Exhibit 10(h)

 

SEVENTH AMENDMENT TO

LOAN AND SECURITY AGREEMENT

 

This Seventh Amendment to Loan and Security Agreement (“Amendment”) is dated as
of March 29, 2017 by and among 1ST FRANKLIN FINANCIAL CORPORATION (“Borrower”),
WELLS FARGO BANK, N.A., successor by merger to Wells Fargo Preferred Capital,
Inc., as agent for Lenders (in such capacity, “Agent”) and the financial
institutions a party hereto as lenders (collectively, the “Lenders” and each is
a “Lender”).

BACKGROUND

 

A. Borrower, Lenders, and Agent are parties to a certain Loan and Security
Agreement dated as of September 11, 2009 (as amended or modified from time to
time, the “Loan Agreement”) and related agreements, instruments and documents
(collectively with the Loan Agreement, the “Existing Loan Documents”).
 Capitalized terms used but not otherwise defined in this Amendment shall have
the meanings respectively ascribed to them in the Loan Agreement.

B. Borrower has requested and Agent and Lenders have agreed to amend the Loan
Agreement in certain respects, all on the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
promise and agree as follows:

1. Amendments.

 

(a) Definitions. The following definitions contained in Section 1.1 of the Loan
Agreement are hereby amended and restated as follows:

 

“Eligible Receivables” means, as of the date of determination, Receivables (net
of unearned interest, fees, dealer reserves, holdbacks, discounts, insurance
premiums and commissions thereon), which conform to the warranties set forth in
Section 4.1 hereof, in which Agent has a validly perfected first priority Lien,
and which are not any of the following: (i) Receivables for which a payment is
more than 60 days past due on a contractual basis; (ii) Receivables subject to a
bankruptcy proceeding, litigation, foreclosure, repossession or other legal
proceeding; (iii) Receivables from employees (unless payments with respect
thereto are automatically deducted from such employee’s paycheck) or
shareholders of any Borrower or any Affiliate; (iv) Receivables which have been
deferred, restructured, extended, renewed, modified or altered not in compliance
with Borrowers’ Modification Policy; (vi) Receivables not in compliance with
Borrowers’ Underwriting Policy; (vii) if Borrowers have elected to note their
first priority Lien on the applicable certificate of title, Receivables for
which Agent or Borrowers have not received a valid certificate of title or
notification of a valid certificate of title with the Lien of a

 

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Borrower noted thereon, if applicable, within 120 days after the origination of
the Receivable; (viii) Receivables arising from balloon payment accounts,
non-amortizing accounts or Interest-Only Accounts; (ix) Receivables arising from
assignments for repossession; (x) Real Estate Related Accounts for which the
original term exceeds 120 months; (xi) Receivables which were originated to
support the acquisition of commercial vehicles; (xii) Payday Loans; (xiii)
Receivables constituting deficiency balance accounts; (xiv) Receivables
serviced, collected or enforced by a Person other than a Borrower without prior
written consent of Agent; and (xv) Receivables which, in Agent’s commercially
reasonable discretion, do not constitute acceptable collateral following 10
days’ notice from Agent to Borrowers.

 

“Maturity Date” means September 11, 2019, as such date may be extended from time
to time in accordance with the provisions of Section 2.4 of this Agreement.

 

(b) New Definitions.  The following new definitions are added to Section 1.1 of
the Loan Agreement

 

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, board, department, or agency or any
court, tribunal, administrative hearing body, arbitration panel, commission, or
other similar dispute-resolving panel or body (including, without limitation,
Local Authorities).

 

“Level One Regulatory Event” means the formal commencement by written notice by
any federal or state Governmental Authority of any inquiry, investigation, legal
action or similar proceeding against any Borrower or any of their Subsidiaries
challenging its authority to originate, hold, own, service, collect or enforce
Receivables generally or any category or group of Receivables that is material
to the business of such Borrower or such Subsidiary, or otherwise alleging any
material non-compliance by any Borrower or any of their Subsidiaries with any
applicable laws related to originating, holding, collecting, servicing or
enforcing Receivables generally or any category or group of Receivables that is
material to the business of such Borrower or such Subsidiary (which shall
include, without limitation, the issuance of a civil investigative demand by the
Consumer Financial Protection Bureau that meets the criteria set forth above),
which inquiry, investigation, legal action or proceeding is not released or
terminated in a manner reasonably acceptable to Agent within thirty (30)
calendar days of commencement thereof.

 

“Level Two Regulatory Event” means the issuance or entering of any stay, order,
judgment, cease and desist order, injunction, temporary restraining order, or
other judicial or non-judicial sanction, order or

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ruling against any Borrower or any of their Subsidiaries related in any way to
the originating, holding, pledging, collecting, servicing or enforcing of
Receivables generally or any category or group of Receivables that is material
to the business of such Borrower or such Subsidiary.

 

(c) Reserves.  Section 2.1(d) the Loan Agreement is hereby amended and restated
as follows:

 

Agent has the right upon 10 days prior notice to Borrowers at any time, and from
time to time, in its commercially reasonable discretion exercised in good faith
(but without any obligation), to set aside reasonable reserves against the
Borrowing Base in such amounts as it may deem commercially reasonable,
including, without limitation, a reserve equal to the amount of outstanding
indebtedness in connection with Bank Products and with respect to Regulatory
Events.

 

(d) EBITDA Ratio.  Section 6.4(a) the Loan Agreement is hereby amended and
restated as follows:

 

EBITDA Ratio.  As of the end of each calendar month, an EBITDA Ratio of not less
than (i) 1.00 to 1.00 commencing with the calendar month ending December 31,
2016 through and including September 30, 2017, (ii) 1.25 to 1.00 commencing with
the calendar month ending October 31, 2017 through and including November 30,
2017, (iii) 1.50 to 1.00 commencing with the calendar month ending December 31,
2017 through and including November 30, 2018 and (iv) 1.75 to 1.00 commencing
with the calendar month ending December 31, 2018 and thereafter.

 

(e) Charge-off Policy.  Section 6.4(e) the Loan Agreement is hereby amended and
restated as follows:

 

Charge-off Policy.  Receivables must be charged off (on a monthly basis) with
respect to which no payment due and owing thereunder has been made for a period
that is equal to or greater than 180 days, as determined on a contractual basis.

 

(f) Financial Covenant Exceptions.  The final paragraph of Section 6.4 of the
Loan Agreement is hereby amended and restated as follows:

 

Notwithstanding the foregoing, (x) Borrowers’ failure to comply with Section
6.4(c) or Section 6.4(e) shall not, in itself, constitute an Event of Default so
long as such shortfalls or losses are deducted, as contemplated by the terms of
this Agreement, in the determination of the other financial covenants contained
herein, (y) the determination

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of the covenants contained in this Section 6.4 shall exclude any asset or
liability associated with Statement of Financial Accounting Standard No. 133 and
(z) Borrowers’ failure to comply with (i) Section 6.4(a) as a result of
maintaining an EBITDA Ratio of no more than 25 basis points less than the
required EBITDA Ratio, (ii) Section 6.4(d) as a result of maintaining Senior
Debt to Capital Base Ratio of greater than 2.0 to 1.00 but not more than 2.25 to
1.00, (iii) Section 6.4(f) as a result of maintaining a Tangible Net Worth of
not less than 99% of the required Tangible Net Worth or (iv) Section 6.4(g) as a
result of maintaining a Total Liabilities to Tangible Net Worth Ratio greater
than 3.50 to 1.00 but not more than 3.75 to 1.00, shall not constitute an Event
of Default under Section 8.3(b) unless such failure continues for more than 1
consecutive calendar month; provided, however, clause (z) shall not in any event
be effective as an exception to the Event of Default described in Section 8.3(b)
more than 2 times per calendar year.

 

(g) Litigation, Enforcement Actions and Requests for Information. Section 6.11
the Loan Agreement is hereby amended and restated as follows:

 

6.11 Litigation, Enforcement Actions and Requests for Information.  Borrowers
will promptly notify Agent (a) of any litigation or action instituted or, to
Borrowers’ knowledge, threatened in writing against any Borrower or any of their
Subsidiaries or Guarantors where the amount in controversy, in Borrowers’
reasonable judgment, will or may exceed $100,000; (b) of the entry of any
judgment or lien against any property of Borrower, in an amount of $100,000 or
more as to any separate action, litigation, judgment or lien instituted,
threatened or entered or in an aggregate amount of $300,000 or more as to all
actions, litigation, judgments, or liens instituted, threatened or entered; (c)
any enforcement action or investigation instituted or, to Borrowers’ knowledge,
threatened, in writing, against any Borrower or any of their Subsidiaries by any
Governmental Authority, including without limitation any proceeding or action to
be commenced by the filing of a stipulation and consent; (d) receipt by any
Borrower or any of their Subsidiaries of an “Early Warning Notice,” “Notice and
Opportunity to Respond and Advise” or “Civil Investigative Demand” from the
Consumer Financial Protection Bureau or similar notice or request from any other
Governmental Authority; or (e) the occurrence of a Regulatory Event. 

 

(h) New Event of Default. The following new Section 8.12 is added to the Loan
Agreement:

 

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Section 8.12 Level Two Regulatory Event.  The occurrence of a Level Two
Regulatory Event which remains unvacated, undischarged, unbonded or unstayed by
appeal or otherwise for a period of thirty (30) days from the date of its entry
which Agent or Required Lenders determine in good faith that a material adverse
change in the business, operations, property (including the Collateral),
prospects or financial condition of any Borrower or any Guarantor shall occur as
a result thereof. 

 

2. Effectiveness Conditions.  This Amendment shall be effective upon the
completion of the following conditions precedent (all agreements, documents and
instruments to be in form and substance satisfactory to Agent and Agent’s
counsel):

 

(a) Execution and delivery by Borrower, Guarantors and Lenders of this Amendment
to Agent;

(b) Payment by Borrower to Agent in immediately available funds of a fully
earned and non-refundable amendment fee in the amount of $10,000;

(c) Execution and/or delivery by the parties of all other agreements,
instruments and documents requested by Agent to effectuate and implement the
terms hereof and the Existing Loan Documents.

3. Representations and Warranties.  Borrower represents and warrants to Agent
and Lenders that:

 

(a) All warranties and representations made to Agent and Lenders under the Loan
Agreement and the Existing Loan Documents are true and correct in all material
respects.

(b) The execution and delivery by Borrowers and Guarantors of this Amendment and
the performance by each of them of the transactions herein and therein
contemplated do not and will not violate any provisions of any law, rule,
regulation, judgment, order, writ, decree, determination or award or breach any
provisions of the charter, bylaws or other organizational documents of any
Borrower or any Guarantor, or constitute a default or result in the creation or
imposition of any security interest in, or lien or encumbrance upon, any assets
of any Borrower or any Guarantor (immediately or with the passage of time or
with the giving of notice and passage of time, or both) under any other
contract, agreement, indenture or instrument to which a Borrower or a Guarantor
is a party or by which a Borrower or a Guarantor or its property is bound with
failure to comply resulting in a material adverse change in the business,
operations, property (including the Collateral), prospects or financial
condition of any Borrower or any Guarantor.

(c) This Amendment and any assignment, instrument, document, or agreement
executed and delivered in connection herewith will be valid, binding and
enforceable in accordance with its respective terms.

(d) No Event of Default or Default has occurred under the Loan Agreement.

4. Representations and Release of Claims.  Except as otherwise specified herein,
the

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terms and provisions hereof shall in no manner impair, limit, restrict or
otherwise affect the obligations of Borrower, any Guarantor or any third party
to Agent and Lenders as evidenced by the Existing Loan Documents.  Borrower and
each Guarantor hereby acknowledge, agree, and represent that (a) as of the date
of this Amendment, there are no known claims or offsets against, or defenses or
counterclaims to, the terms or provisions of the Existing Loan Documents or the
other obligations created or evidenced by the Existing Loan Documents; (b) as of
the date of this Amendment, neither Borrower nor any Guarantor has any known
claims, offsets, defenses or counterclaims arising from any of Agent’s acts or
omissions with respect to the Existing Loan Documents or Agent’s performance
under the Existing Loan Documents; (c) as of the date of this Amendment,
Borrower has reviewed and reconciled all Advances, calculations of interest due
and principal owing, and agrees with and has no claims regarding any such
matters and (d) Borrower promises to pay to the order of Agent and Lenders the
indebtedness evidenced by the Note according to the terms thereof.  In
consideration of the modification of certain provisions of the Existing Loan
Documents, all as herein provided, and the other benefits received by Borrower
hereunder, Borrower and each Guarantor hereby RELEASE, RELINQUISH and forever
DISCHARGE Agent and Lenders, and their predecessors, successors, assigns,
shareholders, principals, parents, subsidiaries, agents, officers, directors,
employees, attorneys and representatives (collectively, the “Released Parties”),
of and from any and all present known claims, demands, actions and causes of
action of any and every kind or character, which Borrower or Guarantors, or any
of them, has or may have against Released Parties arising out of or with respect
to any and all transactions relating to the Loan Agreement, the Note, the
Guaranties, and the other Existing Loan Documents occurring prior to the date
hereof.  Further, Borrower and Guarantors warrant and represent that they are
not now aware of any claims or potential claims against Agent or Lenders
pursuant to the Loan Agreement.

 

5. Collateral.  As security for the payment of the Obligations to Agent and
Lenders under the Loan Agreement and satisfaction by Borrower of all covenants
and undertakings contained in the Loan Agreement and the Existing Loan
Documents, Borrower reconfirms the prior security interest and lien on, upon and
to, its Collateral, whether now owned or hereafter acquired, created or arising
and wherever located.  Borrower hereby confirms and agrees that all security
interests and Liens granted to Agent for the ratable benefit of Lenders continue
in full force and effect and shall continue to secure the Obligations.  All
Collateral remains free and clear of any Liens other than Permitted Liens.
 Nothing herein contained is intended to in any manner impair or limit the
validity, priority and extent of Agent’s existing security interest in and Liens
upon the Collateral.

 

6. Acknowledgment of Indebtedness and Obligations.  Borrower and Guarantors
hereby acknowledge and confirm that as of the date hereof, Borrower is indebted
to Agent and Lenders, without known defense, setoff or counterclaim, under the
Loan Agreement (in addition to any other indebtedness or obligations owed by
Borrowers to Wells Fargo Affiliates) in the aggregate principal amount of $0.00,
plus continually accruing interest and all fees, costs, and expenses, including
reasonable attorneys’ fees, incurred through the date hereof.

 

7. Ratification of Existing Loan Documents.  This Amendment shall be
incorporated into and deemed a part of the Loan Agreement.  Except as expressly
set forth herein, all of the terms and conditions of the Loan Agreement and
Existing Loan Documents are hereby ratified and confirmed and continue unchanged
and in full force and effect.  All references to the Loan Agreement shall mean
the Loan Agreement as modified by this Amendment.

 

8. Acknowledgment of Guarantors.  By execution of this Amendment, each Guarantor

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hereby acknowledges the terms and conditions of this Amendment and confirms that
such Guarantor guarantees, as surety, all of Borrower’s Obligations to Agent and
Lenders pursuant to and subject to the terms, conditions and limitations
contained in its respective Guaranty.

 

9. Governing Law.  THIS AMENDMENT, THE LOAN AGREEMENT AND THE EXISTING CREDIT
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE
OF NEW YORK AND SHALL, TOGETHER WITH ALL MATTERS ARISING HEREUNDER OR RELATED
HERETO, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.

 

10. Counterparts.  This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, and such
counterparts together shall constitute one and the same respective agreement.
 Signature by facsimile or PDF shall also bind the parties hereto.

 

SIGNATURES ON FOLLOWING PAGE

 

 

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their respective duly authorized officers as of the date first above written.

BORROWER:

1ST FRANKLIN FINANCIAL CORPORATION

 

 

By: /s/ A. Roger Guimond 

Name: A. Roger Guimond 

Title: Executive Vice President and CFO 

 

GUARANTORS:

FRANDISCO LIFE INSURANCE COMPANY

 

 

By: /s/ A. Roger Guimond 

Name: A. Roger Guimond 

Title: President 

 

 

FRANDISCO PROPERTY & CASUALTY LIFE INSURANCE COMPANY

 

 

By: /s/ A. Roger Guimond 

Name: A. Roger Guimond 

Title: President 

 

 

FRANKLIN SECURITIES, INC.

 

 

By: /s/ A. Roger Guimond 

Name: A. Roger Guimond 

Title: Vice President 

 

AGENT AND LENDER:

WELLS FARGO BANK, N.A.

 

 

By: /s/ William M. Laird 

 William M. Laird, Senior Vice President 

 

[SIGNATURE PAGE TO SEVENTH AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

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