LOAN AND SECURITY AGREEMENT

Exhibit 10.16

 

LOAN AND SECURITY AGREEMENT

 

by and between

 

WELLS FARGO FINANCIAL PREFERRED CAPITAL, INC.,

 

AND

 

FSB FINANCIAL, LTD.

 

Dated June 8, 2005

 

$75,000,000

LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT (“Agreement”) is made as of the 8th day of June, 2005, by and between FSB FINANCIAL, LTD. (“Borrower”), a Texas limited partnership with its principal office located at 110 West Randol Mill Road Suite 100, Arlington, Texas 76011, and WELLS FARGO FINANCIAL PREFERRED CAPITAL, INC. (“WFFPC”), an Iowa corporation with its principal office located at 800 Walnut, Des Moines, Iowa 50309.

 

BACKGROUND

 

Borrower has requested and WFFPC has agreed to make available to Borrower a secured revolving credit facility in the initial principal amount of $75,000,000, all on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties covenant and agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.1 Certain Definitions . The terms defined in this Section 1.1, whenever used and capitalized in this Agreement shall, unless the context otherwise requires, have the respective meanings herein specified.

 

“ Adjusted Tangible Net Worth ” means, as of any date of determination, Tangible Net Worth minus the aggregate amount of Borrower’s Receivables included in its Tangible Net Worth that are 120 days or more delinquent on a contractual aging basis.

 

“ Advance ” means each advance of the Loan made to Borrower pursuant to Section 2.1 hereof.

 

“ Advance Rate ” means the following percentage based upon the Collateral Performance Indicator as of the end of each month then most recently ended for which monthly reports have been delivered to WFFPC pursuant to Section 6.2:

 

 

“ Affiliate ” means (i) any person who or entity which directly or indirectly owns, controls or

holds 5% or more of the outstanding beneficial interest in Borrower; (ii) any entity of which 5% or more of the outstanding beneficial interest is directly or indirectly owned, controlled, or held by Borrower; (iii) any entity which directly or indirectly is under common control with Borrower; (iv) any officer, director, partner or employee of Borrower or any Affiliate; or (v) any immediate family member of any person who is an Affiliate. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

 

“ Agreement ” means this Loan and Security Agreement and all exhibits and schedules hereto, as the same may be amended, modified or supplemented from time to time.

 

“ Availability Statement ” means the certificate in substantially the form of Exhibit B hereto to be submitted by Borrower to WFFPC in accordance with the provisions of Section 2.1 and Section 3.3 hereof.

 

“ Bankruptcy Code ” means the United States Bankruptcy Code as now constituted or hereafter amended and any similar statute or law affecting the rights of debtors.

 

“ Base Rate ” means from the date of determination the LIBOR Rate for such date.

 

“ Books and Records ” means all of Borrower’s original ledger cards, payment schedules, credit applications, contracts, lien and security instruments, guarantees relating in any way to the Collateral and other books and records or transcribed information of any type, whether expressed in electronic form in tapes, discs, tabulating runs, programs and similar materials now or hereafter in existence relating to the Collateral.

 

“ Borrower ” means FSB Financial, Ltd., a Texas limited partnership, and its respective successors and assigns.

 

“ Borrower’s Loan Account ” has the meaning assigned to that term in Section 2.1 of this Agreement.

 

“ Borrowing Base ” means, as of the date of determination, an amount up to Advance Rate of the aggregate balance of outstanding WFFPC Receivables that are Eligible Receivables net of any unearned interest, fees, commissions, discounts, holdbacks, post-purchase add-on insurance premiums and reserves that are otherwise included by Borrower in identifying the balance outstanding on its Receivables.

 

“ Business Day ” means any day except a Saturday, Sunday or other day on which national banks are authorized by law to close including, without limitation, United States federal government holidays.

 

“ Capital Base ” means the sum of Borrower’s Adjusted Tangible Net Worth plus Subordinated Debt.

 

“ Charge-off ” or “ Charged-off ”, when used in reference to Receivables, means the cumulative Principal Balance (less applicable discounts, if any) of an account or accounts written off, net of recoveries.

 

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“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and regulations with respect thereto in effect from time to time.

 

“ Collateral ” means:

 

(i) All WFFPC Receivables, now owned or existing or hereafter arising or acquired;

 

(ii) All collateral, security and guaranties now or hereafter in existence for any of the WFFPC Receivables;

 

(iii) All insurance related to any of the WFFPC Receivables, to any collateral or security for any of the WFFPC Receivables or to any obligor in respect of any of the WFFPC Receivables and all proceeds of such insurance (including, without limitation, all non-filing insurance, credit insurance and credit life insurance related to any of the WFFPC Receivables, to any collateral or security for any of the WFFPC Receivables, or to any obligor in respect of any WFFPC Receivables and all proceeds of such insurance);

 

(iv) All of Borrower’s Books and Records related to any of the WFFPC Receivables including all computers and computer related equipment, tapes and software;

 

(v) All notes, drafts, deposit accounts, acceptances, documents of title, deeds, policies and policies or certificates of insurance (including without limitation credit insurance, credit life insurance, non-filing insurance and title insurance) and securities (domestic and foreign) and letter of credit rights now or hereafter owned by Borrower or in which Borrower has or at any time acquires an interest in connection with any of the WFFPC Receivables;

 

(vi) All of Borrower’s Accounts, Documents, Instruments, General Intangibles and Chattel Paper as defined in Section 1.2(b) of this Agreement, now owned or existing or hereafter arising or acquired related to the WFFPC Receivables, and all payment obligations owed to Borrower, now owned or existing or hereafter arising or acquired solely relating to the WFFPC Receivables; together with all collateral, security and guaranties now or hereafter in existence for any of the foregoing related to the WFFPC Receivables; and

 

(vii) All cash and non-cash proceeds of all the foregoing.

 

“ Collateral Performance Indicator ” means as of the end of each testing period the sum of (i) (a) monthly average of WFFPC Receivables greater than 60 days contractually past due as of the end of the last three calendar months, divided by (b) average total WFFPC Receivables as of the end of the last three calendar months and (ii) (a) net charge-offs of WFFPC Receivables for the 12 month period ending on such date, divided by (b) average net WFFPC Receivables outstanding during such twelve month period.

 

“ Collections ” means payment of principal, interest and fees on WFFPC Receivables, the cash and non-cash proceeds realized from the enforcement of such Receivables and any security therefor, or the Collateral, proceeds of credit, group life or non-filing insurance, or proceeds of insurance on any personal property which is part of the collateral for the Receivables.

 

“ Commitment ” means the maximum principal amount which WFFPC has agreed may be loaned to Borrower pursuant to Article 2 hereof, being, on the date hereof, $75,000,000.

 

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“ Consumer Finance Laws ” means all applicable laws and regulations, federal, state and local, relating to the extension of consumer credit, and the creation of a security interest in personal property in connection therewith, and laws with respect to protection of consumers’ interests in connection with such transactions, including without limitation, any usury laws, the Federal Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the Magnuson-Moss Warranty Act, the Federal Trade Commission’s Rules and Regulations and Regulations B and Z of the Federal Reserve Board, as any of the foregoing may be amended from time to time.

 

“ Credit Documents ” means this Agreement, the Note, the Subordination Agreement(s), the Custodian Agreement(s) and any and all additional documents, instruments, agreements and other writings executed and delivered pursuant to or in connection with this Agreement.

 

“ Custodian ” means, initially, Steve Burke.

 

“ Custodian Agreement ” means that certain Custodian Agreement dated of even date herewith by and between WFFPC, Borrower, and an individual custodian, substantially in the form attached hereto as Exhibit C , as the same may be amended, modified, restated or extended from time to time.

 

“ Debt ” means, as of the date of determination, all of Borrower’s outstanding indebtedness (other than deferred loan origination fees of Borrower and non-recourse obligations owing to a Special Purpose Subsidiary) including without limitation (a) all loans made by WFFPC to Borrower; (b) Borrower’s accounts payable as of the date of determination; (c) Borrower’s income tax liabilities; (d) Borrower’s mortgages; (e) Borrower’s deposits and debenture instruments; (f) Borrower’s Subordinated Debt; and (g) indebtedness owing to SSB.

 

“ Default ” means an event, condition or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.

 

“ EBITDA Ratio ” means Borrower’s earnings before payments of interest, taxes, depreciation and amortization expense for the twelve month period ending on the date of determination, net of the amount of any WFFPC Receivables to be charged off, that have not been charged off under Section 6.4(d), as a percent of interest expense during such twelve month period in accordance with GAAP principles pursuant to Section 6.4 of this Agreement. Any increase during such twelve month period in the shortfall between Borrower’s Allowance for Loan Losses and the applicable Minimum Allowance for Loan Losses shall be subtracted from Borrower’s reported earnings for purposes of identifying Borrower’s “earnings” as that term is used in this formula. WFFPC may also, in its reasonable discretion, disregard extraordinary or non-recurring income or expense experienced by Borrower during the testing period for purposes of determining Borrower’s EBITDA Ratio, provided that gains realized by Borrower from the sale of Receivables shall not be deemed extraordinary or non-recurring for purposes of this formula.

 

“ Eligible Receivables ” means, as of the date of determination, WFFPC Receivables (net of unearned interest and unearned discounts) which are Chattel Paper, which conform to the warranties set forth in Section 4.1 hereof, in which WFFPC has a validly perfected first priority and only Lien, and which are not any of the following: (i) Receivables for which a payment is more than 30 days past due on a contractual basis at the time they are first submitted for qualification as WFFPC Receivables; (ii) Receivables for which a payment is more than 60 days past due on a

 

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contractual basis; (iii) Receivables in litigation, foreclosure or repossession; (iv) Receivables subject to bankruptcy proceedings or the account debtor with respect to which is a debtor under the Bankruptcy Code; (v) Receivables from officers, employees or partners of Borrower or any Affiliate; (vi) Receivables which have been deferred or extended by Borrower (not including deferrals or extensions by Borrower’s predecessor in title to such Receivables) for one month more than two times during any twelve (12) month period; (vii) Receivables which have been re-written or the original terms have been otherwise modified; (viii) Receivables arising from deficiency balance accounts; (ix) Interest Only Accounts; (x) Receivables with an original term greater than 72 months; (xi) electronic chattel paper; (xii) Receivables which are payable by their terms more frequently than monthly; (xiii) Receivables which, in WFFPC’s reasonable credit discretion, do not constitute acceptable collateral.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, all amendments thereto, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to refer to any successor sections.

 

“ Event of Default ” has the meaning assigned to that term in Article 8 of this Agreement.

 

“ Existing Long-Term Unsecured Debt ” means the indebtedness of Borrower listed on Exhibit H attached hereto and made part hereof.

 

“ GAAP ” means generally accepted accounting principles applied on a consistent basis, in accordance with the Statement of Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles in the Independent Auditor’s Report” (SAS 69) or superseding pronouncements, issued by the Auditing Standards Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or in such other statements by such other entity as WFFPC may reasonably approve, which are applicable in the circumstances as of the date in question. The requirement that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period, or, in the event of a material change in any accounting principle from that observed in any previous period (i) financial reports covering preceding periods during the term of this Agreement are restated to reflect such change and provide a consistent basis for comparison among periods and (ii) the financial covenants set forth in Section 6.4 shall be adjusted as determined by WFFPC to reflect similar performance standards as those measured by the existing covenants using the previously observed accounting principles.

 

“ Intangible Assets ” means all assets of any person or entity which would be classified in accordance with GAAP as intangible assets, including without limitation (a) all franchises, licenses, permits, patents, applications, copyrights, trademarks, trade names, goodwill, experimental or organization expenses and other like intangibles, and (b) unamortized debt discount and expense and unamortized stock discount and expense.

 

“ Intercreditor Agreement ” means that certain Intercreditor Agreement substantially in the from of Exhibit G-2 to this Agreement, to be executed and exchanged by WFFPC and such other creditors of Borrower as WFFPC shall require including, without limitation, SSB pursuant to Section 5.1(f) of this Agreement, as the same may be amended, modified, restated or extended from time to time.

 

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“ Interest-Only Accounts ” means those Receivables on which collections are applied entirely to interest and expense charges, with no portion thereof being required to reduce the principal balance on the loan prior to the stated maturity of such accounts.

 

“ LIBOR Rate ” means the 30-Day London Interbank Offered Rate for any day as found in the Wall Street Journal, Interactive Edition, or any successor edition or publication.

 

“ Lien ” means any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including without limitation any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security.

 

“ Loan ” means the aggregate principal amount advanced by WFFPC to Borrower pursuant to Section 2.1 of this Agreement, together with interest accrued thereon and fees and costs incurred in connection therewith.

 

“ Loan Availability ” means the amount available for Advances under this Agreement on any date as determined in accordance with the Availability Statement submitted to WFFPC on such date in accordance with Section 3.3.

 

“ Minimum Allowance for Loan Loss ” shall mean an amount, inclusive of a traditional allowance for loan loss and unearned discount, equal to the greater of (a) the “total estimated remaining loss dollars” as computed in Borrower’s quarterly “Lifetime Remaining Loss Projections”; or (b) an amount pursuant to the recommendation of the independent certified public accountant preparing Borrower’s financial statements. Notwithstanding the foregoing, the traditional allowance for loan loss, noted in the preceding paragraph, will be maintained in an amount sufficient to meet or exceed Office of Thrift Supervision loss reserve requirements.

 

“ Note ” means the promissory note of Borrower in favor of WFFPC in substantially the form of Exhibit E to this Agreement, evidencing the obligation of Borrower to repay the Loan, and any and all amendments, renewals, replacements or substitutions therefor.

 

“ Obligations ” means each and every draft, liability and obligation of every type and description which Borrower may now or at any time hereafter owe to WFFPC (whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving WFFPC alone or in a transaction involving other creditors of Borrower, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several), and including specifically, but not limited to, all indebtedness of Borrower arising under this Agreement or the Note, including, without limitation, all Loans.

 

“ PBGC ” means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

“ Plan ” means any employee benefit plan subject to the provisions of Title IV of ERISA which is maintained in whole or in part for employees of Borrower or any affiliate of Borrower.

 

“ Principal Balance ”, when used in reference to a WFFPC Receivable, means the gross balance

 

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owed with respect to the Receivable on the date of measurement minus any unearned finance charges included in that balance by Borrower and without consideration of discounts and or reserves taken by Borrower with respect to the Receivable.

 

“ Property ” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

 

“ Receivables ” means all lien, title retention and security agreements, chattel mortgages, chattel paper, bailment leases, installment sale agreements, instruments, consumer finance paper and/or promissory notes securing and evidencing time sale transactions acquired, by Borrower.

 

“ Request for Advance ” means the certificate in the form attached hereto as Exhibit A to be delivered by Borrower to WFFPC as a condition of each Advance pursuant to Section 2.5 hereof.

 

“ Restricted Payments ” means payments by Borrower which constitute (a) distributions of any kind with respect to Borrower’s equity or any warrants, rights or options to purchase or otherwise acquire any equity interests in the Borrower or (b) payments of principal or interest on Subordinated Debt.

 

“ Schedule of Receivables and Assignment ” means a schedule in the form of Exhibit F to this Agreement to be submitted by Borrower to WFFPC pursuant to Section 2.1 and Section 3.3 hereof, describing the Receivables assigned and pledged to WFFPC, for the benefit of WFFPC, on the date hereof and thereafter for the period to which such schedule relates and confirming the assignment and pledge of such Receivables.

 

“ Senior Debt ” means all Debt of Borrower other than Subordinated Debt.

 

“ Senior Debt to Capital Base Ratio ” means the ratio of Senior Debt to Capital Base.

 

“ Special Purpose Subsidiary ” means a subsidiary of Borrower which is formed and operated for the purpose of purchasing Receivables from Borrower on a cash, non-recourse basis. Borrower shall have no liability for the debts of any Special Purpose Subsidiary.

 

“ SSB ” means Southwest Securities Bank.

 

“ Subordinated Debt ” means any indebtedness of Borrower for borrowed money (including the Existing Long-Term Unsecured Debt) and which shall contain provisions subordinating the payment of such indebtedness and the liens and security interests securing such indebtedness to Senior Debt, in form, substance and extent acceptable to WFFPC, in its sole discretion provided, however, that Borrower’s indebtedness to SSB incurred in connection with SSB’s funding of Borrower’s purchase of Receivables shall not be deemed Subordinated Debt.

 

“ Subordination Agreement ” means, individually, and “ Subordination Agreements ” means, collectively, the Subordination Agreements substantially in the from of Exhibit G-1 to this Agreement, to be executed and delivered to WFFPC by each holder of Subordinated Debt pursuant to Section 5.1(f) of this Agreement, as the same may be amended, modified, restated or extended from time to time.

 

“ Subsidiary ” of any entity means any corporation of which such entity directly or indirectly

 

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owns or controls at least a majority of the outstanding stock having general voting power. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

 

“ Tangible Net Worth ” means, at any date, all amounts which, in conformity with GAAP, would be included as equity on a balance sheet excluding therefrom: (a) goodwill, including any amounts, however designated, that represents the excess of the purchase price paid for assets over the book value assigned thereto by Borrower, (b) patents, trademarks, trade names, and copyrights, (c) loans and advances to any partner, stockholder, director, officer, or employee of the company or any Affiliate or Subsidiary of Borrower, (d) all other assets which are properly classified as intangible assets in conformity with GAAP, and (e) the amount of any WFFPC Receivables to be charged off, that have not been charged off under Section 6.4(d).

 

“ Termination Date ” means the earlier of (a) June 7, 2008, as such date may be extended from time to time in writing; or (b) the date on which the Commitment is terminated and the Loan becomes due and payable pursuant to Section 9.1.

 

“ Total Liabilities ” means all liabilities of Borrower, as determined in accordance with GAAP.

 

“ WFFPC Receivables ” means Receivables of Borrower which have been assigned or pledged to WFFPC pursuant to the terms set forth in this Agreement.

 

“ WFFPC ” means Wells Fargo Financial Preferred Capital, Inc., an Iowa corporation, and its respective successors and assigns.

 

“ WFFPC Debt ” means all Debt of Borrower to WFFPC.

 

“ WFFPC Debt to Capital Base Ratio ” means the ratio of WFFPC Debt to Capital Base.

 

“ WFFPC Receivables Account ” means the bank account established by Borrower pursuant to Section 3.4 of this Agreement for the purpose of depositing proceeds of Collateral.

 

Section 1.2 Rules of Construction .

 

(a) Accounting Term . Except as otherwise provided herein, financial and accounting terms used in the foregoing definitions or elsewhere in this Agreement shall be defined in accordance with GAAP.

 

(b) Uniform Commercial Code . Except as otherwise provided herein, terms used in the foregoing definitions or elsewhere in this Agreement that are defined in the Uniform Commercial Code, including without limitation, “ Accounts ”, “ Documents ”, “ Instruments ”, “ General Intangibles ”, and “ Chattel Paper ” shall have the respective meanings described to such terms in the Uniform Commercial Code as in effect in the State of Iowa from time to time.

 

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ARTICLE 2

THE REVOLVING CREDIT FACILITY

 

Section 2.1 The Loan . Until the Termination Date and subject to the terms and conditions of this Agreement, WFFPC shall, upon the prior application of Borrower, from time to time, make Advances to Borrower on or after the date of this Agreement, which Borrower may repay and reborrow from time to time, in the maximum principal amount at any one time outstanding not to exceed the lesser of the amount of the Commitment or the Borrowing Base in effect as of the date of determination, as follows:

 

(a) WFFPC shall establish on its books an account in the name of Borrower (the “Borrower’s Loan Account”). A debit balance in Borrower’s Loan Account shall reflect the amount of Borrower’s indebtedness to WFFPC from time to time by reason of Advances and other appropriate charges (including, without limitation, interest charges) hereunder. At least once each month, WFFPC shall provide to Borrower a statement of Borrower’s Loan Account which statement shall be considered correct and accepted by Borrower and conclusively binding upon Borrower unless Borrower notifies WFFPC to the contrary within 30 days of WFFPC’s providing such statement to Borrower.

 

(b) Borrower shall prepare a completed Availability Statement as of each month end and forward such statement to WFFPC by the 20th day of the following month.

 

(c) Each Advance made hereunder shall, in accordance with GAAP, be entered as a debit to Borrower’s Loan Account, and shall be in a principal amount which, when aggregated with all other Advances then outstanding, shall not exceed the lesser of the then effective Borrowing Base or Commitment.

 

(d) The Loan shall be due and payable to WFFPC on the Termination Date. Upon the occurrence of an Event of Default, WFFPC shall have rights and remedies available to it under Article 9 of this Agreement.

 

Section 2.2 The Note . The indebtedness of Borrower to WFFPC hereunder shall be evidenced by a Note executed by Borrower in favor of WFFPC, which shall be substantially in the form of Exhibit E of this Agreement, dated the same date as this Agreement. The principal amount of the Note will be $75,000,000; provided, however, that notwithstanding the face amount of the Note, Borrower’s liability under the Note shall be limited at all times to its actual indebtedness (principal, interest and fees) then outstanding and owing to WFFPC hereunder.

 

Section 2.3 Method of Payment . Borrower shall make all payments of principal and interest on the Note in lawful money of the United States of America and in funds immediately available by wire transfer, to WFFPC at its address which appears in the signature page of this Agreement or at such other address as WFFPC otherwise directs. Whenever any payment is due on a day, which is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and interest shall be paid for such extended time.

 

Section 2.4 Interest .

 

(a) In the absence of an Event of Default or Default hereunder and prior to maturity, the outstanding balance of the Obligations will bear interest at an annual rate equal to the

 

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Base Rate plus 2.25% through and including the calendar month ending June 30, 2005 and thereafter as adjusted to an annual rate equal to the Base Rate plus the applicable margin as determined below (“Margin Rate”) then in effect. The Margin Rate shall be adjusted monthly, effective as of the first day of each month, and shall be based upon the written monthly financial statement for the immediately preceding calendar month prepared by Borrower and submitted to WFFPC. The Margin Rate shall be determined according to the following formula (provided, no downward adjustment in the Margin Rate shall be permitted during the existence of an Event of Default or Default):

 

(i) if Borrower’s Senior Debt to Capital Base Ratio as of the end of the previous month is 5.0 to 1 or less, the Margin Rate is 2.25%;

 

(ii) if Borrower’s Senior Debt to Capital Base Ratio as of the end of the previous month is more than 5.0 to 1 but less than or equal to 6.0 to 1, the Margin Rate is 2.35%;

 

(iii) if Borrower’s Senior Debt to Capital Base Ratio as of the end of the previous month is greater than 6.0 to 1, the Margin Rate is 2.40%.

 

Interest shall be payable monthly in arrears on the first day of each month commencing on the first such date after the first Advance under the Loan and continuing until the Commitment is terminated and Borrower’s indebtedness thereunder is paid in full. Interest as provided hereunder will be calculated on the basis of a 360 day year and the actual number of days elapsed. The rate of interest provided for hereunder is subject to increase or decrease when and as the Base Rate increases or decreases in an amount corresponding to the change in the Base Rate, as well as when and as the Margin Rate increases or decreases in an amount corresponding to the change in the Margin Rate. Any such change in interest rate hereunder shall take effect the first day of the month following a change in the Base Rate or Margin Rate, as the case may be. WFFPC shall determine each interest rate applicable to Advances hereunder, and its determination thereof shall be conclusive and binding except in cases of manifest error or willful misconduct; provided, however, if Borrower timely objects to the statement of Borrower’s Loan Account in accordance with Section 2.1(a), and the resolution of such objection is a restatement of such statement resulting in a change in the Margin Rate, then WFFPC shall (i) apply any resulting overpayment of interest to principal and (ii) adjust the interest rate applicable to Advances accordingly.

 

(b) Notwithstanding the foregoing, in the event that the amount of interest payable to WFFPC pursuant to Section 2.4(a) for any month is less than $10,000, Borrower shall pay to WFFPC a fee equal to the difference between the amount of interest payable and $10,000.

 

(c) Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default or Default hereunder, including after maturity and before and after judgment, Borrower hereby agrees to pay to WFFPC interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest with respect thereto, at the rate of 2.50% per annum above the rate described in subparagraph (a) above.

 

(d) The parties acknowledge that Borrower has pre-paid $100,000 in interest payable hereunder.

 

Section 2.5 Advances .

 

(a) Borrower shall notify WFFPC in writing not later than 10:00 a.m., Des Moines,

 

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Iowa, time, on the date of each requested Advance under the Commitment, specifying the date, amount and purpose of the Advance. Such notice shall be in the form of the Request for Advance attached as Exhibit A , shall be certified by the President or Treasurer (or such other authorized person as Borrower directs from time to time) of Borrower. Upon delivery of each such Request for Advance, Borrower shall be automatically deemed affirmed and true and correct as of the date of the requested Advance:

 

(i) the aggregate amount of the requested Advance, which shall be in multiples of $5,000 but not less than the lesser of $5,000 or the unborrowed balance of the Commitment;

 

(ii) confirmation of Borrower’s compliance with Sections 2.1(c), 6.4 and 7.1 through 7.11 both immediately prior to and after making such Advance; and

 

(iii) the representations and warranties set forth in Article 4 are true and correct as of the date of the Advance; no Event of Default or Default has occurred and is then continuing; and there has been no material adverse change in Borrower’s financial condition, operations or business or the Collateral since the date of the monthly and audited annual financial statements most recently delivered by Borrower to WFFPC pursuant to this Agreement.

 

(b) Subject to the satisfaction of the conditions set forth in Section 2.5(a) and 5.2, and the other terms of this Agreement, WFFPC shall make the requested Advance, in its discretion, either (a) by wiring such amount to an account designated by Borrower and in Borrower’s name, or (b) by payment by WFFPC directly to SSB for any amounts then owing to SSB by Borrower in connection with Receivables that SSB has released from its lien for designation as WFFPC Receivables, or (c) in such other manner as shall be mutually agreed upon by Borrower and WFFPC, all not later than 5:00 p.m., Des Moines, Iowa, time on the day of the requested Advance.

 

(c) Each request for an Advance pursuant to this Section 2.5 shall be irrevocable and binding on Borrower.

 

Section 2.6 Prepayment .

 

(a) Optional Prepayments . Borrower may prepay the Loan from time to time, in full or in part without premium or penalty, provided that (i) in the event Borrower repays the Loan and terminates this Agreement in full prior within one year from the Termination Date, Borrower shall pay a sum equal to 0.50% of the Commitment as a prepayment penalty; (ii) in the event Borrower repays the Loan in full and terminates this Agreement within two years from the Termination Date but not within one year from the Termination Date, Borrower shall pay a sum equal to 1.0% of the Commitment as a prepayment penalty; (iii) in the event Borrower repays the Loan in full and terminates this Agreement within three years from the Termination Date, but not within two years from the Termination Date, Borrower shall pay a sum equal to 1.5% of the Commitment as a prepayment penalty; (iv) prepayments shall be in a minimum amount of $10,000 and $10,000 increments in excess thereof; and (v) partial prepayments prior to the Termination Date shall not reduce WFFPC’s Commitment under this Agreement and may be reborrowed, subject to the terms and conditions hereof for borrowing, and partial prepayments will be applied first to accrued interest and fees and then to outstanding Advances. Notwithstanding the foregoing, Borrower shall not be obligated for the payment of any such prepayment fee if (x) (1) Borrower requests that the

 

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Commitment be increased by a commercially reasonable amount from a credit perspective, (2) Borrower has available capital to support such growth, (3) no Event of Default or Default has occurred under the Loan Agreement and (4) WFFPC does not agree to such increase or (y) the Loan is repaid out of normal cash flow or proceeds received as a result of an issuance of a securitization or commercial paper conduit.

 

(b) Mandatory Prepayments . In the event that amounts outstanding hereunder at any time exceed the Borrowing Base (whether established by an Availability Statement or otherwise) Borrower shall pay to WFFPC immediately and without demand or notice of any kind required, the amount by which Borrower’s indebtedness hereunder exceeds the Borrowing Base then applicable, together with all accrued interest on the amount so paid and any fees and costs incurred in connection therewith.

 

ARTICLE 3

SECURITY

 

Section 3.1 Security Interest . To secure the payment and performance of the Obligations, Borrower hereby grants to WFFPC a continuing general Lien on and a continuing security interest in all of the Collateral, wherever located, whether now owned or hereafter acquired, existing or created, together with all replacements and substitutions therefor, and the cash and non-cash proceeds thereof. Borrower shall promptly deliver the original WFFPC Receivables part of the Collateral to the Custodian if such Receivables are not already in the Custodian’s possession and shall assign a code to such Receivables which identify them as Collateral on Borrower’s system of accounting for its Receivables.

 

Section 3.2 Financing Statements . Borrower consents to WFFPC’s filing of financing statements with the appropriate office or offices in form sufficient to perfect WFFPC’s security interest in the Collateral which can be perfected by filing a financing statement.

 

Section 3.3 Documents to be Delivered to WFFPC . Concurrently with the execution and delivery of this Agreement and, thereafter, by the 20th day of each month for the prior month and at any other time as WFFPC may require, Borrower shall deliver to WFFPC an Availability Statement, a Schedule of Receivables and Assignment, an aging of Receivables and such other documentation as WFFPC may require. In addition, prior to any WFFPC Receivable being included within the Borrowing Base, Borrower shall deliver the following at such time: (i) a written release of SSB’s liens in such pool of Receivables, which release shall include any other Collateral in which Borrower has or at any time acquires an interest in connection with the Receivables being submitted, duly executed by SSB; and (ii) a UCC-3 partial release in recordable form with respect to SSB’s liens in the pool of Receivables being submitted and their proceeds. All WFFPC Receivables of Borrower shall be stamped and assigned to WFFPC as follows to evidence the assignment to WFFPC:

 

The within instrument or agreement is pledged as collateral to Wells Fargo Financial Preferred Capital, Inc.

 

Borrower shall: (a) deliver to the custodian under the Custodian Agreement, as the bailee and designee of WFFPC, or, upon and anytime after an Event of Default, to WFFPC, the WFFPC Receivables and all Documents, General Intangibles and Instruments relating to WFFPC Receivables; (b) execute and deliver to WFFPC a depository account control agreement with respect

 

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to the WFFPC Receivables Account, in form and substance satisfactory to WFFPC (the “Deposit Account Control Agreement”); and (c) execute and deliver to WFFPC, for the benefit of WFFPC, such assignments, mortgages, financing statements, amendments thereto and continuation statements thereof, in form satisfactory to WFFPC, and such additional agreements, documents or instruments as WFFPC may, from time to time, require to evidence, perfect and continue to perfect WFFPC’s liens and security interests granted hereunder. For purposes of this Article 3, the parties hereto agree that, until WFFPC shall otherwise designate, the custodian(s) under the Custodian Agreement as from time to time in effect, shall be deemed to be the designee of WFFPC and WFFPC shall have the right, at any time and from time to time, to direct or redirect the delivery of all or any of the foregoing items to any other designee. WFFPC may in its sole discretion record or file any such document, instrument or agreement, including, without limitation, this Agreement, as it may from time to time deem desirable.

 

Section 3.4 Collections . Notwithstanding the assignment (but not in any way to be deemed or construed to impair or affect the security interest granted hereunder) of the WFFPC Receivables by Borrower to WFFPC, until notice to the contrary is provided to Borrower by WFFPC or until the occurrence of a Default or an Event of Default, Borrower may service, manage, enforce and receive Collections on Collateral for the account of WFFPC. Borrower shall have no power to make any allowance or credit to any obligor which is contrary to Borrower’s loan policies and procedures on the date of this Agreement or which is contrary to the customary policies and procedures of a prudent bank or finance company without WFFPC’s prior written consent.

 

Borrower shall establish a depository account with a financial institution acceptable to WFFPC, designated as the WFFPC Receivables Account, into which Borrower shall deposit all proceeds of the Collateral (including WFFPC Receivables) unless and until WFFPC notifies Borrower pursuant to the following paragraph that proceeds of Collateral (including WFFPC Receivables) are to be deposited to an account over which WFFPC has exclusive control. No other funds shall be commingled with the proceeds of Collateral (including WFFPC Receivables) deposited to such account. Borrower may make withdrawals from such account, without the co-signature of WFFPC, in the ordinary course of its business. If SSB is the institution with which such account is established, Borrower shall provide WFFPC with a written waiver by SSB of any security interest or right of setoff it might otherwise have with respect to such account. Upon notification from WFFPC pursuant to the following paragraph that proceeds of Collateral (including WFFPC Receivables) are to be deposited to an account over which WFFPC has exclusive control, Borrower shall transfer the balance of the WFFPC Receivables Account to the account controlled by WFFPC.

 

Upon notice by WFFPC following an Event of Default, WFFPC may require Borrower to endorse and deposit all Collections from Collateral (including WFFPC Receivables) within one Business Day of receipt thereof and in the original form received (except for the endorsement of Borrower, if necessary, to enable the collection of instruments for the payment of money, which endorsements Borrower hereby agrees to make) in such account maintained with such depository as WFFPC may from time to time specify, such account to limit withdrawals by Borrower therefrom only to the order of WFFPC, but