or not exercisable, and as a result of such, it would be impossible for the Borrower to perform its obligations in accordance with this Agreement or any Loan Document.

“Net Worth” means with respect to any Person, the difference between the Assets of said Person, and the Total Liabilities of said Person.

“Trust Agreement” means the irrevocable guaranty trust agreement, which is or shall be executed by the Borrower and Jefferson Electric, Inc., as trustors, Banco Invex, Sociedad Anónima, Institución de Banca Múltiple, Invex Grupo Financiero, Fiduciario, as trustee, and Lender as primary trust beneficiary, by means of which the Borrower and Jefferson Electric, Inc. transfer title to the Trust Assets in favor of the trustee, in order to guaranty each and every one of the Secured Obligations.

“Loan” means the term loan that the Lender shall put at the disposition of the Borrower during the Availability Period, in one or several disbursements of Funding, pursuant to the terms of this Agreement, in a total principal sum of up to $1,652,805.00 U.S. Dollars (One Million Six Hundred Fifty-two Thousand Eight Hundred Five 00/100 Dollars); with the understanding that said amount does not include any amounts of interest, commission, expenses or any other amounts (aside from the unpaid principal balance) payable by the Borrower to the Lender in accordance with this Agreement, the Promissory Notes or any Loan Documents.

“Work Day” means any day that is not Saturday or Sunday, a holiday or any other day that the banks located in New York City, New York, United States of America, or Mexico City, Federal District, Mexico are authorized or required to close.

“Funding” means each one of the disbursements of money which the Borrower makes and adds to the Loan during the Availability Period, which collectively make up the Loan.

“Loan Documents” means this Agreement, the Promissory Notes, the Trust Agreement, as well as any other contract, agreement, document, instrument or certificate relating to the same or which shall be signed and delivered to the Lender in accordance with the same.

“Dollars” or “U.S.D. $” means Dollars, legal currency of the United States of America.

“Cash Equivalent” means bank deposits and other accounts receivable with a maximum term of 90 days or other values which can be sold within thirty (30) days.

“Date of Funding” means the date on which the Borrower makes the disbursements of Funding of the Loan within the Availability Period as long as each and every one of the conditions in Clause Eleven of this Agreement has been satisfied.

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“Date of Execution” means the date of execution of this Agreement.

“Due Date of Interest Payment” means the due date of interest payment of any Funding which shall occur on the 1st day of each calendar month, beginning with the 1st day of the month following the date of the respective Funding.

“Capital Expenditures” means with respect to any person and for any period, the sum of all expenses not financed during said period, that pursuant to GAAP, are required to be included or should be reflected in the balance sheet of such Person with respect to the equipment, Assets, real estate or improvements, or for replacement or substitution of such or additions to the same.

“Encumbrance” means, with respect to any Asset, any mortgage, encumbrance, pledge, trust, real guaranty, affectation or limitation of ownership of any kind with respect to said Asset. It shall be understood that an asset is subject to an Encumbrance if it has been acquired by means of a conditional purchase agreement, when the condition has not been satisfied, a purchase agreement with a reservation of ownership so long as the reservation continues, a financial lease so long as the option to acquire the asset has not been exercised or a similar agreement regarding said Asset which means that ownership has not been acquired in an irrevocable and unconditional manner.

“Taxes” means the contributions, advantages and other accessories of the same, as defined in articles 2 and 3 of the Fiscal Code of the Federation and which are determined by the treasury authorities in Mexico, as well as any other tax, contribution, or fiscal charge which is determined by the fiscal authorities or any jurisdiction other than Mexico; with the understanding that only for purposes of Clause Eighth, the term “Taxes” excludes income taxes or other taxes on the world-wide income of Lender.

“Investments” means any advance, loan, expenditure, extension of credit or contribution to capital or acquisition of shares, membership interests or debt instruments or long term values or any other interest or any other long-term investment in any Person.

“Secured Obligations” means each and every one of the payment or other obligations of the Borrower arising from or relating to the Loan Documents.

“Promissory Note” means each promissory note executed by Borrower in favor of Lender, documenting the obligation of the Borrower to pay the Lender the principal amount of each disbursement of Funding and the corresponding interest, utilizing the form of the promissory note attached hereto as Exhibit “A”.

“Total Liabilities” means at any time and in accordance with GAAP, the Assets less Net Worth of the respective Person.

“GAAP” means at any time, the generally accepted accounting principles in the United States of America which are effective on such date and applied consistently.

“Availability Period” means the period of time in which the Borrower may make a disbursement of Funding of the Loan subject to the terms and conditions of this Agreement, which begins on the Date of Execution and ends on July 30, 2012.

“Interest Period” means, with respect to any Funding, (a) initially the period which began on the Date of Funding applicable to said disbursement of Funding and ends on the last day of the calendar month immediately following the Date of Funding; and (b) thereafter, each period that starts on the last day of the immediately preceding Interest Period and which ends one month after said date; with the understanding that no Interest Period shall end after the last Due Date of Principal Payment of the respective disbursement of Funding.

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“Person” means any individual or entity, trust, Governmental Authority or any other entity of any other nature.

“Interest Rate” means, with respect to each Interest Period, an annual rate equivalent to 6.93%.

“LIBOR Rate” means, on the date of the corresponding determination, the applicable interbank rate of London for deposits in Dollars for a one (1) one month period, that appears in the Wall Street Journal or in the absence on Page 3750 of the Tielnate Service (or any other page that replaces Page 3750) as of 11:00 a.m. London time of the first day of any Interest Period;

SECOND.- Issuance of the Loan. In accordance with the terms of this Agreement and subject to the satisfaction of the conditions mentioned herein, Lender agrees to put the Loan at the Borrower’s disposition, in one or several disbursements of Funding, on any Work Day within the Availability Period; with the understanding that (i) the principal amount of the Loan does not include any amount whatsoever for interest, commissions, expenses or any other amounts (other than the outstanding principal balance) payable by the Borrower to the Lender in accordance with this Agreement or the Promissory Notes; (ii) the principal amount of the Funding shall at no time exceed the amount of the Loan; (iii) Borrower shall not dispose, again, of any principal amount of the Loan which had already been paid to the Lender (whether on the maturity date, upon acceleration or in any other manner) in accordance with this Agreement; (iv) once the Availability Period has terminated, any unused portion of the Loan shall be cancelled as well as the rights of the Borrower to utilize said portion of the Loan; and (v) Borrower agrees to invest such amount of the Loan exclusively to extend a loan to its Affiliate, Jefferson Electric, Inc., so that it can pay off the entire balance of a Term Loan issued by Johnson Bank and make a payment in its capacity as borrower, in accordance with a Revolver Note, such loans which were granted by Johnson Bank to Jefferson Electric, Inc., being described and defined in that certain Loan and Security Agreement dated January 2, 2008, as such agreement has been modified and amended from time to time. The funding obtained from such Term Loan and said Revolver Note were utilized by Jefferson Electric, Inc. principally to provide the required equipment, working capital and to finance other aspects of the maquiladora operations of Nexus Magnéticos de México, S. de R.L. de C.V. in Reynosa, Tamaulipas, México.

THIRD.- Terms and Conditions for the Request for Funding. (a) The Borrower shall, within the Availability Period and on the day that the Borrower would like to receive a disbursement of Funding of the Loan or prior to such period if the parties agree to something different (hereinafter the “Date of Funding”), submit a written request to Lender (the “Request for Funding”), which shall be prepared in accordance with the form attached hereto as Exhibit “B”.

(b)           If all of the conditions precedent in Article Eleven of this Agreement have been performed and satisfied, the Lender shall put at the Borrower’s disposition, on the Date of Funding, the principal amount of the disbursement of Funding of the Loan requested pursuant to said Request for Funding by means of an electronic transfer of funds in Dollars immediately available and in the bank account of the Borrower listed in the Request for Funding.

(c)           Each Request for Funding shall be irrevocable and binding on the Borrower, and the Borrower shall reimburse the Lender for expenses, if any, incurred by the Lender if the Borrower does not utilize the portion of the Loan which was requested on the Date of Funding stated in the respective Request for Funding (including if such disbursement of Funding cannot be made because the Borrower did not satisfy one of the conditions precedent in Clause Eleven of this Agreement) such as amounts paid or payable by Lender to finance such Funding.

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FOURTH.- Documentation and Payment of the Disbursements of Funding. (a) Each disbursement of Funding made by Lender to Borrower pursuant to this Agreement shall be evidenced by means of a Promissory Note signed by Borrower in favor of Lender. Borrower acknowledges and agrees that the execution of a Promissory Note shall not be considered as payment of the Funding.

(b)           Borrower shall pay Lender the total principal balance of the Funding of the Loan in sixty (60) consecutive monthly amortized payments in the amounts and on the dates indicated in the respective Promissory Notes (each one being a “Due Date of Principal Payment”).

FIFTH.- Advance Payments of the Loan. Once the Availability Period has expired, Borrower may, at any time thereafter, make advance payments on the Loan, whether total or partial payments, by means of an irrevocable notice delivered by Borrower to Lender at least ninety (90) calendar days in advance of such advance payment. Such notice shall specify the date and amount of such advance payment toward the Loan (“Notice of Advanced Payment”). Notwithstanding the foregoing, in the event that Borrower desires to make an advance payment within a period of time of less than ninety (90) calendar days from the date of the Notice of Advanced Payment, Borrower shall specify the desired date of payment in the Notice of Advanced Payment and Lender shall exercise its best efforts to provide Borrower with all required information to accept such advanced payment within the period specified by Borrower. Such advanced payment shall be payable and may be demanded on a Due Date of Interest Payment; with the understanding that:

(i) any advanced payment must be at least $100,000.00 US Dollars (One Hundred Thousand 00/100 Dollars or in multiples of $100,000 US Dollars (One Hundred Thousand 00/100 Dollars) in excess of such amount;

(ii) along with such advanced payment, Borrower must also pay Lender all interest accrued but not paid on the principal amount of the Loan on the date of such payment; and

(iii) Along with the advanced payment, Borrower shall also pay Lender the costs of breaking the sources of financing for the Lender, if such is the case, and a prepayment commission of (w) 3% of the principal amount of the Loan paid in advance on such date in the event that such advanced payment is made within the first year of the Date of Execution of this Agreement; (x) 2% of the principal amount of the Loan paid in advance on such date in the event that such advanced payment is made within the second year of the Date of Execution of this Agreement; (y) 1% of the principal amount of the Loan paid in advance on such date in the event that such advanced payment is made within the third year of the Date of Execution of this Agreement; and (z) 0.5% of the principal amount of the Loan paid in advance on such date in the event that such advanced payment is made within the fourth year of the Date of Execution of this Agreement. There will be no commission due for an advanced payment made within the fifth year of the Date of Execution of this Agreement.

Borrower shall pay Lender, for cost of breaking the funding, an amount equivalent to the difference between: (i) the net present value of the outstanding balance of the amortizations of principal and interest on the Loan, at the LIBOR Rate which is published on the date that the corresponding advanced payment is made; less (ii) the net present value of the outstanding balance of the amortizations of principal and interest on the Loan, at the LIBOR rate which is published on the corresponding Date of Funding; with the understanding that costs of breaking funding are only incurred when the calculation mentioned above results in a positive number.

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SIXTH.- Interest. (a) The outstanding principal balance on the Funding of the Loan shall bear interest as of the corresponding Date of Funding and until the date that the unpaid principal balance of the disbursements of Funding are paid in full, at the applicable Interest Rate, which shall be payable on each Due Date of Interest Payment, plus Taxes which are incurred. Upon receiving such payments, Lender shall issue receipts to Borrower that comply with all applicable fiscal requirements and all applicable Legal Provisions.

(b)           The amount of any matured, unpaid principal from any Funding of the Loan or of any other amount (excluding taxes) which Borrower owes Lender in accordance with this Agreement or the Promissory Notes, shall accrue default interest from the date following the date of maturity until the date that said amounts are paid in full (during each day that such amount is unpaid), at an Interest Rate of 0.07% (zero point zero seven percentage points) per day. The default interests shall be payable on demand, along with the taxes incurred, if any.

(c)           All interest due and payable in accordance with this Agreement or the Promissory Notes shall be calculated based on a three hundred sixty (360) day year and a thirty (30) day month.

SEVENTH.- Payments. (a) All payments to be made by Borrower to Lender pursuant to this Agreement and the Promissory Notes shall be made without offset, deduction, or withholding of any kind, prior to 11:00 am (Mexico City time) on the date that such payments are due in accordance with this Agreement and the Promissory Notes, in Dollars and in immediately available funds, by means of deposit in or electronic transfer of funds to the Lender’s account in Dollars.-50257541, ABA 021001033 in Deutsche Bank Trust Company Americas, in New York City, New York, United States of America (hereinafter “Lender’s Account”), or in any other manner or place of which Lender notifies Borrower in writing.

(b)           In the event that a payment due date under this Agreement or the Promissory Notes falls on a day that is not a Work Day, then such payment shall be due on the Work Day immediately prior.

(c)           The parties agree that all payments made pursuant to this Agreement or any Loan Document shall be make exclusively by means of electronic transfers from loan institutions or international bank institutions or by means of check deposits, both from an account in the name of Borrower, and that no cash payments shall be accepted or payments made by means of checks issued by a third party (not Borrower) or transfers from money exchange businesses.

EIGHTH.- Taxes. (a) Principal, interest and all amounts payable by Borrower pursuant to this Agreement, the Promissory Note or any other Loan Document, shall be made without any deductions for any Taxes due on such amounts. If at any time any Governmental Authority imposes, determines or charges any Taxes on this Agreement, the Promissory Note or any other Loan Document, or on the amounts payable by Borrower pursuant to his Agreement, the Promissory Note or any other Loan Document, Borrower shall (i) make prompt payment to such Governmental Authority, on behalf of Lender, of the amount of such Tax, (ii) make prompt payment to Lender for additional amounts required to ensure that Lender receives that full amount that it would have received if such Taxes had not been paid, and (iii) immediately deliver to Lender the original receipts and other satisfactory evidence of the payment of any Tax.

(b)           Lender shall immediately notify Borrower of any requirement, notice, demand for payment or any other notice that it receives from any authority relating to any Taxes, so that Borrower can attend to such requirement, notice or demand for payment promptly and pay said Tax and hold Lender free of said requirement, notice or demand, with the understanding that, upon prior written request by Borrower, Lender shall deliver to Borrower any document that Lender possesses and which Borrower requires with respect to any proceeding relating to said requirement, notice or demand for payment.

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(c)           Borrower’s obligations under this Article shall remain in full force and effect for 5 years from the date of the corresponding fiscal loan.

NINTH.- Commissions. Borrower shall deduct from the Loan to be granted to Lender, the following Commissions, which Borrower shall retain as payment:

(a) One the Date of Execution, an initiation commission of $16,528.05 US Dollars (Sixteen Thousand Five Hundred Twenty-Eight and 05/100 Dollars), corresponding to 1% (one percent) of the total amount of the Loan, plus the value added tax.

Upon withholding or receipt of payment for any commission due pursuant to this Article Nine, Lender shall issue an invoice to Borrower which complies with all applicable fiscal requirements and all applicable Legal Provisions.

TENTH.- Legal Requirement; Illegality; Indemnification. (a) If after the Date of Execution (1) there is a modification to or passage of any law, regulation, circular, decree or any other legal provision which is obligatory for Lender or for any of its offices which handle the administration and financing of the Loan ( “Legal Provisions”); or (2) the interpretation of the Legal Provisions changes, and as a result it is illegal for Lender to Fund the Loan or to legally maintain the Loan, the parties will negotiate in good faith beginning on the Work Day following the date on which the Lender notifies the Borrower in writing that one of the conditions in items (1) or (2) has occurred, so that within thirty (30) calendar days (“Negotiation Period”) the terms and conditions of the Loan or this Agreement can be modified as necessary in order to eliminate such illegality. If the parties do not reach an agreement on the modification of the Loan or this Agreement within the Negotiation Period, Borrower agrees, upon the request of Lender, to pay, in advance, the unpaid balance of the Loan (without payment of the advanced payment commission referenced in section (iii) of the first paragraph of Article Fifth of this Agreement), along with the accrued interest and the Lender’s costs of breaking the source of financing, if any, within one hundred and twenty (120) calendar days following the date on which the Negotiation Period ends. Likewise, if the Availability Period has not expired, the obligations of the Lender to Fund the Loan shall expire without notice or liability to Lender.

(b)           If after the Date of Execution, any Legal Provision is modified or the interpretation of any Legal Provision is changed by any competent Governmental Authority or if any event not caused by Lender (subject or not to Borrower’s control) and as a result of any of the foregoing, Lender’s costs of Funding or maintaining the Loan, or if the amounts received or to be received by Lender are decreased, as a result of 1) Lender being subjected to a tax of any kind whatsoever with respect to this Agreement or the Loan Documents or a change in the basis of taxation to Lender of principal, fees, interest or, any other amount payable hereunder or under the Loan Documents (except for changes in the rate of tax on the overall net income of Lender by the jurisdiction in which it maintains its principal office); 2) any additional reserve, special deposit, assessment or similar requirement being imposed on Lender; or 3) any other condition being imposed on Lender with respect to this Agreement or any other Loan Document, Borrower shall pay, upon Lender’s written request, on the last day of the effective Interest Period, the additional amounts required to compensate Lender for said increase in costs or decrease in revenue. Lender shall specify the causes of the increase in costs or decrease in revenues in the written request by Lender referenced in this Article Tenth, subsection (b), as well as the respective calculations, which shall be binding on Borrower, except for a manifested error. Borrower may at its option exercisable in its sole discretion upon receipt of any such written request by Lender make a total or one or more partial advance payments on the Loan in accordance with the provisions of Article Fifth of this Agreement, provided, however, that i) such advanced payment does not necessarily have to be payable on a Due Date of Interest Payment; ii) the minimum advance period for delivery of the notice of Advanced Payment shall be thirty (30) calendar days, or less, if so specified in Borrower’s notice, subject to Lender’s ability to provide any required information and accept the advanced payment in such shorter period in the exercise of its best efforts; and iii) provided further, that the provisions of subparagraph i) and iii) of Article FIFTH shall not apply and accordingly, the Lender acknowledges that no prepayment penalty of any kind or character will apply if Borrower elects to make a total advance payment or a series of partial advance payments in view of Lender’s written request for additional amounts required to compensate Lender for an increase in costs or decrease in revenue under this Article Tenth.

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(c)           Lender shall make all commercially reasonable efforts to avoid an illegality or increase or costs or decrease in revenue, by means of a change in administrative offices of the Loan, without any cost to Lender

ELEVENTH.- Conditions Precedent to Funding the Loan. The parties expressly agree that the obligation of the Lender to put the Loan at the Borrower’s disposition and the Borrower’s right to the first disbursement of Funding of the Loan pursuant to this agreement are conditioned upon the total and timely completion and satisfaction (in a manner acceptable to Lender) of the following conditions precedent:

(a) Security. On the Date of Execution and at any time thereafter upon the request of Lender, Borrower shall issue the security in accordance with Article Twelfth of this Agreement or any Loan Document; with the understanding that the Trust Assets shall be subject to a security interest given by Borrower in favor of Lender no later than the Work Day following the respective Date of Funding the Loan.

(b) Loan Documents. On the Date of Execution Lender shall have received the following from Borrower:

(i) An original of this Agreement, signed by Borrower.

(ii) An original of the Promissory Note, signed by Borrower.

(iii) An original of the Trust Agreement.

(c) Financial Statements. On or prior to the Date of Execution, Lender shall have received the following from Borrower:

(i) a copy of the audited financial statements of Jefferson Electric, Inc. for fiscal year 2011, including the notes on the same, the general balance, the statements of results, the statement of changes in net worth and the statement of changes in the financial situation for said fiscal year, if applicable; and

(ii) a copy of the quarterly unaudited financial statements of Jefferson Electric, Inc. through March 31, 2012, including the general balance, the statements of results (including the amount of depreciation and amortization), the statement of changes in the financial situation for said period, establishing comparative figures with the same period of the preceding fiscal year, certified by the principal financial officer of Jefferson Electric, Inc., as complete, correct and adequate in all important aspects, as being the financial situation of Jefferson Electric, Inc., and as being up to date (subject to the normal audit adjustments at year end).

(d) Absence of an Event of Default. On and after the Date of Funding and Event of Default shall not occur or continue.

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(e) Insurance Policies. On the Date of Funding, Lender shall have received from Borrower a copy of the insurance policies maintained by Borrower in accordance with the terms of this Agreement as well as in relation to Trust Assets which are given as security for this Loan, with endorsements in favor or Lender as a preferred beneficiary.

(f) Request for Funding. On the Date of Funding Lender shall have received from Borrower one Request for Funding for the Funding of the Loan which the Borrower desires to make.

(g) Promissory Note. On the Date of Funding Lender shall have received from Borrower the original Promissory Note signed by Borrower in favor of Lender, documenting the amount of the first disbursement of Funding of the Loan.

(h) Commissions; Fees and Expenses. On the Date of Execution Lender shall have received from Borrower payment for (1) all of the commissions described in Article Ninth of this Agreement, (2) all costs and expenses of the Lender relating to the issuance, administration, processing and implementation of the Loan, including expenses relating to appraisals and environmental studies or engineering and (3) all expenses and legal fees of advisors of Lender, which the Lender hereby acknowledges having received to its complete satisfaction.

(i) Other Documents. On the Date of Funding, Lender shall have received from Borrower all other documents and authorizations which are reasonably required in writing by Lender in relation to this Agreement and the other Loan Documents.

TWELFTH.- Pledge of Cash. As security for the full and timely payment of each and every one of the Secured Obligations, and in accordance with section I of article 334 of the General Law of Instruments and Credit Transactions, Borrower gives, in favor of Lender, a pledge on cash (“Pledge of Cash”) in the amount of $165,280.50 US Dollars (One Hundred Sixty-five Thousand Two Hundred Eighty and 50/100 Dollars), which Borrower herein retains by means of a deduction of such sum from the Loan to be granted by Lender to Borrower. The Pledge of Cash shall be transferable property in terms of article 336 of the General Law of Instruments and Credit Transactions. Borrower expressly agrees and accepts that the Pledge of Cash (a) will not generate interest and may be comingled with the general funds of the Lender in the manner in which the Lender deems reasonable; and (b) it will not release, reduce or in any way modify the obligations of the Borrower (whether of payment or of any other nature) in accordance with this Agreement, the Promissory Notes or any other Loan Document, nor cure any default by Borrower based on the same. Borrower expressly and irrevocably authorizes Lender to apply the Pledge of Cash to the payment of any past due obligation of the Borrower in accordance with this Agreement, the Promissory Notes or any other Loan Document. In accordance with article 337 of the General Law of Instruments and Credit Transactions, the parties agree that the execution of this Agreement shall serve as a receipt by the Lender of the Pledge of Cash. The Pledge of Cash created in this Article has been issued in accordance with section I of article 334 of the Law and it shall be governed by the provisions contained in Title Two Chapter IV Section Sixth of said Law. Likewise, Borrower and Lender acknowledge and agree that the provisions contained in Title Two Chapter IV Section Seventh of the Law shall not apply to this Agreement. In the event Lender applies part of the Pledge of Cash pursuant to this paragraph, Borrower shall within ten (10) Work Days following the date the Pledge of Cash was applied to the past due payment, restore an additional amount, until the total amount of the Pledge of Cash is equal to the amount indicated in this Clause Twelfth. Once each and every one of the Borrower’s obligations, pursuant to this Agreement, the Promissory Notes or any Loan Document have been performed in their totality and subject to there being no default with respect to the same, Lender shall reimburse to Borrower any remaining balance of the Pledge of Cash within the ten (10) Work Days following the date of full performance of each and every one of said obligations.

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THIRTEENTH.- Obligations to be Performed. From the Date of Execution and until such time as (1) each and every one of the disbursements of Loan Funding have been paid, in their entirety; and (2) each and every one of the obligations arising from, relating to or in accordance with this Agreement, the Promissory Note or the other Loan Documents have been satisfied and completed in their entirety, the Borrower agrees (unless Lender has agreed otherwise), to:

(a)           Information. Deliver to Lender:

(1) as soon as possible, within five (5) Work Days following the occurrence of any Event of Default, a certification signed by the principal financial officer of the Borrower, with a description of the nature and scope of the same, as well as the actions or measures taken or proposed in order to cure said Event of Default; and

(2) as soon as it is initiated, but in all events within five (5) Work Days following the summons or notice of any action, demand or proceeding in which the Borrower is involved and which it has or which can be expected to have with the passage of time, a Substantially Adverse Change in the Borrower, a certification signed by an authorized officer of the Borrower, with a description of the nature and scope of said action, demand or proceeding and the actions or measures taken or proposed with respect to the same.

(b) Accounting; Inspection. Keep and maintain adequate books and accounting ledgers in which complete, true and correct entries shall be made in accordance with GAAP. Lender (or any person or persons designated by Lender) shall have the right to visit any business place of the Borrower, once a year, during Work Days and during regular office hours, by means of at least five (5) days advance written notice to borrower, when it is reasonably necessary, (except in the event of an existing Event of Default, in which case advance notice shall not be required and to the extent that it be reasonably necessary, Lender [or any person or persons designated by Lender] shall have the right to visit any business place of the Borrower, in case that an Event of Default occurs or continues, during Work Days and during regular office hours), without interfering with or hindering the operations of the Borrower, to examine, inspect and review all and any part of the assets, books, ledgers, or any other information of Borrower, being able to obtain copies of any of the Borrower’s information with respect to said property or business; with the understanding nonetheless that each and every one of the reasonable costs and expenses, as evidenced by means of corresponding receipts and/or documentation, arising from or related to the foregoing shall be paid exclusively by Borrower.

(c) Corporate Situation; Rights; Authorizations. Maintain in full force and effect its legal existence and corporate organization as a Mexican mercantile company, as well as all of the rights (whether from statutes or laws), licenses, authorizations, permits, notices, registrations and franchises which are considered relevant for its respective businesses.

(d) Compliance with Laws. Observe and comply with all applicable laws, regulations, circulars, orders, decrees, and other rules, as well as with all applicable judgments, orders or restrictions imposed by any Governmental Authority.

(e) Taxes. Present on time and in correct form, each and every Taxes return which shall be filed by Borrower in accordance with applicable legislation and pay, in its entirety, all Taxes, except for Taxes which are contested in good faith by means of appropriate proceedings and for which adequate reserves have been established in accordance with applicable law.

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(f) Maintenance of Trust Assets; Insurance. Obtain and maintain adequate insurance policies with nationally or internationally recognized insurance companies, with respect to all of its Assets, covering risks and for the amounts required in accordance with good business practices, considering the nature of the business they conduct and the location of its Assets; with the understanding that as relates to the insurance policies relating to the Trust Assets, Borrower shall notify the corresponding insurance companies in accordance with articles 109 and 110 of the Insurance Contract Law, indicating that said Trust Assets have been given as security for the Loan and therefore, such policies shall be endorsed in favor of Lender (or the Person indicated by Lender) for up to the total amount of the unpaid balance of the Loan and its accessories.

In the event that Borrower does not obtain the insurance policies pursuant to the preceding paragraph, Lender may, but is not obligated to, obtain such insurance policies and pay the corresponding premiums, and Borrower shall reimburse Lender for the expenses of paying such insurance premiums within five (5) Work Days following the date that Lender requests the reimbursement in of the premiums in writing. In the event Borrower does not pay Lender any amount due in accordance with this paragraph, Borrower shall pay default interest upon such amounts at the Interest Rate agreed upon in subsection (b) of Article Sixth of this Agreement.

(g) Evidence of Filing of the Security Interests; Defense and Perfection of the Security Interest. (1) Deliver to Lender as soon as possible, within ninety (90) calendar days following the date of execution of the Trust Agreement, the original first testimony of the deed which contains and evidences such Trust Agreement with the seal or proof of filing from the Sole Registry of Security Interests in Personal Property, whichever applies; (2) defend the ownership of the Trust Assets given to secure the Loan in favor of the Lender in accordance with the Loan Documents, as well as the rights of the Lender arising from the Loan Documents; (3) execute and deliver to Lender those documents, and undertake any action that is reasonably necessary, that Lender requests in relation to the Trust Agreement in order to perfect, protect, and maintain the security established in accordance with the Trust Agreement, and (4) pay all costs and expenses, fees and filing fees arising from or in relating to the issuance and perfection of the security interests of the Loan or, the defense of the Trust Assets or rights which form part of the security for the Loan, given in accordance with the Trust Agreement.

(h) Additional Acts. Execute and deliver to Lender those documents and undertake any action with respect to this Agreement or with the other Loan Documents, which Lender requests, in a reasonable manner, in order to perfect, protect and maintain the rights or interests of the Lender in accordance with this Agreement or in accordance with any other Loan Document, as well as pay all costs arising from or relating the foregoing.

FOURTEENTH.- Prohibited Actions. As of the Date of Execution and until such time as (1) each and every one of the disbursements of Loan Funding have been paid, in their entirety; and (2) each and every one of the obligations arising from, relating to or in accordance with this Agreement, the Promissory Note or the other Loan Documents have been satisfied and completed in their entirety, the Borrower agrees (unless Lender has not agreed otherwise), to:

(a) Merger; Spin-off. Not to spin-off, merge, reorganize or consolidate with any other Person, not proceed to dissolution or liquidation, without prior written authorization from Lender, except for those mergers, reorganizations or consolidations between Borrower and its Affiliates.

(b) Changes in the Nature of its Business. Not conduct or allow and change in the nature of or corporate purpose of its business without prior written authorization from Lender.

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(c) Sale of Assets. Not to sell, lease, assign, transfer or in any other way dispose of its Assets (tangible or intangible), whether present or future, without the prior written consent of Lender, except as follows:

(1) the sale or disposition in the ordinary course of business of (i) obsolete or worn out Assets; and (ii) other obsolete Assets for the renovation of the same;

(2) the sale of inventory in the ordinary course of business; and

(3) sales between Borrower and its Affiliates in the ordinary course of business.

(d) Encumbrances. Not create, establish or permit the existence of any Encumbrance on its property, real property or assets, whether present or future, without the prior written authorization of Lender, except for those Encumbrances with respect to Taxes which are not past due or which are contested in good faith by means of appropriate proceedings and for which corresponding reserves have been established in accordance with applicable law.

(e) Liabilities. Not create, issue, incur, assume or permit the existence of Liabilities without the prior written authorization of Lender, except for those Liabilities incurred in the ordinary course of business of Borrower.

(f) Distributions of Profit. Not declare or distribute profit or reimburse capital to its members or authorize or effectuate any other distribution, payment or delivery of property or cash to its members, nor amortize, withdraw, buy or in any other manner acquire, directly or indirectly, for any price, membership interests of any class of its capital or interests of any of its members or partners, now outstanding or which may be issued in the future, nor create or reserve funds for any of the aforementioned purposes, without prior written notice delivered to Lender at least five (5) days in advance.

(g) Investments. Not purchase, maintain or in any way make any Investment when such amount exceeds Two Hundred Thousand 00/100 Dollars ($200,000.00 US Dollars), in any Person, without the prior written authorization of Lender.

(h) Capital Expenditures. Not incur, make, or in any other way undertake any Capital Expenditures, without the prior written authorization of Lender, except those which arise in the ordinary course of business of Borrower.

(i) Transactions with Affiliates. Not enter into any transaction with Affiliates, without the prior written authorization of Lender, if such transactions are not upon fair market value conditions and terms, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any administrative commission, consulting or similar commissions. Notwithstanding the foregoing, Lender recognizes and accepts that concurrently with the execution of this Agreement on the Date of Execution, Borrower enters into an inter-company loan agreement with its Affiliate, Jefferson Electric, Inc., for purposes of extending a term loan to such Affiliate for the purposes described in Clause Second of this Agreement.

FIFTEENTH.- Events of Default. If any of the events described as follows (each one an “Event of Default”) occurs or continues, Lender, may by means of a written notice delivered to Borrower (i) immediately accelerate the Loan and terminate its obligations to Fund the Loan in favor of Borrower pursuant to this Agreement; (ii) immediately accelerate the principal balance of the funded Loan pursuant to this Agreement, and accrued and unpaid interest for such and all other amounts payable pursuant to this Contract and the Promissory Note, or if applicable, any Loan Document which will become due and will be immediately payable, without the requirement of notice, presentation, demand, request, protest or any of the notifications of any nature, which Borrower herein expressly waives:

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(a) If the Borrower does not pay, when due or within five (5) Work Days following the due date, the principal amount and interest of any withdrawal from the Loan or of any Promissory Note or any other amount payable pursuant to this Contract; or

(b) If any certification or document that the Borrower has delivered in compliance with its obligations arising from this Agreement or any other Loan Document that is false or incorrect at the time made and such falsehood is not cured within fifteen (15) Work Days from the date that Lender notifies Borrower; or

(c) If (1) Borrower fails to comply with or abide by any of the terms, pacts, conditions, obligations or covenants contained under this Agreement, in the Promissory Note or in any other Loan Document that is not expressly provided for in any other subsection of this clause and if such noncompliance is not cured within ten (10) Work Days following the date it occurred; or (2) if Borrower fails to comply or observe any of the terms, pacts, conditions, obligations or covenants contained in any other contract, agreement or instrument executed by the Borrower with the Lender or any of its Affiliates in Mexico or abroad, and such breach is not cured within the cure period set forth in such contract, agreement or instrument, if any, for the loan or all or part of the Borrower’s goods or assets; or

(d) If (1) Borrower breaches any of its payment obligations agreed upon or with respect to any liability, which amount is in excess of One Hundred Thousand 00/100 Dollars ($100,000.00 US Dollars), and if such breach is not cured within ten (10) Work Days following the date of such event or (2) Borrower stops complying with or abiding by any of the material terms, pacts, conditions, obligations or covenants contained in any other contract, agreement or instrument executed with any other Person which amount is in excess of One Hundred Thousand 00/100 Dollars ($100,000.00 US Dollars), and if such breach is not cured within ten (10) Work Days following the date of such event; or

(e) If Borrower admits in writing its inability to pay its debts, or should it make a general assignment of goods for the benefit of creditors, or if Borrower is served and/or notified and has personal knowledge of such service of citation and/or notice, with respect to the filing of an action by or against Borrower of any bankruptcy proceeding, insolvency or similar proceeding. Notwithstanding the foregoing, Borrower shall have a period of sixty (60) Work Days following the date that it acquires personal knowledge of said service of citation and/or notice in order to cure such Event of Default; or

(f) If any government authority or other Person (other than Lender) (1) confiscates, expropriates, seizes or assumes the custody or the control of all or part of the Trust Assets or all or an important part of the property or Assets of Borrower and Borrower has personal knowledge of such confiscation, expropriation, seizure or assumption of custody or control; or (2) displacement of the administration of Borrower or substantial limitation of the authority to operate its respective businesses and Borrower has personal knowledge of such displacement or limitation. Notwithstanding the foregoing, Borrower shall have a period of sixty (60) Work Days following the date that it acquires personal knowledge of such situation in order to cure such Event of Default; or

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(g) If any franchise, license, authorization or concession which is important to Borrower is terminated or modified substantially and said termination or substantial modification has or with the passage of time can have a Substantially Adverse Change on Borrower or a Substantially Adverse Change on the rights, actions and exceptions of the Lender in accordance with this Agreement or the other Loan Documents; or

(h) If Borrower challenges the legality, validity or enforceability of this Agreement, of any Promissory Note, or of any other Loan Document, or if any third party challenges the legality, validity or enforceability of this Agreement, of any Promissory Note or of any other Loan Document and Borrower is served with citation and/or notified and has personal knowledge of such service of citation and/or notification. Notwithstanding the foregoing, Borrower shall have a period of sixty (60) Work Days following the date that it acquires personal knowledge of such challenge in order to cure such Event of Default; or

(i) If Borrower stops paying, without justified reason, any Tax or fiscal Liability or the corresponding fees due to the Mexican Social Security Institute, or the National Housing Institute Fund for Workers or to the Retirement Savings Program or equivalent authorities in any relevant jurisdiction and if such default is not cured within ten (10) Work Days following such event; or

(j) If any strike is initiated against Borrower and Borrower has personal knowledge of said strike. Notwithstanding the foregoing, Borrower shall have a period of sixty (60) Work Days following the date that it acquires personal knowledge of such strike in order to cure such Event of Default; or

(k) If at any time the Borrower’s members stop being, directly or indirectly, the owners of the membership interests which represent at least 51% (fifty-one percent) of the corporate capital of Borrower.

SIXTEENTH.- General Provisions. (a) Lender reserves the right to restrict the Availability Period of the Loan or the amount of the Loan or both at the same time by means of a simple written notification addressed to the Borrower and thereby the right of such is to make use of the unused balance is limited or cancelled as of the date the notification is received.

(b)           Confidential Information. Borrower herein, expressly authorizes and empowers Lender to transfer, report or share all Confidential Information with any of the companies, entities, home office and all other affiliates and subsidiaries that form the financial and accounting organization of General Electric Company, both in Mexico and abroad, for referenced purposes of processes, approvals, monitoring, evaluating, statistics, financial projections, internal reports, and any other process related to whatever results necessary.

Lender herein agrees that it cannot disclose the Confidential Information, either partially or totally, to third parties, nor to any of its Affiliates of subsidiaries that do not form part of its financial and accounting organization, including but not limited to GE Energy, without prior written approval of Borrower, except as otherwise provided for in the preceding paragraph.

Confidential Information will be understood as the commercial or financial information that belongs to the Borrower, that has been disclosed in an oral, written, graphic or electromagnetic manner, and that is provided to Lender, including, but not limited to, the procedures, strategies, technical, financial and business information, customer lists or current potential members, business proposals, investment projects, plans, reports, marketing project or any other information that is private property  but excluding industrial secrets.

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The term Confidential Information excludes such information that (1) has been obtained by Lender from a source that, after having made a reasonable investigation, has not been found to be subject to confidentiality restrictions; (2) has been developed independently or acquired by Lender without violating the provisions of this Contract; (3) has been disclosed by Lender with a prior written authorization from Borrower; and (4) is of public domain.

(c)           Addresses and Notices. The parties indicate the following notice addresses for all purposes relating to this Agreement and the Loan Documents:

Lender:

GE CF México, S.A. de C.V.

Avenida Antonio Dovalí Jaime 70, Torre A, Piso 5

Colonia Santa Fe

C.P. 01210, México, Distrito Federal

Attention:           Pedro Joe Isla Treviño, Legal Representative/Director of Risk Management

Borrower:

Nexus Magnéticos de México, S. de R.L. de C.V.

Sección 44 A Tercera Unidad del Bajo Río San Juan SN

Parque Industrial Reynosa, Reynosa Tamaulipas 88780

Attention:           Nathan J. Mazurek, Sole Administrator

With copy to:

Jefferson Electric, Inc.

9650 South Franklin Drive,

Franklin, WI, 53132-8847

Attention: Thomas David Klink, President

And with copy to:

Pioneer Power Solutions, Inc.

400 Kelby Street, 9^th Floor,

Fort Lee, NJ, 07024, United States of America

Attention:           Andrew Minkow, CFO

All notices between the parties shall be in writing and delivered as follows (i) personally, with proof of receipt; (ii) by means of specialized couriers; or (iii) by certified mail, return receipt requested. All notices shall be given at the addresses and to the facsimile numbers indicated hereinabove, and shall be effective upon personal delivery or within three (3) Work Days following the date it was sent.

(d)           Costs and Expenses. Borrower agrees to pay all costs, expenses, and fees relating directly or indirectly or in relation to the preparation, execution, registration, perfection and amendment to this Agreement or the other Loan Documents.

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(e)           Assignment. Borrower may not transfer or assign its rights or obligations under this Agreement of the other Loan Documents. Lender may assign this Agreement or any of the rights and obligations herein, upon prior written notice to Borrower with at least thirty (30) Work Days prior to the effective date of such assignment, by means of which Lender indicates the third party who will be the new lender under the Agreement.

(f)           Applicable Law and Jurisdiction. With respect to all matters relating to the interpretation or performance of this Agreement, it’s Exhibits or other documents relating hereto, the parties submit themselves to the applicable laws of Mexico and to the jurisdiction of the courts in Mexico City, the Federal District, waiving any other applicable jurisdiction.

The parties execute this agreement on the date indicated hereinabove.

Borrower:   NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V.     By: /s/ Francisco José Peña Valdés Name: Francisco José Peña Valdés Title: Attorney-in-Fact   Lender:   GE CF MEXICO, S.A. DE C.V.     By: /s/ Pedro José Isla Treviño Name: Pedro José Isla Treviño Title: Attorney-in-Fact  

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EXHIBIT “A”

PROMISSORY NOTE

$1,652,805.00 USD

(One Million Six Hundred Fifty-two Thousand Eight Hundred and Five and 00/100 Dollars)

The undersigned borrower, NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V. (the “Borrower”), a limited liability variable capital company duly established and validly existing in accordance with the laws of Mexico (“México”), by means of this promissory note (hereinafter the “Promissory Note”) unconditionally promises to pay to the order of GE CF MÉXICO, S.A. DE C.V. (the “Beneficiary”) in Beneficiary’s bank account number 50279310, ABA 021001033 that Beneficiary has at Deutsche Bank Trust Company Americas, in New York City, New York, United States of America (the “Beneficiary’s Bank Account”) or in any other account or place that Lender instructs in writing to Borrower, the principal amount of $1,652,805.00 US Dollars (One Million Six Hundred Fifty-two Thousand Eight Hundred and Five and 00/100 Dollars), which payments shall be made in sixty (60) consecutive monthly installments in the amounts and on the dates indicated herein below, (each a “Principal Payment Due Date”):

Number of Payments	Due Date of Principal Payment (Month/Day/Year)	Amount of Principal Payment Due (in US Dollars)
1	09/01/2012	$23,128.01
2	10/01/2012	$23,261.58
3	11/01/2012	$23,395.91
4	12/01/2012	$23,531.02
5	01/01/2012	$23,666.91
6	02/01/2013	$23,803.59
7	03/01/2013	$23,941.06
8	04/01/2013	$24,079.32
9	05/01/2013	$24,218.37
10	06/01/2013	$24,358.24
11	07/01/2013	$24,498.90
12	08/01/2013	$24,640.39
13	09/01/2013	$24,782.68
14	10/01/2013	$24,925.80
15	11/01/2013	$25,069.75
16	12/01/2013	$25,214.53
17	01/01/2013	$25,360.14
18	02/01/2014	$25,506.60
19	03/01/2014	$25,653.90
20	04/01/2014	$25,802.05
21	05/01/2014	$25,951.06
22	06/01/2014	$26,100.92
23	07/01/2014	$26,251.66
24	08/01/2014	$26,403.26
25	09/01/2014	$26,555.74
26	10/01/2014	$26,709.10
27	11/01/2014	$26,863.34
28	12/01/2014	$27,018.48

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39	01/01/2014	$27,174.51
30	02/01/2015	$27,331.44
31	03/01/2015	$27,489.28
32	04/01/2015	$27,648.03
33	05/01/2015	$27,807.70
34	06/01/2015	$27,968.29
35	07/01/2015	$28,129.81
36	08/01/2015	$28,292.26
37	09/01/2015	$28,455.64
38	10/01/2015	$28,619.97
39	11/01/2015	$28,785.25
40	12/01/2015	$28,951.49
41	01/01/2015	$29,118.68
42	02/01/2016	$29,286.84
43	03/01/2016	$29,455.98
44	04/01/2016	$29,626.08
45	05/01/2016	$29,797.18
46	06/01/2016	$29,969.25
47	07/01/2016	$30,142.33
48	08/01/2016	$30,316.40
49	09/01/2016	$30,491.48
50	10/01/2016	$30,667.56
51	11/01/2016	$30,844.67
52	12/01/2016	$31,022.80
53	01/01/2016	$31,201.95
54	02/01/2017	$31,382.15
55	03/01/2017	$31,563.38
56	04/01/2017	$31,745.66
57	05/01/2017	$31,928.99
58	06/01/2017	$32,113.38
59	07/01/2017	$32,298.83
60	08/01/2017	$32,485.43

Borrower extends the time in which this Promissory Note may be presented for payment to six months after the date of the last Due Date of Principal Payment, in the terms of Article 128 of the General Law of Negotiable Instruments and Credit Transactions, without prejudice to the Beneficiary’s right to present this Promissory Note for payment prior to said date.

Borrower unconditionally agrees to pay, on each Due Date of Interest Payment (as defined herein below), from the date of the execution hereof to the date that the principal is paid in its entirety, interest upon the unpaid principal balance, at an annual interest rate of 6.93% (Six point Ninety-three percentage points) per annum, plus taxes which may be incurred as a result of the same.

Likewise, Borrower agrees to pay a default interest on matured unpaid principal amounts as of the date of such default in payment of principal or interest herein, as provided herein, and until such principal or interest payment is due, and continuing until said unpaid principal balance is paid in its entirety, at an annual interest rate of 0.07% (Zero point Zero Seven percentage points), which interest will be payable on demand plus taxes which may be incurred as a result of the same.

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Interest under this Promissory Note is calculated based on a three hundred sixty (360) day year and thirty (30) day months.

All payments to be made by Borrower to the Beneficiary or holder hereof, in accordance with the provisions of this Promissory Note, whether toward principal, interest or for any other reason, shall be made without any offset or deductions, prior to 11:00 am (Mexico City time) on the date such payments are due in accordance with this Promissory Note, in US Dollars, legal currency of the United States of America, and in immediately available funds, to the Beneficiary’s Account or in any other account or place specified in writing by the Beneficiary or the holder hereof. The obligation of the Borrower to pay the principal of this Promissory Note, together with accrued interest and any other sums payable under it shall be fulfilled only by payment in Dollars, legal currency of the United States of America, outside the territory of Mexico, under the terms provided in this Promissory Note.

In the event that any payment to be made by the Borrower under this Promissory Note is due and payable on a day not a Work Day (as such term is defined below), then the expiration date of such payment shall be the Work Day immediately preceding such.

All payments to be made by the Borrower under this Promissory Note shall be free of and without deduction or withholding for or on account of, any taxes, fees, charges, assessments, charges, quotas, deductions or withholdings, present or future, assessed, imposed, collected, or retained by any governmental authority of any jurisdiction (the "Taxes"). If any such taxes are withheld from any amounts payable to the holder hereof, such amounts will be increased as necessary so that the holder of this Promissory Note receives (after payment of Taxes) interest or such other sums payable at the interest rates or in the amounts specified in this Promissory Note.

As used in this Promissory Note, the following terms have the following meanings:

“Work Day” means any day that is not Saturday or Sunday, a holiday or any other day that the banks located in New York City, New York, United States of America or Mexico City, Federal District, are authorized or required by law to remain closed.

“Due Date of Interest Payment” means the last day of each Interest Period.

“Interest Period” means (a) initially the period beginning the 25th day of July, 2012 and ending on the 1st day of August, 2012; and (b) thereafter, each period which begins on the last day of the immediately preceding Interest Period and which ends one (1) month after said date; with the understanding that (i) if any Interest Period ends on a day that is not a Work Day, said Interest Period shall end on the immediately preceding work day; and (ii) no Interest Period will end after the last Due Date of Principal Payment.

Borrower’s notice address for all purposes related to this Promissory Note: Sección 44 A Tercera Unidad del Bajo Río San Juan SN Parque Industrial Reynosa Tamaulipas 88780.

For all matters relating to the interpretation and enforcement of this Promissory Note, the parties herein are subject, expressly and irrevocably, to the applicable laws of the United Mexican States, and the jurisdiction of the competent courts in the Federal District, and waive, expressly and irrevocably, any other jurisdiction that may correspond to their respective domiciles, present or future, the location of their property or for any other reason.

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Signed in Reynosa, Tamaulipas, on the 25th day of July, 2012

Borrower

NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V.

By: /s/ Francisco José Peña Valdés

Name: Francisco José Peña Valdés

Title: Attorney-in-Fact

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EXHIBIT “B”

FORM FOR REQUEST FOR FUNDING

[*] day of July 2012

GE CF México, S.A. de C.V.

Avenida Antonio Dovalí Jaime 70, Torre A Piso 5

Colonia Santa Fe

C.P. 01210, México, Distrito Federal

Attention: Director of Risk Management

Re: Request for Funding

With respect to the term loan agreement dated, 25th day of July 2012 (“Loan Agreement”), entered into by and between NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V., as borrower (“Borrower”), and GE CF México, S.A. de C.V., as lender (“Lender”). Capitalized terms which are not expressly defined herein shall have the defined meaning in the Loan Agreement.

Borrower hereby notifies Lender, in accordance with Clause Third, subsection (a) of the Loan Agreement that it desires to request Funding of the Loan in accordance with the Loan Agreement subject to deductions and withholdings by the Lender with respect to the origination fee, the value added tax on the origination fee and the Pledge of Cash, in accordance with Clauses Ninth and Twelfth of the Loan Agreement and hereinbelow is the information relating to such disbursement of Funding:

(i) Principal amount of Disposition requested: $1,652,805.00 US Dollars (One Million Six Hundred Fifty-two Thousand Eight Hundred and Five and 00/100 Dollars), which includes the deduction and withholding by the Lender of the origination fee in the amount of $16,528.05 US Dollars (Sixteen Thousand Five Hundred Twenty-eight 05/100 Dollars), the value added tax on the origination fee in the amount of $2,644.49 US Dollars (Two Thousand Six Hundred Forty-four 49/100 Dollars) and the Pledge of Cash in the amount of $162,280.50 US Dollars (One Hundred Sixty-two Thousand Two Hundred Eighty 50/100 Dollars);

(ii) Date of Funding requested: 25th day of July, 2012;

(iii) Bank account information where Borrower desires the principal amount of the loan minus the amount of the origination fee, minus the value-added tax of the origination fee and minus the amount of the Pledge of Cash, leaving a balance to be received of $1,471,351.96 US Dollars (One Million Four Hundred Seventy-one Thousand Three Hundred Fifty-one 96/100 Dollars) to be deposited:

Account Holder:	Nexus Magneticos de Mexico, S. de R.L. de C.V.
Bank:	Banco Mercantil del Norte, S.A.
Account Number:	072823006105691332
SWIFT:	MENOMXMT

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Address:	Av. Revolucion #3000
	Col. Primavera
	Monterrey, N.L.
	Mexico, C.P. 64830

Borrower herein certifies as follows: (a) each and every one of the conditions precedent mentioned in Article Eleven of the Loan Agreement have been completed and satisfied as of the date hereof or will be completed and performed s; and (b) no Event of Default has occurred or exists, nor shall result from the requested Funding.

Sincerely,

[*]

By: ________________________________________

Name: [*]

Title: Attorney-in-Fact

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EX-10.3

TO BE ISSUED BY MEANS OF A PUBLIC INSTRUMENT AND REGISTERED

IN THE PUBLIC REGISTRY OF PROPERTY

IRREVOCABLE TRANSFER OF TITLE AND GUARANTY TRUST AGREEMENT

THIS IRREVOCABLE TRANSFER OF TITLE AND GUARANTY TRUST AGREEMENT NUMBER 1297, IS ENTERED INTO ON THIS 25th DAY OF JULY, 2012 (HEREINAFTER THE “AGREEMENT” OR THE “TRUST”), BY AND AMONG, NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V., IN ITS CAPACITY AS TRUSTOR AND SECONDARY TRUST BENEFICIARY (HEREINAFTER REFERRED TO INDISTINCTIVELY AS “TRUSTOR A” OR “SECONDARY BENEFICIARY A”, AS REQUIRED BY THE CONTEXT), REPRESENTED HEREIN BY FRANCISCO JOSE PEÑA VALDES, JEFFERSON ELECTRIC, INC. IN ITS CAPACITY AS TRUSTOR AND SECONDARY TRUST BENEFICIARY (HEREINAFTER REFERRED TO INDISTINCTIVELY AS “TRUSTOR B” OR “SECONDARY BENEFICIARY B”, AS REQUIRED BY THE CONTEXT” AND JOINLTY WITH TRUSTOR A, SHALL BE REFERRED TO AS THE “TRUSTOR”, AS REQUIRED BY THE CONTEXT), REPRESENTED HEREIN BY FRANCISCO JOSE PEÑA VALDES, GE CF MÉXICO, S.A. DE C.V., IN ITS CAPACITY AS PRIMARY BENEFICIARY (HEREINAFTER, THE “PRIMARY BENEFICIARY”), REPRESENTED HEREIN BY PEDRO JOSÉ ISLA TREVIÑO; AND BANCO INVEX, S.A., MULTIPLE BANKING INSTITUTION,INVEX FINANCIAL GROUP, TRUSTEE, IN ITS CAPACITY AS TRUSTEE (HEREINAFTER THE “TRUSTEE”), REPRESENTED HEREIN BY ITS FIDUCIARY DELEGATE, MR. NABOR MEDINA GARZA, IN ACCORDANCE WITH THE FOLLOWING RECITALS, REPRESENTATIONS AND WARRANTIES AND ARTICLES.

RECITALS

I. On the same date hereof, but prior to the execution of this Agreement, Trustor, as pledge guarantor, executed with Johnson Bank, in its capacity as pledge creditor an agreement to terminate a stock pledge agreement without transfer of possession, dated December 8, 2009, by means of which such was terminated and the security in first place on the Trust Assets (as defined herein below) was released, such document which is pending registration in the Public Registry of Property and Commerce in Reynosa, Tamaulipas, being that is was recently executed.

II. On July 25, 2012, Trustor A, in its capacity as borrower, and the Primary Beneficiary, in its capacity as lender, entered into a term loan agreement, (hereinafter the “Loan Agreement”), by means of which the Primary Beneficiary, subject to the terms and conditions established in said Loan Agreement, agreed to issue a term loan to Trustor A in a principal amount up to $1,652,805.00 (One Million Six Hundred Fifty-two Thousand Eight Hundred Five and 00/100 Dollars) (the “Loan”), in accordance with the terms and conditions of the Loan Agreement. A copy of the Loan Agreement is attached hereto as Exhibit “A”; and

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III. The Loan Agreement has been or shall be documented by means of a promissory note signed by Trustor A in favor of the Primary Beneficiary, (the “Note”).

REPRESENTATIONS AND WARRANTIES

I. Trustor A and Secondary Beneficiary A represent and warrant the following, by means of their legal representative:

(a) That it is a company legally established and validly existing in accordance with the laws of Mexico and it is authorized to execute this Agreement, as evidenced by public instrument number 4,104, dated October 15, 2004, issued before Alfonso Salinas Flores, Notary Public number 135 of Reynosa, the first testimony of which was registered in the Public Registry of Commerce in Reynosa, under Number 853 Volume 2-018, Book First, on October 21, 2004;

(b) The execution, signature and performance of this Agreement and the contribution of Trust Assets A to this Trust do not violate (i) any provision in the bylaws or other formation documents of Trustor A; (ii) any agreement, contract, license, resolution, or order in which Trustor A is a party or to which Trustor A or any of its assets or property are subject, or (iii) any law, regulation, circular, order or decree of any Governmental Authority, whether judicial or administrative;

(c) Its representatives possess sufficient authority to execute this Agreement, the same which as of the date hereof has not been revoked, modified or limited in any manner whatsoever;

(d) It does not require any authorization or approval in order to execute this Agreement or to transfer Trust Assets A in favor of Trustee and for the benefit of the Primary Beneficiary, nor to perform or undertake the obligations assumed by the same pursuant to the terms of this Agreement and applicable law;

(e) That it is the sole and legitimate owner of Trust Assets A, the same which are described in Exhibit “B-1” and described in detail in the appraisal attached hereto as Exhibit “B-3” of this Agreement (hereinafter and jointly with Trust Assets B contributed by Trustor B, they shall be referred to as the “Trust Assets”), the same which are free of Encumbrances, options or any other limitations on ownership or preferential rights of any nature, in accordance with the laws of the United Mexican States (hereinafter, “Mexico”), for which it possesses all authorizations, permits and licenses issued by the competent authorities;

(f) Trust Assets A are insured with financially solid insurance companies of internationally recognized prestige, with coverage against loss and damages of the type which are generally insured by companies which are in the same line of business as Trustor A or in a similar line of business, said insurance being in an amount not less than those amounts that such other companies are accustomed to obtaining under the same circumstances. Trustor A has paid all of the insurance premiums which have become due and payable with respect to such coverage, and such premiums and coverage are currently in effect;

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(g) as of the date hereof, there is no pending and, to the best of its knowledge, threatened action, lawsuit, claim, requirement or proceeding before any court, governmental agency, or arbitrator that affects or could affect the legality, validity or enforceability of this Agreement, or the legitimate ownership by Trustor A of Trust Assets A; and

(h) it acknowledges and agrees that the validity and enforceability (i) of the transfer of Trust Assets A to the Trust Estate, as security for the Loan pursuant to the terms of this Agreement; and (ii) this Agreement, including without limitation, the procedure for the extrajudicial sale and distribution of the Trust Estate as set forth in Article Twelfth hereof, constitute an essential inducement for the Primary Beneficiary and Trustor A to enter into the Loan Agreementand provide the corresponding funds to Trustor A.

II. Trustor B and Secondary Beneficiary B represent and warrant the following, by means of their legal representative:

(a) That it is a company legally established and validly existing in accordance with the laws of the State of Delaware, United States of America and it is authorized to execute this Agreement, as evidenced by a copy of the articles of incorporation of Jefferson Electric, Inc. dated April 30, 2010;

(b) The execution, signature and performance of this Agreement and the contribution of Trust Assets B to this Trust do not violate (i) any provision in the bylaws or other formation documents of Trustor B; (ii) any agreement, contract, license, resolution, or order in which Trustor B is a party or to which Trustor B or any of its assets or property are subject, or (iii) any law, regulation, circular, order or decree of any Governmental Authority, whether judicial or administrative;

(c) Its representatives possess sufficient authority to execute this Agreement, the same which as of the date hereof has not been revoked, modified or limited in any manner whatsoever;

(d) It does not require any authorization or approval in order to execute this Agreement or to transfer Trust Assets B in favor of Trustee and for the benefit of the Primary Beneficiary, nor to perform or undertake the obligations assumed by the same pursuant to the terms of this Agreement and applicable law;

(e) That it is the sole and legitimate owner of Trust Assets B, the same which are described in Exhibit “B-2” and described in detail in the appraisal attached hereto as Exhibit “B-3” of this Agreement, the same which are free of Encumbrances, options or any other limitations on ownership or preferential rights of any nature, in accordance with the laws of Mexico, for which it possesses all authorizations, permits and licenses issued by the competent authorities;

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(f) Trust Assets B are insured with financially solid insurance companies of internationally recognized prestige, with coverage against loss and damages of the type which are generally insured by companies which are in the same line of business as Trustor B or in a similar line of business, said insurance being in an amount not less than those amounts that such other companies are accustomed to obtaining under the same circumstances. Trustor B has paid all of the insurance premiums which have become due and payable with respect to such coverage, and such premiums and coverage are currently in effect;

(g) as of the date hereof, there is no pending and, to the best of its knowledge, threatened action, lawsuit, claim, requirement or proceeding before any court, governmental agency, or arbitrator that affects or could affect the legality, validity or enforceability of this Agreement, or the legitimate ownership by Trustor B of the Trust Assets B;

(h) it acknowledges and agrees that the validity and enforceability (i) of the transfer of Trust Assets B to the Trust Estate, as security for the Loan pursuant to the terms of this Agreement; and (ii) this Agreement, including without limitation, the procedure for the extrajudicial sale and distribution of the Trust Estate as set forth in Article Twelfth hereof, constitute an essential inducement for the Primary Beneficiary and Trustor B to enter into the Loan Agreementand provide the corresponding funds to Trustor B; and

(i) Trustor B has complied with all of the applicable legal provisions and with all procedures in order to perform the importation of Trust Assets B into the United Mexican States.

III. The Primary Beneficiary represents and warrants the following, by means of its legal representative:

(a) That it is a company legally established and validly existing in accordance with the laws of Mexico and it is authorized to execute this Agreement, as evidenced by public instrument number 157,217, dated March 3, 1993, issued before José María Morera González, Notary Public number 102 of the Federal District, the first testimony of which was registered in the Public Registry of Commerce of the Federal District, under mercantile folio 174572;

(b) Its representative possesses sufficient authority to execute this Agreement, the same which as of the date hereof has not been revoked, modified or limited in any manner whatsoever;

(c) In accordance with the foregoing recitals, it agrees to enter into this agreement and perform the obligations contained in this Agreement.

III. Trustee represents and warrants the following, by means of its fiduciary delegate:

(a) That it is a corporation legally established and validly existing in accordance with the laws of Mexico and it is authorized by the Treasury and Public Credit Department to operate as a multiple banking institution and to provide the services mentioned in section XV fifteenth of article 46 forty-six of the Law of Credit Institutions, as evidenced by public instrument number 157,391 one hundred fifty-seven thousand three hundred ninety-one, dated February 23, 1994, issued before Fausto Rico Álvarez, Notary Public number 6, the first testimony of which was registered in the Public Registry of Commerce of the Federal District on May 18, 1994, under mercantile folio 187,201 one hundred eighty-seven thousand two hundred one;

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(b) It desires to enter into this Agreement and to accept its designation as Trustee, and to carry out any and all actions that are necessary or convenient in order to satisfy and fulfill the Purposes of the Trust, as well as to comply with its obligations as provided for in this Agreement;

(c) it does not require any authorization or approval in order to execute this Agreement, or to perform and comply with its obligations herein, which are legal, valid and enforceable against the Trustee in accordance with the terms of this Agreement;

(d) its Fiduciary Delegate possesses sufficient power and authority, as well as the necessary corporate authority to execute this Agreement on its behalf and that such powers, authority and corporate authorizations have not been revoked, modified or limited in any manner as evidenced in public instrument 17,849 seventeen thousand eight hundred forty-nine, dated February 18, 2009, issued before Fernando Dávila Rebollar, Notary Public number 235 two hundred thirty-five of Mexico City, Federal District, the first testimony of which was registered in the Public Registry of Property and Commerce of the Federal District, on March 12, 2009, under mercantile folio number 187,201 one hundred eighty-seven thousand two hundred one.

(e) That for the purposes established in item 5.5 of the provisions issued by (Banco de México) by means of circular 1/2005, on the subject matter of trusts, Trustee makes the other parties to this Agreement aware of the text of the following articles which establish prohibitions on the fiduciary institution in the execution of trusts:

FROM THE GENERAL LAW OF INSTRUMENTS AND CREDIT OPERATIONS:

Article 382. ..“…A trust established in favor of the TRUSTEE is null, except as provided for in the following paragraph, and other applicable legal provisions.

The fiduciary institution may be a trustee in Trusts in which the purpose is to serve as an instrument for the payment of unsatisfied obligations, in the event of loans issued by such institution for the performance of business activities. For the purposes thereof, the parties must establish the terms and conditions to resolve potential conflicts of interest…”

Article 394. Prohibited matters:

I. Secret Trusts;

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II. Those in which the benefit is granted successively to different persons which must be substituted by the death of the prior one, except in the case in which the substitution is made in favor of persons that are alive or already conceived, upon the death of the Trustors; and

III. Those in which the duration is more than fifty (50) years, when a legal entity that is not an entity under public law or a charitable institution, is named as a beneficiary. Nonetheless, a Trust with a duration of more than 50 years can be established when the purpose of the Trust is the maintenance of a non-profit scientific or artistic museum…”.

FROM THE LAW OF CREDIT INSTITUTIONS:

“ARTICLE 106. Credit institutions shall be prohibited from:

XIX.- In the undertaking of operations that are referred to in subsection XV of article 46 of this Law:

a) Repealed

b) Being liable to the Trustor, grantors, and principals for the breach of payment obligations for the loans issued, or the grantors, for the values that are acquired, unless it is their fault, according to that set forth in the final part of Article 391 of the General Law of Instruments and Credit Operations, or guarantee the return of funds that are entrusted to them. If at the end of the trust, mandate or commission established for the granting of loans, such have not been liquidated by the debtors, the institution shall transfer them to the trustee or trustor, as the case may be, or to the principal, abstaining from covering their payment. In the trust, mandate, or commission agreements, there will be inserted in a conspicuous manner that set forth in this subsection together with a statement from the fiduciary to the effect that its content was unequivocally provided to the persons who have received property or rights with respect to the trust;

c) Acting as trustees, principals or commission agents in trusts, agencies or commissions, respectively, that directly or indirectly, receive public funds by means of any act that causes either a direct or an indirect liability, with the exception of those trusts established by the Federal Government through the Treasury and Public Credit Department, and trusts in which securities that are registered in the National Securities Registry pursuant to that set forth in the Securities Market Law are registered;

d) Carry out trusts, agencies or commissions referenced in the second paragraph of article 88 of the Investment Association Law;

e) Acting in trusts, agencies or commissions by means of which limitations and prohibitions contained in financial laws are evaded;

f) Utilizing funds or securities from the trusts, agencies or commissions dedicated for the issuance of loans, in which the trustee has discretionary authority, in the granting of such to undertake operations by virtue of which result or could result in the following becoming debtors: their fiduciary delegates, the members of the board of directors or advisory board, as the case may be, owners and alternates, whether they are in office or not; the institution’s employees and officers, owners who are inspectors or alternate inspectors, whether in office or not; the external auditors of the institution, the members of the respective technical trust committee, relatives of the first degree or spouses of the aforementioned persons, the meetings of companies in which said persons constitute a majority or the same institutions, as well as those persons which the Bank of Mexico determines by means of dispositions of a general nature;

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g) Managing rustic properties, unless they have received management for the distribution of the assets among heirs, beneficiaries, associates or creditors, or to pay any obligation or to guarantee its compliance with the value of said property or its products, and in these cases without the term of the management exceeding two years, except in the event of a production trust or a guaranty trust;

h) Enter into trusts which manage amounts of money which are periodically contributed by groups of consumers integrated by means of commercialization systems, earmarked for the acquisition of certain properties or services, as those listed in the Federal Consumer Protection Law.

Any agreement contrary to that set forth in the preceding subsections shall be null.”

FROM THE 1/2005 CIRCULAR FROM BANK OF MEXICO (BANCO DE MÉXICO)

“...6.1 In the execution of Trusts, Fiduciary Institutions are prohibited from doing the following:

a) Charging the Trust Estate prices which are different from those agreed upon when the transaction in question was agreed upon;

b) Guaranteeing the returns or prices of the funds whose investment is entrusted to it, and

c) Undertaking transactions that are contrary to its internal policies and prudent financial practices.

6.2 Fiduciary Institutions cannot execute transactions with securities, credit instruments or any other financial instruments that do not comply with the specifications agreed upon in the corresponding Trust Agreement.

6.3 Fiduciary Institutions cannot undertake Trusts that are of a type which they are not authorized to execute in accordance with the laws and provisions that regulate the same. 6.4 In no event may any Fiduciary Institution charge against the Trust Assets entrusted to them for payment of any sanction that is imposed on them by any authority.

6.5 In Guaranty Trusts, Financial Institutions and SOFOLES (Special Purpose Non-Bank Financial Institutions) shall only receive goods or rights for purposes of guarantying the obligations involved.

6.6 Fiduciary Institutions must follow that set forth in article 106 of subsection XIX of Credit Institutions Law, 103 section IX of the Security Markets Law, 62 section VI of the General Law of Mutual Insurance Institutions and Associations, 60 section VI Bis of the Federal Financial Institution Law, and 16 of the Organizational Law of Rural Finance, as the case may be for each institution...”.

NOW, THEREFORE, based on the Recitals, Representations and Warranties contained herein, which constitute inducement for the Primary Beneficiary to execute this Agreement, the Parties hereto agree as follows:

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ARTICLES

FIRST.- DEFINED TERMS.

As used in this Agreement, the following terms when capitalized shall have the following meanings:

“Affiliate” means, with respect to any Party, any other person which directly or indirectly controls or is controlled by or is under common control with said Party. For purposes of this Agreement, control means the authority to determine the administration and the policies of said Party, directly or indirectly, whether by means of controlling voting stock, of having the authority to designate most of the members of the board of management by contract or any other manner.

“Distribution Notice”, shall have the meaning indicated in subsection (b) of Article Eleventh of this Agreement.

“Trustee’s Notice”, shall have the meaning indicated in subsection (e) of Clause Twelfth of this Agreement.

“Designated Assets”, shall have the meaning indicated in subsection (f) of Clause Twelfth of this Agreement.

“Trust Assets”, means Trust Assets A and Trust Assets B, jointly, which Trustor contributes to this Trust on the date of execution of this Agreement in order to secure the Loan.

“Trust Assets A”, means the machinery that Trustor A and Secondary Beneficiary A contribute to this Trust on the date of execution of this Agreement in order to secure the Loan.

“Trust Assets B”, means the machinery that Trustor B and Secondary Beneficiary B contribute to this Trust on the date of execution of this Agreement in order to secure the Loan.

“Event of Default”, shall have the meaning assigned to such term in the Loan Agreement; with the understanding that the term “Event of Default” shall also include, without limitation, breach by Trustor with respect to its obligations pursuant to this Agreement.

“Loan Agreement”, shall have the meaning indicated in Recital II of this Agreement.

“Loan”, shall have the meaning indicated in Recital II of this Agreement.

“Deposit”, shall have the meaning indicated in subsection (f)(iii) of Clause Twelfth of this Agreement.

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“Funding Distribution”, means the funding of the Loan made by Trustor A, in its capacity as borrower, pursuant to the terms of the Loan Agreement.

"Business Day", means any day of the year, except Saturdays and Sundays, holidays or any other day that the commercial banks located in New York City, New York, United States of America, or Mexico City, Federal District, Mexico are authorized or required by law to close.

“Dollars” o “USD $”, means Dollars, legal currency of the United States of America.

“Loan Documents” means collectively the loan agreement, the Promissory Notes, this Agreement, as well as any other exhibit, contract, agreement, document or instrument relating to the same (as may be modified, amended or restated at any time in accordance with the terms of the same).

“Date of Notice”, shall have the meaning indicated in subsection (b) of Article Twelfth of this Agreement.

“Primary Beneficiary”, means GE CF México, S.A. de C.V. or any of its successors or permitted assigns.

“Trustor A or Secondary Beneficiary A”, means Nexus Magnéticos de México, S. de R.L. de C.V. or any of its successors or permitted assigns.

“Trustor B or Secondary Beneficiary B”, means Jefferson Electric, Inc. or any of its successors or permitted assigns.

“Trustor” or “Secondary Beneficiary”, means Nexus Magnéticos de México, S. de R.L. de C.V. or any of its successors or permitted assigns, and Jefferson Electric, Inc. or any of its successors or permitted assigns, jointly.

“Trustee”, means Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero, Fiduciario or any of its successors or permitted assigns.

“Purposes of the Trust”, shall have the meaning indicated in Article Fourth of this Agreement.

“Guaranty Trust”, shall have the meaning indicated in Article Sixth of this Agreement.

“Encumbrance”, means any mortgage, encumbrance, pledge, charge or any other guaranty or any agreement regarding preference over a property or asset which has the practical effect of creating a security interest or encumbrance on said property or asset.

“Taxes on the Trust Estate”, shall have the meaning indicated in subsection (c) of Article Eighth of this Agreement.

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“Continuation Notice”, shall have the meaning indicated in subsection (d) of Clause Twelfth of this Agreement.

“Suspension Notice”, shall have the meaning indicated in subsection (d) of Clause Twelfth of this Agreement.

“Law”, means the General Law of Instruments and Credit Operations.

“Highest Bidder”, shall have the meaning indicated in subsection (f)(iii) of Clause Twelfth of this Agreement.

“Notice of Compliance”, shall have the meaning indicated in subsection (e) of Clause Twelfth of this Agreement.

“Notice of Termination”, shall have the meaning indicated in Article Fifth of this Agreement.

“Secured Obligations”, means, jointly or separately, as the context may require, (i) any and all obligations, whether payment obligations or those of any other nature, to be performed by Trustor, arising from or related to the Loan Documents; and (ii) any and all obligations of any nature to be performed by Trustor, arising from or related to this Agreement.

“Note”, shall have the meaning indicated in Recital III of this Agreement.

“Parties”, means Trustor A, Trustor B, Primary Beneficiary, and the Trustee, collectively.

“Trust Estate”, means the collective reference to the Trust Assets, whether present or future, that Trustor transfers to Trustee pursuant to the terms of this Agreement, as well as any other property of any nature transferred or which shall be transferred in the future in accordance with this Agreement.

“Pesos” or “$”, means the legal currency in the United Mexican States.

“Definite Term”, shall have the meaning indicated in subsection (e) of Clause Twelfth of this Agreement.

SECOND.- ESTABLISHMENT OF THE TRUST; PERFECTION AND TRUSTEE APPOINTMENT; REVERSION.

(a) Establishment of Trust. In order to secure the timely and total performance, payment, and satisfaction of any and all of the Secured Obligations, the Trustor hereby irrevocably transfers in trust, the Trust Assets, in favor of Trustee, for the Purposes of the Trust, with everything that corresponds to the Trust Assets by law or in fact, free and clear of any Encumbrances or reservation of ownership limitations of any kind.

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Pursuant to the foregoing, Trustor A herein delivers to Trustee, the original invoices endorsed in favor or Trustee, which covers the Trust Assets A. Likewise, Trustor B herein delivers to Trustee, the original invoices endorsed in favor of Trustee, which covers the Trust Assets B.

(b) Trust Assets. The Parties expressly recognize that the transfer of the Trust Assets shall be fully effective before third parties by means of (1) the execution of this Agreement, (2) the delivery by Trustor A of the original invoices endorsed in favor of Trustee which covers the Trust Assets A and the delivery by Trustor B of the original invoices endorsed in favor of Trustee which covers the Trust Assets B, and 3) the virtual or judicial delivery of the Trust Assets to Trustee;

Notwithstanding the foregoing, Trustor agrees with the Primary Beneficiary and Trustee to record this Agreement in the Sole Registry of Personal Property Security Interests within ninety (90) calendar days following the date of execution of this Agreement. For purposes of the foregoing, Trustor may instruct a notary public of its selection in Mexico, to conduct the recordation in the aforementioned Registry. In either case, Trustor is obligated to cover the necessary costs for the recordation.

Therefore, the Primary Beneficiary and Trustor herein acknowledge and agree that Trustee does not have any obligation whatsoever to register this Trust in the corresponding Sole Registry of Personal Property Security Interests. Such obligation is solely that of Trustor. By means of the execution of this document, Trustor releases Trustee from any liability, whether present or future, which may arise from this obligation.

(c) Acceptance of Designation of Trustee. Trustee herein (1) accepts its designation as trustee of this Agreement and agrees to faithfully perform the Purposes of the Trust and all of its obligations pursuant to this Agreement and applicable legislation (2) recognizes and accepts ownership of the Trust Estate for the benefit of Primary Beneficiary and for the benefit of Secondary Beneficiary A and Secondary Beneficiary B, and it agrees to maintain such ownership for the Purposes of the Trust. Trustee is authorized by means hereof to take any and all actions which are necessary for the Purposes of the Trust, in accordance with this Agreement, and agrees that it will not take or fail to take actions that may hinder the Purposes of the Trust.

This Agreement is registered before Trustee, under number 1,297 (one thousand two hundred ninety-seven) for corresponding administrative and accounting purposes. It is stipulated that all instructions directed to Trustee shall contain such reference number.

(d) Reversion. On the other hand, Trustor declares that it does not reserve the right to revoke this Trust, therefore the same may not be terminated in accordance with article 392, section VI, of the General Law of Instruments and Credit Operations. Notwithstanding the foregoing, subject to the terms and conditions stated herein below, Trustor shall have the right to require the title and ownership of the Trust Assets that it transferred to Trustee and contributed to the Trust Estate of this Trust, in such a way that said transfer shall not be considered a transfer for fiscal purposes, according to article 14 of the Federal Fiscal Code.

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THIRD.- PARTIES TO THE TRUST.

The following are the parties to this Agreement:

Primary Beneficiary:	GE CF MEXICO, S.A. DE C.V.
Trustor A and
Secondary Beneficiary A:	NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V.
Trustor B and
Secondary Beneficiary B:	JEFFERSON ELECTRIC, INC.
Trustee:	BANCO INVEX, S.A., MULTIPLE BANKING INSTITUTION, INVEX FINANCIAL GROUP, TRUSTEE

THIRD BIS.- TRUST ESTATE. The Trust Estate consists of the following:

1) The Trust Assets.

2) All of the property and rights that may be contributed in the future by a Trustor or any third party, to the Trust Estate for the purposes of the same, under any legal circumstance.

3) The resources obtained which arise out of the investment of the liquid assets which exist or which may exist in the Trust Estate, with the understanding that said liquid assets shall be invested in any of the financial entities belonging to INVEX Grupo Financiero, S.A. de C.V.

4) The resources obtained in the event of a sale of the Trust Assets, according to the extrajudicial sale and distribution proceeding agreed upon in the Special Section of this Trust Agreement, in accordance with Article Twelfth herein below.

The Parties agree that the summary above constitutes the inventory of the Trust Estate, without prejudice to the other rights or assets which may be added to the Trust Estate.

FOURTH.- PURPOSES OF THE TRUST.

The purposes of this Agreement (the “Purposes of the Trust”) are to secure the due and timely payment, performance and satisfaction of any and all of the Secured Obligations in favor of the Primary Beneficiary; allow for Trustor A to have possession and use of the Trust Estate in accordance with the terms of Article Seventh of this Agreement, and once each and every one of the Secured Obligations have been paid, revert ownership and title in the Trust Estate in accordance with Article Fifth of this Agreement.

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For such purposes, Trustee:

(a) is and shall be the sole legal owner (único y legítimo propietario) of, and hold good and clear title to, the Trust Estate (as the same may be reduced or increased pursuant to the terms of this Agreement) free from all Encumbrances and without reservation or ownership limitations of any kind, throughout the term of this Agreement, and in any event, until the Primary Beneficiary shall have delivered a Notice of Termination to Trustee after the timely and due performance, payment and satisfaction of each and every one of the Secured Obligations;

(b)upon receipt of a Distribution Notice from the Primary Beneficiary, shall carry out the procedure for the extrajudicial sale and distribution of the Trust Estate provided for in Article Twelfth of this Agreement and in accordance with the prior written instructions of the Primary Beneficiary in accordance with the terms of Article Twelfth of this Agreement;

(c) upon its receipt of a Termination Notice, revert title to the Trust Estate to the Trustor, solely and exclusively in accordance with the written instructions given by the Primary Beneficiary in the Termination Notice, pursuant to the terms of Article Fifth of this Agreement;

(d) shall deliver to the Primary Beneficiary, any information or document received by the Trustee from the Trustor, within 2 (two) Business Days following receipt by the Trustee, unless a different delivery period is expressly provided for in this Agreement;

(e) shall grant to Trustor A, the possession of the Trust Assets (in the event that the procedure for the extrajudicial sale and transfer of the Trust Estate provided for in Article Twelfth of this Agreement is not exercised); with the understanding that Trustor A shall be considered a depository of title in favor of Trustee for the benefit of the Primary Beneficiary, from the moment that the procedure for the extrajudicial sale and transfer is initiated;

(f) shall generally, carry out any and all actions, comply and follow all instructions delivered by the Primary Beneficiary or Trustor, as the case may be, in accordance with the express provisions of this Agreement;

(g) shall receive from Trustor, as part of the Trust Estate, those other assets which shall replace the Trust Assets pursuant to articles 400 and 401 of the Law;

(h) shall open investment accounts or accounts of any other type, and shall enter into necessary contracts with Banco Invex, S.A., Multiple Banking Institution, Invex Financial Group or at any institution which is a part of Invex Grupo Financiero, S.A. de C.V. in the event that some of the Trust Estate consists of liquid assets; and

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(i) shall invest the amounts of money that exist in the Trust Estate, in any of the companies that are a part of Invex Grupo Financiero, S.A. de C.V. in accordance with the written instructions which it shall receive from the Primary Beneficiary, in debt instruments which are issued, secured or guaranteed by the Federal Government, or in bank debt securities, in both cases at maturity or repurchase, in shares representative of the corporate capital of investment companies, as well as in those high credit quality instruments of debt, in all cases, such investments shall be conducted for time periods necessary to ensure that an adequate level of liquidity is maintained in order to timely comply with resulting payments, transfers or expenses charged to the Trust Estate. In the event that the Trustee does not receive instructions from the Primary Beneficiary, the Trustee, without any liability, shall, at its discretion, invest the liquid assets in the aforementioned instruments.

For purposes of the investment referenced in the preceding paragraph, the Trustee submits itself, in all cases, to the legal or administrative provisions regulating investments of trust resources and covering the Trust Estate, the commissions and expenses which arise from it being contracted.

The purchase of securities or of investment instruments shall be subject to the disposition and liquidity of the same and to the market conditions existing at the time they are made. Likewise, the parties hereto expressly release Trustee from any liability arising from the purchase of securities or of investment instruments, as well as from losses that may affect the subject matter of the Trust as a consequence of the investments made by the Trustee, pursuant to the terms of this subsection.

FIFTH.- TERM OF THIS AGREEMENT.

This Agreement shall remain in full force and effect until: (a) the occurrence of an Event of Default, the Primary Beneficiary delivers to Trustee a Distribution Notice, as defined in Article Eleventh of this agreement, by means of which it requests that Trustee proceed with the procedure for the extrajudicial sale and distribution of the Trust Estate and the Trust Estate is distributed in its entirety in accordance with the distribution procedure in Article Twelfth of this Agreement; (b) the occurrence of any of the events set forth in article 392 of the Law (with the exception of section VI of such article 392) which is compatible with the nature of this Agreement; or (c) Primary Beneficiary delivers to Trustee a notice of termination ratified before a Mexican notary public (hereinafter the “Termination Notice”). The Termination Notice shall (i) be substantially in the form attached hereto as Exhibit “C”; and (ii) be delivered by Primary Beneficiary to Trustee (with copy to Trustor), ratified before a Mexican notary public within ten (10) Business Days following the date on which the Secured Obligations have been duly and timely paid, performed and satisfied. This Agreement shall terminate upon delivery of the Termination Notice by the Primary Beneficiary to the Trustee as contemplated in this Article and Trustee reverts ownership and title in the Trust Estate to the corresponding Trustor in accordance with the same.

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SIXTH.- ESTABLISHMENT OF GUARANTY TRUST.

The Trustor herein establishes a guaranty trust (hereinafter the “Guaranty Trust”) in favor of the Primary Beneficiary in order to guaranty the full and timely fulfillment of the Secured Obligations, by means of the affectation of the Trust Assets.

Once Trustor A, in its capacity as borrower, has paid the full amount of the Loan and its accessories, including without limitation, interest, commission, and expenses, in accordance with the Loan Agreement, the Guaranty Trust shall be extinguished and the Primary Beneficiary agrees to sign all documents which are necessary in order to document such release.

SEVENTH.- USE OF THE TRUST ESTATE; RIGHT TO INSPECT.

(a) To the extent expressly permitted and in accordance with the terms of the Loan Agreement and this Agreement, and so long as an Event of Default does not occur and continue, or the procedure mentioned in Article Twelfth of this Agreement is not commenced, Trustor A shall be authorized to do the following:

(i) take possession of and use the Trust Assets; with the understanding that Trustor A shall have possession of the Trust Assets, such Trust Assets shall be located in Mexico, at the facilities and domicile of Trustor A;

(ii) combine them with assets and utilize them in the manufacturing of other items, when their nature permits, so long as, in these two last scenarios, their value is not decreased and the Trust Assets, once combined with other items (with the exception of the property, fruits and products which as produced, the same which do not enter into the Guaranty Trust) form part of the Trust Assets; and

(iii) receive, utilize and dispose of the fruits and products of the Trust Assets, in the ordinary course of business.

(b) In the event that an Event of Default occurs and continues, and such Event of Default is not cured within the time period provided to cure such Event of Default in accordance with the terms of the Loan Agreement, and Trustee has received a Distribution Notice from the Primary Beneficiary, all of the rights granted to Trustor A, in accordance with the immediately preceding subsection (a), shall terminate and upon the receipt of a Distribution Notice from the Primary Beneficiary, Trustee shall follow the procedure established in Article Twelfth of this Agreement.

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(c) In accordance with that provided for in article 401 of the Law, Trustee and the Primary Beneficiary (or any person or persons designated by such) shall have, at is sole discretion, the right to visit, once per year, any place of business of Trustor on Business Days and during regular office hours, upon prior written notice to Trustor A at least 5 (five) Business Days in advance, on such occasions as are reasonably necessary (except in the event of a continuing Event of Default, in which case prior notice shall not be required but with the understanding that such visits shall be made on Business Days and during regular office hours), without interfering with or hindering the operations of Trustor A, and to examine, inspect and audit each and every part of the Trust Estate and to examine, inspect, audit and revise and obtain copies and excerpts from the books, records, publications, orders, receipts and correspondence or any other information of Trustor A in relation to the Trust Estate or the Trust, and each one shall be authorized to discuss the matters, finances and accounts of Trustor A with their respective officers or directors and with their respective independent certified accountants (if Trustor A desires, representatives of Trustor A may be present at such discussions). Likewise, Trustee and the Primary Beneficiary shall be authorized, if deemed necessary or convenient, to conduct appraisals of the Trust Assets, the same which in all cases shall be charged to Trustor A.

(d) In view of the foregoing, Trustor and the Primary Beneficiary agree that Trustee shall not have any liability arising from the deposit of the Trust Assets in favor of Trustor A, and that Trustor A shall be the only and exclusive party liable for the deposit of the Trust Assets.

EIGHTH.- OBLIGATIONS OF TRUSTOR.

(a) During the term of this Agreement, Trustor agrees to do the following: (i) to defend the title and right of the Trustee and the Primary Beneficiary in and to the Trust Estate against any claims and actions of any person other than the Trustee and the Primary Beneficiary; (ii) not to create, incur, assume or permit the existence of any Encumbrance or options in favor of, or any claim of any person in connection with, the Trust Estate or any portion thereof; (iii) not to sell, transfer, assign, pledge, deliver, transfer in trust, grant, usufruct or dispose in any manner, or give any option with respect to the Trust Estate or any portion thereof, except as stated in Article Seventh of this Agreement and in the measure expressly permitted in accordance with the Loan Agreement; and (iv) to execute and deliver to the Trustee or the Primary Beneficiary those documents and carry out any action which is reasonably necessary in connection with this Agreement or the Trust Estate, that the Trustee (acting in accordance with and pursuant to the instructions of the Primary Beneficiary) or the Primary Beneficiary request in writing in order to protect and maintain the Trust Estate, as well as to pay any and all costs and expenses arising from or relating to the foregoing, upon prior delivery of the corresponding documents to Trustor.

(b) In accordance with article 401 of the Law, Trustor expressly acknowledges that, being that Trustor A shall maintain possession of the Trust Assets, all risks of loss, damages or decrease in the value of the Trust Assets put in trust by Trustor A, shall be solely and exclusively the obligation of Trustor.

(c) Likewise, and in accordance with article 400 of the Law, the parties agree that Trustor A shall maintain possession of the Trust Assets in its capacity as depositary, and therefore, Trustor A shall be obligated to (i) preserve the Trust Assets put in trust by Trustor as if they belonged to Trustor itself; (ii) not utilize them for purposes other than those mentioned in Article Seventh of this Agreement; and (iii) be responsible for damages to third parties caused by their use. Trustor shall pay each and every cost and expense which is necessary and convenient for the due preservation, repair, administration, and collection of the Trust Estate.

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(d) Trustor shall deliver to Trustee and to the Primary Beneficiary, an electronic file (.txt or .xls) which contains a description of the following information relating to the Trust Assets (or any portion of the same), within ten (10) Business Days following the date of execution of this Agreement: (i) name of the machinery, (ii) location, (iii) date of the last appraisal and effectiveness, (iv) appraisal value, (v) currency used in the appraisal and any other observation, if applicable.

(e) In accordance with that provided for in Article 401 of the Law, if the fair market value of the Trust Estate devalues in such as way that it no longer covers the Secured Obligations, Trustor shall contribute additional assets to the Trust which are sufficient to restore the original proportional value of the Trust Assets in relation to the Loan. If Trustor does not do so, the Secured Obligations may be considered to be in Default, in which case the Primary Beneficiary must notify the Trustor of such either judicially or by means of notary public, with a copy to Trustee and pursuant to the terms of Clause Eleventh of this Agreement.

Trustor shall be the only party responsible for determining the fair market value of the Trust Estate, without any liability to Trustee. The Primary Beneficiary, in its discretion, may request for Trustor to provide a statement certifying to the best of its knowledge, the values requested by the Primary Beneficiary, the fair market value of the Trust Estate in the event that Trustor is in Default.

NINTH.- DEFENSE OF THE TRUST ESTATE; INDEMNITY.

(a) Trustee shall not be responsible for facts, acts or omissions of authorities of the Trustor, of the Primary Beneficiary or of third parties which impede or make the performance of the Purposes of the Trust difficult.

(b) Trustee shall always act in good faith and shall not abandon, leave unguarded or cause or permit any damage to the Trust Assets for which it possesses legal title in accordance with this Agreement, as long as it has knowledge of any event or fact which may directly affect the Trust Estate, and taking into consideration that the Trust Assets are in the possession of Trustor A.

(c) In case the defense of the Trust Estate is required before any third party, the Trustee shall grant powers of attorney for lawsuits and collections (which shall not in any case be irrevocable) to the person or persons designated in writing by the Trustor, unless there is an existing Event of Default and the Primary Beneficiary has delivered a Distribution Notice to the Trustee, in which case the Primary Beneficiary shall have the exclusive authority to instruct Trustee in writing to revoke any powers of attorney previously granted and to grant powers of attorney to the person or persons designated by the Primary Beneficiary for such purposes. However, Trustee shall not assume any liability whatsoever with respect to the actions carried out by any of such attorneys-in-fact, and a provision stating the same shall be included in the powers of attorney granted by the Trustee. Likewise, the attorneys-in-fact designated for the defense of the Trust Estate shall accept that any and all costs, fees and expenses incurred by such attorneys-in-fact in the granting or exercise of such powers of attorney shall be covered solely and exclusively by the Trustor, and that the Trustee shall have no liability in connection therewith.

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All costs, fees and expenses incurred by the designated attorneys-in-fact or incurred in the respective lawsuits shall be charged to Trustor, and Trustee shall not assume responsibility of any kind for such matters. Notwithstanding the foregoing, in the event that the costs, fees and expenses relating to the lawsuits are not paid by the Trustor, the Primary Beneficiary shall make payment for the same in order not to delay attention to the referenced processes and proceedings, and Trustor agrees to reimburse the Primary Beneficiary within fifteen (15) Business Days following said payment, for the corresponding amounts, upon prior delivery of the receipts and/or corresponding documentation to Trustor.

In light of the foregoing, when Trustee received any notice, lawsuit, or any claim which may in some way affect the Trust Estate, it shall make Trustor and Primary Beneficiary aware of the same, as applicable, in order to proceed with the proceeding mentioned hereinabove, ceasing any liability to Trustee by means of this notice.

(d) Trustor shall pay, on time, any taxes, rights, contributions, impositions or charges of any kind which are determined or taxes by any governmental authority on the Trust Estate, including its accessories (hereinafter the “Taxes on the Trust Estate”) which correspond in accordance with applicable laws. Trustor shall deliver to Primary Beneficiary and to Trustee, when requested in writing, all of the documents necessary in order to prove that the Taxes on the Trust Estate have been paid on time, in the proper manner, and in their entirety.

(e) In the event of an emergency, Trustee shall take such actions as are necessary in order to preserve the Trust Estate and the rights relating to the same, without assuming any liability to Trustor and Primary Beneficiary for the results of its action, except in the event of negligence or bad faith by Trustee. The foregoing is without prejudice to the obligation of the Trustor or the Primary Beneficiary, in case of an Event of Default and a Distribution Notice, to instruct Trustee to issue sufficient powers of attorney and to initiate to the defense of the Trust Estate pursuant to the terms of this Trust.

(f) Trustor hereby agrees to indemnify, defend, and hold harmless Trustee, Primary Beneficiary, and their respective shareholders, officers, fiduciary delegates, directors, employees, advisors and agents from and against any and all claims, demands, actions, obligations, damages, losses, liabilities, costs and expenses (including reasonable attorneys’ fees) arising out of or relating to an Event of Default of this Agreement by Trustor, or with respect to the Trust Estate or other agreements in which Trustor is a party when the rights of the Primary Beneficiary and the Trustee under this Agreement or the Trust Estate are affected, except if it arose directly from negligence, duress or bad faith. In the event that the Primary Beneficiary is responsible for such negligence, duress or bad faith, it shall indemnify, defend, and hold harmless the other Parties, as well as their respective shareholders, officers, fiduciary delegates, directors, employees, advisors and agents from and against any and all claims, demands, actions, obligations, damages, losses, liabilities, costs and expenses (including reasonable attorneys’ fees), unless they arise directly from negligence, duress or bad faith.

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TENTH.- WARRANTY OF TITLE.

Trustor shall be obligated and responsible for the warranty of title of the Trust Estate or any portion of the same in accordance with applicable law.

Trustor herein authorizes Trustee and Primary Beneficiary to assign, transfer or convey, in any manner, the rights arising from this Article and to be liable to any third party who is an assignee of the Primary Beneficiary or to any third party who acquires an interest in the Trust Estate.

The rights arising from this Article shall remain in full force and effect during the entire term in which the Secured Obligations remain outstanding.

ELEVENTH.- EVENTS OF DEFAULT.

(a) In the event of a continuing Event of Default, (after the expiration of the applicable cure period available to cure the Event of Default, in accordance with the Loan Agreement) and Trustee has received a Distribution Notice from the Primary Beneficiary, all of Trustor’s rights, in accordance with Article Seventh or any other rights that Trustor shall have a right to exercise in accordance with this Agreement, shall cease and shall subsequently be exercised by Trustee (in accordance with the instructions received in advance from the Primary Beneficiary).

(b) Trustor herein expressly and irrevocably accepts and authorizes Trustee so that upon Trustee’s receipt of a notice from the Primary Beneficiary it may (i) certify that an Event of Default has occurred (the “Distribution Notice”); and (ii) request for Trustee to transfer, pursuant to Article Twelfth of the Trust, and proceed with the procedure for an extrajudicial sale and distribution of the Trust Estate in accordance with Article Twelfth of this Agreement. The Distribution Notice shall be prepared substantially in the form of notice attached hereto as Exhibit “D”.

(c) Trustor shall give notice to Trustee and the Primary Beneficiary within the Business Day following the date on which it becomes aware of the existence of an Event of Default or of any event which constitutes or which by means of notice or by the lapse of time or both, may constitute an Event of Default.

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(d) Trustor expressly acknowledges that the Primary Beneficiary has executed the Loan Agreement and has issued or will issue the Loan and has funded or will fund such amount to Trustor A in accordance with the Loan Agreement and that the essential inducement to the Primary Beneficiary is, among others, the agreement of the Trustor and its express and irrevocable authorization to the Trustee to follow the procedure for the extrajudicial sale and distribution of the Trust Estate set forth in Article Twelfth of this Agreement and in accordance with article 83 of the Law of Credit Institutions. Trustor hereby irrevocably agrees to abstain from filing, and hereby waives any right it may have or which it may hereinafter acquire, to file any claim or lawsuit in connection with the validity, legality or enforceability of the procedure for the extrajudicial sale and distribution of the Trust Estate set forth in Article Twelfth of this Agreement and applicable laws. Trustor and the Primary Beneficiary hereby expressly agree that the matters set forth herein, which have been expressly acknowledged by the Trustor, shall have the effect of a transaction to prevent future disputes, in accordance with Title XVI of the Second Part of Book Four of the Federal Civil Code.

SPECIAL SECTION

EXTRAJUDICIAL SALE AND DISTRIBUTION

TWELFTH.- PROCEDURE FOR THE EXTRAJUDICIAL SALE AND DISTRIBUTION OF THE TRUST ESTATE.

(a) Pursuant to article 403 of the Law, the parties hereby expressly and irrevocably agree that at any time that a continuing Event of Default occurs, (after the expiration of the applicable cure period available to cure the Event of Default, in accordance with the Loan Agreement) and Trustee has received a Distribution Notice in accordance with this Agreement, Trustee shall proceed with the extra-judicial sale and distribution of all of the Trust Assets in accordance with the procedure described in this Article.

(b) The Distribution Notice shall include the outstanding payment due on the Loan, including its accessories, whether interest, commissions, expenses or other amounts which are due and payable in accordance with the Loan and which have been incurred up to the date of the Distribution Notice (the date that the Distribution Notice is delivered to Trustee shall hereinafter be referred to as the “Notice Date”), as well as a description of the breach or breaches of the Loan by Trustor and a description of the Designated Assets (as such term is defined herein below).

(c) Trustor shall pay Trustee, in advance, the reasonable amounts required by such, to pay the costs and expenses that Trustee must pay in order to conduct the execution procedure described in this article, to conduct the sale of the Trust Assets. Upon non-payment by Trustor, the Primary Beneficiary shall pay such amounts, and in the event that there are not sufficient funds, Trustee may abstain from implementing such procedure. Under no circumstance shall Trustee cover the aforementioned costs and expenses with its own resources. For such purposes, Trustee shall send a notice to Trustor and the Primary Beneficiary, specifying the amount required by the Trustee in order to pay such items. Trustee shall register and retain proof or receipts or other evidence of the expenses incurred. Any amount paid by and of the aforementioned Parties shall be deducted from the amount obtained from the sale of the Trust Assets and paid to the respective party.

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(d) The Primary Beneficiary will be entitled, at any time (following the delivery of a Distribution Notice), by means of a written notice delivered to Trustee (each such notice, a “Suspension Notice”), to instruct Trustee to suspend, in whole or in part, and with as much diligence as possible, the procedure for the extrajudicial sale and distribution of the Trust Estate initiated pursuant to such Distribution Notice, provided, however, that such suspension shall cease to be effective, in whole or in part, from the date Trustee receives from the Primary Beneficiary, one or more instructions in writing (each such notice, a “Continuation Notice”) instructing Trustee to continue, in whole or in part, with the suspended procedure for the extrajudicial sale and distribution of the Trust Estate .

Once Trustee receives the corresponding Continuation Notice, Trustee shall continue with the procedure for the extrajudicial sale and distribution of the Trust Estate in accordance with this Special Section and the written instructions of the Primary Beneficiary.

(e) Trustee shall give written notice to Trustor (the "Trustee Notice"), with copy to the Primary Beneficiary, indicating that it has received a Distribution Notice and attach a copy of the same, as soon as possible but in any event no later than the Business Day immediately following the date on which the Trustee receives the Distribution Notice by means of a notary public, public courier or via voluntary jurisdiction at those addresses indicated in Article Eighteenth of this Agreement. Additionally, in the Trustee Notice, Trustee shall instruct Trustor to deliver the physical possession and/or to put it at the disposition of the person designated by the Primary Beneficiary in the Distribution Notice, each and every one of the Trust Assets that make up the Trust Estate no later than forty-five (45) calendar days following the expiration of the Definite Term (as such term is defined herein below). The person that has been designated by the Primary Beneficiary for the purposes indicated herein, shall be the depositary of the Trust Assets. Within 3 (three) Business Days after the date the Trustor receives the Trustee Notice (or the date on which the publication referred to in the last paragraph of this subsection (e) was conducted) (the "Definite Term"), Trustor shall be entitled to present documentation demonstrating to the satisfaction of the Trustee and the Primary Beneficiary, (i) that it has cured and/or has complied with the obligations giving rise to the Event of Default described in the Distribution Notice attached to the Trustee Notice and to present written proof to the Primary Beneficiary, and/or (ii) compliance with the full payment of the amount due in the manner and pursuant to the terms agreed upon in the Loan Agreement and/or (iii) submit to Primary Beneficiary (and to the Trustee) documentation to verify the renewal, extension of time or temporary waiver of the obligation(s) which gave rise to the Event of Default or, alternatively, deliver to the Trustee the amount indicated in the Distribution Notice (such notice, a "Notice of Compliance").

If the Definite Term expires and the Event of Default continues without the Trustor delivering to Trustee and the Primary Beneficiary a Notice of Compliance, the Trustor shall comply with the instructions issued by the Trustee in the Trustee's Notice, in accordance with the preceding paragraph.

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If Trustor conducts acts or omissions or prevents or hinders in any way delivery of the Trustee’s Notice by Trustee, so that Trustee is prevented from delivering such, Trustee shall give notice of the Trustee’s Notice by means of publication as soon as possible, in a notice in the newspaper "Reforma" or a notice in the newspaper "El Informador" or in the Official Daily Gazette of the Federation, or if such newspapers cease to be published, in any of the major newspapers in Mexico City, Federal District.

(f) Once the Trustor delivers such Trust Assets that make up the Trust Estate, Trustee shall proceed as directed in writing by the Primary Beneficiary for such purposes, with the extrajudicial sale, for consideration, of all or part of the Trust Estate, as such assets are specifically designated by the Primary Beneficiary in the Distribution Notice (the "Designated Assets"). In connection with such sale, the Trustee shall, upon receipt of the corresponding Distribution Notice from the Primary Beneficiary, proceed as follows:

(i)The Primary Beneficiary shall first deliver to the Trustee, without the intervention of Trustor, a list of potential purchasers of the Designated Assets.

(ii) Trustee shall, in accordance with written instructions from the Primary Beneficiary, privately deliver a notice of sale for the auction of the Designated Assets to prospective purchasers indicated by the Primary Beneficiary (a "Notice of Sale"). The Notice of Sale shall be delivered by Trustee as soon as possible but no later than 10 (ten) Business Days prior to the expected date of the auction. The Notice of Sale shall be prepared substantially in terms of the form attached hereto as Exhibit "F" and shall indicate, among other things, the place and time that the auction will be held, the Reference Price (as defined in the following paragraph), and establish that the sale is the result of the extrajudicial sale and distribution of the Trust Estate pursuant to the terms of this Agreement.

The Reference Price stated in the Notice of Sale (hereinafter the "Reference Price") shall be in Dollars and will be determined by an expert appraiser approved by a lending institution designated by the Primary Beneficiary by means of an appraisal reflected in Dollars, of the Designated Goods that make up the Guaranty Trust. Once the Trustee receives the Reference Price of the Designated Assets, the Trustee shall notify the Trustor and the Primary Beneficiary. The cost of such appraisal shall be borne by the Trustor or, if applicable, the Primary Beneficiary in terms of subsection (c) above.

(iii) Also, the Notice of Sale shall provide that (i) any person interested in participating in the auction shall deposit with the Trustee an amount at least equal to 10% (ten percent) of the Reference Price set out in the Notice of Sale, by means of certificates of deposit issued by authorized credit institutions, at least 2 (two) Business Days prior to the date of the auction (the "Deposit"), (ii) any bid shall not be accepted or considered valid unless the Deposit is established in the terms and within the period referred to above, and (iii) the bids of participants must be at least equal to the applicable Reference Price. The Trustee, upon prior instructions from Primary Beneficiary, shall transfer the Designated Assets in favor of the bidder who has offered the highest bid (the "Highest Bidder"), which in any case must be at least an amount equal to the applicable Reference Price. In case two or more persons have submitted equal bids and they are the highest bids, the Primary Beneficiary in its discretion shall designate a person to whom the Trustee will transfer the Designated Assets and such will be considered, for this purpose, as the Highest Bidder.

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(iv) The Highest Bidder shall pay to the Trustee (in immediately available funds), the balance of its bids (which in any case must be at least equivalent to the applicable Reference Price) at the time that the transfer of the Designated Assets are transferred to the Highest Bidder pursuant to applicable law. In the event that the transfer of the Designated Goods is not carried out for any reason attributable to the Highest Bidder, (x) the Highest Bidder will lose the Deposit delivered to the Trustee for the benefit of the Trust Estate; and (y) the Trustee will sell the Designated Assets in accordance with the instructions of the Primary Beneficiary, to the next Highest Bidder, to the extent that its bid is at least equal to the applicable Reference Price. This paragraph (iv) must be transcribed word for word in the Notice of Sale.

(v) In the event that the Trustee is unable to carry out the sale of the Designated Assets in the first auction, then, in accordance with written instructions from the Primary Beneficiary, the Trustee shall deliver to prospective purchasers of the Designated Assets, who shall be designated by the Primary Beneficiary in terms of subsection (f) (i) above. The original Reference Price in the Notice of Sale will be reduced by 2.5% (two point five percent) every 60 (sixty) calendar days in case the sale is not conducted. In this regard, the corresponding Notice of Sale shall provide that the Trustee shall not offer the Designated Goods for less than the reduced Reference Price, as appropriate (upon receiving an offer from a good faith purchaser). If within a period of 12 (twelve) months, there shall be a new assessment, in Dollars, of the Designated Assets that constitute the Guaranty Trust, by an expert appraiser authorized by a lending institution designated by the Primary Beneficiary. The value provided by the new appraisal will be considered, for all purposes, as the Reference Price. Once the Trustee receives the new Reference Price of the Designated Assets, it shall notify Trustor and the Primary Beneficiary. If the Reference Price is adjusted so that it is equal to or less than the balance of the Guaranteed Obligations and accessories, the Primary Beneficiary shall have the right to ask Trustee to adjust the Designated Assets pertaining to the Guaranty Trust to pay the balance of the Guaranteed Obligations and accessories. The second or subsequent Notices of Sale for the Designated Assets shall be given in accordance with and subject to the provisions of paragraphs (i), (ii), (iii) (iv) and (v) of this subsection (f).

(g) The contract of sale to be entered into by and between Trustee and the Highest Bidder who will acquire all of the Trust Assets, or where appropriate, the Designated Assets, must establish that payment of the price shall be in Dollars and shall be made upon execution.

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The amounts received by the Trustee for the sale of all of the Trust Assets or, where applicable, the Designated Assets, which constitute the Guaranty Trust shall be applied as follows: (i) first to the payment of any and all taxes that are generated from such transfer, (ii) second to the outstanding trust fees, in accordance with the provisions of Article Fifteenth of the Agreement, (iii) third, to payment or reimbursement of costs of implementation of the Guaranty Trust, (iv) fourth, to pay the amount indicated by the Primary Beneficiary in the Distribution Notice, which, once made, shall release Trustor from the Guaranteed Obligations whenever the amount of resources obtained from the sale and distribution of the Guaranty Trust are sufficient to liquidate the Guaranteed Obligations, being that if they were insufficient, Trustor A would not be released from the Secured Obligations under the Loan Agreement; and (v) fifth, the remainder of the funds obtained from the sale and distribution of the Guaranty Trust shall be returned to Trustor in relation to the assets transferred to this Trust.

(h) It is expressly agreed between the Parties in the event that the proceeds from the sale of the Trust Estate are not sufficient to fully cover the Guaranteed Obligations or any other amount owed to the Primary Beneficiary or Trustee under this Agreement, including without limitation, any fees and expenses incurred by the Primary Beneficiary or Trustee in connection with this Agreement or in connection with the sale of the Trust Estate, the Primary Beneficiary and the Trustee expressly reserve any and all rights which they may have to exercise to receive full payment of any such amounts.

(i) The Trustor agrees to perform or cause to be carried out, all acts or initiate any and all procedures necessary or convenient in order for the Trustee (acting in accordance with written instructions from the Primary Beneficiary) to carry out the extrajudicial sale and distribution of the Trust Estate (or any part thereof) in the manner provided in this article. The Grantor further agrees to perform or cause to be carried out all acts necessary or appropriate to expedite the sale, assignment or transfer of all or any part of the Trust Estate, and to execute and deliver any documents and take any other action that the Trustee (acting under the instructions of the Primary Beneficiary) or the Primary Beneficiary deems necessary or desirable for the purpose of such sale, assignment or transfer to be is made in accordance with applicable law.

(j) Being that the Secured Obligations consist of monetary obligations denominated in Dollars, for payment of such Secured Obligations, the proceeds of the extrajudicial sale and distribution of the Trust Estate or any portion thereof must be received in Dollars.

In accordance with the provisions of Article 403 (four hundred and three) of the General Law of Instruments and Credit Operations, the Parties signed the text of this Special Section in a separate document, in addition to signing this Agreement, expressing their express consent and irrevocable instruction to the Trustee to follow the procedure for extrajudicial sale and distribution of the Trust Estate under this Special Section, which is attached hereto as Exhibit "E".

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THIRTEENTH.- LEGAL PROHIBITIONS.- For the purposes stated in item 5.5 of the provisions that Bank of Mexico (Banco de México) issued on the subject matter of Trusts, by means of circular 1/2005, Trustee makes the other parties to this Agreement aware of the text of the following articles which establish prohibitions on the fiduciary institution in the execution of trusts:

--- From The General Law of Instruments and Credit Operations:

---Article 382. .“…A trust established in favor of the TRUSTEE is null, except that which is provided for in the following paragraph, and other applicable legal provisions.

---The fiduciary institution may be a trustee in Trusts in which the purpose is to serve as an instrument for the payment of unsatisfied obligations, in the event of loans issued by such institution for the performance of business activities. For the purposes thereof, the parties must establish the terms and conditions to resolve potential conflicts of interest…”

---Article 394. “Prohibited matters:

---I. Secret Trusts;

---II. Those in which the benefit is granted successively to different persons which must be substituted by the death of the prior one, except in the case in which the substitution is made in favor of persons that are alive or already conceived, upon the death of the Trustors; and

---III. Those in which the duration is more than fifty (50) years, when a legal entity that is not an entity under public law or a charitable institution, is named as a beneficiary. Nonetheless, a Trust with a duration of more than 50 years can be established when the purpose of the Trust is the maintenance of a non-profit scientific or artistic museum…”.

---From The Law Of Credit Institutions:

“ARTICLE 106. Credit institutions shall be prohibited from:

---XIX.- In the undertaking of operations that are referred to in subsection XV of article 46 of this Law:

---a) Repealed

---b) Being liable to the Trustor, grantors, and principals for the breach of payment obligations for the loans issued, or the grantors, for the values that are acquired, unless it is their fault, according to that set forth in the final part of Article 391 of the General Law of Instruments and Credit Operations, or guarantee the return of funds that are entrusted to them.

---If at the end of the trust, mandate or commission established for the granting of loans, such have not been liquidated by the debtors, the institution shall transfer them to the trustee or trustor, as the case may be, or to the principal, abstaining from covering their payment.

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---In the trust, mandate, or commission agreements, there will be inserted in a conspicuous manner that set forth in this subsection together with a statement from the fiduciary to the effect that its content was unequivocally provided to the persons who have received property or rights with respect to the trust;

---c) Acting as trustees, principals or commission agents in trusts, agencies or commissions, respectively, that directly or indirectly, receive public funds by means of any act that causes either a direct or an indirect liability, with the exception of those trusts established by the Federal Government through the Treasury and Public Credit Department, and trusts in which securities are issued that are registered in the National Securities Registry pursuant to that set forth in the Securities Market Law;

---d) Carry out trusts, agencies or commissions referenced in the second paragraph of article 88 of the Investment Association Law;

---e) Acting in trusts, agencies or commissions by means of which limitations and prohibitions contained in financial laws are evaded;

---f) Utilizing funds or securities from the trusts, agencies or commissions dedicated for the issuance of loans, in which the trustee has discretionary authority, in the granting of such to undertake operations by virtue of which result or could result in the following becoming debtors: their fiduciary delegates, the members of the board of directors or advisory board, as the case may be, owners and alternates, whether they are in office or not; the institution’s employees and officers, owners who are inspectors or alternate inspectors, whether in office or not; the external auditors of the institution, the members of the respective technical trust committee, relatives of the first degree or spouses of the aforementioned persons, the meetings of companies in which said persons constitute a majority or the same institutions, as well as those persons which the Bank of Mexico determines by means of dispositions of a general nature;

---g) Managing rustic properties, unless they have received management for the distribution of the assets among heirs, beneficiaries, associates or creditors, or to pay any obligation or to guarantee its compliance with the value of said property or its products, and in these cases without the term of the management exceeding two years, except in the event of a production trust or a guarantee trust;

---h) Enter into trusts which manage amounts of money which are periodically contributed by groups of consumers integrated by means of commercialization systems, earmarked for the acquisition of certain properties or services, as those listed in the Federal Consumer Protection Law.------

---Any agreement contrary to that set forth in the preceding subsections shall be null.”------

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---FROM THE 1/2005 CIRCULAR FROM BANK OF MEXICO (BANCO DE MÉXICO)

---“...6.1 In the execution of Trusts, Fiduciary Institutions are prohibited from doing the following:

---a) Charging the Trust Estate prices different from those agreed upon when the operation in question was agreed upon;

---b) Guaranteeing the returns or prices of the funds whose investment is entrusted to it, and

---c) Undertaking transactions that are contrary to its internal policies and prudent financial practices.

---6.2 Fiduciary Institutions cannot execute transactions with securities, credit instruments or any other financial instruments that do not comply with the specifications agreed upon in the corresponding Trust Agreement.

---6.3 Fiduciary Institutions cannot undertake Trusts that are of a type which they are not authorized to execute in accordance with the laws and provisions that regulate the same.
----6.4 In no event may any Fiduciary Institution charge against the Trust Assets entrusted to them for payment of any sanction that is imposed on them by any authority.

---6.5 In Guaranty Trusts, Financial Institutions and SOFOLES (Special Purpose Non-Bank Financial Institutions) they shall only receive goods or rights for purposes of guarantying the obligations involved.

---6.6 Fiduciary Institutions must follow that set forth in article 106 of subsection XIX of Credit Institutions Law, 103 section IX of the Security Markets Law, 62 section VI of the General Law of Mutual Insurance Institutions and Associations, 60 section VI Bis of the Federal Financial Institution Law, and 16 of the Organizational Law of Rural Finance, as the case may be for each institution...”.

FOURTEENTH.- TAXES AND EXPENSES.

(a) All taxes, costs, expenses, commissions, Taxes on the Trust Estate and fees arising from the preparation and execution of this Agreement, and in connection with any amendment hereof in accordance with Article Seventeenth of this Agreement, as well as by any action or document, which must be carried out, prepared, executed or notified pursuant to this Agreement, including, without limitation, reasonable attorneys fees of the legal advisors of Primary Beneficiary and Trustee, as well as any and all reasonable costs and expenses incurred by Primary Beneficiary and Trustee in the fulfillment of their respective obligations, in the exercise of their respective rights in accordance with this Agreement and in the distribution of the Trust Estate, shall be fully and exclusively covered by the Trustor.

(b) In the event that for any reason the Primary Beneficiary pays, on the account of the Trustor (or any of them), any such fees, costs or expenses, Trustor agrees to immediately reimburse the Primary Beneficiary, as applicable, upon Trustor’s request, the amounts paid along with a penalty on such amounts upon the prior delivery to Trustor of the corresponding receipts and/or documentation. The penalty shall be calculated by multiplying the amount of the fees, costs and expenses paid by the Primary Beneficiary by 0.003 by the number of calendar days from the date of payment until it is reimbursed.

(c) Trustor shall indemnify and hold harmless Trustee in the event of a fiscal contingency arising from the transaction in this Agreement, as long as the same does not arise from the fault or negligence of Trustee or of the Primary Beneficiary (including reasonable fees and expenses, duly documented, from fiscal and legal advisors).

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(d) Trustor herein represents that based on article sixteen (16) of the Fixed Rate Corporate Tax Law published in the Official Daily Gazette of the Federation on October 1, 2007, it shall comply with the obligations established in such law, releasing Trustee from all liability relating to the performance of the same, being that they are the strict responsibility of Trustor.

(e) In accordance with section II second of rule I.11.2 of the Miscellaneous Fiscal Resolution in effect and for purposes of the Tax on Cash Deposits, in the event that such arise, Trustor A herein declares and represents that the deposits received in the accounts opened in the name of the Agreement shall be considered its own. For purposes of the foregoing, it desires for the proof of the withholdings of such tax to be issued with tax ID (RFC) NMM041015IZA for all accounts opened by Trustee for such purpose.

(f) If in the event for any reason, the fiscal authorities require the payment of any contribution to Trustee, it will provide timely notice of the same to Trustor within two (2) Business Days following the date on which Trustee receives notice from the corresponding authority, with copy to the Primary Beneficiary, so that in compliance with this responsibility, Trustor can carry out the necessary transactions and payments.

FIFTEENTH.- TRUSTEE FEES.

As consideration for its services in accordance with this Agreement, Trustor shall pay Trustee the fees established as follows, with the understanding that such amounts do not include the corresponding value added tax:

a) Fees for acceptance of the position of Trustee: $2,149.00 USD (Two Thousand One Hundred Forty-nine and 00/100 Dollars), plus the corresponding value added tax (VAT), payable in one lump sum upon the execution of this Agreement.

b) Fees for Management of the Trust. $3,471.00 USD (Three Thousand Four Hundred Seventy-one and 00/100 Dollars) annually or its corresponding portion, plus the corresponding value added tax (VAT), payable on an annual basis, in advance, with the understanding that the first annual payment shall be paid upon the execution of this Agreement.

c) Fees in the Event of Distribution: 1.5% (One point five percent) on the value of the Trust Estate, plus the corresponding value added tax (VAT), payable at the beginning of the distribution process.

d) Fees for Amendments to the Trust. $500.00 USD (Five Hundred and 00/100 Dollars), plus the corresponding value added tax on each occasion on which this Agreement is amended. The following shall be understood to be amendments, cases in which amendment agreements must be signed, without these going beyond the purposes originally agreed upon. In the event that there are changes to the purposes agreed upon, including but not limited to an increase in the assets in Trust or the amount of the loan which it secures, the Parties, upon mutual agreement, shall agree upon the new Trustee fees.

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e) Fees for the granting of powers. $250.00 USD (Two Hundred and Fifty and 00/100 Dollars), for each instrument signed by Trustee, plus the corresponding value added tax.

f) Fees for public or private instruments in which Trustee is involved. $500.00 USD (Five Hundred and 00/100 Dollars), plus the corresponding value added tax.

g) Trustee Fees for the execution of acts different from those provided in this proposal, shall be established by Trustee, upon prior approval by the Parties, in accordance with the terms and conditions of each particular case, establishing the minimum fee of $250.00 USD (Two Hundred and Fifty and 00/100 Dollars), plus the corresponding value added tax.

The trustee fees referenced in the foregoing subsections b), d), e), f) and g) shall be adjusted annually, based on variations in the Investment Unit (UDI) that is in effect published by Bank of Mexico (Banco de México) in the Official Daily Gazette of the Federation.

All of the costs arising from the banking or financial services that are incurred for purposes of the transaction contemplated by this Agreement, shall be charged to the estate of the same, in accordance with the effective fees of the institutions with which the mentioned financial services are contracted.

Trustor and the Primary Beneficiary expressly grant their agreement and authorization so that, in the event that resources exist, the trustee fees shall be applied and paid out of the Trust Estate automatically.

Trustor and the Primary Beneficiary, by means of the execution of this Agreement, expressly grant their agreement and authorization so that in the event of a default in payment of the Trustee’s fees it shall proceed in the following manner:

A) Not process any instructions relating to the Agreement until such time as the fees are paid in full, without liability to Trustee for ceasing to comply with the Purposes of the Trust or for the possible damages, losses or inconveniences that arise as a result of ceasing to comply with such purposes, for which Trustor and the Primary Beneficiary release Trustee from said liability and personally assume the same.

B) If the default in the payment of fees continues for six (6) calendar months, the Parties agree to consider said default for purposes of this Agreement, as a serious cause so that Trustee can excuse itself and resign from its position before a Judge of First Instance, requesting that another institution be named in order to serve as a substitute or that the Trust be terminated in accordance with articles 391 and 385 of the General Law of Securities and Credit Operations, without prejudice to the actions that may be exercised by Trustee for the collection of the outstanding fees.

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Trustee shall charge penalty interest on the unpaid balance from the date of default and until they are paid in full, at an annual interest rate equivalent to double the Interbank Interest Rate for a period of twenty-eight (28) days (TIIE), published in the Official Daily Gazette of the Federation by Bank of Mexico (Banco de México) on the date of commencement of the Default Interest Period, plus 5 (five) percentage points.

For purposes of this Agreement, the “Default Interest Period” shall mean: Each of the periods for the calculation of default interest on the principal (amount of debt for fees), twenty-eight calendar days each, based on which the default interest accruing on the unpaid principal balance is calculated, with the understanding that the first Default Interest Period shall commence on the date of default and shall terminate twenty-eight calendar days later, the second interest period starts on the day on which the immediately preceding Interest Period expires and ending twenty-eight calendar days later and so on until the date of full payment, in which case the last Default Interest Period shall be adjusted to the payment date.

The calculation of Default Interest shall be made using the procedure of calendar days actually elapsed divided by 360 (three hundred sixty).

All taxes, fees and reasonable expenses (including travel expenses and per diem if applicable) shall be paid in advance to the Trustee for and on behalf of Trustor.

Similarly, the Parties that sign this Agreement acknowledge and agree that the following is the information of the person who should be invoiced for the trustee fees referenced in this article:

Name or Corporate Name of the person to whom the invoice(s) will be issued: Nexus Magnéticos de México, S. de R.L. de C.V.

Federal Taxpayer Identification Number (RFC): NMM041015IZA

Physical Address: Sección 44-A Tercera Unidad del Bajo Río San Juan SN Parque Industrial Reynosa, Reynosa, Tamaulipas, 88780.

SIXTEENTH.- ASSIGNMENT.

The rights and obligations derived from this Agreement shall not be assigned or transferred by Trustor or Trustee to any third party without the prior written consent of the Primary Beneficiary. The Primary Beneficiary may assign or transfer, in whole or in part, its rights derived from this Agreement upon prior written notice to Trustee and Trustor at least thirty (30) Business Days in advance of the effective date of such assignment, by means of which the Primary Beneficiary shall indicate the third party who will be the new Primary Beneficiary, without requiring the consent of Trustee or the Trustor in order to undertake such assignment or transfer.

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In the event that the Trustor or Primary Beneficiary transfer or assign their rights to third parties that do not meet the requirements and institutional policies of the Trustee, the Trustee shall notify the parties of its resignation pursuant to the terms of subparagraph b) of Article Twenty-fourth of this Agreement.

SEVENTEENTH.- AMENDMENT.

This Agreement shall only be amended upon the written consent of the Trustor, Primary Beneficiary, and Trustee.

EIGHTEENTH.- NOTICES.

All notices among the parties shall be given in writing, in Spanish, and shall be delivered in one of the follow manners (i) personally, return receipt requested; (ii) by courier, return receipt requested; or (iii) via facsimile, followed by courier or personal delivery, return receipt requested. All notices shall be submitted to the following addresses and facsimile numbers, and shall take full effect when the original notice is delivered in accordance with the form and manners established herein:

To Trustor A:

Nexus Magnéticos de México, S. de R.L. de C.V:

Sección 44-A Tercera Unidad del Bajo Río San Juan

(SN) Parque Industrial,

Reynosa, Tamaulipas C.P.88780.

Attention: Nathan Jacob Mazurek, Sole Manager

To Trustor B:

Designates the following as its notice address solely for the purpose of receiving notices. Additionally, a copy shall be sent via facsimile to the number indicated herein below:

Jefferson Electric, Inc.

Sección 44-A Tercera Unidad del Bajo Río San Juan

(SN) Parque Industrial,

Reynosa, Tamaulipas C.P.88780.

Facsimile: (414) 209-1621Attention: Thomas David Klink, President

With a courtesy copy via facsimile to:

Pioneer Power Solutions, Inc.

400 Kelby Street, 9^th Floor,

Fort Lee, NJ, 07024, United States of America

Facsimile: (212) 867-1325

Attention: Andrew Minkow, CFO and Director

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To Primary Beneficiary:

GE CF México, S.A. de C.V.

Antonio Dovalí Jaime No. 70, Torre A, Piso 5

Colonia Santa Fe, Delegación Álvaro Obregón

C.P. 01210, México, Distrito Federal

Attention: Director of Risk

To Trustee:

Banco Invex, S.A., Institución de Banca Múltiple,

Invex Grupo Financiero, Trustee

Torre ING, Ave. Batallón de San Patricio 111-1202, Piso 12

Colonia Valle Oriente, San Pedro Garza García, N.L., C.P. 66269

Attention: Lic. Mario Rafael Esquivel Perpuli and/or Lic. Nabor Medina Garza

NINETEENTH.- EXHIBITS AND HEADINGS.

All of the documents attached as exhibits to this Agreement form an integral part of this Agreement as if they were inserted verbatim herein. The titles and headings included in this Agreement shall be utilized only for purposes of convenience and shall not affect the interpretation of this Agreement.

TWENTIETH.- ADDITIONAL OBLIGATIONS.

Trustor agrees, upon the request of Trustee or the Primary Beneficiary, and upon prior review and approval by Trustor, to sign and deliver or cause the signature and delivery to Trustee or the Primary Beneficiary, of each and every one of the agreements, contracts, instruments, notifications, notices and other documents which are necessary or reasonably convenient for Trustee or the Primary Beneficiary, including but not limited to, supplements to this Agreement, to effect (i) perfection and protection of the transfer of title in the Trust Assets, whether present or future, which make up the Trust Estate, in favor of Trustee, and protect and preserve the rights and actions of Trustee and the Primary Beneficiary under this Agreement; and (ii) comply with the terms and give full effect to the objective of this Agreement.

TWENTY-FIRST.- CONFIDENTIAL INFORMATION.

Trustor herein expressly authorizes and empowers Trustee or the Primary Beneficiary to dispose, transfer, report or share any Confidential Information with any companies, organizations, headquarters and other affiliates and subsidiaries that make up the financial and accounting organization of General Electric Company, both in Mexico and abroad for purposes relating to processes, approvals, monitoring, statistical evaluations, financial projections, internal reports, audits and any related processes that are necessary.

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Trustee and the Primary Beneficiary hereby agree that the Confidential Information shall not be disclosed, in whole or in part, to third parties or any of its Affiliates or subsidiaries that are not part of their financial and accounting organization, including but not limited to GE Energy, without the prior written consent of Trustor, except as provided in the preceding paragraph.

The term "Confidential Information" shall mean the commercial or financial information owned by Trustor that was disclosed in an oral, written, graphic or electromagnetic manner, and is provided to Trustee or the Primary Beneficiary, including but not limited to procedures, strategies, technical, financial and business information, customer lists or current or potential partners, business proposals, investment projects, plans, reports, marketing projects or any other proprietary information, but excluding trade secrets.

The term Confidential Information excludes information that: (1) Trustee and/or the Primary Beneficiary has obtained from a source that, after doing a reasonable investigation, has not been found to be subject to confidentiality restrictions, (2) is independently developed or acquired by the Trustee and/or the Primary Beneficiary without violating the provisions of this Agreement, (3) is disclosed by the Trustee and/or the Primary Beneficiary upon prior written consent of the Trustor, and (4 ) is in the public domain.

TWENTY-SECOND.- JURISDICTION AND GOVERNING LAW.

This Agreement shall be governed by and interpreted in accordance with the laws of the United Mexican States. Trustor, the Primary Beneficiary and Trustee irrevocably submit to the jurisdiction of the competent courts in Mexico, Federal District, Mexico, with respect to matters arising from or relating to this Agreement. Trustor, the Primary Beneficiary and Trustee waive any other jurisdiction or venue which may correspond by reason of their present of any future domiciles or for any other reason.

Trustor, the Primary Beneficiary and Trustee agree that (i) they shall be subject to the exclusive jurisdiction of the courts located in Mexico, Federal District, Mexico, with respect to this Agreement, the contemplated transactions and arising from the same and therefore, they may not be sued or judicially required in other courts or jurisdictional agencies and, (ii) Trustee also shall not be subject to a lawsuit in a court outside of Mexico, with respect to this Agreement, relating to the transactions contemplated by and arising from this Agreement.

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TWENTY-THIRD.- RECORDATION.

Trustor shall undertake the recordation of this Agreement in the Sole Registry of Personal Property Security Interests, in accordance with the applicable rules and provide evidence of the same to Trustee and the Primary Beneficiary. For such purpose, it shall deliver to Trustee and Primary Beneficiary a letter issued by the undersigned Notary in charge of conducting such recordation, which certifies that no later than within five (5) Business Days following the date that it receives instructions from Trustor and the Primary Beneficiary to record this Agreement in accordance with this paragraph, the recordation of the Agreement shall be delivered to the referenced Registry.

Trustor agrees to deliver to Trustee, with copy to the Primary Beneficiary, as soon as possible but no later than within 90 (ninety) calendar days following the date of execution of this Agreement, the first testimony (original) of this Agreement with the proof of recordation in the Sole Registry of Personal Property Security Interests in accordance with this Article.

With respect to the applicable law on the subject matter, the Primary Beneficiary authorizes Trustor to conduct the recordation of this Trust in the Sole Registry of Personal Property Security Interests pursuant to the terms of this Article Twenty-third.

TWENTY-FOURTH.- RESIGNATION AND SUBSTITUTION OF TRUSTEE.

(a) Removal from the position of trustee. In accordance with the third paragraph of article 385 of the Law, Trustee may be removed from its position by the Primary Beneficiary. In the event of removal, the Primary Beneficiary shall request the same in writing at least 20 (twenty) Business Days prior to the date that such removal is to be effective.

(b) Resignation from the position of Trustee. In accordance with the third paragraph of article 385 of the Law, Trustee may resign from its position in the following circumstances: (i) when it is not paid its fees and expenses pursuant to the terms of this Agreement, (ii) in the event that Trustor or the Primary Beneficiary assign or transfer their rights to third parties which do not comply with the institutional requirements and policies of Trustee, (iii) in the event that during the term of this Agreement, any of the parties to this Agreement cease to comply with the institutional requirements and policies of Trustee, (iv) in the event that Trustor or the Primary Beneficiary require that it conduct activities that are contrary to or greater than those contemplated by this agreement, or (v) in the event that any of the Parties have made a false representation.

Trustee shall notify the parties of its resignation in writing. Such resignation shall not be effective until 45 (forty-five) calendar days following the notice, during this time period Trustee agrees to assist the parties in order to substitute the trustee; with the understanding that the resignation will not be effective until the new trustee takes its position and possession of the Trust Assets has been transferred to said new trustee.

(c) Upon the designation of the substitute trustee, it shall acquire title to all of the Trust Assets, and it shall possess all of the authority, rights, powers and obligations in accordance with this Agreement.

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TWENTY-FIFTH.- INDEMNIFICATION OF TRUSTEE.

Trustor and the Primary Beneficiary shall, defend, and hold harmless Trustee, as well as its shareholders, fiduciary delegates, officers, employees, advisors and attorneys-in-fact from and against any and all liabilities, damages, obligations, lawsuits, judgments, transactions, requirements, reasonable costs and expenses of any nature including reasonable attorneys’ fees, obtained, resulting from, imposed upon, or incurred by, for purposes of or as a consequence of, actions taken by Trustee for the performance of the Purposes of the Trust, and the defense of the Trust Estate (except if they are a consequence of the duress, negligence or bad faith of Trustee or when Trustee undertakes any act that is not expressly authorized by this Agreement) or for fines, penalties or any other debt of any kind in relation to the Trust Estate or this Agreement, whether before administrative, judicial, or arbitral authorities or of any other nature, whether local or federal, domestic or foreign (except if they are a result of duress, negligence or bad faith by Trustee or when Trustee undertakes any action which is not expressly authorized by this Agreement).

With the exception of those provisions specifically established in this Agreement, Trustee shall not be obligated to confirm or verify the authenticity of any report or certificate that Trustor and/or the Primary Beneficiary delivers in accordance with this Agreement. Trustee does not assume liability with respect to any representation made by any of the parties in this Agreement or in the documents relating to the same.

Trustee shall be liable up to the limits and scope of the Trust Estate, without personal liability of any kind in the event that such is not sufficient to cover the obligations arising from the Trust in accordance with the terms of this Agreement.

Trustee shall have civil responsibility for the damages and losses incurred by the breach of its obligations assumed in the Trust, so long as they are caused by duress, bad faith and/or negligence.

Trustee shall not be obliged to exercise any action under this Agreement that exposes it or its officers to liability, that is against its estate, or that is contrary to this Agreement or applicable laws.

It is expressly agreed that Trustee shall incur no liability for acting pursuant to any notice, consent, certificate or other written instrument that it considers to be genuine and signed by the corresponding party or parties, or based on a statement that it considers to have been made by Trustor or the Primary Beneficiary.

TWENTY-SIXTH.- DELIVERY OF ONE COPY OF THE TRUST. Trustor and the Primary Beneficiary herein represent that they have received from Trustee, by means of the notary before whom this Trust is being executed, a copy of the Agreement, which they declare for corresponding legal effects.

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TWENTY-SEVENTH.- TRANSACTIONS WITH THE TRUSTEE INSTITUTION. For purposes of that provided for in rule 5.4 of Circular 1/2005 issued by Bank of Mexico (Banco de México), the Parties agree that in order to avoid conflicts of interest, they authorize Trustee to enter into investment transactions and open accounts for the management of the assets, with the same institution, as long as it acts on its own behalf without interfering with the area of the Trustee, recognizing that there is no hierarchical relationship among the departments that are involved in such transactions.

Notwithstanding the foregoing, Trustee shall require written authorization from Trustor and Primary Beneficiary in order to enter into any other type of agreement with its own institution other than those not established in the preceding paragraph, for the purpose of avoiding conflicts of interest.

Trustee acts for and on behalf of the parties to this Trust, so that in transactions that it enters into with its own institution there shall not be extinction because of confusion over the rights and obligations arising out of contracts with the institution and with Trustee in view of Trustee acting in order to accomplish the purposes of this Trust and in accordance with the instructions from the Trustor and/or the Primary Beneficiary.

TWENTY-EIGHTH.- RENDITION OF ACCOUNTS AND RESPONSIBILITY OF TRUSTEE. Trustee shall prepare and issue, on a monthly basis and to the address indicated by Trustor and the Primary Beneficiary in this Agreement, the statement of account that states the activity in this Trust during the corresponding period.

The parties agree that Trustor and the Primary Beneficiary shall have a period of fifteen (15) Business Days following the date that it is sent, the same which shall run from the last cut-off date referenced in the statement of account, in order to make clarifications to the same, if applicable. After the expiration of such time period, said statements of account shall be deemed approved.

PURSUANT TO THE FOREGOING, the Parties execute and enter into this Agreement by means of their authorized legal representatives on the date indicated hereinabove.

TRUSTOR A AND SECONDARY BENEFICIARY A:

NEXUS MAGNETICOS DE MEXICO, S. DE R.L. DE C.V.

___/s/ Francisco Jose Peña Valdes

By: Francisco Jose Peña Valdes

Title: Attorney-in-fact

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TRUSTOR B AND SECONDARY BENEFICIARY B:

JEFFERSON ELECTRIC, INC.

____/s/ Francisco Jose Peña Valdes __

By: Francisco Jose Peña Valdes

Title: Attorney-in-fact

PRIMARY BENEFICIARY:

GE CF MÉXICO, S.A. DE C.V.

By: ___/s/ Pedro José Isla Treviño ____

Name: Pedro José Isla Treviño

Title: Attorney-in-fact

TRUSTEE:

BANCO INVEX, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE,

INVEX GRUPO FINANCIERO, FIDUCIARIO

By: ___/s/ Mario Raphael Esquivel Perpuli ________

Name: Mario Raphael Esquivel Perpuli

Title: Fiduciary Delegate

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EXHIBIT “A”

COPY OF THE LOAN AGREEMENT

[A copy is attached hereto]

38

EXHIBIT “B-1”

LIST OF TRUST ASSETS A

39

EXHIBIT “B-2”

LIST OF TRUST ASSETS B

40

EXHIBIT “B-3”

APPRAISAL DETAILING THE TRUST ASSETS

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EXHIBIT “C”

NOTICE OF TERMINATION

[Date]

________________________________________

Attention: Lic. Mario Esquivel Perpuli and/or

Nabor Medina Garza

Gentlemen:

We make reference to the irrevocable transfer of title and guaranty trust agreement number 1927 (hereinafter the “Trust Agreement”) for the benefit of GE CF Mexico, S.A de C.V (hereinafter the “Primary Beneficiary”) executed on July 25, 2012, by Nexus Magneticos de Mexico, S.A. de C.V., as Trustor A and Secondary Beneficiary A. (hereinafter the “Trustor A” or “Secondary Beneficiary A”), Jefferson Electric, Inc. as Trustor B and Secondary Beneficiary B (hereinafter the “Trustor B” or “Secondary Beneficiary B”), GE CF Mexico S.A. de C.V. as Primary Beneficiary and Banco Invex, S.A. de C.V. Multiple Banking Institution, Invex Financial Group, Trustee, as trustee (hereinafter the “Trustee”). Capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Trust Agreement.

By means hereof, the Primary Beneficiary instructs the Trustee so that pursuant to the Trust Agreement, it terminate the Trust Agreement and consequentially revert the Title of the Trust Estate in favor of the Trustor.

By means hereof, the Primary Beneficiary hereby certifies that each and every one of the conditions required for the termination of the Trust Agreement have been entirely complied with by virtue of the fact that the Guaranteed Obligations have been paid and satisfied.

Sincerely,

GE CF México, S.A de C.V.

By:__________________

Name:

Title:

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Exhibit “D”

DISTRIBUTION NOTICE

[DATE]_____________________

ATTENTION: Lic. Mario Esquivel Perpuli and/ or

Lic. Nabor Medina Garza

Gentlemen:

We make reference to the Irrevocable Transfer of Title and Guaranty Trust Agreement number 1297 (Contrato de Fideicomiso Irrevocable Traslativo de Dominio Y Garantia Numero 1297) (hereinafter the “Trust Agreement”) that for the benefit of GE CF (hereinafter the “Primary Beneficiary”), was executed on July 25, 2012, by Nexus Magneticos, S.A. de C. V., as Trustor A and Secondary Beneficiary (hereinafter “Trustor A” or “Secondary Beneficiary A”), Jefferson Electric, Inc., as Trustor B and Secondary Beneficiary B (hereinafter “Trustor B” or “Secondary Beneficiary”), GE CF Mexico, S.A. de C.V. as Primary Beneficiary and Invex, Multiple Banking Institution, Invex Financial Group, as Trustee (hereinafter the “Trustee”). The capitalized terms used herein and not expressly defined herein, shall have the meaning set forth in the Trust Agreement.

Pursuant to that provided for in paragraph (b) of Clause Twelve of the Trust Agreement, the undersigned hereby certifies that:

(i)	An Event of Default has occurred pursuant to the terms provided for in the Trust Agreement, consisting of:
	[Include a detailed description of the Event of Default]
(ii)	The undersigned has declared the Loan due and payable pursuant to the terms of the Loan Agreement.

Consequentilly, the Primary Beneficiary hereby instructs the Trustee that pursuant to the Trust Agreement, it immediately proceed to initiate the procedure for carrying out the sale and distribution of the Trust Estate as provided for in Clause Twelfth of the Trust Agreement.

Pursuant to the terms in Clause Twelfth, the outstanding balance of the Guaranteed Obligations, including the respective charges, whether interest, commissions or expenses, generated to date are $______.

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The Trustee is requested to issue the Trustee’s Notice, in which it indicates that it has received the Distribution Notice from the Primary Beneficiary, with a copy attached, and instructs the Trustor and the Secondary Beneficiary to deliver the physical possession to [*] and place at the disposal of such person each and every one the Trust Assets that make up the Trust Estate no later than 45 (forty-five) calendar days after the termination of Definite Term, therefore [*] will continue in its capacity as depository for such purposes.

Lastly, pursuant to the terms of subsection (f) of Clause Twelfth of the Trust, the Primary Beneficiary designates as Designated Assets the assets described in the document attached hereto as Exhibit “A”.

Sincerely,

GE CF de México, S.A. de C.V.

By:____________

Name:____________

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EXHIBIT “E”

DOCUMENT THAT CONTAINS THE TEXT OF THE EXTRAJUDICIAL SALE AND
DISTRIBUTION PROCEDURE SIGNED BY THE TRUSTOR

(a) Pursuant to article 403 of the Law, the parties hereby expressly and irrevocably agree that at any time that a continuing Event of Default occurs, (after the expiration of the applicable cure period available to cure the Event of Default, in accordance with the Loan Agreement) and Trustee has received a Distribution Notice in accordance with this Agreement, Trustee shall proceed with the extra-judicial sale and distribution of all of the Trust Assets in accordance with the procedure described in this Article.

(b) The Distribution Notice shall include the outstanding payment due on the Loan, including its accessories, whether interest, commissions, expenses or other amounts which are due and payable in accordance with the Loan and which have been incurred up to the date of the Distribution Notice (the date that the Distribution Notice is delivered to Trustee shall hereinafter be referred to as the “Notice Date”), as well as a description of the breach or breaches of the Loan by Trustor and a description of the Designated Assets (as such term is defined herein below).

(c) Trustor shall pay Trustee, in advance, the reasonable amounts required by such, to pay the costs and expenses that Trustee must pay in order to conduct the execution procedure described in this article, to conduct the sale of the Trust Assets. Upon non-payment by Trustor, the Primary Beneficiary shall pay such amounts, and in the event that there are not sufficient funds, Trustee may abstain from implementing such procedure. Under no circumstance shall Trustee cover the aforementioned costs and expenses with its own resources. For such purposes, Trustee shall send a notice to Trustor and the Primary Beneficiary, specifying the amount required by the Trustee in order to pay such items. Trustee shall register and retain proof or receipts or other evidence of the expenses incurred. Any amount paid by and of the aforementioned Parties shall be deducted from the amount obtained from the sale of the Trust Assets and paid to the respective party.

(d) The Primary Beneficiary will be entitled, at any time (following the delivery of a Distribution Notice), by means of a written notice delivered to Trustee (each such notice, a “Suspension Notice”), to instruct Trustee to suspend, in whole or in part, and with as much diligence as possible, the procedure for the extrajudicial sale and distribution of the Trust Estate initiated pursuant to such Distribution Notice, provided, however, that such suspension shall cease to be effective, in whole or in part, from the date Trustee receives from the Primary Beneficiary, one or more instructions in writing (each such notice, a “Continuation Notice”) instructing Trustee to continue, in whole or in part, with the suspended procedure for the extrajudicial sale and distribution of the Trust Estate.

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Once Trustee receives the corresponding Continuation Notice, Trustee shall continue with the procedure for the extrajudicial sale and distribution of the Trust Estate in accordance with this Special Section and the written instructions of the Primary Beneficiary.

(e) Trustee shall give written notice to Trustor (the "Trustee Notice"), with copy to the Primary Beneficiary, indicating that it has received a Distribution Notice and attach a copy of the same, as soon as possible but in any event no later than the Business Day immediately following the date on which the Trustee receives the Distribution Notice by means of a notary public, public courier or via voluntary jurisdiction at those addresses indicated in Article Eighteenth of this Agreement. Additionally, in the Trustee Notice, Trustee shall instruct Trustor to deliver the physical possession and/or to put it at the disposition of the person designated by the Primary Beneficiary in the Distribution Notice, each and every one of the Trust Assets that make up the Trust Estate no later than forty-five (45) calendar days following the expiration of the Definite Term (as such term is defined herein below). The person that has been designated by the Primary Beneficiary for the purposes indicated herein, shall be the depositary of the Trust Assets. Within 3 (three) Business Days after the date the Trustor receives the Trustee Notice (or the date on which the publication referred to in the last paragraph of this subsection (e) was conducted) (the "Definite Term"), Trustor shall be entitled to present documentation demonstrating to the satisfaction of the Trustee and the Primary Beneficiary, (i) that it has cured and/or has complied with the obligations giving rise to the Event of Default described in the Distribution Notice attached to the Trustee Notice and to present written proof to the Primary Beneficiary, and/or (ii) compliance with the full payment of the amount due in the manner and pursuant to the terms agreed upon in the Loan Agreement and/or (iii) submit to Primary Beneficiary (and to the Trustee) documentation to verify the renewal, extension of time or temporary waiver of the obligation(s) which gave rise to the Event of Default or, alternatively, deliver to the Trustee the amount indicated in the Distribution Notice (such notice, a "Notice of Compliance").

If the Definite Term expires and the Event of Default continues without the Trustor delivering to Trustee and the Primary Beneficiary a Notice of Compliance, the Trustor shall comply with the instructions issued by the Trustee in the Trustee's Notice, in accordance with the preceding paragraph.

If Trustor conducts acts or omissions or prevents or hinders in any way delivery of the Trustee’s Notice by Trustee, so that Trustee is prevented from delivering such, Trustee shall give notice of the Trustee’s Notice by means of publication as soon as possible, in a notice in the newspaper "Reforma" or a notice in the newspaper "El Informador" or in the Official Daily Gazette of the Federation, or if such newspapers cease to be published, in any of the major newspapers in Mexico City, Federal District.

(f) Once the Trustor delivers such Trust Assets that make up the Trust Estate, Trustee shall proceed as directed in writing by the Primary Beneficiary for such purposes, with the extrajudicial sale, for consideration, of all or part of the Trust Estate, as such assets are specifically designated by the Primary Beneficiary in the Distribution Notice (the "Designated Assets"). In connection with such sale, the Trustee shall, upon receipt of the corresponding Distribution Notice from the Primary Beneficiary, proceed as follows:

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(i) The Primary Beneficiary shall first deliver to the Trustee, without the intervention of Trustor, a list of potential purchasers of the Designated Assets.

(ii) Trustee shall, in accordance with written instructions from the Primary Beneficiary, privately deliver a notice of sale for the auction of the Designated Assets to prospective purchasers indicated by the Primary Beneficiary (a "Notice of Sale"). The Notice of Sale shall be delivered by Trustee as soon as possible but no later than 10 (ten) Business Days prior to the expected date of the auction. The Notice of Sale shall be prepared substantially in terms of the form attached hereto as Exhibit "F" and shall indicate, among other things, the place and time that the auction will be held, the Reference Price (as defined in the following paragraph), and establish that the sale is the result of the extrajudicial sale and distribution of the Trust Estate pursuant to the terms of this Agreement.

The Reference Price stated in the Notice of Sale (hereinafter the "Reference Price") shall be in Dollars and will be determined by an expert appraiser approved by a lending institution designated by the Primary Beneficiary by means of an appraisal reflected in Dollars, of the Designated Goods that make up the Guaranty Trust. Once the Trustee receives the Reference Price of the Designated Assets, the Trustee shall notify the Trustor and the Primary Beneficiary. The cost of such appraisal shall be borne by the Trustor or, if applicable, the Primary Beneficiary in terms of subsection (c) above.

(iii) Also, the Notice of Sale shall provide that (i) any person interested in participating in the auction shall deposit with the Trustee an amount at least equal to 10% (ten percent) of the Reference Price set out in the Notice of Sale, by means of certificates of deposit issued by authorized credit institutions, at least 2 (two) Business Days prior to the date of the auction (the "Deposit"), (ii) any bid shall not be accepted or considered valid unless the Deposit is established in the terms and within the period referred to above, and (iii) the bids of participants must be at least equal to the applicable Reference Price. The Trustee, upon prior instructions from Primary Beneficiary, shall transfer the Designated Assets in favor of the bidder who has offered the highest bid (the "Highest Bidder"), which in any case must be at least an amount equal to the applicable Reference Price. In case two or more persons have submitted equal bids and they are the highest bids, the Primary Beneficiary in its discretion shall designate a person to whom the Trustee will transfer the Designated Assets and such will be considered, for this purpose, as the Highest Bidder.

(iv) The Highest Bidder shall pay to the Trustee (in immediately available funds), the balance of its bids (which in any case must be at least equivalent to the applicable Reference Price) at the time that the transfer of the Designated Assets are transferred to the Highest Bidder pursuant to applicable law. In the event that the transfer of the Designated Goods is not carried out for any reason attributable to the Highest Bidder, (x) the Highest Bidder will lose the Deposit delivered to the Trustee for the benefit of the Trust Estate; and (y) the Trustee will sell the Designated Assets in accordance with the instructions of the Primary Beneficiary, to the next Highest Bidder, to the extent that its bid is at least equal to the applicable Reference Price. This paragraph (iv) must be transcribed word for word in the Notice of Sale.

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(v) In the event that the Trustee is unable to carry out the sale of the Designated Assets in the first auction, then, in accordance with written instructions from the Primary Beneficiary, the Trustee shall deliver to prospective purchasers of the Designated Assets, who shall be designated by the Primary Beneficiary in terms of subsection (f) (i) above. The original Reference Price in the Notice of Sale will be reduced by 2.5% (two point five percent) every 60 (sixty) calendar days in case the sale is not conducted. In this regard, the corresponding Notice of Sale shall provide that the Trustee shall not offer the Designated Goods for less than the reduced Reference Price, as appropriate (upon receiving an offer from a good faith purchaser). If within a period of 12 (twelve) months, there shall be a new assessment, in Dollars, of the Designated Assets that constitute the Guaranty Trust, by an expert appraiser authorized by a lending institution designated by the Primary Beneficiary. The value provided by the new appraisal will be considered, for all purposes, as the Reference Price. Once the Trustee receives the new Reference Price of the Designated Assets, it shall notify Trustor and the Primary Beneficiary. If the Reference Price is adjusted so that it is equal to or less than the balance of the Guaranteed Obligations and accessories, the Primary Beneficiary shall have the right to ask Trustee to adjust the Designated Assets pertaining to the Guaranty Trust to pay the balance of the Guaranteed Obligations and accessories. The second or subsequent Notices of Sale for the Designated Assets shall be given in accordance with and subject to the provisions of paragraphs (i), (ii), (iii) (iv) and (v) of this subsection (f).

(g) The contract of sale to be entered into by and between Trustee and the Highest Bidder who will acquire all of the Trust Assets, or where appropriate, the Designated Assets, must establish that payment of the price shall be in Dollars and shall be made upon execution.

The amounts received by the Trustee for the sale of all of the Trust Assets or, where applicable, the Designated Assets, which constitute the Guaranty Trust shall be applied as follows: (i) first to the payment of any and all taxes that are generated from such transfer, (ii) second to the outstanding trust fees, in accordance with the provisions of Article Fifteenth of the Agreement, (iii) third, to payment or reimbursement of costs of implementation of the Guaranty Trust, (iv) fourth, to pay the amount indicated by the Primary Beneficiary in the Distribution Notice, which, once made, shall release Trustor from the Guaranteed Obligations whenever the amount of resources obtained from the sale and distribution of the Guaranty Trust are sufficient to liquidate the Guaranteed Obligations, being that if they were insufficient, Trustor A would not be released from the Secured Obligations under the Loan Agreement; and (v) fifth, the remainder of the funds obtained from the sale and distribution of the Guaranty Trust shall be returned to Trustor in relation to the assets transferred to this Trust.

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(h) It is expressly agreed between the Parties in the event that the proceeds from the sale of the Trust Estate are not sufficient to fully cover the Guaranteed Obligations or any other amount owed to the Primary Beneficiary or Trustee under this Agreement, including without limitation, any fees and expenses incurred by the Primary Beneficiary or Trustee in connection with this Agreement or in connection with the sale of the Trust Estate, the Primary Beneficiary and the Trustee expressly reserve any and all rights which they may have to exercise to receive full payment of any such amounts.

(i) The Trustor agrees to perform or cause to be carried out, all acts or initiate any and all procedures necessary or convenient in order for the Trustee (acting in accordance with written instructions from the Primary Beneficiary) to carry out the extrajudicial sale and distribution of the Trust Estate (or any part thereof) in the manner provided in this article. The Grantor further agrees to perform or cause to be carried out all acts necessary or appropriate to expedite the sale, assignment or transfer of all or any part of the Trust Estate, and to execute and deliver any documents and take any other action that the Trustee (acting under the instructions of the Primary Beneficiary) or the Primary Beneficiary deems necessary or desirable for the purpose of such sale, assignment or transfer to be is made in accordance with applicable law.

(j) Being that the Secured Obligations consist of monetary obligations denominated in Dollars, for payment of such Secured Obligations, the proceeds of the extrajudicial sale and distribution of the Trust Estate or any portion thereof must be received in Dollars.

In accordance with the provisions of Article 403 (four hundred and three) of the General Law of Instruments and Credit Operations, the Parties signed the text of this Special Section in a separate document, in addition to signing this Agreement, expressing their express consent and irrevocable instruction to the Trustee to follow the procedure for extrajudicial sale and distribution of the Trust Estate under this Special Section.

THE TRUSTOR A AND SECONDARY BENEFICIARY A:

NEXUS MAGNETICS DE MEXICO, S.DE R.L. DE C.V.

___ /s/ Francisco José Peña Valdés___

By: Francisco José Peña Valdés

Title: Attorney In-Fact

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THE TRUSTOR B AND SECONDARY BENEFICIARY A:

JEFFERSON ELECTRIC, INC.

___ /s/ Francisco José Peña Valdés___

By: Francisco José Peña Valdés

Title: Attorney In-Fact

THE PRIMARY BENEFICIARY:

GE CF MEXICO, S.A. DE C.V.

By:__/s/ Pedro Jose Isla Trevino___

Name: Pedro Jose Isla Trevino

Title: Attorney In-Fact

THE TRUSTEE:

BANCO INVEX, S.A. MULTIPLE BANKING INSTITUTION,

INVEX FINANCIAL GROUP, TRUSTEE

By: __/s/ Nabor Medina Garza ___

Name: Nabor Medina Garza

Title: Fiduciary Delegate

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EXHIBIT “F”

Irrevocable Transfer of Title and Guaranty

Trust Agreement No. No. 1297

Form of Notice of Sale]

[on Letterhead of Trustee]

Notice of Sale for Private Offer

[First] Auction

On [insert date of auction] at [__:__p.m./a.m.], in [insert place of auction], the assets described below will be privately sold:

[Include a detailed description of the Designated Assets] (the “Designated Assets”)

This private auction is the result of a foreclosure procedure set forth in the Irrevocable Transfer of Title and Guaranty Trust Agreement 1297 (Contrato de Fideicomiso Irrevocable Translativo de Domino y de Garantia No. 1297) dated July 25, 2012 for the Benefit of GE CF Mexico, S.A. de C.V. (hereinafter the “PRIMARY BENEFICIARY”) was executed on July 25, 2012 by Nexus Magneticos de Mexico, S.A. de C.V. as TRUSTOR “A” and SECONDARY BENEFICIARY “A” (hereinafter “TRUSTOR A” or “SECONDARY BENEFICIARY A”) Jefferson Electric, Inc, as “TRUSTOR B” and SECOND BENEFICIARY “B” (hereinafter the “TRUSTOR B” or “SECONDARY BENEFICIARY B”) GE CF, MEXICO, S.A. DE C.V. as Primary Beneficiary and Banco Invex, Multiple Banking Institution, Trustee as Trustee (hereinafter the “TRUSTEE”).

The private auction will be carried out in accordance with the extrajudicial foreclosure procedure set forth in the Special Section of Clause Twelve of the Trust Agreement.

The Reference Price for the sale of the Designated Assets is the amount of $[_____].00([_____] dollars, lawful currency of the United States of America]) (the “Reference Price”), provided, however, that the interested participants shall deliver to the Trustee, at the address set forth in the preamble of the Notice of Sale, at least 2 (two) business days prior to the date of the bid process:

a)a written document with the following information: (i) name of the person or legal entity submitting the bid; (ii) its tax identification registry number; (iii) address; (iv) nationality; and (v) amount of bid; and

b)a certificate of deposit issued by an authorized credit institution, in favor of the Trustee, in an amount equal to at least 10% (ten percent) of the Reference Price.

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The Trustee shall return the certificate of deposit delivered by any unsuccessful participant, immediately after the auction.

No bid shall be admitted or considered valid except for those that (i) are submitted in the terms and conditions set forth herein; and (ii) are at least an amount equal to the Reference Price. The Trustee shall transfer the Designated Assets to the participant who offers the highest bid (which shall in any event be at least equal to the applicable Reference Price), (hereinafter the Highest Bidder) concurrently with the payment thereof in full in immediately available funds, provided, however, that in the event that (i) two or more participants have made equal bids which are the highest, the Primary Beneficiary at its discretion will designate the participant to which the Trustee will transfer the Designated Assets (a situation that the bidders accept as of the moment that they have carried the actions described in the foregoing subsections (a) and (b), to the participant that will be considered for all purposes to be the Highest Bidder; (ii) in the event the transfer if the Designated Assets is not consumed for causes attributable to such highest bidder, such highest bidder (x) shall forfeit the Deposit delivered to the Trustee for the benefit of the Trust Estate, and (y) the Trustee will, as instructed by the Beneficiary, sell the Designated Assets to the next highest bidder, to the extent its bid is at least equal to the Reference Price, in accordance with Subsection f (IV) of the Special Section contained in Clause Twelve of the Trust Agreement transcribed below:

“The Highest Bidder shall pay to the Trustee (in immediately available funds) the price of its bid (which shall in any event be at least equal to the applicable Reference Price) concurrently with the transfer and delivery of the Designated Assets by the Trustee to the Highest Bidder in accordance with the applicable law. In the event the transfer of the Designated Assets is not consummated for causes attributable to the Highest Bidder: (x) the Highest Bidder shall forfeit the Deposit delivered to the Trustee for the benefit of the Trust Estate, and (y) the Trustee will, as instructed by the Beneficiary, sell the Designated Assets to the next highest bidder, to the extent its bid is at least equal to the applicable Reference Price. This paragraph (iv) shall be transcribed in the Call.”

The Trustee reserves the right, at any time and for any reason whatsoever and without being obligated to express such reasons, to cancel or suspend the private auction referred to herein pursuant to the instructions of the Primary Beneficiary, without any liability whatsoever, in which case the Trustee shall be obligated to return to the participants and certificate of deposit received by the Trustee from each of such participants.

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[Insert date of Notice of Sale]

Sincerely,

THE TRUSTEE:

BANCO INVEX, S.A. DE C. V. MULTIPLE BANKING INSTITUTION,

INVEX FINANCIAL GROUP, TRUSTEE

By: ____________________________________________

Name: [*]

Title: Fiduciary Delegate

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EX-10.4

CORPORATE GUARANTY

Date: at the 26th of July, 2012

GE CF México, S.A. de C.V.

GE Capital CEF Mexico, S. de R. L de C.V.

Av. Antonio Dovalí Jaime Torre A Piso 5

Colonia Santa Fe

01210, México, D.F.

To induce you to enter into that certain Loan Agreement dated on 25th of July, 2012 and any and all Schedules, Annexes, Exhibits and the other documents related thereto including, but not limited to the promissory note(s), security agreements, pledge agreements, lease agreements, and/or any other documents or instruments evidencing, or relating to, loan, extension of credit or other financial accommodation(collectively "Account Documents" and each an "Account Document") with Nexus Magneticos de Mexico, S. de R.L. de C.V., a Mexican company organized and existing under the laws of the United Mexican States ("Customer"), but without in any way binding you to do so the undersigned, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby guarantee to you, your successors and assigns, the due, regular and punctual payment of any sum or sums of money which the Customer may owe to you now or at any time hereafter, evidenced by the Account Documents, and whether it represents principal, interest, late charges, indemnities, an original balance, an accelerated balance, liquidated damages, a balance reduced by partial payment, a deficiency after sale or other disposition of any collateral or security, or any other type of sum of any kind whatsoever that the Customer may owe to you now or at any time prior to the termination of this Corporate Guaranty, and does hereby further guarantee to you, your successors and assigns, the due regular and punctual performance of any another duty or obligation of any kind or character whatsoever (subject to any notice and cure period set forth in the Account Documents) that the Customer may owe to you now or at any time hereafter directly related or derived from the Account Documents(all such payment obligations being collectively referred to as "Obligations"). The undersigned does hereby further guarantee to pay upon simple demand all direct damages, costs, reasonable attorneys' fees and expenses which may be suffered by you by reason of Customer´s default or default of the undersigned.

This Guaranty is a guaranty of prompt payment (and not merely a guaranty of collection). Should there be any default of the Account Documents, nothing herein shall require you to first seek or exhaust any remedy against the Customer, its successors and assigns, or any other person obligated with respect to the Obligations, or to first foreclose, exhaust or otherwise proceed against any collateral or security which may be given in connection with the Obligations. It is agreed that you may, upon any breach or default of the Customer (subject to any notice and cure period set forth in the Account Documents), make demand upon the undersigned and receive payment of the Obligations, with or without notice or demand for payment or performance by the Customer, its successors or assigns, or any other person (other than the undersigned). Suit may be brought and maintained against the undersigned, at your election, without joinder of the Customer or any other person as parties thereto. The obligations of each signatory to this Guaranty shall be joint and several.

The undersigned agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances (regardless of any notice to or consent of the undersigned): (a) the enforceability of the Account Documents; (b) any extension, renewal, amendment, change, waiver or other modification of the Account Documents or any other document except to the extent that such amendment, change, waiver or modification to the Account Documents waives and/or releases Customer of its Obligations; (c) the absence of, or delay in, any action to enforce the Account Documents, this Guaranty or any other document; (d) your failure or delay in obtaining any other guaranty of the Obligations (including, without limitation, your failure to obtain the signature of any other guarantor hereunder); (e) the extension of time for payment or performance by, or any other indulgence granted to the Customer or any other person with respect to the Obligations by operation of law or otherwise; (f) the existence, value, condition, loss, subordination or release (with or without substitution) of, or failure to have title to or perfect and maintain a security interest in, or the time, place and manner of any sale or other disposition of any collateral or security given in connection with the Obligations, or any other impairment (whether intentional or negligent, by operation of law or otherwise) of the rights of the undersigned; (g) the Customer's voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization, or similar proceedings affecting the Customer or any of its assets; or (h) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. Notwithstanding anything to the contrary contained in this Guaranty, in no event shall the aggregate of the obligations and liabilities of Guarantor and Customer be greater and of any longer duration than the Obligations and liabilities of Customer under the Account Documents and, for avoidance of doubt, Guarantor’s liability under this Guaranty shall be subject to your duty to mitigate any loss in the same manner and to the same extent as if Guarantor had executed the Account Documents in place of Customer.

This Guaranty, the Account Documents and the Obligations may be assigned by you, without consent but with notice to the undersigned. The undersigned agrees that if it receives written notice of an assignment from you, the undersigned will pay all amounts due hereunder to such assignee. The undersigned also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee. The undersigned hereby waives and agrees not to assert against any such assignee any of the defenses set forth in the immediate preceding paragraph.

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This Guaranty may be terminated upon delivery to you (at your address shown above) of a written termination notice from the undersigned. However, as to all Obligations (whether matured, unmatured, absolute or otherwise) incurred by the Customer prior to your receipt of such written termination notice (and regardless of any subsequent amendment, extension or other modification which may be made with respect to such Obligations), this Guaranty shall nevertheless continue and remain undischarged until all such Obligations are paid and performed in full.

The undersigned agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of any of the Obligations (or any part thereof) is rescinded, reduced or must otherwise be restored or returned by you, all as though such payment or performance had not been made. If, by reason of any bankruptcy, insolvency or similar laws effecting the rights of creditors, you shall be prohibited from exercising any of your rights or remedies against the Customer or any other person or against any property, then, as between you and the undersigned, such prohibition shall be of no force and effect, and you shall have the right to make demand upon, and receive payment from, the undersigned of all amounts and other sums that would be due to you upon a default with respect to the Obligations.

Except as set forth in the Account Documents, notice of acceptance of this Guaranty and of any default by the Customer or any other person is hereby waived. Presentment, protest demand, and notice of protest, demand and dishonor of any of the Obligations, and the exercise of possession, collection or other remedies for the Obligations, are hereby waived. The undersigned warrants that it has adequate means to obtain from the Customer on a continuing basis financial data and other information regarding the Customer and is not relying upon you to provide any such data or other information. Without limiting the foregoing, notice of adverse change in the Customer's financial condition or of any other fact which might materially increase the risk of the undersigned is also waived.

Payment of all amounts now or hereafter owed to the undersigned by the Customer for any of the Obligations is hereby subordinated in right of payment to the payment in full to you of all Obligations. The undersigned hereby irrevocably and unconditionally waives until the payment in full to you of all the Obligations all statutory, contractual, common law, equitable and all other claims against the Customer for any of the Obligations, any collateral therefore, or any other assets of the Customer, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect of sums paid or payable to you by the undersigned hereunder, and the undersigned hereby further irrevocably and unconditionally waives until the payment in full to you of all the Obligations any and all other benefits which it might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by, or collected or due from, it, the Customer for any of the Obligations, or realized from any of their respective assets.

THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

As used in this Guaranty, the word "person" shall include any individual, corporation, partnership, joint venture, association, joint- stock company, trust, unincorporated organization, or any government or any political subdivision thereof.

This Guaranty is intended by the parties as a final expression of the guaranty of the undersigned and is also intended as a complete and exclusive statement of the terms thereof. No course of dealing, course of performance or trade usage, nor any paid evidence of any kind, shall be used to supplement or modify any of the terms hereof. Nor are there any conditions to the full effectiveness of this Guaranty. This Guaranty and each of its provisions may only be waived, modified, varied, released, terminated or surrendered, in whole or in part, by a duly authorized written instrument signed by you and the undersigned. No failure by you to exercise your rights hereunder shall give rise to any estoppel against you, or excuse the undersigned from performing hereunder. Your waiver of any right to demand performance hereunder shall not be a waiver of any subsequent or other right to demand performance hereunder.

This Guaranty shall bind the undersigned's successors and assigns and the benefits thereof shall extend to and include your successors and assigns. During the occurrence and continuance of an event of default hereunder, you may at any time inspect undersigned's accounting records (provided that such inspection is not a violation of the Security and Exchange rules of the United States of America),

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If any provisions of this Guaranty are in conflict with any applicable statute, rule or law, then such provisions shall be deemed null and void to the extent that they may conflict therewith, but without invalidating any other provisions hereof.

Each signatory on behalf of a corporate guarantor warrants that he had authority to sign on behalf of such corporation and by so signing, to bind said guarantor corporation hereunder.

This guarantee and all other documents related therewith, shall be governed by and construed by the laws of the State of New York in the United States of America, without regard to the conflicts of laws provisions thereof, and all disputes, controversies or claims derived from, arising out of or related thereto shall be subject to the jurisdiction of the competent courts of the State of New York, without giving effect to the current or future domiciles of the parties.

IN WITNESS WHEREOF, this Guaranty is executed the day and year above written.

PIONEER POWER SOLUTIONS, INC.

By:              /s/ Andrew Minkow            

Name: Andrew Minkow

Title: Chief Financial Officer, Secretary and Treasurer

ATTEST:	By:	/s/ Patricia A. Blackwell
	Name:	Patricia A. Blackwell
	Title:	Notary Republic of New Jersey

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Nathan J. Mazurek, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pioneer Power Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012	/s/ Nathan J. Mazurek
	Nathan J. Mazurek
	President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer duly authorized to sign on behalf of Registrant)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Andrew Minkow, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pioneer Power Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012	/s/ Andrew Minkow
	Andrew Minkow
	Chief Financial Officer, Secretary and Treasurer
	(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter ended September 30, 2012 of Pioneer Power Solutions, Inc. (the “Company”). I, Nathan J. Mazurek, the Chief Executive Officer of the Company, certify that, based on my knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

Date: November 14, 2012	By:	/s/ Nathan J. Mazurek
	Name:	Nathan J. Mazurek
	Title:	Chief Executive Officer

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter ended September 30, 2012 of Pioneer Power Solutions, Inc. (the “Company”). I, Andrew Minkow, the Chief Financial Officer of the Company, certify that, based on my knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

Date: November 14, 2012	By:	/s/ Andrew Minkow
	Name:	Andrew Minkow
	Title:	Chief Financial Officer

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.