UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

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

 

Date of Report (Date of earliest event reported): November 2, 2009

 

FIRSTCITY FINANCIAL
CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (254) 761-2800

 

Not applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Section 1 — Registrant’s Business and Operations

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On November 2, 2009, American Business Lending, Inc. (“American”), an affiliate of FirstCity Financial Corporation (“FirstCity”), as borrower, and Wells Fargo Foothill, LLC (“Lender”), as lender, entered into a Fourth Amendment to Loan Agreement dated November 2, 2008, to be effective as of October 30, 2009 (the “Amendment”), which amended certain covenants under the loan facility of the Loan Agreement between American and Lender dated as of December 15, 2006, as previously amended.

 

The Amendment, which is not effective until certain conditions are met, including approval by the U.S. Small Business Administration (the “SBA”), provides for the following changes to the existing loan facility that is used to finance the acquisition and origination of loans made by American a portion of which are guaranteed by the SBA: (i) changes the interest rate for base rate loans to the greater of base rate plus a margin of 4.25% or a rate of 7.5%; (ii) changes the interest rate for Libor rate loans to the greater of Libor rate plus a margin of 4.25% or a rate of 7.5%; (iii) extends the termination date under the loan facility from January 31, 2010 to January 31, 2012; (iv) revises the prepayment fee to be a fee equal to 3% of the maximum credit line if the prepayment is made between the Amendment closing date and January 31, 2011, and a fee of 2% of the maximum credit line if the prepayment is made between February 1, 2011 and January 30, 2012; (v) changes the minimum tangible net worth requirement for each fiscal quarter to be not less than $5,500,000 plus 100% of the sum of the positive amounts, if any, of American’s net income for each of the fiscal quarters ending on or after March 31, 2009 through the date of measurement, minus 100% of the sum of the negative amounts, if any, of American’s net income for each of the fiscal quarters ending on or after March 31, 2009 through the date of measurement; (vi) changes the maximum limit for the ratio of (i) the sum of (A) delinquent non-guaranteed notes receivable and (B) defaulted non-guaranteed notes receivable, to (ii) non-guaranteed notes receivable (each measured by the respective aggregate outstanding principal amounts of all non-guaranteed notes receivable in each category, whether or not eligible for inclusion in the borrowing base), to be not more than eight percent (8.0%); (vii) changes the maximum ratio of (i) loan losses for the 12-month period being measured, to (ii) the average amount of all non- guaranteed notes receivable outstanding during such 12-month period (measured by the aggregate outstanding principal amount of all non-guaranteed notes receivable, whether or not eligible for inclusion in the borrowing base), to be not more than three percent (3.0%); (viii) changes the covenant regarding bad debt reserves to require American to (a) maintain on its books, as of the end of each fiscal quarter, a bad debt reserve consistent with GAAP and American’s historical performance with respect to any notes receivable originated or acquired by American, except for those notes receivable acquired as part of the Gateway portfolio acquisition, and (b) carry on its books, at all time, the Gateway performing loans at American’s acquisition cost, rather than their face amount, in order to reflect the discount realized by American provided, however, that American will, on at least a quarterly basis, determine and report to Lender on the amount of impaired Gateway performing loans and, if such amount is greater than such discount, then American will maintain on its books, at all times thereafter, an additional loan loss reserve equal to the amount of such excess as from time to time determined; (ix) amends the criteria for net eligible non-guaranteed notes, and (x) provides for a fourth amendment closing fee of $187,500. The foregoing description of the Amendment is qualified in its entirety by reference to the full text of the Amendment attached hereto as Exhibit 10.1 and that exhibit is incorporated herein by this reference.

 

Section 9 — Financial Statements and Exhibits

 

Item 9.01 Financial Statements and Exhibits.

 

(d)           Exhibits

 

10.1.    Fourth Amendment to Loan Agreement dated November 2, 2009, between American Business Lending, Inc., as borrower, and Wells Fargo Foothill, Inc., as lender.

 

2

 

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 hereunto duly authorized.

 

	FIRSTCITY FINANCIAL CORPORATION
Date: November 10, 2009	By:	/s/ J. Bryan Baker
		J. Bryan Baker
		Senior Vice President and Chief Financial Officer

 

3

 

EXHIBIT INDEX

 

Exhibit No.		Description
10.1		Fourth Amendment to Loan Agreement dated November 2, 2009, between American Business Lending, Inc., as borrower, and Wells Fargo Foothill, Inc., as lender.

 

4

Exhibit 10.1

 

FOURTH AMENDMENT TO LOAN AGREEMENT

 

THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this “Fourth Amendment” or this “Amendment”) is entered into as of November 2, 2009 (the “Execution Date”), to be effective as of October 30, 2009, by and between AMERICAN BUSINESS LENDING, INC., a Texas corporation (“Borrower”), and WELLS FARGO FOOTHILL, LLC, a Delaware limited liability company (“Lender”), with reference to the following facts, which shall be construed as part of this Fourth Amendment:

 

RECITALS

 

A.            Borrower and Lender have entered into that certain Loan Agreement dated as of December 15, 2006, as amended by that certain First Amendment to Loan Agreement dated as of February 27, 2007, that certain Second Amendment to Loan Agreement dated as of July 30, 2007, to be effective as of June 30, 2007, and that certain Third Amendment to Loan Agreement dated as of February 18, 2009, to be effective as of February 1, 2009 (as amended or modified from time to time, the “Loan Agreement”), pursuant to which Lender is providing financial accommodations to or for the benefit of Borrower upon the terms and conditions contained therein.  Unless otherwise defined herein, capitalized terms or matters of construction defined or established in the Loan Agreement shall be applied herein as defined or established therein.

 

B.            Borrower has requested that Lender agree to certain amendments to the Loan Agreement, and Lender is willing to do so to the extent provided in, and subject to the terms and conditions of, this Fourth Amendment.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the continued performance by Borrower of its promises and obligations under the Loan Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows:

 

1.             Ratification and Incorporation of Loan Agreement and Other Loan Documents.  Except as expressly modified under this Fourth Amendment, (a) Borrower hereby acknowledges, confirms, and ratifies all of the terms and conditions set forth in, and all of its obligations under, the Loan Agreement and the other Loan Documents, and (b) all of terms and conditions set forth in the Loan Agreement and the other Loan Documents are incorporated herein by this reference as if set forth in full herein.

 

2.             Amendments to the Loan Agreement.  The Loan Agreement is hereby amended as follows:

 

2.1            Addition of New Defined Terms.  Section 1.1 of the Loan Agreement is amended by adding thereto in appropriate alphabetical order the following new defined terms:

 

a.             “Fourth Amendment” shall mean the Fourth Amendment to Loan Agreement dated as of November 2, 2009, to be effective as of October 30, 2009, between Borrower and Lender.

 

 

b.             “Fourth Amendment Closing Date” shall mean the date on which all conditions precedent set forth in the Fourth Amendment have been satisfied in a manner acceptable to Lender or waived in writing by Lender as provided therein, which date shall be confirmed by Lender to Borrower in writing upon request.

 

c.             “Fourth Amendment Closing Fee” shall have the meaning ascribed to such term in the Fourth Amendment.

 

2.2            Amendment to Definition of Base Rate Margin.  Section 1.1 of the Loan Agreement is amended by deleting the existing version of the defined term “Base Rate Margin” contained therein and replacing it with the following amended and restated version thereof:

 

“Base Rate Margin” means four and one-quarter percent (4.25%) per annum.

 

2.3            Amendment to Definition of LIBOR Rate Margin.  Section 1.1 of the Loan Agreement is amended by deleting the existing version of the defined term “LIBOR Rate Margin” contained therein and replacing it with the following amended and restated version thereof:

 

“LIBOR Rate Margin” means four and one-quarter percent (4.25%) per annum.

 

2.4            Amendment to Definition of Termination Date.  Section 1.1 of the Loan Agreement is amended by deleting the existing version of the defined term “Termination Date” contained therein and replacing it with the following amended and restated version thereof:

 

“Termination Date” shall mean the earliest of: (a) January 31, 2012 (unless a later date is agreed to in writing by Borrower and Lender); (b) the date that Borrower elects to terminate this Agreement and repays the Obligations in full in accordance with the terms of Section 2.6; and (c) the date Lender elects to terminate Borrower’s right to receive Revolving Loans in accordance with Section 7.2.

 

2.5            Amendment to Interest Rate.  Section 2.3(b) of the Loan Agreement is amended by deleting the existing version thereof and replacing it with the following amended and restated version thereof:

 

(b)          Interest shall accrue on the Revolving Loans at a rate equal to (i) in the case of a LIBOR Rate Loan, at a per annum rate equal to the sum of (A) the LIBOR Rate for the applicable Interest Period plus (B) the LIBOR Rate Margin; (ii) in the case of a Base Rate Loan, at a floating per annum rate equal to the greater of (A) the Base Rate plus the Base Rate Margin, or (B) seven and one-half percent (7.50%) per annum; and (iii) otherwise, at a floating per annum rate equal to the greater of (A) the Base Rate plus the Base Rate Margin, or (B) seven and one-half percent (7.50%) per annum.

 

 

2.6            Fourth Amendment Closing Fee.  Section 2.5(a) of the Loan Agreement is hereby amended by adding the following additional text at the end of the existing text thereof:

 

In addition, as consideration for Lender agreeing to enter into the Fourth Amendment, Borrower agrees to pay to Lender on the Fourth Amendment Closing Date an additional closing fee (the “Fourth Amendment Closing Fee”) in an amount equal to $187,500 (i.e., three-quarters of one percent (0.75%) of the Maximum Credit Line).  Borrower acknowledges that the Fourth Amendment Closing Fee shall be fully earned by Lender upon the Fourth Amendment Closing Date and shall not be refundable nor subject to reduction for any reason.

 

2.7            Amendment to Prepayment Fee.  Section 2.6 of the Loan Agreement is amended by deleting the existing version of the table contained therein setting forth the calculation of the “Prepayment Fee” and replacing it with the following amended and restated version thereof:

 

If Prepayment is Made Between the Following Dates, Inclusive:		The Premium Shall Be:
Fourth Amendment Closing Date to January 31, 2011		Three percent (3.0%) of the Maximum Credit Line
February 1, 2011 to January 30, 2012		Two percent (2.0%) of the Maximum Credit Line

 

2.8            Amendment to Minimum Tangible Net Worth Covenant.  Section 5.11(a) of the Loan Agreement is amended by deleting the existing version thereof and replacing it with the following amended and restated version thereof:

 

(a)             Minimum Tangible Net Worth.  As of the end of each fiscal quarter, maintain, on a consolidated basis with Borrower’s Subsidiaries, and after taking into account any dividends paid or accrued, Tangible Net Worth of not less than $5,500,000 plus 100% of the sum of the positive amounts, if any, of Borrower’s net income for each of the Fiscal Quarters ending on or after March 31, 2009 through the date of measurement, minus 100% of the sum of the negative amounts, if any, of Borrower’s net income for each of the Fiscal Quarters ending on or after March 31, 2009 through the date of measurement.

 

2.9            Amendment to Maximum Delinquent and Defaulted Notes Percentage Covenant.  Section 5.11(c) of the Loan Agreement is amended by deleting the existing version thereof and replacing it with the following amended and restated version thereof:

 

(c)             Maximum Delinquent and Defaulted Notes Percentage.  As of the end of each fiscal month, not cause or allow the ratio (expressed as a percentage) of (i) the sum of (A) Delinquent Non-Guaranteed Notes Receivable and (B) Defaulted Non-Guaranteed Notes Receivable, to (ii) Non-Guaranteed Notes Receivable (each measured by the respective aggregate outstanding principal

 

 

amounts of all Non-Guaranteed Notes Receivable in each category, whether or not eligible for inclusion in the Borrowing Base), to be more than eight percent (8.0%).

 

2.10          Amendment to Maximum Loan Charge-Off Percentage Covenant.  Section 5.11(d) of the Loan Agreement is amended by deleting the existing version thereof and replacing it with the following amended and restated version thereof:

 

(d)             Maximum Loan Charge-Off Percentage.  As of the end of each fiscal quarter, not cause or allow the ratio (expressed as a percentage) of (i) loan losses for the 12-month period then ending, to (ii) the average amount of all Non-Guaranteed Notes Receivable outstanding during such 12-month period (measured by the aggregate outstanding principal amount of all Non-Guaranteed Notes Receivable, whether or not eligible for inclusion in the Borrowing Base), to be more than three percent (3.0%).

 

2.11          Amendment to Covenant Regarding Maintenance of Bad Debt Reserve.  Section 5.12 of the Loan Agreement is amended by deleting the existing version thereof and replacing it with the following amended and restated version thereof:

 

5.12           Maintenance of Bad Debt Reserves and Discount for Gateway Performing Loans.  Borrower shall (a) maintain on its books, as of the end of each fiscal quarter, a bad debt reserve consistent with GAAP and Borrower’s historical performance with respect to any Notes Receivable originated or acquired by Borrower, except for those Notes Receivable acquired as part of the Gateway Portfolio Acquisition, and (b) carry on its books, at all time, the Gateway Performing Loans at Borrower’s acquisition cost, rather than their face amount, in order to reflect the discount realized by Borrower; provided, however, that Borrower will, on at least a quarterly basis, determine and report to Lender on the amount of impaired Gateway Performing Loans and, if such amount is greater than such discount, then Borrower will maintain on its books, at all times thereafter, an additional loan loss reserve equal to the amount of such excess as from time to time determined.

 

2.12          Amendment to Criteria for Net Eligible Non-Guaranteed Notes Receivable.  Schedule 1.1(a) of the Loan Agreement is amended by deleting the existing version of paragraph J thereof and replacing it with the following amended and restated version thereof:

 

J.             If the Non-Guaranteed Note Receivable is a Borrower Originated Loan, then such Non-Guaranteed Note Receivable (i) is not a Borrower Originated Cash Flow Loan or Partially Secured Loan, and (ii) does not cause the portion of Net Eligible Non-Guaranteed Notes Receivable that are Borrower Originated Mixed Collateral Loans to exceed twenty percent (20%) of the sum of (a) total Net Eligible Non-Guaranteed Notes Receivable that are Borrower Originated Loans, plus (b) the lesser of (1) total Borrower Originated Cash Flow Loans or Partially Secured Loans or (2) $1,241,113.24; provided, that in any case covered by (ii) above, such Non-Guaranteed Note Receivable will be ineligible only to the extent of such excess;

 

 

3.                                   Conditions Precedent.  Notwithstanding any other provision of this Fourth Amendment, this Fourth Amendment shall be of no force or effect, and Lender shall not have any obligations hereunder, until the following conditions have been satisfied:

 

3.1                                   Fourth Amendment and other Documents in Connection therewith.  Lender shall have received the following, each in form and substance satisfactory to Lender:

 

a.                                       this Fourth Amendment, duly executed by Borrower and Lender;

 

b.                                      the Acknowledgment and Reaffirmation of Guarantor following the signatures of Borrower and Lender on this Fourth Amendment, executed by FirstCity Financial, acknowledging the execution of this Fourth Amendment and reaffirming the obligations of FirstCity Financial with respect to the Amended and Restated General Continuing Limited Guaranty, dated as of February 18, 2009, executed by FirstCity Financial in favor of Lender;

 

c.                                       evidence that FirstCity Financial’s commitment to provide, and the maturity of, the FirstCity Debt, has been extended to a date no earlier than March 31, 2012;

 

d.                                      written consent by SBA to this Fourth Amendment and the transactions contemplated hereby.

 

3.2                                   Payment of First Amendment Closing Fee.  Lender shall have received from Borrower payment of the Fourth Amendment Closing Fee.

 

3.3                                   No Default or Event of Default.  No Default or Event of Default shall have occurred and be continuing.

 

4.                                   Representations and Warranties re Loan Agreement.  Borrower hereby represents and warrants that the representations and warranties contained in the Loan Agreement were true and correct in all material respects when made and, except to the extent that (a) a particular representation or warranty by its terms expressly applies only to an earlier date, or (b) Borrower has previously advised Lender in writing as contemplated under the Loan Agreement, are true and correct in all material respects as of the date hereof.  Borrower hereby further represents and warrants that no event has occurred and is continuing, or would result from the transactions contemplated under this Fourth Amendment, that constitutes or would constitute a Default or an Event of Default.

 

5.                                   Borrower’s Waiver of Claims Arising Prior to Execution Date of Amendment.  In consideration of Lender entering into this Fourth Amendment, Borrower, on behalf of itself, its Subsidiaries and its other Affiliates, hereby waives, releases, remises and forever discharges Lender and each other Indemnified Person from any and all claims, suits, actions, investigations, proceedings or demands, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law of any kind or character, known or unknown (collectively, the “Claims”), which Borrower ever had, now has or might hereafter have against Lender or any other Indemnified Person based on any acts or omissions of Lender or any other Indemnified Person on or prior to the Execution Date.  Borrower hereby waives and relinquishes for itself, its Subsidiaries and its other Affiliates all of the rights and benefits each such Person

 

 

has, or may have, with respect to the Claims released under Section 1542 of the California Civil Code or any other similar statute.  Section 1542 of the California Civil Code states as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

Borrower has been advised by counsel with respect to the release contained in this Section 5.

 

6.                                   Miscellaneous.

 

6.1                                   Headings.  The various headings of this Fourth Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Fourth Amendment or any provisions hereof.

 

6.2                                   Counterparts.  This Fourth Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.  Delivery of an executed counterpart of a signature page to this Fourth Amendment by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart thereof.

 

6.3                                   Interpretation.  No provision of this Fourth Amendment shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party’s having or being deemed to have structured, drafted or dictated such provision.

 

6.4                                   Complete Agreement.  This Fourth Amendment constitutes the complete agreement between the parties with respect to the subject matter hereof, and supersedes any prior written or oral agreements, writings, communications or understandings of the parties with respect thereto.

 

6.5                                   Governing Law.  This Fourth Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws.

 

6.6                                   Effect.  Upon the effectiveness of this Fourth Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import shall mean and be a reference to the Loan Agreement as amended hereby and each reference in the other Loan Documents to the Loan Agreement, “thereunder,” “thereof,” or words of like import shall mean and be a reference to the Loan Agreement as amended hereby.

 

6.7                                   Conflict of Terms.  In the event of any inconsistency between the provisions of this Fourth Amendment and any provision of the Loan Agreement, the terms and provisions of this Fourth Amendment shall govern and control.

 

 

6.8                                   No Novation or Waiver.  Except as specifically set forth in this Fourth Amendment, the execution, delivery and effectiveness of this Fourth Amendment shall not (a) limit, impair, constitute a waiver by, or otherwise affect any right, power or remedy of, Lender under the Loan Agreement or any other Loan Document, (b) constitute a waiver of any provision in the Loan Agreement or in any of the other Loan Documents or of any Default or Event of Default that may have occurred and be continuing, or (c) alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Loan Agreement or in any of the other Loan Documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment to Loan Agreement as of the day and year first above written.

 

	AMERICAN BUSINESS LENDING, INC., a Texas corporation
	By:
		Charles P. Bell, Jr.
		Chief Executive Officer
	WELLS FARGO FOOTHILL, LLC, a Delaware limited liability company
	By:
		Pamela A. Wozniak
		Vice President

 

 

ACKNOWLEDGMENT AND REAFFIRMATION OF GUARANTOR

 

FirstCity Financial Corporation, a Delaware corporation (“FirstCity Financial”), hereby acknowledges receipt of a copy of the foregoing Fourth Amendment to Loan and Security Agreement between American Business Lending, Inc., a Texas corporation (“Borrower”), and Wells Fargo Foothill, LLC, a Delaware limited liability company (“Lender”), and acknowledges and reaffirms all of FirstCity Financial’s obligations under the Amended and Restated General Continuing Limited Guaranty, dated as of February 18, 2009, executed by FirstCity Financial in favor of Lender.

 

 

	FIRSTCITY FINANCIAL CORPORATION, a Delaware corporation
	By:
	Name:
	Title: