SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 1999 or
---------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 001-14065
BLC FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1430406
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
c/o Jennifer M. Goldstein
Business Loan Center, Inc.
645 Madison Avenue, 19th Floor, New York, NY 10022-1010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 751-5626
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of Class)
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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|X| No |_|
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At September 8, 1999, there were outstanding 20,288,875 shares of the
Registrant's Common Stock ("Common Stock"), $.01 par value per share. The
aggregate market value as of September 8, 1999, of the shares of the
Registrant's Common Stock held by non-affiliates of the Registrant was
approximately $29,173,773.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Part I.
This Annual report on form 10-K contains forward-looking statements
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended ( the "Exchange Act"). Additional written or oral
forward-looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise. Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions described above. Forward-looking
statements may include, but are not limited to, projections of revenues, income
or losses, capital expenditures, plans for future operations, the elimination of
losses under certain programs and financing needs or plans. They also include
compliance with financial covenants in loan agreements, plans for sale of assets
or businesses, plans relating to products or services of the Company,
assessments of materiality, predictions of future events, and the effects of
pending and possible litigation, as well as assumptions relating to the
foregoing. In addition, when used in this discussion, the words "anticipates,"
"estimates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained herein. Statements in this Annual Report,
particularly in "Item 1. Business of the Company", "Item 3. Legal Proceedings",
the Notes to Consolidated Financial Statements and "Item 7A. Qualitative and
Quantitative Disclosure About Market Risk." "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations," describe factors,
among others, that could contribute to or cause such differences. Other factors
that could contribute to or cause such differences include, but are not limited
to, increases in borrowing costs, government regulations and other risk factors
detailed in the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
Item 1. BUSINESS OF THE COMPANY.
BLC Financial Services, Inc., a Delaware corporation (the "Company"),
is primarily engaged, through its subsidiaries, in the business of originating,
selling and servicing loans to small businesses under two government guaranteed
loan programs.
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The Company was originally incorporated in Texas on October 30, 1973
under the name Crawford Energy, Inc., and was involved in the oil and gas
drilling business. On August 10, 1990 the Company was reincorporated in
Delaware, ceased its oil and gas drilling business, and changed its name to BLC
Financial Services, Inc. The Company became listed on the American Stock
Exchange (AMEX) on April 30, 1998, after previously being listed on the OTC
Bulletin Board.
Business Loan Center, Inc.
Background. Business Loan Center Inc., ("Business Loan Center") a
Small Business Lending Company, (as defined in and under the Small Business
Administration Act (the "SBA Act"), is authorized by the United States Small
Business Administration (the "SBA") to originate, sell, and service loans to
small businesses under the SBA 7(a) Guaranteed Loan Program (the "Guaranteed
Loan Program" or the "SBA 7(a) Program"). Business Loan Center's principal
office is located at 645 Madison Avenue, New York, New York.
The SBA (7a) Program - The SBA offers financial assistance to eligible
small businesses in the form of partial government guarantees on loans made to
such businesses by participating lenders such as Business Loan Center under the
Guaranteed Loan Program.
To qualify for an SBA-guaranteed loan, a small business must meet
certain size criteria established by the SBA on an industry-by-industry basis
and must demonstrate that the requested financing will be used for specific
business purposes and cannot be obtained from the resources of the business,
conventional financing sources or through the personal resources of the owners
of the business. In evaluating a loan application, the SBA attaches importance
to many factors including the character and reputation of the applicant and its
principals, the experience and depth of management, the inherent stability of
the business enterprise, the past earnings record, future prospects for the
business, the long-range possibilities of successful operations, and the
soundness of the loan purpose. Applications are rejected if there is not
reasonable assurance that the loan can be repaid from the earnings of the
business (based upon demonstrated or projected cash flows) or the applicant has
sufficient equity to operate on a sound financial basis. The loan is typically
secured by real estate collateral and may also include liens on inventory,
machinery, equipment, and accounts receivable. Generally, the owners of 20% or
more of the business are required to personally guarantee the repayment of the
loan and may be required to pledge their personal assets.
The SBA-guaranteed loans have maturities of up to 25 years depending
on the intended use of the loan proceeds. Funds to be used for working capital
purposes generally may not exceed a seven-year maturity, while funds to be used
for machinery and equipment generally have maturities of ten years. Funds to be
used for leasehold improvements or the acquisition of land or buildings may have
maturities up to 25 years. Loan principal is amortized over the term of the
loan. A participating lender is permitted to establish any legal and reasonable
rate of interest, subject to the maximum interest rates established by the SBA.
Loans with maturities of seven years or greater may bear a maximum interest rate
not exceeding 2-3/4% over the base rate (discussed below). Of those variable
rate loans, the interest rate may adjust monthly or quarterly with the base rate
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established as the lowest New York prime rate in effect on the first day of each
adjustment period as published in The Wall Street Journal. In general, the loans
made by Business Loan Center are made on an adjustable rate basis, bear the
maximum allowable interest rate and are adjusted on a quarterly basis.
The SBA presently guarantees 80% of the loan amount in those cases
where the aggregate sum of all loans (including the loan under consideration)
made to a borrower and its affiliates under the Guaranteed Loan Program and
related SBA-sponsored financial assistance programs does not exceed $100,000.
The SBA's maximum guaranty percentage for loans in excess of $100,000 is 75%
with a maximum guaranty dollar amount of $750,000. As consideration for the
issuance of its guarantee, the SBA charges participating lenders a fee ranging
from 3% to 3.875% of the SBA-guaranteed portion of the loan, depending on the
total loan amount. The participating lenders may, in turn, charge this fee to
the borrower upon initial disbursement of the loan.
The SBA has established three levels of lender participation within
the Guaranteed Loan Program. Under the first level of lender participation,
known as "General Participation", each loan made by a participating lender under
the Guaranteed Loan Program must be reviewed and approved by the SBA.
The second level of lender participation, known as "Certified Lender
Participation," is similar to the General Participation in that the SBA must
review a lender's credit analysis and independently approve the loan. The SBA's
review, however, is expedited with completion, generally, within three business
days. Lenders may apply to be designated as "Certified Lenders" after one year
of lending activity and such status is granted at the discretion of the SBA.
Under the third level of lender participation, known as the "Preferred
Lender Program," the lender is granted the authority to approve the loan and
issue a guaranty on behalf of the SBA without submitting the loan application
for SBA review and approval, thereby expediting the lending process
significantly. Business Loan Center has been granted Preferred Lender status in
the following 39 districts: Birmingham, Alabama, Little Rock, Arkansas, Denver,
Colorado, South and North Florida, Atlanta, Georgia, Chicago and Springfield,
Illinois, Indianapolis, Indiana, Cedar Rapids and Des Moines, Iowa, Kansas City
and Wichita, Kansas, Louisville, Kentucky, New Orleans, Louisiana, Baltimore,
Maryland, Springfield and St. Louis, Missouri, Omaha, Nebraska, Las Vegas,
Nevada, Newark, New Jersey, Albuquerque, New Mexico, Rochester, Elmira,
Melville, New York City and Syracuse, New York, Oklahoma City, Oklahoma,
Pittsburgh, Pennsylvania, Columbia, South Carolina, Nashville, Tennessee,
Richmond Virginia, Washington D.C., Clarksburg, West Virginia and five districts
in Texas including Houston, and Dallas.
Sales in the Secondary Market. The SBA-guaranteed portions of loans
are sold by Business Loan Center, on a non-recourse basis, in the secondary
market. Broker-dealer firms establish a secondary market by purchasing the
SBA-guaranteed portions of the loans from participating lenders (including
Business Loan Center), and then reselling them, individually or in pools, to
banks, pension funds, institutions, or individual investors. Immediately prior
to or upon closing a loan, Business Loan Center generally will solicit bids from
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several broker-dealers active in the secondary market. The secondary market for
the SBA-guaranteed portion of loans is active and provides an immediate source
of funds enabling Business Loan Center to expand its loan portfolio. Business
Loan Center's ability to sell in the secondary market is not dependent on any
one or several of such broker-dealers because there are numerous broker-dealers
in the secondary market. During the fiscal year ended June 30, 1999 ("Fiscal
Year 1999"), not more than 38% of Business Loan Center's loans were sold to any
one broker-dealer. The SBA facilitates the existence of this secondary market by
maintaining a Fiscal and Transfer Agent (the "FTA") which maintains a central
registry of all such loans sold in the secondary market and issues certificates
representing fractional or undivided interests in pools consisting solely of
SBA-guaranteed portions of loans for a fee. The FTA also acts as a central
repository for funds collected on the SBA-guaranteed portion of loans and as a
disbursement agent to distribute such funds to the purchasers in the secondary
market.
Business Loan Center is generally able to sell the SBA-guaranteed
portions of its loans at a premium due to the lengthy maturity of the underlying
loan, the rate of return as compared to other investment paper backed by the
United States Government and the service fees to be received by Business Loan
Center from the purchaser. Under the SBA Act, Business Loan Center, is required
to pay to the SBA one-half of any premium in excess of 10% on the sale of the
SBA-guaranteed portion of any loans. Therefore, Business Loan Center typically
caps any premium received on the sale of loans in the secondary market at 10%,
which may result in increased servicing fees that are earned over the life of
the loan. During Fiscal Year 1999, Business Loan Center obtained an average
premium of approximately 9.4% on the sale of the SBA-guaranteed portion of the
loans sold in the secondary market. The premium paid on loans that default prior
to the third monthly payment must be repaid to the purchaser of the loan. Under
certain limited circumstances, Business Loan Center may be liable, on loans that
it originated, for losses incurred by the SBA. This contingency has been
accounted for with respect to determining the adequacy of the allowance for
credit losses.
After Business Loan Center sells the SBA-guaranteed portion of a loan
in the secondary market, Business Loan Center continues to service the loan for
an annual fee. Although the fee is subject to negotiation, the regulatory
minimum fee which must be received by Business Loan Center for servicing any
loan equals 1% per year of the principal amount of the SBA-guaranteed portion of
such loan. Participating lenders under the Guaranteed Loan Program are required
to pay to the SBA a portion of the annual servicing fee it receives equal to 1/2
of 1% of the outstanding principal amount of the SBA-guaranteed portion of any
loan closed subsequent to October 12, 1995. Business Loan Center has obtained
net servicing fees (after deducting the fee paid to the SBA) ranging from 1.0%
to 4.06%, with an average service fee for loans originated during Fiscal Year
1999 of 1.54%.
Revenues. Business Loan Center derives its revenues primarily from
three sources: (i) interest earned on loans retained for its own account; (ii)
gains from the sale of the SBA-guaranteed portion and unguaranteed portion of
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loans; and (iii) servicing fees paid and interest earned relating to the
residual interest of the SBA-guaranteed portion of loans sold in the secondary
market and servicing fees on the unguaranteed portion of loans sold. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Results of Operations and the Company's Financial Statements,
starting on page F-1.
Loan Portfolio. At June 30, 1999, Business Loan Center serviced a loan
portfolio consisting of 445 loans, in the approximate aggregate principal amount
of $230,749,000. Of this amount, approximately $167,312,000 (72.5%) consisted of
the SBA-guaranteed portion of these loans, of which approximately $15,044,000
consisted of the SBA-guaranteed portion of loans that had not as yet been sold
or were sold pending settlement on the secondary market. Approximately
$63,437,000 (27.5%) consisted of the unguaranteed portion of loans, of which
approximately $20,221,000 in unguaranteed loans were retained by Business Loan
Center for its own account. The original principal amounts of these loans range
from $20,000 to $1,556,000 and the contractual maturities range from 7 years to
25 years. At June 30, 1999, Business Loan Center's portfolio had a weighted
average contractual maturity of approximately 22.5 years and a weighted average
remaining maturity of approximately 20.6 years. The interest rates on these
loans are adjustable and substantially all are 2.75% over the prime rate.
Of the $230,749,000 of loans serviced by Business Loan Center's
portfolio at June 30, 1999, delinquent loans accounted for approximately
$870,000 (.38%) of which, approximately $217,000 represented Business Loan
Center's proportionate share. These figures represent delinquencies greater than
90 days. See Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Results of Operations.
Loans in liquidation serviced by Business Loan Center's portfolio at
June 30, 1999, accounted for approximately $9,088,000 (3.9%) of which,
approximately $1,673,000 represented Business Loan Center's proportionate share.
An estimation of the liquidated value of real estate collateral and
other collateral securing loans in liquidation is performed regularly based on
recent evaluations of collateral. All loans in liquidation are reviewed on a
weekly basis to determine changes in status. Of the loans in liquidation,
approximately 15% were in the gas and convenience store industry and 14% were in
the restaurant industry. No other industry accounted for more than 10% of those
loans in liquidation. At June 30, 1999, Business Loan Center had allowances for
credit loss and estimated future losses on loans in liquidation of approximately
$382,000 on its financial statements which incorporates management's assessment
of these loans.
Due to a variety of circumstances relating to the borrower's business
or personal matters, certain loans made by Business Loan Center are repaid, in
part or in their entirety, on an accelerated basis. These prepayments generally
arise from excess cash generated by the borrower's operations, refinancing, cash
from the proceeds of the sale of the borrower's business or personal real estate
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or the liquidation of other business assets. During Fiscal Year 1999, Business
Loan Center collected approximately $29,080,000 of loan prepayments of which
approximately $2,610,000 represented Business Loan Center's proportionate share.
At June 30, 1999, 44 proposed loans in the approximate aggregate
principal amount of $22,070,000 had received both Business Loan Center and SBA
approval and were awaiting closing. In addition, 87 proposed loans in the
approximate aggregate principal amount of $54,173,000 were approved by Business
Loan Center and awaiting submission to the SBA or waiting SBA approval. Business
Loan Center's existing capital resources should enable it to fund these loans
and additional loans in process. See Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Results of Operations.
Service marks. The Company believes that the distinctive logo used by
Business Loan Center is an important element of continued name recognition in
the industry. The Business Loan Center logo which includes its name within a
distinctive design was registered as a service mark on the principal register of
the United States Patent and Trademark Office on August 10, 1993.
Government Regulations. The level of SBA funding for the Guaranteed
Loan Program is subject to the federal budgeting process for each federal fiscal
year ending September 30 (each a "Federal Fiscal Year"). Accordingly, the
availability of funds for SBA guarantees could increase or decrease each year.
The budget for the Federal Fiscal Year 1999 is $10 billion under the Guaranteed
Loan Program in which Business Loan Center participates. The actual usage of
funds for Federal Fiscal Year 1998 was $9 billion as compared to $9.5 and $7.7
billion for Federal Fiscal Years 1997 and 1996, respectively. Beginning in
Federal Fiscal Year 2000, the Administration has requested a $10.5 billion
program level for participants in the Guaranteed Loan Program.
The qualification of a Small Business Lending Company, such as
Business Loan Center, to participate in the Guaranteed Loan Program is subject
to termination by the SBA based on violation of law or SBA regulations or
violation of any agreement with the SBA. Management of Business Loan Center has
no reason to believe that its license to participate in the program will be
terminated.
SBA approval of loans is dependent, in part, upon the SBA's
determination that Business Loan Center's facilities and personnel can
adequately support the servicing of the loan. Based upon the experience of its
personnel and the present staffing of Business Loan Center in its offices in New
York, New York, Panama City Beach, Florida, Charleston, South Carolina, Richmond
and Alexandria (near Washington D.C.), Virginia, Tinton Falls, New Jersey,
Memphis Tennessee, Boston, Massachusetts, Wichita, Kansas, Phoenix, Arizona,
Oklahoma City, Oklahoma, Omaha, Nebraska, and Seattle, Washington. Business Loan
Center reasonably believes that it satisfies this criteria in the states in
which it is currently operating.
As a Small Business Lending Company, Business Loan Center's operations
are subject to extensive local, state and federal regulations including, but not
limited to, the following federal statutes and regulations promulgated
thereunder: the Small Business Act, the Small Business Investment Act of 1958,
as amended, Title 1 of the Consumer Credit Protection Act of 1968, as amended
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(including certain provisions thereof commonly known as the "Truth-in-Lending
Act"), the Equal Credit Opportunity Act of 1974, as amended, the Fair Credit
Reporting Act of 1970, as amended, Title IV of the Higher Education Act of 1965,
as amended, the Fair Debt Collection Practices Act, as amended, and the Real
Estate Settlement Procedures Act. In addition, Business Loan Center is subject
to state laws and regulations with respect to the amount of interest and other
charges which lenders can collect on loans (e.g., usury laws). Business Loan
Center believes it is in material compliance with all applicable rules and
regulations.
Competition. The commercial lending business is highly competitive and
the Company competes with many banks and other non-bank lending institutions,
most of which are substantially larger, and have greater financial resources and
name recognition. There are currently fourteen licensed non-bank lenders, which
compete within the Guaranteed Loan Program lending market. Additionally, certain
banks and non-bank lending institutions which participate in the Guaranteed Loan
Program have also been designated as "Preferred" or "Certified Lenders". There
is no assurance that the Company will be able to compete successfully in the
future or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Seasonality. Business Loan Center's business is not seasonal.
Loan Production Subsidiaries The Company, recognizing the need to
centralize its loan originations , established three regional loan production
subsidiaries to coordinate loan originations and to process applications
received from Business Loan Center's network of independent loan referral
sources. Business Loan Center's three wholly-owned loan production subsidiaries
are BLC Financial Network ("BLC Network"), BLC Financial Network of Mid-America,
Inc. ("BLC Mid-America"), and BLC Financial Network of Florida, Inc. ("BLC
Florida").
BLC Network is headquartered in Richmond Virginia and has four
satellite offices located in Alexandria, Virginia (near Washington D.C.), Tinton
Falls, New Jersey, Boston, Massachusetts, and Memphis, Tennessee. BLC
Mid-America is headquartered in Wichita, Kansas with satellite offices in
Seattle, Washington, Phoenix, Arizona, Oklahoma City, Oklahoma, and Omaha,
Nebraska. BLC Florida is headquartered in Panama City, Florida and has a
satellite office in Charleston, South Carolina.
During Fiscal Year 1999, Business Loan Center generated approximately
85% of its loan volume directly and indirectly, through loan referral sources
constituting the representative network. Generally, a loan referral source is
compensated after the closing of a loan. During the current fiscal year no loan
sources accounted for more than 9% of Business Loan Center's volume.
Acquisitions
EBLC, Inc. On May 4, 1990, the Company, through Business Loan Center,
acquired an 80% interest in a New York general partnership ("BLC-GP") from
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Business Loan Center, Inc., an unaffiliated New York corporation. On September
16, 1996, Business Loan Center purchased the minority interest of BLC-GP for
$380,000. Prior to that purchase, the Company owned the existing 88% of the
partnership. In February 1997, BLC-GP transferred its assets and liabilities to
Business Loan Center, a wholly owned subsidiary of the Company.
Southeastern First Financial Network, Inc. On February 5, 1996, the
Company, through its wholly-owned subsidiary, BLC Financial Network, Inc. ("BLC
Network") acquired all of the issued and outstanding common stock of
Southeastern First Financial Network, Inc. in exchange for 1,808,821 shares of
the Company's Common Stock.
BLC Commercial Capital Corporation
Background. BLC Commercial Capital Corporation, a Florida corporation
("BLC Commercial"), is a wholly owned subsidiary of the Company. On November, 4,
1997 BLC Commercial was granted the authority to participate in the United
States Department of Agriculture ("USDA") Business & Industry Guaranteed Loan
Program (the "B&I Program"). The B&I Program was designed to create jobs and
stimulate rural economies by providing financial backing for rural businesses.
BLC Commercial has offices in New York, New York and in McKinney,
Texas. In addition, BLC Network, BLC Mid-America, and BLC Florida originate B&I
loans for the Company within their respective regions.
The B&I Program. The B&I Program was designed to create jobs and
stimulate rural economies by providing financial backing for rural businesses.
The assistance is available in rural areas, which include all areas other than
cities of more than 50,000 people and their immediately adjacent urbanized
fringe areas. The program provides for guarantees by the USDA of 80% for loan
amounts up to $5,000,000 and 70% for loans between $5,000,000 and $10,000,000.
Interest rates are negotiated between the borrower, the lender and the USDA, but
typically range between 1% and 2% above the prime rate. Of those variable rate
loans, the interest rate may adjust monthly or quarterly with the base rate
established as the lowest New York prime rate in effect on the first day of each
adjustment period as published in The Wall Street Journal. Each lender is
required to pay a guarantee fee equal to 2% of the guaranteed amount of its loan
to the USDA. The participating lenders may, in turn, charge this fee to the
borrower upon initial disbursement of the loan.
Loans typically have maturities between seven and 30 years depending
upon the use of proceeds. The types of businesses eligible are less restrictive
than the SBA (7a) Program and there is an active secondary market for the
guaranteed portion of the loan with premiums comparable to those received by
Business Loan Center in the SBA (7a) Program. This lending business is still
relatively new to the Company, however, the Company believes it can generate
significant volume through its origination offices and independent loan
originators, which are located near rural areas.
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Revenues. BLC Commercial derives its revenues primarily from three
sources: (i) interest earned on loans retained for its own account; (ii) gain on
the sale of the USDA-guaranteed portion of the loans; and (iii) servicing fees
paid on the USDA-guaranteed portion of loans sold in the secondary market. See
Management's Discussion and Analysis - Results of Operations.
B&I Program Loan Portfolio. At June 30, 1999, BLC Commercial serviced
a loan portfolio consisting of nine loans, in the approximate aggregate
principal amount of $17,795,000. Of this amount, approximately $14,366,000
consisted of the USDA guaranteed portion of the loans and approximately
$3,429,000 consisted of the unguaranteed portion of the loans. BLC Commercial
retained the entire unguaranteed portion for its own account. In addition,
approximately $2,261,000 of the $14,366,000 in guaranteed loans have not yet
been sold or were pending settlement in the secondary market. The original
principal amounts of these loans ranged between $1,200,000 and $5,000,000 with
maturities between 15 and 30 years. The interest rates on these loans are
adjustable and ranged between 1% and 2.25% over prime.
At June 30, 1999, none of these loans were delinquent or in
liquidation. See Management's Discussion and Analysis - Results of Operations.
At June 30, 1999, five loans totaling $12,495,000 had received both
BLC Commercial and USDA approval and were awaiting closing. In addition, ten
proposed loans in the approximate aggregate principal amount of $52,625,000 were
approved by BLC Commercial and awaiting submission to the USDA or awaiting USDA
approval. BLC Commercial's existing capital resources should enable it to fund
each of these loans.
Government Regulation. The level of funding for the B&I Program is
subject to the federal budgeting process for each Federal Fiscal Year.
Accordingly, the availability of funds for USDA guarantees under the B&I Program
could increase or decrease each year. The federal budget for Federal Year 1999
is $1.0 billion.
Seasonality - BLC Commercial Capital Corp.'s business is not seasonal.
BLC Capital Corporation
Background. BLC Capital Corporation, a Delaware corporation ("BLC
Capital"), is a wholly-owned subsidiary of the Company whose primary function is
to complement the Guaranteed Loan Program by originating, underwriting, closing
and servicing loans which may exceed the SBA's maximum guaranteed portion. In
addition, BLC Capital's lending program makes loans, the proceeds of which are
used for purposes that are not permitted under the Guaranteed Loan Program, such
as acquisition of rental real estate.
Companion Loan Program. BLC Capital has been originating first
mortgage loans in conjunction with its SBA loans. These loans are being funded
by various financial institutions from which BLC Capital receives a fee. In
addition, the Company has negotiated an agreement with a major financial
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institution to fund qualified companion loans originated by the Company from
which BLC Capital receives a fee for both originating and servicing these loans.
Revenues. BLC Capital derives its revenue from servicing fees on those
loans in its portfolio that it services, as well as from commissions on loan
referrals to outside financial institutions. The referral fees received on these
loans ranges from 3% to 8% of the loan amount and totaled $864,000 for the
fiscal year ended June 30, 1999. See Management's Discussion and Analysis -
Results of Operations.
Loan Portfolio - At June 30, 1999, BLC Capital through its Companion
Loan Program serviced 30 loans, in the approximate aggregate principal amount of
$20,446,000. During the fiscal year ended June 30, 1999, BLC Capital originated
23 loans totaling $17,209,000. See Management's Discussion and Analysis -
Liquidity and Capital Resources.
Environmental
Compliance with federal, state and local laws and regulations
governing the discharge of materials into the environment and noise levels is
not expected to have any material adverse effect upon the Company.
Business Loan Center and BLC Commercial may in the future acquire,
through foreclosure, properties that secure defaulted loans. There is a risk
that hazardous substances or wastes, contaminants, pollutants or sources thereof
could be discovered on properties acquired by Business Loan Center and BLC
Commercial. In such an event, the Company could be required under certain
environmental laws to remove such substances and clean up the affected property
at its sole cost and expense, which could have a material adverse effect on the
Company. To date, neither Business Loan Center nor BLC Commercial has been named
as a potentially responsible party under any federal or state environmental
laws. In most cases where commercial properties secure loans, Business Loan
Center and Commercial will obtain an environmental evaluation to ascertain the
existence of toxic wastes prior to making the loan.
Employees
The Company, through its subsidiaries, currently employs 68 full-time
and two part-time employees. Of these employees, eight are employed in executive
or managerial capacities, 16 are employed in administrative or clerical
capacities, eight are employed in loan servicing capacities and 38 are employed
in loan origination, processing and underwriting capacities. None of the
Company's employees are represented by a collective bargaining unit. The Company
considers its employee relations to be satisfactory.
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Item 2. PROPERTIES.
The Company, through its subsidiaries, currently leases office space for
all of its general business purposes in New York, New York, Richmond and
Alexandria, Virginia (near Washington D.C.), Tinton Falls, New Jersey,
Indianapolis, Indiana, Panama City Beach and Orlando, Florida, Wichita, Kansas,
Albuquerque, New Mexico, Mckinney, Texas, Phoenix, Arizona, Omaha, Nebraska,
Oklahoma City, Oklahoma, and Charleston, South Carolina . See "Consolidated
Financial Statements - Note 8".
<TABLE>
<CAPTION>
- ------------------ --------------- --------------- ---------------- --------------- ---------------
New York, Richmond, Wichita Panama City Orlando
New York Virginia Kansas Beach Florida Florida
------------------ --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Approximate
Square Footage 11,800 7,100 3,000 2,400 300
- ------------------ --------------- --------------- ---------------- --------------- ---------------
Indianapolis, Alexandria, Albuquerque, McKinney Tinton Falls,
Indiana Virginia (near New Mexico Texas, New Jersey
Washington, D.C.)
- ------------------ --------------- --------------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Approximate
Square Footage 1,300 1,000 800 600 650
- ------------------ --------------- --------------------- --------------- --------------- -----------
- ------------------ --------------- --------------------- --------------- ---------------
Phoenix, Oklahoma City, Omaha, Charleston,
Arizona Oklahoma Nebraska South Carolina
------------------ --------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Approximate
Square Footage 209 195 128 400
- ------------------ --------------- --------------------- --------------- ---------------
</TABLE>
Item 3. LEGAL PROCEEDINGS.
None.
13
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 27, 1999, the Company held its Annual Meeting of
Stockholders. The total number of shares voted at the meeting were 17,186,772,
including proxies. At the meeting, stockholders voted on and approved: (1) the
election of two directors of the Company (Irwin E. Redlener, M.D. and Kenneth S.
Schwartz, M.D.) and (2) the ratification of the appointment of Richard A. Eisner
& Company, LLP as auditors of the Company for the fiscal year ending on June 30,
1999.Votes were cast in the following manner:
<TABLE>
<CAPTION>
- ----------------------------------------- ------------- ---------------- ------------ ------------
Issue For Against Abstain Not Voted
- ----------------------------------------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1. Election of Directors
Kenneth S. Schwartz, M.D. 17,171,732 15,040
Irwin E. Redlener, M.D. 17,171,732 15,040
- ----------------------------------------- ------------- ---------------- ------------ ------------
2. Ratification of Auditors 17,172,952 9,808 4,012
- ----------------------------------------- ------------- ---------------- ------------ ------------
</TABLE>
The following directors were not up for re-election at the meeting and they
continued in office after the meeting: Robert F. Tannenhauser, Peter Blanck,
Jerome B. Alenick, Robert W. D'Loren and Robert W. Wien.
14
<PAGE>
Part II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
On April 30, 1998, the Company's Common Stock began trading on the
American Stock Exchange. Prior to that date, the Company's Common Stock was
listed for trading on the over-the-counter market through the OTC Electronic
Bulletin Board. During Fiscal Year 1999, the AMEX and NASDAQ merged and became
the NASDAQ AMEX. The following table lists the high and low sales prices, as
reported by the AMEX from April 30, 1998 through June 30, 1999, and prior to
that date, the range of high and low bid information as reported by the National
Quotation Bureau from January 1, 1997 through March 31, 1998.
1999 High Bid Low Bid
---- -------- -------
Second Quarter (AMEX) 2.188 1.75
First Quarter (AMEX) 2.935 2.0
1998
------
Fourth Quarter (AMEX) 2.875 1.8125
Third Quarter (AMEX) 3.9375 2.188
Second Quarter (AMEX) 5.25 3.0625
First Quarter 3.0625 1.375
1997
--------
Fourth Quarter 1.625 .71875
Third Quarter .84375 .71875
Second Quarter .875 .5625
First Quarter .65625 .5
Quotations represent prices between dealers and do not include retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
The Company has never paid cash dividends on the Common Stock and it
is managment's present intention to reinvest future earnings, if any, in the
business of the Company. The Company's ability to pay dividends in the future,
should management so determine, will be dependent upon the Company's earnings,
financial condition and other relevant factors.
As of September 8, 1999, there were approximately 861 holders of
record of the Common Stock of the Company.
15
<PAGE>
Item 6.SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the
financial statements included in this Report.
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997(1) 1996(1) 1995
---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total revenues $19,422,000 $15,729,000 $7,168,000 $4,997,000 $2,536,000
Income before
extraordinary items 3,103,000 3,226,000 1,702,000 553,000 142,000
Extraordinary item 245,000 91,000
Net Income $3,103,000 $3,226,000 $1,947,000 $644,000 $142,000
Income per share (basic)
before extraordinary item .16 .18 .10 .04 .01
Income per share
from extraordinary item - - .01 .01 -
Net income per
share (basic) .16 .18 .11 .05 .01
Net income per share .14 .15 .11 .04 .01
(diluted)
As of June 30:
Total assets $68,037,000 $53,281,000 $20,086,000 $10,983,000 $10,535,000
Total liabilities $48,890,000 $39,012,000 $12,896,000 $5,657,000 $7,274,000
Shareholders' equity $19,432,695 $14,269,000 $7,190,000 $4,601,000 $2,608,000
Shareholders' equity
per share $0.94 $0.72 $0.41 $0.27 0.23
</TABLE>
(1) Restated. See footnotes to "Consolidated Financial Statements."
16
<PAGE>
Selected Quarterly Financial Data (Unaudited)
Summarized Quarterly data was as follows: Three Months Ended
<TABLE>
<CAPTION>
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
Revenues $4,626,000 $6,868,000 $4,430,000 $3,498,000
Expenses 3,649,000 3,959,000 3,423,000 $3,237,000
Provision for Income Taxes 410,000 1,144,000 398,000 99,000
Net income $567,000 $1,765,000 $609,000 $162,000
Earnings Per Share:
Basic:
Net income .03 .09 .03 .01
Diluted:
Net income .03 .07 .03 .01
Year ended June 30, 1998
Revenue $2,381,000 $5,020,000 $3,436,000 $4,892,000
Expenses 2,005,000 2,755,000 2,476,000 3,156,000
Provision for Income Taxes 151,000 820,000 358,000 782,000
Net Earnings before extraordinary items 225,000 1,445,000 602,000 954,000
Extraordinary items - - - -
Net Earnings $225,000 $1,445,000 $602,000 $954,000
Earnings Per Share
Basic:
Net income .01 .08 .03 .06
Diluted:
Net income .01 .07 .03 .04
</TABLE>
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Company's financial statements included in this report and the notes
accompanying the financial statements. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.
Liquidity and Capital Resources
The Company actively engages in commercial lending through Business
Loan Center, BLC Commercial, and BLC Capital, and therefore, the Company has a
constant need for debt financing. Cash used by the Company and its subsidiaries
to fund loans, repay existing debt and to fund operating expenses is currently
provided only partially through collections on loans and proceeds from loan
sales. The remainder of the Company's cash requirements is derived from existing
capital and short and long-term borrowing.
The Company currently maintains a $50,000,000 credit facility to fund
both the guaranteed and unguaranteed portion of 7(a) Program loan originations,
as well as a $15,000,000 credit facility to fund both the guaranteed and
unguaranteed portion of B&I loans. During the year ended June 30, 1999, interest
rates on the 7(a) Program facility were reduced on both the guaranteed and
unguaranteed portion of the loan. Borrowings under the guaranteed line are
repaid immediately upon the sale of the guaranteed portion on the secondary
market.
On December 30, 1998 the Company successfully completed the sale of
its SBA Loan-Backed Adjustable Rate Class A Certificates 1998-1 in the
approximate aggregate principal amount of $24,317,000 which included a prefunded
amount of $4,600,000. The Class A Certificates received a Triple A rating from
Duff & Phelps Credit Rating Company. At the same time, Class B Certificates in
the amount of $2,114,000, which also included a prefunded amount of $400,000
were acquired by Business Loan Center Financial Corp. II, a wholly-owned
subsidiary of the Company. Proceeds from the sale were used to reduce the credit
lines.
The Class A and B Certificates pay annual interest rates of 6.75% and
6.95%, respectively, during the initial accrual period. Thereafter, the Class A
Certificates will pay a per annum interest rate equal to the prime rate less 100
basis points. The Class B Certificates will pay a per annum interest rate equal
to the prime rate less 80 basis points. The applicable interest rate earned on
the Class A and Class B Certificates will be adjusted on the first business day
of every January, April, July and October using the lowest Prime lending rate
published in the Eastern edition of The Wall Street Journal on the applicable
adjustment date. Principal payments on the SBA loans are passed through to the
holders of the Certificates on a pro-rata basis with the holders of the
guaranteed portion of the loans.
In addition, the Company, through a private placement of convertible
debentures, raised an initial $1,422,000 during the year ended June 30, 1999.
18
<PAGE>
The debentures were initially convertible into common stock at the greater of
$3.50 per share or 130% of the average market price per share for the five
business days immediately preceding the date the subscription is accepted by the
Company. However, subsequent to June 30, 1999, the conversion price was adjusted
to the greater of $2.75 per share of 130% of the average market price per share
for the five business days immediately preceding the date the subscription is
accepted by the Company. The debentures have a four-year term and pay interest
quarterly at the rate of 9% per annum.
At June 30, 1999, sales of the guaranteed portions of loans in the
aggregate amount of $8,982,000 were pending settlement in the secondary market,
while $8,922,000 were pending construction and/or renovation completions. Upon
the completion of these funding projects, participation in these loans may be
sold in the secondary market, providing the Company with a source of revenues.
Subsequent to June 30, 1999, the Company received net cash proceeds of
approximately $600,000 from those loans pending settlement at June 30, 1999.
Pursuant to a loan participation agreement entered into with a
purchaser during the fiscal year ended June 30, 1996, Business Loan Center, at
its option, in respect to loans which are delinquent for more than 60 days is
required to either (i) repurchase said loan or (ii)substitute interest in
another loan of equal value. During Fiscal Year 1999, six loans with an
aggregate value of approximately $139,000 were repurchased.
The Company believes that its current capital resources and future
cash flows will be sufficient to meet its future financial obligations and
projected capital requirements, based on the resources provided by the credit
facilities described above, the anticipated proceeds from sales of both the
guaranteed and unguaranteed portion of loans in the secondary market, the cash
generated from the existing portfolio in the form of interest and servicing
income, and the regular principal repayments on loans receivable. Management
believes that Business Loan Center and BLC Commercial should be able to
originate and fund at least $140 million in new loans during Fiscal Year 2000.
However, there can be no assurances that the Company will be able to achieve
this level.
Year 2000 Update
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
Year 2000, these date code fields will need to accept four digit entries to
distinguish the twenty-first century dates. The Company uses software and
related technologies that may be affected by the Year 2000 problem, and has been
pursuing a strategy to ensure that all of its critical computer systems will be
operational beginning on January 1, 2000.
19
<PAGE>
The Company recently completed testing its technical infrastructure
and hardware and has made the required remediations to computers that did not
pass preliminary testing. The Company expects these computers to be fully
operational in the Year 2000.
While the analysis of the Company's information technology systems
continues, management does not anticipate the costs associated with making all
such systems Year 2000 compliant to exceed $50,000. To date, the Company's costs
associated with Year 2000 issues have not been material.
The Company has received assurances from the vendor of its servicing
system, that their system is Year 2000 compliant. A dummy system was established
and has shown satisfactory results in the Year 2000 environment. However, in the
event that the servicing system does not operate properly, the Company could
service each loan manually, which would entail additional labor costs. These
costs have been estimated to be no greater than $70,000.
The Company has discussed its non-technology risks, (air conditioning
and heating, lighting, safety and security systems), with its property manager,
who has assured the Company these systems will be Year 2000 compliant prior to
December 31, 1999.
There can be no assurance that other companies' computer systems and
applications on which the Company's operations rely will be timely converted, or
that any such failure to convert by another company would not have a material
adverse effect on the Company's systems and operations. Furthermore, there can
be no assurance that the software that the Company uses which has been
represented by the supplier of such software to be Year 2000 compliant contains
all necessary date code changes.
Results of Operations
General. Demand for long-term commercial loans throughout the United
States has continued to remain at substantially high levels over the last
several years. The Guaranteed Loan Programs have assisted participating lenders
in providing record amounts of guaranteed loans over the past three federal
fiscal years. Business Loan Center and BLC Commercial have contributed to the
success of the Guaranteed Loan Programs by originating loans in the principal
amount of approximately $112,142,000, for Fiscal Year 1999, resulting in a
serviced loan portfolio approximating $248,544,000. By establishing an effective
loan origination network spanning the United States, Management believes that
the Company has positioned itself to achieve ongoing growth, both with respect
to the amount of loans originated and the geographic areas in which it operates.
The origination network is currently comprised of loan referral sources that
service several broad geographic regions and provide customers with a variety of
financial products.
Management of the Company is sensitive to industry and geographical
trends, including failure rates in various industries, general condition of
local economies, and the resultant effect on businesses and real estate values.
Generally, the Company's current lending pattern, both regarding industry and
20
<PAGE>
geographic location, is extremely diverse. At June 30, 1999, businesses in over
120 distinct industries in approximately 40 different states received loans from
Business Loan Center. The largest industry sectors in Business Loan Center's
portfolio include: lodging, approximating 35% of the aggregate loan portfolio,
gas stations and convenience stores, approximating 14%; and restaurants,
approximating 13% of the aggregate loan portfolio.
Fiscal Year 1999 vs. Fiscal Year 1998. The Company recorded net income
of $3,103,000 (or $.16 per basic share) for the year ended June 30, 1999
("Fiscal Year 1999") as compared to net income of $3,226,000 (or $.18 per basic
share) for the year ended June 30, 1998 ("Fiscal Year 1998"). Net income before
provision for income taxes and extraordinary item ("Operating Income") was
$5,154,000 for Fiscal Year 1999, as compared to $5,337,000 for Fiscal Year 1998.
Revenues for Fiscal Year 1999 increased approximately 23% to
$19,422,000 from Fiscal Year 1998 primarily due to gains on loan sales,
servicing fee income, and interest income. This rise is attributed to an
increased serviced loan portfolio of the Company as well as an increase in loan
originations and loan sales during the respective periods. As of June 30, 1999
the Company maintained a serviced loan portfolio of 454 loans, which
approximated $248,544,000 as compared to 359 loans, which approximated
$175,889,000 at June 30, 1998.
Interest income increased from approximately $2,439,000 for the Fiscal
Year June 30, 1998 to approximately $3,550,000 for the Fiscal Year ended June
30, 1999, or by 46%. This was primarily due to an increase in the average
outstanding and performing retained loan portfolio held by the Company during
the year, which included both the unguaranteed portions of loans held as well as
the guaranteed portion of loans held for multiple disbursements and/or
construction disbursements. A portion of this increase can be attributed to the
increase in the Company's performing and retained loan portfolio at June 30,
1999 which approximated $34,027,000 as compared to $28,971,000 at June 30, 1998.
Service fee income increased by approximately 105% from the prior year
primarily due to the Company's increased serviced and sold loan portfolio which
approximated $195,773,000 at June 30, 1999 compared to $114,358,000 at June 30,
1998, representing a 72% increase. Servicing fees earned by the Company on those
guaranteed loans sold in the secondary market have ranged between .50% and 4.06%
per annum. In addition, the Company continues to earn additional residual
interest income on unguaranteed loans securitized and guaranteed loans sold.
Operating expenses increased from approximately $6,481,000 for the
Fiscal Year ended June 30, 1998 to approximately $8,636,000 for the Fiscal Year
ended June 30, 1999. This increase resulted from increases in payroll,
commissions and travel associated with continued growth and expansion. With the
addition of new offices during the year, the Company experienced an unusually
high rate of operational expenses. It is expected that a corresponding increase
in loan origination levels, and therefore, revenues should result from these
production offices during the fiscal year ended June 30, 2000.
21
<PAGE>
General and administrative expenses of approximately $2,746,000 for
the Fiscal Year ended June 30, 1999 increased from approximately $1,753,000 for
the prior year's period primarily due to additional loan production offices,
corporate services and amortization of costs associated with the additional
financing obtained throughout the past fiscal year.
Interest expense increased by approximately 34% during the Fiscal Year
ended June 30, 1999 as compared to the prior year's period. The increase was due
to increased borrowing to meet the continued growth in loan production
activities during this period which was somewhat offset by an interest rate
reduction obtained by the Company from its lender.
Loans in the approximate aggregate principal amount of $112,142,000
were originated during Fiscal Year 1999, as compared to loans in the approximate
aggregate principal amount of $93,854,000 for Fiscal Year 1998, representing a
19% increase in origination activities during the referenced periods. The
guaranteed principal amount of the loans originated during Fiscal Year 1999
approximated $81,205,000 as compared to the aggregate guaranteed principal of
$67,357,000 for Fiscal Year 1998. Of those loans originated and fully funded
during Fiscal Year 1999, substantially all of the guaranteed portions were sold
in the secondary market subsequent to the full funding of each loan, at premium
rates averaging 109%. During Fiscal Year 1999, the Company securitized and sold
approximately $24,317,000 in unguaranteed loans. Sales of both the guaranteed
and unguaranteed portion of these loans during the fiscal year 1999 resulted in
$11,868,000 of gains as compared to $10,583,000 for the fiscal year 1998.
The number and aggregate principal amount of the loans in the
Company's portfolio at the end of Fiscal Year 1999 may be classified and
compared to the loans in its portfolio at the end of Fiscal Year 1998 as
follows:
<TABLE>
<CAPTION>
YEAR ENDED 6/30/99 YEAR ENDED 6/30/98
------------------------------- -------------------------------
Total Guaranteed Ungteed. Total Guaranteed Ungteed.
Amount Amount Amount # Loans Amount Amount Amount # Loans
----------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing Loans $238,586,000 $173,610,000 $64,976,000 418 $164,037,000 $120,298,000 $43,739,000 321
Delinquent Loans 870,000 653,000 217,000 1 2,630,000 2,060,000 570,000 3
Loans in liquidation 9,088,000 7,415,000 1,673,000 35 9,222,000 7,413,000 1,809,000 35
------------- ------------- ------------ ----- ----------- ------------ ------------- ---------
Total Loans $248,544,000 $181,678,000 $ 66,866,000 454 175,889,000 129,771,000 $46,118,000 359
============ ============ ===== =========== ============ =========
LESS:
Loans Sold $42,878,000 $22,289,000
Allowance for Credit Losses 914,000 641,000
Deferred Income & Other 1,138,000 1,148,000
----------- -----------
Loans Receivable Net $21,936,000 $22,040,000
----------- -----------
</TABLE>
Loans for which interest and principal payments are due for a period
greater than 60 days are categorized by the Company as "delinquent." Delinquent
loans generally are a result of various factors, including temporary downturns
in the borrower's business, seasonal working capital constraints, changes in
22
<PAGE>
business location or products, and other factors specifically related to each
borrower. The borrowers often regain current status after a period of time.
In certain cases, when the aforementioned factors prevent the borrower
from making any payments for a prolonged period of time, and the loan falls
beyond 90 days past due, the loan may then be categorized as in "liquidation."
After formal request is made by the Company or the FTA, the SBA honors its
guaranty by purchasing the guaranteed portion of the loan, as well as all
interest that is due for a period of up to 120 days. In general, loans in
liquidation are serviced through the efforts of Business Loan Center.
Fiscal Year 1998 vs. Fiscal Year 1997. The Company recorded net income
of $3,226,000 (or $.18 per basic share) for the year ended June 30, 1998
("Fiscal Year 1998") as compared to net income of $1,947,000 (or $.11 per basic
share) for the year ended June 30, 1997 ("Fiscal Year 1997"). Net income before
provision for income taxes and extraordinary item ("Operating Income") was
$5,337,000 for Fiscal Year 1998, as compared to $1,675,000 for Fiscal Year 1997.
Net income before extraordinary item was $3,226,000 (or $ .18 per basic share)
for Fiscal Year 1998, as compared to $1,702,000 (or $.10 per basic share) for
Fiscal Year 1997. There were no extraordinary items during Fiscal Year 1998, as
compared to an extraordinary gain of $245,000 in Fiscal Year 1997. This
extraordinary gain resulted from a settlement of a lawsuit involving a
promissory note issued in connection with the acquisition of Business Loan
Center from its predecessor in interest.
Revenues for Fiscal Year 1998, which approximated $15,729,000,
increased by 119% from Fiscal Year 1997 primarily due to higher gains on loan
sales, servicing fee income, and interest income. This is directly attributable
to (i) a 79 % increase in the loan portfolio, which approximated $175,889,000 at
June 30, 1998, as compared to approximately $98,017,000 at June 30, 1997 and
(ii) the recognition of gains on the sale of both guaranteed and unguaranteed
loans approximating $10,583,000 in Fiscal Year 1998.
Interest income increased from $1,666,000 for Fiscal Year 1997 to
$2,439,000 for Fiscal Year 1998, or by approximately 46%. This resulted from a
88% increase in the unguaranteed loan portfolio held by the Company, which
approximated $22,281,000 at June 30, 1998, as compared to $11,850,000 at June
30, 1997. At June 30, 1998, the average interest rate on the Company's total
portfolio approximated 11.25%. During Fiscal Year 1998 both Business Loan
Center's and BLC Commercial's, base lending rate, the prime rate, remained
stable at 8.50%.
Service fee income, which increased by 44% from Fiscal Year 1997, to
approximately $1,150,000 in Fiscal Year 1998. This increase directly resulted
from the increased guaranteed loan portfolio which yielded servicing fees of
between 1% to 2.62% per annum, as well as, service fees ranging from .75% to
1.75% on the sale of participations in the unguaranteed portions of the loans.
In addition, the Company earned additional residual interest income (net of
amortization) on those unguaranteed loans securitized during Fiscal Year 1998.
With respect to the SBA-guaranteed loans sold in the secondary market, loans
originated during Fiscal Year 1998 yielded an average service fee of 2.24%,
while the loans made pursuant to the B&I Program yielded an average service fee
of 50 basis points.
23
<PAGE>
Operating expenses in Fiscal Year 1998 increased by approximately 100%
over Fiscal Year 1997. This increase can be attributed to the increase in
payroll, commissions, travel and consulting expenditures incurred in connection
with the Company's overall growth and expansion.
General and administrative expenses in Fiscal Year 1998 approximated
$1,753,000, an increase of 38% from Fiscal Year 1997, as the Company incurred
greater costs in connection with the opening of the new loan production offices.
The Company also incurred additional expenditures for corporate and legal
services rendered.
Interest expense rose approximately 121% from Fiscal Year 1997 to
$2,158,000 in Fiscal Year 1998. This increase was directly attributable to the
Company's increased borrowings under its bank line resulting from the continued
growth in loan production activities during the fiscal year.
Loans in the approximate aggregate principal amount of $93,854,000
were originated during Fiscal Year 1998, as compared to loans in the approximate
aggregate principal amount of $42,335,000 for Fiscal Year 1997, representing a
121% increase in origination activities during the referenced periods. The
guaranteed principal amount of the loans originated during Fiscal Year 1998
approximated $67,357,000 as compared to the aggregate guaranteed principal of
$31,140,000 for Fiscal Year 1997. Of those loans originated and fully funded
during Fiscal Year 1998, substantially all of the guaranteed portions were sold
in the secondary market subsequent to the full funding of each loan, at premium
rates approximating 10%. During Fiscal Year 1998, the Company securitized and
sold approximately $18,000,000 in unguaranteed loans. In connection with this
transaction, the Company acquired approximately $5,800,000 of previously sold
participations in the unguaranteed loans from a purchaser.
24
<PAGE>
The number and aggregate principal amount of the loans in the
Company's portfolio at the end of Fiscal Year 1998 may be classified and
compared to the loans in its portfolio at the end of Fiscal Year 1997 as
follows:
<TABLE>
<CAPTION>
YEAR ENDED 6/30/99 YEAR ENDED 6/30/98
------------------------------- -------------------------------
Total Guaranteed Ungteed. Total Guaranteed Ungteed.
Amount Amount Amount # Loans Amount Amount Amount # Loans
----------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing Loans $164,037,000 $120,298,000 $43,739,000 321 $86,127,000 $65,265,000 $20,862,000 216
Delinquent Loans 2,630,000 2,060,000 570,000 3 4,379,000 3,534,000 845,000 13
Loans in Liquidation 9,222,000 7,413,000 1,809,000 35 7,511,000 6,127,000 1,384,000 30
----------- -------------- ---------- ---- ---------- ----------- ----------- -------
Total Loans $175,889,000 $129,771,000 $46,118,000 359 $98,017,000 $74,926,000 $23,091,000 259
=========== ============== ==== ========== =========== =======
LESS:
Loans Sold $ 22,289,000 $11,241,000
Allowance for Credit Losses 641,000 901,000
Deferred Income & Other 1,148,000 1,110,000
----------- ----------
Loans Receivable Net $ 22,040,000 $ 9,839,000
=========== ==========
</TABLE>
Loans for which interest and principal payments are due for a period
greater than 60 days are categorized by the Company as "delinquent." Delinquent
loans generally are a result of various factors, including temporary downturns
in the borrower's business, seasonal working capital constraints, changes in
business location or products, and other factors specifically related to each
borrower. The borrowers often regain current status after a period of time.
In certain cases, when the aforementioned factors prevent the borrower
from making any payments for a prolonged period of time, and the loan falls
beyond 90 days past due, the loan may then be categorized as in "liquidation."
After formal request is made by the Company or the FTA, the SBA honors its
guaranty by purchasing the guaranteed portion of the loan, as well as all
interest that is due for a period of up to 120 days. In general, loans in
liquidation are serviced through the efforts of the Company's servicing staff.
Item 7(A) QUALITATIVE AND QUANTITATIVE DISCLOSURES ON MARKET RISK.
In general, the Company manages its interest rate risk through the use
of variable-based interest rate indices for its borrowing, servicing, and
lending activities. Specifically, the Company's borrowing rates from its lender
are based upon a spread above the Prime Rate and the LIBOR Rate while the
lending rate to its borrowers is based upon a spread above the Prime Rate. The
Company, in its ordinary course of business, originates and sells portions of
its loans receivable which adjusts with the Prime Rate. The residual interests
and servicing assets which result from these sales are generally not impacted by
a change in interest rates. As a result, Management believes that the Company
has substantially insulated itself from the impact of a change in interest rates
by having, in essence, a locked in interest rate spread for the life of the
assets. The use of these variable rates obviates the need for the Company to
acquire hedging instruments, and the like, to offset any interest rate change
differentials.
While the Company's servicing assets and residual interests have firm
interest rate spreads, these assets may, however, be subject to impairment
should interest rates increase in a fashion which would cause the discount rate
and estimated fair value interest rate to increase. An increase in these two
variables could cause the present value of future cash flows from the servicing
and residual interests to be negatively impacted, therefore decreasing the
carrying value of these financial instruments. However, it should be noted that
an interest rate change would not significantly impact the estimated cash flows
of these assets.
25
<PAGE>
In connection with its interest rate risk management practices, the
Company has performed sensitivity analysis with respect to its servicing and
residual interest assets. The Company has estimated that if interest rates, in
general and with all other factors remaining constant, were to increase by
approximately 10%, net income would be negatively impacted by less than
$100,000.
As a result, Management of the Company has deemed this hypothetical
impact to be immaterial to the Company's future financial condition. These
sensitivity analyses are limited in that they are performed at a certain point
in time, they assume that an increase in interest rates would result in a direct
increase in the discount rate and estimated fair value interest rate, and do not
incorporate any other factors which may impact the Company's financial results
in such a situation.
Item 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
The financial statements located in Item 14(a)(1) and (2) are included
in this report starting on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.
The directors and executive officers of the Company, their ages
and present positions held in the Company are as follows:
<TABLE>
<CAPTION>
Age (at Year Term
Name 9/8/99) Positions Director Since Officer Since Will Expire
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Robert F. Tannenhauser (1) 54 President & September 1986 September 1986 2000
Chairman of the
Board
- ----------------------------- -------------- -------------------- ----------------- ----------------
Peter D. Blanck (1)(3) 42 Director June 1993 N/A 2000
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Jerome B. Alenick (2) 70 Director May 1998 N/A 2001
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Robert W. D'Loren (3) 41 Director June 1997 N/A 2001
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Irwin E. Redlener, M.D. (2) 55 Director June 1997 N/A 2002
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Kenneth S. Schwartz, M.D. 54 Director June 1997 N/A 2002
(3)
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Robert W. Wien (2) 48 Director June 1997 N/A 2001
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Leonard Rudolph 52 Executive Vice N/A May 1998 N/A
President
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Jennifer M. Goldstein 27 Chief Financial N/A June 1996 N/A
Officer & Treasurer
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
David I. Redlener 31 Secretary N/A June 1997 N/A
- ----------------------------- -------------- -------------------- ----------------- ---------------- ------------
</TABLE>
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
- ------------------------------------
26
<PAGE>
Each director holds office, for the term limit set forth above, until
the next annual meeting of the Company's shareholders and until his successor
has been elected and qualified. Since the Company's reorganization, annual
meetings of its shareholders were held in September 1990, June 1993, June 1997,
May 1998, and April 1999. Each of the executive officers serves at the pleasure
of the Board of Directors.
Robert F. Tannenhauser has been a full time employee of Business Loan
Center, Inc. or its predecessor Business Loan Center, a New York general
partnership since March 1995. From January 1992 until February 1995, Mr.
Tannenhauser was of counsel to the law firm of Hall Dickler Kent Friedman &
Wood, LLP. Mr. Tannenhauser has been or is a principal or general partner of
various corporations or partnerships engaged in the oil and gas or real estate
businesses. Additionally, Mr. Tannenhauser serves as a Director of the
Children's Health Fund, together with Dr. Redlener.
Peter Blanck has been a Professor of Law since 1993, and a Professor
of Preventive Medicine since 1997 with the University of Iowa. Since February
1992, Dr. Blanck has been a director and the President of Futuronics
Corporation. Dr. Blanck is the brother-in-law of Robert F. Tannenhauser.
Robert W. D'Loren has been President of CAK Universal Credit
Corporation since February 1, 1998. Prior to that he had been self-employed for
eleven years and conducted business in a company known as D'Loren, Levien &
Company, LLC., which provided investment banking services to the mortgage and
asset-backed industry. Prior to forming his own company in 1986, Mr. D'Loren
served as manager in the accounting firm of Deloitte Touche.
Irwin Redlener is currently President of the Children's Hospital at
Montefiore Medical Center and has been a Professor of Pediatrics at the Albert
Einstein College of Medicine, Montefiore Medical Center since 1997. Since 1990,
Dr. Redlener has also served as Director of the Division of Community Pediatrics
at Montefiore. Dr. Redlener is President and Director of the Children's Health
Fund, a not-for-profit foundation developed to support health care for homeless
and medically underserved children. Dr. Redlener has been a special consultant
on health care policy for the White House and the federal Department of Health
and Human Services.
Kenneth S. Schwartz had been chief Medical Officer of American Imaging
Management Inc. in Northbrook, Illinois since December 1998. At present, he is
senior radiology consultant to American Imaging Management, Inc. and a principal
of S&D Medical LLP, New York. From 1996 to 1998, Dr. Schwartz was Senior
Executive Vice President of Complete Management, Inc., New York, New York. From
1981 to 1995, Dr. Schwartz served as a Director of Radiology at Hudson Valley
Hospital, Peekskill, New York and was Medical Director at Putnam Hospital
Center, Carmel, New York from 1991 through 1994. From March 1995 to November
1996, he was Systems Director of Radiology and imaging at St. Francis Hospital
in Hartford, Connecticut.
Robert W. Wien has been the Managing Director and Director of
Investment Banking at Josephthal & Co., Inc. (formally Josephthal, Lyon & Ross,
27
<PAGE>
Incorporated) since May 1999; he served as Managing Director, Director of
Mergers and Acquisitions from May 1996 until May 1999. From July 1994 to May
1996, Mr. Wien held the position of Director of Corporate Finance and Real
Estate Advisory Services at Coopers & Lybrand, LLP. Additionally, Mr. Wien
served as Senior Vice President of Investment Banking at Dean Witter Reynolds,
Inc. from April 1987 to June 1994. Mr. Wien is a member of the Bar in the State
of New York and a licensed Real Estate Broker in the State of New York.
Jerome B. Alenick has been sole proprietor of Jerome B. Alenick
Investments & Financial Services since 1991. From 1990 to 1991 Mr. Alenick was
Executive Vice President of The Kushner Companies. Mr. Alenick is a member of
the Bars of the State of New Jersey the District of Columbia and is a licensed
Real Estate Broker in the State of New Jersey. He has been an Adjunct Professor
of Real Estate at New York University since 1993 and has been a member of the
faculty at New York University since 1983.
Leonard Rudolph joined the Company as Executive Vice President in May
of 1998 and currently serves as President of Business Loan Center, Inc. From
1996 until joining Company, Mr. Rudolph served as Executive Vice President,
Senior Credit Officer of Sterling National Bank. Additionally, between 1991 and
1996, Mr. Rudolph held the position of Senior Vice President of Sterling
National Bank.
Jennifer Goldstein has been serving as Chief Financial Officer since
June 1998, and continues to serve as Treasurer, a position she has held since
June 1997. Jennifer Goldstein was Assistant Secretary of the Company from
February 1996 to June 1997. From June 1994 until the present, Ms. Goldstein has
been employed by Business Loan Center. Ms. Goldstein graduated with a degree in
Accounting from San Diego State University and received an MBA in Finance from
Pace University.
David Redlener was elected Secretary of the Company in June 1997. From
September 1994 until December 1996 Mr. Redlener was employed as an Assistant
District Attorney in the County of the Bronx, New York. Currently, Mr. Redlener
is employed as Counsel to Business Loan Center, Inc. Mr. Redlener graduated with
a degree in Economics from Hunter College and earned his law degree from Saint
Louis University School of Law in May 1994. He is currently pursuing a Masters
degree in Finance. Mr. Redlener is the son of Dr. Irwin Redlener, a Director of
the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
During fiscal year ended June 30, 1999, there were no late filings
made by any officers or directors or beneficial owner of more than 10% of the
Common stock of the Company with respect to Section 16(a) of the Exchange Act of
1934.
28
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
Compensation Committee Interlocks and Insider Participation.
At June 30, 1999, Peter Blanck, Robert D'Loren and Kenneth Schwartz
were members of the Compensation Committee of the Board of Directors of the
Company. The Compensation Committee's functions include the review and approval
of compensation and terms of employment for all executive officers and
administering the grant of employee stock options pursuant to the 1995 Amended
Management Incentive Plan. Peter Blanck is a substantial shareholder of the
Company and brother-in-law to Robert F. Tannenhauser, who serves as President
and Chairman of the Board. In addition, Robert D'Loren and Kenneth Schwartz are
also warrant holders and/or shareholders of the Company. (See Item 12 Security
Ownership of Certain Beneficial Owners and Management).
The Company, during Fiscal Year 1998 obtained a line of credit for
Business Loan Center and entered into a loan origination and servicing agreement
with a certain financial institution introduced to the Company by Robert W.
D'Loren, a Director of the Company. In connection with such arrangements and
pursuant to a written agreement, D'Loren Levien & Company, LLC ("DLC"), a
limited liability company of which Mr. D'Loren is a member, received total fees
of $125,000. In July 1997, BLC Capital, a subsidiary of the Company, entered
into a loan origination and servicing agreement with the financial institution
introduced by Mr. D'Loren pursuant to which BLC Capital was to receive fees for
originating and servicing non-SBA first mortgage commercial real estate backed
loans for the financial institution. DLC is entitled to receive fees based upon
each transaction closed. In the fiscal year ended June 30, 1999, DLC received
$21,800 in fees for these services. In January 1999, DLC received a placement
fee of $60,000 in connection with sale of the Company's unguaranteed SBA loans,
which occurred on December 30, 1998. In December 1997, DLC received a fee
advance of $72,500 in connection with arranging a line of credit for BLC
Commercial, to be utilized to fund loans under the Department of Agriculture
Program. In December 1997, the Company and DLC agreed, and the Board of
Directors approved, an amendment to the agreement with respect to fees due and
to be received in the future by DLC whereby DLC agreed to reduce the cash amount
of its fees in exchange for 200,000 warrants to purchase the Common Stock of the
Company at a purchase price of $1.83 per share and the right to earn an
additional 600,000 shares.
29
<PAGE>
Summary Compensation Table
- ---------------------------
The following table sets forth all plan and non-plan compensation paid
to the named individual for services rendered in all capacities to the Company
and its subsidiaries during the three fiscal years ended June 30, 1999. The
following salaries and/or benefits are presently payable pursuant to employment
agreements.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------------------------- -----------------------------
Name and Principal Position Fiscal Year Annual Compensation Securities Underlying
Options
- --------------------------------------------------------------------------------------------------------
Salary Bonus Other
<S> <C> <C> <C> <C> <C>
1999 $224,285(1) $50,000 $0 375,000
Robert F. Tannenhauser
President and Director 1998 $208,085(1) $0 $0 500,000
1997 $207,411(1) $0 $0 0
- -------------------------------------------------------------------------------------------------------
Leonard Rudolph 1999 $170,000 $10,000 $0 25,000
Executive Vice President
1998 $36,154(2) $0 $0 70,000(3)
1997 N/A N/A
- -------------------------------------------------------------------------------------------------------
Jennifer Goldstein 1999 $124,038 $35,000 $0 75,000
Treasurer
1998 $ 91,923 $15,000 $0 100,000
1997 $64,769 $7,000 $0 75,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes premiums for excess health insurance.
(2) Based upon approximately two months of salary at an annual rate of
$170,000.
(3) During the year ended June 30, 1999, the exercise price for these options
were repriced to $3.25 from 4.81.
Compensation of Directors. During the fiscal year ended June 30, 1999,
and pursuant to Non-Qualified Stock Option Agreements, each Director was granted
(i) 10,000 options to purchase Common Stock at an exercise price of $3.31, all
of which are exercisable immediately or at any time prior to July 17, 2003 and
(ii) 25,000 options to purchase Common Stock at an exercise price of $2.00 per
share, all of which are exercisable immediately or at any time prior to April
27, 2004. As additional compensation, each Director is to receive $1,000 per
meeting of the Board of Directors.
Executive Employment Agreements. The Company entered into Employment
Agreements with Robert F. Tannenhauser, President, with Leonard Rudolph,
Executive Vice President, and Jennifer M. Goldstein, Chief Financial Officer and
Treasurer of the Company.
Robert F. Tannenhauser. Robert F. Tannenhauser's Employment Agreement
provides that he shall be employed as President and Chairman of the Board of the
Company and as Chief Executive Officer of Business Loan Center through January
15, 2001 at an annual gross salary of $200,000. During the fiscal year ended
June 30, 1999, the Board of Directors voted to increase his salary to $300,000.
Mr. Tannenhauser is also entitled to participate in all benefit plans
established from time to time by the Company and Business Loan Center on the
same basis as all other executive employees.
30
<PAGE>
The agreement shall automatically renew for successive one-year
periods until the Company registers the shares of Common Stock held by Mr.
Tannenhauser under the Securities Act and lists the Common Stock for trading on
NASDAQ AMEX or another recognized securities exchange. Thereafter, the agreement
shall automatically renew for additional successive one-year periods unless
notice to the contrary is given by any party not less than 90 days prior to the
expiration of the then current term.
The agreement obliges the Company to pay to Mr. Tannenhauser the
greater of $200,000 or his annual gross salary if (i) Mr. Tannenhauser's
employment is terminated for any reason other than his death or disability, (ii)
the agreement is not renewed by Business Loan Center or (iii) Mr. Tannenhauser
terminates the agreement due to a reduction in Mr. Tannenhauser's salary or
benefits or the diminution of his responsibility, authority or status as chief
executive.
Leonard Rudolph. Leonard Rudolph's Employment Agreement provides that
he shall be employed as Executive Vice President and President of Business Loan
Center, Inc. through April 30, 2003 at an annual gross salary of $170,000. Mr.
Rudolph was also granted a $10,000 signing bonus as well as options to purchase
70,000 shares of Common Stock at an exercise price of $4.81, which shall vest
equally over the four years. During Fiscal Year 1999, the Board of Directors of
the Company adjusted the exercise price of the options to purchase 70,000 shares
to $3.25 per share. Mr. Rudolph is also entitled to participate in all benefit
plans established from time to time by the Company and Business Loan Center,
Inc. on the same basis as all other executive employees. He may terminate this
Agreement in the event that Robert. F. Tannenhauser is no longer affiliated with
the Company. Mr. Tannenhauser shall be deemed to be affiliated with the Company
as long as he serves as an Officer or Director of the Company. A termination
under this provision shall not be deemed a termination for cause under his
employment agreement.
The agreement shall automatically renew for successive one-year
periods unless notice to the contrary is given by any party not less than 90
days prior to the expiration of the then current term.
The agreement obliges the Company to pay to Mr. Rudolph the greater of
$170,000 or his annual gross salary if (i) Mr. Rudolph's employment is
terminated for any reason other than his death or disability, (ii) the agreement
is not renewed by the Company or Business Loan Center or (iii) Mr. Rudolph
terminates the agreement due to a reduction in Mr. Rudolph's salary or benefits
or the diminution of his responsibility, authority or status as an executive.
Jennifer Goldstein. Jennifer Goldstein's employment agreement provides
that she shall be employed as Treasurer and Chief Financial Officer of the
Company, BLC Commercial, BLC Capital and Business Loan Center through September
30, 2002 at an initial annual gross salary of $100,000. Ms. Goldstein was
granted options to purchase 100,000 shares of Common Stock at an exercise price
of $.82, which shall vest equally over the next five years. Ms. Goldstein is
also entitled to participate in all benefit plans established from time to time
by the Company and Business Loan Center on the same basis as all other executive
employees. She may terminate this Agreement in the event that Robert. F.
Tannenhauser is no longer affiliated with the Company. Mr. Tannenhauser shall be
deemed to be affiliated with the Company as long as he serves as an Officer or
Director of the Company. A termination under this provision shall not be deemed
a termination for cause under her employment agreement.
31
<PAGE>
The agreement shall automatically renew for successive one-year
periods unless notice to the contrary is given by any party not less than 90
days prior to the expiration of the then current term.
The agreement obliges the Company to pay to Ms. Goldstein the greater
of $100,000 or her annual gross salary if (i) Ms. Goldstein's employment is
terminated for any reason other than her death or disability, (ii) the agreement
is not renewed by the Company or Business Loan Center on (iii) Ms. Goldstein
terminates the agreement due to a reduction in salary or benefits or the
diminution of her responsibility, authority or status as an executive.
32
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended June 30, 1999 by the named
individual, along with the year-end value of unexercised options/warrants at
June 30, 1999.
<TABLE>
<CAPTION>
- ----------------------------- ---------------- ---------------- ----------------------- ----------------------------
Number of Securities Value of Unexercised
Name Shares Underlying Unexercised In-The-Money
Acquired on Value Realized Options at 6/30/99 Options/Warrants at
Exercise 6/30/99 (4)
- ----------------------------- ---------------- ---------------- ----------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert F. Tannenhauser
President and Director 0 0 1,302,500 (1) $1,188,500 (5)
- ----------------------------- ---------------- ---------------- ----------------------- ----------------------------
Leonard Rudolph
Executive Vice President 0 0 95,000 (2) $ 0 (6)
- ----------------------------- ---------------- ---------------- ----------------------- ----------------------------
Jennifer Goldstein
Treasurer 0 0 250,000 (3) $ 230,500 (8)
- ----------------------------- ---------------- ---------------- ----------------------- ----------------------------
</TABLE>
(1)Includes 375,000 options at an exercise price of $2.90, 500,000 options
at an exercise price of $.82 of which 100,000 shares are currently
exercisable, and 427,500 at an exercise price of $.60 of which 427,500 are
currently exercisable.
(2)Includes 70,000 options at an exercise price of $3.25 of which 17,500 are
currently exercisable, and 25,000 options at an exercise price of $2.90.
(3)Includes 75,000 at an exercise price of $2.90, 100,000 options at an
exercise price of $.82 of which 20,000 are currently exercisable, and 75,000
at an exercise price of $.50 per share of which 56,250 is currently
exercisable.
(4)The value realized equals the market value of the common stock at June 30,
1999 (Closing Bid) minus the exercise price multiplied by the number of
shares. The price of a share of common stock at the close of business on June
30, 1999 was $2.00.
(5)500,000 shares ($2.00 - $.82) = $590,000 and 427,500 ($2.00 - $.60) =
$598,500.
(6)These options are out of the money.
(7)100,000 shares ($2.00 - $.82) = $118,000 and 75,000 ($2.00 - $.50) =
$112,500.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
- ----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
Potential Potential
Number of % Total realizable value realizable value
securities Options/SARs Exercise at assumed annual at assumed annual
underlying Granted to Price rates of stock rates of stock
options/SARs Employees in ($/share) Expiration price price
Name Granted Fiscal Year Date appreciation for appreciation for
option term option term
5% ($) 10% ($)
- ----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Tannenhauser
President and Director 375,000 73% $2.90 12/7/2003 $0 $84,100
- ----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
Leonard Rudolph
Executive Vice 25,000 5% 2.90 12/7/2003 $0 $5,600
President 70,000 12% 3.25 5/4/2002 $0 $0
- ----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
Jennifer Goldstein
Treasurer 75,000 15% $2.90 12/7/2003 $0 $16,800
- ----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
</TABLE>
33
<PAGE>
Reference is made to Item 12 of this Report entitled "Certain
Relationships and Related Transactions" for a description of fees paid to
entities that are affiliated with certain executive officers and a description
of the employment agreements with officers and employees.
Indemnification of Directors and Officers
Section 102(b)(7) of the General Corporation Law of the State of
Delaware grants corporations the right to limit or eliminate the personal
liability of their directors in certain circumstances and in accordance with the
provisions therein set forth. Article 7 of the Company's Amended and Restated
Certificate of Incorporation provides for the elimination of personal liability
of a Director to the Corporation or its stockholders for monetary damages for
the breach of the Director's fiduciary duty to the full extent allowable under
Section 102 (b) (7).
Section 145 of the General Corporation Law of the State of Delaware
grants corporations the right to indemnify their directors, officers, employees
and agents in accordance with the provisions therein set forth. Article 8 of the
Company's Certificate of Incorporation provides for indemnification of such
persons to the full extent allowable under applicable law.
34
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of June 30, 1999
with respect to (i) those persons or groups known to the Company to beneficially
own more than 5% of the Company's Common Stock, (ii) each director of the
Company, (iii) each named executive officer and (iv) all directors and officers
of the Company as a group. The information is determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934 ("Rule 13d-3") based
upon information furnished by the persons listed or known to the Company. Except
as indicated below, the shareholders listed possess sole voting and investment
power with respect to their shares.
<TABLE>
<CAPTION>
- --------------------------------------- ------------------------------------- -------------------------------------
Amount and Nature of Beneficial
Name and Address of Beneficial Ownership Percent Of Class
Owner
- --------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Futuronics Corporation 2,595,224 (1) 12.79%
3652 Forest Gate Drive, N.E.
Iowa City, Iowa 52240
- --------------------------------------- ------------------------------------- -------------------------------------
Peter D. Blanck 3,396,390 (2)(3) 16.54%
University of Iowa, College of Law
Iowa City, Iowa 52241
- --------------------------------------- ------------------------------------- -------------------------------------
Richard Blanck 3,211,391 (2)(4) 15.78%
9 Hickory Road
Manhasset Hills, New York 11040
- --------------------------------------- ------------------------------------- -------------------------------------
Robert W. D'Loren 255,000(5) 1.24%
72 Woodland Drive
Oyster Bay Cove, NY 11771
- --------------------------------------- ------------------------------------- -------------------------------------
Robert C. McGee 1,085,296 (6) 5.30%
204 Oxford Circle East
Richmond, Virginia 23221
- --------------------------------------- ------------------------------------- -------------------------------------
Jennifer M. Goldstein 195,785(7) *
50 West 72nd Street
New York, New York 10023
- --------------------------------------- ------------------------------------- -------------------------------------
David I. Redlener 4,157(8) *
155 Henry Street
Brooklyn, New York 11201
- --------------------------------------- ------------------------------------- -------------------------------------
Irwin E. Redlener 55,000(9) *
11 Alfred Lane
New Rochelle, New York 10804
- --------------------------------------- ------------------------------------- -------------------------------------
Diane Rosenfeld 1,119,984 (10) 5.46%
RR #1 Box 427 D
County Road #86
Amenia, New York 12501
- --------------------------------------- ------------------------------------- -------------------------------------
Kenneth S. Schwartz 66,525(11) *
284 Guard Hill Road
Bedford, New York 10506
- --------------------------------------- ------------------------------------- -------------------------------------
Carol Tannenhauser 5,509,523 (2)(12) 26.30%
210 East 68th Street
New York, New York 10021
- --------------------------------------- ------------------------------------- -------------------------------------
Robert F. Tannenhauser 5,509,523 (12) 26.30%
210 East 68th Street
New York, New York 10021
- --------------------------------------- ------------------------------------- -------------------------------------
Jerome B. Alenick 454,375 (13) 2.24%
26 Columbia Turnpike
Florham Park, New Jersey 07932
- --------------------------------------- ------------------------------------- -------------------------------------
35
<PAGE>
- --------------------------------------- ------------------------------------- -------------------------------------
Amount and Nature of Beneficial
Name and Address of Beneficial Ownership Percent Of Class
Owner
- --------------------------------------- ------------------------------------- -------------------------------------
Robert W. Wien 124,500 (14) *
24 James Road
Mount Kisco, New York 10549
- --------------------------------------- ------------------------------------- -------------------------------------
Leonard Rudolph 30,087 *
3 Pelham Place
East Brunswick, New Jersey 08816
- --------------------------------------- ------------------------------------- -------------------------------------
All Directors and officers 7,309,788(15) 33.59%
as a group (nine persons)
- --------------------------------------- ------------------------------------- -------------------------------------
* Owns less than 1% of the outstanding shares of Common Stock
</TABLE>
(1) Includes 2,595,224 shares owned directly by Futuronics Corporation. Carol
Tannenhauser, Richard Blanck, and Peter D. Blanck are officers and directors of
Futuronics Corporation.
(2) Carol Tannenhauser, Richard Blanck, and Peter D. Blanck are siblings. Each
disclaims beneficial ownership of the shares owned by the others.
(3) Includes (a) 85,737 shares owned directly by Peter D. Blanck, (b) 295,267
shares deemed owned by Peter D. Blanck as custodian for his four children, (c)
110,000 shares underlying options owned by Peter D. Blanck, (d) 176,830 shares
owned by Trust created under the Will of Albert Blanck under which Peter D.
Blanck is a Trustee and Beneficiary, (e) 2,595,224 shares owned by Futuronics
Corporation of which Peter D. Blanck is an officer and director, (f) 100,000
shares that may be acquired upon the conversion of Debentures held directly by
Peter D. Blanck and (g) 33,332 shares that may be acquired upon the conversion
of debentures held by Peter D. Blanck as custodian for his four children.
(4) Includes (a) 273,834 shares owned directly by Richard Blanck, (b) 107,169
shares deemed owned by Richard Blanck as custodian for his two children, (c)
176,830 shares owned by Trust created under the Will of Albert Blanck under
which Richard Blanck is a Trustee and Beneficiary, (d) 2,595,224 shares owned by
Futuronics Corporation of which Richard Blanck is an officer and director and
(e) 25,000 shares that may be acquired upon the conversion of Debentures held by
Richard Blanck and (f) 33,334 shares that may be acquired upon the conversion of
Debentures held by Richard Blanck as custodian for his two children.
(5) Includes (a) 200,000 shares that may be acquired upon the exercise of
Warrants held by D'Loren Levien & Company L.L.C. of which Robert D'Loren is a
member and (b) 55,000 shares that maybe acquired upon the exercise of options
held by Robert D'Loren.
(6) Includes (a) 897,821 shares owned directly by Robert C. McGee and (b)
187,475 shares that may be acquired upon the exercise of certain warrants owned
by Robert C. McGee.
(7) Includes (a) 119,535 shares owned by Jennifer M.Goldstein, and (b) 76,250
shares that may be acquired upon the exercise of options held by Jennifer M.
Goldstein.
(8) Includes (a) 1,157 shares owned by David Redlener and (b) 3,000 shares that
may be acquired upon the exercise of options held by David Redlener.
36
<PAGE>
(9) Includes 55,000 shares that may be acquired upon the exercise of options
held by Irwin Redlener.
(10) Includes (a) 666,710 shares directly owned by Diane Rosenfeld, (b) 225,774
shares directly owned by Eric Rosenfeld , (b) 202,500 shares underlying options
owned by Diane Rosenfeld and (d) 25,000 shares that may be acquired upon the
exercise of Warrants owned by Diane Rosenfeld.
(11) Includes (a) 11,525 shares directly owned by Kenneth Schwartz or jointly
with Jane Schwartz, and (b) 55,000 shares that may be acquired upon the exercise
of options held by Kenneth Schwartz.
(12) Includes (a) 204,964 shares owned directly by Robert F. Tannenhauser, (b)
1,325,409 shares directly owned by Carol Tannenhauser, the spouse of Robert F.
Tannenhauser, (c) 2,595,224 owned by Futuronics Corporation of which the spouse
of Robert F. Tannenhauser is an officer and director, (d) 176,830 shares owned
by Trust created under the Will of Albert Blanck under which the spouse of
Robert F. Tannenhauser is Trustee and Beneficiary, (e) 427,500 shares underlying
options owned by Carol Tannenhauser,(f) 54,500 shares that may be acquired upon
the conversion of Debentures held by Carol Tannenhauser, (g) 249,500 shares
owned by David Tannenhauser, the son of Robert F. Tannenhauser and Carol
Tannenhauser, (h) 164,600 shares held in a custodial account for the benefit of
Emily Tannenhauser, the daughter of Robert F. Tannenhauser each of Carol
Tannenhauser and Robert F. Tannenhauser share voting and dispositive power of
such shares, (i) 84,899 shares owned by Emily Tannenhauser, the daughter of
Robert F. Tannenhauser and Carol Tannenhauser, (j) 4,500 shares that may be
acquired upon the conversion of Debentures held by Robert F. Tannenhauser, (k)
21,167 shares that may be acquired upon the conversion of Debentures held by
David Tannenhauser, the son of Robert F. Tannenhauser and Carol Tannenhauser,
(l) 21,166 shares that may be acquired upon the conversion of Debentures held by
Emily Tannenhauser, the daughter of Robert F. Tannenhauser and Carol
Tannenhauser, (n) 22,132 shares held in trust for David Tannenhauser, the son of
Robert F. Tannenhauser and Carol Tannenhauser, (o) 22,132 shares held in trust
for Emily Tannenhauser, the daughter of Robert F. Tannenhauser and Carol
Tannenhauser and (p) 135,000 shares underlying options owned by Robert F.
Tannenhauser.
(13) Includes (a) 311,875 shares owned by the Defined Benefit Plan for the
Benefit of Jerome Alenick, (b) 35,000 shares underlying options owned by Jerome
Alenick, and (c) 107,500 shares owned by Jerome B. Alenick and Nicole A. Alenick
as joint tenants and tenants in common.
(14) Includes (a) 35,000 shares owned directly by Robert W. Wien, (b) 55,000
shares that may be acquired upon the exercise of options held by Robert W. Wien,
and (c) 34,500 shares that may be acquired upon the exercise of certain Warrants
held by Robert W. Wien.
(15) Represents shares beneficially owned pursuant to Rule 13d-3 by Mr.
Tannenhauser, a Director and President of the Company, Ms. Goldstein, Treasurer
and Chief Financial Officer of the Company, Leonard Rudolph, Executive Vice
President of the Company, David Redlener, Secretary of the Company, Messrs.
D'Loren, Peter Blanck, Wien, Alenick and Drs. Redlener and Schwartz, directors
of the Company. The shares deemed beneficially owned by Robert F. Tannenhauser
and Peter D. Blanck through Futuronics Corporation and Trust created under the
Will of Albert Blanck have been added only once to the total shares owned by
officers and directors as a group.
37
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since June 30, 1992, various members of the immediate family and
affiliates of Robert F. Tannenhauser have made available funds to the Company
for the purpose of originating loans. In exchange for extending such loans, the
Company paid interest to the person or entities funding such loans during Fiscal
Years 1999, 1998, 1997 and 1996. For those periods, the Company incurred
interest expense relating to such individuals in the aggregate amounts of
$19,000, $17,000, $157,000, and $130,000, respectively. The maximum amounts
outstanding for these loans during the periods in question were $1,077,000,
$2,594,000, $2,594,000, and $2,108,000, respectively. Additionally, certain
members and affiliates of Mr. Tannenhauser's family participated in the
debenture offering placed by the Company during fiscal year 1998. During fiscal
year 1999, interest expense and interest accrual relating to such individuals
approximated $88,000 and $22,000, respectively, based upon the outstanding
debenture of $950,000. Additionally, during Fiscal Year 1998, interest expense
and interest accrual relating to such individuals totaled approximately $48,000
and $25,000, respectively, based upon outstanding debentures to said parties in
the aggregate amount of $950,000.
On November 11, 1997, the Company entered into an investment banking
agreement with Josephthal & Co., Inc. ("Josephthal") pursuant to which the
Company paid a $25,000 retainer to Josephthal and agreed to pay an additional
$12,500 per month for three months commencing in January 1998. Thereafter the
fee would be reduced to $5,000 per month. For the Fiscal Years ended June 30,
1999 and 1998, the Company paid Josephthal approximately, $27,000 and $85,000 in
fees, respectively. In addition, the Company issued to Josephthal, pursuant to
such Investment Banking Agreement, warrants to purchase 90,000 shares of the
Common Stock of the Company. The initial exercise price for the warrants is
$1.10 per share. Robert W. Wien, a director of the Company, is a Managing
Director of Josephthal.
The Company and Robert C. McGee, a former director and Vice-President
of the Company and a current beneficial owner of greater than five percent of
the Company's Common Stock are parties to an amended and restated employment
agreement. Robert McGee's original Employment Agreement provided that he was to
be employed as Vice President of the Company, a Managing Partner of Business
Loan Center and President and Chief Executive Officer of BLC Network through
January 15, 2001 at an annual gross salary of $200,000. Mr. McGee was also
issued warrants to purchase 187,475 shares of Common Stock at an exercise price
of $.60, all of which are exercisable immediately or at any time prior to
November 5, 2000.
Mr. McGee's Amended and Restated Employment Agreement provides that he
shall be employed as BLC Network's, Senior Credit Advisor through January 15,
2001 at a gross annual salary of $175,000. The agreement further provides that
should BLC-Network terminate Mary McGee's, his spouse, employment for other than
cause or death or disability, then Mr. McGee's compensation shall be increased
to $256,000 per year. In the event BLC-Network terminates Mary McGee's
employment for cause or as a result of death or disability, then Mr. McGee's
compensation shall be increased to $200,000 per annum. Furthermore, in the event
BLC-Network reduces Mary McGee's salary below $81,000 per year, then Mr. McGee's
salary will be increased by a like amount. Mr. McGee is also entitled to
participate in all benefit plans established from time to time by the Company,
BLC-Network, and Business Loan Center, Inc. on the same basis as all other
executive employees. The agreement shall automatically renew for successive
one-year periods unless notice to the contrary is given by any party not less
than 90 days prior to the expiration of the then current term.
On April 1, 1997, the Company entered into an employment agreement
with R. Matthew McGee, the son of Robert McGee, whereby Mr. McGee shall be
employed as a consultant for BLC Capital Corp. through March 31, 2002 at an
annual gross salary of $136,000, which has been increased to $195,000. Mr. McGee
is entitled to participate in all plans established from time-to-time on the
same basis as all other employees.
For information on Peter Blanck, Kenneth Schwartz and Robert D'Loren,
(See Item 11. Executive Compensation - Compensation Committee Interlock and
Insider Participation).
38
<PAGE>
Part IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules, and
Reports on Form 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedules
REGISTRANT:
The following consolidated financial statements and schedules of BLC Financial
Services, Inc. and subsidiaries, the notes thereto and the related report
thereon of the independent auditors are filed pursuant to Item 8 of this Report:
Independent Auditors' Report............................F-2
Consolidated Balance Sheets at June 30, 1999 and 1998...F-3
Consolidated Statements of Income --
Years Ended June 30, 1999, 1998 and
1997..................................................F-4
Consolidated Statements of Changes in
Shareholders' Equity --Years ended
June 30, 1999, 1998 and 1997..........................F-5
Consolidated Statements of Cash Flows --
Years ended June 30, 1999, 1998 and
1997..................................................F-6
Notes to Consolidated Financial Statements..............F-7
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the instructions to Item 8 or are inapplicable, and therefore, have been
omitted.
(a)(3) Exhibits Filed See Exhibit Index beginning on page 43
of this Report.
(b) Reports on Form 8-K
The Company filed one Report on Form 8-K during the
fiscal year ending on June 30, 1999. On December 30, 1998,
Business Loan Center, a wholly-owned subsidiary of the
Company, successfully completed the securitization and sale of
a portion of its unguaranteed SBA loan portfolio.
(c) Exhibits See Item 14(a)(3) above.
(d) Financial Statement Schedules
The financial statement schedules required to be
filed pursuant to this Item 14(d) are listed above under Items
14(a)(1) and (2).
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 27, 1999 BLC FINANCIAL SERVICES, INC.
(Registrant)
By: /s/ Robert F. Tannenhauser
Robert F. Tannenhauser,
President
By: /s/ Jennifer M. Goldstein
Jennifer M. Goldstein,
Treasurer and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- --------------- --------------------- -------------
/s/ Robert F. Tannenhauser
Robert F. Tannenhauser Director September 27, 1999
/s/ Peter D. Blanck
Peter D. Blanck Director September 27, 1999
/s/ Robert D'Loren
Robert W. D'Loren Director September 27, 1999
/s/ Irwin E. Redlener
Irwin E. Redlener Director September 27, 1999
/s/ Kenneth S. Schwartz
Kenneth S. Schwartz Director September 27, 1999
/s/ Robert W. Wien
Robert W. Wien Director September 27, 1999
/s/ Jerome Alenick
Jerome Alenick Director September 27, 1999
40
<PAGE>
EXHIBIT INDEX
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 1.3[15] 3.1 Amended and Restated Certificate
of Incorporation of Registrant
Exhibit 1.4[15] 3.2 Amended and Restated By-Laws of Registrant
Exhibit 1.5 [17] 3.3 By-Laws of BLC Financial Corporation
Exhibit 1.6 [17] 3.4 By-Laws of BLC Commercial Capital Corporation
* 3.5 By-Laws of BLC Financial Corp. II
* 3.6 By-Laws of BLC Real Estate Corp.
Exhibit 2.1[6] 4.1 Form of Common Stock Certificate of Registrant
Exhibit 2.3[1] 4.2 Form of Warrant Agreement issued by Registrant
Exhibit 2.6[8] 4.3 Form of 7% three-year Unsecured Convertible
Debenture issued by Registrant in connection with
its 1994 Debenture-Unit Private Placement
Exhibit 2.8[8] 4.4 Form of Class B Warrant issue by Registrant in
connection with its 1994 Debenture-Unit Private
Placement
Exhibit 2.13 [17] 4.5 Form of Warrant 1997-1
Exhibit 2.14 [17] 4.6 Form of Debenture 9 1/4 Convertible Subordinated
Note Due 2001
* 4.7 Form of Debenture Note 9% Convertible Subordinated
Note Due 2001
Exhibit 2.5[6] 10.1 Form of Stock Option Agreement issued to certain
directors in August 1992
Exhibit 2.9[8] 10.2 Form of Warrant issued by Registrant to Financial
Advisor
Exhibit 2.10[8] 10.3 Form of Warrant issued by Registrant in connection with
its 1994 Common Stock-Unit Private Placement
Exhibit 2.12[15] 10.4 1995 Employee Stock Purchase Plan
41
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 2.15 [17] 10.5 Form of Incentive Stock Option Agreement
Exhibit 2.16[17] 10.6 Employment Agreement between Business Loan Center
and Leonard Rudolph dated May 4, 1998
Exhibit 3.2 [17] 10.7 Employment Agreement between Business Loan Center
and Jennifer Goldstein dated October 8, 1997
Exhibit 4.1[15] 10.8 Small Business Administration Loan Guaranty Agreement
(Deferred Participation) dated March 27,1997 between
BLC-New York and the United States Small Business
Administration (SBA Form 750)
Exhibit 8.1b[15] 10.9 Lease Agreement dated July 31, 1997 by and between
The Equitable-Nissei Madison Co., as landlord, and
Business Loan Center, Inc., as tenant
Exhibit 9.1 [17] 10.10 Guarantee Agreement dated May 7, 1998 between BLC
Financial Services, Inc. and Transamerica
Business Credit Corporation
Exhibit 9.2 [17]10.11 Guarantee Agreement dated March 25, 1998 between
BLC Financial Services, Inc. and Transamerica
Business Credit Corporation
Exhibit 10.1[9] 10.12 Revolving Credit Agreement dated as of 1994 between
BLC-Delaware, Registrant, Business Loan Center and
Sterling National Bank & Trust Company of New York
Exhibit 10.3[15]10.13 Amended and Restated Revolving Credit agreement
dated August 27, 1997 between BLC Financial Services,
Inc., Business Loan Center, Inc. and Sterling
National Bank (f/k/a/ Sterling National Bank & Trust
Company of New York)
42
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 10.4[15] 10.14 Revolving Credit Agreement dated August 27, 1997
between BLC Financial Services, Inc. and Sterling
National Bank (f/k/a/ Sterling National Bank & Trust
Company of New York)
Exhibit 10.5[15] 10.15 Confirmation Agreement by and among Robert F.
Tannenhauser in favor of Sterling National
Bank dated August 27, 1997
Exhibit 10.6[15] 10.16 Partial Assignment Agreement between Sterling National
Bank and Transamerica Business Credit Corporation
dated August 27, 1997
Exhibit 10.7 [17] 10.17 Loan Agreement between BLC Commercial Capital
Corporation as Borrower, BLC FinancialServices as
parent and Transamerica Business Credit Corporation as
lender dated May 7, 1998
Exhibit 10.8 [17] 10.18 Loan Agreement between Business Loan Center as
Borrower, BLC Financial Services as parent and
Transamerica Business Credit Corporation as lender
dated March 25, 1998
Exhibit 10.9 [17] 10.19 First Amendment to Loan Agreement between Business
Loan Center as Borrower, BLC Financial Services as
parent and Transamerica Business Credit Corporation
as lender dated June 24, 1998
Exhibit 10.10 [17] 10.20 Pooling and Servicing Agreement between Marine Midland
Bank (Trustee) and Business Loan Center (Seller and
Servicer) dated as of December 1,1997
Exhibit 10.11 [17] 10.21 Security Agreement between Business Loan Center and
Transamerica Business Credit Corporation as lender
dated March 25, 1998
Exhibit 10.12 [17] 10.22 Security Agreement between BLC Commercial Capital
Corporation and Transamerica Business Credit
Corporation as lender dated May 7, 1998
43
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 10.13 [17] 10.23 Revolving Credit Note between BLC Commercial Capital
Corporation and Transamerica Business Credit
Corporation dated May 7, 1998
Exhibit 10.14 [17] 10.24 Revolving Credit Note between Business Loan Center
and Transamerica Business Credit Corporation dated
March 25, 1998
Exhibit 10.15 [17] 10.25 Amendment and Restated Revolving Credit Note between
Business Loan Center and Transamerica Business Credit
Corporation (June 1998)
Exhibit 10.16 [17]10.26 Multi-Party Agreement between Business Loan Center,
Inc., BLC Financial Services, Inc.,Transamerica
Business Credit Corporation, Colson Services Corp.,
and the United States Small Business Administration
dated March 25, 1998
Exhibit 10.17 [17]10.27 Multi-Party Agreement Among Business Loan Center, Inc.,
Marine Midland Bank, Colson Services Corp., and the SBA
dated December 1, 1997
Exhibit 10.18 [17]10.28 Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates (Class A)
Exhibit 10.19 [17]10.29 Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates (Class B)
Exhibit 10.20 [17]10.30 Business Loan Center SBA Loan Trust 1997-1 between
Business Loan Center, Inc. (Seller)and Marine Midland
Bank (Borrower) dated December 1, 1997
Exhibit 11.1[9] 10.31 Security Agreement dated as of December 1994 between
BLC-Delaware, Registrant, Business Loan Center and
Sterling National Bank & Trust Company of New York
44
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 11.2[15] 10.32 Amendment NO.1 to Security Agreement between BLC-
Delaware, Registrant, Business Loan Center and Sterling
National Bank (f/k/a Sterling National Bank & Trust
Company of New York) dated August 27, 1997.
Exhibit 11.3[15] 10.33 Release among Sydney Yoskowitz and Sterling National
Bank dated August 27, 1997
Exhibit 12.1[9] 10.34 Multi-Party Agreement dated as of December 1994
(relating to SBA Loan Documentation and
Administration)
Exhibit 13.1[10] 10.35 Exchange Agreement between BLC Financial Network,
Inc., BLC Financial Services, Inc., and Southeastern
1st Financial Network, Inc.
Exhibit 14.1[10] 10.36 Employment Agreement between BLC Financial Network,
Inc., BLC Financial Services, Inc., and Robert C. McGee
Exhibit 14.3[15] 10.37 Employment Agreement between BLC Financial Network,
Inc., BLC Financial Services, Inc., and R. Matthew
McGee dated April 1, 1997
Exhibit 14.4[10] 10.38 Employment Agreement between BLC Financial Network,
Inc., BLC Financial Services, Inc., and Mary D. McGee
Exhibit 14.5[10] 10.39 Employment Agreement between BLC Financial Services,
Inc., Business Loan Center, and Robert F. Tannenhauser
Exhibit 14.6[10] 10.40 Employment Agreement between Business Loan Center,
and Eric D. Rosenfeld
Exhibit 15.1[10] 10.41 Warrant Certificate for Purchase of Common Stock
Exhibit 15.2[10] 10.42 Class A Warrant to Purchase Shares of Common Stock
Exhibit 15.3[10] 10.43 Class B Warrant to Purchase Shares of Common Stock
Exhibit 16.1[10] 10.44 Stock Purchase Agreement between BLC Financial
Services, Inc. and Robert C. McGee
45
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 16.2[10] 10.45 Stock Purchase Agreement between R. Matthew McGee
for 306,818 shares of Common Stock
Exhibit 16.3[10] 10.46 Stock Purchase Agreement between R. Matthew McGee
for 380,139 shares of Common Stock
Exhibit 17.1[10] 10.47 Participation Agreement between Business Loan Center
and GE Capital Small Business Finance Corporation
Exhibit 17.2[15] 10.48 Participation Agreement between Business Loan Center
and GE Capital Small Business Finance Corporation -
March 20, 1997
Exhibit 18.1[15] 10.49 Agreement between BLC Management Consulting Services,
Inc., Business Loan Center, Inc., and Business Loan
Center dated February 3, 1997 (relating to the
cessation of Business Loan Center, a New York general
partnership as a small business lending company)
Exhibit 18.2[15] 10.50 Assignment and Assumption Agreement between Business
Loan Center, Inc. and Business Loan Center, a New York
general partnership.
Exhibit 18.3[15] 10.51 Schedule of Assets and Liabilities (relating to
Assignment and Assumption Agreement between Business
Loan Center, Inc. and Business Loan Center, a New York
general partnership.
Exhibit 20.1[13] 10.52 Participation Agreement between Business Loan Center,
Inc., BLC Financial Services, Inc. and Transamerica
Business Credit Corporation dated May 1, 1997.
Exhibit 20.2[13] 10.53 Security agreement between Business Loan Center, Inc.
and Transamerica Business Credit Corporation dated
August 27, 1997
46
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
Exhibit 20.3[15] 10.54 Guaranty Agreement between Business Loan Center, Inc.
and Transamerica Business Credit Corporation dated
August 27, 1997
Exhibit 20.4[15] 10.55 Restated and Amended Loan Agreement between Business
Loan Center, Inc., BLC Financial Services, Inc. and
Transamerica Business Credit Corporation dated August
27, 1997
Exhibit 20.5[15] 10.56 Trademark Security Agreement between Business Loan
Center, Inc. and Transamerica Business Credit
Corporation dated August 27, 1997
Exhibit 20.6[15] 10.57 Revolving Credit Note between Business Loan Center,
Inc. and Transamerica Business Credit Corporation dated
August 27, 1997
Exhibit 20.7[15] 10.58 Intercreditor Agreement between Transamerica Business
Credit Corporation and Sterling National Bank dated
August 27, 1997
Exhibit 2.4[6] 10.59 Form of Letter to Unit Holders regarding Conversion
of Debentures
Exhibit 23.1[6] 10.60 Service Mark Registration for "BUSINESS LOAN CENTER"
* 10.61 Amendment to lease agreement dated January, 1999
between The Equitable-Nissei Madison Co., as
landlord, and Business Loan Center, Inc., as tenant
* 10.62 Lease Agreement dated August 28, 1998 by and between
International Mission Board of the Southern Baptist
Convention and BLC Financial Network, Inc., as tenant
* 10.63 9% Convertible subordinated Note Due 2003 Conversion
Price $3.50 per Share Series 1
* 10.64 Addendum to Confidential Private Placement Memorandum
BLC Financial Services, Inc. 9% Convertible
Subordinated Note Due 2003
47
<PAGE>
Incorporated by Exhibit
Reference to Number Description
- ----------------- ------ ------------------------------------------------------
* 10.65 Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1 $24,316,729.85 Class A
Certificate Confidential Placement Memorandum dated
December 28, 1998
* 10.66 Second Amendment to Loan Agreement between Business
Loan Center as Borrower, BLC Financial Services as
parent and Transamerica Business Credit Corporation as
lender, dated September, 1998
* 10.67 Third Amendment to Loan Agreement between Business
Loan Center as Borrower, BLC Financial Services as
parent and Transamerica Business Credit Corporation as
lender, dated October, 1998
* 10.68 Fourth Amendment to Loan Agreement between Business
Loan Center as Borrower, BLC Financial Services as
parent and Transamerica Business Credit Corporation as
lender, dated December, 1998.
* 10.69 Pooling and Servicing Agreement between Marine Midland
Bank (Trustee) and Business Loan Center (Seller and
Servicer) dated as of December 23, 1998
* 10.70 Form of Subscription Agreement
Exhibit 21[15] 21 Amended List of Subsidiaries
Exhibit 22 [15] 27.1 EDGAR filing: Article 5 Financial Data Schedule
Exhibit 27 [17] 27.2 Financial Data Schedule
* 27.3 EDGAR filing: Article 5 Financial Data Schedule
- -----------------------
* Filed Herewith
48
<PAGE>
Previous SEC Filings:
[1] Registrant's Annual Report on Form 10-K for the year ended June 30, 1993.
[2] Registrant's Annual Report on Form 8-K dated August 8, 1986.
[3] Registrant's Annual Report on Form 10-K for the year ended June 30, 1990.
[4] Registrant's Annual Report on Form 8-K dated May 4, 1990.
[5] Registrant's Annual Report on Form 10-K for the year ended June 30, 1991.
[6] Registrant's Registration Statement on Form S-1 filed with the Securities
& Exchange Commission on September 27, 1993.
[7] Pre-effective Amendment No. 2 to Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on December 30,
1993.
[8] Pre-effective Amendment No. 5 to Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August 4,
1994.
[9] Registrant's Annual Report on Form 10-K for the year ended June 30, 1996.
[10] Registrant's Current Report on Form 8-K dated February 5, 1996.
[11] Registrant's Current Report on Form 8-K dated June 4, 1996.
[12] Registrant's Current Report on Form 8-K dated September 17, 1996.
[13] Registrant's Current Report on Form 8-K dated May 12, 1997.
[14] Registrant's Notice of Special Meeting (in Lieu of Annual Meeting) of
Stockholders dated June 6, 1997.
[15] Registrant's Annual Report on Form 10-K for the year ended June 30, 1997.
[16] Registrant's Current Report on Form 8-K dated December 30, 1997.
[17] Registrant's Annual Report on Form 10-K for the year ended June 30, 1998
[18] Registrant's Current Report on Form 8-K dated February 12, 1999
EXHIBIT 21
The following is a list of the registrant's subsidiaries, other than
subsidiaries that, if considered in the aggregate as a single subsidiary would
not constitute a significant subsidiary as of the end of the year covered by
this report:
Jurisdiction
of
Name of Subsidiary Incorporation
Business Loan Center, Inc. Delaware
BLC Commercial Capital Corporation Florida
BLC Capital Corporation Delaware
BLC Financial Network, Inc. Delaware
BLC Financial Network of Florida, Inc. Delaware
BLC Financial Network of Mid-America, Inc. Kansas
Business Loan Center Financial Corporation Delaware
Business Loan Center Financial Corporation II Delaware
Business Loan Center Real Estate Corporation Delaware
- ---------------------
49
<PAGE>
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
<PAGE>
BLC FINANCIAL SERVICES, INC.
Contents
Page
Consolidated Financial Statements
Independent auditors' report F-2
Balance sheets F-3
Statements of income F-4
Statements of changes in shareholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7
<PAGE>
[LETTERHEAD OF RICHARD A EISNER & COMPANY, LLP]
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
BLC Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of BLC Financial
Services, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three year period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of BLC Financial
Services, Inc. and subsidiaries as of June 30, 1999 and 1998 and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three year period ended June 30, 1999, in conformity
with generally accepted accounting principles.
/s/Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
August 27, 1999
F-2
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
1999 1998
ASSETS
- -------
Loans receivable - net $21,936,000 $22,040,000
Loans held for sale 8,922,000 7,160,000
Cash 4,229,000 1,730,000
Restricted cash 1,728,000 1,768,000
Accounts receivable - loans sold 8,982,000 8,252,000
Accounts and other receivables 2,681,000 1,006,000
Prepaid expenses 464,000 302,000
Leasehold improvements, furniture and equipment,
net of accumulated depreciation of $571,000
in 1999; $342,000 in 1998 1,207,000 742,000
Servicing assets 4,761,000 3,270,000
Residual interests 10,877,000 5,057,000
Deferred income taxes 1,000,000 991,000
Security deposits 131,000 131,000
Deferred financing costs, net of accumulated
amortization of $774,000 in
1999; $415,000 in 1998 669,000 832,000
Other assets 450,000
---------- ------------
$ 68,037,000 $ 53,281,000
============ ============
LIABILITIES
- ------------
Advances under credit facilities $39,488,000 $32,541,000
Accounts payable and accrued expenses 643,000 1,163,000
Due to participants 1,640,000 264,000
Allowance for estimated future
losses on loans sold 77,000 466,000
Notes payable 120,000 46,000
Debentures 4,725,000 3,328,000
Customer deposits 2,197,000 1,204,000
---------- -----------
Total liabilities 48,890,000 39,012,000
=========== ===========
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY:
- -------------------------
Preferred stock, $.10 par value:
Authorized - 2,000,000 shares, issued and
outstanding - none
Common stock, $.01 par value:
Authorized - 20,288,875 shares, issued and
outstanding in 1999 and 19,778,449 in 1998 202,000 197,000
Additional paid-in capital 12,659,000 10,840,000
Retained earnings 5,865,000 2,762,000
Accumulated other comprehensive income -
unrealized gain on residual interests
(net of income taxes of $305,000 in 1999;
$341,000 in 1998) 421,000 470,000
------------ -----------
Total shareholders' equity 19,147,000 14,269,000
------------ -----------
$68,037,000 $53,281,000
============ ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Year Ended June 30,
<S> <C> <C> <C>
1999 1998 1997
Revenues:
Interest income $ 3,550,000 $ 2,439,000 $1,666,000
Gain on sale of loans 11,868,000 10,583,000 4,333,000
Service fee income 2,355,000 1,150,000 800,000
Miscellaneous 1,649,000 1,557,000 369,000
----------- ----------- ----------
19,422,000 15,729,000 7,168,000
----------- ----------- ----------
Expenses:
Operating costs 8,636,000 6,481,000 3,249,000
General and administrative 2,746,000 1,753,000 1,267,000
Interest 2,886,000 2,158,000 975,000
Equity of minority interest in income of
subsidiary 2,000
----------- ----------- ----------
14,268,000 10,392,000 5,493,000
----------- ----------- ----------
Income before provision (benefit)
for income taxes
and extraordinary item 5,154,000 5,337,000 1,675,000
Provision (benefit) for income taxes 2,051,000 2,111,000 (27,000)
----------- ----------- -----------
Income before extraordinary item 3,103,000 3,226,000 1,702,000
-----------
Extraordinary gain - forgiveness of debt
(net of income taxes of $27,000) 245,000
----------- ----------- -----------
Net income $ 3,103,000 3,226,000 $1,947,000
- ----------- ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Basic:
Income before extraordinary item $.16 $.18 $.10
Extraordinary item $.01
Net income $.16 $.18 $.11
Diluted:
Income before extraordinary item $.14 $.15 $.10
Extraordinary item $.01
Net income $.14 $.15 $.11
</TABLE>
See notes to financial statements
F-4
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained Accumulated
---------------------- Additional Earnings Other
Number Paid-in (Accumulated Comprehensive Comprehensive
of Shares Amount Capital Deficit) Income Income Total
----------- --------- ------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30,
1996 16,882,052 $169,000 $6,843,000 $(2,411,000) $4,601,000
Exercise of
warrants 459,191 4,000 174,000 178,000
Net income 1,947,000 $1,947,000 1,947,000
Pre-confirmation net
operating loss
utilization 374,000 374,000
Change in unrealized
gain on residual
interests, net
of income
tax effect $90,000 90,000 90,000
----------- ---------- ----------- ---------- ----------- ------------ ------------
Balance, June 30, 1997 17,341,243 173,000 7,391,000 (464,000) 90,000 $2,037,000 7,190,000
============
Exercise of warrants
and options 2,437,206 24,000 1,264,000 1,288,000
Net income 3,226,000 $3,226,000 3,226,000
Pre-confirmation
net operating loss
utilization 1,996,000 1,996,000
Issuance of warrants
in connection
with professional
services rendered 189,000 189,000
Change in unrealized
gain on residual
interests, net of
income tax effect 380,000 380,000 380,000
------------ ------------ ------------ ------------- --------- ----------- -----------
Balance, June 30, 1998 19,778,449 197,000 10,840,000 2,762,000 470,000 $3,606,000 14,269,000
============
Exercise of warrants
and options 510,426 5,000 286,000 291,000
Net income 3,103,000 $3,103,000 3,103,000
Pre-confirmation net
operating loss
utilization 1,533,000 1,533,000
Change in unrealized
gain on residual
interests, net of
income tax effect (49,000) (49,000) (49,000)
------------- --------- ------------ ----------- ---------- ----------- ------------
Balance, June 30,1999 20,288,875 $202,000 $ 12,659,000 $ 5,865,000 $ 421,000 $3,054,000 $19,147,000
============= ========= ============ =========== ========== =========== ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Year Ended June 30,
-----------------------------------------
1999 1998 1997
-------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary item $ 3,103,000 $ 3,226,000 $ 1,702,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 233,000 131,000 69,000
Minority interest in income of subsidiary 2,000
Amortization 1,047,000 782,000 217,000
Provisions for credit losses 398,000 190,000 74,000
Deferred income tax expense (benefit) 1,560,000 1,711,000 (333,000)
Issuance of warrants in connection with professional services
rendered 189,000
Loans held for sale originated (16,999,000) (21,914,000) (1,079,000)
Sales of loans held for sale 15,237,000 15,863,000 2,294,000
Changes in:
Restricted cash 40,000 (1,768,000)
Accounts receivable - loans sold (730,000) (5,005,000) (3,247,000)
Accounts and other receivables (1,675,000) (724,000) (23,000)
Prepaid expenses (162,000) (84,000) (218,000)
Deferred financing costs (196,000) (920,000) (250,000)
Accrued expenses (520,000) 741,000 34,000
Due to participants 1,376,000 (260,000) 524,000
Security deposits (128,000) 19,000
Customer deposits 993,000 873,000 65,000
------------ ------------ -----------
Net cash provided by (used in) operating activities 3,705,000 (7,097,000) (150,000)
Cash flows from investing activities:
Loans originated (28,758,000) (26,496,000) (10,996,000)
Principal collections and sales of
loans receivable 18,480,000 8,937,000 5,037,000
Payments on residual interests 1,061,000 429,000 15,000
Acquisition of equipment (698,000) (529,000) (254,000)
Purchase of minority interest in
subsidiary (380,000)
------------ ------------ ------------
Net cash used in investing
activities (9,915,000) (17,659,000) (6,578,000)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under lines of credit 6,947,000 23,921,000 5,066,000
Net proceeds from notes payable 620,000
Proceeds from issuance of debentures 922,000 2,978,000
Proceeds from exercise of
warrants and options 286,000 1,288,000 178,000
Proceeds from issuance of common stock 5,000
Principal payments on debentures (25,000)
Due to affiliates (2,394,000) 1,966,000
Principal payments on notes payable (46,000) (110,000) (172,000)
------------ ------------ ------------
Net cash provided by
financing activities 8,709,000 25,683,000 7,038,000
------------ ------------ ------------
Net increase in cash 2,499,000 927,000 310,000
Cash at beginning of year 1,730,000 803,000 493,000
------------ ------------ ------------
Cash at end of year $ 4,229,000 $ 1,730,000 $ 803,000
============ ============ ============
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest $ 2,899,000 $ 1,950,000 $ 961,000
Income taxes $ 1,011,000 $ 175,000 $ 438,000
See notes to financial statements
</TABLE>
F-6
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and preparation:
The accompanying consolidated financial statements include the accounts of BLC
Financial Services, Inc. (the "Company"); its corporate subsidiaries and prior
to February 1997, a general partnership (the "Partnership") after elimination of
all significant intercompany accounts and transactions. On September 16, 1996, a
wholly-owned subsidiary of the Company purchased the minority interest of the
Partnership for $380,000. Prior to September 16, 1996, the Company owned 88% of
the Partnership. In February 1997, the assets and liabilities of the Partnership
were transferred into a wholly-owned subsidiary of the Company.
Business operations:
The Company is primarily engaged in the business of originating, selling and
servicing loans to small businesses under the Section 7(a) Guaranteed Loan
Program sponsored by the United States Small Business Administration ("SBA").
Additionally, the Company originates, sells and services loans to businesses
under the United States Department of Agriculture Rural Business - Cooperative
Business and Industry Guaranteed Loan Program ("B&I"). The Company sells the SBA
and B&I guaranteed portion of the loan in the secondary market, without
recourse, at a premium, and sells the majority of the remaining SBA unguaranteed
portions either as loan sales or securitizations. These sales may be with
limited recourse, full recourse or no recourse.
Accounting for loans and revenue recognition:
The Company's policy is to sell the SBA or B&I guaranteed portion of all loans
that it originates, at a premium, in the secondary market on a nonrecourse
basis. The guaranteed portion of the loans receivable that have been originated,
but not yet sold, are carried at the lower of aggregate cost or market value.
Market value is determined by outside commitments from investors or current
yield on similar loans. Loans receivable held for investment are stated at the
principal amount outstanding less deferred income.
Effective January 1, 1997, as required by Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities ("FAS 125"), upon the sale of loans, the
Company allocates the cost, based upon the relative fair values, to the
guaranteed portion of the loan, the unguaranteed portion of the loan, the
servicing asset and residual interest, if any. The impact of the adoption of FAS
125 on net income in 1997 was immaterial.
Gain on sales of loans receivable principally represents the present value of
the differential between the interest rates charged by the Company and the
interest rates passed on to the purchaser of the receivables, after considering
the effects of estimated prepayments, repurchases and normal servicing fees.
Gains on the sale of loan receivables are recorded on the trade date using the
specific identification method.
F-7
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting for loans and revenue recognition: (continued)
The Company generally ceases to accrue interest income on loan receivables which
become 90 days delinquent, categorizes these loans as being in liquidation, and
takes appropriate steps to attempt to collect the loan in full. Contractual
interest received on nonaccrual loans is either applied against principal or
reported as interest income, according to management's judgement as to the
collectibility of principal.
Credit losses:
The adequacy of the allowances for credit losses on loans receivable and loans
sold with recourse are determined through a quarterly review of outstanding
loans, commitments to extend credit and the outstanding loans sold with
recourse. The impact of economic conditions on the creditworthiness of the
borrowers is given consideration, as well as credit loss experience, changes in
the composition and volume of the loan portfolio, and management's assessment of
the risk inherent in the loan portfolio. These and other factors are used in
assessing the overall adequacy of the allowance for credit losses and the
resulting provision for credit losses.
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance for credit losses at a level considered adequate to cover
the losses of principal in the existing portfolio. However, the ultimate amount
realized from collateral securing the impaired loans cannot reasonably be
determined until their disposition. The Company's charge-off policy is based on
an account-by-account review for all loans receivable.
Under certain limited circumstances, the Company may be liable, on loans that it
originated, for losses incurred by the SBA. Management considers this
contingency in determining the adequacy of the allowance for credit losses.
Residual interests:
In accordance with FAS 125, effective January 1, 1997, the Company, upon sale of
loans recognizes a residual interest. The residual interest represents the
estimated discounted cash flow of the differential between the total interest to
be earned on the loans sold and the sum of the interest to be paid to the
participants and the contractual servicing fee.
The fair value of the residual interest is determined based on various economic
factors including loan size, dates of origination, terms and geographic
locations. The Company also used other available information such as reports on
historical average loan maturity as compared to the contractual loan maturity.
The Company reviews these factors and, if necessary, adjusts the remaining asset
to the fair value of the residual interest. As of June 30, 1999, the average
loan prepayment, estimated loan loss and cash flow discount rate assumptions are
18%, 1% and 9-3/4%, respectively.
The residual interests are accounted for as available-for-sale securities and
are stated at estimated fair value. Unrealized gains and losses, net of the
income tax effect, have been included in total accumulated other comprehensive
income.
F-8
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Servicing assets:
Servicing assets arise from the sale of fractional interests of loans. Servicing
assets represent the estimated present value of the differential between the
contractual servicing fee and the Company's normal servicing cost. These
capitalized amounts are amortized over the estimated average life of the loans
in each pool sold. The Company reviews the carrying amount of each pool for
possible impairment. If the estimated present value of the future servicing
income is less than the carrying amount, the Company recognizes an impairment
loss and reduces future amortization accordingly. Management has determined that
the primary risk characteristics for the servicing pools are the type of loan
and the year of origination.
Leasehold improvements, furniture and equipment:
Furniture and equipment are recorded at cost. Depreciation is computed using the
straight-line method over five to seven years, which approximates the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the lease term or its economic life.
Comprehensive income:
During the year ended June 30, 1999, the Company retroactively adopted the
provisions of Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" which establishes standards for reporting comprehensive
income (net income plus all other changes in net assets from nonownership
sources) and its components in the financial statements.
Per share information:
Basic earnings per share ("EPS") is determined using net income divided by the
weighted average shares outstanding during the period. Diluted EPS is computed
by dividing net income, plus the after tax effect of the interest expense on the
convertible debentures, by the weighted average shares outstanding, assuming all
dilutive potential common shares were issued using, with respect to the assumed
proceeds from the exercise of dilutive options and warrants, the treasury stock
method calculated based upon average market price for the period.
F-9
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the basic and diluted EPS for the years ended June
30, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8 1 9 9 7
--------------------------- ------------------------------ -----------------------------
Income Income Income
before Before Before
Extra- Weighted Extra- Weighted Extra- Weighted
ordinary Average Per Share ordinary Average Per Share ordinary Average Per Share
Item Shares Amount Item Shares Amount Item Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before
extraordinary
item $ 3,103,000 $3,226,000 $1,702,000
=========== ========== ==========
Basic EPS
Income before
extraordinary
item available
to common
stockholders $ 3,103,000 20,017,158 $.16 $ 3,226,000 18,287,002 $.18 $1,702,000 17,317,428 $.10
==== ==== ====
Effect of
dilutive
stock
options and
warrants 2,613,168 2,306,048 915,429
Effect of
convertible
debentures 195,000 1,747,962 91,000 831,025
--------- ----------- --------- ----------- ----------- -----------
Diluted EPS
Income before
extraordinary
item available
to common
stockholders $ 3,298,000 24,378,288 $.14 $3,317,000 21,424,075 $.15 $ 1,702,000 18,232,857 $.10
============ =========== ========= =========== =========== ===== =========== ========== ====
</TABLE>
Income taxes:
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred income taxes relate to temporary differences and the net operating loss
carryforwards.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock-based compensation:
Statement of Financial Accounting Standards No. 123,"Accounting for Stock-Based
Compensation" ("FAS 123") allows companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income had the
fair value of the options been expensed. The Company has elected to continue to
apply APB 25 in accounting for its employee stock option incentive plans.
F-10
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 2. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
The loans receivable are principally long-term business loans, with initial
terms ranging from 7 to 25 years, made to qualifying small businesses. The loans
have variable interest rates which adjust based upon the prime rate.
As of June 30, 1999 and 1998, loans receivable - net consisted of:
<TABLE>
<CAPTION>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
1999 1998
---------------- ---------------
<S> <C> <C>
Loans receivable $ 23,860,000 $ 23,829,000
Less:
Deferred income (1,010,000) (1,148,000)
Allowance for credit losses (914,000) (641,000)
------------ ------------
Net loans receivable $ 21,936,000 $ 22,040,000
============ ============
</TABLE>
As of June 30, 1999, contractual maturities of loans receivable for each of the
next five years were as follows:
Year Ending
June 30,
- -------------------------------
2000 $ 617,000
2001 684,000
2002 759,000
2003 843,000
2004 935,000
As of June 30, 1999 and 1998, the impaired loan portfolio totaled $1,673,000 and
$1,809,000, respectively, for which specific allocations to the allowance for
credit losses aggregated $382,000 and $309,000 respectively. The average balance
of the impaired loan portfolio for the year ended June 30, 1999 and 1998
approximated $1,741,000 and $1,589,000, respectively. The Company did not
recognize any interest income on its impaired loan portfolio during the years
ended June 30, 1999, 1998 and 1997.
Changes in the allowance for credit losses for the three years ended June 30,
1999 were as follows:
Balance as of June 30, 1996 $ 1,230,000
Provision for credit losses 83,000
Loans charged off (412,000)
-------------
Balance as of June 30, 1997 901,000
Benefit for credit losses (177,000)
Loans charged off (83,000)
-------------
Balance as of June 30, 1998 641,000
Provision for credit losses 787,000
Loans charged off (514,000)
-------------
Balance as of June 30, 1999 $ 914,000
=============
F-11
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 3. SERVICING ASSETS AND RESIDUAL INTERESTS
Changes in servicing assets and residual interests for the three years ended
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Servicing Residual
Assets Interests
----------- ----------
<S> <C> <C>
Balance June 30,1996 $ 1,479,000
Assets originating from loan sales 684,000 $ 867,000
Amortization (191,000)
Principal payments (15,000)
Change in market value 100,000
----------- -----------
Balance, June 30, 1997 1,972,000 952,000
Assets originating from loan sales 1,712,000 3,823,000
Amortization (414,000)
Principal payments (429,000)
Change in market value 711,000
----------- -----------
Balance, June 30, 1998 3,270,000 5,057,000
Assets originating from loan sales 2,299,000 6,965,000
Amortization (808,000)
Principal payments (1,061,000)
Change in market value (84,000)
----------- -----------
Balance, June 30, 1999 $ 4,761,000 $10,877,000
=========== ===========
</TABLE>
As of June 30, 1999, the net unrealized gains related to residual interests was
$726,000.
NOTE 4. FINANCING
As of June 30, 1999, the Company had $65,000,000 in revolving credit facilities.
The facilities are collateralized by loans receivable, loans held for sale and
accounts receivable - loans sold and the interest rates range from the LIBOR
rate plus 2% to the prime plus 1%. The facilities expire between May 2000 and
August 2001 and include covenants requiring the company to, among other matters,
maintain minimum tangible net worth.
As of June 30, 1999, the Company had a note payable of $120,000. The note bears
interest at the prime rate and had an original maturity date of August 1999. The
maturity date has been extended to August 2000.
Debentures aggregating $3,303,000 as of June 30, 1999 and $3,328,000 as of June
30, 1998 bear interest at 9-1/4% per annum, mature November 2001 and are
convertible respectively into 1,649,549 and 1,662,049 shares of the Company's
common stock. Debentures aggregating $1,422,000 as of June 30, 1999 bear
interest at 9% per annum, mature February 2003 and are convertible into 406,286
shares of the Company's common stock. Additionally, they are subordinated to the
revolving lines of credit. During 1999, a note holder exchanged a $500,000 note
payable for a $500,000 debenture payable. During 1998, $150,000 of the
subordinated advances and $200,000 of amounts due to affiliates were converted
into $350,000 of debentures.
As of June 30,1998, the Company had a note payable of $46,000, which was paid in
full during 1999.
The principal payments on the debentures of $3,303,000 and $1,422,000 are due
during the years ending June 30, 2002 and June 30, 2003, respectively.
NOTE 5. INCOME TAXES
The significant components of the Company's deferred income tax assets and
liabilities as of June 30, 1999 and 1998 are as follows:
F-12
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
1999 1998
-------------- ---------------
Deferred income tax assets:
Net operating losses $ 1,305,000 $ 2,056,000
Allowance for credit losses 382,000 428,000
Loan discount 390,000 398,000
Alternative minimum tax credit carryforward 220,000 140,000
------------ ------------
2,297,000 3,022,000
Deferred income tax liability; unrealized gain
on residual interest (305,000) (341,000)
Valuation allowance (992,000) (1,690,000)
----------- -----------
Net deferred income tax asset $ 1,000,000 $ 991,000
=========== ===========
The valuation allowance represents the unutilized tax benefit of the pre
confirmation net operating losses.
The significant components of the provision (benefit) for income taxes for the
years ended June 30, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $ 98,000 $ 123,000 $ 20,000
State 393,000 277,000 286,000
---------- -------- --------
Total current taxes 491,000 400,000 306,000
Deferred: ---------- -------- --------
Federal, including utilization of preconfirmation
net operating losses credited to additional
paid-in capital 2,248,000 3,572,000 336,000
State 10,000 (22,000) (101,000)
Change in valuation allowance (698,000) (1,839,000) (568,000)
--------- ----------- ------------
Total deferred taxes 1,560,000 1,711,000 (333,000)
--------- ----------- ------------
Provision (benefit) for income taxes $ 2,051,000 $ 2,111,000 $ (27,000)
========== =========== ==========
</TABLE>
The difference between the statutory federal income tax rate on the Company's
income before income taxes and extraordinary item and the Company's effective
income tax rate for the years ended June 1999, 1998 and 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 5.2 4.8% 5.2
Reduction in valuation allowance (33.9)
Miscellaneous 0.6 0.8 (6.9)
------ ------ ------
Effective income tax rate 39.8% 39.6% (1.6)%
====== ====== ======
</TABLE>
F-13
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 5. INCOME TAXES (CONTINUED)
As of June 30, 1999, the Company has net operating loss carryforwards ("NOL")
for income tax purposes expiring as follows:
Year Ending
June 30,
-------------
2000 $ 1,568,000
2001 225,000
2002 1,127,000
2003 124,000
2004 124,000
2005 546,000
2006 125,000
-------------
$ 3,839,000
-------------
NOL's amounting to $2,920,000 relate to losses incurred prior to confirmation of
the Company's plan of reorganization in 1987. The tax benefit realized upon
utilization of such carryforwards will be credited to additional paid-in
capital.
Note 6. Stock Options and Warrants
The Company has stock option plans (the "Plans") for directors, officers and
employees which provide for the grant of nonqualified and incentive stock
options. The Board of Directors determines the exercise price (not to be less
than fair market value for incentive options) at the date of grant. The options
have a maximum term of 10 years and outstanding options expire from October 1999
through June 2005.
The Company applies APB 25 in accounting for its employee stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise price of
the option at the date of grant. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under the plans consistent with the methodology prescribed under FAS 123,
the Company's income before extraordinary items would have been as follows:
Year Ended June 30,
1999 1998 1997
---------------------------------------
Pro forma income before
extraordinary item $ 2,938,000 $ 3,164,000 $ 1,661,000
Pro forma earnings per share:
Basic 0.15 0.17 0.10
Diluted 0.12 0.15 0.09
The fair value of each option granted in 1999, 1998 and 1997 has been estimated
on the date of grant using the Black-Scholes options pricing model with the
following assumptions: no dividend yield, expected volatility of 40%, risk free
interest rates ranging from 4.58% to 6.37% and expected lives ranging from 3
years to 10 years. The average fair value of options granted during 1999, 1998
and 1997 were $1.07, $1.00 and $.27, respectively.
F-14
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 6. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes stock option transactions under the Plans:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Exercise Shares Exercise
Price Shares Price Price
----------------- -------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options at the
beginning of year 2,831,975 $1.04 1,922,475 $ 0.57 1,947,475 $ 0.56
Options granted (a) 1,049,042 2.84 1,332,000 1.54 150,000 0.62
Options exercised (35,000) .59 (422,500) 0.50 (140,000) 0.50
Options expired or
canceled (a) 355,000) 3.47 (35,000) 0.50
Outstanding options at the --------- ---------- -----------
end of year 3,491,017 $1.34 2,831,975 $ 1.04 1,922,475 $ 0.57
========= =========== =========== --------
- ----------------------------------
</TABLE>
(a) Includes options on 270,000 shares repriced in January 1999. The original
exercise prices ranged from $4.18 to $4.81 and were repriced at $3.25.
The following table summarizes information about the Plans' outstanding options
as of June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (in Years) Price Exercisable Price
---------------- ----------- ------------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$0.50 - $0.90 2,446,975 2.10 $ .69 1,652,375 $ 0.64
$1.47 - $3.63 1,044,042 4.10 2.85 239,000 2.33
</TABLE>
As of June 30, 1999, 1998 and 1997, respectively, 673,500, 1,075,500 and 625,000
shares were available for grant under the Plans.
As of June 30, 1999, the Company had outstanding warrants to purchase 1,101,957
shares of common stock at prices ranging from $0.65 to $1.85. These warrants
expire from November 2000 through December 2002.
As of June 30, 1999, 6,624,718 shares have been reserved for the exercise of
warrants, stock options and conversion of debentures.
During the year ended June 30, 1998, the Company issued warrants to purchase
415,000 shares of common stock in connection with professional services
rendered. The fair value of each warrant granted in 1998 has been estimated on
the date of grant using the Black-Scholes pricing model with the following
assumptions: no dividend yield, expected volatility of 40%, risk free interest
rate of 5.5% and expected lives ranging from 3 to 5 years.
F-15
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 7. COMMITMENTS
Lease commitments:
The Company has entered into operating leases for office space expiring through
May 2009. Minimum future rental payments under these leases are as follows:
Year Ending
June 30,
------------------
2000 $ 681,000
2001 713,000
2002 558,000
2003 575,000
2004 559,000
Thereafter 2,553,000
------------
$5,639,000
============
Rent expense for the years ended June 30, 1999, 1998 and 1997 aggregated
$481,000, $294,000 and $109,000, respectively.
NOTE 8. FINANCIAL INSTRUMENTS, CREDIT RISK CONCENTRATION AND OTHER MATTERS:
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgments regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgment which
significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
The tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered in the estimates.
The following summarizes the information about the fair value of the financial
instruments recorded on the Company's financial statements in accordance with
FAS 107:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
Carrying Value Fair Value Carrying Value Fair Value
----------------------------- --------------------------
<S> <C> <C> <C> <C>
Cash $ 4,229,000 $ 4,229,000 $ 1,730,000 $ 1,730,000
Loans held for sale 8,922,000 9,725,000 7,160,000 7,876,000
Servicing assets and residual interest 15,638,000 15,979,000 8,327,000 8,952,000
Loans receivable 23,860,000 24,573,000 23,829,000 24,491,000
Accounts receivable 8,982,000 8,982,000 8,252,000 8,252,000
Notes payable 39,608,000 39,608,000 32,587,000 32,587,000
Debentures 4,725,000 4,725,000 3,328,000 5,402,000
</TABLE>
Note 8. Financial Instruments, Credit Risk Concentration and Other Matters
(continued)
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments, are as follows:
Cash:
F-16
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
The carrying amount of cash approximates fair value.
Loans held for sale:
The Company has estimated the fair values reported based on recent sales.
Loans receivable, servicing assets and residual interests:
The Company has estimated the fair value reported based on the present value of
expected future cash flows.
Accounts receivable:
The carrying amount of accounts receivable approximates fair value.
Notes payable:
Since these are primarily variable rate and short-term, the carrying amounts
approximate fair value.
Debentures:
The fair value of the debentures is based upon the greater of market value of
the underlying common stock into which the debentures are convertible or the
effect of the difference between a market rate of interest and the stated fixed
rate of interest.
Loan commitments:
Typically, the Company does not charge fees for commitments to originate loans,
additionally, since the loans are variable rate, changes in interest rates do
not affect their fair value. Accordingly, the off-balance sheet instruments have
no estimated fair value.
Off-balance sheet financial instruments and concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and loans receivable. The Company maintains its
cash in highly rated financial institutions. As of June 30, 1999, the Company
had bank deposits exceeding Federally insured limits by approximately
$5,654,000. The Company originates loans to a large number of customers in
diverse commercial entities and states.
In the normal course of business, the Company enters into commitments to extend
credit. The Company uses the same credit policies in making commitments as it
does for loans receivable reflected on the balance sheet. As of June 30, 1999,
the Company's commitments to extend credit aggregated $148,363,000. However,
$112,781,000 of the commitments are SBA and B&I guaranteed loans which the
Company intends to sell in the secondary market.
F-17
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
NOTE 8. FINANCIAL INSTRUMENTS, CREDIT RISK CONCENTRATION AND OTHER MATTERS
(CONTINUED)
As of June 30, 1999, the outstanding balance of loans sold with limited or
unlimited recourse aggregated $39,975,000. The Company's maximum exposure under
the recourse provisions is $9,846,000. The Company lends to diverse industries
primarily in the eastern United States. As of June 30, 1999, the lodging and
restaurant industries represented approximately 27% and 11% of the Company's
loans receivable, respectively.
Concentrations:
During the year ended June 30, 1999, no loan production company accounted for
more than 8% of loan originations. During the years ended June 30, 1998 and
1997, two loan production companies accounted for 24% and 29% of the Company's
loan originations, respectively. During the years ended June 30,1999, 1998 and
1997, 75% of the guaranteed loans were sold to three securities dealers, 83%
were sold to four securities dealers and 78% were sold to one securities dealer,
respectively.
Note 9. Related Parties Transactions
During the years ended June 30, 1999, 1998 and 1997, the maximum amount of
outstanding short-term loans payable to family members of an officer/shareholder
aggregated $1,077,000, $2,594,000 and $2,594,000, respectively. As of June 30,
1999 and 1998, no loans to the family members were outstanding. Interest expense
on these loans aggregated $19,000, $17,000 and $157,000 in the years ended June
30, 1999, 1998 and 1997, respectively.
Family members of an officer/shareholder purchased $950,000 of the debentures
issued in 1998. For the year ended June 30, 1999 and 1998, interest expense on
these debentures aggregated $88,000 and $48,000, respectively.
Note 10. Employee Benefit Plan
The Company maintains a contributory employee savings plan for substantially all
its employees, in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. Pursuant to the terms of the plan, participants can defer
a portion of their income through contributions to the plan.
F-18
<PAGE>
BY LAWS
OF
Business Loan Center Financial Corp. II
ARTICLE I - OFFICES
The principal office of the corporation shall be located in the City, County and
State so provided in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the State of Delaware as
the Board of Directors may, from time to time, determine and the business may
require.
ARTICLE II - SHAREHOLDERS
1. Place of Meetings.
Meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of Delaware as
the Board shall authorize.
2. Annual Meetings.
The annual meeting of the shareholders of the Corporation shall be held at
2:OOPM on the last Tuesday of the third month in each year after the close of
the fiscal year of the Corporation, if such date is not a legal holiday and if a
legal holiday, then on the next business day following at the same hour, at
which time the shareholders shall elect a Board of Directors, and transact such
other business as may properly come before the meeting.
3. Special Meetings.
Special meetings of the shareholders may be called at any time by the Board or
by the President, and shall be called by the President or the Secretary at the
written request of the holders of ten (10%) per cent of the outstanding shares
entitled to vote thereat, or as otherwise required by law.
B/L-1
1
<PAGE>
4. Notice of Meetings.
Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail. Such notice shall be served not less than ten (10) nor
more than sixty (60) days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by the person calling the meeting. If at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, such
notice shall be directed to each such shareholder at his address, as it appears
on the records of the shareholders of the Corporation, unless he shall have
previously filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which event, it
shall be mailed to the address designated in such request.
5. Waiver.
Notice of any meeting need not be given to any shareholder that submits a signed
waiver of notice either before or after a meeting. The attendance of any
shareholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such shareholder.
6. Fixing Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board shall
fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, it shall be determined in accordance
with the provisions of law.
7. Quorum.
(a) Except as otherwise provided by the Certificate of Incorporation, at all
meetings of shareholders of the Corporation, the presence at the commencement of
such meeting, in person or by proxy, of shareholders holding a majority of the
total number of shares of the Corporation then issued and outstanding on the
records of the Corporation and entitled to vote, shall be necessary and
sufficient to constitute a quorum for the transaction of any business. If a
specified item of business is required to be voted on by a class or classes, the
holder of a majority of the shares of such class or classes shall constitute a
quorum for the transaction of such specified item of business. The withdrawal of
any shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting.
2
<PAGE>
8. Voting.
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation,
(1) directors shall be elected by a plurality of the votes cast; and
(2) all other corporate action to be taken by vote of the shareholders,
shall be authorized by a majority of votes cast;
at a meeting of shareholders by the holders of shares entitled to
vote thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of shares
of the Corporation entitled to vote, shall be entitled to one vote for each
share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact duly authorized in writing. No proxy shall
be voted or acted upon after three (3) years, unless the proxy shall specify the
length of time it is to continue in force. The proxy shall be delivered to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Every proxy shall be revocable at the pleasure of the shareholder executing it,
unless the proxy states that it is irrevocable, except as otherwise provided by
law. (d) Any action that may be taken by vote may be taken without a meeting on
written consent. Such action shall constitute action by such shareholders with
the same force and effect as if the same had been approved at a duly called
meeting of shareholders and evidence of such approval signed by all of the
shareholders shall be inserted in the Minute Book of the corporation.
ARTICLE III - BOARD OF DIRECTORS
1. Number.
The number of the directors of the Corporation shall be one (1) until otherwise
determined by a vote of the Board.
2. Election
Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board need not be shareholders and shall be
elected by a majority of the votes cast at a meeting of shareholders, by the
holders of shares entitled to vote in the election.
3. Term of Office.
Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
4. Duties and Powers
The Board shall be responsible for the control and management of the affairs,
property and interests of the Corporation, and may exercise all powers of the
Corporation, except those powers expressly conferred upon or reserved to the
shareholders.
5. Annual Meetings
Regular annual meetings of the Board shall be held immediately following the
annual meeting of shareholders.
3
<PAGE>
6. Regular Meetings and Notice
The Board may provide by resolution for the holding of regular meetings of the
Board of Directors, and may fix the time and place thereof. Notice of regular
meetings shall not be required to be given and, if given, need not specify the
purpose of the meeting; provided, however, that in case the Board shall fix or
change the time or place of any regular meeting, notice of such action be given
to each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth at Section
7 of this Article III, unless such notice shall be waived.
7. Special Meetings and Notice
(a) Special meetings of the Board shall be held whenever called by the President
or by one of the directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at the address designated by him for such purpose at his usual
place of business, at least two (2) business days before the day on which the
meeting is to be held, or delivered to him personally or given to him orally,
not later than the business day before the day on which the meeting is to be
held.
(c) Notice of a special meeting shall not be required to be given to any
director who shall attend such meeting, or who submits a signed waiver of
notice.
8. Chairman
At all meetings of the Board, the Chairman, if present, shall preside. If there
shall be no Chairman, or he shall be absent, then the President shall preside.
In his absence, the Chairman shall be chosen by the Directors present.
9. Quorum and Adjournments
(a) At all meetings of the Board, the presence of a majority of the entire board
shall be necessary to constitute a quorum for the transaction of business,
except as otherwise provided by law, by the Certificate of Incorporation, or by
these By-laws. Participation of any one or more members of the Board by means of
a conference telephone or similar communications equipment, allowing all persons
participating in the meeting to hear each other at the same time, shall
constitute presence in person at any such meeting.
(b) A majority of the directors present at any regular or special meeting,
although less than a quorum, may adjourn the same from time to time without
notice, until a quorum shall be present.
10. Manner of Acting.
(a) At all meetings of the Board, each director present shall have one vote.
(b) Except as otherwise provided by law, by the Certificate of Incorporation, or
these Bylaws, the action of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board. Any action
authorized, in writing, by all of the directors entitled to vote thereon and
filed with the minutes of the Corporation shall be the act of the Board with the
same force and effect as if the same had been passed by unanimous vote at a duly
called meeting of the board.
11. Vacancies.
Any vacancy in the Board of Directors resulting from an increase in the number
of directors, or the death, resignation, disqualification, removal or inability
to act of any director, shall be filled for the unexpired portion of the term by
a majority vote of the remaining directors, though less than a quorum, at any
regular meeting or special meeting of the Board called for that purpose.
12. Resignation.
Any director may resign at any time by giving written notice to the Board, the
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board or such officer, and the acceptance of such resignation shall not be
necessary to make it effective.
4
<PAGE>
13. Removal.
Any director may be removed, with or without cause, at any time by the holders
of a majority of the shares then entitled to vote at an election of directors,
at a special meeting of the shareholders called for that purpose, and may be
removed for cause by action of the Board.
14. Compensation.
No compensation shall be paid to directors as such, for their services, but by
resolution of the BOARD, a fixed sum and expenses for actual attendance may be
authorized for attendance at each regular or special meeting of the Board.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
15. Contracts.
(a) No contract or other transaction between this Corporation and any other
business shall be affected or invalidated, nor shall any director be liable in
any way by reason of the fact that a director of this corporation is interested
in, or is financially interested in such other business, provided such fact is
disclosed to the Board.
(b) Any director may be a party to or may be interested in any contract or
transaction of this Corporation individually, and no director shall be liable in
any way by reason of such interest, provided that the fact of such participation
or interest be disclosed to the Board and provided that the Board shall
authorize or ratify such contract or transaction by the vote (not counting the
vote of any such director) of a majority of a quorum, notwithstanding the
presence of any such director at the meeting at which such action is taken. Such
director may be counted in determining the presence of a quorum at such meeting.
This Section shall not be construed to invalidate or in any way affect any
contract or other transaction, which would otherwise be valid under the law
applicable thereto.
16. Committees.
The Board, by resolution adopted by a majority of the entire Board, may from
time to time designate from among its members an executive committee and such
other committees, and alternate members thereof, as they deem desirable, each
consisting of three or more members, which such powers and authority (to the
extent permitted by law) as may be provided in such resolution. Each such
committee shall remain in existence at the pleasure of the Board. Participation
of any one or more members of a committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, shall constitute a director's
presence in person at any such meeting. Any action authorized in writing by all
of the members of a committee and filed with the minutes of the committee shall
be the act of the committee with the same force and effect as if the same had
been passed by unanimous vote at a duly called meeting of the committee.
ARTICLE IV - OFFICERS
1. Number and Qualifications.
The officers of the Corporation shall consist of a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers, including a
Chairman of the Board, as the Board of Directors may from time to time deem
advisable. Any officer other than the Chairman of the Board may be, but is not
required to be, a director of the Corporation. Any two or more offices a
director of the Corporation. Any two or more offices may be held by the same
person, except the offices of President and Secretary.
2. Election
The officers of the Corporation shall be elected by the Board of the regular
annual meeting of the Board following the annual meeting of shareholders.
5
<PAGE>
3. Term of office
Each officer shall hold office until the annual meeting of the Board next
succeeding his election, and until his successor shall have been elected and
qualified, or until his death, resignation or removal.
4. Resignation.
Any officer may resign at any time by giving written notice thereof to the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect upon receipt thereof by the Board or by such officer, unless
otherwise specified in such written notice. The acceptance of such resignation
shall not be necessary to make it effective.
5. Removal.
Any officer, whether elected or appointed by the Board, may be removed by the
Board, with or without cause, and a successor elected by the Board at any time.
6. Vacancies.
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board.
7. Duties.
Unless otherwise provided by the Board, officers of the Corporation each shall
have powers and duties as generally pertain to their respective offices, such
powers and duties as may be set forth in these by-laws, and such powers and
duties as may be specifically provided for by the Board. The President shall be
the chief executive officer of the Corporation.
8. Sureties and Bonds.
At the request of the Board, any officer, employee or agent of the Corporation
shall execute for the Corporation a bond in such sum, and with such surety as
the Board may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into his
hands.
9. Shares of Other Corporations.
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder shall be exercised on
behalf of the Corporation in such manner as the Board may authorize.
ARTICLE V - SHARES OF STOCK
1. Certificate.
(a) The certificates representing shares in the Corporation shall be in such
form as shall be approved by the Board and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares and
shall be signed by (i) the Chairman of the Board or the Vice Chairman of the
Board or the President or a Vice President, and (ii) the Secretary or Treasurer,
or any Assistant Secretary or Assistant Treasurer, and shall bear the corporate
seal.
(b) Certificate representing shares shall not be issued until they are fully
paid for,
(c) The Board may authorize the issuance of certificates for fractions of a
share which shall entitle the holder to exercise voting rights, receive
dividends and participate in liquidating distributions, in proportion to the
fractional holdings.
2. Lost or Destroyed Certificates
Upon notification by the holder of any certificate representing shares of the
Corporation or the loss of destruction of one or more certificates representing
the same, the Corporation may issue new certificates in place of any
certificates previously issued by it, and alleged to have been lost or
destroyed. Upon production of evidence of loss or destruction, in such form as
the Board in its sole discretion may require, the Board may require the owner of
the lost or destroyed certificates to provide the Corporation with a bond in
such sum as the Board may direct, and with such surety as may be satisfactory to
the Board, to indemnify the Corporation against any claims, loss, liability or
damage it may suffer on account of the issuance of the new certificates. A new
certificate may be issued without requiring any such evidence or bond when, in
the judgment of the Board, it is proper to do so.
6
<PAGE>
3. Transfers of Shares.
(a) Transfers of shares of the Corporation may be made on the share records of
the Corporation solely by the holder of such records, in person or by a duly
authorized attorney, upon surrender for cancellation of the certificates
representing such shares, with an assignment or power of transfer endorsed
thereon or delivered therewith, duly executed and with such proof of the
authenticity of the signature, and the authority to transfer and the payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
shares as the absolute owner thereof for all purposes and shall not be bound to
recognize any legal, equitable or other claim to, or interest in, such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
(c) The Corporation shall be entitled to impose such restrictions on the
transfer of shares as may be necessary for the purpose of electing or
maintaining Subchapter S status under the Internal Revenue Code or for the
purpose of securing or maintaining any other tax advantage to the Corporation.
4. Record Date.
In lieu of closing the share records of the Corporation, the Board may fix, in
advance, a date not less than ten (10) days nor more than sixty (60) days, as
the record date for the determination of shareholders entitled to receive notice
of, and to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of determining shareholders entitled to receive payment of any dividends, or
allotment of any rights, or for the purpose of any other action. If no record
date is fixed, the record date for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the day immediately preceding the day on which notice is given, or,
if the notice is waived, at the close of business on the day immediately
preceding the day on which the meeting is held; the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the resolution of the directors relating thereto is adopted. The record
date for determining shareholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board is
necessary, shall be the day on which the first written consent is expressed.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided for herein, such
determination shall apply to any adjournment thereof, unless the directors fix a
new record date for the adjourned meeting.
7
<PAGE>
ARTICLE VI - DIVIDENDS
Subject to this Certificate of Incorporation and to applicable law, dividends
may be declared and paid out of any funds available therefor, as often, in such
amount, and at such time or times as the Board may determine. Before payment of
any dividends, there may be set aside out of the net proceeds of the Corporation
available for dividends, such sum or sums as the Board, from time to time, in
its sole discretion, deems proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall think conducive to the
interests of the Corporation, and the Board may modify or abolish any such
reserve.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board from time to
time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board.
ARTICLE IX - AMENDMENTS
1. By Shareholders.
All by-laws of the Corporation shall be subject to revision, amendment or
repeal, and new by-laws may be adopted from time to time by a majority of the
shareholders who are at such time entitled to vote in the election of directors.
2. By Directors.
The Board of Directors shall adopt a resolution setting forth the amendment
proposed declaring its advisability, and either calling a special meeting of the
stockholders entitled to vote in respect thereto for the consideration of such
amendment or directing that the amendment proposed be considered at the next
annual meeting of stockholders. Such special or annual meeting shall be called
and held upon notice. This notice shall set forth such amendment in full or a
brief summary of the changes to be effected thereby, as the directors shall deem
advisable. At the meeting a vote of the stockholders entitled to vote thereon
shall be taken for and against the proposed amendment. If a majority of the
outstanding stock entitled to vote thereon, and a majority of the outstanding
stock of each class entitled to vote thereon as a class has been voted in favor
of the amendment, a certificate setting forth the amendment and certifying that
such amendment has been duly adopted in accordance with this Section shall be
executed, acknowledged, filed and recorded and shall become effective.
The undersigned Incorporator certifies that he has adopted the foregoing by-laws
as the first by-laws of the Corporation, in accordance with the requirements of
the Business Corporation Law.
Dated:
Incorporator
BY LAWS
OF
BLC Real Estate Corp.
ARTICLE I - OFFICES
The principal office of the corporation shall be located in the City, County and
State so provided in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the State of Delaware as
the Board of Directors may, from time to time, determine and the business may
require.
ARTICLE II - SHAREHOLDERS
1. Place of Meetings.
Meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of Delaware as
the Board shall authorize.
2. Annual Meetings.
The annual meeting of the shareholders of the Corporation shall be held at
2:OOPM on the last Tuesday of the third month in each year after the close of
the fiscal year of the Corporation, if such date is not a legal holiday and if a
legal holiday, then on the next business day following at the same hour, at
which time the shareholders shall elect a Board of Directors, and transact such
other business as may properly come before the meeting.
3. Special Meetings.
Special meetings of the shareholders may be called at any time by the Board or
by the President, and shall be called by the President or the Secretary at the
written request of the holders of ten (10%) per cent of the outstanding shares
entitled to vote thereat, or as otherwise required by law.
B/L-1
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4. Notice of Meetings.
Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail. Such notice shall be served not less than ten (10) nor
more than sixty (60) days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by the person calling the meeting. If at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, such
notice shall be directed to each such shareholder at his address, as it appears
on the records of the shareholders of the Corporation, unless he shall have
previously filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which event, it
shall be mailed to the address designated in such request.
5. Waiver.
Notice of any meeting need not be given to any shareholder that submits a signed
waiver of notice either before or after a meeting. The attendance of any
shareholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such shareholder.
6. Fixing Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board shall
fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, it shall be determined in accordance
with the provisions of law.
7. Quorum.
(a) Except as otherwise provided by the Certificate of Incorporation, at all
meetings of shareholders of the Corporation, the presence at the commencement of
such meeting, in person or by proxy, of shareholders holding a majority of the
total number of shares of the Corporation then issued and outstanding on the
records of the Corporation and entitled to vote, shall be necessary and
sufficient to constitute a quorum for the transaction of any business. If a
specified item of business is required to be voted on by a class or classes, the
holder of a majority of the shares of such class or classes shall constitute a
quorum for the transaction of such specified item of business. The withdrawal of
any shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting.
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8. Voting.
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation,
(1) directors shall be elected by a plurality of the votes cast; and
(2) all other corporate action to be taken by vote of the
shareholders, shall be authorized by a majority of votes cast;
at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of shares
of the Corporation entitled to vote, shall be entitled to one vote for each
share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact duly authorized in writing. No proxy shall
be voted or acted upon after three (3) years, unless the proxy shall specify the
length of time it is to continue in force. The proxy shall be delivered to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Every proxy shall be revocable at the pleasure of the shareholder executing it,
unless the proxy states that it is irrevocable, except as otherwise provided by
law. (d) Any action that may be taken by vote may be taken without a meeting on
written consent. Such action shall constitute action by such shareholders with
the same force and effect as if the same had been approved at a duly called
meeting of shareholders and evidence of such approval signed by all of the
shareholders shall be inserted in the Minute Book of the corporation.
ARTICLE III - BOARD OF DIRECTORS
1. Number.
The number of the directors of the Corporation shall be one (1) until otherwise
determined by a vote of the Board.
2. Election
Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board need not be shareholders and shall be
elected by a majority of the votes cast at a meeting of shareholders, by the
holders of shares entitled to vote in the election.
3. Term of Office.
Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
4. Duties and Powers
The Board shall be responsible for the control and management of the affairs,
property and interests of the Corporation, and may exercise all powers of the
Corporation, except those powers expressly conferred upon or reserved to the
shareholders.
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5. Annual Meetings
Regular annual meetings of the Board shall be held immediately following the
annual meeting of shareholders.
6. Regular Meetings and Notice
The Board may provide by resolution for the holding of regular meetings of the
Board of Directors, and may fix the time and place thereof. Notice of regular
meetings shall not be required to be given and, if given, need not specify the
purpose of the meeting; provided, however, that in case the Board shall fix or
change the time or place of any regular meeting, notice of such action be given
to each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth at Section
7 of this Article III, unless such notice shall be waived.
7. Special Meetings and Notice
(a) Special meetings of the Board shall be held whenever called by the President
or by one of the directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at the address designated by him for such purpose at his usual
place of business, at least two (2) business days before the day on which the
meeting is to be held, or delivered to him personally or given to him orally,
not later than the business day before the day on which the meeting is to be
held.
(c) Notice of a special meeting shall not be required to be given to any
director who shall attend such meeting, or who submits a signed waiver of
notice.
8. Chairman
At all meetings of the Board, the Chairman, if present, shall preside. If there
shall be no Chairman, or he shall be absent, then the President shall preside.
In his absence, the Chairman shall be chosen by the Directors present.
9. Quorum and Adjournments
(a) At all meetings of the Board, the presence of a majority of the entire board
shall be necessary to constitute a quorum for the transaction of business,
except as otherwise provided by law, by the Certificate of Incorporation, or by
these By-laws. Participation of any one or more members of the Board by means of
a conference telephone or similar communications equipment, allowing all persons
participating in the meeting to hear each other at the same time, shall
constitute presence in person at any such meeting.
(b) A majority of the directors present at any regular or special meeting,
although less than a quorum, may adjourn the same from time to time without
notice, until a quorum shall be present.
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10. Manner of Acting.
(a) At all meetings of the Board, each director present shall have one vote.
(b) Except as otherwise provided by law, by the Certificate of Incorporation, or
these Bylaws, the action of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board. Any action
authorized, in writing, by all of the directors entitled to vote thereon and
filed with the minutes of the Corporation shall be the act of the Board with the
same force and effect as if the same had been passed by unanimous vote at a duly
called meeting of the board.
11. Vacancies.
Any vacancy in the Board of Directors resulting from an increase in the number
of directors, or the death, resignation, disqualification, removal or inability
to act of any director, shall be filled for the unexpired portion of the term by
a majority vote of the remaining directors, though less than a quorum, at any
regular meeting or special meeting of the Board called for that purpose.
12. Resignation.
Any director may resign at any time by giving written notice to the Board, the
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board or such officer, and the acceptance of such resignation shall not be
necessary to make it effective.
13. Removal.
Any director may be removed, with or without cause, at any time by the holders
of a majority of the shares then entitled to vote at an election of directors,
at a special meeting of the shareholders called for that purpose, and may be
removed for cause by action of the Board.
14. Compensation.
No compensation shall be paid to directors as such, for their services, but by
resolution of the BOARD, a fixed sum and expenses for actual attendance may be
authorized for attendance at each regular or special meeting of the Board.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
15. Contracts.
(a) No contract or other transaction between this Corporation and any other
business shall be affected or invalidated, nor shall any director be liable in
any way by reason of the fact that a director of this corporation is interested
in, or is financially interested in such other business, provided such fact is
disclosed to the Board.
(b) Any director may be a party to or may be interested in any contract or
transaction of this Corporation individually, and no director shall be liable in
any way by reason of such interest, provided that the fact of such participation
or interest be disclosed to the Board and provided that the Board shall
authorize or ratify such contract or transaction by the vote (not counting the
vote of any such director) of a majority of a quorum, notwithstanding the
presence of any such director at the meeting at which such action is taken. Such
director may be counted in determining the presence of a quorum at such meeting.
This Section shall not be construed to invalidate or in any way affect any
contract or other transaction, which would otherwise be valid under the law
applicable thereto.
16. Committees.
The Board, by resolution adopted by a majority of the entire Board, may from
time to time designate from among its members an executive committee and such
other committees, and alternate members thereof, as they deem desirable, each
consisting of three or more members, which such powers and authority (to the
extent permitted by law) as may be provided in such resolution. Each such
committee shall remain in existence at the pleasure of the Board. Participation
of any one or more members of a committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, shall constitute a director's
presence in person at any such meeting. Any action authorized in writing by all
of the members of a committee and filed with the minutes of the committee shall
be the act of the committee with the same force and effect as if the same had
been passed by unanimous vote at a duly called meeting of the committee.
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ARTICLE IV - OFFICERS
1. Number and Qualifications.
The officers of the Corporation shall consist of a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers, including a
Chairman of the Board, as the Board of Directors may from time to time deem
advisable. Any officer other than the Chairman of the Board may be, but is not
required to be, a director of the Corporation. Any two or more offices a
director of the Corporation. Any two or more offices may be held by the same
person, except the offices of President and Secretary.
2. Election
The officers of the Corporation shall be elected by the Board of the regular
annual meeting of the Board following the annual meeting of shareholders.
3. Term of office
Each officer shall hold office until the annual meeting of the Board next
succeeding his election, and until his successor shall have been elected and
qualified, or until his death, resignation or removal.
4. Resignation.
Any officer may resign at any time by giving written notice thereof to the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect upon receipt thereof by the Board or by such officer, unless
otherwise specified in such written notice. The acceptance of such resignation
shall not be necessary to make it effective.
5. Removal.
Any officer, whether elected or appointed by the Board, may be removed by the
Board, with or without cause, and a successor elected by the Board at any time.
6. Vacancies.
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board.
7. Duties.
Unless otherwise provided by the Board, officers of the Corporation each shall
have powers and duties as generally pertain to their respective offices, such
powers and duties as may be set forth in these by-laws, and such powers and
duties as may be specifically provided for by the Board. The President shall be
the chief executive officer of the Corporation.
8. Sureties and Bonds.
At the request of the Board, any officer, employee or agent of the Corporation
shall execute for the Corporation a bond in such sum, and with such surety as
the Board may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into his
hands.
9. Shares of Other Corporations.
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder shall be exercised on
behalf of the Corporation in such manner as the Board may authorize.
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ARTICLE V - SHARES OF STOCK
1. Certificate.
(a) The certificates representing shares in the Corporation shall be in such
form as shall be approved by the Board and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares and
shall be signed by (i) the Chairman of the Board or the Vice Chairman of the
Board or the President or a Vice President, and (ii) the Secretary or Treasurer,
or any Assistant Secretary or Assistant Treasurer, and shall bear the corporate
seal.
(b) Certificate representing shares shall not be issued until they are fully
paid for,
(c) The Board may authorize the issuance of certificates for fractions of a
share which shall entitle the holder to exercise voting rights, receive
dividends and participate in liquidating distributions, in proportion to the
fractional holdings.
2. Lost or Destroyed Certificates
Upon notification by the holder of any certificate representing shares of the
Corporation or the loss of destruction of one or more certificates representing
the same, the Corporation may issue new certificates in place of any
certificates previously issued by it, and alleged to have been lost or
destroyed. Upon production of evidence of loss or destruction, in such form as
the Board in its sole discretion may require, the Board may require the owner of
the lost or destroyed certificates to provide the Corporation with a bond in
such sum as the Board may direct, and with such surety as may be satisfactory to
the Board, to indemnify the Corporation against any claims, loss, liability or
damage it may suffer on account of the issuance of the new certificates. A new
certificate may be issued without requiring any such evidence or bond when, in
the judgment of the Board, it is proper to do so.
3. Transfers of Shares.
(a) Transfers of shares of the Corporation may be made on the share records of
the Corporation solely by the holder of such records, in person or by a duly
authorized attorney, upon surrender for cancellation of the certificates
representing such shares, with an assignment or power of transfer endorsed
thereon or delivered therewith, duly executed and with such proof of the
authenticity of the signature, and the authority to transfer and the payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
shares as the absolute owner thereof for all purposes and shall not be bound to
recognize any legal, equitable or other claim to, or interest in, such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
(c) The Corporation shall be entitled to impose such restrictions on the
transfer of shares as may be necessary for the purpose of electing or
maintaining Subchapter S status under the Internal Revenue Code or for the
purpose of securing or maintaining any other tax advantage to the Corporation.
4. Record Date.
In lieu of closing the share records of the Corporation, the Board may fix, in
advance, a date not less than ten (10) days nor more than sixty (60) days, as
the record date for the determination of shareholders entitled to receive notice
of, and to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of determining shareholders entitled to receive payment of any dividends, or
allotment of any rights, or for the purpose of any other action. If no record
date is fixed, the record date for the determination of shareholders entitled to
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notice of or to vote at a meeting of shareholders shall be at the close of
business on the day immediately preceding the day on which notice is given, or,
if the notice is waived, at the close of business on the day immediately
preceding the day on which the meeting is held; the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the resolution of the directors relating thereto is adopted. The record
date for determining shareholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board is
necessary, shall be the day on which the first written consent is expressed.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided for herein, such
determination shall apply to any adjournment thereof, unless the directors fix a
new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to this Certificate of Incorporation and to applicable law, dividends
may be declared and paid out of any funds available therefor, as often, in such
amount, and at such time or times as the Board may determine. Before payment of
any dividends, there may be set aside out of the net proceeds of the Corporation
available for dividends, such sum or sums as the Board, from time to time, in
its sole discretion, deems proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall think conducive to the
interests of the Corporation, and the Board may modify or abolish any such
reserve.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board from time to
time, subject to applicable law.
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ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board.
ARTICLE IX - AMENDMENTS
1. By Shareholders.
All by-laws of the Corporation shall be subject to revision, amendment or
repeal, and new by-laws may be adopted from time to time by a majority of the
shareholders who are at such time entitled to vote in the election of directors.
2. By Directors.
The Board of Directors shall adopt a resolution setting forth the amendment
proposed declaring its advisability, and either calling a special meeting of the
stockholders entitled to vote in respect thereto for the consideration of such
amendment or directing that the amendment proposed be considered at the next
annual meeting of stockholders. Such special or annual meeting shall be called
and held upon notice. This notice shall set forth such amendment in full or a
brief summary of the changes to be effected thereby, as the directors shall deem
advisable. At the meeting a vote of the stockholders entitled to vote thereon
shall be taken for and against the proposed amendment. If a majority of the
outstanding stock entitled to vote thereon, and a majority of the outstanding
stock of each class entitled to vote thereon as a class has been voted in favor
of the amendment, a certificate setting forth the amendment and certifying that
such amendment has been duly adopted in accordance with this Section shall be
executed, acknowledged, filed and recorded and shall become effective.
The undersigned Incorporator certifies that he has adopted the foregoing by-laws
as the first by-laws of the Corporation, in accordance with the requirements of
the Business Corporation Law.
Dated:
Incorporator
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NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK INTO WHICH THIS NOTE
MAY BE CONVERTED HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE SHARES OF COMMON
STOCK INTO WHICH THESE NOTES MAY BE CONVERTED ARE OFFERED PURSUANT TO
EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT, REGULATION D
THEREUNDER, CERTAIN STATE SECURITIES LAWS AND CERTAIN RULES AND
REGULATIONS PROMULGATED PURSUANT THERETO. NEITHER THIS NOTE NOR THE
SHARES OF COMMON STOCK INTO WHICH THIS NOTE MAY BE CONVERTED MAY BE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THE NOTES AND THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES ARE
SUBJECT TO THE PROVISIONS OF THE HOLDERS AGREEMENT DATED AS OF FEBRUARY
1, 1999 AMONG THE CORPORATION AND EACH PURCHASER OF THE NOTES, AS
AMENDED AND MODIFIED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT
THE OFFICES OF THE CORPORATION AND WILL BE FURNISHED TO THE HOLDER ON
REQUEST. BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO BE BOUND BY
THE PROVISIONS OF THE HOLDERS AGREEMENT.
BLC FINANCIAL SERVICES, INC.
9% CONVERTIBLE SUBORDINATED NOTE DUE 2003
CONVERSION PRICE $3.50 PER SHARE
SERIES I
$000,000.00 ______, 1999
- -----------
FOR VALUE RECEIVED, the undersigned, BLC FINANCIAL SERVICES,
INC., a Delaware corporation (the "Corporation"), hereby promises to pay to the
order of (the "Holder") in lawful money of the United States of America and in
immediately available funds, the principal amount of Dollars ($000,000.00),
together with interest (as provided below) on the unpaid principal amount of
this Note outstanding from time to time, from the date hereof until any
applicable Conversion Date, Redemption Date or the Maturity Date (as such terms
are defined below), as the case may be.
This Note is issued to the Holder pursuant to that certain
Subscription Agreement dated as of , 1999 (the "Subscription Agreement") between
the Corporation and the Holder and, accordingly, is subject to all of the terms
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and conditions set forth therein. All capitalized terms, unless otherwise
defined herein, shall have the meanings ascribed to them in the Subscription
Agreement. This Note is one of a series of identical notes (the "Notes") issued
to certain holders (the "Holders") in a private placement exempt from the
registration requirements of the Securities Act.
Principal of, premium, if any, and interest on this Note will
be payable (i) at the Corporation's principal executive office located at 645
Madison Avenue, New York, New York 10022, or at such other location as
designated by the Corporation, (ii) at the option of either the Corporation or
the Holder, by check mailed to the Holder at its address set forth in the
register of holders of Notes (or at such other address designated by the Holder
in writing) or (iii) at the Holder's option, by wire transfer to an account
designated by Holder in writing.
1. Interest. This Note shall bear interest (computed on the
basis of a 360 day year (comprised of twelve 30-day months) for the actual
number of days elapsed) at the rate of 9% per annum, commencing on the date
hereof (the "Issue Date"), accrued annually, and payable quarterly in arrears on
the January 15, April 15, July 15 and October 15 of each year, commencing on
April 15, 1999 (each an "Interest Payment Date"). Interest will be paid to the
person in whose name this Note is registered at the close of business on the
January 1, April 1, July 1 and October 1 immediately preceding each relevant
interest payment date.
2. Principal. The unpaid principal balance of this Note,
together with accrued but unpaid interest thereon, shall be due and payable on
February 1, 2003 (the "Maturity Date").
3. Subordination. This Note is subordinated in all respects to
the Senior Indebtedness (as defined below) of the Corporation. "Senior
Indebtedness" means (i) the principal of, and premium, if any, and interest on
any Indebtedness of the Corporation to any bank or other institutional lender,
plus interest and expenses with respect thereto, and (ii) any refinancings,
deferrals, refundings, replacements, extensions and renewals of or amendments,
modifications or supplements thereto. "Indebtedness" means, with respect to any
person, (i) any obligation of, or any obligation guaranteed by, such person for
the repayment of borrowed money, whether or not evidenced by bonds, debentures,
notes or other written instruments, (ii) all obligations of the person with
respect to interest rate hedging arrangements to hedge interest rates relating
to Indebtedness of such person, (iii) any deferred payment obligation of, or any
such obligation guaranteed by, such person for the payment of the purchase price
of property or assets evidenced by a note or similar instrument and (iv) any
obligation of, or any such obligation guaranteed by, such person for the payment
of rent or other amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized lease on the
balance sheet of such person under generally accepted accounting principles.
4. Conversion. (a) The Notes will be convertible at the option
of the Holder, unless previously converted, redeemed or repurchased, in whole or
in part, at any time and from time to time, on 30 days' prior written notice,
into shares of Common Stock, $.01 par value, of the Corporation (the "Common
Stock"), following the last issuance of the Notes until the close of business on
the Business Day immediately preceding the Maturity Date, unless previously
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converted, redeemed or repurchased, at a conversion price per share of $3.50
(the "Conversion Ratio"). Accrued and unpaid interest on the Notes converted to
the date of conversion will be paid at conversion.
(b) In order to exercise the right of conversion attaching to
the Notes, the Holder must (i) deliver to the Corporation a written notification
of the Holder's intent to convert (the "Notice of Conversion") all or a
specified portion of the Notes held by such Holder, at least 30 days prior to
the conversion date specified in the Notice of Conversion (the "Conversion
Date") and (ii) deliver the Note at the specified office of the Corporation,
accompanied by a duly signed and completed Notice of Conversion on such
Conversion Date.
(c) (i) The Conversion Ratio is subject to adjustment as set
forth below in the event the Corporation should at any time, or from time to
time after the date of issuance of the Notes, fix a record date for the
effectuation of a split or subdivision of the outstanding shares of the Common
Stock or the determination of holders of the Common Stock entitled to receive a
dividend or other distribution payable in additional shares of the Common Stock
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly additional shares of the Common Stock
(hereinafter referred to as the "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of the Common Stock
(or the Common Stock Equivalents issuable upon conversion or exercise thereof).
In such case, as of such record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the Conversion Ratio shall be
appropriately adjusted so that the number of shares of the Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares.
(ii) If the number of shares of the Common Stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of the Common Stock, then, following the record date of
such combination, the Conversion Ratio shall be appropriately adjusted so that
the number of shares of the Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) In the case of (x) any reclassification or change of
the Common Stock or (y) a consolidation, merger or combination involving the
Corporation or a sale or conveyance to another corporation of the property and
assets of the Corporation as an entirety or substantially as an entirety, in
each case as a result of which Holders of Common Stock shall be entitled to
receive stock, other securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of the Notes then
outstanding will be entitled thereafter to convert such Notes into the kind and
amount of shares of stock, other securities or other property or assets of such
reorganized, consolidated or merged Corporation which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance (assuming, in a case in which the
Corporation's stockholders may exercise rights of election that a holder of
Notes would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith and
received per share the kind and amount received per share by a plurality of
non-electing shares).
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(iv) No adjustment in the Conversion Ratio will be
required unless such adjustment would require a change of at least 1 % of the
Conversion Ratio then in effect; provided that any adjustment that would
otherwise be required to be made shall be carried forward and taken into account
in any subsequent adjustment. Except as stated above, the Conversion Ratio will
not be adjusted for the issuance of Common Stock or any securities convertible
into or exchangeable for Common Stock or having the right to purchase any of the
foregoing.
(v) Any sales, transfer, use or other similar taxes
imposed as a result of the transfer of the Common Stock upon conversion of this
Note in accordance with its terms shall be borne by the Holder.
5. Redemption. (a) The Notes will be redeemable at the
option of the Corporation unless previously converted, redeemed or repurchased,
on written notice as described below, in whole or in part, at any time and from
time to time, if for five or more days in any 20-Trading Day period (whether or
not consecutive) the Market Price per share of Common Stock is greater than
$3.50, at a redemption price equal to 105 % of the principal amount of the Notes
to be redeemed plus all accrued and unpaid interest thereon to the date of
redemption, provided that such notice of redemption shall be delivered no later
than 10 days after the expiration of such 20-day Trading Period. In addition,
the Notes will be redeemable at the option of the Corporation unless previously
converted, redeemed or repurchased, on written notice as described below, in
whole or in part, at any time and from time to time, from the proceeds of one or
more underwritten primary public offerings of the Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
at a redemption price equal to 105 % of the principal amount of the Notes being
redeemed plus all accrued and unpaid interest thereon to the date of redemption.
Upon delivery of any notice of redemption by the Corporation, a Holder may
elect, in the manner specified below, to convert the Notes to be redeemed at the
Conversion Ratio.
(b) If less than all of the Notes are to be redeemed, the
Notes will be chosen for redemption by the Corporation on a pro rata basis or by
lot or by a method that complies with applicable legal requirements.
(c) In order to exercise the right of redemption attaching
to the Notes, the Corporation must deliver to each Holder a written notification
of the Corporation's intent to redeem (the "Notice of Redemption") all or a
specified portion of the Notes held by such Holder, at least 60 days prior to
the redemption date (the "Redemption Date") specified in the Notice of
Redemption. Such Notice of Redemption shall specify (i) the Redemption Date on
which the Holder must deliver the Notes to be redeemed at the specified office
of the Corporation, (ii) the principal amount of Notes of such Holder to be
redeemed and (iii) the redemption price to be paid by the Corporation in respect
of such Notes.
(d) For a period of 30 days after delivery by the
Corporation of a Notice of Redemption, the Holder shall retain its right of
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conversion (at the Conversion Ratio) attaching to the Notes specified in the
Notice of Redemption to be redeemed. In order to exercise such right of
conversion, the Holder must (i) deliver a Notice of Conversion with respect to
all or a portion of the Notes to be redeemed at least 30 days prior to the
Redemption Date specifying a Conversion Date no later than the Redemption Date
and (ii) deliver the Note at the specified office of the Corporation,
accompanied by a duly signed and completed Notice of Conversion on such
Conversion Date.
(e) If less than all the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Corporation on a pro
rata basis or by lot or by such method as the Corporation shall deem fair and
appropriate, provided that no Notes of $1,000 or less will be redeemed in part.
On and after the Redemption Date, interest will cease to accrue on Notes or
portions thereof called for redemption.
6. Covenants. (a) Without the prior written consent of
holders of a majority of the aggregate principal amount of Notes outstanding,
the Corporation shall not:
(i) except for transactions listed on Schedule I
hereto, conduct any transaction with any affiliate of the Corporation, any
shareholder of the Corporation or any affiliate of such shareholder, other than
on an arms-length basis; and
(ii) cancel or compromise any claim or debt in excess
of $10,000, except for adequate consideration, as determined in the sole
discretion of the Board of Directors of the Corporation, or in the ordinary
course of its business; or
(iii) consolidate with or merge with or into any other
person, or sell, assign, convey, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties and assets to any persons or group of
affiliated persons unless at the time and after giving effect thereto (A) either
(x) the Corporation shall be the continuing corporation or (y) the corporation
or other entity formed by such consolidation or into which the Corporation is
merged or to which such sale, assignment, transfer, lease, conveyance or
disposition shall have been made (the "Surviving Entity"), is a corporation duly
organized and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia and shall, in either case,
expressly assume all obligations of the Corporation under the Notes; (B)
immediately prior to such transaction and immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (C) the consolidated net worth of the Corporation (or the
Surviving Entity) shall at least equal the consolidated net worth of the
Corporation immediately prior to such transaction.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Corporation, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of,
the Corporation under the Notes with the same effect as if the Surviving Entity
had been named as the Corporation therein, and the Corporation shall be
discharged from any obligations under the Notes.
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(b) As soon as available and in any event not later than 90
days after the end of each of the first three quarters of the fiscal year, the
Corporation shall furnish to the Holder a brief summary of the results of its
operations and unaudited financial statements which fairly present, in all
material respects, its financial position and results of operations for the
preceding fiscal quarter, and such financial statements (including the related
notes, where applicable) shall be prepared in accordance with generally accepted
accounting principles consistently applied during the periods involved.
(c) As soon as available and in any event not later than 120
days after the end of each fiscal year, the Corporation shall furnish to the
Holder a brief summary of the results of its operations and audited financial
statements which fairly present, in all material respects, its financial
position and results of operations for the preceding fiscal year, and such
financial statements (including the related notes, where applicable) shall be
prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved.
7. Events of Default. The following shall constitute Events of
Default under this Note:
(a) failure by the Corporation to make any payment of interest
required under this Note and such failure remains unremedied for 10 days;
(b) failure by the Corporation to make any payment of the
principal or premium, if any, of any Note when the same becomes due and payable
at maturity, by acceleration or otherwise;
(c) any representation or warranty made by the Corporation
under or in connection with any document executed and delivered in connection
with the Notes shall prove to have been incorrect in any materially adverse
respect when made;
(d) the Corporation shall fail to perform or observe any other
term, covenant or agreement contained in any Transaction Document on its part to
be performed or observed and any such failure shall remain unremedied for 60
days after written notice thereof shall have been given to the Corporation by
any Holder;
(e) a default occurs under any mortgage, indenture, instrument
or agreement under which there may be issued or by which there may be secured or
evidenced any indebtedness of the Corporation in excess of $1,000,000, whether
such indebtedness now exists or shall hereafter be created, and such
indebtedness shall be declared due and payable prior to its stated maturity;
(f) any final judgment for the payment of money in excess of
$1,000,000 (not covered by insurance) is entered by a court of competent
jurisdiction against the Corporation and such judgment remains undischarged for
a period (during which execution shall not be effectively stayed) of 60 days;
(g) the Corporation pursuant to or within the meaning of any
bankruptcy law: (1) commences a voluntary case; (2) consents to the entry of an
order for relief against it in an involuntary case; (3) consents to the
appointment of a custodian of it or for all or substantially all of its
property; (4) makes a general assignment for the benefit of its creditors; or
(5) admits in writing its inability generally to pay its debts as the same
become due;
(h) a court of competent jurisdiction enters an order or
decree under any bankruptcy law that: (1) is for relief against the Corporation
in an involuntary case; (2) appoints a custodian of the Corporation or for all
or substantially all of the property of the Corporation; or (3) orders the
liquidation of any of the Corporation and the order or decree remains unstayed
and in effect for 60 days; or
(i) a court of competent jurisdiction enters a final judgment
holding any of the documents delivered in connection with the Notes to be
invalid or unenforceable and such judgment remains unstayed and is in effect for
a period of 60 consecutive days; or if the Corporation shall assert, in any
pleading filed in such a court, that any of the documents delivered in
connection with the Notes are invalid or unenforceable.
If an Event of Default (other than an Event of Default
specified in clause (g) or (h) above with respect to the Corporation) occurs and
is continuing, then and in every such case, the holders of at least a majority
in principal amount of the then outstanding Notes, by notice to the Corporation,
may declare the unpaid principal of, premium, if any, and any accrued interest
on all the Notes to be due and payable. Upon such declaration, the principal,
premium, if any, and interest on the Notes shall be due and payable immediately.
If an Event of Default specified in clause (g) or (h) above occurs with respect
to the Corporation, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of any Note
holder.
The holders of a majority in aggregate principal amount of the
Notes then outstanding may, on behalf of the holders of all the Notes, waive any
past Default or Event of Default and its consequences, except a Default in the
payment of principal, of premium, if any, or interest on the Notes (other than
the nonpayment of principal, of premium, if any, and interest on the Notes that
has become due solely by virtue of an acceleration that has been duly rescinded
as provided above) or in respect of a covenant or provision of the Notes that
cannot be modified or amended without the consent of all holders of Notes.
8. Miscellaneous.
8.1 Section Headings. The section headings contained in this
Note are for reference purposes only and shall not affect the meaning or
interpretation of this Note.
8.2 Amendment and Waiver. No provision of this Note may be
amended or waived unless the Corporation shall have obtained the written
agreement of holders of a majority in aggregate principal amount of the Notes
then outstanding. No failure or delay in exercising any right, power or
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privilege hereunder, shall imply or otherwise operate as a waiver of any rights
of the Holder, nor shall any single or partial exercise thereof preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege.
8.3 Assignment and Transfer.
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK INTO WHICH THIS NOTE
MAY BE CONVERTED HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND SUCH SHARES OF COMMON
STOCK ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF
THE SECURITIES ACT, REGULATION D THEREUNDER, CERTAIN STATE SECURITIES
LAWS AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO.
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK INTO WHICH THIS NOTE
MAY BE CONVERTED MAY BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. IN
ADDITION, THE SHARES OF COMMON STOCK, ISSUABLE UPON CONVERSION OF THE
NOTES ARE SUBJECT TO THE PROVISIONS OF THE HOLDERS AGREEMENT DATED AS
OF FEBRUARY 1, 1999 AMONG THE CORPORATION AND INVESTORS, AS AMENDED
AND MODIFIED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE
OFFICES OF THE CORPORATION AND WILL BE FURNISHED TO THE HOLDER ON
REQUEST. BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO BE BOUND BY
THE PROVISIONS OF THE HOLDERS AGREEMENT.
8.4 Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to any conflicts of laws principles thereof that would otherwise require
the application of the law of any other jurisdiction.
8.5 Lost, Stolen, Destroyed or Mutilated Note. Upon receipt of
evidence reasonably satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Note and of a letter of indemnity reasonably
satisfactory to the Corporation from the holder of this Note, and upon surrender
or cancellation of this Note if mutilated, the Corporation shall make and
deliver a new note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.
8.6 Waiver of Presentment, Etc. Except as otherwise provided
herein, presentment, demand, protest, notice of dishonor and all other notices
are hereby expressly waived by the Corporation.
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8.7 Usury. Nothing contained in this Note shall be deemed to
establish or require the payment of a rate of interest in excess of the maximum
rate legally enforceable. If the rate of interest called for under this Note at
any time exceeds the maximum rate legally enforceable, the rate of interest
required to be paid hereunder shall be automatically reduced to the maximum rate
legally enforceable. If such interest rate is so reduced and thereafter the
maximum rate legally enforceable is increased, the rate of interest required to
be paid hereunder shall be automatically increased to the maximum rate legally
enforceable, which in no event shall exceed the rate otherwise provided for in
this Note.
8.8 Notices. Any notice, request, instruction or other
document to be given hereunder by either party to the other shall be in writing
and either shall be delivered in person with receipt acknowledged, by registered
or certified mail, return receipt requested, postage prepaid or by Federal
Express or other overnight service, addressed (a) if to the Corporation, to 645
Madison Avenue, New York, New York 10022, Attention: Robert F. Tannenhauser, and
(b) if to the Holder, or to such other address as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
request, instruction or other document to be given hereunder shall be deemed to
have been duly given or served on the date on which personally delivered, with
receipt acknowledged; one business day after the same shall have been sent by
overnight courier or other overnight service; and three business days after the
same shall have been deposited with the United States mail.
IN WITNESS WHEREOF, the Corporation has executed and delivered
this Note as of the date hereinabove first written.
BLC FINANCIAL SERVICES, INC.
By: _____________________________
Name: Robert F. Tannenhauser
Title: President and Chief Executive
Officer
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FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE, dated as of
the ___ day of January, 1999, between THE EQUITABLE-NISSEI MADISON CO., c/o Lend
Lease, 787 Seventh Avenue, New York, New York ("Landlord') and BUSINESS LOAN
CENTER, INC., having an office at 645 Madison Avenue, New York, New York
("Tenant").
WHEREAS, Landlord and Tenant are parties to a lease dated as of July
31, 1997, hereinafter referred to as the "Lease", for a portion of the 18th
floor (the " 18th floor Premises") in the building located at 645 Madison
Avenue, New York, New York (the "Building"); and WHEREAS, Landlord and Tenant
wish to amend the Lease on the terms hereinafter set forth; and
WHEREAS, all defined terms herein shall have the same meanings as are
ascribed to them in the Lease unless another meaning is specifically set forth
herein.
NOW, THEREFORE, in consideration of the demised premises and other
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged and agreed, Landlord and Tenant agree as follows:
1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, the entire rentable portion of the nineteenth (19th) floor in the
Building the (the "19th Floor Space") for a term commencing on the date Landlord
delivers possession of the 19th Floor Space to Tenant, broom clean and with the
tenant installations therein demolished in a Building standard manner along with
an ACP-5 certificate with respect to the 19th Floor Space (the "19th Floor
Commencement Date"), and ending on the last day of the calendar month in which
occurs the tenth (10th) anniversary of the 19th Floor Commencement Date (the
"19th Floor Expiration Date"), or such earlier date upon which the term of the
Lease may expire or be canceled or terminated pursuant to any of the conditions
or covenants of the Lease or pursuant to law. The Fixed Expiration Date set
forth in the Lease shall be deemed changed to the 19th Floor Expiration Date.
2. As of the 19th Floor Commencement Date the 19th Floor Space shall
be deemed to be a part of the Premises for all purposes under the Lease, as
hereby amended, and the following terms and conditions shall apply:
A. The Fixed Rent (inclusive of the Factor) shall be the sum of
Five Hundred Fourteen Thousand Sixty-Two and 50/100 ($514,062.50) Dollars per
annum ($42,838.54 per month) for the period commencing on the 19th Floor
Commencement Date to and including the day immediately preceding the fifth
anniversary of the 19th Floor
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Commencement Date, and (ii) Five Hundred Thirty-Seven Thousand Five Hundred
Sixty Two and 50/100 ($537,562.50) Dollars per annum ($44,796.87 per month) for
the period commencing on the fifth anniversary of the 19th Floor Commencement
Date to and including the 19th Floor Expiration Date. If Tenant is not then in
default under any of the terms, covenants or conditions of the Lease, as hereby
amended, then, subject to the terms of Section 1.3 of the Lease whereby Tenant
is entitled to a rent credit in the amount of $16,401.04 from each of the
monthly installments of Fixed Rent payable under the Lease for the 32nd, 33rd,
34th, 35th and 42nd months after the Commencement Date (as provided therein),
Tenant shall be entitled to an additional rent credit of One Hundred Forty-Two
Thousand Four Hundred Sixty-Eight and 75/100 ($142,468.75) Dollars, to be
applied in six (6) equal consecutive monthly installments of $23,744.79 against
the Fixed Rent payable under the Lease, as hereby amended, for the first six
full calendar months from and after the 19th Floor Commencement Date.
B. Tenant agrees to accept possession of the 19th Floor Space in
its "as is" condition on the 19th Floor Commencement Date and further
understands and agrees that Landlord shall not be required to perform any work,
supply any materials or incur any expenses to prepare the 19th Floor Space for
Tenant's occupancy, except as otherwise expressly provided above.
C. The "Space Factor" referred to in the Lease shall be deemed
changed to 11,750.
D. The "Tenant's Share" referred to in the Lease shall be deemed
changed to: 11.04% with respect to Operating Expenses and 8.44% with respect to
Taxes, as such percentages may be increased or decreased, as applicable,
pursuant to the terms of the Lease.
E. With respect to the 19th Floor Space only (5,875 rentable
square feet), "Base Tax Year" shall be deemed changed to mean the tax year
ending June 30, 1999 and Base Operating Expenses shall mean the Operating
Expenses for the 1999 calendar year.
F.The "Factor" set forth in the Lease shall be deemed changed to
$32,312.50.
3. In addition to the contributions made by Landlord to Tenant
pursuant to Sections 3.4(A) and 3.6 of the Lease for the Tenant Fund and
Additional Fund in connection with the Initial Alterations of the 18th Floor
Premises, Landlord shall contribute an additional $235,000 (" 19th Floor Tenant
Fund") pursuant to Section 3.4(A) and an additional $11,750 ("19th Floor
Additional Fund") pursuant to Section 3.6 with respect to the 19th Floor Initial
Alterations. The other provisions of Sections 3.4, 3.5 and 3.6 of the Lease
shall apply to the 19th Floor Initial Alterations. In addition, Tenant may, at
its sole cost and expense, (A) install an internal staircase in the Premises
connecting the 18th Floor Premises and 19th Floor Space and (B) convert the 18th
floor into a fire re-entry floor in lieu of the 19th Floor and tie the 18th
floor re-entry doors into the Building's Class E fire alarm system with an
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"electric strike in a fail-safe position" so that the doors will be locked
during normal conditions, but available for re-entry during an alarm condition
or power failure, provided and on condition that (i) with respect to the
internal staircase, Tenant removes such internal staircase (and repairs any
damage caused by such removal) on or before the Expiration Date, and (ii) the
aforesaid work (1) complies with all applicable Legal Requirements (2) does not
adversely affect the Building Systems or the proper and safe operation and
occupancy of the Building, and (3) is subject to Landlord's approval of Tenant's
plans and specifications therefor, and all of the applicable terms and
conditions of the Lease, including, without limitation, Article 3 and 6 thereof.
Tenant shall be responsible for all costs and expenses relating to the aforesaid
work, including, without limitation, any necessary work or programming required
for the Building's Class E Fire Alarm System. Tenant shall be responsible, at
its sole cost and expense for maintaining such re-entry and/or fire stair doors
and related equipment during the Term in good working order and condition.
4. The security deposit referred to in Article 31 of the Lease shall
be increased by the sum of $131,208.00, as of the date hereof, provided,
however, to the extent Tenant is not then in default under any of the terms,
covenants, conditions, or provisions of the Lease, as hereby amended, and
further provided that at the time of the reduction, in question, Tenant's
tangible net worth is equal to or greater than Tenant's net worth as of June 30,
1998, the security deposit shall be reduced as follows: by $26,241.60 on each of
the first, second, third, fourth and fifth anniversaries of the 19th Floor
Commencement Date.
5. Tenant hereby represents and warrants to Landlord that it has not
dealt with any broker or person in connection with this First Amendment of Lease
other than Colliers ABR, Inc. and Insignia/ESG (collectively the "Broker"). The
execution and delivery of this First Amendment of Lease by Landlord shall be
conclusive evidence that Landlord has relied upon the foregoing representation
and warranty. Tenant shall indemnify and hold Landlord harmless from and against
any and all claims for commissions, fees or other compensation by any person,
entity or broker (other than the Broker) who claimed to have dealt with Tenant
in connection with the First Amendment of Lease and for any and all costs
incurred by Landlord in connection with such claims, including, but not limited
to, reasonable attorneys' fees and disbursements. The provisions of this
paragraph shall survive the expiration or sooner termination of the Lease, as
hereby amended.
6. Tenant waives any right to rescind this Lease under Section 223-a
of the New York Real Property Law or any successor statute of similar nature and
purpose then in force and further waives the right to recover any damages which
may result from Landlord's failure for any reason to deliver possession of the
19th Floor Space. No such failure to give possession by a particular date shall
in any way affect the validity of this Lease, as hereby amended, or the
obligations of Tenant or give rise to any claim for damages by Tenant or claim
for rescission of the Lease or this Amendment, nor shall the same be construed
in any way to extend the Term.
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7. Except as modified hereby, the Lease shall continue in full force
and effect in accordance with its terms.
8. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
9. This Agreement may be executed in one or more counterparts which
when taken together shall constitute but one original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE EQUITABLE-NISSEI MADISON CO.
By: The Equitable Life Assurance Society
of the United States, its general partner
By: _________________________________________
BUSINESS LOAN CENTER, INC.
By: __________________________________________
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MORTON G. THALHIMER
1313 East Main Street
Richmond, VA 23219
OFFICE LEASE AGREEMENT
THIS DEED OF LEASE, Made at Richmond, Virginia, on August 28, 1998 by and
between International Mission Board of the Southern Baptist Convention,
hereinafter referred to as "Landlord" and Business Loan Center Network, Inc. , a
Virginia Corporation , hereinafter referred to as "Tenant" and Morton G.
Thalhimer, Inc. hereinafter referred to as "Agent".
W I T N E S S E T H
For and in consideration of the below stated rent and other terms and conditions
stipulated in this Lease Agreement, hereinafter referred to as the "Lease",
Landlord does hereby lease to Tenant the following described property located in
Richmond , Virginia: approximately 3,690 Square Feet (including a 10 % core
charge)
Suites 200 & 212 located within Hamilton Place, 1301 N. Hamilton
Street, Richmond, VA 23230.
hereinafter referred to as the "Premises", for a term of Sixty ( 60 ) months
beginning on October 1, 1998 (The Commencement Date) and ending September 30,
2003 (The Expiration Date) or as may be otherwise specified in Section 2 below,
to be used and occupied by the Tenant for the following purpose: General
Business Office and for no other purpose unless agreed to in writing by Landlord
and attached hereto.
Tenant hereby agrees to pay Landlord, as rent for the Premises, without
demand, offset, or reduction the sum of Forty Eight Thousand and no/100's
dollars ($ $48,000.00 ) per annum payable in regular monthly installments of
Four Thousand and no/100's dollars ($ $4,000.00 ) in advance beginning on The
Commencement Date and continuing thereafter on the first day of each succeeding
month for the term of the Lease. If the term of this Lease shall commence or
expire on any day other than the first of the month, the rent for that monthly
installment shall be prorated based upon a 30 day month. All rent payments shall
be made at the office of and made payable to: Morton G. Thalhimer, Inc. at 1313
East Main Street, P.O. Box 702, Richmond, Virginia 23218-0702, Agent, or such
other address as the Landlord may direct in writing.
1. CONDITION OF PREMISES:
The Tenant has inspected and approves the plans (as may be attached to this
Lease) and/or knows the conditions of the Premises and Tenant has made certain
that they can be lawfully used for the purposes of the Tenant's business and the
Tenant expressly covenants that there is no expressed or implied warranty,
representation or agreement on the part of the Landlord with reference to the
condition or usability of the Premises for Tenant's intended use.
2. POSSESSION:
If the Landlord shall be unable to give possession of the Premises on The
Commencement Date of the term hereof by reason of the holding over of any tenant
or tenants or for any cause beyond the control of the Landlord (other than extra
work undertaken by the Landlord for the Tenant), then the rent shall not
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commence until possession of the Premises is given or is available, and the
Tenant agrees to accept such allowance and abatement of rent, as liquidated
damages, in full satisfaction for the failure of the Landlord to give possession
of the Premises on the said date, and to the exclusion of all claims and rights
which the Tenant might otherwise have by reason of possession of the entire
Premises not being given on the said date. If Landlord is unable to give
possession due to extra work undertaken at Tenant's request then the rent shall
commence as scheduled without abatement or allowance. If Landlord is otherwise
unable to give possession on The Commencement Date, then Expiration Date shall
be extended from the actual date of occupancy in accordance with the Lease term
specified in the Lease.
If Tenant shall occupy the Premises prior to The Commencement Date of this
Lease with Landlord's consent, all the provisions of this Lease shall be in full
force and effect as soon as Tenant occupies the Premises and the Lease
Expiration Date shall not change.
3. SECURITY DEPOSIT:
Tenant shall deposit with Landlord upon execution of this Lease Agreement
and thereafter maintain with Landlord the sum of Four Thousand and no/100's
dollars ($ 4,000.00 ) which shall be held by Landlord, without interest to
Tenant, as security for the full and faithful performance by Tenant of Tenant's
obligations pursuant to this Lease. If Tenant fails to pay any amount which
Tenant is obligated to pay pursuant to this Lease, Landlord may, at its option
(but Landlord shall not be obligated to), apply any portion of such security
fund to the amount owed by the Tenant. Any such application by Landlord shall
not waive the default created by Tenant's failure to pay. If any portion of the
security deposit is so applied by Landlord, Tenant shall, within ten (10) days
after demand from Landlord, restore the security deposit held by Landlord to its
original amount. The security deposit, less amount properly charged against
same, shall be refunded to Tenant within thirty (30) days after Tenant has paid
all amounts owed and performed all of its obligations pursuant to this Lease or
any extension or renewal thereof.
4. RENT ESCALATION:
Beginning on the first twelve (12) month anniversary of The Commencement
Date of the Lease and on each succeeding anniversary date thereafter for the
term of the Lease and any renewals or extensions thereof, the rental rate for
the Premises shall increase 4% per annum over the rate charged for the
immediately preceding twelve (12) months.
5. LANDLORD'S REMEDIES:
A. The Tenant covenants to pay rent at the time and in the manner herein
provided and in case of non-payment of said rent or of Landlord's charges
hereunder within ten (10) days of the date due, at the time and in the manner
herein provided, or in case of violation by the Tenant of any of the terms and
conditions of this Lease, or the covenants herein contained, or in case the
Premises shall be deserted or vacated, the Landlord shall have the right to
re-enter the same and remove all persons and property there from as the agent of
the Tenant, either by force or otherwise, without being liable to any action or
prosecution, and to rent out the said Premises as the agent of the Tenant, and
receive the rent therefore, and to apply the same to the payment of the rent or
other charges due under this Lease, holding the Tenant liable for any
deficiency; or, at the option of the Landlord, it may declare this Lease
forfeited, without any notice to that effect, and may take immediate possession
of said Premises, or may take any other action provided by law.
B. It is further covenanted and agreed that the various rights, remedies,
powers or elections of the Landlord as expressed in this Lease, or given by law,
are cumulative, and that none of them shall be deemed to be exclusive of such
other rights, remedies, powers or elections, as are now or may hereafter be
conferred upon the Landlord by law.
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C. In the event the Tenant shall be adjudicated a bankrupt, or become
insolvent, or if a receiver is appointed by any court, or if the Tenant shall
make an assignment for the benefit of creditors, then upon the election of the
Landlord, this Lease shall cease and desist upon ten (10) day's written notice
by the Landlord to the Tenant, and the Landlord shall have all rights and
remedies otherwise provided in this Section 5.
6. LATE CHARGES:
Tenant recognizes and acknowledges that if rent payments are not received
when due, Landlord will suffer damages and additional expense thereby and Tenant
therefore agrees that a late charge equal to ten percent (10%) of the rent due
may be assessed by Landlord as additional rental if Landlord has not received
the monthly installment of annual rent or other rent or additional rent due
pursuant to this Lease within ten (10) days after its due date. If any check
given in payment of rent is not honored when due, Landlord may require that
subsequent rent payments be made by certified or cashier's check.
7. EXEMPTIONS:
The Tenant hereby waives the benefit of any exemptions under the homestead
or bankruptcy laws as to the obligations of this Lease, and agrees to pay all
expenses incurred in collecting the same, including reasonable attorney's fees,
in case the same shall not be paid when due.
8. ASSIGNMENT AND SUBLETTING:
The Tenant shall not, without the prior written consent of the Landlord,
(a) assign or convey or encumber this Lease or any interests under it; (b) allow
any transfer hereof or any lien upon the Tenant's interest hereunder; (c) sublet
the Premises or any part thereof, or (d) permit the use or occupancy of the
Premises or any part thereof by any other than the Tenant. In the event Landlord
consents to Tenant subletting or assigning the Premises, Tenant shall pay Agent
a one time fee of One Hundred Fifty Dollars ($150.00) to cover bookkeeping and
other expenses Agent may incur by virtue of such subletting or assignment. Said
fee shall be due prior to occupancy by new Tenant and payment of same is a
pre-condition to Tenant's right to sublease the Premises.
Any such subletting or assignment by Tenant shall not in any way relieve
Tenant of his duties and/or obligations for performance under this Lease or
reduce Landlord's rights hereunder.
9. CARE AND USE OF PREMISES BY TENANT:
A. The tenant will take good care of the Premises and of the fixtures and
improvements therein and shall keep and maintain same in good repair and working
order. Tenant will, at his own cost and to Landlord's satisfaction, repair in a
good and workmanlike manner all damage and injury to the Premises and fixtures
required as a result of Tenant carelessness, misuse, or neglect, or as a result
of damage or defacement of the building, or any part thereof by reason of
Tenant's occupancy or the actions of its agents, employees, visitors,
contractors, assignees or licensees. Should Tenant fail to perform such repairs
or replacements, Landlord may do so, after ten (10) days notice, and the cost of
such repairs or replacements shall become collectable as additional rent
hereunder and shall be paid by Tenant within ten (10) days after presentation of
a statement thereof. Upon the expiration of this Lease, Tenant shall return all
keys and shall quit and surrender the Premises in clean and good condition,
reasonable use and wear excepted.
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Whenever any breakage or damage shall occur to either the Premises or the
building or property of which these Premises are a part, Tenant shall
immediately notify Landlord who shall cause same to be repaired or replaced at
Landlord's expenses, unless such damage is Tenant's fault, as specified
elsewhere in this Section 9, in which case such repair expenses shall be borne
by Tenant.
B. Tenant will not store upon the Premises any combustible or explosive
material or do or permit to be done on the Premises anything which either
directly or indirectly is in conflict with or a violation of public law,
ordinance, governmental regulation or any insurance policy carried on the
Premises, or the property of which it is a part, or its operation, or which, if
known, might increase the premium of such insurance or adversely affect its
coverage.
C. Tenant will not do or permit to be done any waste or nuisance upon the
Premises or anything which obstructs or interferes with the rights of other
Tenants or which is offensive or annoying to them. Determination of such rights
and offensive behavior, if not otherwise specified shall be at Landlord's
determination. Tenant further agrees to comply with and abide by such rules and
regulations as the Landlord, upon written notice to Tenant, may adopt. Landlord
shall not be responsible for the non-observance or violation of any of the
building rules and regulations or lease provisions by any other tenant.
D. The Landlord shall have the right to prescribe the weight, size and
proper location of safes and other weighty articles before the same are admitted
into the building, and any damage done to the building in the putting in or out
of such articles, or during the time they are in or on the Premises, shall be
made good by the Tenant. All persons employed by or contracted with by Tenant
for repairs, alterations, or the moving of safes, furniture or other bulky
articles in and out of the building and Premises must be acceptable to Landlord
and shall be at Tenant's sole cost and liability, and such work is to be done
only at a time designated by Landlord.
E. Tenant shall not, without the prior written consent of Landlord, place
any signs or advertising matter or material on the exterior of the building or
the interior of the building. If Landlord approves any signage or advertising
matter or material in writing, such signage, matter or material shall be
installed at Tenant's expense and Tenant shall remove same at the termination or
expiration of this Lease and repair any damage caused by such removal.
10. ALTERATIONS:
The Tenant will make no alterations in or additions or improvements to the
Premises without first obtaining the written consent of the Landlord who shall
have the right to approve the plans for, and designate the contractors and/or
workmen to perform any such work, and all additions and improvements made by the
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Tenant shall become the property of the Landlord immediately upon completion
thereof, provided, however, that the Landlord, by giving written notice to the
Tenant not less than two (2) months prior to the expiration of this Lease, or
any continuance or renewal thereof, may require Tenant to restore such Premises
to the condition in which they were at the commencement of this Lease. It is
covenanted and agreed by and between the parties hereto that all changes and/or
alterations in the Premises to be made by the Landlord at the expense of the
Landlord are evidenced and shown by a floor plan of the Premises which is
attached hereto and made a part of this Lease, such floor plan being identified
by the signature of the Landlord and Tenant; all other alterations, additions or
improvements made by the Tenant, or by the Landlord at the Tenant's request,
shall be solely at the Tenant's expense and liability.
11. SERVICES:
The Landlord shall provide the following free of extra charge, but subject
to the following covenants and conditions:
(a)Janitor service Monday through Friday (excepting legal holidays) in and
about the building in which said Premises are situated, including maintenance of
building exterior and interior space used by all Tenants in common.
(b)Heat to warm the said building during 8:00 AM to 6:00 PM Monday through
Friday and 8:00 AM to 1:00 PM Saturday during such period as may be necessary,
and hot and cold water for the lavatories of said building.
(c)Use of water, as supplied through the building piping to the wash
basins, if any, in the Premises. The Tenant shall not, however, waste water so
supplied and shall not, without the Landlord's prior consent in writing, use the
same for refrigeration or for any other than ordinary office purposes.
(d)Elevator service (if applicable) during the ordinary business hours of
each business day. On holidays, Sundays, and at night one elevator will be
subject to call.
(e)Use of electricity, as supplied through the building circuits, but only
for lighting purposes and for operation of ordinary office machines. The Tenant
shall not, without the Landlord's prior written consent, use such electricity
for refrigeration, special lighting apparatus, x-ray equipment, large electronic
machines, or other special equipment or for any purpose other than ordinary
office purposes as defined by Landlord at Landlord's discretion.
(f)Air-conditioning (A/C) to the Premises, during the summer months, from
8:00 AM to 6:00 PM Monday through Friday and 8:00 AM to 1:00 PM Saturday. If
Tenant requires additional A/C due to its computers, special lighting, etc. said
A/C will be installed and separately metered at Tenant's expense, and such
electrical usage billed to Tenant as an extra charge.
(g)Tenant and its employees and customers shall have the non-exclusive
right, in common with Landlord, other tenants of the building, and their
respective employees, guests and customers, to park automobiles in the parking
area provided by Landlord (if such area is provided, but Landlord shall be under
no obligation to otherwise provide, arrange or pay for Tenant parking) subject
to such reasonable rules and regulations as Landlord may impose from time to
time, including the designation of specific areas in which automobiles of
Tenant, his employees, guests and customers must be parked, and the number of
parking spaces which may be so utilized by Tenant.
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The Landlord shall not be liable for the interruption of any of the
above-mentioned services caused by repairs, improvements, alterations, strikes,
lockouts, accidents, inability of the Landlord to procure such services or to
obtain fuel or supplies or other cause or causes beyond the reasonable control
of the Landlord. Any interruption of service shall never be deemed an eviction
or disturbance of the Tenant's use and possession of the Premises or any part
thereof, or render the Landlord liable to the Tenant for damages, or relieve the
Tenant from performance of the Tenant's obligation under this Lease.
12. CLAIMS FOR DAMAGES:
All personal property belonging to the Tenant or to any other person,
located in or about the building or the Premises shall be there at the sole risk
of the Tenant or other such person, and neither the Landlord nor the Landlord's
agents shall be liable for the theft or misappropriation thereof, nor for any
damage or injury thereto, nor for damage or injury to said Tenant, its employees
or invitees, or to other persons or to other property in and about the building
caused by water, fire, snow, frost, or other elements, steam, heat or cold,
dampness, falling plaster, sewers or sewage, gas odors, noise, the bursting or
leaking of pipes, plumbing, electrical wiring and equipment and fixtures of all
kinds, operation or use of elevators, or by any act or neglect of other tenants
or occupants of the building or of any other person, or caused in any manner
whatsoever. The Tenant shall give to the Landlord, or its duly authorized agent,
immediate written and telephone notice of any accidents to, or defects in any
equipment or part of the building and of any fire, to the end that the Landlord
may promptly remedy such conditions. The Tenant will protect, indemnify and save
harmless the Landlord from all losses, costs or damages sustained by reason of
any act or other occurrence causing injury to any person and/or property
whomsoever or whatsoever, due directly or indirectly to the use or occupancy of
the Premises or any part thereof by the Tenant.
13. UNTENANTABILITY:
If, during the term of this Lease, the building and/or Premises and/or
other portions of the building shall be so damaged by fire or other action of
the elements as to be rendered untenantable, and shall not be repaired by the
Landlord and put in tenantable condition within a period of one hundred twenty
(120) days from the time when the Tenant gives the Landlord possession of the
Premises for the purpose of making such repairs, it shall be optional with the
Tenant to terminate this Lease by a written notice at the end of such period. If
such damage is repaired and the Premises are made tenantable within such one
hundred twenty (120) day period, no right to terminate this Lease for such cause
shall exist. Whether the Lease is terminated or not, an equitable adjustment of
the rentable payable for the Tenant shall be made (provided no fault of the
Tenant contributed to the damage and provided no insurance effected by the
Landlord shall have been vitiated or payment refused in consequence of some act
or default of the Tenant) by crediting the Tenant with the full rental for such
period of time, if any, as the Tenant was necessarily deprived of all use of the
Premises, and with a pro rata proportion of the rental payable for such period
of time and such amount of space as the Tenant may be deprived of, if use of the
Premises is not entirely prevented by the damage and the consequent repairs.
14. SUBORDINATION OF LEASE:
This Lease is made, and accepted by the Tenant, subject and subordinate in
law and in equity to any existing, future and/or new mortgages, and/or deeds of
trust secured by the land and building of which the Premises are a part, or
which may at any future time be placed thereon, and to any extensions,
modifications and renewals thereof, and to the prior right of the mortgagees or
lenders thereunder. If required by the Landlord, the Tenant will execute,
acknowledge and deliver any and all agreements subordinating this Lease to any
deed of trust or mortgage now or hereafter executed, secured by the said land
and said buildings. Within ten (10) days after request thereof by Landlord,
Tenant agrees to deliver in recordable form ,a certificate prepared by Landlord
to any proposed mortgagee or purchaser of the Premises, or to Landlord
certifying (if such is the case) that this Lease is in full force and effect,
and that there are no defenses or offsets thereto, or stating those claimed by
Tenant, and such other facts related to this Lease, the Premises or Tenant as
Landlord may request. If Tenant does not execute and return such certificate as
required above, Tenant hereby irrevocably appoints Landlord as its
attorney-in-fact to execute such certificate on behalf of Tenant.
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15. QUIET ENJOYMENT:
Provided Tenant is not in default in the performance of any of its
obligations under this Lease, Landlord covenants that Tenant shall have and
enjoy quiet and peaceable use and possession of the Premises during the term of
this Lease and any renewals thereof.
16. RESERVED RIGHTS:
Landlord reserves the following rights:
(a)To change the name or street address of the building, without liability
of Landlord to Tenant;
(b)To designate all sources furnishing sign painting and
lettering, ice, drinking water, towels and toilet supplies, or other like
services used in the Premises;
(c)To enter during the last ninety (90) days of the term, provided Tenant
shall have removed all or substantially all of Tenant's property from the
Premises, for the purpose of altering, renovating, remodeling, repairing or
otherwise preparing the Premises for re-occupancy;
(d)To grant to any one the exclusive right to conduct any particular
business or undertaking in the building; (e)To enter the Premises at all
times (1) for the making of inspections, repairs, alterations, improvements
or additions at or to the Premises or building, as Landlord may deem necessary
or desirable, and (2) for any purpose whatsoever related to the safety,
protection, preservation or improvement of the Premises or of the building or of
Landlord's interest;
(f)At any time or times, the Landlord, either voluntarily or pursuant to
governmental requirement, may, at the Landlord's own expense make repairs,
alterations or improvements in or to the building or any part thereof, and
during operations, may close entrances, doors, corridors, elevators or other
facilities;
(g)In the event repairs, alterations, decorating or other work, done at the
Landlord's expense, shall be done at other than ordinary business hours by
reason of the Tenant's request that they not be done during ordinary business
hours, then the Tenant shall pay the Landlord the additional charges, including
overtime costs, incurred by Landlord in doing the work at other than ordinary
business hours.
(h)If the Premises are less than two thousand (2,000) usable square feet in
area, Landlord reserves the right, at its option and upon giving thirty (30)
days notice in advance to Tenant, to transfer and remove Tenant from the
Premises to any other available offices of equal size and area in the building.
Landlord shall bear the expense of moving Tenant's furniture, fixtures, phone
system and other personal property as well as the expense of any renovations or
alterations necessary to make the new space similar in arrangements and layout
to the original Premises.
Landlord may exercise any or all of the foregoing rights hereby reserved by
Landlord without being deemed guilty of an eviction or disturbance of Tenant's
use and possession and without being liable in any manner to Tenant and without
elimination or abatement of rent, or other compensation, and such acts shall
have no effect upon this Lease.
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17. RENEWAL:
It is hereby understood and agreed that a written notice of three (3)
months prior to the end of said term or any renewal of continuance thereof from
either party to the other shall be necessary to terminate this Lease at the end
of said term, or at the end of any renewal or continuance thereof; and in the
event that no such notice shall be given then this Lease shall be continued in
full force and effect for an additional period of one (1) year at the rent then
in force and subject to all the covenants, terms and conditions herein contained
including this paragraph and any rental escalation provisions contained in this
Lease.
18. HOLDING OVER:
Tenant shall pay to Landlord an amount as base monthly rental equal to two
hundred percent (200%) of the base monthly rental herein provided during each
month or portion thereof for which Tenant shall retain possession of the
Premises or any part thereof after the termination of the term or of Tenant's
right of possession, whether by lapse of time or otherwise, and also shall pay
all damages sustained by Landlord, whether direct or consequential, on account
thereof. Such hold over shall be as a Tenant at will and all of the terms and
provisions of this Lease shall be applicable during such period. No holding over
by Tenant , whether with or without consent of Landlord, shall operate to extend
this Lease except as may be herein provided. The provisions of this clause shall
not be held as a waiver by Landlord of any right of re-entry, or any other
rights of Landlord as provided under this Lease; nor shall the receipt of said
payment or any part thereof, or any other act in apparent affirmance of tenancy,
operate as a waiver of the right to forfeit this Lease and the term hereby
granted for the period still unexpired, for any breach of any of the covenants
herein, or any other of Landlord's rights hereunder.
19. LANDLORD'S LIEN:
A. Unless otherwise prohibited by law, in addition to any statutory
Landlord's Lien, Landlord shall have at all times a valid security interest to
secure payment of all rentals and other sums of money becoming due hereunder
from Tenant, and to secure payment of any damages or loss which Landlord may
suffer by reason of the breach by Tenant of any covenant, agreement or condition
contained herein, upon all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant presently, or which may
hereafter be, situated in the Premises, and all proceeds therefrom, and such
property shall not be removed therefrom without the consent of Landlord until
all arrearages in rent as well as any and all other sums of money then due to
Landlord hereunder shall first have been paid and discharged and all covenants,
agreements and conditions hereof have been fully complied with and performed by
Tenant.
B. Upon the occurrence of an event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter the Premises and take
possession of any and all goods, wares, equipment, fixtures, furniture,
improvement and other personal property of Tenant situated on the Premises,
without liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after giving
Tenant reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale the Landlord or its
assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
Tenant reasonable notice, the requirement of reasonable notice shall be met if
such notice is given in the manner prescribed in paragraph 22 of this Lease ten
(10) days before the time of sale. Any sale made pursuant to the provision of
this section shall be deemed to have been a public sale conducted in a
commercially reasonable manner if held in the above-described Premises or where
the property is located after the time, place, and method of sale and a general
description of the types of property to be sold have been advertised in a daily
newspaper published in the county in which the Premises is located for five (5)
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consecutive days before the date of sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorney's fees and
legal expenses) shall be applied as a credit against the indebtedness secured by
the security interest granted in this section. Any surplus shall be paid to
Tenant or as otherwise required by law; the Tenant shall pay any deficiencies
forthwith. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security of
Landlord in the aforementioned property and proceeds thereof under the
provisions of the Uniform Commercial Code in force in the state in which
Premises is located. The statutory lien "distress for rent" is not hereby
waived, the security interest herein granted being in addition and supplementary
thereto.
20. LIABILITY INSURANCE:
Landlord and Tenant shall each at all times during the term of this Lease
or any renewal thereof carry with an approved insurance carrier licensed to
operate in this state, public liability insurance, naming the other and Agent as
additional insured, with limits of liability of not less than one million
($1,000,000) with respect to personal injury and three hundred thousand
($300,000) with respect to property damage. Certificates of such insurance shall
be furnished to such other and/or Agent upon request. Tenant shall notify
Landlord promptly of any accident or loss in the Premises or in the building of
which the Premises form a part or of any defect therein or in the equipment and
fixtures thereof which Tenant has knowledge.
21. HAZARDOUS SUBSTANCE:
(a) Tenant shall not cause or permit any Hazardous Substance to be used,
stored, generated or disposed of on or in the Premises by Tenant, Tenant's
agents, employees, contractors or invitees without first obtaining Landlord's
written consent. If Hazardous Substances are used, stored, generated or disposed
of on or in the Premises except as permitted above, or if the Premises becomes
contaminated in any manner during this Lease term, Tenant shall indemnify and
hold harmless the Landlord from any and all claims, damages, fines, judgments,
penalties, costs, liabilities or losses (including, without limitation, a
decrease in value of the Premises, damages caused by loss or restriction of
rentable or usable space, or any damages caused by adverse impact marketing of
the space, and any and all sums paid for settlement of claims, attorney's fees,
consultant and expert fees) arising during or after the Lease term and arising
as a result of contamination by Tenant. This indemnification includes, without
limitation, any and all costs incurred by Landlord because of any investigation
of the site or any cleanup, removal or restoration mandated by a federal, state
or local agency or political subdivision. Without limitation of the foregoing,
if Tenant causes or permits the presence of any Hazardous Substances on the
Premises that results in contamination, Tenant shall promptly at its sole
expense, take any and all necessary actions to return the Premises to the
condition existing prior to the presence of any such Hazardous Substance on the
Premises. Tenant shall first obtain Landlord's written approval for any such
remedial action.
(b) As used herein, "Hazardous Substance" means any substance that is
toxic, ignitable, reactive or corrosive and that is regulated by any local
government, the Commonwealth of Virginia or the United States Government.
"Hazardous Substance" includes any and all materials or substances that are
defined as "hazardous waste", "extremely hazardous waste", or a "hazardous
substance" pursuant to state, federal or local government law. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorinated
biphenyl's (PCB's), petroleum, solvents, printing inks, pesticides, and leads.
(c) Tenant shall provide Landlord, in a timely manner, a Material Safety
Data Sheet ("MSDS") upon Landlord's request. Said MSDS shall describe the
chemical properties of any hazardous substances which may be used, stored,
generated or disposed of on or in the Premises.
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22. AGENT COMMISSION:
In consideration of Agent's services in procuring this Lease and as a
covenant running with the land, Landlord covenants with and for the benefit of
Agent, as follows: Agent is to receive a commission of Six percent ( 6 %) of the
rent during the original term and all renewals or extensions thereof or any
expansion of leased space by Tenant, relocation of Tenant by Landlord either
within the building or to any other property owned or controlled by Landlord or
any new lease of the Premises between any person and Tenant, its successors or
assigns (such phrase used herein to include such entity in which Tenant, its
successors or assigns, may have an interest as a stockholder, partner, lender of
money or otherwise); and no sale transfer, assignment, cancellation, or release
including a sale or conveyance to Tenant, its successors or assigns, shall
affect Agent's right to such commission which is hereby made a lien on the
Premises and all equipment thereon, if any. Agent shall have the right to
collect all rents due hereunder so that its commission may be paid in
installments as the rent is received, and retained by Agent before remitting the
rent (less commissions) to Landlord; but if any act be done to deprive Agent of
its right to collect the rent, then the whole amount of its commission then
unpaid shall, at Agent's option, immediately become due and payable.
Landlord further covenants with and for the benefit of Agent as a covenant
running with the Land, that if Tenant, its successors or assigns, shall at any
time during the original term and all renewals or extensions thereof, (or during
any new lease of the Premises between any person and Tenant, its successors or
assigns), purchase the building in which the Premises are located, then in
consideration of Agent's consummating this Lease, Landlord shall pay Agent on
the date the Premises are transferred, a commission of Six percent ( 6 %) of the
gross amount of the purchase price. Such a sales commission shall be in addition
to the rental commissions provided for in the immediately preceding paragraph
and is hereby made a lien on the Premises and all equipment thereon, if any.
Landlord hereby authorizes Agent to institute legal proceedings for the
recovery of any rent due under the provisions of this Lease Agreement and to
employ an attorney for that purpose, and to charge all costs and fees to
Landlord.
In connection with all acts done or suffered by Agent for Landlord
concerning the Premises, Landlord further agrees to defend, indemnify and save
Agent harmless from all fines, judgments, suits, claims, demands, and actions of
any kind (including any costs and attorney's fees), and from liability for
injury suffered by an employee or contractor (not in the permanent employ of
Agent) engaged by Agent for the benefit of Landlord.
23. NOTICES:
Wherever in this Lease it shall be required or permitted that notice or
demand be given or served by either party to this Lease to or on the other, such
notices or demands shall be deemed given or served whether actually received or
not when deposited in the United States Postal Service, postage pre-pad,
certified or registered mail, addressed to parties hereto at the respective
addresses set out below or any other address that may be specified by the
parties.
TO LANDLORD: International Mission Board of the Southern
Baptist Convention
PO Box 6767
Richmond, VA
ATTN: Mr. Mike Giannotti
TO TENANT: Business Loan Center Network, Inc.
1301 N. Hamilton Street
Suite 200
Richmond, VA 23230
ATTN: Ms. Rebecca H. Hall
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TO AGENT: Morton G. Thalhimer, Inc.
P. O. Box 702
Richmond, VA 23218-0702
ATTN: Mr. Cameron B. Brown
24. MISCELLANEOUS:
A. The failure of the Landlord to enforce in any one or more instances any
term, condition, rule, regulation or covenant as to which the Tenant shall be
guilty of a breach or be in default, shall not be deemed to waive the right of
the Landlord to enforce the same or any subsequent breach or default
notwithstanding the Landlord had knowledge of such breach or default at the time
of the receipt of any rent or other sums by the Landlord, whether the same be
that originally reserved or that which may be payable under any of the covenants
or agreements herein contained, or any portion thereof. The acceptance by the
Landlord of checks or cash from persons other than the Tenant shall in no event
evidence consent of the Landlord to any assignment or sub-lease by the Tenant.
No waiver or modification of this Lease nor any release or surrender of the same
shall be claimed by the Tenant unless such waiver or modification or release or
surrender be in writing and signed by the Landlord.
B. Each provision hereof shall bind and inure to the benefit of the
Landlord and the Tenant and as the case may be: if the Tenant is an individual,
the Tenant's legatees, executors, and administrators; the Landlord's successors
and assigns; if the Tenant is a corporation, its successors; and in the event
that Landlord consents to the assignment of this Lease notwithstanding the terms
hereof, the Tenant's assigns.
C. The parties hereto agree that whenever the word "Tenant" and/or "party"
is used herein it shall be construed to mean Tenants and/or parties, if there be
more than one, and generally, feminine or neuter pronouns shall be substituted
for those of the masculine form, and vice versa, and the plural is to be
substituted for the singular number in any place or places herein in which the
context shall require such substitution.
D. Paragraph headings for this Lease are used for convenience only, and are
in no way to be construed as a part of this Lease or as a limitation on the
scope of the particular provision to which they refer.
25. JOINT VENTURE DISCLAIMER:
Any intention to create a joint venture or partnership relation between the
parties hereto is hereby expressly disclaimed.
26. APPLICABLE LAW, CONSTRUCTION:
This Lease Agreement shall be construed in accordance with the laws of the
State of Virginia.
27. AGENCY DISCLOSURE:
Each of the undersigned acknowledges that: (1) it understands the
disclosure information presented; (2) the disclosure was made at or before the
time specific real estate assistance involving substantive discussions about the
Premises was provided; and (3) it consents to the representation and payment of
the commission as outlined herein.
In this transaction between the undersigned parties, Morton G.
Thalhimer, Inc. acted as the Agent for: ___the Tenant; X the Landlord; ____
both the Tenant and the Landlord under Designated Representatives with full
knowledge and consent of both parties.
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<PAGE>
28. ADDENDUM:
Addendum(s) consisting of 2 paragraph(s) are attached hereto and
made a part hereof.
29. FINAL UNDERSTANDING:
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior or contemporaneous agreement or understanding
pertaining to any such matter shall be effective. This Lease may be modified in
writing only, signed by the parties in interest at the time of the modification.
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE
PREMISES.
IN WITNESS WHEREOF, each individual party hereto has hereunto signed his or
her name and affixed his or her seal, and each corporate party hereto has caused
its name to be signed and its seal to be affixed by its duly authorized
officers.
MORTON G. THALHIMER, INC.
Agent
By
International Mission Board of the
Southern Baptist Convention (SEAL)
Landlord
Address
By:
Title:
Business Loan Center
Network, Inc. (SEAL)
Tenant
Address
By:
Title:
GUARANTEE:
In consideration of Landlord agreeing to lease to Tenant the Premises, the
undersigned, hereby waiving the obligations of the homestead exemption laws as
to this Lease Agreement, jointly and severally if there be more than one
undersigned, guarantee the payment of rent and the performance of all provisions
of this Lease Agreement by Tenant, its successors and assigns, and agree that
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<PAGE>
the mere nonpayment of rent and nonperformance of said provisions by Tenant or
its successor and assigns shall create an immediate liability on the part of the
undersigned to Landlord and its successor and assigns and to Agent. Landlord and
Agent need not first exhaust their legal remedies against Tenant or its
successors and assigns before proceeding against the undersigned. Neither
Landlord nor Agent is required to notify the undersigned of any default of
Tenant under the provisions of this Lease Agreement. Landlord and Tenant may
amend this Lease from time to time and may increase the obligations of Tenant
hereunder without releasing guarantor from any liability under this guaranty.
Date:
Guarantor
ADDENDUM ATTACHED TO AND MADE A PART OF LEASE DATED AUGUST 28, 1998, BY AND
BETWEEN INTERNATIONAL MISSION BOARD OF THE SOUTHERN BAPTIST CONVENTION,
LANDLORD, AND BUSINESS LOAN CENTER NETWORK, INC., TENANT, FOR PREMISES KNOWN AS
SUITES 200 & 212, HAMILTON PLACE, 1301 N. HAMILTON STREET, RICHMOND, VIRGINIA.
It is covenanted and agreed as follows:
1. Landlord Improvements: Landlord agrees to renovate the premises substantially
in accordance with Exhibit "A" attached to and made a part of this lease
agreement. Landlord agrees to incur the costs of these renovations up to an
amount not to exceed $8,000.00. Any costs associated with these renovations over
the $8,000.00 amount shall be due and payable by Tenant at the time the
contractor's invoice is furnished to Tenant.
2. Early Termination Option: Tenant shall have two (2) options to terminate this
lease; the first occurring at the end of the thirty-sixth (36th) month of the
lease term, and the second occurring at the end of the forty-eighth (48th)
month. To exercise either of these options, Tenant agrees to serve prior written
notice to Landlord of at least ninety (90) days before either the end of the
thirty-sixth (36th) month or the forty-eighth (48th) month. If tenant elects to
terminate after the thirty-six (36th) month, tenant shall pay an early
termination penalty of $4,000.00 to the Landlord at the time notice is served.
If tenant elects to terminate after the forty-eighth (48th) month, tenant shall
pay an early termination penalty of $2,000.00 to the Landlord at the time notice
is served.
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<PAGE>
WITNESS the following seals and signatures:
LANDLORD:
INTERNATIONAL MISSION BOARD OF
THE SOUTHERN BAPTIST CONVENTION
BY: _________________________
Title: _________________________
TENANT:
BUSINESS LOAN CENTER NETWORK, INC.
BY:_______________________________
Title:____________________________
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<PAGE>
Name of Offeree:_______________ Memorandum No.______________
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
BLC FINANCIAL SERVICES, INC.
9% Convertible Subordinated Notes Due 2003
This Private Placement Memorandum (the "Memorandum") relates
to the sale by BLC Financial Services, Inc., a Delaware corporation (the
"Company"), of up to $5,000,000 principal amount of 9% Convertible Subordinated
Notes Due February 1, 2003 (the "Notes"), in the form attached hereto as Exhibit
A (the "Offering"). Holders of the Notes (the "Holder(s)" will have certain
rights and obligations pursuant to a Holders' Agreement among such Holders and
the Company. See "Description of Capital Stock - The Holders' Agreement."
Interest on the Notes will accrue from the date of issuance
of such Notes (the "Issue Date") and will be payable quarterly beginning on
April 15, 1999.
The Notes will be convertible at the option of the Holder,
unless previously converted, redeemed or repurchased, in whole or in part, at
any time and from time to time, on 30 days' prior written notice by the Holder
to the Company, into shares of Common Stock, $.01 par value, of the Company (the
"Common Stock") following the last issuance of the Notes until the close of
business on the Business Day immediately preceding the maturity date, at a
conversion price per share (the "Conversion Price") equal to the greater of (i)
$3.50 or (ii) 130% of the average of the Market Price per share for the five
Business Days immediately preceding the date the subscription for such Notes is
accepted by the Company (the "Conversion Ratio"), subject to adjustment in
certain events. The Conversion Price with respect to any Notes will be
determined by the Company as of the Business Day immediately preceding the date
the subscription for such Notes is accepted by the Company. Notes with different
Conversion Prices will be issued in different series. Accrued and unpaid
interest on the Notes converted to the date of conversion will be paid at
conversion. See "Description of the Notes - Optional Conversion." The last
reported sale price, on January 29, 1999, of the Common Stock, which is listed
on the American Stock Exchange under the symbol BCL, was $2.50 per share.
The Notes will be redeemable at the option of the Company,
unless previously converted, redeemed or repurchased, in whole or in part, at
any time and from time to time, on 60 days' prior written notice by the Company
to the Holders, if for five or more days in any 20-Trading Days period (whether
or not consecutive) the Market Price per share of Common Stock is greater than
the Conversion Price, at a redemption price equal to 105% of the principal
amount of the Notes to be redeemed plus all accrued and unpaid interest thereon
to the date of redemption, provided that such notice of redemption shall be
delivered no later than 10 days after the expiration of such 20-day Trading
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<PAGE>
Period. In addition, the Notes will be redeemable at the option of the Company,
unless previously converted, redeemed or repurchased, in whole or in part, at
any time and from time to time, on 60 days' prior written notice, from the
proceeds of one or more Public Equity Offerings, at a redemption price equal to
105% of the principal amount of the Notes being redeemed plus all accrued and
unpaid interest thereon to the date of redemption. Upon delivery of any notice
of redemption by the Company, a Holder may elect to convert the Notes to be
redeemed at the Conversion Ratio. If less than all of the Notes are to be
redeemed, the Notes will be chosen for redemption by the Company on a pro rata
basis or by lot or by a method that complies with applicable legal requirements.
See "Description of the Notes - Optional Redemption."
The Notes are unsecured and are not entitled to the benefit of
any sinking fund. The Notes will be subordinate to all Senior Indebtedness (as
defined) of the Company and will rank pari passu with all unsubordinated trade
and other indebtedness of the Company. On December 31, 1998, approximately
$22,229,526.06 of Senior Indebtedness, secured by substantially all of the
assets of the Company, and $8,328,000.00 (giving effect to the sale of the Notes
offered hereby) of unsecured pari passu indebtedness, was outstanding. See "Risk
Factors - Subordination" and "Description of the Notes."
The Notes offered hereby are being sold by the Company to
investors who meet the suitability standards set forth in this Memorandum. See
"Suitability Standards." There is no public market for the Notes and no public
market is expected to develop following the Offering. The Company does not
intend to apply for listing of the Notes on any securities exchange or for
inclusion of the Notes on any automated quotation system.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS WHO ARE FINANCIALLY ABLE TO HOLD
THE SECURITIES FOR AN INDEFINITE PERIOD OF TIME AND TO BEAR THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
THE NOTES AND THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS, NOR HAS THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE REGULATORY
AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ENDORSED
THE MERITS OF THE OFFERING MADE HEREBY. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. THE SECURITIES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION
4(2) OF THE SECURITIES ACT, REGULATION D THEREUNDER, CERTAIN STATE SECURITIES
LAWS AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE
SECURITIES MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
BLC FINANCIAL SERVICES, INC.
645 Madison Avenue
New York, New York 10022
(212) 751-5626
February 1, 1999
2
<PAGE>
THIS MEMORANDUM IS CONFIDENTIAL AND PROPRIETARY AND IS
SUBMITTED TO A LIMITED NUMBER OF "ACCREDITED INVESTORS" (AS DEFINED IN
REGULATIONS PROMULGATED UNDER THE SECURITIES ACT) SOLELY FOR USE IN CONNECTION
WITH THE CONSIDERATION OF THE PURCHASE OF THE SECURITIES OFFERED HEREBY IN A
PRIVATE OFFERING WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR WRITTEN
PERMISSION OF THE COMPANY, SUCH PERSONS WILL NOT RELEASE THIS DOCUMENT OR
DISCUSS THE INFORMATION CONTAINED HEREIN OR MAKE REPRODUCTIONS OF OR USE THIS
MEMORANDUM FOR ANY PURPOSE OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE
SECURITIES. EACH PURCHASER OF THE SECURITIES OFFERED HEREBY MUST ACQUIRE THE
SECURITIES FOR ITS OWN ACCOUNT.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THIS MEMORANDUM DOES NOT PURPORT TO BE ALL-INCLUSIVE
OR TO CONTAIN ALL OF THE INFORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE IN
EVALUATING THE COMPANY. ALL OF THE INFORMATION PROVIDED HEREIN CONCERNING THE
COMPANY HAS BEEN FURNISHED BY THE COMPANY. THIS INFORMATION SHOULD NOT BE RELIED
UPON AS ANY REPRESENTATION WITH RESPECT TO FUTURE RESULTS TO BE OBTAINED BY THE
COMPANY OR THE VALUE OF THE SECURITIES OF THE COMPANY. PROSPECTIVE INVESTORS ARE
NOT TO CONSTRUE THIS MEMORANDUM OR ITS CONTENTS AS LEGAL, BUSINESS OR TAX
ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ADVISORS REGARDING
LEGAL, BUSINESS AND TAX MATTERS RELATED TO THIS OFFERING.
THE OBLIGATIONS OF THE PARTIES WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN ARE SET FORTH IN AND WILL BE GOVERNED BY
CERTAIN DOCUMENTS DESCRIBED HEREIN. ALL OF THE STATEMENTS AND INFORMATION
CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS.
NEITHER THE DELIVERY OF THIS MEMORANDUM, NOR ANY SALE MADE PURSUANT HERETO,
SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT
TO THE DATE SET FORTH ON THE COVER.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OF SECURITIES TO
ANY PERSON UNLESS THE NAME OF SUCH PERSON AND AN IDENTIFICATION NUMBER APPEAR ON
THE FRONT COVER HEREOF. DELIVERY OF THIS MEMORANDUM TO ANYONE OTHER THAN THE
PERSON WHOSE NAME APPEARS ON THE FRONT COVER IS UNAUTHORIZED AND ANY
REPRODUCTION OR CIRCULATION OF THIS MEMORANDUM, IN WHOLE OR IN PART, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED.
NO OFFERING LITERATURE OR ADVERTISING IN ANY FORM WHATSOEVER
SHALL BE EMPLOYED IN THE OFFERING EXCEPT FOR THIS MEMORANDUM. NO DEALER,
SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY RELATING TO THIS OFFERING OTHER
THAN AS SET FORTH IN THIS MEMORANDUM.
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<PAGE>
THIS OFFERING IS MADE SUBJECT TO PRIOR SALES, AND TO
WITHDRAWAL, CANCELLATION OR MODIFICATION BY THE COMPANY WITHOUT NOTICE. THE
COMPANY MAY REJECT ANY SUBSCRIPTION, IN WHOLE OR IN PART.
NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY OFFERS OR
SALES MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE MATTERS DISCUSSED HEREIN SINCE THE DATE HEREOF.
THE METHOD OF DELIVERY OF THE DOCUMENTS TO BE DELIVERED TO THE
COMPANY, AND THE PAYMENT OF THE PURCHASE PRICE TO THE COMPANY WILL BE AT THE
ELECTION AND RISK OF THE OFFEREE. IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH
DOCUMENTS AND SUCH PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE COMPANY AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE DATE DESIGNATED FOR PAYMENT.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW
HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by the
Company with the Commission in accordance with the Exchange Act may be
inspected, without charge, at the Public Reference Section of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601-2511. Copies of all or any portion of the material may
be obtained from the Public Reference Section of the Commission upon payment of
the prescribed fees.
The Company will furnish the Holders with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year. The
Company will also furnish such Holders with such other reports as it may
determine or as may be required by law. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding reporting companies under the Exchange Act, including the Company, at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 and Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998, copies of which have been furnished herewith and have
been filed with the Commission (File No. 1-8185), are hereby incorporated by
reference in this Memorandum.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Memorandum and
prior to the termination of the Offer contemplated hereby shall be deemed to be
incorporated by reference in this Memorandum and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Memorandum to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Memorandum.
The Company will provide without charge to each person to whom
a copy of this Memorandum has been delivered, including any beneficial owner, on
the written or oral request of such person, a copy of any and all of the
documents referred to above which have been or may be incorporated in this
Memorandum by reference, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference therein. Requests for such
copies should be directed to the Corporate Secretary of BLC Financial Services,
Inc. at its principal executive offices, which are located at 645 Madison
Avenue, New York, New York 10022 (telephone number (212) 751-5626).
5
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY............................................................... 7
RISK FACTORS.......................................................... 13
USE OF PROCEEDS....................................................... 17
DIVIDEND POLICY....................................................... 17
CAPITALIZATION........................................................ 18
SELECTED FINANCIAL INFORMATION........................................ 20
THE COMPANY........................................................... 21
CERTAIN TRANSACTIONS.................................................. 21
DESCRIPTION OF THE NOTES.............................................. 21
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................. 29
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................ 34
TERMS OF THE OFFERING................................................. 37
INVESTOR SUITABILITY REQUIREMENTS..................................... 38
6
<PAGE>
SUMMARY
The following summary information is qualified in its entirety
by, and should be read in conjunction with, the more detailed information and
consolidated financial statements (including the notes thereto) appearing
elsewhere in this Memorandum or incorporated herein by reference.
This Private Placement Memorandum (this "Memorandum") and
documents incorporated herein by reference contain statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. When included in this Memorandum or in documents
incorporated herein by reference, the words "expects," "intends," "anticipates,"
"estimates" and analogous expressions are intended to identify such
forward-looking statements. Such statements, which include statements contained
in "Risk Factors," inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, competition, regulatory initiatives and compliance with
governmental regulations and various other matters, many of which are beyond the
Company's control. These forward-looking statements speak only as of the date of
the document containing such statements. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein or in any document incorporated
herein by reference to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which any
statement is based.
The Company
BLC Financial Services, Inc., a Delaware corporation (the
"Company"), is engaged, through its wholly owned subsidiary Business Loan
Center, Inc., a Delaware corporation ("Business Loan Center"), primarily in the
business of originating and servicing loans to small businesses under the
Guaranteed Loan Program (the "Guaranteed Loan Program" or the "SBA 7(a)
Program") sponsored by the United States Small Business Administration (the
"SBA").
The Company conducts its operations primarily through Business
Loan Center and the following wholly owned subsidiaries: BLC Financial Network,
a Virginia corporation; BLC Financial Network of Florida, Inc., a Florida
corporation; and BLC Financial Network of Mid-America, Inc., a Kansas
corporation.
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<PAGE>
The Offering
Securities Offered: The Company is offering up to $5,000,000
principal amount of 9% Convertible Subordinated Notes
Due February 1, 2003 (the "Notes") in the form attached
as Exhibit A (the "Offering"). Issuer: BLC Financial
Services, Inc.
Maturity Date: February 1, 2003 (the "Maturity Date").
Terms of the Offering:
The Company will sell the Notes on its own behalf to
Holders (the "Holders") who will have certain rights
and obligations pursuant to a Holder's Agreement
(defined below). All persons desiring to subscribe for
the Notes must (i) meet the standards set forth under
the caption "Suitability Standards" in this Memorandum,
(ii) complete and execute the Subscription Agreement
and the Holders' Agreement attached hereto as Exhibit B
and Exhibit C, respectively (iii) deliver such
documents to the Company and (iv) deliver to the
Company, a check payable to the order of the Company,
in an amount equal to the principal amount of the Notes
purchased by such person. The Company will not use the
proceeds of any sale of Notes until delivery of such
Notes by the Company. The Company will deliver Notes
within three days not including saturdays, sundays or
any day on which banks located in the state of New York
are authorized or obligated to close ("Business Days")
of the deliveries described above, provided that the
Company, in its sole discretion, has accepted the
subscription for such Notes, and the date of such
delivery will be the "Issue Date" with respect to such
Notes. The Offering will terminate on March 31, 1999,
unless extended by the Company. There is no minimum
subscription required in connection with the Offering,
and the Company will evaluate, and at its sole
election, accept, subscriptions for Notes as they are
received in accordance with this Memorandum. See "Terms
of the Offering.
Interest on the Notes: Interest on the Notes will accrue from
the date of issuance of such notes (the "Issue Date")
at a rate of 9% per annum and will be payable quarterly
beginning on April 15, 1999.
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<PAGE>
Optional Conversion: The Notes will be convertible at the option
of the Holder, unless previously converted, redeemed or
repurchased, in whole or in part, at any time and from
time to time, on 30 days' prior written notice by the
Holder to the Company, following the last issuance of
the Notes until the close of business on the Business
Day immediately preceding the Maturity Date, at a
conversion price per share (the Conversion Price")
equal to the greater of (i) $3.50 or (ii) 130% of the
average of the Market Price per share for the five
Business Days immediately preceding the date the
subscription for such Notes is accepted by the Company
(the "Conversion Ratio"). Accrued and unpaid interest
on the Notes converted to the date of conversion will
be paid at conversion. The Conversion Price with
respect to any Notes will be determined by the Company
as of the Business Day immediately preceding the date
the subscription for such Notes is accepted by the
Company. Notes with different Conversion Prices will be
issued in different series. See "Description of the
Notes - Optional Conversion."
The last reported sale price, on January 29, 1999, of
the Common Stock, which is traded on the American Stock
Exchange (the "American Stock Exchange") under the
symbol BCL, was $2.50 per share. The Conversion Ratio
will be subject to adjustment upon the occurrence of
certain events affecting the Common Stock.
Optional Redemption: The Notes will be redeemable at the option
of the Company, unless previously converted, redeemed
or repurchased, in whole or in part, at any time and
from time to time, or 60 days' prior writtennotice by
the Company to the Holders, if for five or more days in
any 20-Trading Day (as hereinafter defined) period
(whether or not consecutive) the Market Price (as
hereinafter defined) per share of Common Stock is
greater than the Conversion Price applicable to such
Notes, at a redemption price equal to 105% of the
principal amount of the Notes to be redeemed plus all
accrued and unpaid interest thereon to the date of
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<PAGE>
redemption, provided that such notice of redemption
shall be delivered no later than 10 days after the
expiration of such 20-day Trading Period. In addition,
the Notes will be redeemable at the option of the
Company, unless previously converted, redeemed or
repurchased, in whole or in part, at any time and from
time to time, on 60 days' prior written notice by the
Company to the Holders, from the proceeds of one or
more Public Equity Offerings (as hereinafter defined),
at a redemption price equal to 105% of the principal
amount of the Notes being redeemed plus all accrued and
unpaid interest thereon to the date of redemption.
Upon delivery of any notice of redemption by the
Company, a Holder may elect to convert the Notes to be
redeemed at the Conversion Ratio.
If less than all of the Notes are to be redeemed, the
Notes will be chosen for redemption by the Company on a
pro rata basis or by lot or by a method that complies
with applicable legal requirements. See "Description of
the Notes - Optional Redemption."
Ranking of the Notes: The Notes will be unsecured and are not
entitled to the benefit of any sinking fund. The Notes
will be subordinate to all Senior Indebtedness (as
hereinafter defined) of the Company and will rank pari
passu with all unsubordinated trade and other
indebtedness. On December 31, 1998, approximately
$22,229,526.06 of Senior Indebtedness, secured by
substantially all of the assets of the Company, and
$8,328,000.00 (giving effect to the sale of the Notes
hereby) of unsecured pari passu indebtedness was
outstanding. See "Description of the Notes - Ranking."
Restrictive Covenants: The Notes will contain covenants that limit,
subject to certain exceptions, the ability of the
Company to (i) conduct affiliate transactions or (ii)
cancel any claim or debt, except for adequate
consideration or in the ordinary course of its
business. See "Description of the Notes - Covenants."
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<PAGE>
Description of Common
Stock: The Company's total authorized capital
stock consists of 37,000,000 shares of Common Stock, of
which 19,918,449 shares were issued and outstanding at
September 30, 1998, and 2,000,000 shares of preferred
stock, $.10 par value, of which none have been issued.
Holders'Agreement: Each purchaser of Notes (each, an
"Investor") will be required to enter into a holders'
agreement (the "Holders' Agreement") among the Company
and such purchasers. The Holders' Agreement will (i)
give the Company a right of first refusal with respect
to any sales of the Notes by Investors and (ii) provide
certain "piggyback" registration rights to the Holders
of the shares of Common Stock issuable upon the
conversion of the Notes. See "Description of the
Company's Capital Stock - Holders' Agreement."
Restrictions on
Transferability: Neither the Notes nor the shares of
Common Stock issuable upon their conversion have been
or (except as otherwise provided in the Holders'
Agreement) will be registered under the Securities Act
of 1933, as amended (the "Securities Act") or the
securities laws of any state. Neither the Notes nor the
shares of Common Stock issuable upon their conversion
may be sold, offered for sale, transferred, pledged,
hypothecated or otherwise disposed of except in
compliance with the Securities Act and other applicable
securities laws. Accordingly, each Investor must be
prepared to bear the economic risk of his or her
investment for an indefinite period of time.
Investors may be permitted to transfer Notes and the
shares of Common Stock issuable upon conversion of the
Notes in compliance with the resale provisions of Rule
144 under the Securities Act. In general, under Rule
144 as currently in effect, a person (or persons whose
shares are aggregated), including an affiliate, who has
beneficially owned restricted shares for at least one
year is entitled to sell, within any three-month period
commencing 90 days after the date of this Memorandum, a
number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock
or (ii) the average weekly trading volume in the Stock
11
<PAGE>
during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to
such sale and certain other limitations and
restrictions. In addition, a person who is not deemed
to have been an affiliate of the Company at any time
during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for
at least two years, is entitled to sell such shares
under Rule 144(k) without regard to the requirements
described above. The amount of time which an Investor
has held a Note may be used to satisfy any "holding
period" requirements of Rule 144 upon a transfer of the
shares of Comon stock underlying such Note. See
"Description of the Notes -- Restrictions on
Transferability."
Use of Proceeds: The gross proceeds to be received by the
Company from the Offering are anticipated to aggregate
approximately $5,000,000, assuming the maximum
principal amount of Notes are sold by the Company. See
"Terms of the Offering." The Company intends to use
such proceeds (less the expenses of the Offering) to
repay certain unsecured indebtedness, for working
capital, capital expenditures and general corporate
purposes.
Risk Factors: Investment in the securities offered hereby
involves a high degree of risk and is suitable only for
persons who are financially able to hold the securities
for an indefinite period of time and to bear the loss
of their entire investment. For a discussion of certain
risk factors affecting the Company and any investment
therein, see "Risk Factors."
RISK FACTORS
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK,
INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED BELOW. AN
INVESTMENT IN THE SECURITIES IS NOT SUITABLE FOR PERSONS WHO CANNOT AFFORD A
TOTAL LOSS OF THEIR INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF
THE COMPANY AND THIS OFFERING, IN ADDITION TO THE OTHER INFORMATION IN THIS
MEMORANDUM, BEFORE MAKING AN INVESTMENT DECISION.
Future Capital Needs; Uncertainty of Additional Financing
The Company is dependent on, and intends to use a significant
12
<PAGE>
portion of, the proceeds of this Offering to continue to expand. The Company's
ability to execute its growth strategy to expand depends to a significant degree
on its ability to obtain additional long-term debt and equity capital. There can
be no assurance that additional financing will be available to the Company on
acceptable terms, or at all. The Company's ability to repay indebtedness,
including the Notes, at maturity may depend on refinancing, which could be
adversely affected if it does not have access to the capital markets for the
sale of additional long-term debt or equity securities through private
placements or public offerings on terms acceptable to it. Factors which could
affect the Company's access to the capital markets, or the cost of such capital,
include changes in interest rates, general economic conditions, and the
perception in the capital markets of its business, results of operations,
leverage, financial condition and business prospects. Moreover, any additional
equity financing may be dilutive to the Company's shareholders, and the terms of
any additional debt financing could require it to comply with certain financial
or other restrictive covenants that may limit its activities. See "Use of
Proceeds."
Holding Company Structure; Subordination
The Notes will be general unsecured obligations of the
Company. The Notes will not be guaranteed by the Company's subsidiaries and will
not be secured by any assets of such subsidiaries. Because the Company conducts
its operations through its operating subsidiaries, the Company's ability to
service its debt obligations, including its ability to pay the principal and
interest on the Notes, and its ability to pay dividends on the Common Stock
(including shares of Common Stock issuable upon conversion of Notes), is
strictly dependent upon the earnings and cash flows of its subsidiaries and the
ability of these subsidiaries to make funds available to the Company for such
purpose (whether in the form of intercompany loans, dividends or otherwise). See
"- Debt Restrictions."
As a consequence of the Company's holding company structure,
the Notes will effectively rank junior in right of payment to the prior payment
in full of all obligations and liabilities of the Company's subsidiaries.
Therefore, the claims of creditors of the Company's subsidiaries will, in
respect of the assets of such subsidiaries, have priority over claims of the
Company's creditors (including the Holders), even though the obligations to
creditors of the Company's subsidiaries do not constitute Senior Indebtedness.
The Notes will not restrict or limit the ability of the Company's subsidiaries
to incur, assume or guarantee any indebtedness. Moreover, the Notes will not
restrict or limit the ability of the Company or any of its subsidiaries from
creating liens and security interests or otherwise encumbering its properties
and assets, or from making payments and distributions on account of its equity
securities.
The Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and will rank pari passu
with all existing and future unsubordinated trade and other indebtedness of the
Company. On December 31, 1998, approximately $22,229,526.06 of Senior
Indebtedness, secured by substantially all of the assets of the Company, and
$8,328,000.00 (giving effect to the sale of the Notes offered hereby) of
unsecured pari passu indebtedness of the Company was outstanding. The Notes will
not prohibit the Company or any of its subsidiaries from incurring additional
indebtedness. Moreover, the Notes will provide that in the event of the
insolvency, bankruptcy, liquidation, reorganization or other winding up of the
Company, the Senior Indebtedness of the Company must be paid in full before
holders of the Notes may be paid. See "Description of the Notes Ranking."
13
<PAGE>
Debt Restrictions
The Company, as a holding company which conducts operations
through its operating subsidiaries, is strictly dependent on the earnings and
cash flow to these subsidiaries to service the Company's debt obligations
(including the Notes) and expenses and to pay dividends, if any, on its Common
Stock. The terms of the Company's revolving credit facilities with Transamerica
Business Credit Corporation prohibit the Company's subsidiaries from making
funds available to the Company for the payment of dividends on the shares of
Common Stock issuable upon conversion of the Notes and prohibits the Company
from paying dividends on such shares of Common Stock.
The Company and its subsidiaries are currently subject to
financial and operating covenants under the Company's revolving credit
facilities with Transamerica Business Credit Corporation.
Managing Growth
The Company is currently undergoing a period of growth and
expansion, which is expected to place a significant strain on its personnel and
resources. The Company's growth has resulted in an increase in the level of
responsibility for both existing and new management personnel. The Company has
sought to manage its current and anticipated growth through the recruitment of
additional management personnel and the implementation of internal systems and
controls. However, failure to manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence on Key Personnel; Need for Additional Personnel
The Company depends to a significant extent on the efforts and
abilities of its key executive officers, including the Company's Chief Executive
Officer, Robert F. Tannenhauser. The Company's growth and future success will
depend in large part on its ability to attract, motivate and retain highly
qualified personnel. There can be no assurance that the Company will be able to
retain its current management and other employees, or recruit new qualified
personnel, to support its existing and planned operations. The loss of key or
the inability to hire or retain additional qualified personnel, could have a
material adverse effect on its business, financial condition and results of
operations.
Competition
The commercial lending business is highly competitive and the
Company competes with many banks and other non-bank lending institutions, most
of which are substantially larger, and have greater financial resources and name
recognition. There are currently 14 licensed non-bank lenders, including The
Money Store Investment Corp., AT&T Small Business Lending Corporation and GE
Capital Small Business Lending Finance Company, which compete within the
Guaranteed Loan Program lending market. Additionally, certain banks and non-bank
lending institutions which participate in the Guaranteed Loan Program have been
designated as "Preferred" or "Certified Lenders" under the Guaranteed Loan
14
<PAGE>
Program which may give them a competitive advantage. There can be no assurance
that the Company will be able to compete successfully in the future or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.
Government Regulation
The level of SBA funding for the Guaranteed Loan Program is
subject to the federal budgeting process for each fiscal year ending September
30 (each a "Federal Fiscal Year"). Accordingly, the availability of funds for
SBA guarantees could increase or decrease each year. The federal budget for
Federal Fiscal Year 1998 appropriated funds to permit approximately $9.2 billion
under the Guaranteed Loan Program in which Business Loan Center participates as
compared to $9.5 billion, $7.7 billion and $7.8 billion of actual usage of funds
for the Federal Fiscal Years ended 1997, 1996 and 1995, respectively. There can
be no assurance that the federal budget will continue to appropriate such
amounts in future Fiscal Years or that such failure will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
The qualification of a Small Business Lending Company, such as
Business Loan Center, to participate in the Guaranteed Loan Program is subject
to termination by the SBA based on objective criteria, at its election, on ten
days' notice. Such termination by the SBA would have a material adverse impact
on the Company's business, financial condition and results of operations.
SBA approval of loans is dependent in part, upon the SBA's
determination that Business Loan Center's facilities and personnel can
adequately support the servicing of the loan. Accordingly, based upon the
experience of its personnel and the present staffing of Business Loan Center in
its regional offices, Business Loan Center reasonably believes that it can
satisfy this criteria in the areas in which it is currently operating. However,
the failure to satisfy the SBA criteria could have a material adverse impact on
the Company's business, financial condition and results of operations.
As a Small Business Lending Company, Business Loan Center's
operations are subject to extensive local, state and federal regulations
including, but not limited to, the following federal statutes and regulations
promulgated thereunder: the Small Business Act, the Small Business Investment
Act of 1958, as amended, Title 1 of the Consumer Credit Protection Act of 1968,
as amended (including certain provisions thereof commonly known as the
Truth-in-Lending Act), the Equal Credit Opportunity Act of 1974, as amended, the
Fair Credit Reporting Act of 1970, as amended, Title IV of the Higher Education
Act of 1965, as amended, the Fair Debt Collection Practices Act, as amended, and
the Real Estate Settlement Procedures Act. In addition, Business Loan Center is
subject to state laws and regulations with respect to the amount of interest and
other charges which lenders can collect on loans (e.g., usury laws). At present,
Business Loan Center believes it is in material compliance with all such rules
and regulations. However, a failure to comply with all such rules and
regulations could have a material adverse impact on the Company's business,
financial condition and results of operations.
Control by Shareholder, Affiliates and Existing Management
Robert F. Tannenhauser, the President and Chief Executive
15
<PAGE>
Officer of the Company, and certain other affiliates of the Company, may
participate in the Offering. Prior to completion of this Offering, Mr.
Tannenhauser owns 26.67% of the outstanding shares of Common Stock on a
fully-diluted basis, without giving effect to conversion of the Notes. In
addition, officers and directors of the Company own 33.26% of the shares of
Common Stock on a fully diluted basis, without giving effect to conversion of
the Notes.
Mr. Tannenhauser, together with such affiliates, officers and
directors, acting in concert, would be able to significantly influence the
disposition of any matter submitted to a vote of the Board of Directors. There
can be no assurance that the interests of Mr. Tannenhauser or such officers and
directors will be the same as the interests of the Investors as debtholders or
shareholders.
No Public Market for Notes; Illiquidity of Investment
There is no public market for the Notes and none is expected
to develop in the foreseeable future. In addition, the potential issuance of the
Notes in different series (reflecting different Conversion Prices) could further
limit the size of the market for Notes in a particular series. Neither the Notes
nor the shares of Common Stock issuable upon conversion of the Notes have been
or will be (except pursuant to the Holders Agreement) registered under the
Securities Act or applicable state securities laws. Consequently, the Notes and
the Common Stock may not be resold unless they are registered under the
Securities Act and applicable state securities laws, or unless exemptions from
such registration requirements are available. As a result, an investor may be
unable to liquidate an investment in the Notes and should be prepared to bear
the economic risk of holding the Notes and Common Stock for an indefinite period
of time. In addition, a purchaser of the Notes should be able to withstand a
total loss of such purchaser's investment.
Absence of Dividends
The Company has never declared or paid any cash dividends on
its shares of capital stock and does not anticipate paying any such dividends in
the foreseeable future. See "Dividend Policy" and "Description of the Company's
Securities."
USE OF PROCEEDS
The gross proceeds to the Company from the Offering are
estimated to aggregate approximately $5,000,000, assuming the maximum principal
amount of Notes are sold by the Company. The Company intends to use such
proceeds (less the expenses of the Offering) for working capital, capital
expenditures and general corporate purposes.
DIVIDEND POLICY
The payment of dividends on the Common Stock is within the
discretion of the Company's Board of Directors. The Board of Directors has not
previously declared or paid any cash dividends. The Board of Directors currently
intends to retain any future earnings to fund growth and, therefore, does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
16
<PAGE>
Any future decisions with respect to dividends will depend on future earnings,
operations, capital requirements and resources, restrictions in financing
arrangements, and other business and financial considerations.
17
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1998 (i) the
actual capitalization of the Company and (ii) the as adjusted capitalization
giving effect to the issuance of $5,000,000 principal amount of the Notes
offered hereby.
<TABLE>
<CAPTION>
At June 30, 1998
-----------------------------
Actual As Adjusted
---------- ---------------
<S> <C> <C>
All Debt excluding Subordinated Debt $ 35,684,000 $ 35,684,000
Subordinated debt 3,328,000 8,328,000
Shareholders' equity:
Common stock 197,000 197,000
Additional Paid in capital 10,840,000 10,840,000
Retained Earnings 2,762,000 2,762,000
Unrealized gain on residual interests 470,000 470,000
------------ -----------
(net of income taxes of $341,000
at June 30, 1998)
Total Shareholder's equity 14,269,000 14,269,000
------------ -------------
$ 53,281,000 $ 58,281,000
============ =============
</TABLE>
18
<PAGE>
BLC FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
The following sets forth as of June 30, 1998 (i) the actual
consolidated condensed balance sheet of the Company and (ii) as adjusted to give
effect to the issuance of $5,000,000 principal amount of Notes offered hereby.
<TABLE>
<CAPTION>
At June 30, 1998
-------------------------
Actual As Adjusted
--------------- -----------------
<S> <C> <C>
Loans receivable - net $22,040,000 $ 22,040,000
Loans held for sale 7,160,000 7,160,000
Cash 1,730,000 6,730,000
Restricted cash 1,768,000 1,768,000
Accounts receivable - loans sold 8,252,000 8,252,000
Accounts and other receivables 1,006,000 1,006,000
Prepaid expenses 302,000 302,000
Leasehold improvements, furniture and equipment,
net of accumulated depreciation of $342,000 in
1998; $211,000 in 1997 742,000 742,000
Servicing assets 3,270,000 3,270,000
Residual interests 5,057,000 5,057,000
Deferred income taxes 991,000 991,000
Security deposits 131,000 131,000
Deferred financing costs, net of accumulated amor-
tization of $415,000 in 1998; $47,000 in 1997 832,000 832,000
-------------- -------------
$ 53,281,000 $ 58,281,000
============== =============
LIABILITIES
Notes payable $ 32,541,000 $ 32,541,000
Accrued expenses 1,163,000 1,163,000
Due to participants 264,000 264,000
Allowance for estimated future losses on loans
sold 466,000 466,000
Due to affiliates
Debentures 3,328,000 8,828,000
Debt 46,000 46,000
Customer deposits 1,204,000 1,204,000
-------------- -------------
Total liabilities 39,012,000 44,012,000
============== =============
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY Preferred stock, $.10 par value:
Authorized - 2,000,000 shares, issued and
outstanding - none
Common stock, $.01 par value:
Authorized - 35,000,000 shares, issued and
outstanding - 19,778,449 in 1998 and
17,341,243 in 1997 197,000 197,000
Additional paid-in capital 10,840,000 10,840,000
Retained earnings 2,762,000 2,762,000
Unrealized gain on residual interests (net of
income taxes of $341,000 in 1998; $10,000 in 1997) 470,000 470,000
----------- -------------
Total shareholders' equity 14,269,000 14,269,000
----------- -------------
$53,281,000 $58,281,000
============ =============
</TABLE>
19
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 (the "Annual Report") which is incorporated herein by reference
and a copy of which is furnished herewith.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1998 1997 1996(1) 1995(2) 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total revenues $15,729,000 $7,168,000 $4,997,000 $2,536,000 $1,571,000
Income before
extraordinary item 3,226,000 1,702,000 533,000 142,000 150,000
Extraordinary item - 245,000 91,000 - 25,000
Net Income 3,226,000 1,947,000 644,000 142,000 175,000
Income per share
before extraordinary item .18 .10 .04 .01 .02
Income per share
from extraordinary item - .01 .01 - -
Net income per share .18 .11 .05 .01 .02
As of June 30:
Total assets $53,281,000 $20,086,000 $10,983,000 $10,535,000 $6,691,000
Total liabilities 39,012,000 12,896,000 5,657,000 7,274,000 4,277,000
Shareholders' equity 14,269,000 7,190,000 4,601,000 2,608,000 2,414,000
Shareholders' equity
per share .72 .41 .27 .23 .21
- ---------------
<FN>
1. Restated. See notes to "Consolidated Financial Statements" included in the
Annual Report
</FN>
</TABLE>
20
<PAGE>
THE COMPANY
BLC Financial Services, Inc., a Delaware corporation (the
"Company"), is engaged, through its wholly owned subsidiary Business Loan
Center, Inc., a Delaware corporation ("Business Loan Center"), primarily in the
business of originating and servicing loans to small businesses under the
Guaranteed Loan Program (the "Guaranteed Loan Program" or the "SBA 7(a)
Program") sponsored by the United States Small Business Administration (the
"SBA").
The Company conducts its operations primarily through Business
Loan Center and the following wholly owned subsidiaries: BLC Financial Network,
a Virginia corporation; BLC Financial Network of Florida, Inc., a Florida
corporation; and BLC Financial Network of Mid-America, Inc., a Kansas
corporation.
CERTAIN TRANSACTIONS
Holders' Agreement
Each Investor will be required to enter into the Holders'
Agreement. The Holders' Agreement will (i) give the Company a right of first
refusal with respect to any sales of the Notes and (ii) provide certain
"piggyback" registration rights with respect to shares of the Common Stock
issuable upon conversion of the Notes. See "Description of the Company's Capital
Stock - Holders' Agreement."
Participation in Offering
Mr. Tannenhauser, the President and Chief Executive Officer
of the Company, and certain affiliates of the Company, may participate in the
Offering. See "Risk Factors - Control by Shareholder, Affiliates and Existing
Management."
Payment of Unsecured Indebtedness
The Company may use some of the proceeds of the Offering to
repay certain unsecured indebtedness of the Company held by affiliates of the
Company.
DESCRIPTION OF THE NOTES
The following is a summary of certain terms of the Notes and
does not purport to be complete. Reference should be made to all provisions of
the Notes, including the definitions therein of certain terms.
Certain Definitions
"Market Disruption Event" means any event that results in a
material suspension or limitation of trading of the shares of Common Stock on
the AMEX, or if the shares of Common Stock are traded on The Nasdaq Small Market
Capitalization System, on such system.
21
<PAGE>
"Business Day" means any day, excluding Saturdays, Sundays and
any day on which banks located in the state of New York are authorized or
obligated to close.
"Indebtedness" means, with respect to any person, (i) any
obligation of, or any obligation guaranteed by, such person for the repayment of
borrowed money, whether or not evidenced by bonds, debentures, notes or other
written instruments, (ii) all obligations of the person with respect to interest
rate hedging arrangements to hedge interest rates relating to Indebtedness of
such person, (iii) any deferred payment obligation of, or any such obligation
guaranteed by, such person for the payment of the purchase price of property or
assets evidenced by a note or similar instrument and (iv) any obligation of, or
any such obligation guaranteed by, such person for the payment of rent or other
amounts under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of such
person under generally accepted accounting principles.
"Market Price" means, on any date of determination, the
closing bid price of a share of Common Stock on such day as reported on the
AMEX, or if the shares of Common Stock are listed on The Nasdaq Small Market
Capitalization System, the closing price per share of Common Stock on such day
as reported by such system.
"Maturity Date" means February 1, 2003.
"Public Equity Offering" means an underwritten primary public
offering of the Common Stock pursuant to an effective registration statement
under the Securities Act.
"Trading Day" means any day on which purchases and sales of
securities listed on the AMEX are reported thereon, or if the shares of Common
Stock are traded on The Nasdaq Small Market Capitalization System, are reported
on such system, and, in either case, on which no Market Disruption Event has
occurred.
"Senior Indebtedness" means (i) the principal of, premium, if
any, and interest on, rent under and any other Indebtedness of the Company to
any bank or institutional lender plus interest and expenses with respect to such
Senior Indebtedness and (ii) refinancings, deferrals, refundings, replacements,
extensions and renewals of or amendments, modifications or supplements to the
Senior Indebtedness or other obligations referred to in the foregoing clause.
General
The Notes will be unsecured obligations of the Company, will
mature on the Maturity Date and will be limited to an aggregate principal amount
of $5,000,000. The Notes will be issued in denominations of $1,000. Subject to
compliance with applicable securities laws and the Holders' Agreement, the Notes
are exchangeable and transfers thereof will require the prior written consent of
the Company.
The Notes will accrue interest at a rate of 9% per annum from
the date of issuance (the "Issue Date"), and unpaid interest will be payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
22
<PAGE>
year beginning on April 15, 1999. Interest will be paid to the person in whose
name the Note is registered at the close of business on the January 1, April 1,
July 1 or October 1, as the case may be, immediately preceding each relevant
interest payment date. Interest will be computed on the basis of a 360-day year
comprising twelve 30-day months.
At the Maturity Date, to the extent not previously converted,
repurchased or redeemed, all of the Notes will automatically be redeemed by the
Company at a redemption price equal to 100% of the principal amount of the Notes
plus all accrued and unpaid interest thereon to the date of redemption.
Principal of, premium, if any, and interest on the Notes will
be payable (i) at the office or agency of the Company maintained for such
purpose, (ii) at the option of either the Company or a Holder by check mailed to
Holders of the Notes at its respective address set forth in the register of
Holders (or at such other address designated by such Holder in writing) or (iii)
at such Holder's option, by wire transfer to an account designated by such
holder in writing. Until otherwise designated by the Company, the Company's
office or agency maintained for such purpose will be the principal executive
office of the Company, located at 645 Madison Avenue, New York, New York 10022.
Ranking
The Notes will be unsecured and will not be entitled to the
benefit of any sinking fund. The Notes will be subordinate to all Senior
Indebtedness of the Company and will rank pari passu with all unsubordinated
trade and other indebtedness. On December 31, 1998, approximately $22,229,526.06
of Senior Indebtedness, secured by substantially all of the assets of the
Company, and $8,328,000.00 of (giving effect to the sale of the Notes offered
hereby) pari passu indebtedness was outstanding. See "Risk Factors."
Optional Conversion
The Notes will be convertible at the option of the Holder,
unless previously converted, redeemed or repurchased, in whole or in part, at
any time and from time to time, on 30 days' prior written notice, into shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"), following the
last issuance of the Notes until the close of business on the Business Day
immediately preceding the Maturity Date, unless previously converted, redeemed
or repurchased, at a conversion price per share (the "Conversion Price") equal
to the greater of (i) $3.50 or (ii) 130% of the average of the Market Price per
share for the five Business Days immediately preceding the date the subscription
for such Notes is accepted by the Company (the "Conversion Ratio"). Accrued and
unpaid interest on the Notes converted to the date of conversion will be paid at
conversion. The Conversion Price with respect to any Notes will be determined by
the Company as of the Business Day immediately preceding the date the
subscription for such Notes is accepted by the Company. Notes with different
Conversion Prices will be issued in different series.
The foregoing Conversion Ratio is subject to adjustment as
described below under "- Adjustment to Conversion Ratio upon Certain Events."
Except as described below, no adjustment will be made on conversion of any Notes
for interest accrued thereon.
23
<PAGE>
In order to exercise the right of conversion attaching to the
Notes, the Holder must (i) deliver to the Company a written notification of the
Holder's intent to convert (the "Notice of Conversion") all or a specified
portion of the Notes held by such Holder, at least 30 days prior to the
conversion date specified in the Notice of Conversion (the "Conversion Date")
and (ii) deliver the Note at the specified office of the Company, accompanied by
a duly signed and completed Notice of Conversion on such Conversion Date. A
Holder delivering a Note for conversion will not be required to pay any taxes or
duties payable in respect of the issuance or delivery of Common Stock on
conversion, but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid.
Optional Redemption
The Notes will be redeemable at the option of the Company
unless previously converted, redeemed or repurchased, on written notice as
described below, in whole or in part, at any time and from time to time, if for
five or more days in any 20-Trading Day period (whether or not consecutive) the
Market Price per share of Common Stock is greater than the Conversion Price
applicable to such Notes, at a redemption price equal to 105% of the principal
amount of the Notes to be redeemed plus all accrued and unpaid interest thereon
to the date of redemption, provided that such notice of redemption shall be
delivered no later than 10 days after the expiration of such 20-day Trading
Period. In addition, the Notes will be redeemable at the option of the Company
unless previously converted, redeemed or repurchased, on written notice as
described below, in whole or in part, at any time and from time to time, from
the proceeds of one or more Public Equity Offerings, at a redemption price equal
to 105% of the principal amount of the Notes being redeemed plus all accrued and
unpaid interest thereon to the date of redemption. Upon delivery of any notice
of redemption by the Company, a Holder may elect, in the manner specified below,
to convert the Notes to be redeemed at the Conversion Ratio.
If less than all of the Notes are to be redeemed, the Notes
will be chosen for redemption by the Company on a pro rata basis or by lot or by
a method that complies with applicable legal requirements.
In order to exercise the right of redemption attaching to the
Notes, the Company must deliver to each Holder a written notification of the
Company's intent to redeem (the "Notice of Redemption") all or a specified
portion of the Notes held by such Holder, at least 60 days prior to the
redemption date (the "Redemption Date") specified in the Notice of Redemption.
Such Notice of Redemption shall specify (i) the Redemption Date on which the
Holder must deliver the Notes to be redeemed at the specified office of the
Company, (ii) the principal amount of Notes of such Holder to be redeemed and
(iii) the redemption price to be paid by the Company in respect of such Notes.
For a period of 30 days after delivery by the Company of a
Notice of Redemption, the Holder shall retain its right of conversion (at the
Conversion Ratio) attaching to the Notes specified in the Notice of Redemption
to be redeemed. In order to exercise such right of conversion, the Holder must
(i) deliver a Notice of Conversion with respect to all or a portion of the Notes
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to be redeemed at least 30 days prior to the Redemption Date specifying a
Conversion Date no later than the Redemption Date and (ii) deliver the Note at
the specified office of the Company, accompanied by a duly signed and completed
Notice of Conversion on such Conversion Date.
If less than all the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Company on a pro rata
basis or by lot or by such method as the Company shall deem fair and
appropriate, provided that no Notes of $1,000 or less will be redeemed in part.
Each Notice of Redemption will be mailed by first class mall at least 30 but not
more than 60 days before the specified Redemption Date to each Holder of Notes.
If any Note is to be redeemed in part only, the Notice of Redemption that
relates to such Note will state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after the Redemption Date, interest will cease to
accrue on Notes or portions thereof called for redemption.
Adjustment to Conversion Ratio upon Certain Events
The Conversion Ratio is subject to adjustment (under formula
set forth in the Notes) in the event the Company should at any time, or from
time to time after the date of issuance of the Notes, fix a record date for the
effectuation of a split or subdivision of the outstanding shares of the Common
Stock or the determination of holders of the Common Stock entitled to receive a
dividend or other distribution payable in additional shares of the Common Stock
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly additional shares of the Common Stock
(hereinafter referred to as the "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of the Common Stock
(or the Common Stock Equivalents issuable upon conversion or exercise thereof)
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Ratio shall be
appropriately decreased so that the number of shares of the Common Stock
issuable upon conversion of this Note shall be increased in proportion to such
increase of outstanding shares.
If the number of shares of the Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of the Common Stock, then, following the record date of such combination,
the Conversion Ratio shall be appropriately increased so that the number of
shares of the Common Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
In the case of (i) any reclassification or change of the
Common Stock or (ii) a consolidation, merger or combination involving the
Company or a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety, in each
case as a result of which holders of Common Stock shall be entitled to receive
stock, other securities, other property or assets (including cash) with respect
to or in exchange for such Common Stock, the holders of the Notes then
outstanding will be entitled thereafter to convert such Notes into the kind and
amount of shares of stock, other securities or other property or assets of such
reorganized, consolidated or merged Company which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
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combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance (assuming, in a case in which the Company's
stockholders may exercise rights of election, that a holder of Notes would not
have exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith and would have received
per share the kind and amount received per share by a plurality of non-electing
shares).
In the event of a taxable distribution to holders of Common
Stock (or other transaction) that results in any adjustment of the Conversion
Ratio, the holders of Notes may, in certain circumstances, be deemed to have
received a distribution subject to United States income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
No adjustment in the Conversion Ratio will be required unless
such adjustment would require a change of at least 1% of the Conversion Ratio
then in effect; provided that any adjustment that would otherwise be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the Conversion Ratio will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
Covenants
The Notes will provide, among other things, that the Company
will not, except with the prior written consent of holders of Notes holding a
majority of the aggregate principal amount thereof:
(1) Conduct any transaction with any affiliate, or with any
shareholder of the Company or any affiliate of such shareholder, other than on
an arms-length basis and except as otherwise specifically permitted pursuant to
the Note; or
(2) Cancel any claim or debt in excess of $500,000, except for
adequate consideration, as determined in the sole discretion of the Board of
Directors of the Company, or in the ordinary course of its business.
Merger and Sale of Assets, Etc.
The Company may not consolidate with or merge with or into any
other person or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets to any persons or group of
affiliated persons unless at the time and after giving effect thereto (i) either
(a) the Company shall be the continuing corporation, or (b) the person or entity
(if other than the Company) formed by such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or disposition shall have
been made (the "Surviving Entity") is a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall, in either case, expressly assume all
obligations of the Company under the Notes and the Notes shall remain in full
force and effect; (ii) immediately prior to such transaction and immediately
after giving effect to such transaction on a pro forma basis, no Default or
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Event of Default shall have occurred and be continuing; and (iii) giving effect
to such transaction on a pro forma basis, the consolidated net worth of the
Company (or the Surviving Entity) is at least equal to the consolidated net
worth of the Company immediately before such transaction.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company, the successor corporation formed
by such consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Notes with the same effect as if
such successor corporation had been named as the Company therein.
In the event of any transaction (other than a lease) described
in and complying with the conditions listed in the immediately preceding
paragraphs in which the Company is not the continuing corporation, the Company
would be discharged from all obligations and covenants under the Notes.
Events of Default and Remedies
An Event of Default is defined in the Notes as one of the
following events occurring: (1) the Company defaults in the payment of interest
on any Note when the same becomes due and payable and the default continues for
a period of 10 days; (2) the Company defaults in the payment of the principal or
premium, if any, of any Note when the same becomes due and payable at maturity,
upon redemption or otherwise; (3) the Company fails to comply with any of its
other agreements or covenants in, or provisions of, the Notes, and the default
continues for the period and after the notice specified below; or any
representation or warranty made in any document executed and delivered in
connection with the Notes was false in any material respect on the date as of
which made or deemed made and the default continues for the period and after the
notice specified below; (4) a default occurs under any mortgage, indenture,
instrument or agreement under which there may be issued or by which there may be
secured or evidenced any indebtedness of the Company, whether such indebtedness
now exists or shall be created hereafter, if the holder or holders of at least
$1,000,000 in principal amount of such indebtedness cause such $1,000,000 (or
more) in principal amount of indebtedness to become due and payable prior to its
stated maturity; (5) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction against the
Company and such judgment or judgments remain undischarged for a period (during
which execution shall not be effectively stayed) of 60 days, provided that the
aggregate of all such judgments that are not covered by insurance under which
the Company is a beneficiary exceeds $1,000,000; (6) the Company pursuant to or
within the meaning of any bankruptcy law: (a) commences a voluntary case; (b)
consents to the entry of an order for relief against it in an involuntary case;
(c) consents to the appointment of a custodian of it or for all or substantially
all of its property; (d) makes a general assignment for the benefit of its
creditors; or (e) admits in writing its inability generally to pay its debts as
the same become due; (7) a court of competent jurisdiction enters an order or
decree under any bankruptcy law that: (a) is for relief against the Company in
an involuntary case; (b) appoints a custodian of the Company or for all or
substantially all of the property of the Company; or (c) orders the liquidation
of any of the Company and the order or decree remains unstayed and in effect for
60 days; or (8) a court of competent jurisdiction enters a final judgment
holding any of the documents delivered in connection with the Notes to be
invalid or unenforceable and such judgment remains unstayed and is in effect for
a period of 60 consecutive days; or if the Company shall assert, in any pleading
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filed in such a court, that any of the documents delivered in connection with
the Notes are invalid or unenforceable.
If an Event of Default (other than an Event of Default
specified in clause (6) or (7) above with respect to the Company) occurs and is
continuing, then and in every such case, the respective holders of at least a
majority in principal amount of the then outstanding Notes, by notice to the
Company, may declare the unpaid principal of, premium, if any, and any accrued
interest on all the Notes to be due and payable. Upon such declaration, the
principal, premium, if any, and interest shall be due and payable immediately.
If an Event of Default specified in clause (6) or (7) above occurs with respect
to the Company, such an amount shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of any Holder.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding may, on behalf of the Holders of all the Notes, waive any
past Default or Event of Default and its consequences, except Default in the
payment of principal, of premium, if any, or interest on the Notes (other than
the nonpayment of principal, of premium, if any, and interest on the Notes that
has become due solely by virtue of an acceleration that has been duly rescinded
as provided above) or in respect of a covenant or provision of the Notes that
cannot be modified or amended without the consent of all Holders.
Amendment, Supplement and Waiver
No provision of the Notes may be amended or waived unless the
Company shall have obtained the written agreement of Holders of a majority of
the aggregate principal amount of the Notes then outstanding.
Restrictions on Transferability
Neither the Notes nor the shares of Common Stock issuable upon
their conversion have been, or (except as otherwise provided in the Holders'
Agreement) will be registered under the Securities Act or the securities laws of
any state. Neither the Notes nor the shares of Common Stock issuable upon their
conversion may be sold, offered for sale, transferred, pledged, hypothecated or
otherwise disposed of except in compliance with the Securities Act and other
applicable securities laws. Accordingly, each Investor must be prepared to bear
the economic risk of his or her investment for an indefinite period of time.
Investors may be permitted to transfer Notes and the shares of
Common Stock issuable upon conversion of the Notes in compliance with the resale
provisions of Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned restricted shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Memorandum, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume in the Stock during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to such
sale and certain other limitations and restrictions. In addition, a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares under Rule 144(k)
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<PAGE>
without regard to the requirements described above. The amount of time which
such Investor has held a Note may be used to satisfy any "holding period"
requirements of Rule 144 upon a transfer of the shares of Common Stock
underlying such Note.
Governing Law
The Notes will be governed by, and construed in accordance
with the laws of the State of New York without giving effect to applicable
principles of conflicts of law.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the
terms of the Notes and the Holders' Agreement. The Company may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents,
including appropriate evidence that such transfer is permitted under applicable
securities laws, and the Company may require a Holder to pay any taxes and fees
required by law. The Company is not required to transfer or exchange any Note
selected for redemption or repurchase or for which a Notice of Conversion has
been tendered.
The registered Holder of a Note will be treated as the owner
of it for all purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the principal United
States federal income tax consequences of the purchase, ownership and
disposition of the Notes to a holder that is (i) a citizen or resident of the
United States, (ii) a corporation created or organized under the laws of the
United States or any state thereof or the District of Columbia, (iii) an estate,
the income of which is subject to United States federal income taxation
regardless of source, or (iv) a trust with respect to which a court within the
United States is able to exercise primary supervision over its administration
and one or more United States fiduciaries have the authority to control all of
its substantial decisions (a "U.S. Holder"). This summary does not address the
United States federal income tax consequences to persons other than U.S. Holders
who purchase Notes upon their initial issuance.
This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated or proposed thereunder
and administrative rulings and judicial decisions, in each case now in effect,
all of which are subject to change, possibly on a retroactive basis. This
summary does not address the tax consequences applicable to investors that may
be subject to special tax rules such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors or persons that will hold the
Notes as a position in a "straddle," as part of a "synthetic security" or
"hedge," "conversion transaction" or other integrated investment or as other
than a capital asset as defined in section 1221 of the Code. This summary also
does not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Notes. Further, it does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Notes.
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PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN
TAX ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Stated Interest
The stated interest on a Note will be taxable to a U.S. Holder
as ordinary interest income either at the time it accrues or is received
depending upon such U.S. Holder's method of accounting for federal income tax
purposes.
Tax Basis
A U.S. Holder's initial tax basis in a Note will be equal to
the purchase price paid by such U.S. Holder for such Note.
Sale or Redemption
Unless a nonrecognition provision applies, the sale, exchange,
redemption (including pursuant to an offer by the Company) or other disposition
of a Note will be a taxable event to a U.S. Holder of a Note for federal income
tax purposes. In such event, a U.S. Holder will recognize gain or loss equal to
the difference between (i) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition (other than in respect of accrued and unpaid interest thereon) and
(ii) the U.S. holder's adjusted tax basis therein (other than any tax basis
attributable to accrued and unpaid interest). Subject to the discussion below
under the caption "Market Discount," such gain or loss should be capital gain or
loss and will be short-term or long-term capital gain or loss depending on
whether the Note had been held by the U.S. Holder for more than one year at the
time of such sale, exchange, redemption or other disposition.
Conversion of Note into Common Stock
No gain or loss will be recognized for federal income tax
purposes on conversion of Notes solely into shares of Common Stock, except with
respect to any cash received in lieu of a fractional share or, in the case of
both cash and accrual basis taxpayers, any accrued interest not previously
included in income. To the extent the conversion is not treated as resulting in
the payment of interest, the tax basis for the shares of Common Stock received
upon conversion will be equal to the tax basis of the Notes converted into
Common Stock, and the holding period of such shares of Common Stock will include
the holding period of the Notes so converted. Any accrued market discount not
previously included in income as of the date of the conversion of the Notes and
not recognized upon the conversion (e.g., as a result of the receipt of cash in
lieu of a fractional interest in a Note) should carry over to the Common Stock
received on conversion and be treated as ordinary income upon the subsequent
disposition of such Common Stock.
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Adjustment of Conversion Price
Section 305 of the Code treats as a distribution taxable as a
dividend (to the extent of the issuing corporation's current or accumulated
earnings and profits) certain actual or constructive distributions of stock with
respect to stock or convertible securities. Under Treasury regulations, an
adjustment in the conversion price, or the failure to make such an adjustment,
may, under certain circumstances be treated as a constructive dividend to the
holder of a Note. Generally, a U.S. Holder's tax basis in a Note will be
increased by the amount of any such constructive dividend.
Market Discount
Gain recognized on the disposition (including a redemption) by
a subsequent purchaser of a Note that has accrued market discount will be
treated as ordinary income, and not capital gain, to the extent of the accrued
market discount, provided that the amount of market discount exceeds a
statutorily defined de minimis amount. "Market discount" is defined as the
excess, if any, of (i) the stated redemption price at maturity over (ii) the tax
basis of the debt obligation in the hands of the holder immediately after its
acquisition.
Under the de minimis exception, there is no market discount if
the excess of the stated redemption price at maturity of the obligation over the
holder's tax basis in the obligation is less than 0.25% of the stated redemption
price at maturity multiplied by the number of complete years after the
acquisition date to the Note's date of maturity. Unless a holder elects
otherwise, the accrued market discount would be the amount calculated by
multiplying the market discount by a fraction, the numerator of which is the
number of days the obligation has been held by a holder and the denominator of
which is the number of days after the holder's acquisition of the obligation up
to and including its maturity date.
If a U.S. Holder of a Note acquired at market discount
disposes of such Note in any transaction other than a sale, exchange or
involuntary conversion, even though otherwise non-taxable (e.g., a gift), such
U.S. Holder will be deemed to have realized an amount equal to the fair market
value of the Note and would be required to recognize as ordinary income any
accrued market discount to the extent of the deemed gain. A U.S. Holder of a
Note acquired at a market discount also may be required to defer the deduction
of all or a portion of the interest on any indebtedness incurred or maintained
to carry the Note until it is disposed of in a taxable transaction.
A U.S. Holder of a Note acquired at market discount may elect
to include the market discount in income as it accrues. This election would
apply to all market discount obligations acquired by the electing U.S. Holder on
or after the first day of the first taxable year to which the election applies.
The election may be revoked only with the consent of the U.S. Internal Revenue
Service (the "Service"). If a U.S. Holder of a Note so elects to include market
discount in income currently, the above-discussed rules with respect to ordinary
income recognition resulting from sales and certain other disposition
transactions and to deferral of interest deductions would not apply.
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Bond Premium
If a U.S. Holder purchases a Note at a cost that is in excess
of the amount payable on maturity (which will be determined by reference to an
earlier call date if the call price would reduce the amount of the premium)
(such excess being the "bond premium"), a U.S. Holder may elect under Section
171 of the Code to amortize such bond premium on a constant yield basis over the
period from the acquisition date to the maturity date of such Note (or, in
certain circumstances, until an earlier call date) and offset the qualified
stated interest allocable to an accrual period and included in income in respect
of the Note by the amount of amortizable bond premium allocable to such accrual
period. A U.S. Holder who elects to amortize bond premium must reduce its
adjusted basis in the Note by the amount of such allowable amortization. An
election to amortize bond premium would apply to all amortizable bond premium on
all taxable bonds held at or acquired after the beginning of the U.S. Holder's
taxable year as to which the election is made, and may be revoked only with the
consent of the Service. No amortization is allowed for any premium attributable
to the conversion feature of a Note.
If an election to amortize bond premium is not made, a U.S.
Holder must include the full amount of each interest payment in income in
accordance with its regular method of accounting and will generally receive a
tax benefit from the bond premium only upon computing its gain or loss upon the
sale or other disposition or payment of the principal amount of the Note.
Back-Up Withholding
A U.S. Holder of Notes or Common Stock may be subject to
"back-up withholding" at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments and, under certain
circumstances, principal payments on the Notes or proceeds from the disposition
of Common Stock. These back-up withholding rules apply if the U.S. Holder, among
other things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to back-up withholding. A U.S. Holder who does not provide the
Company with its correct TIN also may be subject to penalties imposed by the
Service. Any amount withheld from a payment to a U.S. Holder under the back-up
withholding rules is creditable against the U.S. Holder's federal income tax
liability, provided the required information is furnished to the Service.
Back-up withholding will not apply, however, with respect to payments made to
certain holders, including corporations and tax-exempt organizations, provided
their exemption from back-up withholding is properly established.
The Company will report to the U.S. Holders of Notes and
Common Stock and to the Service the amount of any "reportable payments" for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE
COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
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STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAWS.
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
General
The Company's total authorized capital stock consists of
37,000,000 shares of Common Stock, $.01 par value, of which 19,918,449 shares
were issued and outstanding at September 30, 1998, and 2,000,000 shares of
preferred stock, par value $10 per share, of which none have been issued. The
Company has authorized the issuance of 1,400,000 shares of Common Stock upon the
conversion of the Notes.
Common Stock
Subject to the prior rights of the holders of preferred stock,
holders of Common Stock are entitled to share ratably in dividends, if, as and
when declared by the Company's Board of Directors out of funds legally available
therefor. In the event of liquidation or distribution of the assets of the
Company, holders of Common Stock are entitled to share ratably in such assets
remaining after payment of liabilities and payment of preferences to the
holders, if any, of preferred stock. See "Dividend Policy." Holders of Common
Stock are entitled to cast one vote for each share of Common Stock held of
record on all matters presented to stockholders. Holders of shares of Common
Stock are entitled to cumulative voting. Common stockholders have no conversion,
preemptive or other subscription rights, and there are no redemptive or sinking
fund provisions with respect to such stock. The outstanding shares of Common
Stock of the Company are, and upon issuance the share offered through this
prospectus will be, validly issued, fully paid and nonassessable.
Preferred Stock
The Amended and Restated Certificate of Incorporation
expressly authorizes the Board of Directors of the Company (the "Board") to
issue up to two million (2,000,000) shares of Preferred Stock from time to time
in one or more series and for such consideration as the Board may determine and,
subject to certain restrictions, with such designations, preferences and rights,
and such qualifications, limitations or restrictions, as the Board may determine
with respect thereto by duly adopted resolution or resolutions. The issuance of
Preferred Stock may delay, defer or prevent a change in control of the Company
without further action by the stockholders and may adversely affect the voting
and other rights of holders of Common Stock. To date, no shares of Preferred
Stock have been issued.
Holders' Agreement
Each Investor will be required to enter into the Holders'
Agreement. As described below, the Holders' Agreement will (i) give the Company
a right of first refusal with respect to any sales of the Notes and (ii) provide
certain "piggyback" registration rights with respect to the shares of Common
Stock issuable upon conversion of the Notes.
Right of First Refusal
No Investor may transfer any Note (other than to a Permitted
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Transferee) except as described below. "Permitted Transferee" means, with
respect to a person, (a) the spouse or child of such person, (b) such person's
heirs, executors or legal representatives, (c) trustees of an inter vivos trust
or testamentary trust for the benefit of such person or persons identified in
clause (a) of this definition, or (d) another person controlled by such person
or by any person identified in clauses (a) through (c) of this definition.
If any Investor (the "Offering Holder") desires to transfer
all or any part of its Notes to a third party, such Investor shall give a sale
notice ("Sale Notice") to the Company at least 20 days prior to such proposed
transfer. Such Sale Notice shall include (i) the name of the proposed
transferee, (ii) the aggregate principal amount of Notes desired to be
transferred (the "Offered Notes"), (iii) the sale price for such Notes and all
other material terms and conditions of the offer and (iv) the Investor's
irrevocable offer to sell such shares to the Company. The Company shall have the
right to purchase all or a portion of the Offered Notes on the terms set forth
in the Sale Notice. The Company shall give written notice to the Offering Holder
of whether it desires to purchase the Offered Notes on the terms set forth in
the Sale Notice within 20 days after delivery of the Sale Notice to the Company.
If Offered Notes are elected to be purchased in accordance
with the above provisions of this Section 4, the Company shall pay the purchase
price, against delivery of the certificate or certificates representing the
Offered Notes being purchased, properly endorsed for transfer, in the manner and
within 20 days after the date of the Sale Notice.
If the Company declines to purchase the Offered Notes, then
and only then may the Offering Holder transfer the Offered Notes to a third
party (which shall be the proposed transferee named in the Sale Notice), subject
to compliance with all applicable state and federal securities laws, at any time
within 60 days from the date the Sale Notice was given, but only to such third
party at a price and on other terms no more favorable to such third party than
the price and the other terms specified in the Sale Notice.
Registration Rights
If at any time the Company proposes to file a registration
statement under the Securities Act ("Registration Statement") with respect to
the Common Stock (other than Registration Statements filed in connection with
mergers, acquisitions, stock option or other employee benefit plans, exchange
offers or offerings of securities solely to the Company's existing
shareholders), the Company shall give written notice at each such time to each
Investor of its intention at least 20 Business Days before the anticipated
filing date specifying the date of the anticipated filing. Upon the written
request of any such Investor together with a notice of conversion, with respect
to Notes held by such Investor, as applicable, given not less than 10 days
before the anticipated filing date (stating the amount of shares of Common Stock
(including shares to be issued upon conversion of Notes) to be disposed of by
such Investor), the Company shall include the shares of Common Stock intended to
be disposed of in a Registration Statement under the Securities Act so as to
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permit the disposition by such Investors of the shares of Common Stock so
registered; provided that the managing underwriter or underwriters (if any) in
connection with the offering contemplated by such Registration Statement shall
have advised the Company that the inclusion of the shares of Common Stock
proposed to be disposed of by such Investors pursuant to such Registration
Statement will not adversely affect the offering price per share or otherwise
adversely affect the success of such offering.
Notwithstanding anything to the contrary, if the Registration
Statement for which the Company gives notice is for an underwritten offering and
the managing underwriters determine in good faith that the total amount of
shares of Common Stock proposed to be included in such offering is such as to
adversely affect the offering price per share or otherwise adversely affect the
success of such offering, then (without reducing the amount of shares of Common
Stock to be included in such Registration Statement for the account of the
Company or any holder of Common Stock exercising "demand" registration rights)
the amount of shares of Common Stock to be included in such Registration
Statement for the account of the Investors shall be (i) reduced (pro rata among
the Investors (to the extent they each shall have requested, in accordance with
the foregoing, inclusion in such offering) on the basis of the relative number
of shares of Common Stock so requested by them to be included) to the extent
necessary to reduce the total amount of Common Stock of the Company to be
included in such offering to the amount recommended by such managing underwriter
or (ii) excluded in their entirety if so recommended by such managing
underwriter.
All customary, reasonable and necessary expenses in connection
with the preparation of any registration statement and related prospectus with
respect to which the Investors have been granted registration rights pursuant to
the Holders Agreement, including, without limitation, (i) any accounting fees
incurred by the Company (including, without limitation, the expenses of any
audit and/or "comfort" letter) and filing fees (including, without limitation,
expenses associated with filings required to be made with the Securities and
Exchange Commission), (ii) "blue sky" fees and expenses, (iii) printing,
engraving and duplicating expenses of the Company, (iv) transfer agent and
listing fees and (v) the reasonable fees and expenses of not more than one firm
of counsel representing all Investors shall be borne by the Company.
Notwithstanding the foregoing, in no event shall the Company bear any
underwriting discounts, commissions or fees attributable to the sale of shares
of Common Stock held by the Investors.
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TERMS OF THE OFFERING
General
The Company is hereby offering for sale up to $5,000,000
principal amount of the Company 9% Convertible Subordinated Notes due 2003. The
Company will sell the Notes on its own behalf. The Offering will terminate on
March 31, 1999, unless extended by the Company. The Company reserves the right
to reject any subscription for any reason or for no reason. Subscriptions will
be accepted by the Company only from investors determined by the Company, in its
sole discretion, to be suitable investors (see "Investor Suitability
Requirements").
There is no minimum subscription required in connection with
the Offering.
Subscription Procedures and Payments
Persons who desire to subscribe for Notes should send to the
Company at 645 Madison Avenue, New York, New York 10022, Attention: Robert F.
Tannenhauser, the following documents:
(a) two executed copies of the Subscription Agreement;
(b) one executed copy of the Holders' Agreement; and
(c) a check in the principal amount of Notes
subscribed for, payable to the order of the Company.
The Company will deliver the Notes within three business days of the deliveries
described above, provided that the Company, in its sole discretion, has accepted
the subscription for the Notes, and the date of such delivery will be the "Issue
Date" with respect to such Notes.
Depositing of Funds
All payments made relating to subscriptions shall be deposited
as soon as practicable and held by the Company until the earlier to occur of (i)
the acceptance of such subscriptions by the Company or (ii) the termination of
the Offering.
Funds deposited may be withdrawn until the acceptance of such
subscriptions by the Company. Following a termination of the Offering, or the
rejection of a subscription by the Company in its sole discretion, all such
funds will be returned to the investors without interest. The Company will
evaluate, and at its sole election, accept, subscriptions for Notes as they are
received in accordance with this Memorandum. Upon the acceptance of a
subscription by the Company, all of the funds pertaining to that subscription
will be paid to the Company.
Restrictions on Transfer
There is no public market for the Notes and none is expected
to develop in the foreseeable future. Neither the Notes nor the Common Stock
37
<PAGE>
(except pursuant to the Holder's Agreement) will be registered under the
Securities Act or applicable state securities laws. Consequently, the Notes and
the Common Stock may not be resold unless they are registered under the
Securities Act and applicable state securities laws, or unless exemptions from
such registration requirements are available. In addition, Investors should note
that all transfers will be subject to the approval of the Board of Directors of
the Company pursuant to the Stockholders' Agreement, which approval may be
withheld in the sole discretion of the Board of Directors. See "Risk Factors -
No Public Market the Notes; Illiquidity of Investment."
INVESTOR SUITABILITY REQUIREMENTS
General
Investment in the Notes involves significant risk and is
suitable only for persons of adequate financial means who have no need for
liquidity with respect to this investment and who can bear the economic risk of
a complete loss of their investment. The Offering made hereby relies on
exemptions from the registration requirements of the Securities Act and
applicable state securities laws and regulations.
The suitability standards discussed below represent minimum
suitability standards for prospective investors. The satisfaction of such
standards by a prospective investor does not necessarily mean that the Notes are
a suitable investment for such prospective investor. Prospective investors are
encouraged to consult their personal financial advisors to determine whether an
investment in the Notes is appropriate. The Company may reject subscriptions, in
whole or in part, in its sole discretion.
The Company will require each investor to represent in writing
that, among other things, by reason of the investor's business or financial
experience or that of the investor's professional advisor, the investor is
capable of evaluating the merits and risks of an investment in the Notes and of
protecting its own interests in connection with the transaction; the investor is
acquiring the Notes for its own account, for investment only and not with a view
toward the resale or distribution thereof, the investor is aware that the Notes
have not been registered under the Securities Act or any state securities laws
and that transfer thereof is restricted by the Securities Act, applicable state
securities laws and the stock purchase agreement to be entered into in
connection with the purchase of the Notes; the investor is aware of the stock
purchase agreement; the investor is aware of the absence of a market for the
Notes; and such investor meets the suitability requirements set forth below.
Suitability
Subscriptions will be accepted only from investors that
qualify as "accredited investors", as defined in Rule 501(a) of Regulation D
under the Securities Act. Each accredited investor must demonstrate the basis
for such qualification. To be an accredited investor, an investor must fall
within any of the following categories at the time of the sale of Notes to that
investor:
(1) a bank as defined in Section 3(a)(2) of the
38
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Securities Act, or a savings and loan association or
other institution as defined in Section 3(a)(5)(A) of
the Securities Act, whether acting in its individual
or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act
of 1934; an insurance company as defined in Section
2(13) of the Securities Act; an investment company
registered under the Investment Company Act of 1940
or a business development company as defined in
Section 2(a)(48) of that Act; a Small Business
Investment Company licensed by the United States
Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1953; a
plan established and maintained by a state, its
political subdivisions, or any agency or
instrumentality of a state or its political
subdivisions, for the benefit of its employees, if
such plan has total assets in excess of $5 million;
an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if
the investment decision is made by a plan fiduciary,
as defined in Section 3(21) of that Act, which is
either a bank, savings and loan association,
insurance company, or registered investment adviser,
or if the employee benefit plan has total assets in
excess of $5 million or, if a self-directed plan,
with the investment decisions made solely by persons
that are accredited investors;
(2) a private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act
of 1940;
(3) an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, or a
corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose
of acquiring shares of Common Stock, with total
assets in excess of $5,000,000;
(4) a director or executive officer of the Company;
(5) a natural person whose net worth, individually or
together with that person's spouse, currently exceeds
$1,000,000;
(6) a natural person who had an individual income (not
including such person's spouse's income) in excess of
$200,000 in 1997 and 1998, or joint income with such
person's spouse in excess of $300,000 in each of
those years, and who reasonably expects to reach the
same income level in 1999;
(7) a trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring shares
of Common Stock, whose purchase is directed by a
person having such knowledge and experience in
financial and business matters that he or she is
capable of evaluating the merits and risks entailed
in the purchase of shares of Common Stock; or
(8) an entity in which all of the equity owners are
Accredited Investors.
39
<PAGE>
Each investor may be required to make certain representations
in a Subscription Agreement (Exhibit B hereto) in order to assist the Company in
determining whether or not the investor is an Accredited Investor. In addition,
the Company may require investors to supply additional information with respect
to the suitability of the investment for such investor. No Subscription
Agreement will be accepted by the Company unless the Company believes that the
investor is an Accredited Investor. The Company reserves the right to reject any
subscription in whole or in part, in each case in the sole discretion of the
Company.
Addendum to Confidential Private Placement Memorandum
BLC FINANCIAL SERVICES, INC.
9% Convertible Subordinated Notes Due 2003
This Addendum, dated August 19, 1999 to the Confidential
Private Placement Memorandum (this "Addendum") is supplementary to, and should
be read in conjunction with, the Confidential Private Placement Memorandum,
dated February 1, 1999 (the "Offering Memorandum"), issued in relation to the
issuance of 9% Convertible Subordinated Notes Due 2003 (the "Notes") by BLC
Financial Services, Inc. (the "Company"), upon the terms and conditions set
forth in the Offering Memorandum, as the same may be amended from time to time.
Capitalized terms used herein shall have the meanings ascribed to them in the
Offering Memorandum unless otherwise defined in this Addendum.
This Addendum modifies, amends, revises and supplements,
effective as of August 19, 1999, the following terms and provisions of the
Offering Memorandum:
Conversion Price
The Conversion Price, as defined and used in the Offering
Memorandum, including, without limitation, on the cover page of the Offering
Memorandum and in the sections entitled "Summary - The Offering - Optional
Redemption" and "Description of the Notes - Optional Conversion", with respect
to any Notes of a Holder shall be deemed to be equal to the greater of (i) $
2.75 and (ii) 130% of the average of the Market Price per share for the five
Business Days immediately preceding the date of the subscription executed by
such Holder for such Notes as accepted by the Company.
Termination Date of Offering
The Offering will terminate on December 31, 1999, unless
extended by the Company.
Use of Proceeds
In addition to the use of proceeds described in the sections
entitled "Summary - Use of Proceeds" and "Use of Proceeds", the Company may pay
to Sidney Yoskowitz, an amount up to 1% of the gross proceeds to the Company of
the Offering, as compensation for services in connection with the Offering.
1
<PAGE>
Certain Transactions
The following disclosure is included under the section
entitled "Certain Transactions":
"Grant of Certain Warrants
The Company has granted to Sidney Yoskowitz, as compensation
for services in connection with the Offering, warrants to purchase 50,000 shares
of Common Stock of the Company at an exercise price of $2.75 per share."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 and Quarterly Reports on Form 10-Q for the fiscal quarter
ended September 30, 1998, December 31, 1998 and March 31, 1999, copies of which
have been furnished herewith and have been filed with the Commission (File No-
18185), are hereby incorporated by reference in the Offering Memorandum.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of the Offering Memorandum
and prior to the termination of the Offer contemplated hereby shall be deemed to
be incorporated by reference in the Offering Memorandum and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of the Offering
Memorandum to the extent that a statement contained herein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Offering Memorandum.
The Company will provide without charge to each person to whom
a copy of the Offering Memorandum has been delivered, including any beneficial
owner, on the written or oral request of such person, a copy of any and all of
the documents referred to above which have been or may be incorporated in the
Offering Memorandum by reference, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Requests for
such copies should be directed to the Corporate Secretary of BLC Financial
Services, Inc. at its principal executive offices, which are located at 645
Madison Avenue, New York, New York 10022 (telephone number (212) 751-5626).
2
<PAGE>
THE NOTES AND THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS, NOR HAS THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE REGULATORY
AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ENDORSED
THE MERITS OF THE OFFERING MADE HEREBY. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. THE SECURITIES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION
4(2) OF THE SECURITIES ACT, REGULATION D THEREUNDER, CERTAIN STATE SECURITIES
LAWS AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE
SECURITIES MAY NOT BE TRANSFERRED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
This Addendum does not constitute, and may not be used for the
purposes of, an offer or solicitation by anyone in any jurisdiction in which
such offer or solicitation is not authorized or to any person to whom it is
unlawful to make such offer or solicitation, and no action is being taken to
permit an offering of the Notes of the distributions of this Addendum in any
jurisdiction where such action is required.
---------------------------------------------
BLC FINANCIAL SERVICES, INC.
645 Madison Avenue
New York, New York 10022
(212) 751-5626
The date of this Addendum is August 19, 1999
3
<PAGE>
THIS PLACEMENT MEMORANDUM IS NOT TO BE SHOWN OR GIVEN TO ANY PERSON OTHER THAN
THE PERSON WHOSE NAME APPEARS BELOW AND IT IS NOT TO BE COPIED OR OTHERWISE
REPRODUCED IN ANY MANNER WHATSOEVER. FAILURE TO COMPLY WITH THIS DIRECTIVE CAN
RESULT IN A VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT").
BUSINESS LOAN CENTER, INC.
BUSINESS LOAN CENTER SBA LOAN-BACKED ADJUSTABLE RATE CERTIFICATES,
SERIES 1998-1
$24,316,729.85 Class A Certificates
CONFIDENTIAL PLACEMENT MEMORANDUM
December 28, 1998
The United States Small Business Administration (the "SBA") neither guarantees
the Certificates offered hereby, the beneficial ownership interest in the Trust
Fund represented thereby or the Unguaranteed Interest in the SBA Loans that
constitute the assets of such Trust Fund, nor does the SBA have any direct or
indirect obligation to the Trust Fund or the Certificateholders. The SBA has not
approved or disapproved of the Certificates and the SBA has not passed upon the
accuracy or adequacy of this Confidential Placement Memorandum.
This numbered copy is for the exclusive use of the person named below, and
should be returned to Rothschild Inc. immediately upon request.
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Name Copy No. (Shown in Red)
If the above number does not appear in red, there is a presumption that this
Placement Memorandum has been improperly reproduced and circulated, in which
case Rothschild Inc. and Business Loan Center, Inc. disclaim any responsibility
for its contents and use.
No person has been authorized to give any information or to make any
representations other than those contained in this Placement Memorandum and, if
given or made, such information or representations must not be relied upon. The
delivery of this Placement Memorandum at any time does not imply that the
information contained herein is correct as of any time subsequent to its date,
or that there has been no change in the matters discussed herein.
The Class A Certificates are being offered by the Placement Agent only to a
limited number of "Qualified Institutional Buyers" as defined in Rule 144A under
the Securities Act and institutional "Accredited Investors" as defined in Rule
501(a)(1)-(3) or (7) under the Securities Act, that are willing and able to
conduct an independent investigation of the risks involved with ownership of the
Class A Certificates.
The information contained herein is confidential and may not be reproduced in
whole or in part. Rothschild Inc. and Business Loan Center, Inc. will, upon
request, make available such other information as may be reasonably requested.
ROTHSCHILD INC.
Placement Agent
<PAGE>
CONFIDENTIAL PLACEMENT MEMORANDUM
BUSINESS LOAN CENTER, INC.
BUSINESS LOAN CENTER SBA LOAN-BACKED ADJUSTABLE RATE CERTIFICATES,
SERIES 1998-1
$24,316,729.85 Class A Certificates
The Class A Certificates offered hereby (the "Class A
Certificates") evidence the senior beneficial ownership interest in a trust fund
(the "Trust Fund") created by Business Loan Center, Inc. (the "Seller"). The
Trust Fund consists primarily of the right to receive payments and other
recoveries attributable to certain unguaranteed interests (the "Unguaranteed
Interests") in a pool of loans (collectively, the "SBA Loans") which are
partially guaranteed by the U.S. Small Business Administration (the "SBA"). The
Unguaranteed Interests in additional SBA Loans (the "Subsequent SBA Loans") may
be purchased by the Trust from the Seller from time to time on or before the
close of business on March 26, 1999 from funds, if any, on deposit in the
Pre-Funding Account. On the Closing Date (as defined herein), an aggregate cash
amount of approximately $5,000,000 will be deposited into the Pre-Funding
Account.
Except for less than approximately 1.0% of the SBA Loans (by
principal balance of Unguaranteed Interests as of the Statistical Calculation
Date), each SBA Loan was, and each Subsequent SBA Loan will have been,
originated by the Seller in accordance with the Seller's underwriting criteria
described in this Placement Memorandum under "The SBA Loan Lending Program of
the Seller-Underwriting Criteria for SBA ss. 7(a) Loans." The SBA Loans will be
serviced by the Seller (in such capacity, the "Servicer").
In addition to the Class A Certificates, the Trust Fund is
issuing Class B Certificates (the "Class B Certificates" and together with the
Class A Certificates, the "Certificates"). The Class B Certificates initially
will be transferred to and held by a special purpose entity owned by the Seller
and are not being offered hereby. The Class B Certificates are subordinate to
the Class A Certificates to the extent described herein.
The Certificates will be issued pursuant to a Pooling and
Servicing Agreement, dated as of December 23, 1998 (the "Agreement"), between
the Seller and Marine Midland Bank, as trustee (the "Trustee"). Interest will
accrue on the Certificates at an adjustable rate as described herein.
SEE "RISK FACTORS" HEREIN FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A
CERTIFICATES.
This Placement Memorandum has been prepared by the Seller
solely for the purpose of offering the Class A Certificates described herein,
and has been reviewed and approved by the Seller. Rothschild Inc. makes no
representation as to its accuracy or completeness. Except as specifically
indicated, no information is included herein that relates to events occurring
after the date hereof. The information contained herein is confidential and may
not be reproduced in whole or in part. The Seller will, upon request, make
available such other information as may be reasonably requested.
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<PAGE>
No person has been authorized to give any information or to
make any representations other than those contained in this Placement Memorandum
and, if given or made, such information or representations must not be relied
upon. This Placement Memorandum does not constitute an offer to sell or a
solicitation of an offer to buy the Class A Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Placement Memorandum at any time does not imply that information herein
is correct as of any time subsequent to its date.
THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE SELLER OR ANY OF ITS AFFILIATES. THE CLASS A CERTIFICATES WILL
NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND, EXCEPT FOR THE EXCESS SPREAD, NEITHER
THE CLASS A CERTIFICATES NOR THE UNDERLYING UNGUARANTEED INTERESTS OF THE SBA
LOANS WILL BE INSURED OR GUARANTEED BY THE SBA, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. NEITHER THE SBA NOR ANY OTHER
GOVERNMENTAL AGENCY HAS PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED IN
THIS PLACEMENT MEMORANDUM.
THE OBLIGATIONS OF THE PARTIES TO THE TRANSACTIONS
CONTEMPLATED HEREIN ARE SET FORTH IN AND WILL BE GOVERNED BY CERTAIN DOCUMENTS
DESCRIBED HEREIN, AND ALL OF THE STATEMENTS AND INFORMATION CONTAINED HEREIN ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS. THIS PLACEMENT
MEMORANDUM CONTAINS SUMMARIES, WHICH THE SELLER BELIEVES TO BE ACCURATE, OF
CERTAIN OF THESE DOCUMENTS, BUT FOR A COMPLETE DESCRIPTION OF THE RIGHTS AND
OBLIGATIONS SUMMARIZED THEREIN, REFERENCE IS HEREBY MADE TO THE ACTUAL
DOCUMENTS, COPIES OF WHICH ARE AVAILABLE FROM ROTHSCHILD INC.
THE CLASS A CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS
PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CLASS A
CERTIFICATES OFFERED HEREBY, OR AN OFFER OF SUCH CLASS A CERTIFICATES TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL.
IT IS EXPECTED THAT INVESTORS INTERESTED IN PURCHASING CLASS A
CERTIFICATES WILL CONDUCT THEIR OWN INDEPENDENT INVESTIGATION OF THE RISKS POSED
BY AN INVESTMENT IN THE CLASS A CERTIFICATES.
THE CLASS A CERTIFICATES WILL BE OFFERED ONLY TO "QUALIFIED
INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
OTHER INSTITUTIONAL INVESTORS THAT ARE "ACCREDITED INVESTORS" (AS DEFINED IN
RULE 501(a)(1)-(3) OR (7) UNDER THE SECURITIES ACT) TO WHOM THIS PLACEMENT
MEMORANDUM HAS BEEN FURNISHED, AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OR ANY STATE SECURITIES OR "BLUE SKY" LAWS AND ARE BEING OFFERED AND SOLD IN
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<PAGE>
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS, IN PARTICULAR THAT PROVIDED BY SECTION 4(2) UNDER THE
SECURITIES ACT. EACH PURCHASER OF A CLASS A CERTIFICATE WILL BE DEEMED TO HAVE
MADE CERTAIN REPRESENTATIONS AND AGREEMENTS AS DESCRIBED HEREIN UNDER "NOTICE TO
INVESTORS." THERE IS NO MARKET FOR THE CLASS A CERTIFICATES BEING OFFERED HEREBY
AND THERE IS NO ASSURANCE THAT ONE WILL DEVELOP. RESALES OF CLASS A CERTIFICATES
MAY BE MADE ONLY (1) IN CERTIFICATED FORM (A) TO A PERSON THAT THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR THE ACCOUNT OF
ANOTHER QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144(A), OR (B) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1)-(3) OR (7)
UNDER THE SECURITIES ACT, IN EACH CASE, SUBJECT TO THE REQUIREMENTS DESCRIBED
HEREIN CONCERNING THE DELIVERY TO THE TRUSTEE OF A CERTIFICATION OR OPINION OF
COUNSEL, (2) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT
AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (3) PURSUANT TO
A VALID REGISTRATION STATEMENT. ALL TRANSFERS OF THE CLASS A CERTIFICATES ARE
SUBJECT TO CERTAIN OTHER RESTRICTIONS AS DESCRIBED HEREIN.
THIS PLACEMENT MEMORANDUM IS DELIVERED ON A CONFIDENTIAL BASIS
FOR USE SOLELY IN CONNECTION WITH AN OFFERING EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
REPRODUCED OR USED, IN WHOLE OR IN PART, FOR ANY OTHER PURPOSE OR FURNISHED TO
ANY OTHER PERSON.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
PLACEMENT MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE TRUST,
THE SELLER, ANY AFFILIATE THEREOF OR ANY OF THEIR OFFICERS, EMPLOYEES OR AGENTS
AS INVESTMENT, LEGAL, ACCOUNTING, REGULATORY OR TAX ADVICE. PRIOR TO PURCHASING
ANY CLASS A CERTIFICATE, A PROSPECTIVE PURCHASER SHOULD CONSULT WITH ITS OWN
LEGAL, BUSINESS, ACCOUNTING, REGULATORY AND TAX ADVISERS TO DETERMINE THE
APPROPRIATENESS AND CONSEQUENCES OF AN INVESTMENT IN THE CLASS A CERTIFICATES IN
ITS SPECIFIC CIRCUMSTANCES AND ARRIVE AT AN INDEPENDENT EVALUATION OF THE
INVESTMENT BASED ON, AMONG OTHER THINGS, ITS OWN VIEWS AS TO THE RISKS
ASSOCIATED WITH THE SBA LOANS, WHICH WILL AFFECT THE RETURN ON THE CLASS A
CERTIFICATES.
NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A
REGISTRATION STATEMENT OR AN APPLICATION FOR LICENSE HAS BEEN FILED UNDER NEW
HAMPSHIRE REVISED STATUTES ANNOTATED, CHAPTER 421-B ("RSA 421-B") WITH THE STATE
OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A
PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE
SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
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<PAGE>
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
No election will be made to treat the Trust Fund as a REMIC.
It is expected that the Trust Fund will be classified as a "grantor trust" for
federal income tax purposes. See "Material Federal Income Tax Consequences"
herein.
The Class A Certificates are offered subject to prior sale,
withdrawal, cancellation or modification without notice. It is a condition to
their offering that the Class A Certificates receive the rating set forth under
"SUMMARY OF MEMORANDUM - Rating" herein and that certain other legal conditions
are met.
THERE MAY BE RESTRICTIONS ON THE ABILITY OF CERTAIN INVESTORS,
INCLUDING DEPOSITORY INSTITUTIONS, EITHER TO PURCHASE CLASS A CERTIFICATES OR TO
PURCHASE CLASS A CERTIFICATES REPRESENTING MORE THAN A SPECIFIED PERCENTAGE OF
THE INVESTOR'S ASSETS. INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS IN
DETERMINING WHETHER AND TO WHAT EXTENT THE CLASS A CERTIFICATES CONSTITUTE LEGAL
INVESTMENTS FOR SUCH INVESTORS.
It is expected that delivery of the Class A Certificates
will be made in certificated form on or about December 30, 1998.
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AVAILABLE INFORMATION
To permit compliance with Rule 144A under the Securities Act in
connection with the sales of the Class A Certificates, the Servicer will be
required under the Pooling and Servicing Agreement, for so long as any Class A
Certificate is a "restricted security" within the meaning of Rule 144(a)(3)
under the Securities Act, to provide, upon request of a holder of a Class A
Certificate, to such holder and a prospective purchaser designated by such
holder, the information which is required to be delivered under Rule 144A(d)(4)
under the Securities Act.
Business Loan Center, Inc.
December 28, 1998
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TABLE OF CONTENTS
Page
SUMMARY OF MEMORANDUM...................................... 8
RISK FACTORS............................................... 28
USE OF PROCEEDS............................................ 34
THE SBA LOAN POOL.......................................... 34
THE SBA LOAN PROGRAM....................................... 57
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS.............. 58
THE SELLER................................................. 61
THE SBA LOAN LENDING PROGRAM OF THE SELLER................. 62
DESCRIPTION OF THE AGREEMENT AND THE CERTIFICATES.......... 69
THE TRUSTEE................................................ 88
CERTAIN LEGAL MATTERS RELATING TO THE SBA LOANS............ 89
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................... 93
ERISA CONSIDERATIONS....................................... 98
PLACEMENT.................................................. 102
NOTICE TO INVESTORS........................................ 102
LEGAL INVESTMENT........................................... 104
RATING..................................................... 104
LEGAL MATTERS.............................................. 104
FINANCIAL INFORMATION...................................... 104
INDEX OF PRINCIPAL TERMS................................... 106
CERTAIN DEFINITIONS........................................ 110
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SUMMARY OF MEMORANDUM
The following summary is qualified in its entirety by more
detailed information appearing elsewhere in this Confidential Placement
Memorandum (the "Memorandum"). Capitalized terms used but not defined elsewhere
in this Memorandum have the meanings assigned to such terms under "Certain
Definitions." Unless otherwise noted, all statistical percentages and all dollar
amounts in this Memorandum are measured by the aggregate principal balances of
the SBA Loans, the Unguaranteed Interests or the Guaranteed Interests (each as
defined below under "--Trust Fund Assets"), as the case may be, at the close of
business on the Statistical Calculation Date (as defined below under "--Trust
Fund Assets").
Securities.................. Business Loan Center SBA Loan-Backed Adjustable
RateCertificates, Series 1998-1, Class A (the
"Class A Certificates)." The Class A
Certificates will be issued in an aggregate
initial principal amount (the "Initial Class A
Certificate Principal Amount") of approximately
$24,316,729.85.
In addition to the Class A Certificates, the
Trust Fund is issuing Class B Certificates (the
"Class B Certificates" and together with the
Class A Certificates, the "Certificates") in
the aggregate initial principal amount (the
"Initial Class B Principal Amount") of
approximately $2,114,498.25. The Class B
Certificates initially will be transferred to
and held by a special purpose entity owned by
the Seller and are not being offered hereby.
Any information contained herein concerning the
Class B Certificates is included only to
provide a better understanding of the Class A
Certificates.
The Class B Certificates are subordinate to the
Class A Certificates in the right to receive
payments of interest and principal. See
"Description of the Agreement and the
Certificates--Flow of Funds" herein.
The Certificates represent the entire
beneficial ownership interest in a trust fund
(the "Trust Fund") formed pursuant to a Pooling
and Servicing Agreement (the "Agreement")
between Business Loan Center, Inc., as seller
and servicer of the SBA Loans (in such
capacities the "Seller" and the "Servicer,"
respectively), and Marine Midland Bank, as
trustee (the "Trustee").
Denominations................. The Class A Certificates will be issued in
minimum denominations of $100,000 original
principal amount and integral multiples of
$1,000 in excess thereof, except that one Class
A Certificate may be in a different
denomination so that the sum of the
denominations of all outstanding Class A
Certificates shall equal the Original Class A
Certificate Principal Balance. Class A
Certificates will be issued in physical form.
See "Description of the Agreement and the
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<PAGE>
Certificates--Registration of Class A
Certificates" herein.
Trust Fund Assets............ The Trust Fund will consist primarily of the
right to receive all payments and other
recoveries attributable to the Unguaranteed
Interests (as defined below) in a pool of loans
(the "SBA Loan Pool") made to small business
concerns pursuant to Section 7(a) of the Small
Business Act, as amended, and Title 13 of the
Code of Federal Regulations, as amended
("SBAss.7(a)"). Such Loans are referred to
herein as either the "SBAss. 7(a) Loans" or the
"SBA Loans." The SBAss. 7(a) Loans are
partially guaranteed by the U.S. Small Business
Administration (the "SBA") pursuant to a Small
Business Administration Loan Guaranty Agreement
(Deferred Participation) (SBA Form 750), dated
March 27, 1997 and a Supplemental Guarantee
Agreement Preferred Lender Program (SBA Form
1347), dated August 1, 1997, (SBA Form 1347) by
and between the Seller and the SBA, and
pertinent SBA regulations found at 13 C.F.R.
Part 120.
As to any SBA ss. 7(a) Loan, the right to
receive the guaranteed portion of the principal
balance thereof together with interest thereon
at a per annum rate in effect from time to time
(which rate is less than the rate paid by the
obligor on the related SBA ss. 7(a) Loan (the
"Obligor")) and the fee (the "FTA's Fee")
payable to the SBA's fiscal and transfer agent
(the "FTA") is referred to herein as the
"Guaranteed Interest." With respect to SBA ss.
7(a) Loans for which the Guaranteed Interests
were sold in the secondary market on or after
September 1, 1993 (unless the related SBA ss.
7(a) Loan was approved by the SBA on or after
October 12, 1995) and SBA ss. 7(a) Loans
approved by the SBA on or after October 12,
1995, regardless of whether they were sold in
the secondary market (the "Additional Fee SBA
Loans"), a fee equal to 40 basis points or 50
basis points, respectively, per annum on the
outstanding balance of the Guaranteed Interest
of such Additional Fee SBA Loans (the
"Additional Fee") is required to be paid by the
Seller to the SBA. Although such Additional Fee
is the responsibility of the Seller, the
Additional Fee will be funded from the interest
from the related Obligor on the SBA ss. 7(a)
Loans. Accordingly, any such Additional Fee
will reduce the Excess Spread (as defined
herein) on the related SBA Loan which would
otherwise have been available as credit
enhancement for the Certificates. The
Guaranteed Interest varies from SBA ss. 7(a)
Loan to SBA ss. 7(a) Loan, is not included in
the Trust Fund and Certificateholders have no
right or interest therein. As described herein,
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the portion of the principal guaranteed by the
SBA for each SBA ss. 7(a) Loan varies depending
upon the program under which such SBA ss. 7(a)
Loan was originated. However, the SBA imposes a
maximum per borrower guaranty of $750,000. See
"The SBA Loan Program."
Pursuant to policies of the SBA, the Servicer
is required to retain for each SBA ss. 7(a)
Loan an amount equal to 0.60% per annum on the
outstanding balance of the related Guaranteed
Interest (such amount is referred to herein as
the "Premium Protection Fee" for the related
SBA ss. 7(a) Loan). The Premium Protection Fee
is not included in the Trust Fund and
Certificateholders have no right or interest
therein.
The "Unguaranteed Interest" will equal all
payments and other recoveries on such SBA ss.
7(a) Loan not constituting the Guaranteed
Interest or the Premium Protection Fee therein.
As stated above, the interest accrued on the
guaranteed portion of the principal balance of
each SBA ss. 7(a) Loan exceeds the sum of the
interest payable to the holder of the
Guaranteed Interest, the FTA's Fee, the Premium
Protection Fee and, with respect to the
Additional Fee SBA Loans, the Additional Fee.
Such excess (the "Excess Spread"), which is
guaranteed by the SBA for up to 120 days of
accrued interest, is included in the
Unguaranteed Interest and will be available to
pay interest and principal on the Certificates,
the Servicing Fee to the Servicer and to fund
the Spread Account (as defined under "--Spread
Account" herein) as described under "--Spread
Account" herein.
The "Unguaranteed Percentage" will equal the
fraction, expressed as a percentage, the
numerator of which is the principal portion of
the Unguaranteed Interest as of the Cut-Off
Date and the denominator of which is the
outstanding principal balance of such SBA ss.
7(a) Loan as of the Cut-Off Date. The
Unguaranteed Percentage for any given loan will
not change over time.
The "Cut-Off Date" is (i) with respect to the
Unguaranteed Interests relating to the SBA
Loans transferred to the Trust on the Closing
Date, December 23, 1998 and (ii) with respect
to the Unguaranteed Interests relating to the
Subsequent Loans, the first day of the month in
which such Unguaranteed Interests are
transferred to the Trust (each, a "Subsequent
Transfer Date").
As of the close of business on the Cut-Off
Date, the aggregate principal amount of the
Unguaranteed Interests of the SBA ss. 7(a)
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Loans expected to be delivered to the Trustee
on the Closing Date equaled approximately
$21,431,228.10 (the "Original Pool Principal
Balance").
Seller...................... Business Loan Center, Inc. (the "Seller") is a
Delaware corporation with headquarters in New
York, New York. Except for less than
approximately 1.0% of the SBA Loans (by
principal balance of Unguaranteed Interests as
of the Statistical Calculation Date), all of
the SBAss. 7(a) Loans were originated by the
Seller or its predecessors. The Seller will
deposit into the Trust Fund the right to
receive the Unguaranteed Interests (net of the
related servicing fee) in the SBA Loans
originated or acquired by it and will make
representations and warranties with respect to
such SBA Loans.
Servicer.................... Business Loan Center, Inc. will service the SBA
Loans in accordance with the terms of the
Agreement and the SBA Rules and Regulations and
the Multi-Party Agreement (as defined below
under "--Multi-Party Agreement").
Trustee...................... Marine Midland Bank, a trust company
headquartered in Buffalo, New York, will be the
Trustee. In the Agreement, the Trustee will
agree to act as successor servicer if the
Servicer can no longer serve in such capacity.
Document Custodians.......... The promissory notes evidencing the SBA ss.
7(a) Loans (the "Notes") will be held by SBA's
fiscal and transfer agent (the "FTA") pursuant
to the Multi-Party Agreement. The FTA will be
liable solely to the SBA for the FTA's gross
negligence or malfeasance.
All other documents to be delivered by the
Seller with respect to the SBA Loans will be
delivered to and held by the Trustee pursuant
to the Agreement. See "Description of the
Agreement and the Certificates" herein.
Interest Accrual Period...... With respect to each Remittance Date (as
defined below under "--Remittance Date"), the
"Interest Accrual Period" will be the period
commencing on the 15th day of the month
preceding such Remittance Date and ending on
the 14th day of the month of such Remittance
Date. However, for the Remittance Date
occurring in January 1999, (which will be the
first Remittance Date) the Interest Accrual
Period will be the period commencing on the
Closing Date and ending on January 14, 1999.
Pre-Funding Account........... On the Closing Date, cash in an amount not to
exceed approximately $5,000,000 (the
"Pre-Funded Amount") will be deposited on the
Closing Date into the Pre-Funding Account.
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Amounts in the Pre-Funding Account may be used
only (i) to acquire the Unguaranteed Interests
(net of the related Servicing Fee) in the
Subsequent SBA Loans and (ii) to make
accelerated payments of principal on the
Certificates. During the period (the "Funding
Period") from the Closing Date until the
earliest of (i) the date on which the amount on
deposit in the Pre-Funding Account, is less
than $100,000, (ii) the date on which an Event
of Default occurs under the Agreement or (iii)
the close of business on March 26, 1999,
amounts will, from time to time, be withdrawn
from the Pre-Funding Account to purchase the
Unguaranteed Interests in the Subsequent SBA
Loans in accordance with the Agreement. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be distributed as a
principal prepayment on the next Remittance
Date to the Certificates. However, any
Pre-Funded Amount remaining at the close of
business on March 26, 1999 will be distributed
as a principal prepayment on March 30, 1999
(the "Special Remittance Date") to the
Certificates on a pro rata basis.
Capitalized Interest
Account.................. On the Closing Date, the Seller also will make
a cash deposit in an account (the "Capitalized
Interest Account") to be pledged to the
Trustee. The amount deposited in the
Capitalized Interest Account will be used by
the Trustee on the Remittance Dates occurring
in January 1999, February 1999 and March 1999
to fund the excess, if any, of (i) the amount
of interest accrued for each such Remittance
Date at the weighted average Class A and Class
B Remittance Rates on the portion of the
Certificates having principal balances
exceeding the principal balances of the
Unguaranteed Interests over (ii) the amount of
any earnings on funds in the Pre-Funding
Account that are available to pay interest on
the Certificates on each such Remittance Date.
Any amounts remaining in the Capitalized
Interest Account on the Special Remittance Date
and not used for such purposes are required to
be paid directly to the Seller on such Special
Remittance Date.
Available Funds.............. With respect to each Remittance Date, the
"Available Funds" will equal the sum of (i) the
Unguaranteed Percentage of all amounts
(including any Excess Spread) received from any
source by the Servicer or any Subservicer
during the preceding calendar month with
respect to principal and interest on the SBA
Loans (net of the amount payable to the holder
of the Guaranteed Interest, the FTA's Fee, the
Premium Protection Fee, the Additional Fee and
the Servicing Fee (as defined under
"--Servicing Fee" herein)), (ii) advances by
the Servicer, (iii) amounts to be transferred
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<PAGE>
from the Pre-Funding Account and the
Capitalized Interest Account with respect to
the Remittance Dates in January 1999, February
1999 and March 1999, (iv) amounts in the Spread
Account and (v) with respect to the first
Remittance Date sixteen days interest on the
Original Pool Principal Balance.
Interest................... To the extent there are funds available for
distribution, and prior to payments of
principal to the Class A Certificateholders, on
each Remittance Date the Class A
Certificateholders (and after payments of
principal to the Class A Certificateholders and
the funding of the Spread Account, as defined
below) the Class B Certificateholders, in that
order, will be entitled to receive interest
accrued for the related Interest Accrual Period
at the adjustable rate described below on the
Class A or Class B Certificate Balance, as the
case may be (each as defined below),
outstanding immediately prior to such
Remittance Date. If, on any Remittance Date,
the Class A or Class B Certificates do not
receive the full amount of interest to which
they are entitled, such shortfall, plus
interest thereon compounded monthly at the then
applicable Class A or Class B Remittance Rate
(each as defined below), will be added to the
amount of interest they are entitled to receive
on succeeding Remittance Dates and paid in the
priorities set forth under "Description of the
Agreement and the Certificates--Flow of Funds."
The aggregate amounts of interest payable to
the Class A and Class B Certificates on each
Remittance Date are referred to herein as the
"Class A Interest Distribution Amount" and the
"Class B Interest Distribution Amount,"
respectively.
Interest will accrue on the Certificates on the
basis of a 360-day year consisting of twelve
30-day months at a per annum rate (the "Class A
Remittance Rate" and "Class B Remittance Rate,"
respectively) equal to:
Class A: During the initial Interest Accrual
Period, 6.75% per annum. During each subsequent
Interest Accrual Period, the Prime Rate (as
defined below) in effect on the preceding
Adjustment Date (as defined below) minus 1.00 %
per annum, subject to the adjustments described
under "Description of the Agreement and the
Certificates--Class A and Class B Interest
Distribution Amounts" herein.
Class B: During the initial Interest Accrual
Period, 6.95% per annum. During each subsequent
Interest Accrual Period, the Prime Rate in
effect on the preceding Adjustment Date minus
0.80% per annum, subject to the adjustments
described under "Description of the Agreement
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<PAGE>
and the Certificates--Class A and Class B
Interest Distribution Amounts" herein.
The Prime Rate will equal the lowest prime
lending rate as published in the Money Rate
Section of The Wall Street Journal for the
applicable Adjustment Date.
For the Interest Accrual Periods commencing in
February, March and April, the "Adjustment
Date" will be the first Business Day of the
preceding January. For the Interest Accrual
Periods commencing in May, June and July, the
"Adjustment Date" will be the first Business
Day of the preceding April. For the Interest
Accrual Periods commencing in August, September
and October, the "Adjustment Date" will be the
first Business Day of the preceding July. For
the Interest Accrual Periods commencing in
November, December and January, the "Adjustment
Date" will be the first Business Day of the
preceding October.
As stated above, the amount of interest paid on
the Certificates on each Remittance Date is
based upon the amount of interest due on the
SBA Loans in the month preceding such
Remittance Date. For each such monthly payment,
the related SBA Loan Interest Rate on
substantially all of the SBA Loans is based on
the Prime Rate in effect for such SBA Loan in
the month preceding the month such monthly
payment is due. For example, the monthly
payment due on substantially all of the SBA
Loans in February 1999 will be based upon the
Prime Rate in effect for such SBA Loan in
January 1999 (which, for SBA Loans adjusting
quarterly, generally will be the Prime Rate in
effect on October 1, 1998). This monthly
payment will be distributed to
Certificateholders on the Remittance Date in
March 1999. However, for the January 1999
Remittance Date, interest on the Class A and
Class B Certificates will accrue based upon the
Prime Rate in effect on the first Business Day
of December 1998.
Except for approximately 4.95% of the SBA Loans
(by principal balance of Unguaranteed Interests
as of the Statistical Calculation Date) which
adjust monthly, each SBA Note will, with
respect to principal payments, adjust quarterly
and provide for a schedule of Monthly Payments
which are, if timely paid, sufficient to fully
amortize the principal balance of such SBA Note
on its maturity date. As a result, the actual
amount of interest distributed to the
Certificateholders each month may be subject to
the adjustments described under "Description of
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<PAGE>
the Agreement and the Certificates--Class A and
Class B Interest Distribution Amounts" herein.
As of any date, the "Class A Certificate
Balance" will equal the Class A Certificate
Balance on the Closing Date reduced by all
amounts previously distributed to Class A
Certificateholders and allocable to principal.
The "Class B Certificate Balance" will be
calculated in a similar manner.
Principal................ To the extent there are funds remaining after
payment of interest on the Class A Certificates
as described above, on each Remittance Date,
holders of the Class A Certificates will
receive an amount equal to the lesser of (A)
such remaining Available Funds and (B) the sum
of (i) the Class A Principal Distribution
Amount (as defined below) and (ii) the Class A
Carry-Forward Amount (as defined below).
To the extent of the Available Funds remaining
after payment of interest and payment of
principal on the Class A Certificates, payments
into the Spread Account (as defined below), and
payments of interest on the Class B
Certificates, holders of the Class B
Certificates will receive an amount equal to
the lesser of (A) such remaining Available
Funds and (B) the sum of (i) the Class B
Principal Distribution Amount (as defined
below) and (ii) the Class B Carry-Forward
Amount (as defined below).
With respect to each Remittance Date, the
"Class A Principal Distribution Amount" and the
"Class B Principal Distribution Amount" will
equal the Class A Percentage or the Class B
Percentage (each as defined below), as the case
may be, multiplied by the total of (i) the
Unguaranteed Percentage of all payments and
other recoveries of principal of an SBA Loan
(net of amounts reimbursable to the Servicer
pursuant to the Agreement) received by the
Servicer or any Subservicer in the immediately
preceding calendar month (with respect to any
Remittance Date, the "Due Period"), excluding
amounts received relating to SBA Loans which
have been delinquent 24 months or have been
determined to be uncollectible, in whole or in
part, by the Servicer to the extent that the
Class A Certificateholders or the Class B
Certificateholders, as the case may be, have
previously received the Class A Percentage or
the Class B Percentage, as the case may be, of
the principal portion of the Unguaranteed
Interest of such SBA Loans; (ii) the principal
portion of any Unguaranteed Interest actually
purchased by the Seller or the Servicer and
actually received by the Trustee as of the
related Determination Date; (iii) any
adjustments with respect to substitutions of
SBA Loans for which the Seller has breached a
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<PAGE>
representation or warranty deposited in the
Principal and Interest Account and transferred
to the Certificate Account as of the related
Determination Date; (iv) the Unguaranteed
Percentage of all losses on SBA Loans which
were finally liquidated during the applicable
Due Period; (v) the Unguaranteed Percentage of
the then outstanding principal balance of any
SBA Loan which, as of the first day of the
related Due Period, has been delinquent for 24
months or has been determined to be
uncollectible, in whole or in part, by the
Servicer; and (vi) amounts, if any, released
from the Pre-Funding Account on the January
1999, February 1999 and March 1999 Remittance
Date.
With respect to each Remittance Date, the
"Class A Carry-Forward Amount" and the "Class B
Carry-Forward Amount" will equal the aggregate
amount, if any, by which (i) the Class A
Principal Distribution Amount or the Class B
Principal Distribution Amount, as the case may
be, with respect to any preceding Remittance
Date exceeded (ii) the amount of the actual
principal distribution to the Class A
Certificates or the Class B Certificates, as
the case may be, on such Remittance Date.
With respect to each Remittance Date, the
"Class A Percentage" will equal approximately
92%, representing the beneficial ownership
interest of the Class A Certificates in the
Trust Fund.
With respect to each Remittance Date, the
"Class B Percentage" will equal approximately
8%, representing the beneficial ownership
interest of the Class B Certificates in the
Trust Fund.
On each Remittance Date, Available Funds
remaining after payment of interest and
principal to the Class A Certificates will be
deposited in the Spread Account and, to the
extent amounts in the Spread Account would
exceed the then applicable Specified Spread
Account Requirement, such excess will be
distributed, to pay interest and principal to
the Class B Certificates, to pay the Trustee's
fees and expenses, to pay the Servicer up to
the Reimbursable Amounts, and then to the
Spread Account Depositor (as defined under
"--Spread Account"). See "--Spread Account"
herein.
The aggregate amount of principal payable with
respect to each Class of Certificates on each
Remittance Date as described above, together
with interest as calculated above under
"--Interest," constitutes the "Class A
Remittance Amount" and the "Class B Remittance
Amount," as the case may be, for such
Remittance Date.
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Subordination of Class B
Certificates............ The rights of the holders of the Class B
Certificates to receive distributions with
respect to interest and principal will be
subordinated to such rights of the holders of
the Class A Certificates to the extent
described above under "--Securities." This
subordination is intended to enhance the
likelihood of regular receipt by holders of the
Class A Certificates of the full amount of
their scheduled monthly payments of interest
and principal, and to afford the holders of the
Class A Certificates a measure of protection
against losses resulting from liquidated SBA
Loans equal to (i) the amount of funds
remaining in the Spread Account after payment
of interest on the Class A Certificates and
(ii) the then outstanding Class B Certificate
Balance.
Remittance Date.......... Distributions to Certificateholders will be
made on the 15th day of each month, or, if such
day is not a business day, on the succeeding
business day, commencing January 15, 1999
(each, a "Remittance Date"). Any Pre-Funded
Amount remaining at the close of business on
the March 1999 Determination Date (together
with accrued interest thereon at the applicable
Remittance Rates) will be distributed by or on
behalf of the Trustee on the Special Remittance
Date to the Class A and Class B Certificates on
a pro rata basis. Such distribution will be
made to each persons in whose name a
Certificate of the applicable Class is
registered on February 28, 1999.
The last scheduled Remittance Date for the
Certificates is January 2025. It is expected
that the actual last Remittance Date for each
Class of Certificates will occur significantly
earlier than such scheduled Remittance Date.
See "Yield, Maturity, and Prepayment
Considerations" herein.
Record Date.............. Distributions on the Certificates will be made
by or on behalf of the Trustee on each
Remittance Date to each person in whose name a
Certificate is registered on the last day of
the preceding calendar month (the "Record
Date").
Closing Date.............. December 30, 1998
Spread Account............
Business Loan Center Financial Corp. II, a
special purpose, bankruptcy remote Delaware
corporation (the "Spread Account Depositor")
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will establish a reserve account (the "Spread
Account") with the Trustee. The Spread Account
will not be a part of the Trust Fund but will
be pledged to the Trustee as security for the
obligations of the Spread Account Depositor
under the Agreement pursuant to an agreement
(the "Spread Account Agreement") between the
Spread Account Depositor and the Trustee.
On the Closing Date, the Spread Account
Depositor will make an initial cash deposit
into the Spread Account in an amount equal to
2.5% of the Original Pool Principal Balance
(the "Initial Deposit"). Thereafter, on each
Remittance Date the Trustee will deposit into
the Spread Account the cash, if any, remaining
after payment of interest and principal to the
holders of the Class A Certificates as
described above under "--Interest" and
"--Principal," until the aggregate amount then
on deposit in the Spread Account (the "Spread
Balance") equals the sum of (i) the then
outstanding principal balance of the
Unguaranteed Interests of all SBA Loans 180
days or more delinquent and (ii) the greater of
(a) 5.0% of the then outstanding aggregate
principal balance of the Unguaranteed Interests
of all the SBA Loans, or (b) 2.5% of the
Original Pool Principal Balance; provided,
however, that for purposes of clauses (i) and
(ii)(a), there shall be excluded the principal
portion of the Unguaranteed Interest of SBA
Loans which have been delinquent 24 months or
have been determined to be uncollectible, in
whole or in part, by the Servicer, to the
extent that the Certificateholders have
previously received the principal portion of
the Unguaranteed Interest of such SBA Loans;
provided, however, that in no event shall the
Spread Account Balance exceed the then
outstanding Class A Certificate Balance (such
amount is referred to herein as the "Specified
Spread Account Requirement").
Amounts, if any, on deposit in the Spread
Account will be available to be applied to
payments of interest and principal on the Class
A Certificates on any Remittance Date. In
addition, amounts in excess of the Specified
Spread Account Requirement will be available to
make distributions of interest and principal on
the Class B Certificates, to pay the Trustee
fee and expenses, to pay the Servicer up to the
Reimbursable Amounts and any remaining amounts
will be released to the Spread Account
Depositor on any Remittance Date.
The Spread Account Depositor will not be
required to refund any amounts previously
properly distributed to it, regardless of
whether there are sufficient funds on a
subsequent Remittance Date to make a full
distribution to holders of the Class A
Certificates on such Remittance Date.
The funding and maintenance of the Spread
Account is intended to enhance the likelihood
of timely payment of principal and interest to
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the holders of the Class A Certificates;
however, if the SBA Loan Pool experiences
levels of delinquencies and losses above
certain scenarios, the Spread Account could be
depleted, and shortfalls could result. See
"Risk Factors--Spread Account," "Description of
the Agreement and the Certificates--Spread
Account" and "Ratings" herein.
The SBA Loan Pool.............
The statistical information presented in this
Confidential Placement Memorandum concerning
the SBA Loan Pool is based on its
characteristics as of October 31, 1998 (the
"Statistical Calculation Date"). The Loans
transferred to the Trust Fund on the Cut-Off
Date will include certain other SBA Loans, some
of which may be originated after the
Statistical Calculation Date but on or prior to
the Cut-Off Date. While the statistical
distribution of the final characteristics of
all Loans transferred to the Trust Fund on the
Cut-Off Date will vary from the statistical
information presented in this Confidential
Placement Memorandum, the Seller does not
believe that the characteristics of the Loans
as of the Cut-Off Date will vary materially
from the information presented herein with
respect to the Loans as of the Statistical
Calculation Date. The Loans as of the Initial
Cut-Off Date will meet certain eligibility
criteria specified herein. See "The SBA Loan
Pool" herein. Except for less than
approximately 1.0% of the SBA Loans (by
principal balance of Unguaranteed Interests as
of the Statistical Calculation Date), all of
the SBAss.7(a) Loans were originated by the
Seller in accordance with the underwriting
criteria described under "The SBA Loan Lending
Program of the Seller--Underwriting Criteria
for SBAss. 7(a) Loans." None of the SBAss. 7(a)
Loans are balloon loans and each is fully
amortizing in accordance with its terms. As of
the Statistical Calculation Date, it is
expected that the Trust Fund will contain the
Unguaranteed Interest in approximately 101
SBAss. 7(a) Loans, approximately 59% of which
SBAss. 7(a) Loans (by principal balance of the
Unguaranteed Interests) are secured primarily
by first liens on commercial real property used
by the borrower or its affiliates in the
conduct of their business. The remainder of
SBAss. 7(a) Loans are secured primarily by
second liens on commercial properties, by first
and second liens on personal real estate, and
by a combination of first and second liens on
equipment, inventory and accounts receivables.
As of the Statistical Calculation Date, the
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SBAss. 7(a) Loans were originated to businesses
located in 20 states plus the District of
Columbia, with approximately 16.94%, 7.33%,
23.11%, 5.76%, 9.71% and 5.76% (in each case
measured by principal balance of Unguaranteed
Interests as of the Statistical Calculation
Date) originated to businesses located in
Virginia, New York, Florida, Georgia, New
Jersey and Oklahoma, respectively. See "The SBA
Loan Program" herein.
As of the Statistical Calculation Date, (i) the
aggregate and average unpaid principal portion
of the Unguaranteed Interests of the
preliminary pool of the SBA ss. 7(a) Loans were
approximately $19,491,552 and $192,986,
respectively, (ii) the aggregate and average
unpaid principal portion of the Guaranteed
Interests of the preliminary pool of the SBA
ss. 7(a) Loans were approximately $50,169,644
and $496,729, respectively, (iii) the maximum
and minimum original principal portion of the
Unguaranteed Interests of the preliminary pool
of the SBA ss. 7(a) Loans were approximately
$744,000 and $5,000, respectively, and (iv) the
maximum and minimum original principal portion
of the Guaranteed Interests of the preliminary
pool of the SBA ss. 7(a) Loans were
approximately $750,000 and $45,000,
respectively. As of the Statistical Calculation
Date, the aggregate original principal portion
of the Unguaranteed Interests of the
preliminary pool of the SBA ss. 7(a) Loans was
approximately $19,603,987 and the aggregate
original principal portion of the Guaranteed
Interests of the preliminary pool of the SBA
ss. 7(a) Loans was approximately $50,570,671.
As of the Statistical Calculation Date, the
preliminary pool of the SBA ss. 7(a) Loans bore
interest at rates (each, a "Note Rate") which
ranged from 10.25% to 11.25% per annum and the
weighted average Note Rate was approximately
10.96% per annum. As of the Statistical
Calculation Date, the preliminary pool of the
SBA ss. 7(a) Loans had a weighted average age
of approximately 6.27 months, a weighted
average original term of approximately 278.98
months, a weighted average gross margin of
approximately 2.70%, a weighted average
combined current Loan-to-Value Ratio based on
undiscounted collateral value (as described
under "The SBA Loan Lending Program of the
Seller") of approximately 65%. As of the
Statistical Calculation Date, the weighted
average Guaranteed Percentage of preliminary
pool of the SBA ss. 7(a) Loans was
approximately 70.33%. As of the Statistical
Calculation Date, the weighted average Excess
Spread, expressed as a percentage of the
principal balances of the Unguaranteed
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Interests, was approximately 3.09% as of the
Statistical Calculation Date. Such Excess
Spread is in addition to the Extra Interest (as
defined under "Description of the Agreement and
the Certificates--Class A and Class B Interest
Distribution Amounts" herein) available from
the unguaranteed portion of preliminary pool of
the SBA ss. 7(a) Loans. 100% of SBA ss. 7(a)
Loans (by principal balance of Unguaranteed
Interests as of the Statistical Calculation
Date) do not have a lifetime interest rate cap.
See "The SBA Loan Pool" herein. The Subsequent
SBA Loans in the aggregate will conform in all
material respects to the characteristics
described herein under "The SBA Loan Pool
Subsequent SBA Loans."
Transfer of Assets.........
Each Note will be endorsed by the Seller by
means of an allonge (i.e., a separate piece of
paper attached to the Note) and delivered to
the FTA. On or before the Closing Date (or the
related Subsequent Transfer Date with respect
to Subsequent SBA Loans), the FTA will
acknowledge receipt of each such Note for each
SBA Loan in the SBA Loan Pool and that each
such Note has been endorsed as follows: "Pay to
the order of Marine Midland Bank, and its
successors and assigns, as trustee under that
certain Pooling and Servicing Agreement dated
as of December 23, 1998, for the benefit of the
United States Small Business Administration and
holders of Business Loan Center SBA Loan-Backed
Certificates, Series 1998-1, Class A and Class
B, as their respective interests may appear,
without recourse."
With respect to each SBA Loan in the SBA Loan
Pool, the Seller will be required to deliver
the following additional documentation to the
Trustee at or prior to the Closing Date (or
with respect to a Subsequent SBA Loan, in the
case of (a) below, at or prior to the related
transfer date):
(a) For each SBA Loan secured by commercial
real property or residential real property:
(1) Original recorded Mortgage, or if the
original is unavailable, a copy thereof
certified to be true and complete by the Seller
or as otherwise permitted by the Agreement.
(2) Certified copy of the Assignment of the
Mortgage endorsed as follows: "Marine Midland
Bank, ("Assignee") its successors and assigns,
as trustee under the Pooling and Servicing
Agreement dated as of December 23, 1998,
subject to the Multi-Party Agreement dated as
of December 23, 1998." The original assignments
will be transmitted by the Seller for recording
promptly following the Closing Date (or, with
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respect to the Subsequent SBA Loans, the
related transfer date).
(3) Original recorded intervening assignments,
if any, or if the original is unavailable,
copies thereof certified by the Seller to be
true and complete.
(4) Originals or certified copies of all title
insurance policies or other evidence of lien
position, including but not limited to Policy
Insurance Record of Title ("PIRT") policies,
limited liability reports and lot book reports,
to the extent the Seller obtains such policies
or other evidence of lien position in
accordance with the criteria described herein.
(b) For all SBA Loans:
(1) Blanket assignment of all collateral
securing the SBA Loan, including without
limitation, all rights under applicable
guarantees and insurance policies.
(2) Irrevocable power of attorney of the Seller
to the Trustee to execute, deliver, file or
record and otherwise deal with the collateral
for the SBA Loans in accordance with the
Agreement. The power of attorney will be
delegable by the Trustee to the Servicer and
any successor servicer and will permit the
Trustee or its delegate to prepare, execute and
file or record UCC financing statements and
notices to insurers.
(3) Blanket Uniform Commercial Code ("UCC")
UCC-1 financing statements identifying by type
all collateral for the SBA Loans in the SBA
Loan Pool and naming the Trustee as Secured
Party and the Seller as the Debtor. See "Risk
Factors--Unperfected Security Interests in
Certain Collateral" herein.
The Trustee will be required to provide an
interim certification as to the receipt of such
documents within 90 days after the Closing Date
and to provide a final certification within one
year after the Closing Date.
Multi-Party Agreement.......
The Seller, the Servicer, the Trustee, the FTA
and the SBA will enter into a Multi-Party
Agreement, dated as of December 23, 1998 (the
"Multi-Party Agreement"), which will set forth
the relationship of the parties with respect to
the SBA ss. 7(a) Loans and the proceeds thereof
and the consent of the SBA to the transactions
contemplated by the Agreement.
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Servicing of the
SBA Loans..................
Business Loan Center, Inc. will service the SBA
Loans in accordance with the Agreement, the SBA
Rules and Regulations and the Multi-Party
Agreement, and will cause the SBA Loans to be
serviced with the same care as it customarily
employs and exercises in servicing and
administering small business loans for its own
account, giving due consideration for the
reliance of the Trustee on the Servicer. Such
servicing includes, without limitation, the
right to release and/or substitute collateral
for an SBA Loan.
Monthly Advances............
The Servicer is required to remit to the
Trustee no later than the third Business Day
prior to the Remittance Date each month (a
"Determination Date") for deposit in the
Certificate Account the amount (the "Monthly
Advance"), if any, by which (i) 30 days'
interest at a rate equal to the then applicable
weighted average Class A and Class B Remittance
Rates plus the rate used in determining certain
expenses of the Trust Fund (the "Adjusted SBA
Loan Remittance Rate") on the aggregate Class A
and Class B Principal Balances immediately
prior to the related Remittance Date (as the
amount calculated pursuant to this clause (i)
may be adjusted in accordance with the limits
described under "Description of the Agreement
and the Certificates--Class A and Class B
Interest Distribution Amounts" herein) exceeds
(ii) the amount received by the Servicer as of
the related Record Date in respect of interest
on the SBA Loans minus the interest payable to
the holders of the Guaranteed Interest, the
Additional Fee, the Premium Protection Fee, and
the fee payable to the FTA (plus, for the
Remittance Dates in January 1999, February 1999
and March 1999 the sum of (a) all funds to be
transferred to the Certificate Account from the
Capitalized Interest Account for such
Remittance Date and (b) certain investment
earnings on amounts in the Pre-Funding Account
for the applicable Remittance Date). The
Servicer is not required to make monthly
advances which it determines, in good faith,
would be nonrecoverable from amounts received
in respect of the SBA Loans.
Monthly Advances are reimbursable in the first
instance from late collections of interest,
Liquidation Proceeds, Insurance Proceeds and
proceeds received by the Servicer in connection
with condemnation, eminent domain or a release
of lien ("Released Mortgaged Property
Proceeds") collected with respect to the
related SBA Loan as to which the Monthly
Advances were made. The Servicer's right to
reimbursement for such advances in excess of
such amounts is limited to late collections of
interest received on the SBA Loans generally;
provided, however, that the Servicer's right to
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such reimbursement is subordinate to the rights
of the Certificateholders, the holder of the
Premium Protection Fee and the holders of the
Guaranteed Interest. Monthly Advances are
intended to provide sufficient funds for the
payment of interest to the Certificateholders
at the then applicable Class A or Class B
Remittance Rate, plus an additional amount, if
any, required to pay the fees and expenses of
the Trustee.
Compensating Interest.........
Not later than each Determination Date, with
respect to each SBA Loan as to which a
principal prepayment in full or a Curtailment
was received during the related Due Period, the
Servicer is required to remit to the Trustee,
from amounts otherwise payable to the Servicer
as servicing compensation, an amount
("Compensating Interest") equal to any excess
of (a) 30 days' interest on the Unguaranteed
Percentage of the related principal balance at
the Adjusted SBA Loan Remittance Rate over (b)
that portion of the amount of interest actually
received on the Unguaranteed Interest of each
SBA Loan for such Due Period, net of the
Servicing Fee and the fees and expenses of the
Trustee allocable to such Unguaranteed Interest
and available to be paid to the
Certificateholders.
Servicing Advances.........
The Servicer will be entitled to reimbursement
for amounts advanced by it constituting
"out-of-pocket" costs and expenses relating to
(i) the preservation and restoration of any
related Mortgaged Property or other
collateral, (ii) enforcement proceedings,
including foreclosures and (iii) certain other
customary amounts described in the Agreement.
Such advances ("Servicing Advances") are
generally reimbursable to the Servicer from
Liquidation Proceeds, Released Mortgaged
Property Proceeds, Insurance Proceeds and such
other amounts as may be collected by the
Servicer from the related Borrower or
otherwise relating to the SBA Loan in respect
of which such amounts are owed; provided,
however, that Servicing Advances in excess of
such amounts are reimbursable to the same
extent and from the same sources as Monthly
Advances.
Servicing Fee..............
The Servicer is entitled to a servicing fee
(the "Servicing Fee") of 0.40% per annum of the
unpaid principal balance of each SBA Loan,
calculated and paid monthly from the interest
portion of monthly payments, Liquidation
Proceeds and certain other proceeds collected.
See "Description of the Agreements and the
Certificates--Servicing and Other Compensation
and Payment of Expenses" herein.
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Optional Purchase...........
The Servicer has the right, but not the
obligation, to purchase the Unguaranteed
Interest of any Defaulted SBA Loan for the
purchase price and in the manner described
under "Description of the Agreement and the
Certificates--Representations and Warranties of
the Seller." In no event, however, may the
aggregate principal balance of the Unguaranteed
Interests of Defaulted SBA Loans purchased
pursuant to this provision exceed 5.0% of the
sum of (i) the Original Pool Principal Balance
and (ii) the initial Pre-Funded Amount. A
"Defaulted SBA Loan" is any SBA Loan as to
which the related Obligor has failed to make
payment in full of three or more consecutive
monthly payments.
Optional Termination by
the Servicer..............
The Servicer, at its option, may, subject to
meeting certain requirements described below,
terminate the Agreement on any date on which
the then outstanding aggregate principal
balance of the Unguaranteed Interests is less
than 10% of the sum of (i) the Original Pool
Principal Balance and (ii) the Initial
Pre-Funded Amount by purchasing, on the next
succeeding Remittance Date, all of the
Unguaranteed Interests and any other assets in
the Trust Fund at a price equal to the sum of
(i) 100% of the then outstanding Class A and
Class B Principal Balances, and (ii) 30 days'
interest thereon at the then applicable Class A
and Class B Remittance Rates (the "Termination
Price"). See "Description of the Agreement and
the Certificates--Termination; Purchase of SBA
Loans" herein.
Tax Considerations .........
No real estate mortgage investment conduit
("REMIC") election will be made for the Trust
Fund. Stroock & Stroock & Lavan LLP, special
Federal tax counsel ("Federal Tax Counsel"),
will give its opinion that the Trust Fund will
be classified as a "grantor trust" for federal
income tax purposes. See "Federal Income Tax
Consequences" herein.
It is not anticipated that the Class A
Certificates or the Class B Certificates will
be treated as issued with original issue
discount ("OID").
ERISA Considerations..........
Fiduciaries of employee benefit plans and other
retirement plans and arrangements, including
individual retirement accounts, certain Keogh
plans, and collective investment funds,
separate accounts and insurance company general
accounts in which such plans, accounts or
arrangements are invested, that are subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of
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the Code (each a "Plan") should carefully
review with their legal advisors to determine
whether an investment in the Certificates will
cause the assets of the Trust Fund to be
considered plan assets under the Department of
Labor regulation set forth in 29 C.F.R. Section
2510.3-101 (the "Plan Asset Regulation"),
thereby subjecting the Trustee and the Servicer
to the fiduciary investment standards of ERISA
and whether the purchase, holding or transfer
of Certificates give rise to a transaction that
is prohibited under ERISA or subject to the
excise tax provisions of Section 4975 of the
Code, unless a Department of Labor ("DOL")
administrative exemption applies. Prohibited
Transaction Exemption 95-59, 60 Fed. Reg. 35938
(July 12, 1995) may be applicable to the
purchase, holding or transfer of the Class A
Certificates but will not be applicable to the
purchase, holding or transfer of the Class B
Certificates. However, if the Class B
Certificates are sold in the future, Prohibited
Transaction Class Exemption 95-60, Fed. Reg.
35925 (July 12, 1995) may be applicable to the
purchase, holding or transfer of the Class B
Certificates to or by certain insurance company
general accounts, but the Class B Certificates
may not otherwise be purchased by or on behalf
of other Plans. See "ERISA Considerations"
herein.
Legal Investment.............
No representation will be made as to whether or
the extent to which the Class A Certificates
constitute legal investments for investors.
Restrictions on Transfer......
The Class A Certificates are being offered to
"Qualified Institutional Buyers" within the
meaning of and in reliance on Rule 144A under
the Securities Act and to a limited number of
institutional "accredited investors" (within
the meaning of Rule 501(a)(1)-(3) or (7) under
the Securities Act) pursuant to an exemption
from the registration provisions of the
Securities Act and may not be resold except (i)
in certificated form (A) to a person whom the
seller reasonably believes is a Qualified
Institutional Buyer as defined in Rule 144A
under the Securities Act that purchases for its
own account or the account of another Qualified
Institutional Buyer to whom notice is given
that the resale, pledge or transfer is being
made in reliance on Rule 144A, or (B) to an
institutional "Accredited Investor" as defined
in Rule 501(a)(1)-(3) or (7) under the
Securities Act, in each case, subject to the
requirements described herein concerning the
delivery to the Trustee of a certification or
opinion of counsel, (ii) pursuant to another
exemption available under the Securities Act
and in accordance with any applicable state
securities laws, or (iii) pursuant to a valid
registration statement.
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Each purchaser of the Class A Certificates
offered by means of this Memorandum will be
deemed to have made certain representations and
agreements as set forth under "Notice to
Investors" herein.
Rating ....................
It is a condition to their issuance that the
Class A Certificates be rated "AAA" by Duff &
Phelps Credit Rating Co. ("DCR"). A security
rating is not a recommendation to buy, sell or
hold securities and may be subject to revision
or withdrawal at any time. No person is
obligated to maintain the rating on any
Certificate. See "Rating" herein.
Registration of the
Class A Certificates.......
The Class A Certificates will be delivered as
definitive certificates in fully registered
form.
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RISK FACTORS
Investors should consider, among other things, the following
factors in addition to the other information set forth in this Memorandum in
connection with the purchase of Class A Certificates.
Risks Associated with Year 2000 Compliance
The Servicer, the Seller and the Trustee utilize a significant
number of computer software programs and operating systems and are highly
dependent on computer systems operated by third parties which include, but are
not limited to, their suppliers, customers, brokers and agents and the
telephone, electric and utility companies. To the extent that any computer
system relied upon by the Servicer, the Seller and the Trustee or any third
party, has software applications and contains source codes that are unable to
appropriately interpret the upcoming calendar year 2000, some level of
modification or replacement of such applications or hardware may be necessary.
The year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
Servicer's, the Seller's or the Trustee's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any such occurrence could result in a major computer system
failure or miscalculations. Several federal regulatory agencies, including the
Commission, require the entities that they regulate to take steps to address
problems which may arise in relation to the year 2000.
The Servicer, the Seller and the Trustee are currently
assessing the impact of modifications or replacements required to adjust for the
year 2000. The Servicer, the Seller and the Trustee are utilizing both internal
and external resources to identify, correct or reprogram, and test their systems
for year 2000 compliance. It is anticipated that all reprogramming efforts and
necessary testing will be completed prior to the year 2000. The Servicer, the
Seller and the Trustee have initiated formal communications with those third
parties on whom they will rely to determine the extent to which the Servicer,
the Seller and the Trustee are vulnerable to the failure of these third parties
to remediate their own year 2000 issue. However, there can be no assurance that
the systems of third parties on which the systems of the Servicer, the Seller
and the Trustee rely will be converted in a timely fashion, or that a failure to
convert by a third party, or a conversion that is incompatible with the systems
of the Servicer, the Seller and the Trustee, would not have an adverse effect on
the business, financial condition or results of operations of the Servicer, the
Seller and the Trustee. The total year 2000 project costs and estimates for the
Servicer, the Seller and the Trustee include the estimated costs and time
associated with the impact of a third party's year 2000 issue, and are based on
presently available information. The costs allocated to the year 2000 project
are significant. The costs of the project and the dates on which the Servicer,
the Seller and the Trustee plan to complete their year 2000 modifications are
based on their best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results could differ
materially from such estimates. Specific factors that might cause such material
differences include, but are not limited to: (i) the availability and cost of
personnel trained in this area, (ii) the ability to locate and correct all
relevant computer codes and (iii) similar uncertainties.
No assurances can be given that any or all of the systems
discussed above, including the systems of the Servicer, the Seller and the
Trustee, are or will be year 2000 compliant or that the costs required to
address year 2000 issues will not adversely affect the business, financial
condition or results of operations of the respective party or the performance of
their obligations under the Agreement. As a result of this potential affect on
performance under the Agreement, the timely receipt of payment by the
Certificateholders may also be adversely affected.
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Limited Liquidity
The Class A Certificates have not been registered under the
Securities Act and there is no undertaking to register the Class A Certificates
hereafter. No market for the Class A Certificates currently exists. Class A
Certificateholders must be prepared to hold the Class A Certificates for an
indefinite period of time. Class A Certificateholders may not resell or transfer
their Class A Certificates unless such resale or transfer is exempt from the
registration requirements of the Securities Act and satisfies the other
conditions to transfer in the Agreement.
The Securities and Exchange Commission has adopted Rule 144A
("Rule 144A") under the Securities Act which provides an exemption from the
registration requirements of the Securities Act for resale of certain restricted
securities by persons other than an issuer to a purchaser that is a Qualified
Institutional Buyer. The Class A Certificates are restricted securities eligible
for resale under Rule 144A. Any resale of the Class A Certificates made in
reliance on Rule 144A (or any amendment thereto) must satisfy the applicable
conditions of Rule 144A. The Class A Certificates may also be resold to a
purchaser that is an institutional "Accredited Investor" as defined in Rule
501(a)(1)-(3) or (7) under the Securities Act.
Limited Liability
The Class A Certificates do not evidence obligations of the
Seller, the Servicer or the Trustee or any of their respective affiliates. The
Certificates are not insured or guaranteed by the Seller, the Servicer or the
Trustee or any of their respective affiliates and, except for a portion of the
Excess Spread, are not insured or guaranteed by the United States Small Business
Administration or any other governmental agency or private insurer.
Legal Investment
To the extent that a holder of a Class A Certificate is an
entity whose investments are regulated by statute or administrative rule, such
as a federal or state chartered bank, savings institution, insurance company or
credit union, there is no assurance that the Class A Certificates will be among
the types of investments permitted under the applicable regulatory scheme.
Prospective investors are advised to consult their own counsel as to
qualification of the Class A Certificates as appropriate investments under any
laws, regulations, rules and orders applicable to them. The Certificates are not
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Nature of Security
As of the Statistical Calculation Date, approximately 94% (by
principal balance of the Unguaranteed Interests) of the SBA Loans are secured by
first and second liens on commercial real property generally used by the
borrower or its affiliates in the conduct of their business. An overall decline
in the market value of commercial real estate, the general condition of a
Mortgaged Property, or general economic conditions in the related market area,
could adversely affect the value of such Collateral consisting of Mortgaged
Properties such that the outstanding balances of the SBA Loans, together with
any senior liens on such Collateral, could equal or exceed the value of such
Collateral. The Seller can neither quantify the impact of any recent property
value declines on the SBA Loans nor predict whether, to what extent or, if
values decline, how long such declines may continue. In periods of such decline,
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the actual rates of delinquencies, foreclosures and losses on the SBA Loans
could be higher than those historically experienced in connection with SBA
Loans.
In addition, for those SBA Loans secured primarily by
equipment, inventory and/or accounts receivable, there are also certain risks
associated with such Collateral. Because the market value of equipment and
inventory generally declines with age or obsolescence, such equipment and/or
inventory may not provide adequate security in the event it is repossessed and
sold. Some of the equipment, such as computers, also may be subject to sudden,
significant declines in value because of technological advances. Other factors
that may affect the ability of the Trustee to realize the full amount due on the
Certificates include any depreciation, damage or loss to the equipment and/or
inventory securing an SBA Loan. Further, to the extent an Obligor experiences a
decline in its business, the amount of inventory and accounts receivable
generated by such Obligor would likely also decline, thereby reducing the
Collateral for the related SBA Loan.
The net charge-off experience of the Seller with respect to
SBA Loans in its servicing portfolio, as a percentage of the principal amount of
the Unguaranteed Interests of the loans in such servicing portfolio, was
approximately 0.42%, 1.14% and 1.44 % for the years ended December 31, 1995,
1996 and 1997 respectively.
General economic conditions have an impact on the ability of
borrowers to repay SBA Loans. Loss of earnings, illness and other similar
factors may lead to an increase in delinquencies and bankruptcy filings by
borrowers. In the event of bankruptcy of a borrower, it is possible that the
Trust Fund could experience a loss with respect to such borrower's loan. In
conjunction with a borrower's bankruptcy, a bankruptcy court may suspend or
reduce the payments of principal and interest to be paid with respect to such
SBA Loan or permanently reduce the principal balance of such SBA Loan, thus
either delaying or permanently limiting the amount received by the Trust Fund
with respect to such SBA Loan. Moreover, in the event a bankruptcy court
prevents the transfer of the related collateral to the Trust Fund, any remaining
balance on such SBA Loan may not be recoverable. In addition, other collateral
securing the SBA Loans may become impaired. For example, poor economic
conditions may make recovery on guarantees difficult and machinery and equipment
may significantly depreciate or lose value.
Even assuming that the Collateral provides adequate security
for the SBA Loans, substantial delays could be encountered in connection with
the liquidation of defaulted SBA Loans and corresponding delays in the receipt
of related proceeds by the Class A or Class B Certificateholders could occur. An
action to foreclose on the Collateral securing an SBA Loan is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. In the event of a default by a borrower, these
restrictions, among other things, may impede the ability of the Servicer to
foreclose on or sell the Collateral or to obtain Liquidation Proceeds (net of
expenses) sufficient to repay all amounts due on the related SBA Loan. In
addition, before foreclosing on Collateral, the Servicer and the SBA may, in
certain circumstances, collectively decide upon a plan for liquidating the loan,
which may result in delays. The Servicer will be entitled to deduct from
Liquidation Proceeds certain expenses reasonably incurred in attempting to
recover amounts due on the related Liquidated SBA Loan and not yet repaid,
including payments to prior lienholders, legal fees and costs of legal action,
real estate taxes, and maintenance and preservation expenses. If the Collateral
fails to provide adequate security for the related SBA Loans or insufficient
funds are available from the Spread Account, the Class B or Class A
Certificateholders could experience a loss on their investment.
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<PAGE>
Liquidation expenses with respect to defaulted SBA Loans
generally do not vary directly with the outstanding principal balance of the
loan at the time of default. Therefore, assuming that a servicer took the same
steps in collecting upon a defaulted SBA Loan having a small remaining principal
balance as it would in the case of a defaulted SBA Loan having a larger
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the outstanding principal balance of the smaller SBA
Loan than would be the case with a larger SBA Loan.
Unperfected Security Interests in Certain Collateral
For each SBA Loan secured by real property, assignments of the
related Mortgages will be transmitted by the Seller for recording promptly
following the Closing Date. Also, the Seller will deliver to the Trustee blanket
assignments of all other collateral securing the SBA Loans. In connection with
originating SBA Loans secured by collateral other than real estate, the Seller
obtains and files UCC financing statements naming the related Obligor as debtor
where such action is necessary to perfect a security interest in such
collateral. Because of the administrative burden and expense that would be
entailed in so doing, these UCC financing statements will not be re-assigned to
the Trustee. The Trustee will have the benefit of the Seller's security interest
in the collateral related to such SBA Loans. However, since assignments will not
be recorded in the name of the Trustee, if the Seller were to become a debtor
under the Federal bankruptcy code or similar applicable state laws, a creditor
or trustee in bankruptcy thereof, or the Seller as a debtor-in-possession, might
be able to defeat the Trustee's security interest in such collateral.
Additionally, certain judgment creditors of, or tax and other liens against, the
Seller or its property may have priority over the Trustee's security interest.
Geographic Concentration
As of the Statistical Calculation Date, approximately 23.11%,
16.94%, 5.76%, 7.33%, 9.71% and 5.76% (by principal balance of the Unguaranteed
Interests) of the SBA Loans were originated to businesses located in Florida,
Virginia, Georgia, New York, New Jersey and Oklahoma, respectively. If the
Florida, Virginia, Georgia, New York, New Jersey and Oklahoma regions experience
weaker economic conditions than the United States generally, such regional
concentrations of the SBA Loans may adversely affect the Certificateholders to a
greater degree than if the SBA Loans were made to borrowers located in a more
geographically diverse area.
Concentration of Mortgaged Properties in Various Industries
As of the Statistical Calculation Date, Mortgaged Properties
with respect to approximately 44.46%, 12.82% and 16.97% of SBA Loans were
comprised of hotel or motel complexes, service stations/ convenience stores and
restaurants, respectively. See the "SBA Loan Pool." Accordingly, adverse
economic conditions or other factors particularly affecting the hotel or motel,
service station/convenience store and/or restaurant industries could adversely
affect the ability of the related Obligors to make payments under the SBA Notes
and could adversely affect upkeep and maintenance of such properties and thereby
lower the value of the collateral securing such SBA Loans.
The Status of SBA Loans in the Event of Bankruptcy of the Seller
The Seller believes that upon the sale of the Class A
Certificates to an independent third party for fair value and without recourse,
such sale will constitute an absolute and unconditional sale of such Class A
Certificates and the interests in the Unguaranteed Interests evidenced thereby.
However, in the event of the bankruptcy of the Seller at a time when it or any
affiliate thereof holds any interest in the Unguaranteed Interests, a trustee in
bankruptcy or other creditor could attempt to recharacterize the sale of the
Unguaranteed Interests as a borrowing by the Seller or any such affiliate with
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<PAGE>
the result that Certificateholders are deemed to be creditors of the Seller or
such affiliate, secured by a pledge of the Unguaranteed Interests. If such an
attempt were successful, a trustee in bankruptcy could elect to accelerate
payment of the Certificates and liquidate the Unguaranteed Interests with the
Certificateholders entitled to the then outstanding principal amount thereof
together with accrued interest. Thus, the holders of Class A Certificates could
lose the right to future distributions of interest, might suffer reinvestment
loss in a lower interest rate environment and, if the Unguaranteed Interests are
sold for a price less than the then outstanding Class A and Class B Principal
Balances, might suffer a loss of principal.
Legal Considerations
Applicable state laws generally regulate interest rates and
other charges, require certain disclosures, and require licensing of the Seller.
In addition, most states have other laws, public policy and general principles
of equity relating to the protection of borrowers, unfair and deceptive
practices and practices which may apply to the origination, servicing and
collection of the SBA Loans. Depending on the provisions of the applicable law
and the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability of the Servicer to collect all or
part of the principal of or interest on the SBA Loans, may entitle the borrower
to a refund of amounts previously paid and, in addition, could subject the
Servicer to damages and administrative sanctions. See "Certain Legal Matters
relating to the SBA Loans."
Unaudited Statements
On each Remittance Date, the Trustee will mail to each
Certificateholder a statement setting forth, among other things, certain
information as to the distribution being made on such Remittance Date, the fees
to be paid to the Servicer and the Trustee and the loss and delinquency status
of the SBA Loans. Although the information contained in such statements will be
prepared by the Servicer, neither such information nor any other financial
information furnished to Certificateholders will be examined and reported upon,
and an opinion will not be expressed by, an independent public accountant. See
"Description of the Agreement and the Certificates--Payments on the SBA Loans;
Distribution on the Certificates" herein.
State Tax Considerations
In addition to the Federal income tax consequences described
in "Material Federal Income Tax Consequences" herein, potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the Class A Certificates. State income tax law may differ
substantially from the corresponding federal law, and this Memorandum does not
purport to describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various state tax consequences of an investment in the Class A Certificates.
Environmental Considerations
Under state and federal environmental legislation and case law
applicable in various states, a secured party that takes a deed in lieu of
foreclosure, acquires a mortgaged property at a foreclosure sale or which, prior
to foreclosure, has been involved in decisions or actions which either may
demonstrate operational control of the borrower or may lead to contamination of
a property, may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a holder of a mortgage note (such as the Trust Fund), which, under
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<PAGE>
the terms of the Agreement, is not required to take an active role in operating
the Mortgaged Properties. See "Certain Legal Matters Relating to the SBA
Loans--Environmental Considerations" herein.
In the Agreement the Seller will represent and warrant that at
the time of origination of each SBA Loan, each Mortgaged Property which is the
primary collateral for the related SBA Loan was, at the time of origination of
such SBA Loan, and to the best of the Seller's knowledge, is, as of the Cut-Off
Date, free of contamination from toxic substances or hazardous wastes or is
subject to ongoing environmental rehabilitation approved by the SBA. In
addition, the Servicer will agree that it shall take into account the existence
of any hazardous substances, hazardous wastes or solid wastes on Mortgaged
Properties in determining whether to foreclose upon or otherwise comparably
convert the ownership of such Mortgaged Property, and will not foreclose on a
Mortgaged Property where it has cause to believe such substance exists unless
(i) it had received a Phase I environmental report and such report reveals no
environmental problems or (ii) such Mortgaged Property is subject to an
environmental rehabilitation for which the Seller is not responsible. See
"Description of the Agreement and the Certificates--Representations and
Warranties of the Seller" herein.
Prepayment Considerations
None of the SBA Loans are balloon loans and each is fully
amortizing in accordance with its terms. The SBA Loans may be prepaid in full or
in part at any time, upon proper notice, without penalty or fee. The rate of
prepayments of the SBA Loans cannot be predicted and may be affected by a wide
variety of economic, social, and other factors, including prevailing interest
rates and the availability of alternative financing. Therefore, no assurance can
be given as to the level of prepayments that the Trust Fund will experience.
Prepayments may result from voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior mortgage loan or loans), sales of businesses financed by the SBA Loans,
sales of Mortgaged Properties subject to "due-on-sale" provisions and
liquidations due to default, as well as the receipt of proceeds from insurance
policies. In addition, repurchases or purchases from the Trust Fund of SBA Loans
made by the Seller or the Servicer under the Agreement will have the same effect
on the Class A and Class B Certificateholders as a prepayment of the related SBA
Loans. See "Yield, Maturity and Prepayment Considerations" herein.
Collections on the SBA Loans may vary due to the level and
frequency of delinquent payments and of prepayments. Collections on the SBA
Loans may also vary due to seasonal business patterns and payment habits of
borrowers.
The SBA Loans are "simple interest" or "date-of-payment
loans." See "The SBA Loan Pool--Payments on the SBA Loans" herein. If a payment
is received on an SBA Loan later than scheduled, a smaller portion of such
payment will be applied to principal and a greater portion will be applied to
interest than would have been the case had the payment been received on its
scheduled due date, resulting in such SBA Loan having a longer average life than
would have been the case had the payment been made as scheduled. Conversely, if
a payment on an SBA Loan is received earlier than scheduled, more of such
payment will be applied to principal and less to interest than would have been
the case had the payment been received on its scheduled due date, resulting in
such SBA Loan having a shorter average life than would have been the case had
the payment been made as scheduled. However, this effect is mitigated because
the monthly payment amount is recalculated periodically to reflect changes in
the interest rate, the then current principal balance and the then remaining
term to maturity.
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<PAGE>
Junior Liens
As of the Statistical Calculation Date, approximately 59% of
the SBA Loans are secured by a Commercial Property that constitutes a first lien
on the related Commercial Property. However, certain SBA Loans, which may or may
not be secured by a first lien on Commercial Property, are secured by a lien on
business assets, including equipment, inventory or accounts receivable or by a
Residential Property and/or Commercial Property, some of which may constitute
second or third liens on such Collateral.
The primary risk to holders of SBA Loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related Prior Liens to satisfy fully both such Prior
Liens and the SBA Loan. If a holder of a Prior Lien forecloses on a Mortgaged
Property, the proceeds of the foreclosure sale will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due and owing to the
holders of each Prior Lien. The claims of the holders of all Prior Liens will be
satisfied in full out of proceeds of the liquidation of the Prior Liens, if such
proceeds are sufficient, before the Trust Fund receives any payments in respect
of the SBA Loan.
If the Servicer were to foreclose on any mortgage securing an
SBA Loan, it would do so subject to any related Prior Liens. For the debt
related to the SBA Loan to be paid in full at such sale, a bidder at the
foreclosure sale of the related Mortgaged Property would have to bid an amount
sufficient to pay off all sums due under the SBA Loan and the Prior Liens or
purchase the Mortgaged Property, for the full amount of the SBA Loan, subject to
the Prior Liens. Similarly, if the Servicer were to take possession of any other
Collateral, it would do so subject to any related Prior Lien.
Spread Account
As described herein, the Spread Account is intended to enhance
the likelihood of timely payment of principal and interest on the Class A
Certificates. However, if the SBA Loan Pool experiences extremely high levels of
delinquencies and losses, the Spread Account could be depleted, resulting in
shortfalls in payments to the Class A Certificateholders. See "Description of
the Agreement and the Certificates--Spread Account" herein.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be
used by the Seller for general corporate purposes, including the repayment of
debt and the origination of additional SBA Loans.
THE SBA LOAN POOL
General
Unless otherwise noted, all statistical percentages in this
Memorandum are approximately measured by the aggregate principal balances of the
SBA ss. 7(a) Loans in a preliminary pool of SBA ss.7(a) Loans as of the
Statistical Calculation Date, and the Unguaranteed Interests or the Guaranteed
Interests therein, as the case may be, at the close of business on the
Statistical Calculation Date and all dollar amounts are based on the principal
balances thereof at the close of business on the Statistical Calculation Date.
While the statistical distribution of the characteristics of the actual pool of
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<PAGE>
SBA ss.7(a) Loans delivered on the Closing Date will vary somewhat from the
statistical distribution of such characteristics for the preliminary pool
presented in this Confidential Placement Memorandum, the Seller does not believe
that the characteristics of the Pool delivered on the Closing Date will differ
materially. Prior to the Cut-Off Date certain Loans may be removed and
additional Loans substituted therefor. Regularly scheduled payments and
prepayments of the Loans (which are prepayable at any time) between the
Statistical Calculation Date and the Cut-Off Date will affect the balances and
percentages set forth below. As used herein, the term "Statistical Calculation
Date" means October 31, 1998.
Except for less than approximately 1.0% of the SBA Loans (by
principal balance of Unguaranteed Interests as of the Statistical Calculation
Date), all of the preliminary pool of the SBA ss. 7(a) Loans were, and all of
the Subsequent SBA Loans will be, originated and underwritten by the Seller (or
its predecessors) in accordance with the underwriting criteria described under
"The SBA Loan Lending Program of the Seller--Underwriting Criteria for SBA ss.
7(a) Loans." The unpaid principal portion of the Unguaranteed Interests of the
SBA Loans aggregated approximately $19,491,552 as of the Statistical Calculation
Date. As of the Statistical Calculation Date, the SBA Loans were originated to
businesses located in 20 states, of which, the following states represented more
than 5% of the SBA Loan Pool: Florida 23.11%; Virginia 16.94%; Georgia 5.76%;
New York 7.33%; New Jersey 9.71%, and Oklahoma 5.76%.
All of the SBA Loans are or will be secured. As of the
Statistical Calculation Date, approximately 59% of the SBA Loans are secured
primarily by first liens on Commercial Property (of which the unpaid principal
portion of the Unguaranteed Interests as of the Statistical Calculation Date
aggregates to approximately $11,416,160) generally used by the Obligor or their
affiliates in the conduct of their business. As of the Statistical Calculation
Date, approximately 36% of the SBA Loans are secured primarily by second liens
on Commercial Property (of which the unpaid principal portion of the
Unguaranteed Interests as of the Statistical Calculation Date aggregates
approximately $6,975,495). As of the Statistical Calculation Date, with respect
to approximately 11 SBA Loans, of which the unpaid principal portion of the
Unguaranteed Interests aggregates approximately $1,099,897, additional
collateral consisting of senior and junior liens on personal real property and
other commercial real property was obtained. The SBA Loans are also generally
secured by additional collateral consisting of liens on machinery and equipment
and other business assets. In addition, each SBA Loan is secured by a personal
guarantee of a principal or principals of the related Obligor.
Payments on the SBA Loans
The SBA Loans have payments of principal and interest due
throughout the month with interest payable in arrears. With respect to
substantially all of the SBA Loans, the interest due is based upon the Prime
Rate as of the first Business Day or, with respect to certain SBA Loans, the
first day of the related calendar quarter, in each case plus the appropriate
margin (subject to applicable lifetime floors and caps). For example, the Prime
Rate on July 1st is used to determine the interest rate paid on substantially
all of the SBA Loans for the months of July, August and September. Since
interest is paid in arrears, interest and principal for these months is
scheduled to be received in August, September and October, respectively. The
monthly payment received is apportioned between interest and principal based
upon a "simple interest" basis, which means that payments are applied as they
are received first to accrued interest, then to principal, with interest
calculated on the number of days between the current and previous payments. If a
monthly payment is received prior to its due date, less of such payment will be
allocated to interest than would be the case if such payment were received on
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<PAGE>
its due date. Conversely, if a monthly payment is received after its due date,
more of such payment will be allocated to interest than would be the case if
such payment were received on its due date. None of the SBA Loans is a balloon
loan and each is fully amortizing in accordance with its terms. However, the
monthly payments are re-calculated periodically to reflect changes in interest
rates, the then-current principal balance and the then-remaining term to
maturity.
Certain Characteristics of the SBA Loan Pool
The statistical information presented in this Memorandum is
based upon a preliminary pool of SBA ss. 7(a) Loans expected to be delivered to
the Trustee on the Closing Date. Certain SBA ss. 7(a) Loans contained in such
preliminary pool may be deleted from the final pool of ss. 7(a) Loans. While the
actual characteristics of the final pool of ss. 7(a) Loans delivered on the
Closing Date might vary somewhat from the characteristics described herein, the
Seller does not believe that such differences will be material.
Set forth below is a description of certain characteristics of
the preliminary pool of the SBA ss. 7(a) Loans expected to constitute the SBA
Loan Pool as of the Statistical Calculation Date. Certain of the percentage
columns may not sum to 100.00% due to rounding.
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<PAGE>
The geographic distribution of the SBA ss. 7(a) Loans by state
as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
% of Statistical
Current Calculation Date
Unguaranteed Aggregate
State (BLC) Principal # of Loans
Principal Balance Balance
- ---------------- ----------------------- ---------------------- --------------
% of Statistical
Current Calculation Date
Unguaranteed Aggregate
State (BLC) Principal # of Loans
Principal Balance Balance
- ---------------- ----------------------- ---------------------- --------------
<S> <C> <C> <C>
Arizona $612,241.77 3.14% 2
Florida 4,504,589.49 23.11% 28
Georgia 1,122,818.61 5.76% 5
Indiana 829,730.62 4.26% 5
Kansas 48,611.86 0.25% 1
Massachusettes 46,084.26 0.24% 1
Maryland 860,986.37 4.42% 5
North Carolina 408,309.91 2.09% 2
Nebraska 238,670.14 1.22% 3
New Jersey 1,891,754.50 9.71% 11
New Mexico 519,672.53 2.67% 3
New York 1,429,528.54 7.33% 6
Ohio 249,598.78 1.28% 1
Oklahoma 1,122,488.02 5.76% 4
Pennsylvania 393,096.79 2.02% 2
South Carolina 722,543.61 3.71% 4
Tennessee 363,810.46 1.87% 2
Texas 737,862.14 3.79% 2
Virginia 3,302,835.94 16.94% 13
Wisconsin 86,317.18 0.44% 1
Total $19,491,552 100% 101
============ ============== ==== ===
</TABLE>
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<PAGE>
The interest rates borne by the SBA Notes (the "Note Rates")
were distributed as follows as of the Statistical Calculation Date:
<TABLE>
<CAPTION>
Current % of Statistical
Unguaranteed Calculation Date
(BLC) Aggregate
Gross Coupon Principal Principal #
Balance Balance of Loans
- ------------------------------- --------------- ---------------- ----------
<S> <C> <C> <C> <C>
10.25% </= Gross 10.50% $ 713,155.30 3.66% 3
Coupon <
10.50% </= Gross 11.00% 1,895,414.02 9.72% 5
Coupon <
11.00% </= Gross 11.25% 16,078,724.70 82.49% 88
Coupon <
11.25% </= Gross 804,257.50 4.13% 5
Coupon <
Total 19,491,552 100.00% 101
====== ============ ======= ===
</TABLE>
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<PAGE>
The Margins added to the Prime Rate on each Interest
Adjustment Date to determine the new Note Rates were distributed as of the
Statistical Calculation Date as follows:
<TABLE>
<CAPTION>
Current % of Statistical
Unguaranteed Calculation Date
(BLC) Aggregate
Gross Margin Principal Principal
Balance Balance # of Loans
<S> <C> <C> <C> <C>
2.00% < Gross Margin -- 0.00% --
2.00% </= Gross 2.25% 713,155 3.66% 3
Margin <
2.25% </= Gross 2.50% -- 0.00% --
Margin <
2.50% </= Gross 2.75% 1,982,914 10.17% 6
Margin <
2.75% </= Gross 3.00% 16,795,482 86.17% 92
Margin <
Total: 19,491,552 100.00% 101
========= ====== ==========
</TABLE>
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<PAGE>
The distribution of the original terms of the SBA ss. 7(a) Loans as of
the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Current % of Statistical
Unguaranteed Calculation Date
(BLC) Aggregate
Original Term Principal Principal # of Loans
Balance Balance
<S> <C> <C> <C>
84 </= Original 108 $ 0.00 --
Maturity <
108 </= Original 132 575,686 2.95% 8
Maturity <
132 </= Original 156 - 0.00% -
Maturity <
156 </= Original 180 - 0.00% -
Maturity <
180 </= Original 204 898,857 4.61% 8
Maturity <
204 </= Original 228 360,303 1.85% 3
Maturity <
228 </= Original 252 1,254,817 6.44% 7
Maturity <
252 </= Original 276 1,440,826 7.39% 9
Maturity <
276 </= Original 300 2,765,173 14.19% 15
Maturity <
300 </= Original 324 12,195,889 62.57% 51
Maturity <
Total: $19,491,552 100.00% 101
===== ============ ======= ===
</TABLE>
-40-
<PAGE>
The distribution of the number of remaining months to maturity
of the SBA ss. 7(a) Loans as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Remaining Term (BLC) Principal Aggregate
Balance Principal # of Loans
Balance
<S> <C> <C> <C> <C> <C>
12 < Rem Term $ - 0.00% -
12 </= Rem Term < 24 - 0.00% -
24 </= Rem Term < 36 - 0.00% -
36 </= Rem Term < 48 - 0.00% -
48 </= Rem Term < 60 - 0.00% -
60 </= Rem Term < 74 4,485.61 0.02% 2
74 </= Rem Term < 86 - 0.00% -
86 </= Rem Term < 96 - 0.00% -
96 </= Rem Term < 108 - 0.00% -
108 </= Rem Term < 120 573,735.96 2.94% 7
120 </= Rem Term < 132 - 0.00% -
132 </= Rem Term < 144 114,211.68 0.59% 1
144 </= Rem Term < 156 - 0.00% -
156 </= Rem Term < 168 - 0.00% -
168 </= Rem Term < 180 609,871.08 3.13% 5
180 </= Rem Term < 192 286,450.93 1.47% 2
192 </= Rem Term < 204 229,052.87 1.18% 2
204 </= Rem Term < 215 - 0.00% -
215 </= Rem Term < 227 339,322.26 1.74% 3
227 </= Rem Term < 239 932,532.64 4.78% 4
239 </= Rem Term < 251 899,458.64 4.61% 5
251 </= Rem Term < 263 665,564.18 3.41% 5
263 </= Rem Term < 276 657,103.93 3.37% 5
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<PAGE>
276 </= Rem Term < 287 2,458,511.15 12.61% 10
287 </= Rem Term < 300 10,799,243.09 55.40% 44
300 </= Rem Term 922,007.50 4.73% 6
Total: $19,491,552.00 100.00% 101
===== =============== ======= ===
</TABLE>
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<PAGE>
The distribution of the number of months since origination of the SBA
ss.7(a) Loans as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
% of
Current Statistical
Unguaranteed Calculation
(BLC) Date
Age Principal Aggregate # of Loans
Balance Principal
Balance
<S> <C> <C> <C> <C> <C> <C>
12 < Age 16,507,454.00 84.69% 87
12 </= Age < 24 2,800,368.56 14.37% 10
24 </= Age < 36 65,031.67 0.33% 1
36 </= Age < 48 1,950.44 0.01% 1
48 </= Age < 60 - 0.00% -
60 </= Age < 72 - 0.00% -
72 </= Age < 84 - 0.00% -
84 </= Age < 96 - 0.00% -
96 </= Age < 107 114,211.68 0.59% 1
107 </= Age < 118 2,535.17 0.01% 1
118 </= Age
Total: 19,491,552 100.00% 101
========== ===== === =======
</TABLE>
<PAGE>
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<PAGE>
The years in which the SBA ss. 7(a) Loans were originated was
as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Unguaranteed Date
(BLC) Aggregate
Year of Origination Principal Principal # of Loans
Balance Balance
- ------------------- ---------------- -------------------- ----------------
<S> <C> <C> <C>
1989 2,535.17 0.01% 1
1990 - - -
1991 - - -
1992 - - -
1993 - - -
1994 1,950.44 0.01% 1
1995 - - -
1996 65,031.67 0.33% 1
1997 3,454,242.44 17.72% 15
1998 15,967,791.80 81.92% 83
Total: 19,491,552 100.00% 101
============== ========== ===
</TABLE>
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<PAGE>
The distribution of the original balances of the SBA ss. 7(a)
Loans including the Guaranteed and Unguaranteed Portions was as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Unguaranteed Date
(BLC) Aggregate
Original Balance Principal Principal # of Loans
Balance Balance
- ------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
50,000 < Balance $ -- - --
50,000 </= Balance 100,000 1,950.44 0.01% 1
<
100,000 </= Balance 125,000 - - -
<
125,000 </= Balance 150,000 2,535.17 0.01% 1
<
150,000 </= Balance 200,000 133,615.66 0.69% 3
<
200,000 </= Balance 225,000 117,140.79 0.60% 3
<
225,000 </= Balance 250,000 - - -
<
250,000 </= Balance 275,000 65,031.68 0.33% 1
<
275,000 </= Balance 300,000 138,368.99 0.71% 2
<
300,000 </= Balance 350,000 486,736.99 2.50% 5
<
350,000 </= Balance 400,000 769,785.35 3.95% 8
<
400,000 </= Balance 450,000 511,101.43 2.62% 5
<
450,000 </= Balance 500,000 350,940.35 1.80% 3
<
500,000 </= Balance 550,000 1,183,052.83 6.07% 9
<
550,000 </= Balance 600,000 565,432.65 2.90% 4
<
600,000 </= Balance 650,000 462,582.66 2.37% 3
<
650,000 </= Balance 700,000 498,635.57 2.56% 3
<
700,000 </= Balance 750,000 704,566.96 3.61% 4
<
750,000 </= Balance 800,000 566,947.52 2.91% 3
<
800,000 </= Balance 850,000 1,422,153.51 7.30% 7
<
850,000 </= Balance 900,000 218,063.37 1.12% 1
<
900,000 </= Balance 950,000 229,699.31 1.18% 1
<
950,000 </= Balance 1,000,000 243,087.79 1.25% 1
<
1,000,000 </= Balance 1,025,000 5,508,297.39 28.26% 22
<
1,025,000 </= Balance 1,050,000 275,007.50 1.41% 1
<
1,050,000 </= Balance 1,075,000 305,459.92 1.57% 1
<
1,075,000 </= Balance < 1,100,000 323,780.56 1.66% 1
1,100,000 </= Balance 1,125,000 708,695.21 3.64% 2
<
-45-
<PAGE>
1,125,000 </= Balance 1,175,000 - - -
<
1,175,000 </= Balance 1,200,000 - - -
<
1,200,000 </= Balance 3,698,881.94 18.98% 6
Total: 19,491,552 100% 101
===== =========== ==== ===
</TABLE>
-46-
<PAGE>
The distribution of the original balances of the Unguaranteed
Interests was as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Unguaranteed Date
Original Unguaranteed (BLC) Aggregate
Loan Principal Principal Principal # of Loans
Balance Balance Balance
- ------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
50,000 >/= Balance $ 138,101.27 0.71% 5
50,000 </= Balance 100,000 1,279,983.78 6.57% 17
<
100,000 </= Balance 150,000 2,597,527.26 13.33% 21
<
150,000 </= Balance 200,000 2,542,812.71 13.05% 15
<
200,000 </= Balance 250,000 2,113,003.98 10.84% 10
<
250,000 </= Balance 300,000 5,783,304.89 29.67% 23
<
300,000 </= Balance 350,000 629,240.48 3.23% 2
<
350,000 </= Balance 400,000 708,695.21 3.64% 2
<
400,000 </= Balance 450,000 - - -
<
450,000 </= Balance 500,000 448,390.95 2.30% 1
<
500,000 </= Balance 550,000 520,806.33 2.67% 1
<
550,000 </= Balance 600,000 - - -
<
600,000 </= Balance 650,000 598,900.11 3.07% 1
<
650,000 </= Balance 750,000 2,130,784.55 10.93% 3
<
Total: $19,491,552 100.00% 101
===== ============ ======= ===
</TABLE>
-47-
<PAGE>
The distribution of the principal balances of the Unguaranteed
Interests of the SBA ss. 7(a) Loans as of the Statistical Calculation Date was
as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Unguaranteed Date
Current Unguaranteed (BLC) Aggregate
Principal Balance Principal Principal # of Loans
Balance Balance
- ------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
< Balance 0.10% 3
25,000 19,264.54
</= Balance 0.93% 4
25,000 < 50,000 182,227.52
</= Balance 1.32% 4
50,000 < 75,000 257,150.65
</= Balance 5.93% 13
75,000 < 100,000 1,155,621.78
</= Balance 4.64% 8
100,000 < 125,000 905,010.92
</= Balance 8.44% 12
125,000 < 150,000 1,644,419.56
</= Balance 7.54% 9
150,000 < 175,000 1,469,032.53
</= Balance 7.82% 8
175,000 < 200,000 1,524,906.87
</= Balance 5.34% 5
200,000 < 225,000 1,041,007.53
</= Balance 24.17% 19
225,000 < 250,000 4,711,714.02
</= Balance 7.92% 6
250,000 < 300,000 1,544,377.97
</= Balance 3.23% 2
300,000 < 325,000 629,240.48
</= Balance 1.79% 1
325,000 < 350,000 349,545.29
</= Balance 1.84% 1
350,000 < 375,000 359,149.92
</= Balance --
375,000 < 400,000 - -
</= Balance --
400,000 < 425,000 - -
</= Balance 2.30% 1
425,000 < 450,000 448,390.95
</= Balance --
450,000 < 500,000 - -
</= Balance 2.67% 1
500,000 < 550,000 520,806.33
-48-
<PAGE>
</= Balance 3.07% 1
550,000 < 600,000 598,900.11
</= Balance 7.11% 2
600,000 < 700,000 1,386,784.55
700000 < Balance 3.82% 1
744,000.00
Total: 19,491,552 100% 101
===== =========== ==== ===
</TABLE>
-49-
<PAGE>
The distribution of the principal balances of the Unguaranteed
Interests as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
% of
Statistical
Current Calculation
Unguaranteed Date
Current SBA Aggregate (BLC) Aggregate
Loan Principal Balance Principal Principal # of Loans
Balance Balance
- ------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
50,000 <Balance 19,264.54 0.10% 3
50,000 </= 75,000 -- 0.00% --
Balance <
75,000 </= 100,000 -- 0.00% --
Balance <
100,000 </= 125,000 38,877.24 0.20% 1
Balance <
125,000 </= 150,000 143,350.28 0.74% 3
Balance <
150,000 </= 175,000 53,750.00 0.28% 1
Balance <
175,000 </= 200,000 222,111.67 1.14% 2
Balance <
200,000 </= 225,000 278,368.98 1.43% 3
Balance <
225,000 </= 250,000 160,344.22 0.82% 2
Balance <
250,000 </= 300,000 995,277.56 5.11% 11
Balance <
300,000 </= 350,000 542,203.58 2.78% 5
Balance <
350,000 </= 400,000 1,036,837.49 5.32% 8
Balance <
400,000 </= 450,000 983,389.41 5.05% 7
Balance <
450,000 </= 500,000 478,350.82 2.45% 3
Balance <
500,000 </= 550,000 855,601.71 4.39% 5
Balance <
550,000 </= 600,000 1,349,906.87 6.93% 7
Balance <
600,000 </= 650,000 822,944.16 4.22% 4
Balance <
-50-
<PAGE>
650,000 </= 700,000 447,763.67 2.30% 2
Balance <
700,000 </= 750,000 10,063,210.31 51.63% 30
Balance <
750,000 </= 800,000 1,000,000.00 5.13% 4
Balance <
Total: 19,491,551.52 100.00% 101
======= ============= ====== =====
</TABLE>
-51-
<PAGE>
The distribution of the Loan-to-Value Ratios of the SBA Loans without
giving effect to the discounts to collateral value as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Percentage of
Statistical
Calculation Date
Unguaranteed
Undiscounted Current Unguaranteed Principal
Loan-To-Value Ratio Principal Balance Balance # of Loans
- -------------------- --------------------- ---------- ----------
<S> <C> <C> <C>
LTV <=25% $ 17,314.10 0.09% 2
25% < LTV <=30% $ 0.00 0.00% 0
30% < LTV <=35% $ 663,931.78 3.41% 2
35% < LTV <=40% $ 499,687.66 2.56% 2
40% < LTV <=45% $ 838,214.32 4.30% 4
45% < LTV <=50% $1,358,620.46 6.97% 6
50% < LTV <=55% $ 635,442.24 3.26% 4
55% < LTV <=60%$ 3,661,905.36 18.79% 14
60% < LTV <=65%$ 2,639,188.46 13.54% 14
65% < LTV <=70%$ 2,626,634.83 13.48% 14
70% < LTV <=75%$ 2,423,095.25 12.43% 11
75% < LTV <=80%$ 1,743,517.04 8.94% 10
80% < LTV <=85%$ 1,284,721.95 6.59% 6
85% < LTV <=90%$ 671,509.93 3.45% 7
90% < LTV <=95%$ 136,250.00 0.70% 1
95% < LTV <=100$ 291,518.14 1.50% 4
LTV > 100% $ 0.00 0.00% 0
Total: $19,491,552 100.00% 101
====== ============= ======= =====
</TABLE>
-52-
<PAGE>
The distribution of the SBA Loans based upon the first four digits of
the Office of Management and Budget's Standard Industrial Classification was as
follows:
<TABLE>
<CAPTION>
% of Statistical
Calculation Date
Current Aggregate
SIC CODE Unguaranteed (BLC) Principal Balance # of
Principal Balance Loans
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
600 199,767.05 1.02% 1
1541 138,509.63 0.71% 2
2759 53,750.00 0.28% 1
3993 144,523.52 0.74% 1
4449 94,570.72 0.49% 1
4581 218,063.37 1.12% 1
4953 161,500.00 0.83% 1
4993 199,790.60 1.03% 1
5032 171,793.60 0.88% 1
5331 97,225.49 0.50% 1
5411 1,183,785.62 6.07% 7
5541 1,315,571.71 6.75% 9
5591 136,250.00 0.70% 1
5712 153,000.00 0.78% 1
5713 82,256.43 0.42% 1
5719 275,007.50 1.41% 1
5812 3,308,120.61 16.97% 17
5813 131,250.00 0.67% 1
5995 97,500.00 0.50% 1
6512 250,000.00 1.28% 1
7011 8,666,861.80 44.46% 32
7211 183,087.79 0.94% 2
7212 1,950.44 0.01% 1
7334 186,612.28 0.96% 1
7513 65,031.67 0.33% 1
-53-
<PAGE>
7538 199,651.70 1.02% 1
7542 433,150.45 2.22% 3
7543 2,535.17 0.01% 1
7699 115,236.32 0.59% 1
7948 349,545.29 1.79% 1
7992 105,334.47 0.54% 1
7999 68,639.15 0.35% 1
8051 252,961.68 1.30% 2
8059 448,717.46 2.30% 2
19,491,551.52 100.00% 101
================ ========= =====
</TABLE>
-54-
<PAGE>
Subsequent SBA Loans
The Subsequent SBA Loans to be included in the Trust Fund are
expected to have the following characteristics as of their related Cut-Off Dates
(unless otherwise indicated).1
Range of weighted average original Unguaranteed Interest.....$100,000 - $300,000
Range of original Unguaranteed Interest.......................$25,000 - $750,000
Range of weighted average Note Rate..............................10.25% - 11.25%
Range of Note Rates..............................................10.00% - 11.25%
Range of weighted average ages...........................................0-3 mo.
Range of ages............................................................0-6 mo.
Range of weighted average original terms.............................200-300 mo.
Range of original terms...............................................84-300 mo.
Range of weighted average gross margins................................2.5-2.75%
Range of gross margins.................................................2.0-2.75%
Range of weighted average original undiscounted LTV ratios................60-85%
Range of original undiscounted LTV ratios................................40-110%
- ------------
1
The actual characteristics of the Subsequent SBA Loans to be included
in the Trust Fund may vary somewhat from the characteristics presented.
-55-
<PAGE>
The following table sets forth the Prime Rate for the first business
day of each of the following calendar quarters as reported in The Wall Street
Journal:
<TABLE>
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Quarter
1st 8.50% 8.50% 8.25% 8.50%
2nd 9.00% 8.25% 8.50% 8.50%
3rd 9.00% 8.25% 8.50% 8.50%
4th 8.75% 8.25% 8.50% 8.25%
</TABLE>
The values set forth in the table above are historical and may not be indicative
of future values of the Prime Rate.
-56-
<PAGE>
THE SBA LOAN PROGRAM
General
The Small Business Act of 1953 (the "Act"), which created the
Small Business Administration, also established the general business loan
program under Section 7(a) of the Act (the "Section 7(a) Program"). The Section
7(a) Program was intended to encourage lenders to provide loans to qualifying
small businesses. Loans made under the Section 7(a) Program can be used to
construct, expand or convert facilities, to purchase building equipment or
materials or to finance machinery and equipment, business acquisitions and
inventory. Money lent under the Section 7(a) Program also can be used for
working capital.
The Section 7(a) Loan Guaranty Programs
The SBA administers three levels of lender participation in
the Section 7(a) Program. Under the first level, known as the Guaranteed
Participant Program, the lender gathers and processes data from applicants and
forwards it, along with a request for the SBA's guaranty, to a local SBA office.
The SBA then completes an independent analysis and decides whether to guaranty
the loan. SBA turnaround time on such applications varies greatly, depending on
its backlog of loan applications.
Under the second level of lender participation, known as the
Certified Lender Program, the lender (the "Certified Lender") gathers and
processes data from applicants and makes a request to the SBA, as in the
Guaranteed Participant Program procedure. The SBA then performs an expedited
review of the lender's credit analysis, which generally is completed within
three working days. The SBA requires that lenders originate loans meeting
certain portfolio and volume criteria before authorizing them to participate in
the Certified Lender Program.
Under the third level of lender participation, known as the
Preferred Lender Program, the lender (the "Preferred Lender") has the authority
to approve a loan and obligate the SBA to guarantee the loan without submitting
an application to the SBA for credit review. The lender is required to notify
the SBA of the approved loan and submit certain documents. The standards
established for participants in the Preferred Lender Program are more stringent
than those for participants in the Certified Lender Program and involve meeting
additional portfolio quality and volume requirements. The granting of Preferred
Lender status is based upon a lender's ability to originate and service loans in
a particular territory to the satisfaction of the SBA.
Section 7(a) Loan Parameters
Under each of the Guaranteed Participant, Certified Lender and
Preferred Lender Programs, the SBA currently guarantees loans up to 75%, subject
to a per borrower guaranty maximum of $750,000. These limits have varied from
time to time. Loans originated under the Section 7(a) Program can bear either
fixed or adjustable rates of interest, as negotiated between the lender and the
borrower at origination. Adjustable-rate loans generally adjust on the first
business day of each calendar quarter based on a specified margin over the
lowest prime rate, as published in The Wall Street Journal. For loans made
pursuant to the Guaranteed Participant, Certified Lender or Preferred Lender
Programs, this margin generally does not exceed 2.75% per annum.
Terms to maturity for guaranteed loans vary depending upon the
use of proceeds and an evaluation of the borrower's ability to repay the loan.
For instance, working capital loans are limited to seven year terms unless an
-57-
<PAGE>
extension is obtained, which can increase the term to a maximum of 10 years.
Real estate loans generally have terms up to 25 years, and machinery and
equipment loans generally have a maximum term of 15 years. If the loan proceeds
are to be used for multiple qualifying purposes, a blended term based on the
foregoing criteria may be offered by the Lender.
The Seller's Participation in SBA Section 7(a) Program
The SBA Loans are partially guaranteed by the SBA pursuant to
a Small Business Administration Loan Guaranty Agreement (Deferred Participation)
(SBA Form 750), dated March 27, 1997, and a Supplemental Guarantee Agreement
Preferred Lender Program (SBA Form 1347), dated August 1, 1997, each by and
between the Seller and the SBA, and pertinent SBA regulations found at 13 C.F.R.
Part 120.
The Seller has Preferred Lender status with the SBA in the
areas served by the following SBA district offices: Richmond, Virginia; Miami
and, Jacksonville, Florida; Atlanta, Georgia; Chicago and Springfield, Illinois;
Denver, Colorado; St. Louis, Springfield and Kansas City, Missouri; Wichita,
Kansas; Omaha, Nebraska; Des Moines and Cedar Rapids, Iowa; Albuquerque, New
Mexico; Oklahoma City, Oklahoma; Little Rock, Arkansas; Newark, New Jersey;
Pittsburgh, Pennsylvania; Baltimore, Maryland; Clarksburg, West Virginia,
Louisville, Kentucky; Birmingham, Alabama; Columbia, South Carolina; Nashville,
Tennessee; Indianapolis, Indiana; New Orleans, Louisiana; Las Vegas, Nevada;
District of Columbia; three districts in New York including Rochester and
Syracuse; and seven districts in Texas, including Houston, Dallas and Austin.
See "The Seller" herein.
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS
The value of an investment in the Class A Certificates may be
affected by, among other things, a change in interest rates. If interest rates
fall below the then current Note Rates on the SBA Loans, the rate of prepayment
on such SBA Loans may increase. Prepayments, delinquencies and defaults may also
be influenced by a number of other factors including economic conditions.
On each Remittance Date, the Certificateholders are entitled
to receive 30 days' interest on the Class A or Class B Principal Balance, as the
case may be, immediately prior to such Remittance Date at the applicable Class A
or Class B Remittance Rate, subject to the adjustments described under
"Description of the Agreement and the Certificates--Class A and Class B Interest
Distribution Amounts" herein. This is the case even if Principal Prepayments or
Curtailments are received with respect to the SBA Loans during the related Due
Period. With respect to such Principal Prepayments and Curtailments the Servicer
will remit to the Trustee for deposit in the Certificate Account, from amounts
otherwise payable to it as servicing compensation, Compensating Interest as
described under "Description of the Agreement and the Certificates--Payments on
the SBA Loans; Distributions on the Certificates" herein.
For the Certificates, the net effect of each distribution
respecting interest generally will be the pass-through on each Remittance Date
to each Certificateholder of an amount which is equal to 30 days' interest at
the Class A or Class B Remittance Rate, as the case may be, subject to the
adjustments described herein.
The Excess Spread on the guaranteed portions of the SBA ss.
7(a) Loans will be available to make up shortfalls in amounts to which
Certificateholders are entitled on Remittance Dates. The amount of Excess Spread
varies from loan to loan and will be eliminated when a borrower prepays a loan
in full. In addition, the Excess Spread on an SBA ss. 7(a) Loan in default will
be paid by the SBA until the purchase by the SBA of the related Guaranteed
Interest (up to 120 days of accrued interest).
-58-
<PAGE>
With respect to SBA ss. 7(a) Loans for which the Guaranteed
Interest was sold in the secondary market on or after September 1, 1993 (unless
the related SBA ss. 7(a) Loan was approved by the SBA on or after October 12,
1995) and SBA ss. 7(a) Loans approved by the SBA on or after October 12, 1995,
regardless of whether they were sold in the Secondary Market (the "Additional
Fee SBA Loans"), a fee equal to 40 basis points or 50 basis points,
respectively, per annum on the outstanding balance of the Guaranteed Interest of
such Additional Fee SBA Loans (the "Additional Fee") is required to be paid by
the Seller to the SBA. Although such Additional Fee is the responsibility of the
Seller, the Additional Fee will be funded from the interest received by the
related Obligor. Accordingly, any such Additional Fee will reduce the Excess
Spread on the related SBA ss. 7(a) Loan.
Unscheduled payments, delinquencies and defaults on the SBA
Loans and distributions from the Pre-Funding Account, if any, on the Remittance
Dates in January 1999, February 1999 and March 1999 and the Special Remittance
Date will affect the amount of funds available to make distributions on each
Remittance Date. In addition, the Servicer may, at its option, on any Remittance
Date on or after the date on which the then outstanding aggregate principal
balance of the Unguaranteed Interests is less than 10% of the sum of (i) the
Original Pool Principal Balance and (ii) the initial Pre-Funded Amount, if any,
purchase from the Trust Fund all of the Unguaranteed Interests and any other
assets in the Trust Fund at a price equal to the sum of (x) 100% of the then
outstanding Class A and Class B Principal Balances, and (y) 30 days' interest
thereon at the then applicable Class A and Class B Remittance Rates (the
"Termination Price"). See "Description of the Agreement and the
Certificates--Termination; Purchase of SBA Loans" herein. However, because the
SBA Loans may prepay, the weighted average life of the Certificates or the date
on which the outstanding aggregate principal balances of the Unguaranteed
Interests will be less than 10% of the sum of (i) the Original Pool Principal
Balance and (ii) the Pre-Funding Amount, if any, cannot be determined.
None of the SBA Loans are balloon loans and each is fully
amortizing in accordance with its terms. The SBA Loans may be prepaid at any
time without payment of a prepayment fee or penalty. In general, when the level
of prevailing interest rates for similar loans significantly declines, the rate
of prepayment is likely to increase, although the prepayment rate is influenced
by a number of other factors, including general economic conditions.
Prepayments, liquidations and purchases of the Unguaranteed Interests will
result in distributions to Certificateholders of amounts which would otherwise
be distributed over the remaining terms of the SBA Loans.
The final scheduled Remittance Date for the Certificates is
January 2025, which is the date on which the principal balances of the Class A
and Class B Certificates would be reduced to zero, assuming that no prepayments
are received on the SBA Loans and that distributions of principal of and
interest on each of the SBA Loans are timely received. The weighted average life
of the Certificates is likely to be shorter than would be the case if payments
actually made on the SBA Loans conformed to the foregoing assumptions, and the
final Remittance Date with respect to the Certificates could occur significantly
earlier than the final scheduled Remittance Date because (i) prepayments are
likely to occur, and (ii) the Servicer may cause a termination of the Trust Fund
as described above.
The "weighted average life" of a Certificate refers to the
average amount of time that will elapse from the Closing Date to the date on
which each dollar in respect of principal of such Certificate is repaid. The
weighted average lives of the Certificates will be influenced by, among other
factors, the rate at which principal payments (including Monthly Payments,
Principal Prepayments, Excess Payments and Curtailments) are made on the SBA
Loans.
-59-
<PAGE>
Prepayments on loans are commonly measured relative to a
prepayment standard or model. The model used in this Memorandum, the Constant
Prepayment Rate ("CPR") , represents an assumed constant rate of prepayment per
annum relative to the then outstanding principal balance of a pool of new SBA
loans. The CPR does not purport to be either a historical description of the
prepayment experience of any pool of SBA loans or a prediction of the
anticipated rate of prepayment of any pool of SBA loans, including the SBA
Loans.
The Seller makes no representation as to the particular
factors that will affect the prepayment of the SBA Loans, as to the percentage
of the principal balance of the SBA Loans that will be paid as of any date or as
to the overall rate of prepayment on the SBA Loans.
Greater than anticipated prepayments of principal will
increase the yield on Certificates purchased at a price less than par. Greater
than anticipated prepayments of principal will decrease the yield on
Certificates purchased at a price greater than par. The effect on an investor's
yield due to principal prepayments on the SBA Loans occurring at a rate that is
faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the Certificates will not be entirely
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The weighted average lives of the Certificates also will be affected
by the amount and timing of delinquencies and defaults on the SBA Loans and the
recoveries, if any, on defaulted SBA Loans and foreclosed properties.
Delinquencies and defaults generally will slow the rate of payment of principal
to the Certificateholders. However, this effect will be offset to the extent
that lump sum recoveries on defaulted SBA Loans and foreclosed properties result
in principal payments on the Certificates faster than otherwise scheduled.
The following table under the heading "Weighted Average Lives
of the Class A Certificates" assumes, among other things, that (i) (a) the
scheduled interest payment in each month for each SBA Loan has been based on the
outstanding balance as of the first day of the month preceding the month of such
payment, (b) the initial weighted average Note Rate for the SBA Loans delivered
at closing for the January 1999 scheduled payments is 10.96% per the chart
below, and (c) thereafter, the scheduled payments and remaining term to stated
maturity for each SBA loan is as set forth below (rather than based on the
actual SBA Loan characteristics) so that such scheduled payments would amortize
the remaining balance by its stated maturity date, (ii) scheduled monthly
payments of principal and interest on the SBA Loans will be timely received on
the first day of each month (with no defaults), commencing on the Cut-Off Date,
(iii) the Servicer does not exercise its option to purchase the Unguaranteed
Interests and thereby cause a termination of the Agreement, (iv) principal
prepayments on the SBA Loans represent prepayments in full of individual SBA
Loans and will be received on the last day of each month commencing December 31,
1998 at the respective percentages of CPR set forth in the table and (v) the
Certificates will be issued on December 30, 1998. The following table also
assumes that the Pre-Funding Account is established, the original Pre-Funding
Amount equals its maximum permitted amount and the entire Pre-Funded Amount is
used to purchase SBA ss.7(a) Loans at the end of the Pre-Funding Period.
Note Rate Gross Margin Balance Remaining Term
- ------------ --------------- --------------- ------------------
10.96% 2.71% $21,431,228.10 271 mon.
Based upon the foregoing assumptions, some or all of which are
unlikely to reflect actual experience, the following table indicates the
projected weighted average lives of each Class of Certificates at various CPRs.
-60-
<PAGE>
As used in the table, 0% CPR indicates no Principal Prepayments, Curtailments or
Excess Payments. The Class A and Class B Certificates were priced assuming 12.0%
CPR.
Weighted Average Lives of the Class A Certificates
Weighted Average Life Earliest Retirement at Servicer's
CPR (Years) (1) Option (2)
------- ------------------------ ----------------------------------
0% 15.40 September 2020
8% 8.41 December 2016
12% 6.62 December 2013
16% 5.39 April 2011
(1) The weighted average life of a Certificate is determined by (i)
multiplying the amount of each payment of principal by the number of
years from the date of issuance to the related Remittance Date, (ii)
summing the results, and (iii) dividing the sum by the total principal
distributions.
(2) Assuming early termination of the Trust Fund when the then outstanding
aggregate principal balance of the Unguaranteed Interests is less than
10% of the sum of (i) Original Pool Principal Balance and (ii) the
initial Pre-Funded Amount, if any.
Since the individual characteristics of the SBA Loans will not correspond to
those assumed above, the actual weighted average lives and the earliest
retirement dates of the Certificates will vary from those of the underlying SBA
Loans even if any indicated CPR is met. In addition, there is no assurance that
Principal Prepayments, Curtailments or Excess Payments will occur, or, if they
do occur, that they will occur at a constant rate approximating any of the
indicated CPRs.
THE SELLER
Business Loan Center, Inc., a Delaware corporation (the
"Seller"), originates and services SBA loans. The Seller is a wholly-owned
subsidiary of BLC Financial Services, Inc., a Delaware corporation (the
"Parent"). The Seller is headquartered at 645 Madison Avenue, New York, New
York, 10022 and its telephone number is 212-751-5626.
The Parent is a publicly-traded corporation the principal
asset of which is its ownership of the Seller. In addition, BLC Financial
Network, Inc., BLC Financial Network of Florida, Inc., BLC Financial Network of
Mid-America, Inc., Business Loan Center Financial Corp. and Business Loan Center
Financial Corp. II are wholly-owned subsidiaries of the Parent. The Parent also
wholly-owns BLC Capital Corporation, a Delaware corporation originating and
servicing loans not meeting the Seller's criteria for SBA loans, and BLC
Commercial Capital Corporation, a Florida corporation which participates in the
United States Department of Agriculture Business & Industry Guaranteed Loan
Program.
The Seller or its predecessors began originating loans under
the SBA program in 1987.
The Seller has Preferred Lender Status with the SBA in the
areas served by the following SBA district offices: Richmond, Virginia; Miami
and, Jacksonville, Florida; Atlanta, Georgia; Chicago and Springfield, Illinois;
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Denver, Colorado; St. Louis, Springfield and Kansas City, Missouri; Wichita,
Kansas; Omaha, Nebraska; Des Moines and Cedar Rapids, Iowa; Albuquerque, New
Mexico; Oklahoma City, Oklahoma; Little Rock, Arkansas; Newark, New Jersey;
Pittsburgh, Pennsylvania; Baltimore, Maryland; Clarksburg, West Virginia,
Louisville, Kentucky; Birmingham, Alabama; Columbia, South Carolina; Nashville,
Tennessee; Indianapolis, Indiana; New Orleans, Louisiana; Las Vegas, Nevada;
District of Columbia; three districts in New York including Rochester and
Syracuse; and seven districts in Texas, including Houston, Dallas and Austin.
The Seller operates through affiliates in its referral network
as described below under "Origination" herein. The Seller's Mid-Atlantic and
Northeastern Region is operated through its BLC Financial Network, Inc.
affiliate, a Delaware corporation maintaining corporate facilities in Richmond,
Virginia. The Seller's Southeastern Region is operated through its BLC Financial
Network of Florida, Inc. affiliate, a Florida corporation maintaining corporate
facilities in Panama City Beach, Florida. The Seller's Middle America Region is
operates through its BLC Financial Network of Mid-America, Inc. affiliate, a
Kansas corporation maintaining corporate facilities in Wichita, Kansas.
During fiscal years ending 1994, 1995, 1996, 1997 and 1998,
the Seller originated 38, 51, 41, 74 and 135 SBA loans, respectively, with an
aggregate principal amount of approximately $13.5 million, $20.0 million, $18.5
million, $42.3 million and $87.0 million, respectively. At June 30, 1994, 1995,
1996, 1997 and 1998, the Seller was servicing a portfolio of SBA loans
aggregating approximately $38.8 million, $56.1 million, $67.0 million, $98.0
million and $169.0 million, respectively.
THE SBA LOAN LENDING PROGRAM OF THE SELLER
As of the Statistical Calculation Date, the Seller originated
approximately 25.48% and 73.69% of its SBA loans under the Guaranteed Lender
Program ("GLP") and Preferred Lender Program ("PLP"), respectively. The Seller
applies the same level of loan review and documentation for all loans,
regardless of the Program under which they were originated.
The primary source of loan origination for the Seller is
through a referral network that includes three subsidiaries of the Parent, each
of which focuses on one of the Seller's regions described above. In addition,
the Seller may generate originations through loan brokers, advertising and prior
relationships between the Seller and borrowers. Loan brokers, real estate
brokers and loan representatives are often paid commissions for origination.
Loan officers and underwriters employed by the Parent's
subsidiaries are responsible for analyzing the creditworthiness of proposed
borrowers and preparing loan summaries, which include a credit analysis
(including a description of the collateral), purpose of the loan, strengths and
weaknesses of the credit and eligibility for the applicable SBA program. In
addition, for each proposed loan the loan officers perform a collateral
analysis, financial analysis (including historical debt-service coverage and net
worth ratios), personal resource analysis and corporate and personal credit
checks. Personal financial statements and resumes are required of each owner of
20% or more of a proposed borrower and of each guarantor. Principals of the
borrower are required to provide their tax returns for the most recent years.
Loan applications deemed creditworthy after the initial
analysis are forwarded to the Seller's loan committee for further review, Loan
Committee-approved applications are submitted to the SBA for approval, except in
the case of loans made pursuant to the PLP, in which case SBA prior approval is
not required.
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Loan packagers employed by the Parent's subsidiaries are
responsible for assembling documentation and preparing the standard SBA
submission package. The loan packagers also help to ensure that any deficiencies
or conditions noted in the Seller's internal approval process or by the SBA are
remedied and/or complied with prior to closing.
SBA loans originated by the Seller generally range in size
from approximately $25,000 to $1.5 million. Average loan sizes for origination
during the fiscal years ended 1994, 1995, 1996, 1997 and 1998 were approximately
$355,000, $392,000, $451,000, $572,000 and $644,000, respectively.
The closings of SBA Loans for the Seller are supervised by
loan closing officers. Neither the annual salaries nor the annual bonuses of
such officers (if any) are determined on the basis of volume of closings. Unless
otherwise approved by the BLC president, all closings are attended by the
Seller's outside attorney or a representative of such attorney's firm.
Once a loan is funded, the complete original files (credit and
legal) are forwarded promptly to the Servicing Department in New York. When the
loan package is received, the final physical file is established in a uniform
manner, and a computerized "tickler system" tracks follow-up items, such as UCC
filing renewals, insurance policy expirations and deeds of trust or mortgage
recording. The tickler system alerts the Seller's officers to make the
appropriate and timely renewals for each of these items.
Loan Purpose and Collateral for SBA ss. 7(a) Loans
The Seller makes commercial real estate loans, general-purpose
small business loans, equipment loans and working capital loans under the SBA
guaranty program. The SBA loans made by the Seller are to borrowers in a wide
range of industries, including lodging, service stations/convenience stores,
restaurants, retail, building, automotive, entertainment and care sectors.
Collateral for the SBA loans generally includes first
mortgages (and where the Seller deems appropriate, junior mortgages) on
Commercial Properties, first and junior mortgages on Residential Properties and
liens on machinery and equipment, accounts receivable and inventory. All SBA
loans are generally also personally guaranteed by one or more principals of the
borrower.
Competition and Market Area
Some of the Seller's main competitors are The Money Store,
AT&T Capital Corporation, GE Capital, Heller First Capital Corporation and
numerous banks. The Seller operates from 14 lending locations that are
geographically dispersed so that the Seller can effectively lend throughout the
United States.
The Seller originates loans to a variety of industries.
However, based upon its loss experience and economic forecasts obtained from
industry associations, chambers of commerce, academic institutions, governmental
entities and others, the Seller may de-emphasize lending in certain regions or
industries from time to time. The Seller also periodically has refined its
underwriting guidelines to either exclude or to more closely scrutinize certain
high risk ventures.
Underwriting Criteria for SBA ss. 7(a) Loans
The Seller seeks to control two risks through its underwriting
standards: (i) default of the actual credit and (ii) SBA repudiation of its
guaranty due to ineligibility, noncompliance with SBA lending regulations or
poor documentation. The Seller's underwriting emphasizes the ability of the
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borrower to repay the loan from the cash flow of the business. The Seller also
examines whether the borrower possesses a significant equity stake in the
business, the capital position of the borrower, the character of the principals
and their relevant management experience, collateral value and the credit
history of the borrower and its principals. The Seller has established review
procedures to help ensure that all loans that it originates or acquires comply
with the requirements of the SBA.
Loan officers evaluate each applicant's financial statements,
credit reports, business plans and other data to determine if the credit and
collateral satisfy the Seller's standards. Where audited financial statements
are not available for a borrower, the Seller may review the uncertified
financial statements of such borrower, or such borrower's tax returns. These
standards include historical debt-service coverage, reasonableness of
projections (typically on a three-year basis), strength of management and
sufficiency of secondary repayment, as well as the SBA's eligibility rules. The
Seller does not require every borrower to satisfy an identical set of financial
tests or ratios.
The Seller's loan officers assess the reasonableness of
projections based primarily upon (i) their experience with other similar loans
in the same industry and area, (ii) their knowledge of the industry of the
applicant, (iii) their general experience in assessing small business loans and
(iv) the business experience of the applicant. The qualification of an applicant
to prepare such projections is generally based upon the applicant's experience
in the business area and market for which the loan is requested. Some applicants
prepare projections with the assistance of accountants, business consultants
and/or franchisors, while some applicants obtain no such assistance. Typically,
there is no independent third party review of such projections.
The Seller attempts, to the extent possible, to obtain a first
lien on substantially all of the business assets of each borrower, including its
commercial real estate, machinery and equipment, inventory and accounts
receivable. In some instances subordination of the lien is permitted to allow
borrowers to obtain short-term financing with these assets from other sources.
The Seller may also obtain liens on residential properties owned by, and
personal guarantees of, principals of the borrower. The Seller relies more
heavily on collateral values when considering a loan to a start-up or
early-stage business. Life insurance coverage on principals of the borrower is
often required to augment the collateral coverage.
In evaluating the adequacy of collateral for an SBA loan, the
Seller estimates liquidation values for the various types of collateral. As a
basis for such estimates, the Seller obtains from an appraiser selected or
approved by the Seller a current third-party appraisal of significant real
estate assets. Loan officers also generally will conduct an on-site inspection
of the collateral. Financial statements and current purchase prices are used in
establishing a fair market value for other types of collateral. The Seller then
discounts such fair market values (prior to deducting any prior liens on the
collateral) by applying liquidation percentages that generally fall within the
following ranges:
Percent of
Collateral Type Fair Market Value
--------------- -----------------
Commercial land and buildings 70-80%
Personal real estate 70-80
Leasehold improvements 0-15
Good will intangibles 0
Accounts receivable 0
Inventory 10-50
Machinery and equipment 30-60
Furniture and fixtures 10-40
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Appraisals of commercial real estate in transactions of
$100,000 or more are generally required to be performed by either a
state-certified or a state-licensed appraiser. Exceptions are granted with
senior approval if qualified appraisers are not available and the person making
the appraisal has demonstrated experience to the satisfaction of the Seller or
if other collateral or factors in the proposed loan make the real estate
collateral relatively unimportant. Generally, no third-party appraisals of
owner-occupied residences are required unless the residence is the primary or a
substantial portion of collateral for the loan. Required appraisals of
owner-occupied residential properties are made by either state-certified or
state-licensed appraisers. In addition to appraisals, prior to the funding of
any SBA Loan, representatives of the Seller generally perform a site inspection
to determine the appropriateness of the location for the proposed business use,
observe the economic conditions of the local market and inspect the property for
obvious structural defects or environmental issues (as discussed further below).
Servicing and Collections of SBA ss. 7(a) Loans
The Seller services all the SBA loans it originates. Servicing
includes collecting payments from borrowers, remitting payments on Guaranteed
Interests to the FTA, accounting for principal and interest, contacting
delinquent borrowers and supervising foreclosures. A computerized "tickler"
system is maintained for each loan. Such tickler system produces status reports
of required actions with respect to each loan, as well as billing statements,
payment receipts, past due notices and other notices to borrowers.
Each quarter and in certain instances, monthly, borrowers are
sent payment change notices showing the interest rate for the next quarter or
month, the outstanding loan balance, the next payment adjustment date and the
monthly payment for that period (apportioned for interest and principal).
Billing notices are sent monthly to borrowers.
The Servicing Department is responsible for all post-closing
follow-up until the loan is repaid. These duties include tracking receipt of
payments, tracking field visits, analyzing post-closing financials, reviewing
UCC filings and coordinating post-closing borrower requests with the SBA (e.g.,
exchanges of collateral or assumptions). In addition, the regional offices
typically conduct field visits to the borrower's place of business at least once
a year. The initial post-closing visit generally is scheduled prior to the end
of the first year after final funding to review the servicing process and
requirements of the Seller. Finally, all loan documents require that borrowers
submit updated financial statements at least annually, which are reviewed by
loan servicing officers to determine debt-service-coverage ratios and compliance
with loan covenants. The Seller does not generally obtain independent appraisals
of a borrower's collateral subsequent to the closing of the relevant loan.
Delinquency reports are generated daily. The following is a
general description of the Servicer's policy toward delinquencies and is subject
to exceptions. On the tenth day following a missed payment, the Seller begins to
charge late fees to the borrower (as permitted by the note agreement) and a loan
officer contacts the borrower by telephone. On the twentieth day following a
missed payment, a past due notice is automatically mailed to the borrower. On
the 25th day following delinquency, loans are put on a watch list and on the
30th day a senior loan officer contacts the borrower. On or before the 60th day
following a missed payment, the Seller will notify the SBA of the delinquency,
and will discuss with the SBA the range of available and appropriate recovery
strategies, including the possibility of foreclosure. Foreclosure proceedings
are generally begun within 120 days after the related SBA Loan has become past
due.
Workouts and Liquidations of SBA ss. 7(a) Loans
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When an SBA Loan becomes 90 days past due, the Seller
generally initiates procedures that result in the SBA's repurchase of the
Guaranteed Interest of the defaulted SBA loan from the holder thereof, which is
usually a secondary market investor. In most cases the repurchase process takes
30 to 60 days to complete. The SBA tries to minimize the repurchase time frame
because it pays accrued interest (up to 120 days) on the guaranteed portion of
the loan (including the related Excess Spread) until the loan is repurchased.
After it has repurchased a Guaranteed Interest, the SBA owns a direct
participation in the related loan.
A loan officer is assigned the responsibility for the workout
or liquidation if an SBA loan becomes 45 days delinquent. The loan workout
officer evaluates the borrower's corporate and personal liability to repay and
then formulates an appropriate workout plan. Generally, workout plans indicate
the expected recovery time period and the possibility of an assumption of the
debt by a third-party; plans also include liquidation options. As discussed
herein, the workout plan may include the deferral of loan payments. If a workout
plan is achieved and the loan is returned to performing status, the account is
returned to normal portfolio status in the Servicing Department.
In formulating workout plans, the Seller may assess the value
of the collateral through a variety of sources, which may include brokers,
appraisers and other market sources. The Seller may also take steps to help
protect the value of the collateral, such as performing site visits, appraising
properties, ensuring payment of taxes and, where appropriate, maintaining
insurance.
However, the SBA generally is reluctant to allow foreclosure
on a personal residence until all other avenues have been pursued.
The Seller views all SBA loans as small business loans and,
even if secured by commercial real estate, not as commercial mortgage loans.
Accordingly, the workout is more complex and the period to recovery or
reinstatement takes longer than for typical commercial mortgage loans. If a
borrower is uncooperative or the business is not viable, the Seller prepares a
liquidation plan and determines the likely recovery value and best method of
liquidation.
The length of the workout is determined primarily by the
complexity and long-term viability of the business, as well as the bankruptcy
status of the borrower. Because each workout is unique, it is difficult to
predict accurately the period of time required to complete a workout of a
typical SBA loan.
In certain cases, the Seller may forbear payments of interest
and principal for a period of three to six months if the borrower is
experiencing temporary difficulties. See "The SBA Loan Pool Certain
Characteristics of the SBA Loan Pool." Under SBA servicing policy, a lender has
unilateral authority to defer loans for up to 90 days. Past 90 days, a lender
must obtain approval from the investors and the SBA in the guaranteed portions.
For deferments in excess of 180 days, SBA approval must be obtained for loans
not sold into the secondary markets.
Environmental Policy
The Seller has developed an environmental credit policy to
help minimize potential environmental liabilities in respect of SBA Loans,
whether secured by commercial real property or otherwise. This policy conforms
to the environmental requirements set by the SBA. The Seller will generally
obtain a Phase I environmental report on the property. A Phase I environmental
report describes the results of an audit of the related property performed by a
licensed environmental assessment firm selected by the Seller, which audit
includes (i) an inspection of the related and adjacent properties; (ii) a
historical review of site records; (iii) a review of files or regulatory
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agencies concerning the site; and (iv) interviews with individuals knowledgeable
about the site use and operations. In the case of loans classified as "low-risk"
or "medium-risk" by the Seller, the obtaining of a Phase I environmental report
is optional. Loans classified as "High risk" by the Seller may only be made with
the approval of a loan committee after the weighing of factors such as the
nature and extent of risk, cost of remediation, value of other collateral,
quality of indemnities, the size of the loan and other credit qualities.
In preparing a Phase I environmental report, the licensed
environmental assessment firm may contact the United States Environmental
Protection Agency, state and local water control authorities, state and local
environmental departments and local fire departments to ascertain whether a
particular property has an environmental problem and, if so, the nature thereof.
The Seller typically does not contact such authorities unless an environmental
problem has been revealed.
In the Agreement, the Seller will represent and warrant that
at the time of origination of each SBA Loan, the related commercial real
property was either (1) free of contamination from toxic substances or hazardous
wastes or (2) that any such contamination would not have a material adverse
effect on the Trust Fund or the Certificateholders. The Servicer will agree that
if it has reasonable cause to believe a property may have contamination from
toxic substances or hazardous wastes, it will not foreclose upon the related SBA
Loan or become involved in operations or management of an Obligor to the extent
such involvement would cause the Servicer to be deemed an "owner or operator"
within the meaning of the applicable environmental laws until after it obtains a
Phase I environmental report.
Delinquency Experience
The following table sets forth the Seller's delinquency and
charge-off experience with respect to its portfolio of SBA Loans as of the dates
indicated. There can be no assurance, and no representation is made, that the
delinquency and charge-off experience with respect to the SBA Loans will be
similar to that reflected in the table below.
SBA Loan Delinquents and Charge-Offs
(Dollars in thousands)
As of October 31, 1998 and for the Years
Ended December 31,
<TABLE>
<CAPTION>
1995 1996 1997 10/31/98
<S> <C> <C> <C> <C>
---------- ---------- --------- ------------
45-59 days past due(1) 0.62% 0.52% 0.82% 0.62%
60-89 days past due(1) 1.09% 0.00% 0.00% 0.21%
90+ days past due(1) 2.03% 0.00% 5.94% 6.78%
Loan charged-off, net $47,435.59 $177,009.41 $476,947.84 $55,706.42
Loans charged-off, net,
as a
percentage of the SBA
unguaranteed
interests(2) 0.42% 1.14% 1.44% 0.11%
Total SBA Loan serviced
portfolio(3)
$57,454,044 $69,193,272 $130,842,110 $192,345,095
=========== =========== =========== ============
</TABLE>
- ----------------
(1) The delinquency percentages are calculated based upon the aggregate
guaranteed and unguaranteed interests of the SBA loans which are
delinquent by the number of days indicated divided by total aggregate
principal balance of the guaranteed and unguaranteed interests of the
SBA loans contained in the Seller's SBA loan portfolio.
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(2) Amounts shown are the aggregate principal balances of the unguaranteed
interests of loans in the Seller's SBA loan portfolio on the last day
of the related period.
(3) The percentage of loan charge-offs is calculated based upon the dollar
amount of charge-offs divided by the dollar amount of the principal
portion of unguaranteed interests contained in the Seller's SBA loan
portfolio.
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Certain Litigation
From time to time, the Seller is involved in various legal
actions arising in the ordinary course of its business that, in the aggregate,
involve amounts that the Seller believes to be immaterial to its financial
condition.
DESCRIPTION OF THE AGREEMENT AND THE CERTIFICATES
General
The Certificates will be issued by a Trust Fund organized and
existing under the laws of the State of New York. Each Certificate represents a
certain fractional undivided ownership interest in the Trust Fund created and
held pursuant to the Agreement, subject to the limits and the priority of
distribution described therein. The Trust Fund consists primarily of the right
to receive the Unguaranteed Interests in such SBA Loans as are from time to time
subject to the Agreement, together with all proceeds thereof and certain related
assets.
The Certificates will not represent obligations of the Seller,
any of its affiliates or the SBA.
The Class A Certificates will be issued in definitive form in
minimum denominations of $100,000 and integral multiples of $1,000 in excess
thereof.
The Servicer will be responsible for ensuring that each SBA
Loan is serviced in accordance with the Agreement and the SBA Rules and
Regulations.
Assignment of SBA Loans
Pursuant to the Agreement, on the Closing Date the Seller will
sell, transfer, assign, set over and otherwise convey without recourse to the
Trustee in trust for the benefit of the Certificateholders and the SBA, all
right, title and interest of the Seller to the Unguaranteed Interest of each SBA
Loan listed on a Schedule to the Agreement and all right, title and interest in
and to all actual payments collected on and after the Cut-Off Date with respect
to such Unguaranteed Interests, even if such payments relate in whole or part to
periods prior to the Cut-Off Date.
In addition, during the Funding Period pursuant to the
Agreement, the Seller will be obligated to sell to the Trust Fund the
Unguaranteed Interest of each Subsequent SBA Loan having an aggregate principal
balance not to exceed approximately $5 million to the extent that such
Unguaranteed Interests are available. During the Funding Period, on each date
specified by the Seller (each, a "Subsequent Transfer Date"), subject to the
conditions set forth in the Agreement, the Seller will sell, transfer, assign,
set over and otherwise convey without recourse to the Trustee in trust for the
benefit of the Certificateholders and the SBA, all right, title and interest of
the Seller to the Unguaranteed Interest of each such Subsequent SBA Loan to be
transferred on such date and all right, title and interest in and to all actual
payments collected on and after the Cut-Off Date with respect to such
Unguaranteed Interests, even if such payments relate in whole or in part to
periods prior to the related Cut-Off Date. The purchase price payable by the
Trust Fund to the Seller for the Unguaranteed Interest of each Subsequent SBA
Loan will equal the aggregate principal balance of such Unguaranteed Interest.
The purchase price will be payable solely from funds withdrawn from the
Pre-Funding Account.
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In connection with such transfer and assignment, on the
Closing Date (or, with respect to a Subsequent SBA Loan, in the case of (a)
below, at or prior to the related Subsequent Transfer Date) the Seller will
deliver to the Trustee or, with respect to the SBA Notes being delivered
pursuant to (a) below, to the FTA, the following documents with respect to each
SBA Loan (collectively, the "Trustee's Document File"):
(a) The original SBA Note, endorsed by means of an allonge as
follows: "Pay to the order of Marine Midland Bank and its
successors and assigns, as trustee under that certain Pooling
and Servicing Agreement dated as of December 23, 1998, for the
benefit of the United States Small Business Administration and
holders of Business Loan Center SBA Loan-Backed Certificates,
Series 1998-1, Class A and Class B, as their respective
interests may appear, without recourse" and signed, by
facsimile or manual signature, in the name of the Seller by a
Responsible Officer, with all prior and intervening
endorsements showing a complete chain of endorsement from the
originator to the Seller, if the Seller was not the
originator;
(b) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Mortgage, with evidence
of recording thereon, (ii) a copy of the Mortgage certified as
a true copy by a Responsible Officer of the Seller where the
original has been transmitted for recording until such time as
the original is returned by the public recording office or
duly licensed title or escrow officer or (iii) a copy of the
Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost;
(c) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Assignment of Mortgage
from the Seller endorsed as follows: "Marine Midland Bank
("Assignee"), its successors and assigns, as trustee under the
Pooling and Servicing Agreement dated as of December 23, 1998,
subject to the Multi-Party Agreement dated as of December 23,
1998" with evidence of recording thereon (provided, however,
that where permitted under the laws of the jurisdiction
wherein the Mortgaged Property is located, the Assignment of
Mortgage may be effected by one or more blanket assignments
for SBA Loans secured by Mortgaged Properties located in the
same county), or (ii) a copy of such Assignment of Mortgage
certified as a true copy by a Responsible Officer of the
Seller where the original has been transmitted for recording
(provided, however, that where the original Assignment of
Mortgage is not being delivered to the Trustee, each such
Responsible Officer may complete one or more blanket
certificates attaching copies of one or more Assignments of
Mortgage relating to the Mortgages originated by the Seller);
(d) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of all intervening
assignments, if any, showing a complete chain of title from
the originator to the Seller, including warehousing
assignments, with evidence of recording thereon if such
assignments were recorded, (ii) copies of any assignments
certified as true copies by a Responsible Officer of the
Seller where the originals have been submitted for recording
until such time as the originals are returned by the public
recording officer, or (iii) copies of any assignments
certified by the public recording office in any instances
where the original recorded assignments have been lost;
(e) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of any title insurance
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policies relating to the Mortgaged Properties or (ii) copies
of any title insurance policies or other evidence of lien
position certified as true by the Seller;
(f) For all SBA Loans, blanket assignment of all collateral
securing the SBA Loan, including without limitation, all
rights under applicable guarantees and insurance policies, if
any;
(g) For all SBA Loans, irrevocable power of attorney from the
Seller to the Trustee to execute, deliver, file or record and
otherwise deal with the collateral for the SBA Loans in
accordance with the Agreement. The power of attorney will be
delegable by the Trustee to the Servicer and any successor
servicer and will permit the Trustee or its delegate at the
Trustee's request to prepare, execute and file or record UCC
financing statements and notices to insurers; and
(h) For all SBA Loans, blanket Uniform Commercial Code UCC-1
financing statements identifying by type all Collateral for
the SBA Loans in the SBA Loan Pool and naming the Trustee as
secured party and the Seller as the debtor. The UCC-1
financing statements will be filed on behalf of the Seller
promptly following the Closing Date in the applicable
locations.
Representations and Warranties of the Seller
The Seller has represented to the Trustee and the
Certificateholders, among other things, with respect to each SBA Loan, as of the
Closing Date and as of the related Subsequent Transfer Date with respect to the
Subsequent SBA Loans:
(1) The information with respect to each SBA Loan set forth in
the SBA Loan Schedule is true and correct;
(2) All of the original or certified documentation required to
be delivered pursuant to the Agreement (including all material documents related
thereto) has been or will be delivered on or prior to the Closing Date to the
Trustee or the FTA, or as otherwise provided in the Agreement;
(3) Except for less than approximately 1% of the SBA Loans (by
principal balance of the Unguaranteed Interests as of the Statistical
Calculation Date), each SBA Loan was, and each Subsequent SBA Loan will be,
originated and underwritten by the Seller or its predecessors in accordance with
the Seller's and the SBA's underwriting criteria set forth in "The
Seller--Underwriting Criteria" herein;
(4) With respect to those SBA Loans secured by a Mortgaged
Property, each Mortgage is a valid and subsisting lien of record on the
Mortgaged Property subject only to any applicable Prior Liens on such Mortgaged
Property and subject in all cases to such exceptions that generally are
acceptable to banking institutions in connection with their regular commercial
lending activities, and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the aggregate, materially
and adversely affect the benefits of the security intended to be provided by
such Mortgage;
(5) With respect to those SBA Loans secured by Collateral
other than a Mortgaged Property, the related Note, security agreements, if any,
and UCC-1 filed with respect to such Collateral creates a valid and subsisting
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lien of record on such Collateral subject only to any applicable Prior Liens on
such Collateral and subject in all cases to such exceptions that generally are
acceptable to banking institutions in connection with their regular commercial
lending activities, and such other exceptions to which similar Collateral is
commonly subject and which do not individually, or in the aggregate, materially
and adversely affect the benefits of the security intended to be provided by
such Note and UCC-1;
(6) Immediately prior to the transfer and assignment
contemplated by the Agreement, the Seller held good and indefeasible title to,
and was the sole owner of, the Unguaranteed Interest of each SBA Loan conveyed
by the Seller subject to no liens, charges, mortgages, encumbrances or rights of
others except as set forth in paragraph (4) above or other liens which will be
released simultaneously with such transfer and assignment;
(7) As of the Cut-Off Date, no SBA Loan is 30 or more days
delinquent in payment;
(8) To the best of the Seller's knowledge, there is no
delinquent tax or assessment lien on any Mortgaged Property and each such
Mortgaged Property is free of material damage and is in good repair;
(9) Each SBA Loan is not subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor will the
operation of any of the terms of the Note or any related Mortgage, or the
exercise of any right thereunder, render either the Note or any related Mortgage
unenforceable in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(10) Each SBA Loan at the time it was made complied and, as of
the Closing Date complies, in all material respects with applicable state and
federal laws and regulations, including, without limitation, usury, equal credit
opportunity, disclosure and recording laws and the SBA Rules and Regulations;
(11) Pursuant to the SBA Rules and Regulations, the Seller
requires that the improvements upon each Mortgaged Property which is the primary
collateral for the related loan are covered by a valid and existing hazard
insurance policy with a generally acceptable carrier that provides for fire and
extended coverage;
(12) Pursuant to the SBA Rules and Regulations, the Seller
requires that if a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, an appropriate flood insurance policy is in effect with respect to such
Mortgaged Property with a generally acceptable carrier;
(13) Each SBA Loan conforms, and all such SBA Loans in the
aggregate conform, to the descriptions thereof set forth in this Memorandum;
(14) The terms of the Note and the related Mortgage or other
security agreement pursuant to which Collateral was pledged have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interests of the SBA and
the Certificateholders and which has been delivered to the Trustee;
(15) Each Mortgaged Property which is the primary collateral
for the related SBA Loan was, at the time of origination of such SBA Loan, and
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to the best of the Seller's knowledge is, as of the Cut-Off Date, free of
contamination from toxic substances or hazardous wastes or is subject to ongoing
environmental rehabilitation approved by the SBA;
(16) With respect to each SBA Loan secured by a lien on
Collateral which is not a first priority lien, either (i) no consent for the SBA
Loan is required by the holder of any related Prior Lien or (ii) such consent
has been obtained;
(17) Any related Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the Mortgagor which would
materially interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(18) There is no default, breach, violation or event of
acceleration existing under the SBA Note and no event which, with the passage of
time or with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration, and neither
the Servicer nor the Seller has waived any default, breach, violation or event
of acceleration;
(19) Each SBA Loan is secured by one or more items of
Collateral and at the time the related SBA Loan was originated, the aggregate
value of all Collateral securing such SBA Loan was at least equal to the
original principal amount of the related SBA Loan and all Prior Liens securing
the related Collateral;
(20) At the Closing Date (or in the case of the Subsequent SBA
Loans, as of the related Subsequent Transfer Date), there is no material default
(in the case of a payment default, a payment more than 45 days past due),
breach, violation or event of acceleration existing under the SBA Note and no
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration, and neither the Servicer nor the Seller has waived any material
default, breach, violation or event of acceleration (other than the deferrals
described under "The SBA Loan Pool" herein);
(21) At origination, the realizable value of the collateral
securing each SBA Loan together with the amount of each personal guarantee with
respect thereto equaled or exceeded 100% of the principal amount thereof;
(22) Except with respect to no more than 5% of the SBA Loans,
each Mortgaged Property is improved by a Commercial Property or a Residential
Property and does not constitute other than real property under state law;
(23) For each month, the amount of interest payable by each
Obligor in accordance with the terms of the related SBA Loan (net of the amount
of interest payable to the related Registered Holder, the Excess Spread related
to such SBA Loan, the Premium Protection Fee, the Additional Fee and the Note
Custodian's Fee) plus the amount of monthly interest on amounts on deposit in
the Pre-Funding Account and Capitalized Interest Account expected (based upon
the lowest yielding Permitted Instrument on the Closing Date) to be earned is at
least equal to the sum of (i) the amount of interest payable to the
Certificateholders on the related Remittance Date, (ii) the Servicing Fee, and
(iii) the Annual Expense Escrow Amount, in each case for the same month;
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(24) Each SBA Note will, with respect to principal payments,
adjust quarterly or monthly and provide for a schedule of monthly payments which
are, if timely paid, sufficient to fully amortize the principal balance of such
SBA Note on its maturity date;
(25) Each SBA Note, related Mortgage (if any) and other
agreement pursuant to which collateral is pledged as security for the related
SBA Loan (if any) is the legal, valid and binding obligation of the maker
thereof and is enforceable in accordance with its terms, except only as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether considered in a proceeding or
action in equity or at law), none of which will prevent the ultimate realization
of the security provided by the collateral or other agreement, and all parties
to each SBA Loan had full legal capacity to execute all SBA Loan documents and
convey the estate therein purported to be conveyed;
(26) The Servicer has caused and has agreed to continue to
cause to be performed any and all acts reasonably required to be performed to
preserve the rights and remedies of the Trustee in any insurance policies
applicable to the SBA Loans including, without limitation, in each case, any
necessary notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and mortgagee rights
in favor of the Trustee or the Seller, respectively;
(27) Each original Mortgage was recorded, and all subsequent
assignments of the original Mortgage have been recorded in the appropriate
jurisdictions wherein such recordation is necessary to perfect the lien thereof
as against creditors of the related Obligor (or, subject to the Agreement, are
in the process of being recorded);
(28) To the best of the Seller's knowledge, there are no
material defaults in complying with the terms of any applicable Mortgage, and
all taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid, or an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed but is not yet due and payable;
(29) To the best of the Seller's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation of any
Mortgaged Property, nor is such a proceeding currently occurring, and such
property is undamaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty, so as to affect adversely the value of the
Mortgaged Property as security for the SBA Loan or the use for which the
premises were intended;
(30) The proceeds of the SBA Loan have been fully disbursed,
and there is no obligation on the part of the Seller or the Servicer to make
future advances thereunder; Any and all requirements as to disbursements of any
escrow funds therefor have been complied with, and all costs, fees and expenses
incurred in making or closing or recording the SBA Loans were paid;
(31) There is no obligation on the part of the Seller or any
other party (except for any guarantor of an SBA Loan) to make Monthly Payments
in addition to those made by the Obligor;
(32) No statement, report or other document signed by the
Seller or the Servicer constituting a part of the SBA File contains any untrue
statement of material fact or omits to state a material fact necessary to make
the statements contained therein not misleading;
(33) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
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properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Certificateholders to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Obligor;
(34) No SBA Loan has a shared appreciation feature, or other
contingent interest feature;
(35) Each SBA Loan was originated to a business located
in the state identified on the SBA Loan Schedule;
(36) All parties which have had any interest in the SBA Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in compliance with
any and all applicable licensing requirements of the laws of the state-wherein
any Mortgaged Property is located, and (2) (A) organized under the laws of such
state, or (B) qualified to do business in such state, or (C) a federal savings
and loan associations or national banks having principal offices in such state,
or (D) not doing business in such state;
(37) All parties to the SBA Note and any related Mortgage or
other document pursuant to which collateral was pledged had legal capacity to
execute the SBA Note and any such Mortgage or other document and each SBA Note
and Mortgage or other document have been duly and properly executed by such
parties;
(38) The SBA Loan was not selected for inclusion under the
Agreement from the Seller's portfolio of comparable SBA loans on any basis which
would have a material adverse effect on a Certificateholder;
(39) All amounts received after the Cut-Off Date, to the
extent required by the Agreement, shall be deposited into the Principal and
Interest Account and are, as of the Closing Date, or, with respect to Subsequent
SBA Loans, as of the related Subsequent Transfer Date, will be in the Principal
and Interest Account;
(40) Each SBA Loan is personally guaranteed by a principal
of the Obligor; and
(41) Each SBA Loan qualifies to be guaranteed by the SBA.
Pursuant to the Agreement, upon the discovery by the Seller,
the Servicer, any Subservicer or the Trustee of a breach of any of the
representations and warranties contained in the Agreement relating to the Seller
or the SBA Loans which materially and adversely affects the value of the SBA
Loans or the interest of the Certificateholders or the SBA in the Unguaranteed
Interest of the related SBA Loan in the case of a representation or warranty
relating to a particular SBA Loan (notwithstanding that such representation and
warranty was made to the Seller's best knowledge), the party discovering such
breach is required to give prompt written notice to the other parties. Within 60
days of the earlier to occur of its discovery or its receipt of notice of any
such breach, the Seller will (i) promptly cure such breach in all material
respects, (ii) purchase the Unguaranteed Interest of such SBA Loan from its own
funds at a price equal to the then current principal balance of the Unguaranteed
Interest of such SBA Loan as of the date of purchase, plus 30 days' interest
thereon at the related Adjusted SBA Loan Remittance Rate as of the next
succeeding Determination Date, plus any accrued unpaid Servicing Fees, Monthly
Advances and Servicing Advances reimbursable to the Servicer, which purchase
price shall be deposited in the Principal and Interest Account on the next
succeeding Determination Date or (iii) remove such SBA Loan from the Trust Fund
and substitute one or more qualified SBA Loans. In addition, the Seller has
agreed to indemnify the Trust Fund, the Trustee, the SBA and the
Certificateholders, against any loss arising from a material breach of any such
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representation and warranty. The obligation of the Seller to so purchase or
substitute and to indemnify the Certificateholders and the Trustee constitutes
the sole remedy respecting a material breach of any such representation or
warranty to the Certificateholders or the Trustee.
Payments on the SBA Loans; Distributions on the Certificates
The Agreement requires that the Servicer cause an account (the
"Principal and Interest Account") to be established and maintained at one or
more Eligible Deposit Accounts.
All funds in the Principal and Interest Account are required
to be held (i) uninvested, up to the limits insured by the Federal Deposit
Insurance Corporation (the "FDIC") or (ii) invested in Permitted Instruments.
Any investment earnings on funds held in the Principal and Interest Account are
for the account of the Servicer.
The Servicer is required to deposit in the Principal and
Interest Account (within two Business Days of receipt): (i) all payments
received after the Cut-Off Date on account of interest on the SBA Loans (net of
the portion thereof required to be paid to the holders of the Guaranteed
Interest, the FTA's Fee, the Premium Protection Fee, the Additional Fee and the
Servicing Fee and other servicing compensation payable to the Servicer as
permitted by the Agreement), (ii) the Unguaranteed Percentage of all payments
received after the Cut-Off Date on account of principal on the SBA Loans,
including the Unguaranteed Percentage of all Excess Payments, Principal
Prepayments, Curtailments, Net Liquidation Proceeds, Insurance Proceeds (other
than amounts to be applied to the restoration or repair of the related Mortgaged
Property, or to be released to the Obligor) and Released Mortgaged Property
Proceeds, (iii) any amounts paid in connection with the repurchase of the
Unguaranteed Interest of an SBA Loan and the amount of any adjustment for
substituted SBA Loans and (iv) the amount of any losses incurred in connection
with investments in Permitted Instruments.
The Servicer may make withdrawals from the Principal and
Interest Account only for the following purposes:
(i) to remit to the Trustee on each Determination
Date (as defined below) for deposit in the Certificate
Account, the portion of the Available Funds for the related
Remittance Date that is net of Compensating Interest, Monthly
Advances and amounts then on deposit in the Spread Account
(and, with respect to the Determination Dates occurring in
January 1999, February 1999 and March 1999, net of amounts
then on deposit in the Pre-Funding Account and the Capitalized
Interest Account);
(ii) to reimburse itself for any accrued unpaid
Servicing Fees, unreimbursed Monthly Advances and for
unreimbursed Servicing Advances to the extent deposited in the
Principal and Interest Account (and not netted from Monthly
Payments received). The Servicer's right to reimburse itself
for unpaid Servicing Fees and, except as provided in the
following sentence, Servicing Advances and Monthly Advances
shall be limited to Liquidation Proceeds, Released Mortgaged
Property Proceeds, Insurance Proceeds and such other amounts
as may be collected by the Servicer from the Mortgagor or
otherwise relating to the SBA Loan in respect of which such
unreimbursed amounts are owed. The Servicer's right to
reimbursement for Monthly Advances and Servicing Advances in
excess of such amounts shall be limited to any late
collections of interest received on the SBA Loans generally,
including Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds and any other amounts. The
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Servicer's right thereto shall be subordinate to the rights of
the Certificateholders and the holders of the Guaranteed
Interest;
(iii) to withdraw any amount received from an Obligor
that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction;
(iv) (a) to make investments in Permitted Instruments
and (b) to pay itself interest paid in respect of Permitted
Instruments or by a Designated Depository Institution on funds
deposited in the Principal and Interest Account;
(v) to withdraw any funds deposited in the Principal
and Interest Account that were not required to be deposited
therein or were deposited therein in error;
(vi) to pay itself servicing compensation or
interest as permitted under the definition of Excess Proceeds;
and
(vii) to clear and terminate the Principal and
Interest Account upon the termination of the Agreement;
Not later than the close of business on each Determination
Date, the Servicer will remit to the Trustee for deposit in the Certificate
Account any required Monthly Advance and/or Compensating Interest.
The Servicer is required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property or other Collateral, (ii)
any enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage. Each such expenditure will constitute a "Servicing Advance."
The Servicer is obligated to make the Servicing Advances incurred in the
performance of its servicing obligations. The Servicer may recover Servicing
Advances to the extent set forth in clause (ii) above.
On the 15th day of each month commencing in January 1999, or,
if such 15th day is not a Business Day, the first Business Day immediately
following (each such day being a "Remittance Date"), until the principal
balances of the Class A and Class B Certificates are reduced to zero, the
Trustee or Paying Agent will be required to distribute to each person in whose
names a Certificate is registered at the close of business on the last day of
the month immediately preceding the month of the related Remittance Date (the
"Record Date") or the Closing Date for the first Remittance Date, such
Certificateholder's Percentage Interest multiplied by the amount to be
distributed to the Class A or Class B Certificateholders, as the case may be on
such Remittance Date as described below under "--Flow of Funds" herein.
Additionally, any Pre-Funded Amount remaining at the close of
business on March 26, 1999 (together with accrued interest thereon at the
applicable Remittance Rates) will be distributed by or on behalf of the Trustee
on the Special Remittance Date to each Certificateholder. Such distribution will
be made to each person in whose name a Certificate of the applicable Class is
registered on February 28, 1999.
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On each Remittance Date, the Trustee will mail to each
Certificateholder a statement setting forth, among other things, certain
information as to the distribution being made on such Remittance Date, the fees
to be paid to the Servicer and the Trustee and the loss and delinquency status
of the SBA Loans. Although the information contained in such statements will be
prepared by the Servicer, neither such information nor any other financial
information furnished to Certificateholders will be examined and reported upon,
and an opinion will not be expressed by, an independent public accountant.
Certificate Account
The Trustee has agreed to establish and maintain in its trust
department a non-interest-bearing trust account (the "Certificate Account").
Pre-Funding Account
The Pre-Funded Amount will be deposited on the Closing Date
into the Pre-Funding Account. Amounts in the Pre-Funding Account may be used
only (i) to acquire the Unguaranteed Interests in the Subsequent SBA Loans, and
(ii) to make accelerated payments of principal on the Certificates. During the
Funding Period amounts will, from time to time, be withdrawn from the
Pre-Funding Account to purchase Subsequent SBA Loans in accordance with the
Agreement. Any Pre-Funded Amount remaining at the end of the Funding Period will
be distributed as a principal prepayment on the next Remittance Date to the
Certificates on a pro rata basis. However, any Pre-Funded Amount remaining on
March 26, 1999 will be distributed as a principal prepayment on the Special
Remittance Date.
All funds in the Pre-Funding Account are required to be held
(i) uninvested, up to the limits insured by the FDIC or (ii) invested in
instruments designated as "Permitted Instruments" in the Agreement; provided
that any amounts held uninvested shall be, as soon as practicable, invested in
"Permitted Instruments". Any investment earnings on funds in the Pre-Funding
Account will be applied to payment of interest on the Certificates.
Capitalized Interest Account
On the Closing Date, the Seller also will make a cash deposit
into the Capitalized Interest Account. The amount, if any, deposited therein
will be used by the Trustee on the Remittance Dates occurring in January 1999,
February 1999 and March 1999 to fund the excess, if any, of (i) the amount of
interest accrued for each such Remittance Date at the weighted average on the
portion of the Class A and Class B Certificates having principal balances
exceeding the principal balances of the Unguaranteed Interest, over (ii) the
amount of any earnings on funds in the Pre-Funding Account that are available to
pay interest on the Certificates on each such Remittance Date. Any amounts
remaining in the Capitalized Interest Account on the Special Remittance Date and
not used for such purposes are required to be paid directly to the Seller on
such Special Remittance Date.
All funds in the Capitalized Interest Account are required to
be held (i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Permitted Instruments. Any investment earnings on funds in the Capitalized
Interest Account will be applied to payment of interest on the Certificates.
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Flow of Funds
The Agreement requires the Servicer to withdraw on the
Determination Date preceding each Remittance Date that portion of the Available
Funds in the Principal and Interest Account and to remit such amount together
with the Monthly Advances and Compensating Interest for the related Remittance
Date to the Trustee for deposit in the Certificate Account. Upon receipt on each
Determination Date of such amount, the Trustee is required to deposit such
amount into the Certificate Account.
On each Remittance Date the Trustee is required to withdraw
from the Certificate Account the sum of (i) that portion of the Available Funds
received from the Servicer, (ii) the amounts, if any, deposited therein from the
Spread Account as described below under "--Spread Account" herein, (iii) any
Monthly Advances as described below under "--Monthly Advances" and any
Compensating Interest as described under "--Compensating Interest," (iv) amounts
required to be paid by the Servicer in connection with losses on investments of
amounts in the Certificate Account and (v) with respect to the Remittance Dates
in January 1999, February 1999 and March 1999, the amounts, if any deposited
therein from the Pre-Funding Account and the Capitalized Interest Account and
make distributions thereof in the following order of priority:
(i) First, to the Class A Certificates in an amount up
to the Class A Interest Distribution Amount;
(ii) Second, to the Class A Certificates in an amount up
to the sum of (a) the Class A Principal Distribution
Amount and (b) the Class A Carry Forward Amount;
(iii) Third, to the Spread Account, any remainder unless
and until the amount therein equals the Specified
Spread Account Requirement;
(iv) Fourth, to the Class B Certificates in an amount up
to the Class B Interest Distribution Amount, minus the
Class B Carry Forward Interest Amount;
(v) Fifth, to the Class B Certificates, in an amount up
to the sum of (a) the Class B Principal Distribution
Amount and (b) the Class B Carry-Forward Amount;
(vi) Sixth, to the Expense Account in an amount up to
one-twelfth of the Annual Expense Escrow Amount
plus any amount required to be paid to the Trustee
pursuant to the Agreement resulting from
insufficiencies in the Expense Account;
(vii) Seventh, to the Class B Certificates, the Class B
Carry Forward Interest Amount;
(viii) Eighth, to the Servicer in an amount up to the
Reimbursable Amounts;
(ix) Ninth, any remaining amounts to the Spread Account
Depositor.
Class A and Class B Interest Distribution Amounts
To the extent there are amounts available for distribution to
the Certificateholders on each Remittance Date the Class A Certificateholders
(and after payment of principal and interest o the Class A Certificateholders
and the funding of the Spread Account) the Class B Certificateholders, in that
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order, will be entitled to receive interest accrued for the related Interest
Accrual Period at the then applicable Class A or Class B Remittance Rate on the
Class A or Class B Principal Balance, as the case may be, outstanding
immediately prior to such Remittance Date, subject to the adjustment set forth
in the next paragraph. If, on any Remittance Date, the Class A or Class B
Certificates do not receive the full amount of interest to which they are
entitled, such shortfall, plus interest thereon at the then applicable Class A
or Class B Remittance Rate, compounded monthly, will be added to the amount of
interest they are entitled to receive on succeeding Remittance Dates. The
aggregate amounts of interest payable to the Class A and Class B Certificates on
each Remittance Date are referred to herein as the "Class A Interest
Distribution Amount" and the "Class B Interest Distribution Amount"
respectively.
Certain of the SBA Loans adjust their interest rate on a
monthly basis. Accordingly, for each Remittance Date the aggregate amount of
interest payable with respect to each of the SBA Loans in accordance with their
terms, net of the interest payable to the holders of the Guaranteed Interest,
the Excess Spread (other than the portion thereof allocated to the Servicing Fee
on the Guaranteed Interest), the Servicing Fee, the Premium Protection Fee, the
FTA's Fee, the Additional Fee (with respect to the Additional Fee SBA Loans),
the Extra Interest (as defined below) and the fees and expenses of the Trustee
allocable to such interest, might exceed or be less than the interest accrued on
the SBA Loans at the weighted average Class A and Class B Remittance Rates. Any
such excess or shortfall will be allocated to the Class A and Class B
Certificates pro rata in accordance with the amount of interest each such Class
of Certificates would otherwise be entitled to receive but for such adjustment.
With respect to each SBA Loan, the "Extra Interest Percentage"
will equal the excess of (i) the Note Rate that would be in effect for such SBA
Loan as of the Cut-Off Date (or Subsequent Cut-Off Date with respect to
Subsequent SBA Loans) without giving effect to any applicable lifetime floor or
cap over (ii) the sum of the rates used in determining the Servicing Fee and the
Trustee's fees and expenses and the initial weighted average Class A and Class B
Remittance Rates without giving effect to any applicable lifetime floor or cap.
For each Remittance Date, the "Extra Interest" for an SBA Loan
will equal the product of (i) the principal portion of the Unguaranteed Interest
of such SBA Loan for such Remittance Date and (ii) one-twelfth of the applicable
Extra Interest Percentage.
Class A and Class B Principal Distribution Amounts
With respect to each Remittance Date, the "Class A Principal
Distribution Amount" and the "Class B Principal Distribution Amount" will equal
the Class A Percentage or the Class B Percentage, as the case may be, multiplied
by the total of (i) the Unguaranteed Percentage of all payments and other
recoveries of principal of an SBA Loan (net of amounts reimbursable to the
Servicer pursuant to the Agreement) received by the Servicer or any Subservicer
during the related Due Period, excluding amounts received with respect to SBA
Loans which have been delinquent 24 months or have been determined to be
uncollectible, in whole or in part, by the Servicer to the extent that the Class
A Certificateholders or the Class B Certificateholders, as the case may be, have
previously received the Class A Percentage or the Class B Percentage, as the
case may be, of the principal portion of the Unguaranteed Interest of such SBA
Loans; (ii) the principal portion of any Unguaranteed Interest actually
purchased by the Seller for breach of a representation and warranty or other
defect and actually received by the Trustee as of the related Determination
Date; (iii) any adjustments with respect to substitutions of SBA Loans for which
the Seller has breached a representation or warranty deposited in the Principal
and Interest Account and transferred to the Certificate Account as of the
related Determination Date; (iv) the Unguaranteed Percentage of all losses on
SBA Loans which were finally liquidated during the applicable Due Period; and
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(v) the Unguaranteed Percentage of the then outstanding principal balance of any
SBA Loan which, as of the first day of the related Due Period, is delinquent 24
months or determined by the Servicer to be uncollectible in whole or in part.
The following chart sets forth an example of distributions on
the Certificates, based upon the assumption that the Certificates will be issued
in December 1998 with a December 23, 1998 Cut-Off Date and that distributions on
the Certificates are made on the 15th day of each month (or, if such 15th day is
not a Business Day, the next succeeding Business Day, commencing January 1999):
December 23.............
Cut-Off Date. The Original Pool
Principal Balance will be the aggregate
principal amount of the Unguaranteed
Interests of the SBA Loans at the
opening of business on December 23, 1998
after application of all payments
collected on or before such date.
December 23 - 30...............
The Servicer deposits in the Principal
and Interest Account all amounts
received on account of the Unguaranteed
Interests and Excess Spread of the SBA
Loans.
December 30................... Closing Date and first Record Date.
Distribution on January 15, 1999
will be made to Certificateholders of
record on the Closing Date.Subsequent
record dates will be the last day of the
month preceding the Remittance Date.
January 13 .................. Determination Date. The Servicer
determines the amount of principal and
interest that will be distributed to the
Certificateholders on January 15, and
transfers funds in the Principal and
Interest Account to the Trustee for
deposit in the Certificate Account
together with any Monthly Advances,
Compensating Interest and, to the extent
necessary, amounts from the Spread
Account.
January 15.................... Remittance Date. The Trustee or the
Paying Agent will distribute to
Certificateholders the amounts required
to be distributed pursuant to the
Agreement.
Spread Account
On the Closing Date, the Spread Account Depositor will make an
initial cash deposit into the Spread Account in an amount equal to 2.5% of the
Original Pool Principal Balance (the "Initial Deposit"). Thereafter, on each
Remittance Date the Trustee will deposit into the Spread Account the Available
Funds, if any, remaining after payment of interest and principal to the holders
of the Class A Certificates, until the aggregate amount then on deposit in the
Spread Account (the "Spread Account Balance") equals the sum of (i) the then
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outstanding principal balance of the Unguaranteed Interests of all SBA Loans 180
days or more delinquent and (ii) the greater of (a) 5.0% of the then outstanding
aggregate principal balance of the Unguaranteed Interests of all the SBA Loans,
or (b) 2.5% of the Original Pool Principal Balance; provided, however, that for
purposes of clauses (i) and (ii)(a), there shall be excluded the principal
portion of the Unguaranteed Interest of SBA Loans which have been delinquent 24
months or have been determined to be uncollectible, in whole or in part, by the
Servicer, to the extent that the Certificateholders have previously received the
Unguaranteed Portion of the principal balance of such SBA Loans provided,
however, that in no event shall the Spread Account Balance exceed the then
outstanding Class A Certificate Balance (such amount is referred to herein as
the "Specified Spread Account Requirement").
On each Remittance Date, to the extent funds are available
therefor, the Trustee will withdraw from the Spread Account for deposit into the
Certificate Account the amount, if any, by which (i) the sum of (a) the Class A
Interest Distribution Amount, (b) the Class A Principal Distribution Amount and
(c) the Class A Carry-Forward Amount exceeds (ii) the Available Funds for such
Remittance Date (but excluding from such definition, amounts in the Spread
Account).
To the extent that the Spread Account Balance exceeds the
Specified Spread Account Requirement, such excess will be distributed to pay
interest and principal to the Class B Certificates, as payment of the Trustee's
fees and expenses, to pay the Servicer up to the Reimbursable Amounts and then
to the Spread Account Depositor. See "Description of the Agreement and the
Certificates-Flow of Funds" herein. The Spread Account Depositor will not be
required to refund any amounts previously properly distributed to it, regardless
of whether there are sufficient funds on a subsequent Remittance Date to make a
full distribution to holders of the Class A Certificates on such Remittance
Date.
The funding and maintenance of the Spread Account is intended
to enhance the likelihood of timely payment of principal and interest to the
holders of the Class A Certificates; however, if the SBA Loan Pool experiences
levels of delinquencies and losses above certain scenarios, the Spread Account
could be depleted, and shortfalls could result. See "Rating" herein.
Monthly Advances
The Servicer is required to remit to the Trustee no later than
the Determination Date preceding each Remittance Date for deposit in the
Certificate Account the amount of the Monthly Advance, if any, by which (i) 30
days' interest at a rate equal to the then applicable Adjusted SBA Loan
Remittance Rate on the aggregate Class A and Class B Principal Balances
immediately prior to the related Remittance Date (as the amount calculated
pursuant to this clause (i) may be adjusted in accordance with the limits
described under "Description of the Agreement and the Certificates--Class A and
Class B Interest Distribution Amounts" herein) exceeds (ii) the amount received
by the Servicer as of the related Record Date in respect of interest on the SBA
Loans minus the interest payable to the holders of the Guaranteed Interest, the
Additional Fee, the Premium Protection Fee, and the fee payable to the FTA
(plus, for the Remittance Dates in January 1999, February 1999 and March 1999,
the sum of (a) all funds to be transferred to the Certificate Account from the
Capitalized Interest Account for such Remittance Date and (b) certain investment
earnings on amounts in the Pre-Funding Account for the applicable Remittance
Date).The Servicer is not required to make monthly advances which it determines,
in good faith, would be nonrecoverable from amounts received in respect of the
SBA Loans.
Monthly Advances are reimbursable in the first instance from
late collections of interest, Liquidation Proceeds, Insurance Proceeds and
proceeds received by the Servicer in connection with condemnation, eminent
domain or a release of lien ("Released Mortgaged Property Proceeds") collected
with respect to the related SBA Loan as to which the Monthly Advances were made.
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The Servicer's right to reimbursement for such advances in excess of such
amounts is limited to late collections of interest received on the SBA Loans
generally; provided, however, that the Servicer's right to such reimbursement is
subordinate to the rights of the Certificateholders, the holder of the Premium
Protection Fee and the holders of the Guaranteed Interest. Monthly Advances are
intended to provide sufficient funds for the payment of interest to the
Certificateholders at the then applicable Class A or Class B Remittance Rate,
plus an additional amount, if any, required to pay the fees and expenses of the
Trustee.
Compensating Interest
Not later than each Determination Date, with respect to each
SBA Loan as to which a principal prepayment in full or a Curtailment was
received during the related Due Period, the Servicer is required to remit to the
Trustee, from amounts otherwise payable to the Servicer as servicing
compensation, an amount ("Compensating Interest") equal to any excess of (a) 30
days' interest on the Unguaranteed Percentage of the related principal balance
at the Adjusted SBA Loan Remittance Rate over (b) that portion of the amount of
interest actually received on the Unguaranteed Interest of such SBA Loan during
such Due Period and available to be paid to the Certificateholders.
Registration of Class A Certificates
The Class A Certificates will be issued in fully registered
form. The Class A Certificates will be represented by Class A Certificates in
definitive, fully registered form registered in the name of individual
purchasers or their nominees.
The Class A Certificates will be issued only in fully
registered form without exception in denominations of $100,000 and integral
multiples of $1,000 in excess thereof, except that one Class A Certificate may
be in a different denomination. No service charge will be made for any
registration of transfer or exchange of Class A Certificates.
The Class A Certificates may be presented for exchange or
registration of transfer at the office of the Trustee. The Class A Certificates
are exchangeable at any time into an equal aggregate principal amount of Class A
Certificates of different authorized denominations. The Class A Certificates may
not be sold or otherwise transferred except in accordance with the restrictions
described herein under "Notice To Investors."
Servicing and Other Compensation and Payment of Expenses
In addition to the Servicing Fees, the Servicer is entitled
under the Agreement to retain additional servicing compensation in the form of
assumption and other administrative fees, interest paid on funds in the
Principal and Interest Account, interest paid on earnings realized on Permitted
Instruments, certain excess amounts in the Expense Account and late payment
charges. The Servicer also is entitled to retain the Premium Protection Fee on
each SBA Loan. Pursuant to the Agreement, the foregoing is the maximum amount of
servicing compensation available to a successor servicer.
Hazard Insurance
The Servicer is required under the Agreement to comply with
the SBA Rules and Regulations concerning the issuance and maintenance of fire
and hazard insurance with extended coverage customary in the area where the
Mortgaged Property is located. Such requirements vary from region to region. If
at origination of an SBA Loan, to the best of the Servicer's knowledge after
reasonable investigation, the related Mortgaged Property is in an area
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identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available)
consistent with the SBA Rules and Regulations, the Servicer will require the
related Obligor to purchase a flood insurance policy with a generally acceptable
insurance carrier, in an amount representing coverage not less than the lesser
of (a) the full insurable value of the Mortgaged Property, or (b) the maximum
amount of insurance available under the National Flood Insurance Act of 1968, as
amended. The Servicer will also be required to maintain, to the extent such
insurance is available and required by the SBA Rules and Regulations, on
Foreclosed Property constituting real property, fire and hazard insurance in the
amounts described above and liability insurance. Any amounts collected by the
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the Mortgaged Property, or to be released to the
Obligor in accordance with the SBA Rules and Regulations), are required to be
deposited by the Servicer in the Principal and Interest Account.
Realization Upon Defaulted Mortgage
Subject to the SBA Rules and Regulations and with the prior
written consent of the SBA (if required by the SBA Rules and Regulations), the
Servicer is required to foreclose upon or otherwise comparably effect the
ownership in the name of the SBA of Mortgaged Properties or other Collateral
relating to defaulted SBA Loans as to which no satisfactory arrangements can be
made for collection of delinquent payments. In connection with such foreclosure
or other conversion, the Servicer is required to exercise collection and
foreclosure procedures with the same degree of care and skill in its exercise or
use as it would exercise or use under the circumstances in the conduct of its
own affairs. The Servicer is required to take into account the existence of any
hazardous substances, hazardous wastes or solid wastes on Mortgaged Properties
in determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property, and will not foreclose on a Mortgaged
Property where it has cause to believe such substance exists unless it has
received a Phase I environmental report and such report reveals no environmental
problems or such Mortgaged Property is subject to an environmental
rehabilitation for which the Seller is not responsible.
Waivers and Deferments of Certain Payments
The Servicer has agreed to service the SBA Loans in accordance
with the Agreement, the Multi-Party Agreement and the SBA Rules and Regulations.
The Agreement requires the Servicer to make reasonable efforts
to collect all payments called for under the terms and provisions of the SBA
Loans. Consistent with the foregoing and the SBA Rules and Regulations, the
Servicer may in its discretion waive any assumption fee or any other fee or
charge which the Servicer would be entitled to retain as servicing compensation
and may waive, vary or modify any term of any SBA Loan or consent to the
postponement of strict compliance with any such term or in any matter grant
indulgence to any Mortgagor, subject to the limitations set forth in the
Agreement and compliance with the SBA Rules and Regulations; provided, however,
that the Servicer may not extend the date payments are due under an SBA Loan for
more than one year past the scheduled final maturity of the related SBA Note
without the consent of the SBA, if such consent is then required by the SBA
Rules and Regulations. In the event the Servicer defers the dates for payments
due on a Note, the Servicer shall nonetheless make payment of any required
Monthly Advances with respect to the payments so extended to the same extent as
if such installment were due, owing and delinquent and had not been deferred.
Use of Subservicers
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The Servicer is permitted under the Agreement to enter into
Subservicing Agreements for any servicing and administration of SBA Loans with
an entity approved by the SBA, if such consent is then required pursuant to the
SBA Rules and Regulations. Notwithstanding any Subservicing Agreement, the
Servicer shall not be relieved of its obligations under the Agreement to the
Trustee, the SBA or the Certificateholders, and the Servicer shall be obligated
to the same extent and under the same terms and conditions as if it alone were
servicing and administering the SBA Loans. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
by such Subservicer and nothing contained in the Agreement shall be deemed to
limit or modify such indemnification.
The Servicer is required to deliver to the Trustee and the SBA
on or before September 30 of each year commencing in 1999, an Officer's
Certificate stating, as to each signer thereof, that (i) the Servicer has fully
complied with certain provisions of the Agreement relating to servicing of the
SBA Loans and payments on the Certificates, (ii) a review of the activities of
the Servicer during such preceding year and of performance under the Agreement
has been made under such officer's supervision, (iii) to the best of such
officer's knowledge, based on such review, the Servicer has fulfilled all its
obligations under the Agreement for such year, or, if there has been a default
in the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof including the steps being taken
by the Servicer to remedy such default and (iv) the Servicer has not lost its
license to originate or sell SBA 7(a) Loans or had its license suspended. The
Seller is required to deliver to the Trustee on or before September 30 of each
year beginning September 30, 1999 an Officer's Certificate describing the status
of compliance with the requirements under the Pooling and Servicing Agreement.
On or before September 30 of each year relating to the fiscal
year ending June 30th (commencing with the fiscal year ending June 30, 1999),
the Servicer is required to cause to be delivered to the Trustee a letter or
letters of a firm of nationally recognized independent certified public
accountants reasonably acceptable to the Trustee stating that such firm has,
with respect to the Servicer's overall servicing operations, examined such
operations in accordance with the requirements of the Uniform Single Audit
Program for Mortgage Bankers, and stating such firm's conclusions relating
thereto.
Removal and Resignation of Servicer
The Majority Certificateholders, by notice in writing to the
Servicer, may, pursuant to the Agreement, remove the Servicer upon the
occurrence of any of the following events:
(i) (A) the failure by the Servicer to make any
required Servicing Advance, to the extent such failure
materially or adversely affects the interests of the
Certificateholders; (B) the failure by the Servicer to make
any required Monthly Advance, to the extent such failure
materially and adversely affects the interests of the
Certificateholders; (C) the failure by the Servicer to remit
any Compensating Interest, to the extent such failure
materially and adversely affects the interests of the
Certificateholders; or (D) any failure by the Servicer to
remit to Certificateholders, or to the Trustee for the benefit
of the Certificateholders, any payment required to be made
under the terms of the Agreement, which continues unremedied
(in the case of the events described in clauses (i)(A), (i)(C)
and (i)(D) for 30 days) after the date upon which written
notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trustee or to the
Servicer and the Trustee by any Certificateholder; or
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(ii) failure by the Servicer or the Seller duly to
observe or perform, in any material respect, any other
covenants, obligations or agreements of the Servicer or the
Seller, as set forth in the Agreement, which failure continues
unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer or the Seller,
as the case may be, by the Trustee or to the Servicer, or the
Seller, as the case may be, and the Trustee by any
Certificateholder; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction for the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force,
undischarged or unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of
a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its
inability to pay its debts as they become due, file a petition
to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations.
The Servicer may not assign the Agreement nor resign from the
obligations and duties thereby imposed on it except (i) by mutual consent of the
Servicer, the SBA, the Trustee and the Majority Certificateholders, (ii) in
connection with a merger, conversion or consolidation permitted pursuant to the
Agreement and with the consent of the SBA (in which case the person resulting
from the merger, conversion or consolidation shall be the successor of the
Servicer) or (iii) upon the determination that the Servicer's duties thereunder
are no longer permissible under applicable law or administrative determination
and such incapacity cannot be cured by the Servicer. No such resignation shall
become effective until a successor has assumed the Servicer's responsibilities
and obligations in accordance with the Agreement.
Except as provided above, upon removal or resignation of the
Servicer, the Trustee will be the successor servicer (the "Successor Servicer").
If, however, the Trustee is unable to act as Successor Servicer, or if the SBA
so requests, the Trustee may appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution
acceptable to the SBA and DCR having a net worth of not less than $15,000,000
and which is an approved SBA guaranteed lender in good standing, operating
pursuant to an effective Loan Guaranty Agreement as the Successor Servicer in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer.
Optional Purchase
The Servicer has the right, but not the obligation, to
purchase the Unguaranteed Interest of any Defaulted SBA Loan for the purchase
price and in the manner described under "Description of the Agreement and the
Certificates--Representations and Warranties of the Seller." A "Defaulted SBA
Loan" is any SBA Loan as to which the related Obligor has failed to make payment
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in full of three or more consecutive monthly payments. In no event, however, may
the aggregate principal balance of the Unguaranteed Interests of Defaulted SBA
Loans so purchased pursuant to this provision exceed 5.0% of the sum of (i) the
Original Pool Principal Balance and (ii) the initial Pre-Funded Amount.
Termination; Purchase of SBA Loans
The Agreement will terminate upon notice to the Trustee of the
earlier of either: (a) the final payment or other liquidation of the last SBA
Loan, or the disposition of all property acquired upon foreclosure of any SBA
Loan and the remittance of all funds due thereunder or (b) mutual consent of the
Servicer and all Certificateholders in writing; provided, however, that in no
event will the trust established by the Agreement terminate later than
twenty-one years after the death of the last surviving lineal descendant of
Joseph P. Kennedy, late Ambassador of the United States to the Court of St.
James, alive as of the Cut-Off Date.
The Servicer may, at its option, terminate the Agreement on
any date on which the then outstanding aggregate principal balance of the
Unguaranteed Interests is less than 10% of the sum of (i) the Original Pool
Principal Balance and (ii) the Pre-Funding Amount, if any by purchasing, on the
next succeeding Remittance Date, all of the Unguaranteed Interests and any other
assets in the Trust Fund at a price equal to the sum of (i) 100% of the then
Outstanding Class A and Class B Principal Balances, and (ii) 30 days' accrued
interest thereon at the then applicable Class A and Class B Remittance Rates
(the "Termination Price"). Notwithstanding the prior sentence, if at the time
the Servicer determines to exercise such option, and the unsecured long term
debt obligations of the Servicer are not rated at least BBB by DCR, if such
Rating Agency is still rating the Class A Certificates, the Servicer shall give
such Rating Agency prior written notice of the Servicer's determination to
exercise such option and shall not exercise such option, without the consent of
the Rating Agency with an opinion of counsel, in form and substance reasonably
satisfactory to the Rating Agency, that the exercise of such option would not be
deemed a fraudulent conveyance by the Servicer; provided, however, that under
certain circumstances set forth in the Agreement, the Servicer may not take such
action prior to providing DCR with an opinion of counsel that such termination
would not be deemed a fraudulent conveyance by the Servicer.
Amendment
The Agreement may be amended from time to time by the Seller,
the Servicer and the Trustee by written agreement, with the prior written
consent of the SBA, without the notice to, or consent of, the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions therein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Agreement
which shall not be inconsistent with the provisions of the Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the Trustee, adversely affect the interests of any
Certificateholder or any other party and further provided that no such amendment
shall reduce in any manner the amount of, or delay the timing of, any amounts
which are required to be distributed on any Certificate without the consent of
the Holder of such Certificate, or change the rights or obligations of any other
party hereto without the consent of such party.
The Agreement may be amended from time to time by the Seller,
the Servicer, the Trustee and the Majority Certificateholders, with the prior
written consent of the SBA, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement or
of modifying in any manner the rights of the Holders; provided, however, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
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any amounts which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate or reduce the percentage of Holders of
which are required to consent to any such amendment without the consent of the
Holders holding 100% of the Certificates affected thereby and, provided further,
that no amendment affecting only one Class of Certificates shall require the
approval of the Holders of the other Class.
It shall not be necessary for the Certificateholders to
approve the particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof.
THE TRUSTEE
Marine Midland Bank, a trust company located in New York, New
York, has been named Trustee pursuant to the Agreement.
The Agreement requires that the Trustee shall at all times be
(i) a national banking association or banking corporation or trust company
organized and doing business under the laws of the United States of America or
of any State, (ii) authorized under such laws to exercise corporate trust
powers, (iii) having a combined guaranteed capital and surplus of at least
$30,000,000, (iv) having unsecured and unguaranteed long-term debt obligations
rated at least BBB by DCR, or such other rating as is acceptable to the SBA, (v)
is subject to supervision or examination by a federal or state authority, (vi)
is an approved SBA guaranteed lender in good standing, operating pursuant to an
effective Loan Guaranty Agreement, and (vii) is reasonably acceptable to the
SBA. If at any time the Trustee shall cease to be eligible in accordance with
the provisions described in this paragraph, it shall resign upon request of the
Majority Certificateholders in the manner and with the effect specified in the
Agreement.
The Trustee, or any trustee or trustees hereafter appointed,
may resign at any time in the manner set forth in the Agreement. Upon receiving
notice of resignation, the Servicer shall promptly appoint a successor trustee
or trustees meeting the eligibility requirements set forth above in the manner
set forth in the Agreement. If no successor trustee shall have been appointed
and have accepted appointment within 60 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
No resignation or removal of the Trustee and no appointment of
a successor trustee shall become effective until the acceptance of appointment
by a successor trustee.
The Majority Certificateholders with the consent of the SBA
and DCR, or the SBA, may remove the Trustee under the conditions set forth in
the Agreement and appoint a successor trustee in the manner set forth therein.
The Servicer shall give notice of each removal of the Trustee
to the Certificateholders, which notice shall include the name of the successor
trustee and the address of its corporate trust office.
Upon acceptance of appointment by a successor trustee in the
manner provided in the Agreement, the Servicer shall give notice thereof to the
Certificateholders.
At any time, for the purpose of meeting any legal requirements
of any jurisdiction in which any part of the Trust Fund or property securing the
same may at the time be located, the Servicer and the Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Trustee to act as co-trustee or co-trustees,
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jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Agreement, such powers, duties, obligations, rights and trusts
as the Servicer and the Trustee may consider necessary or desirable.
None of the Trustee, its authorized agent(s) or
representative(s) will conduct an independent review and assessment on whether
an SBA Loan should be foreclosed or the underlying property should be liquidated
when a default has occurred with respect thereto.
CERTAIN LEGAL MATTERS RELATING TO THE SBA LOANS
General
The following discussion contains summaries, which are general
in nature, of certain legal matters relating to the SBA Loans. Laws and
practices relating to the legal effects and enforcement of mortgages and deeds
of trust vary somewhat from state to state. In general, however, the most
significant applicable legal principles are similar in all states. The following
discussion addresses the more significant legal principles applicable to
mortgages and deeds of trust in all states.
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Nature of the Trust Assets
The SBA Loans generally will be secured by mortgages, deeds of
trust, security deeds or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to the loan is located. A
mortgage creates a lien upon the real property encumbered by the mortgage, which
lien is generally not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
recording with a state or county office. There are two parties to a mortgage,
the mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. The mortgagor delivers to the mortgagee a note or
bond and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust formally has three parties, the borrower-property owner called the
trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
Foreclosure/Repossession
Foreclosure of a deed of trust or a security deed is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or security deed which authorizes the trustee to sell the property
at public auction upon any default by the borrower under the terms of the note,
deed of trust or security deed. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor, to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. The borrower, or any other
person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligations. Before such
non-judicial sales takes place, typically a notice of sale must be posted in a
public place and published during a specific period of time in one or more
newspapers, posted on the property, and sent to parties having an interest of
record in the property.
Foreclosure of a mortgage generally is accomplished by
judicial action. The action is initiated by the service of legal pleadings upon
all parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the
mortgage is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
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newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales,
frequently no third party purchaser bids in excess of the lender's lien because
of the difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon
foreclosure, which are generally designed to mitigate the legal consequences to
the borrower of the borrower's defaults under the loan documents. Some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for fair notice require that
borrowers under deeds of trust receive notice longer than that prescribed by
statute. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that the sale by a trustee under a deed of trust
does not involve sufficient state action to afford constitutional protection to
the borrower.
In the case of foreclosure on a building which was converted
from a rental building to a building owned by a Cooperative under a non-eviction
plan, some states require that a purchaser at a foreclosure sale take the
property subject to rent control and rent stabilization laws which apply to
certain tenants who elected to remain in the building but who did not purchase
shares in the Cooperative when the building was so converted.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the borrower and foreclosed junior lienors are given
a statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The rights of
redemption would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions which limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, statutory provisions limit any deficiency judgment
against the former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
sale. A deficiency judgment would be a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon any sale of the real property sold at
the foreclosure sale. The purpose of these statutes generally is to prevent a
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beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the foreclosure sale. Other
statutes limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure or sale under a deed of
trust. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
As a result of these prohibitions, it is anticipated that in many instances the
Master Servicer will not seek deficiency judgments against defaulting
mortgagors.
In addition to laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral and/or
enforce a deficiency judgment. For example, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court provided no sale of the residence
had yet occurred prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction also have
indicated that the terms of a mortgage loan secured by property of the debtor
may be modified. These courts have suggested that such modifications may include
reducing the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule, and reducing the lender's security interest to
the value of the property, thus leaving the lender a general unsecured creditor
for the difference between the value of the property and the outstanding balance
of the loan.
Federal and local real estate and tax laws provide priority to
certain tax liens over the lien of the mortgage. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the applicable
laws. In some cases, this liability may affect assignees of the mortgage loans.
Enforceability of Certain Provisions
Some courts have imposed general equitable principles to limit
the remedies available in connection with foreclosure. These equitable
principles are generally designed to relieve the borrower from the legal effect
of his defaults under the loan documents. For example, some courts have required
that the lender undertake affirmative and expensive actions to determine the
causes for the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lenders' judgment and have required that lenders reinstate
loans or recast payment schedules in order to accommodate borrowers who are
suffering from temporary financial disability. In other cases, courts have
limited the right of the lenders to foreclose if the default under the mortgage
instrument or deed of trust is not monetary, such as the borrower's failure to
maintain adequately the property or the borrower's execution of a second
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mortgage or deed of trust affecting the property. Finally, some courts have been
willing to relieve a borrower from the consequences of the default if the
borrower has not received adequate notice of the default.
Environmental Considerations
Environmental conditions may diminish the value of the Trust
Assets and give rise to liability of various parties. There are many federal and
state environmental laws concerning hazardous waste, hazardous substances,
gasoline, radon and other materials which may affect the property securing the
Trust Assets. For example, under the federal Comprehensive Environmental
Response Compensation and Liability Act, as amended, and possibly under state
law in certain states, a secured party which takes a deed in lieu of foreclosure
or purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a remedial action ("Cleanup Costs") if
hazardous wastes or hazardous substances have been released or disposed of on
the property. Such Cleanup Costs may be substantial. It is possible that such
costs could become a liability of a Trust and reduce the amounts otherwise
distributable to the Certificateholders if a Mortgaged Property securing a Loan
became the property of such Trust in certain circumstances and if such Cleanup
Costs were incurred. Moreover, certain states by statute impose a lien for any
Cleanup Costs incurred by such state on the property that is the subject of such
Cleanup Costs (a "Superlien"). All subsequent liens on such property are
subordinated to such Superlien and, in some states, even prior recorded liens
are subordinated to such Superliens. In the latter states, the security interest
of the Trustee in a property that is subject to such a Superlien could be
adversely affected.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Stroock &
Stroock & Lavan LLP, special Federal tax counsel ("Federal Tax Counsel"), as to
the anticipated material federal income tax consequences of the purchase,
ownership and disposition of Certificates. The discussion, and the opinions
referred to below, are based on laws, regulations, rulings and decisions now in
effect (or, in the case of certain regulations, proposed), all of which are
subject to change or possibly differing interpretations. Investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of
Certificates. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), the terms
"Certificateholder" and "holder" mean the beneficial owner of a Certificate.
Tax Status of the Trust Fund
Upon the issuance of the Certificates, Federal Tax Counsel,
will deliver its opinion to the effect that, under then current law, assuming
compliance with the Agreement, the Trust Fund will be classified for federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation or a taxable mortgage pool. Accordingly, each Certificateholder will
be subject to federal income taxation as if it owned directly its interest in
each asset owned by the Trust Fund and paid directly its share of expenses paid
by the Trust Fund.
For purposes of federal income tax, the Spread Account
Depositor will be deemed to have retained a fixed portion of the interest due on
each SBA Loan (the "Spread"). The Spread will be treated as "stripped coupons"
within the meaning of Section 1286 of the Code. The Servicer may also be deemed
to have retained a "stripped coupon" if and to the extent that the Servicing Fee
is determined to be unreasonable. In addition, because the Class B Remittance
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Rate exceeds the Class A Remittance Rate, a portion of the interest accrued on
each SBA Loan will be treated as a "stripped coupon" purchased by the Class B
Certificateholders. Accordingly, each Class A Certificateholder will be treated
as owning its pro rata percentage interest in the principal of, and interest
payable on, the Unguaranteed Interest of each SBA Loan (minus the portion of the
interest payable on such SBA Loan that is treated as Spread, as a stripped
coupon retained by the Servicer or as a stripped coupon purchased by the Class B
Certificateholders), and such interest in the Unguaranteed Interest of each SBA
Loan will be treated as a "stripped bond" within the meaning of Section 1286 of
the Code. Similarly, each Class B Certificateholder will be treated as owning
its pro rata percentage interest in the principal of the Unguaranteed Interest
of each SBA Loan, plus a disproportionate share of the interest payable on each
SBA Loan.
Class A Certificateholders
Because Class A Certificates represent stripped bonds, they
will be subject to the original issue discount ("OID") rules of the Code.
Accordingly, the tax treatment of a Class A Certificateholder will depend upon
whether the amount of OID on a Class A Certificate is less than a statutorily
defined de minimis amount.
In general, under regulations issued under Section 1286 of the
Internal Revenue Code of 1986, as amended (the "Code"), the amount of OID on an
SBA Loan treated as a "stripped bond" will be de minimis if it is less than 0.25
percent of the stated redemption price at maturity, as defined in Section
1273(a)(2) of the Code, multiplied by the number of complete years remaining
after the purchase date until the maturity of the SBA Loan. The maturity date is
based on the weighted average maturity date (and a reasonable prepayment
assumption may have to be taken into account in determining weighted average
maturity). Under the regulations, the portion of the interest on each SBA Loan
payable to the Class A Certificateholders will be treated as "qualified stated
interest." As a result, the amount of OID on an SBA Loan will equal the amount
by which the price at which a Certificateholder is deemed to have acquired an
interest in an SBA Loan (the "Purchase Price") is less than the portion of the
remaining principal balance of the SBA Loan allocable to the interest acquired.
Although Federal Tax Counsel cannot opine on the matter, the Trust Fund intends
to take the positions (i) that the amount of OID on the SBA Loans will be
determined by aggregating all payments on the SBA Loans allocable to the Class A
Certificateholders (not including the Spread), and treating the portion of all
payments on the SBA Loans allocable to Class A Certificateholders as a single
obligation on an aggregate basis, rather than being determined separately with
respect to each SBA Loan, and (ii) that no separate allocation of consideration
must be made to accrued interest or to amounts held in the Certificate Account.
Based on these positions, the Trust Fund anticipates that the
Certificates will not be issued initially with OID (or that any OID present will
be de minimis). The Internal Revenue Service ("IRS") could require, instead,
that the computation be performed on an SBA-Loan-by-SBA-Loan basis. In the
preamble to the regulations under Section 1286 of the Code, the IRS requests
comment on appropriate aggregation rules. Any such recalculation could adversely
affect the timing and character of a Class A Certificateholder's income. The IRS
might also require that a portion of the purchase price for a Certificate be
allocated to accrued interest on each SBA Loan and to amounts held in the
Certificate Account pending distribution to Certificateholders at the time of
purchase as though such accrued interest and collections on the SBA Loans were
separate assets purchased by the Certificateholder. Any such allocation would
reduce the Purchase Price and thus increase the discount (or decrease the
premium) on the SBA Loans.
If the amount of OID is de minimis under the rule set forth
above, the Class A Certificates would not be treated as having OID. Each Class A
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Certificateholder would be required to report on its federal income tax return
its share of the gross income of the Trust Fund, including interest and certain
other charges accrued on the SBA Loans and any gain upon collection or
disposition of the SBA Loans (but not including any portion of the Spread). Such
gross income attributable to interest on the SBA Loans would exceed the Class A
Remittance Rate by an amount equal to the Class A Certificateholder's share of
the expenses of the Trust Fund for the period during which it owns a Class A
Certificate. The Class A Certificateholder would be entitled to deduct its share
of expenses of the Trust Fund to the extent described below. Any amounts
received by a Class A Certificateholder from the Spread Account or from the
subordination of the Class B Certificates will be treated for federal income tax
purposes as having the same character as the payments they replace. A Class A
Certificateholder would report its share of the income of the Trust Fund under
its usual method of accounting. Accordingly, interest would be includable in a
Certificateholder's gross income when it accrues on the SBA Loans, or, in the
case of Certificateholders who are cash basis taxpayers, when received by the
Servicer on behalf of Certificateholders. The actual amount of discount on an
SBA Loan would be includable in income as principal payments are received on the
SBA Loans.
If, contrary to the treatment anticipated by the Trust Fund,
the OID on an SBA Loan is not de minimis, a Class A Certificateholder will be
required to include in income, in addition to the amounts described above, any
OID as it accrues, regardless of when cash payments are received, using a method
reflecting a constant yield on the SBA Loans. It is possible that the IRS could
require use of a prepayment assumption in computing the yield of an SBA Loan. If
an SBA Loan is deemed to be acquired by a Certificateholder at a significant
discount, such treatment could accelerate the accrual of income by a
Certificateholder.
Although the Trustee intends to account for OID, if any,
reportable by holders of Class A Certificates by reference to the price paid for
a Class A Certificate by an initial purchaser, the amount of OID will differ for
subsequent purchasers. Such subsequent purchasers should consult their tax
advisers regarding the proper calculation of OID on the interest in SBA Loans
represented by a Class A Certificate.
As to SBA Loans that are real estate mortgages, a
Certificateholder may be able (or may be required) to account for any discount
on such SBA Loans as market discount rather than OID if either (i) the amount of
OID with respect to the Certificate was treated as zero under the OID de minimis
rule when the Certificate was stripped or (ii) no more than 1% (i.e., 100 basis
points), including any amount of servicing in excess of reasonable servicing, is
stripped off from the SBA Loans. As noted above, the Trust Fund intends to
account for the SBA Loans on an aggregate basis and does not intend to report
separately for this purpose with respect to the SBA Loans that are real estate
mortgages.
In the event that an SBA Loan is treated as purchased at a
premium (i.e., its Purchase Price exceeds the portion of the remaining principal
balance of such SBA Loan allocable to the Certificateholder), such premium will
be amortizable by the Certificateholder as an offset to interest income (with a
corresponding reduction in the Certificateholder's basis) under a constant yield
method over the term of the SBA Loan if an election under Section 171 of the
Code is made with respect to the interests in the SBA Loans represented by the
Certificates or was previously in effect. By analogy to recently finalized bond
premium regulations, any allowable premium in excess of the interest income may
be deductible to the extent of prior accruals of interest. Any such election
will also apply to all debt instruments held by the Certificateholder during the
year in which the election is made and all debt instruments acquired thereafter.
A Certificateholder will be entitled to deduct, consistent
with its method of accounting, its pro rata share of reasonable servicing fees
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and other fees paid or incurred by the Trust Fund as provided in Section 162 or
212 of the Code. If a Certificateholder is an individual, estate or trust, the
deduction for such holder's share of such fees will be allowed only to the
extent that all of such holder's miscellaneous itemized deductions, including
such holder's share of such fees, exceed two percent of such holder's adjusted
gross income. In addition, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
"applicable amount" ($100,000 (or $50,000 in the case of a separate return by a
married individual), adjusted for changes in the cost of living subsequent to
1990) will be reduced by the lesser of (i) 3 percent of the excess of adjusted
gross income over the applicable amount, or (ii) 80 percent of the amount of
itemized deductions otherwise allowable for such taxable year. For taxable years
beginning after December 31, 1997, in the case of a partnership that has 100 or
more partners and elects to be treated as an "electing large partnership," 70%
of such partnership's miscellaneous itemized deductions will be disallowed,
although the remaining deductions will generally be allowed at the partnership
level and will not be subject to the 2% floor that would otherwise be applicable
to individual partners.
Class B Certificateholders
In General. Except as described below, it is believed that the
Class B Certificateholders will be subject to tax in the same manner as Class A
Certificateholders. However, no federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates and
Federal Tax Counsel cannot opine on this issue. In the absence of applicable
authorities, the Trustee intends to report income to Class B Certificateholders
in the manner described below.
Each Class B Certificateholder will be treated as owning (i)
the Class B Percentage of the principal portion of the Unguaranteed Interest on
each SBA Loan plus (ii) a disproportionate portion of the interest on each SBA
Loan (not including the Spread). Income will be reported to a Class B
Certificateholder based on the assumption that all amounts payable to the Class
B Certificateholders are taxable under the coupon stripping provisions of the
Code and treated as a single obligation. In applying those provisions, the
Trustee will take the position that a Class B Certificateholder's entire share
of the interest on an SBA Loan will qualify as "qualified stated interest."
Thus, except to the extent modified by the effects of subordination of the Class
B Certificates, as described below, income will be reported to Class B
Certificateholders in the manner described above for holders of the Class A
Certificates.
Effect of Subordination
If the Certificateholders of one Class of Certificates receive
distributions of less than their share of the Trust Fund's receipts of principal
or interest (the "Shortfall Amount") because of the subordination of the
Certificates, it is believed that such Certificateholders would probably be
treated for federal income tax purposes as if they had (l) received as
distributions their full share of such receipts, (2) paid over to the
Certificateholders of the other Class of Certificates an amount equal to such
Shortfall Amount, and (3) retained the right to reimbursement of such amounts to
the extent of future collections otherwise available for deposit in the Spread
Account. However, Federal Tax Counsel cannot opine to such treatment.
Under this treatment, (1) Class B Certificateholders would be
required to accrue as current income any interest, OID income, or (to the extent
paid on the SBA Loans) accrued market discount of the Trust Fund that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Class A Certificateholders, (2) a loss would only be allowed to the Class B
Certificateholders when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it became clear that that amount would not
be available from any source to reimburse such loss), and (3) reimbursement of
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such Shortfall Amount prior to such a claim of worthlessness would not be
taxable income to Class B Certificateholders because such amount was previously
included in income. Similarly, a loss would only be allowed to the Class A
Certificateholders when their right to receive reimbursement of such Shortfall
Amount became worthless. Those results should not significantly affect the
inclusion of income for Class B Certificateholders on the accrual method of
accounting, but could accelerate inclusion of income to Class B
Certificateholders on the cash method of accounting by, in effect, placing them
on the accrual method. Moreover, the character and timing of loss deductions is
unclear and Federal Tax Counsel cannot opine as to such character or timing.
Status of the Certificates as Real Property Loans
The Certificates generally will be "qualifying real property
loans" within the meaning of Section 593(d) of the Code, "real estate assets"
for purposes of Section 856(c)(4)(A) of the Code, and interest income on the
Certificates generally will be "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the Code, to the
extent that the SBA Loans are mortgages secured by real property. The
Certificates generally will be treated as "loans . . . secured by an interest in
real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code, to
the extent that the SBA Loans are secured by residential real estate mortgages.
Sales of Certificates
A holder that sells a Certificate will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the Certificate. In general, such adjusted basis will equal the
holder's cost for the Certificate, increased by the amount of any income
previously reported with respect to the Certificate, and decreased by the amount
of any losses previously reported with respect to the Certificate and the amount
of any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Certificate were held as
capital assets, except that, in the case of a Certificate that was acquired with
more than a de minimis amount of market discount, such gain will be treated as
ordinary interest income to the extent of the portion of such discount that
accrued during the period in which the seller held the Certificate and that was
not previously included in income. Any such capital gain or loss would be
long-term capital gain or loss if the Certificateholder's holding period
exceeded one year.
Foreign Investors
A Certificateholder who is not a "United States person" (as
defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States other than its ownership of a
Certificate generally will not be subject to United States income or withholding
tax in respect of payments of interest or original issue discount on a
Certificate, provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a statement, signed
by the Certificateholder under penalties of perjury, certifying that such holder
is not a United States person and providing the name and address of such
holder). For these purposes, the term "United States person" means a citizen or
a resident of the United States, a corporation, partnership, or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, and a trust for
which one or more United States persons have the authority to control all
substantial decisions and for which a court of the United States can exercise
primary supervision over the trust's administration. Recently issued Treasury
regulations, which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
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holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders should consult
their tax advisers regarding the application on these regulations.
Backup Withholding
Payments of interest and principal, as well as payments of
proceeds from the sale of Certificates, to Certificateholders who are not
"exempt recipients" may be subject to the "backup withholding" tax under Section
3406 of the Code at a rate of 31 percent, if such holders fail to furnish
certain information, including their taxpayer identification numbers, to the
Trustee, its agent, or the broker effecting a sale of the Certificate, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a Certificateholder would be allowed as a credit
against such Certificateholder's federal income tax. Furthermore, certain
penalties may be imposed by the IRS on a Certificateholder who is required to
supply information but who does not do so in the proper manner.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain requirements on employee benefit plans or
other retirement arrangements which are subject to ERISA and on those persons
who are fiduciaries with respect to such benefit plans or arrangements. Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA), are
not subject to ERISA. In accordance with ERISA's general fiduciary standards,
before investing in a Certificate a benefit plan fiduciary should determine
whether such an investment is permitted under the governing benefit plan
instruments and is appropriate for the benefit plan in view of its overall
investment policy and the composition and diversification of its portfolio.
In addition, employee benefit plans or other retirement
arrangements subject to ERISA and individual retirement accounts or certain
types of Keogh plans not subject to ERISA but subject to Section 4975 of the
Code or any entity whose underlying assets include plan assets by reason of the
plan, account or other arrangement investing in such entity (including insurance
company separate or general accounts or collective investment funds) ("Plans")
are prohibited from engaging in a broad range of transactions involving Plan
assets and persons having certain specified relationships to a Plan ("parties in
interest" and "disqualified persons"). Such transactions are treated as
"prohibited transactions" under Sections 406 and 407 of ERISA and excise taxes
are imposed upon such persons by Section 4975 of the Code. The Seller, the
Servicer, Rothschild Inc., the Trustee and certain of their affiliates might be
considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition or holding of Certificates by or on behalf of such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. Furthermore, the
Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulation") which provides that, under certain circumstances,
the underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the SBA Loans which constitute the Trust Fund and not merely an
interest in the Certificates, transactions occurring in the servicing of the SBA
Loans might constitute prohibited transactions unless an administrative
exemption applies. Thus, a Plan fiduciary considering an investment in
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code. In addition,
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investors that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case, John Hancock Mutual Life
Insurance Co. v. Harris Trust and Savings Bank, 114 S. Ct. 517 (1993). In the
John Hancock decision, the Supreme Court ruled that assets held in an insurance
company's general account may be deemed to be "plan assets" under certain
circumstances. Investors should analyze whether that decision or federal
legislation enacted affecting such accounts (See Section 1460 of the Small
Business Job Protection Act of 1996) and any regulations issued thereunder may
have an impact with respect to purchases of Certificates.
The DOL has issued to Rothschild Inc. an administrative
exemption, Prohibited Transaction Exemption 95-59, 60 Fed. Reg. 35930 (July 12,
1995) (the "Exemption"), which generally exempts from the application of the
prohibited transaction provisions of Section 406(a), Section 406(b)(1) and
Section 406(b)(2) of ERISA, and the excise taxes imposed pursuant to Section
4975(a) and (b) of the Code, the initial purchase, holding and subsequent resale
of mortgage-backed and asset-backed pass-through certificates, such as the Class
A Certificates, representing a beneficial undivided interest in certain asset
pools held in a trust (as defined in paragraph III.B of Section III of the
Exemption), along with certain transactions relating to the servicing and
operation of such asset pools, provided that certain conditions set forth in the
Exemption are satisfied. Paragraph III.B of Section III of the Exemption
provides in part that a trust means an investment pool the corpus of which is
held in trust and consists solely of: (1) secured consumer receivables, (2)
secured credit instruments, (3) obligations secured by residential or commercial
real property, (4) obligations secured by motor vehicles or equipment or
qualified motor vehicle leases, (5) guaranteed governmental mortgage pool
certificates or (6) an undivided fractional interest in any of the obligations
listed in clauses (1) - (5) above.
If the general conditions of Section II of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA (as well as the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code) in connection with the direct or indirect sale, exchange or
transfer of Class A Certificates by Plans in the initial issue of Certificates,
the holding of Class A Certificates by Plans or the direct or indirect
acquisition or disposition in the secondary market of Class A Certificates by
Plans. However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Class A Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the assets
of such Excluded Plan. For purposes of the Class A Certificates, an Excluded
Plan is a Plan sponsored by (1) Rothschild Inc., (2) the Seller, (3) the
Servicer, (4) the Trustee, (5) any Obligor with respect to SBA Loans
constituting more than 5 percent of the aggregate unamortized principal balance
of the SBA Loans as of the date of initial issuance and (6) any affiliate of a
person described in (1) to (5) above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of
the Exemption are also satisfied, the Exemption may provide an exemption from
the restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(I)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A Certificates in the initial issuance of Class A
Certificates between the Seller, Rothschild Inc. and a Plan when the person who
has discretionary authority or renders investment advice with respect to the
investment of Plan assets in Class A Certificates is (a) an obligor with respect
to 5 percent or less of the fair market value of the SBA Loans or (b) an
affiliate of such a person, provided certain conditions are met, (2) the direct
or indirect acquisition or disposition in the secondary market of Class A
Certificates by Plans, provided certain conditions are met, and (3) the holding
of Class A Certificates by Plans.
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If the specified conditions of paragraph I.C of Section I of
the Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the Trust Fund.
The Exemption may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to otherwise apply merely
because a person is deemed to be a "party in interest" or a "disqualified
person" with respect to an investing Plan by virtue of providing services to the
Plan (or by virtue of having certain specified relationships to such a person)
solely as a result of such Plan's ownership of Class A Certificates.
The Exemption sets forth the following six general conditions
which must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's Ratings Services, Moody's
Investors Service, Inc., or Fitch IBCA, Inc. (collectively, the "Rating
Agency");
(4) The trustee must not be an affiliate of any other
member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by Rothschild
Inc. in connection with the distribution of certificates represents not more
than reasonable compensation for placing the certificates. The sum of all
payments made and retained by the Seller pursuant to the assignment of the loans
to the trust fund represents not more than the fair market value of such loans.
The sum of all payments made to and retained by the servicer represents not more
than reasonable compensation for such person's services under the pooling and
servicing agreement and reimbursement of such person's reasonable expenses in
connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D under the Securities Act
of 1933.
In addition, the trust fund must meet the following
requirements:
(i) the corpus of the trust fund must consist
solely of assets of the type that have been
included in other investment pools;
(ii) certificates in such other investment pools
must have been rated in one of the three
highest rating categories of the Rating
Agency for at least one year prior to the
Plan's acquisition of certificates; and
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(iii) certificates evidencing interests in such
other investment pools must have been
purchased by investors other than Plans for
at least one year prior to any Plan's
acquisition of certificates.
On July 21, 1997, the DOL published in the Federal Register a
final amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the original
Loans used to create the Trust, which terms and conditions have been approved by
the Rating Agency.
(3) The transfer of such Additional Loans to the Trust during
the Pre-Funding Period must not result in the Certificates receiving a lower
credit rating from the Rating Agency upon termination of the Pre-Funding Period
than the rating that was obtained at the time of the initial issuance of the
Certificates by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate") for all of
the Loans in the Trust at the end of the Pre-Funding Period must not be more
than 100 basis points lower than the average interest rate for the Loans which
were transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Additional Loans
must be monitored by an insurer or other credit support provider which is
independent of the Seller; or (ii) an independent accountant retained by the
Seller must provide the Seller with a letter (with copies provided to the Rating
Agency, the Placement Agent and the Trustee) stating whether or not the
characteristics of the Additional Loans conform to the characteristics described
in the Confidential Placement Memorandum and/or Pooling and Servicing Agreement.
In preparing such letter, the independent accountant must use the same type of
procedures as were applicable to the Loans which were transferred as of the
Closing Date.
(6) The Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum level
specified in the Pooling and Servicing Agreement or an event of default occurs
under the Pooling and Servicing Agreement.
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(7) Amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding may be
invested only in investments which are permitted by the Rating Agency and (i)
are direct obligations of, or obligations fully guaranteed as to timely payment
of principal and interest by, the United States or any agency or instrumentality
thereof (provided that such obligations are backed by the full faith and credit
of the United States); or (ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by the Rating Agency
("Permitted Investments").
(8) The Confidential Placement Memorandum must describe: (i)
any Pre-Funding Account and/or Capitalized Interest Account used in connection
with a Pre-Funding Account; (ii) the duration of the Pre-Funding Period; (iii)
the percentage and/or dollar amount of the Pre-Funding Limit for the Trust; and
(iv) that the amounts remaining in the Pre-Funding Account at the end of the
Pre-Funding Period will be remitted to Certificateholders as repayments of
principal.
(9) The Pooling and Servicing Agreement must describe the
Permitted Investments for the Pre-Funding Account and Capitalized Interest
Account and, if not disclosed in the Confidential Placement Memorandum, the
terms and conditions for eligibility of the Additional Loans.
The Seller expects that the conditions with respect to the
Pre-Funding Account will be satisfied and that the general conditions set forth
under clauses (2), (3) and (5) above will be satisfied.
As the Class B Certificates are subordinate, the Exemption
will not be applicable to the sale, purchase or holding of such Class B
Certificates. However, if the Class B Certificates are sold in the future in a
private placement or underwriting by Rothschild Inc. or any other entity with a
prohibited transaction exemption similar to the Exemption, the Class B
Certificates may be purchased by an "insurance company general account" within
the meaning of Section V(e) of Prohibited Transaction Class Exemption 95-60, 60
Fed. Reg. 35925 (July 12, 1995) but the Class B Certificates may not otherwise
be purchased by or on behalf of other Plans.
Any Plan fiduciary considering the purchase of a Class A
Certificate should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and as to whether the
conditions of the Exemption are satisfied with respect to such investment.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
PLACEMENT
Pursuant to the terms of a Purchase Agreement (the "Purchase
Agreement"), among the Seller, the Spread Account Depositor and the Initial
Purchaser, the Spread Account Depositor will sell to the Initial Purchaser and
the Initial Purchaser will purchase from the Spread Account Depositor the Class
A Certificates.
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NOTICE TO INVESTORS
Because of the following restrictions, investors are advised
to consult legal counsel prior to making any offer, resale or pledge or other
transfer of Class A Certificates.
The Class A Certificates are being offered and sold to
"Qualified Institutional Buyers" within the meaning of and in reliance on Rule
144A under the Securities Act, and to a limited number of institutional
"Accredited Investors" within the meaning of Rule 501(a)(1)-(3) under the
Securities Act.
Class A Certificates will be delivered to the purchasers
thereof in definitive, fully registered and certificated form without coupons in
minimum denominations of $100,000 or any integral multiple of $1,000 in excess
thereof. See "Description of the Agreement and the Certificates -- Form,
Denomination, Exchange, Registration and Title."
Each purchaser of the Class A Certificates offered hereby will
be deemed to have represented and/or acknowledged and agreed as follows (terms
used in this paragraph that are defined in Rule 144A are used herein as defined
therein):
(1) The purchaser (A) is a "qualified institutional
buyer" within the meaning of Rule 144A or an institutional
"Accredited Investor" (within the meaning of Rule
501(a)(1)-(3) or (7) under the Securities Act), (B) is
acquiring the Class A Certificates for its own account or for
the account of such a qualified institutional buyer or an
institutional Accredited Investor purchasing for investment
and not for distribution in violation of the Securities Act,
and (C) will deliver a certificate in the form attached to the
Agreement prior to receipt of Class A Certificates.
(2) The Class A Certificates have not been and will
not be registered under the Securities Act, any state
securities or "Blue Sky" law, and may not be reoffered,
resold, pledged or otherwise transferred except (A) (i) in
certificated form (1) to a person whom the seller reasonably
believes is a "qualified institutional buyer" as defined in
Rule 144A of the Securities Act that purchases for its own
account or the account of another qualified institutional
buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, or (2) to an
institutional Accredited Investor pursuant to any other
exemption from the registration requirements of the Securities
Act, in each case subject to (a) the receipt by the Trustee of
a letter in the form attached to the Agreement and (b) the
receipt by the Trustee of such other evidence acceptable to
the Trustee that such reoffer, resale, pledge or transfer is
in compliance with the Securities Act and other applicable
laws, (ii) pursuant to another exemption available under the
Securities Act or (iii) pursuant to a valid registration
statement and (B) in accordance with all applicable securities
and "Blue Sky" laws of any States of the United States or any
other applicable jurisdictions.
(3) The Class A Certificates will bear a legend to
the following effect, unless the Bank and the Trustee
determines otherwise in accordance with applicable law:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF,
BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) IN CERTIFICATED FORM
(A) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A
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PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A
QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH
CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, OR (B) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (WITHIN
THE MEANING OF RULE 501(a)(1)-(3) or (7) UNDER THE SECURITIES ACT) PURCHASING
FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN
EACH CASE, SUBJECT TO (A) THE RECEIPT BY THE TRUSTEE OF A LETTER SUBSTANTIALLY
IN THE FORM PROVIDED IN THE AGREEMENT AND (B) THE RECEIPT BY THE TRUSTEE OF SUCH
OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT SUCH REOFFER, RESALE, PLEDGE OR
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR
IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED
STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND
ANY OTHER APPLICABLE JURISDICTION, (2) PURSUANT TO ANOTHER EXEMPTION AVAILABLE
UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES
LAWS, OR (3) PURSUANT TO A VALID REGISTRATION STATEMENT. "
(4) If it is acquiring any Class A Certificates as a
fiduciary or agent for one or more investor accounts, it has
sole investment discretion with respect to each such account
and that it has full power to make the acknowledgments,
representations and agreements contained herein on behalf of
such account.
LEGAL INVESTMENT
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase Class A Certificates or to
purchase Class A Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Class A Certificates constitute legal
investments for such investors.
RATING
It is a condition to their issuance that the Class A
Certificates be rated "AAA" by DCR. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time. No person is obligated to maintain the rating on any Certificate.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance
of the Class A Certificates will be passed upon for the Seller by Weil, Gotshal
& Manges, LLP and Stroock & Stroock & Lavan LLP. Stroock & Stroock & Lavan LLP
also will render opinions relating to the transfer of the Unguaranteed Interests
from the Seller to the Trust Fund and as to the material federal income tax
consequences associated with the purchase, ownership and disposition of the
Class A Certificates. See "Material Federal Income Tax Consequences" herein.
FINANCIAL INFORMATION
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The Seller has determined that its financial statements are
not material to the offering made hereby. Except for certain representations and
warranties relating to the SBA Loans, the obligations of the Seller with respect
to the SBA Loans are primarily limited to contractual servicing obligations.
The Trust Fund has been formed to own the SBA Loans and to
issue the Certificates. The Trust Fund had no assets or obligations prior to the
issuance of the Certificates and will not engage in any activities other than
those described herein. Accordingly, no financial statements with respect to the
Trust Fund are included in this Memorandum.
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INDEX OF PRINCIPAL TERMS
Page
<PAGE>
Account......................................................................105
Accredited Investors...........................................................1
Act...........................................................................52
Additional Fee.................................................................9
Additional Fee SBA Loans.......................................................9
Adjusted SBA Loan Remittance Rate.............................................23
Aggregate Class A Certificate Principal Balance..............................105
Aggregate Class B Certificate Principal Balance..............................105
Annual Expense Escrow Amount.................................................105
Assignee......................................................................21
Assignment of Mortgage.......................................................105
Available Funds...............................................................12
BIF..........................................................................105
Business Day.................................................................105
Capitalized Interest Account..................................................12
Certificate Account...........................................................73
Certificate Register.........................................................105
Certificate Registrar........................................................105
Certificateholder or Holder..................................................105
Certified Lender..............................................................52
Class A Carry-Forward Amount..................................................16
Class A Certificates...........................................................8
Class A Interest Distribution Amount..........................................75
Class A Percentage............................................................16
Class A Principal Distribution Amount.........................................15
Class A Remittance Amount.....................................................16
Class A Remittance Rate.......................................................13
Class B Carry-Forward Amount..................................................16
Class B Certificates...........................................................8
Class B Interest Distribution Amount..........................................75
Class B Principal Distribution Amount.........................................15
Class B Remittance Amount.....................................................16
Class B Remittance Rate.......................................................13
CLASS CARRY FORWARD INTEREST AMOUNT..........................................106
Class A Certificate Balance...................................................15
Class B Certificate Balance...................................................15
Class B Percentage............................................................16
Cleanup Costs.................................................................88
Code..........................................................................89
Collateral...................................................................106
Commercial Property..........................................................106
Compensating Interest.........................................................24
CPR...........................................................................55
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Curtailment..................................................................106
Cut-Off Date..................................................................10
Designated Depository Institution............................................106
Determination Date...........................................................106
Due Date.....................................................................106
Due Period....................................................................15
Eligible Deposit Account.....................................................106
ERISA.........................................................................25
Event of Default.............................................................106
Excess Payments..............................................................106
Excess Proceeds..............................................................106
Excess Spread.................................................................10
Expense Account..............................................................107
Extra Interest................................................................75
Extra Interest Percentage.....................................................75
FDIC.........................................................................107
Federal Tax Counsel...........................................................25
FHLMC........................................................................107
FNMA.........................................................................107
Foreclosed Property..........................................................107
Foreclosed Property Disposition..............................................107
FTA............................................................................9
FTA's Fee......................................................................9
Funding Period................................................................12
grantor trust.................................................................25
Guaranteed Interest............................................................9
Initial Class A Certificate Principal Amount...................................8
Initial Class B Principal Amount...............................................8
Initial Deposit...............................................................18
Insurance Proceeds...........................................................107
Interest Accrual Period.......................................................11
IRS...........................................................................89
Liquidated SBA Loan..........................................................107
Liquidation Proceeds.........................................................107
Loan Guaranty Agreement......................................................107
Majority Certificateholders..................................................107
Monthly Advance...............................................................23
Monthly Payment..............................................................107
Mortgage.....................................................................107
Mortgaged Property...........................................................108
Multi-Party Agreement.........................................................22
Net Liquidation Proceeds.....................................................108
Note Rates....................................................................38
Notes.........................................................................11
Obligor........................................................................9
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OID...........................................................................25
Opinion of Counsel...........................................................108
Original Class A Certificate Principal Balance...............................108
Original Class B Certificate Principal Balance...............................108
Original Pool Principal Balance...............................................11
Paying Agent.................................................................108
Percentage Interest..........................................................108
Permitted Instruments........................................................108
Person.......................................................................109
Pool Principal Balance.......................................................109
Preferred Lender..............................................................52
Pre-Funded Amount.............................................................11
Premium Protection Fee........................................................10
Prime Rate....................................................................13
Principal and Interest Account...............................................109
Principal Balance............................................................109
Principal Prepayment.........................................................109
Prior Lien...................................................................109
Purchase Price................................................................89
Record Date...................................................................17
Registered Holder............................................................109
Reimbursable Amounts.........................................................109
Released Mortgaged Property Proceeds..........................................77
REMIC.........................................................................25
Remittance Date...............................................................17
Residential Property.........................................................110
Responsible Officer..........................................................110
SAIF.........................................................................110
SBA File.....................................................................110
SBA Form 1086................................................................110
SBA Loan Interest Rate.......................................................110
SBA Loan Pool..................................................................9
SBA Loan Schedule............................................................110
SBA Rules and Regulations....................................................110
Section 7(a) Program..........................................................52
Servicer's Certificate.......................................................110
Servicing Advances............................................................24
Servicing Fee.................................................................24
Servicing Officer............................................................111
simple interest...............................................................35
Special Remittance Date.......................................................12
Specified Spread Account Requirement..........................................18
Spread........................................................................88
Spread Account................................................................17
Spread Account Agreement......................................................18
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Spread Account Custodian.....................................................111
Spread Account Depositor......................................................17
Spread Balance................................................................18
Subsequent SBA Loans...........................................................2
Subsequent Transfer Date..................................................10, 64
Subservicer..................................................................111
Subservicing Agreement.......................................................111
Successor Servicer............................................................81
Superlien.....................................................................88
Tax Return...................................................................111
Termination Price.............................................................82
Trustee........................................................................8
UCC...........................................................................22
Unguaranteed Percentage.......................................................10
United States person..........................................................92
weighted average life.........................................................54
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the definitions
contained in the Agreement and used in this Memorandum. Reference is made to the
Agreement for the full definitions of all terms.
ACCOUNT: The Certificate Account, the Pre-Funding Account and the
Capitalized Interest Account, each established by the Trustee for the benefit of
the Certificateholders; the Expense Account established by the Trustee for the
benefit of the Trustee and the Spread Account held by the Spread Account
Custodian pursuant to the Spread Account Agreement. The Trustee's obligation to
establish and maintain the Certificate Account pursuant to the Agreement is not
delegable.
AGGREGATE CLASS A CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Class A Aggregate Certificate Principal Balance less
the sum of all amounts previously distributed to the Class A Certificateholders
in respect of principal.
AGGREGATE CLASS B CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Aggregate Class B Certificate Principal Balance less
the sum of all amounts previously distributed to the Class B Certificateholders
in respect of principal.
ANNUAL EXPENSE ESCROW AMOUNT: The product of .05% per annum and the
Pool Principal Balance, which is computed and payable on a monthly basis and
represents the estimated annual Trustee's fees and Trust Fund expenses.
ASSIGNMENT OF MORTGAGE: With respect to those SBA Loans secured by
a Mortgaged Property, an assignment of the Mortgage, notice of transfer or
equivalent instrument sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the transfer of the
related SBA Loan to the Trustee.
BIF: The Bank Insurance Fund, or any successor thereto.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii)
a day on which banking institutions in the States of New York or Delaware are
authorized or obligated by law or executive order to be closed.
CERTIFICATEHOLDER or HOLDER: Each Person in whose name a Class A or
Class B Certificate is registered in the Certificate Register, except that,
solely for the purposes of giving any consent, waiver, request or demand
pursuant to the Agreement, any Certificate registered in the name of the Seller,
the Servicer, any Subservicer or any affiliate of any of them, shall be deemed
not to be outstanding and the undivided Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite percentage
of Certificates necessary to effect any such consent, waiver, request or demand
has been obtained.
CERTIFICATE REGISTER: The Certificate Register established and
maintained in accordance with the Agreement.
CERTIFICATE REGISTRAR: Initially, Marine Midland Bank and
thereafter, any successor appointed pursuant to the Agreement.
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CLASS B CARRY FORWARD INTEREST AMOUNT: For the Class B Certificates
on any Remittance Date, an amount equal to the product of (i) the Class Interest
Distribution Amount for the Class B Certificates for such Remittance Date times
(ii) a fraction, the numerator of which is the Class B Carry Forward Amount and
the denominator of which is the Aggregate Class B Certificate Principal Balance.
COLLATERAL: All items of property (including a Mortgaged Property),
whether real or personal, tangible or intangible, or otherwise, pledged by an
Obligor or others to the Seller to secure payment under an SBA Loan.
COMMERCIAL PROPERTY: Real property (other than agricultural
property or Residential Property) that generally is used by the Obligor in the
conduct of its business.
CURTAILMENT: With respect to an SBA Loan, any payment of principal
received during a Due Period as part of a payment that is in excess of five
times the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the SBA Loan in full, nor is intended to cure a delinquency.
DESIGNATED DEPOSITORY INSTITUTION: With respect to the Principal
and Interest Account, an entity which is an institution whose deposits are
insured by either the BIF or SAIF administered by the FDIC, the unsecured and
uncollateralized long-term debt obligations of which shall be rated A or better
by DCR, and which is either (i) a federal savings association duly organized,
validly existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
or (iv) a principal subsidiary of a bank holding company, in each case acting or
designated by the Servicer as the depository institution for the Principal and
Interest Account.
DETERMINATION DATE: That day of each month which is the third
Business Day prior to the 15th day of such month.
DUE DATE: The day of the month on which the Monthly Payment is due
from the Obligor on an SBA Loan.
ELIGIBLE DEPOSIT ACCOUNT: Either (a) a segregated account with a
Designated Depository Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the States (or any domestic branch
of a foreign bank), having corporate trust powers and acting as trustee for
funds deposited in such account.
EVENT OF DEFAULT: The Events of Default of the Servicer specified
in the Agreement.
EXCESS PAYMENTS: With respect to a Due Period, any amounts received
on an SBA Loan in excess of the Monthly Payment due on the Due Date relating to
such Due Period which does not constitute either a Curtailment or a Principal
Prepayment or payment with respect to an overdue amount. Excess Payments are
payments of principal for purposes of the Agreement.
EXCESS PROCEEDS: As of any Remittance Date, with respect to any
Liquidated SBA Loan, the excess, if any, of (a) the Unguaranteed Percentage of
the total Net Liquidation Proceeds, over (b) the Principal Balance of such SBA
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Loan as of the date such SBA Loan became a Liquidated SBA Loan plus 30 days
interest thereon at the then applicable Adjusted SBA Loan Remittance Rate;
provided, however, that such excess shall be reduced by the amount by which
interest accrued on the advance, if any, made by the Servicer at the related SBA
Loan Interest Rate(s) exceeds interest accrued on such advance at the then
applicable weighted average Class A and Class B Remittance Rates.
EXPENSE ACCOUNT: The expense account established and maintained by
the Trustee in accordance with the Agreement.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any
successor thereto.
FNMA: The Federal National Mortgage Association and any successor
thereto.
FORECLOSED PROPERTY: Property, the title to which is acquired in
foreclosure or by deed in lieu of foreclosure.
FORECLOSED PROPERTY DISPOSITION: The final sale of a Foreclosed
Property acquired in foreclosure or by deed in lieu of foreclosure. The proceeds
of any Foreclosed Property Disposition constitute part of the definition of
Liquidation Proceeds.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any
insurance policy covering an SBA Loan, Collateral or Foreclosed Property,
including but not limited to title, hazard, life, health and/or accident
insurance policies.
LIQUIDATED SBA LOAN: Any defaulted SBA Loan or Foreclosed Property
as to which the Servicer has determined that all amounts which it reasonably and
in good faith expects to recover have been recovered from or on account of such
SBA Loan.
LIQUIDATION PROCEEDS: Cash, including Insurance Proceeds, proceeds
of any Foreclosed Property Disposition, revenues received with respect to the
conservation and disposition of a Foreclosed Property, and any other amounts
received in connection with the liquidation of defaulted SBA Loans, whether
through trustee's sale, foreclosure sale or otherwise.
LOAN GUARANTY AGREEMENT: The Loan Guaranty Agreement (Deferred
Participation) (SBA Form 750) dated March 27, 1997 between the SBA and Business
Loan Center, Inc., as such agreement may be amended from time to time.
MAJORITY CERTIFICATEHOLDERS: The Holder or Holders of Class A and
Class B Certificates evidencing an Aggregate Class A Certificate Principal
Balance and Aggregate Class B Certificate Principal Balance, as the case may be,
in excess of 50% of the Aggregate Class A Certificate Principal Balance and
Aggregate Class B Certificate Principal Balance, as the case may be.
MONTHLY PAYMENT: The monthly payment of principal and/or interest
required to be made by an Obligor on the related SBA Loan, as adjusted pursuant
to the terms of the related SBA Note.
MORTGAGE: The mortgage, deed of trust or other instrument creating
a lien on a Mortgaged Property.
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MORTGAGED PROPERTY: The underlying real property, if any, securing
an SBA Loan, consisting of a Commercial Property or
Residential Property and any improvements thereon.
NET LIQUIDATION PROCEEDS: Liquidation Proceeds net of (i) any
reimbursements to the Servicer made therefrom pursuant to the Agreement and (ii)
amounts required to be released to the related Obligor pursuant to applicable
law.
OPINION OF COUNSEL: A written opinion of counsel, who may, without
limitation, be counsel for the Seller or the Servicer, reasonably acceptable to
the Trustee and experienced in matters relating thereto.
ORIGINAL CLASS A CERTIFICATE PRINCIPAL BALANCE: The initial
aggregate principal amount of Class A Certificates issued on
the Closing Date.
ORIGINAL CLASS B CERTIFICATE PRINCIPAL BALANCE: The initial
aggregate principal amount of Class B Certificates on the
Closing Date.
PAYING AGENT: Initially, Marine Midland Bank, and thereafter, any
other Person that meets the eligibility standards for the Paying Agent specified
in the Agreement and is authorized by the Trustee to make payments on the
Certificates on behalf of the Trustee.
PERCENTAGE INTEREST: With respect to a Class A or Class B
Certificate, the portion of the Trust Fund evidenced by such Class A or Class B
Certificate, expressed as a percentage, the numerator of which is the
denomination represented by such Class A or Class B Certificate and the
denominator of which is the Original Class A Certificate Principal Balance or
Original Class B Certificate Principal Balance, as the case may be.
PERMITTED INSTRUMENTS: As used herein, Permitted Instruments shall
include the following:
(i) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality
thereof, provided such obligations are backed by the full faith and
credit of the United States, FHA debentures, Federal Home Loan Bank
consolidated senior debt obligations, and FNMA senior debt obligations,
but excluding any of such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or call for redemption;
(ii) federal funds, certificates of deposit, time deposits and
banker's acceptances (having original maturities of not more than 365
days) of any bank or trust company incorporated under the laws of the
United States or any state thereof, provided that the short-term debt
obligations of such bank or trust company at the date of acquisition
thereof have been rated Duff 1+ or better by DCR;
(iii) deposits of any bank or savings and loan association
which has combined capital, surplus and undivided profits of at least
$3,000,000 which deposits are held only up to the limits insured by the
BIF or SAIF administered by the FDIC, provided that the unsecured
long-term debt obligations of such bank or savings and loan association
have been rated A or better by DCR;
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(iv) commercial paper (having original maturities of not more
than 365 days) rated Duff 1+ or better by DCR;
(v) debt obligations rated AAA by DCR (other than any such
obligations that do not have a fixed par value and/or whose terms do
not promise a fixed dollar amount at maturity or call date);
(vi) investments in money market funds rated Duff 1+ or better
by DCR the assets of which are invested solely in instruments described
in clauses (i)-(v) above;
(vii) certain guaranteed investment contracts and repurchase
agreements satisfying the criteria set forth in the Agreement; and
(viii) any other investment acceptable to the Rating Agencies,
written confirmation of which shall be furnished to the Trustee prior
to any such investment.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
POOL PRINCIPAL BALANCE: The aggregate Principal Balances as of any
date of determination.
PRINCIPAL AND INTEREST ACCOUNT: The principal and interest account
established by the Servicer pursuant to the Agreement.
PRINCIPAL BALANCE: With respect to any SBA Loan or related Foreclosed
Property, at any date of determination, (i) the Unguaranteed Percentage of the
principal balance of the SBA Loan outstanding as of the Cut-Off Date, after
application of principal payments received on or before such date, minus (ii)
the sum of (a) the Unguaranteed Percentage of the principal portion of the
Monthly Payments received during each Due Period ending prior to the most recent
Remittance Date, which were distributed pursuant to the Agreement on any
previous Remittance Date, and (b) the Unguaranteed Percentage of all Principal
Prepayments, Curtailments, Excess Payments, Insurance Proceeds, Released
Mortgaged Property Proceeds, Net Liquidation Proceeds and net income from a
Foreclosed Property to the extent applied by the Servicer as recoveries of
principal in accordance with the provisions of the Agreement, which were
distributed pursuant to the Agreement on any previous Remittance Date. The
Principal Balance of any Liquidated SBA Loan or any SBA Loan that has been paid
off will equal $0.
PRINCIPAL PREPAYMENT: Any payment or other recovery of principal on an
SBA Loan equal to the outstanding principal balance thereof, received in advance
of the final scheduled Due Date which is intended to satisfy an SBA Loan in
full.
PRIOR LIEN: With respect to any SBA Loan secured by a lien which is not
a first priority lien, each loan relating to the corresponding Collateral having
a prior priority lien.
REGISTERED HOLDER: With respect to any SBA Loan, the Person identified
as such in the applicable SBA Form 1086, and any
permitted assignees thereof.
REIMBURSABLE AMOUNTS: As of any date of determination, an amount
payable to the Servicer and/or the Seller with respect to (i) the Monthly
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Advances and Servicing Advances reimbursable pursuant to the Agreement, (ii) any
advances reimbursable pursuant to the Agreement and not previously reimbursed,
and (iii) any other amounts reimbursable to the Servicer or the Seller pursuant
to the Agreement.
RESIDENTIAL PROPERTY: Any one or more of the following, (i) single
family dwelling unit not attached in any way to another unit, (ii) row house,
(iii) two-family house, (iv) low-rise condominium, (v) planned unit development,
(vi) three- or four-family house, (vii) high-rise condominium, (viii) mixed use
building or (ix) manufactured home (as defined in FNMA/FHLMC Seller-Servicers'
Guide) to the extent that it constitutes real property in the state in which it
is located.
RESPONSIBLE OFFICER: When used with respect to the Trustee, any officer
assigned to the Corporate Trust Division, including any Vice President,
Assistant Vice President, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to the Seller or the Servicer, the President, any Vice
President, Assistant Vice President, or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, or any successor thereto.
SBA FILE: The SBA File maintained with respect to each SBA Loan in
accordance with the Agreement.
SBA FORM 1086: With respect to SBA ss. 7(a) Loans for which the related
Guaranteed Interest was sold in the secondary market on or after January 1,
1985, the Secondary Participation Guaranty Agreement on SBA Form 1086, pursuant
to which investors purchased the SBA Guaranteed Portion.
SBA LOAN INTEREST RATE: With respect to any date of determination, the
then applicable annual rate of interest borne by an SBA Loan, pursuant to its
terms, which, as of the Cut-Off Date, is shown on the SBA Loan Schedule.
SBA LOAN SCHEDULE: The schedule of SBA Loans attached as an exhibit to
the Agreement, such schedule identifying each SBA Loan by address of the related
premises, and the name of the Obligor and setting forth as to each SBA Loan the
following information: (i) the Principal Balance as of the close of business on
the Cut-Off Date, (ii) the Account Number, (iii) the original principal amount
of the SBA Loan, (iv) the SBA Loan Date and original number of months to
maturity, (v) the SBA Loan Interest Rate as of the Cut-Off Date and the
guaranteed rate payable to the Registered Holder and the FTA, (vi) when the
first Monthly Payment was due, (vii) the Monthly Payment as of the Cut-Off Date,
(viii) the remaining number of months to maturity as of the Cut-Off Date, (ix)
the Unguaranteed Percentage, (x) the SBA loan number, (xi) the margin which is
added to the Prime Rate to determine the SBA Loan Interest Rate or, in the case
of fixed rate SBA Loans, the applicable Note Rate, and (xii) the lifetime
minimum and maximum SBA Loan Interest Rates, if applicable.
SBA RULES AND REGULATIONS: The Small Business Act of 1953, as amended,
codified at 15 U.S.C. 631 et seq., all rules and regulations promulgated from
time to time thereunder, the Loan Guaranty Agreement and SBA Standard Operating
Procedures and official notices as from time to time in effect.
SERVICER'S CERTIFICATE: The monthly certificate of the Servicer,
delivered to the Trustee in accordance with the Agreement.
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SERVICING OFFICER: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the SBA Loans whose name
appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may from time to time be amended.
SPREAD ACCOUNT CUSTODIAN: Marine Midland Bank, in its capacity as
Spread Account Custodian under the Spread Account Agreement, or any successor
thereto.
SUBSEQUENT TRANSFER AGREEMENT: Each Subsequent Transfer Agreement dated
as of a Subsequent Transfer Date executed by the Trustee and the Seller, by
which Subsequent SBA Loans are sold and assigned to the Trust Fund.
SUBSEQUENT TRANSFER DATE: The date specified as such in each
Subsequent Transfer Agreement.
SUBSERVICER: Any person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies any requirements set forth in the
Agreement in respect of the qualification of a Subservicer.
SUBSERVICING AGREEMENT: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain SBA Loans
as provided in the Agreement, a copy of which shall be delivered, along with any
modifications thereto, to the Trustee and the SBA.
TAX RETURN: The federal income tax return to be filed on behalf of the
Trust Fund together with any and all other information reports or returns that
may be required to be furnished to the Certificateholders or filed with the
Internal Revenue Service or any other governmental taxing authority under any
applicable provision of federal, state or local tax laws.
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SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT ("Second Amendment")
is entered into as of September ___, 1998, by and between BUSINESS LOAN CENTER,
INC., a Delaware corporation ("Borrower"), BLC FINANCIAL SERVICES, INC., a
Delaware corporation, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation ("Lender"), with reference to the following facts:
RECITALS
A. Pursuant to the Loan Agreement dated as of March 25, 1998 executed
by Borrower, Parent and Lender, as amended by the First Amendment to Loan
Agreement dated as of June 24, 1998 (the "Loan Agreement"), Lender agreed to
make certain financial accommodations to or for the benefit of Borrower upon the
terms and conditions set forth therein. Unless otherwise noted in this Second
Amendment, (i) capitalized terms used herein shall have the meanings attributed
to them in the Loan Agreement, (ii) references to Sections shall refer to
Sections of the Loan Agreement or Schedules thereto, as applicable, and (iii)
references to Schedules shall refer to Schedules to the Loan Agreement.
B. Borrower has requested, and Lender has agreed, to amend certain
provisions of the Loan Agreement, all on the terms and conditions set forth
below.
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:
A G R E E M E N T
1. Incorporation of Loan Agreement and Other Loan Documents. Except as
expressly modified under this Second Amendment, all of the terms and conditions
set forth in the Loan Agreement and the other Loan Documents are incorporated
herein by this reference, and Borrower hereby acknowledges, confirms, and
ratifies its obligations under the Loan Agreement and the other Loan Documents.
2. Amendment to Section 6.4 of the Loan Agreement. Section 6.4 of the
<PAGE>
Loan Agreement is hereby amended by deleting the existing text thereof in its
entirety and substituting therefor the following amended and restated version
thereof:
6.4 Capital Expenses. On a consolidated basis, make
capital expenditures (including capitalized leases) during any
fiscal year of Parent which, in the aggregate, exceed
$550,000.
3. Conditions to Effectiveness. This Second Amendment shall become
effective upon receipt by Lender of a copy hereof duly executed by each of
Borrower, Parent, and Lender.
4. Entire Agreement. This Second Amendment, together with the Loan
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Second Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.
5. Representations and Warranties. Borrower hereby confirms 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 (a) that 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. The Loan Agreement shall continue in full force
and effect in accordance with the provisions thereof on the date hereof.
6. Miscellaneous.
6.1 Counterparts. This Second Amendment may be executed in
identical counterpart copies, each of which shall be an original, but all of
which shall constitute one and the same agreement.
6.2 Headings. Section headings used herein are for convenience
of reference only, are not part of this Second Amendment, and are not to be
taken into consideration in interpreting this Second Amendment.
6.3 Recitals. The recitals set forth at the beginning of this
Second Amendment are true and correct, and such recitals are incorporated into
and are a part of this Second Amendment.
6.4 Governing Law. This Second Amendment shall be governed by,
and construed and enforced in accordance with, the laws of the State of Illinois
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applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
6.5 No Novation. Except as specifically set forth in paragraph
2 of this Second Amendment, the execution, delivery and effectiveness of this
Second Amendment shall not (a) limit, impair, constitute a waiver of or
otherwise affect any right, power or remedy by 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 (c) alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Loan Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.
6.6 Conflict of Terms. In the event of any inconsistency
between the provisions of this Second Amendment and any provision of the Loan
Agreement, the terms and provisions of this Second Amendment shall govern and
control.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Second Amendment has been duly
executed as of the date first written above.
BORROWER:
BUSINESS LOAN CENTER, INC.,
a Delaware corporation
By: ______________________________
Jennifer Goldstein
Chief Financial Officer
PARENT:
BLC FINANCIAL SERVICES, INC.,
a Delaware corporation
By: ______________________________
Robert F. Tannenhauser
President
LENDER:
TRANSAMERICA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By: ______________________________
Russell L. Bonder
Senior Account Executive
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THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT ("Third Amendment") is
entered into as of October 1, 1998, by and between BUSINESS LOAN CENTER, INC., a
Delaware corporation ("Borrower"), BLC FINANCIAL SERVICES, INC., a Delaware
corporation, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation ("Lender"), with reference to the following facts:
RECITALS
A. Pursuant to the Loan Agreement dated as of March 25, 1998 executed
by Borrower, Parent and Lender, as amended by the First Amendment to Loan
Agreement dated as of June 24, 1998, and the Second Amendment to Loan Agreement
dated as of September __, 1998 (the "Loan Agreement"), Lender agreed to make
certain financial accommodations to or for the benefit of Borrower upon the
terms and conditions set forth therein. Unless otherwise noted in this Third
Amendment, (i) capitalized terms used herein shall have the meanings attributed
to them in the Loan Agreement, (ii) references to Sections shall refer to
Sections of the Loan Agreement or Schedules thereto, as applicable, and (iii)
references to Schedules shall refer to Schedules to the Loan Agreement.
B. Borrower has requested, and Lender has agreed, to amend certain
provisions of the Loan Agreement, all on the terms and conditions set forth
below.
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:
A G R E E M E N T
1. Incorporation of Loan Agreement and Other Loan Documents. Except as
expressly modified under this Third Amendment, all of the terms and conditions
set forth in the Loan Agreement and the other Loan Documents are incorporated
herein by this reference, and Borrower hereby acknowledges, confirms, and
ratifies its obligations under the Loan Agreement and the other Loan Documents.
2. Amendments to Loan Agreement and other Loan Documents. As of the
date of this Third Amendment, the Loan Agreement and the other Loan Documents
<PAGE>
are hereby amended in the following manner:
2.1 Amendments to Definitions. The definitions of
"Securitization Transaction," "Subordinated Debt," and "Termination Date" in
Section 1.1 of the Loan Agreement are amended by deleting the existing text
thereof in their entirety and substituting therefor the following amended and
restated versions thereof:
"Securitization Transaction" shall mean (a) the
accounts receivable securitization transaction effected
pursuant to the Pooling and Servicing Agreement dated as of
December 1, 1997 between Marine Midland Bank, as "Trustee,"
and Borrower, as "Seller" and "Servicer," or (b) any other
transaction effected in a manner acceptable to Lender and
through documentation in form and substance acceptable to
Lender, pursuant to which Borrower sells all or a specific
portion of its portfolio of Non-Guaranteed Notes Receivable in
a manner that generates aggregate net proceeds to Borrower of
not less than $5,000,000 by pooling and transferred them to a
trust that issues and sells certificates representing the
entire beneficial interest in such trust. Lender will not
unreasonably withhold its acceptance or approval of a proposed
Securitization Transaction.
"Subordinated Debt" shall mean that portion of the
Indebtedness that is subordinated in a manner reasonably
satisfactory in form and substance to Lender as to right and
time of payment of principal and interest thereon to any and
all of the Liabilities, including all intercompany accounts
and borrowings.
"Termination Date" shall mean the earliest of: (a)
August 26, 2001 (unless a later date is agreed to in writing
by Borrower, Parent and Lender); (b) the date that Borrower
elects to terminate this Agreement and repays the Liabilities
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.
2.2 Amendment to Add New Defined Terms. Section 1.1 of the
Loan Agreement is amended by adding the following new definitions in appropriate
alphabetical order:
"Eurodollar Reserve Percentage" shall mean, in the
event that any portion of the Revolving Loans is held by a
member bank of the Federal Reserve System, a percentage,
determined by Lender to be in effect from time to time as
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prescribed by the Federal Reserve Board (or any successor) for
determining the maximum reserve requirement for member banks
of the Federal Reserve System in respect of Eurocurrency
liabilities.
"Governing Rate" shall mean that interest rate
published daily in the "Money Rates" section of The Wall
Street Journal as the "LIBOR" rate being offered for a period
of one (1) month plus the Eurodollar Reserve Percentage, if
any; provided, however, that if such newspaper ceases to be
published or ceases to publish a one-month "LIBOR" rate, then,
"Governing Rate" shall mean such alternate, equivalent
published index rate as shall be selected by Lender plus, if
then still applicable, the Eurodollar Reserve Percentage, if
any. The Governing Rate shall be set each month on the first
day of such calendar month, based on the aforesaid index rate
as so published on the first day of such calendar month
(unless on such day such rate is not published, in which event
the Governing Rate shall be based on the aforesaid index rate
as published on the next closest day prior to such first day
of such calendar month), plus the then applicable Eurodollar
Reserve Percentage, if any.
"Prior Year Annual Portfolio Securitization
Requirement" shall mean, with respect to the 12-month period
commencing on March 1, 1999, or any subsequent 12-month period
commencing on March 1, the requirement that Borrower shall
have completed one or more Securitization Transactions within
the preceding 12-month period (or, in the case of the 12-month
period commencing on March 1, 1999, within the period
commencing on the date of the Third Amendment and ending on
February 28, 1999) that generate aggregate net proceeds
available to pay Indebtedness of Borrower of not less than
$15,000,000 (provided, that if the Maximum Credit Line is
increased after the date of the Third Amendment, then such
$15,000,000 amount shall automatically also increase in the
same proportion as such increase in the Maximum Credit Line).
"Third Amendment" shall mean the Third Amendment to
Loan Agreement dated as of October 1, 1998, amending this
Agreement.
2.3 Amendment to Maximum Commitment. Section 2.1(b)(ii) of the
Loan Agreement is amended by deleting the existing text thereof in its entirety
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and substituting therefor the following amended and restated version thereof:
(ii) the amount by which the sum of (w) up to one
hundred percent (100%) of the Net Eligible SBA Guaranteed
Notes Receivable, plus (x) up to eighty percent (80%) of the
Current Portion of Net Eligible Non-Guaranteed Notes
Receivable (provided, that Lender, in its sole discretion, may
increase such percentage to up to eighty-five percent (85%)),
plus (y) up to fifty percent (50%) of the Delinquent Portion
of Net Eligible Non-Guaranteed Notes Receivable, plus (z) up
to fifty percent (50%) of the Defaulted Portion of Net
Eligible Non-Guaranteed Notes Receivable (not exceeding
sixty-five percent (65%) of the estimated remaining value of
such Defaulted Portion of Net Eligible Non-Guaranteed Notes
Receivable as determined by Borrower and accepted by Lender,
and provided that the maximum amount of the Defaulted Portion
of Net Eligible Non-Guaranteed Notes Receivable that may be
used for purposes of the borrowing availability calculation in
this Section 2.1(b)(ii) shall be subject to any applicable
limitation set forth on Schedule 2.1(b)(ii)), exceeds the sum
of (A) the aggregate amount of Note Sale Reserves then
outstanding, and (B) twenty-five percent (25%) of the
aggregate amount of all undisbursed binding lending
commitments of Borrower for which all lending conditions have
been met; provided, that during the period from the date of
the Third Amendment to this Agreement through February 28,
1999, the percentage in clause (x) above shall be increased to
eighty-five percent (85%); and provided further, that the
percentage in clause (x) above shall be increased to
eighty-five percent (85%) during each subsequent 12-month
period commencing on March 1 for which Borrower has satisfied
the Prior Year Annual Portfolio Securitization Requirement; or
2.4 Amendment to Interest Rate. Section 2.3(b) of the Loan
Agreement is amended by deleting the words "Interest shall accrue" at the
beginning of the existing text thereof and substituting therefor the words
"Subject to Section 2.3(e), interest shall accrue".
2.5 Further Amendment to Interest Rate. Section 2.3 of the
Loan Agreement is amended by adding the following new Section 2.3(e) after the
existing text thereof:
(e) Notwithstanding Section 2.3(b) or any other
provision of this Agreement, during the period from September
1, 1998 through February 28, 1999, interest shall accrue on
the Revolving Loans at a floating rate equal to either (i)
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with respect to those Revolving Loans made based upon Net
Eligible SBA Guaranteed Notes Receivable, the Governing Rate
plus two percent (2.00%) per annum, and (ii) with respect to
those Revolving Loans made based upon Net Eligible
Non-Guaranteed Notes Receivable, the Governing Rate plus two
and one-half percent (2.50%) per annum; provided, that if the
Defaulted Portion of Net Eligible Non-Guaranteed Notes
Receivable, as reported in the most recent weekly Borrowing
Base Report delivered prior to the end of any month, is
greater than ten percent (10%) of Borrower's Non-Guaranteed
Notes Receivable (measured by the respective aggregate
outstanding principal amounts), then with respect to that
portion of the Revolving Loans made based upon the Defaulted
Portion of Net Eligible Non-Guaranteed Notes Receivable,
interest shall accrue during the following month at a floating
rate equal to the Index Rate plus one and one-half percent
(1.50%) per annum, adjusted by Lender on the same day as each
change in the Index Rate; and provided further, that if
Borrower fails to satisfy the Prior Year Annual Portfolio
Securitization Requirement for the 12-month period commencing
on March 1, 1999, Lender shall retroactively calculate the
amount, if any, by which (x) the amount of interest that would
have accrued during such period if interest had been
calculated based on the Index Rate under Section 2.3(b),
exceeds (y) the amount of interest that accrued during such
period due to its calculation based on the Governing Rate
pursuant to this Section 2.3(e), and Borrower shall pay the
amount of any such excess to Lender upon demand. With respect
to the 12-month period commencing on March 1, 1999, and each
subsequent 12-month period commencing on March 1, if Borrower
satisfies the Prior Year Annual Portfolio Securitization
Requirement for such 12-month period, then interest shall
accrue during such period pursuant to this Section 2.3(e),
subject to the same retroactive interest recalculation if
Borrower fails to satisfy the Prior Year Annual Portfolio
Securitization Requirement for the subsequent 12-month period.
2.6 Amendment to Prepayment Fee. Section 2.6 of the Loan
Agreement is amended by deleting the existing text thereof in its entirety and
substituting therefor the following amended and restated version thereof:
2.6 Borrower's Termination of Agreement. Upon at
least sixty (60) days prior written notice to Lender, Borrower
may, at its option, terminate only the entirety of this
Agreement and not any single section thereof. In order for
such termination by Borrower to become effective, Borrower
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shall, on or before such termination date, pay to Lender all
of the then outstanding Liabilities; provided, that if
Borrower terminates this Agreement within any of the time
periods listed below using the proceeds of financing from any
source other than a Securitization Transaction, or if this
Agreement is terminated pursuant to Section 7.2, then Borrower
shall also pay to Lender, as liquidated damages for the loss
of the bargain and not as a penalty, a prepayment premium
equal to the following amounts (the "Prepayment Fee"):
If Prepayment is Made
Between the Following
Dates, Inclusive : The Premium Shall Be:
Effective Date to Two Percent (2%) of the
August 26, 1998 Maximum Credit Line
August 27, 1998 to One Percent (1%) of the
August 26, 2000 Maximum Credit Line
August 27, 2000 to One-half Percent (0.5%)
August 26, 2001 of the Maximum Credit Line
provided, however, that (a) if Lender refuses a request by
Borrower solely to increase the Maximum Credit Line after the
date of the Third Amendment to any amount not exceeding Fifty
Million Dollars ($50,000,000), (b) Borrower notifies Lender in
writing, within thirty (30) days of Borrower's receipt of
notice from Lender of such refusal, of Borrower's intention to
terminate this Agreement by reason thereof, and (c) no Default
or Event of Default has occurred and is continuing at the time
such request is refused or at the actual time of termination,
then the applicable Prepayment Fee provided for above shall be
reduced by fifty percent (50%); and further provided, that if
(a) new reserves established by Lender after the Effective
Date pursuant to Section 2.8 result in a reduction of the
Maximum Commitment that is greater than the greater of (i)
Five Hundred Thousand Dollars ($500,000), and (ii) ten percent
(10%) of the Maximum Commitment immediately prior to the
implementation of such new reserves, (b) Borrower notifies
Lender in writing, within thirty (30) days of Borrower's
receipt of notice from Lender of the implementation of such
new reserves, of Borrower's intention to terminate this
Agreement by reason thereof, and (c) no Default or Event of
Default has occurred and is continuing at the actual time of
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termination, then the Prepayment Fee shall be reduced to Fifty
Thousand Dollars ($50,000).
2.7 Amendment to Collection of Payments. Section 2.13(a) of
the Loan Agreement is amended by deleting the existing text thereof in its
entirety and substituting therefor the following amended and restated version
thereof:
(a) Blocked Account; Deposits by Intermediary.
Borrower shall establish a bank account, by lock-box
arrangement or otherwise, from which Lender alone has power of
access and withdrawal except to such limited extent as may
otherwise be provided in the agreement or as otherwise agreed
to in writing by Lender, in form and substance satisfactory to
Lender and Borrower, governing such bank account (the "Blocked
Account"). Borrower shall deposit in the Blocked Account all
Items of Payment. Borrower shall deposit in the Servicer
Account any and all checks, drafts, cash and other remittances
received by Borrower in payment or on account of payment, with
respect to any of the Notes Receivable, and shall transfer to
the Blocked Account from the Servicer Account all Items of
Payment within one (1) Business Day of receipt of cleared
funds; provided, that until Borrower is otherwise notified by
Lender or unless an Default or Event of Default has occurred
and is continuing, Borrower may retain or use collections of
Items of Payment for purposes permitted by this Agreement,
provided that Borrower promptly transfers to the Blocked
Account any amounts necessary to keep the outstanding
Liabilities from exceeding the Maximum Commitment at such
time. The deposits made in the Servicer Account shall be
deposited in precisely the form received, except for the
endorsements of Borrower where necessary to permit the
collection of any such payments, which endorsements Borrower
hereby agrees to make. Notwithstanding the foregoing, Borrower
shall cause Intermediary to deposit by wire transfer to the
Blocked Account, immediately upon the receipt thereof by
Intermediary, all Net Sale Proceeds, and Borrower shall cause
payment of all Note Participation Amounts to be made directly
to the Blocked Account; provided, that until Borrower is
otherwise notified by Lender or unless an Default or Event of
Default has occurred and is continuing, Borrower may cause Net
Sales Proceeds to be deposited in the Servicer Account,
provided that Borrower transfers to the Blocked Account within
one Business Day thereafter such portion thereof equal to the
principal amount of the sold SBA Guaranteed Note Receivable.
The depository holding the Blocked Account and the Servicer
Account shall be instructed to advise Borrower of any deposits
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made to the Blocked Account or the Servicer Account. Subject
to the provisions of Sections 2.13(c) and (d) and Section
2.15, amounts deposited in the Blocked Account (including
deposits through transfers from the Servicer Account) shall be
credited against the Liabilities as follows:
(i) if and to the extent such deposits are made and
accepted into the Blocked Account not later than 2:00 p.m.
Central Time on such Business Day, and Borrower notifies
Lender of the making of such deposits pursuant to the
provisions of Section 9.1(a) not later than 2:00 p.m. Central
Time on such Business Day, as of the same Business Day on
which such deposits are made; and
(ii) otherwise, as of the next Business Day following
the date of such deposit;
provided, that solely for the purpose of calculating interest
due to Lender under this Agreement, such deposits shall be
credited two (2) days after the applicable date specified by
(i) or (ii) above.
2.8 Further Amendment to Collection of Payments. Section
2.13(c) of the Loan Agreement is amended by deleting the existing text thereof
in its entirety and substituting therefor the following amended and restated
version thereof:
(c) Allocation of Payments on Sold and Participated
Notes Receivable. Promptly after becoming available and in any
event within five (5) Business Days after the end of each
month, or more frequently as may be reasonably requested by
Lender (and, if an Event of Default has occurred and is
continuing, such request may be made as often as daily),
Borrower shall deliver to Lender information detailing, with
respect to each deposit made to the Servicer Account pursuant
to Section 2.13(a), the specific Note Receivable to which such
deposit relates and (i) the amount, if any, of such deposit
that relates to a Sold Note Receivable and that Borrower has
determined is payable to Intermediary for the benefit of the
purchaser of such Sold Note Receivable, (ii) the amount, if
any, of such deposit that relates to a GECC Participated Note
Receivable or a Participated Note Receivable and that Borrower
has determined is payable to GECC or the purchaser of such
Participated Note Receivable, (iii) the amount, if any, of
such deposit that relates to a SBA Owned Note Receivable and
that Borrower has determined is payable to SBA (any such
amount described in clauses (i), (ii), or (iii) above being
the "Allocated Payment Portion"), and (iv) the amount of such
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deposit that relates to Borrower's retained interest in a Note
Receivable and that Borrower has determined is payable to
Borrower. The portion payable to Borrower of each Item of
Payment originally deposited in the Servicer Account shall be
held by Borrower for the benefit of Lender, and Borrower shall
cause any such portion to be transferred by Borrower to the
Blocked Account within one (1) Business Day after receipt of
cleared funds.
2.9 Amendment to Reporting Obligations. Section 5.1 of the
Loan Agreement is amended by adding after the first sentence thereof the
following new sentence:
Notwithstanding anything contained in this Section 5.1,
Borrower shall not be required to furnish to Lender any
marketing or personnel information that is not already
available to the public generally.
2.10 Amendment to Financial Covenants. Section 5.11 of the
Loan Agreement is amended by deleting the existing text thereof in its entirety
and substituting therefor the following amended and restated version thereof:
5.11 Financial Covenants. From and after the
Effective Date and until the Liabilities are fully satisfied:
(a) Tangible Net Worth. Parent shall maintain, on a
consolidated basis, Tangible Net Worth of not less than
$3,500,000 as of the end of each of its fiscal quarters.
(b) EBITDA Ratio. Parent shall achieve, on a
consolidated basis, as measured as of the end of each of its
fiscal quarters, a minimum ratio of EBITDA for the
twelve-month period ending on the date of measurement to
total, actual, interest expense for such twelve-month period,
of not less than 1.1 to 1.0.
(c) Consolidated Liabilities to Tangible Net Worth
Ratio. Parent shall maintain, on a consolidated basis, a
maximum ratio of (i) the sum of (A) the Liabilities, and (B)
all other liabilities of Parent or any of its consolidated
subsidiaries to Lender, including those arising under the Loan
Agreement dated as of May 7, 1998 between Lender and BLC
Commercial Capital Corp., to (ii) Tangible Net Worth, each as
measured as of the end of each fiscal quarter, of not more
than 6.0 to 1.0.
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(d) Delinquency Percentage. As measured as of the end
of each month, Borrower shall not cause or allow the
Delinquent Portion of Net Eligible Non-Guaranteed Notes
Receivable to be more than four percent (4%) of Borrower's
Non-Guaranteed Notes Receivable (measured by the respective
aggregate outstanding principal amounts). Solely for purposes
of this Section 5.11(d), the respective calculations of
Borrower's Delinquent Portion of Net Eligible Non-Guaranteed
Notes Receivable and Borrower's Non-Guaranteed Notes
Receivable shall be made without regard to any disposition of
Non-Guaranteed Notes Receivable by Borrower.
(e) Default Percentage. As measured as of the end of
each month, Borrower shall not cause or allow the amount of
the Defaulted Portion of Net Eligible Non-Guaranteed Notes
Receivable to exceed $3,750,000.
2.11 Amendment to Affirmative Covenant Regarding Subordination
Agreement. Section 5.16 of the Loan Agreement is amended by deleting the
existing text thereof in its entirety and substituting therefor the following
amended and restated version thereof:
5.16 Subordination Agreement. Prior to incurring any
Subordinated Debt other than with respect to the Parent
Debentures, Borrower shall cause to be delivered to Lender a
subordination agreement executed by such Person in form and
substance reasonably satisfactory to Lender.
2.12 Amendments to Negative Covenants. Sections 6.2, 6.4, 6.8,
6.14, 6.15 and 6.16 of the Loan Agreement are amended by deleting the existing
text thereof in their entirety and substituting therefor the following amended
and restated versions thereof:
6.2 Loans and Compensation. Borrower shall not make
any loans, distributions, payments, asset transfers, or
advances of money and/or extensions of credit to any Persons,
including officers, directors, employees, stockholders, or
Affiliates and Subsidiaries of Borrower or Parent, other than
(a) reasonable advances made in the ordinary course of
business on account of salary, commissions, and routine travel
and business expenses, (b) loans made in the ordinary course
of business to Term Loan Debtors, and (c) so long as no
Default or Event of Default has occurred and is continuing or
would result therefrom, (i) reasonable amounts with respect to
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payment to Borrower, Parent or their respective Subsidiaries
of servicing fees, reimbursement of origination expenses, and
funding of operating expenses in the ordinary course of
business, (ii) payment to Parent of the amount actually used
by Parent to make interest payments on the Parent Debentures,
to the extent Parent is permitted pursuant to Section 6.15 to
make such interest payments to the holders of the Parent
Debentures, and (iii) loans made to Parent or other Affiliates
of Borrower whose financial statements are consolidated with
those of Parent, for the purpose of providing financing for
capital expenditures made by Parent or such other Affiliate
that are permitted pursuant to Section 6.4.
6.4 Capital Expenses. On a consolidated basis, make
capital expenditures (including capitalized leases) during any
fiscal year of Parent which, in the aggregate, exceed
$750,000. Lender shall not unreasonably withhold its consent
to a written request by Borrower or Parent for Lender's
consent to an increase in such annual dollar limit if Borrower
or Parent reasonably believes that such increase is necessary
due to the expansion of the business or operations of such
Person or its consolidated Subsidiaries.
6.8 Change of Business. Borrower shall not enter into
any new business or make any material change in any of
Borrower's business objectives, purposes or operations. Parent
shall not enter into any business other than that of making
commercial loans within the asset-based lending industry.
6.14 [Intentionally Omitted.]
6.15 Payments on Subordinated Debt. Prepay any
Subordinated Debt or make any payment of principal or interest
thereof or interest thereon or any other payment or
distribution in respect thereof, except that Parent may (a)
make payments of interest on the Parent Debentures regularly
scheduled thereunder provided that no Default or Event of
Default has occurred or is continuing under this Agreement or
would result from such interest payment, and (b) completely
refinance the Parent Debentures so long as the terms of the
refinanced Subordinated Debt, taken as a whole, are no less
favorable to Borrower or Lender than the terms of the Parent
Debentures. All Subordinated Debt shall have a maturity date
after the Termination Date and shall be unsecured and
subordinated to Lender in liquidation and repayment on terms
that are reasonably acceptable to Lender. Conversion of
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Subordinated Debt of a Person into an equity interest in such
Person pursuant to the exercise of a conversion option held by
the holder of such Subordinated Debt shall not constitute a
payment or distribution with respect to such Subordinated Debt
so long as no cash is paid by such Person to such holder and
such conversion does not reduce the Tangible Net Worth of such
Person.
6.16 Affiliates. Hereafter create any Affiliate or
Subsidiary or divest itself of any material assets by
transferring them to any Affiliate or Subsidiary.
Notwithstanding the foregoing, Lender consents to the creation
of (a) a Subsidiary or Subsidiaries to acquire the subordinate
tranche of certificates or participating interests issued in
connection with any Securitization Transaction, and (b)
additional Subsidiaries engaged in the loan origination
business so long as none of such Subsidiaries originates SBA-
guaranteed loans. Lender shall not unreasonably withhold its
consent to a written request by Borrower or Parent for
Lender's consent to a transaction by Borrower or Parent that
would otherwise violate this Section 6.16. Without limiting
the generality of the foregoing, Lender shall not withhold its
consent to the reorganization of the corporate structure of
Parent and its Subsidiaries to merge other loan origination
Subsidiaries into Borrower or to make them Subsidiaries of
Borrower so long as any such reorganization could not
reasonably be expected to have a Material Adverse Effect.
2.13 Amendments to Event of Default. Sections 7.1(b) and
7.1(q) of the Loan Agreement are amended by deleting the existing text thereof
in their entirety and substituting therefor the following amended and restated
versions thereof:
(b) Loan Balance. Lender notifies Borrower that the
outstanding balance of the Loans hereunder exceeds the Maximum
Commitment, and such condition is not corrected within three
(3) Business Days after such notice; provided, that if such
condition is caused solely by the fact that the percentage in
Section 2.1(b)(ii)(x) has been reduced to eighty percent (80%)
due to Borrower's failure to satisfy the Prior Year Annual
Portfolio Securitization Requirement for any 12-month period,
then Borrower shall have 30 days after such notice to correct
such condition; or
(q) Merger. Except as permitted under Section 6.16,
Borrower or Parent shall merge or consolidate with or acquire
the Stock or assets of any Person; or
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2.14 Addition of New Schedule 2.1(b)(ii). The Loan Agreement
is amended by adding in appropriate numerical order the new Schedule 2.1(b)(ii)
attached as Schedule 2.1(b)(ii) to this Third Amendment.
3. Conditions to Effectiveness. The amendments set forth in Section 2
of this Third Amendment are subject to satisfaction of each of the following
conditions:
(a)receipt by Lender of a copy of this Third Amendment, duly executed by
Borrower, Parent, and Lender;
(b)receipt by Lender of such officer's certificates, board of directors'
resolutions, or other evidence satisfactory to Lender of each of Borrower's and
Parent's corporate authority and legal ability to execute, deliver and perform
this Third Amendment and to consummate the transaction contemplated hereunder;
and
(c)the absence of any Defaults or Events of Default.
4. Entire Agreement. This Third Amendment, together with the Loan
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Third Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.
5. Representations and Warranties. Borrower hereby confirms 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 (a) that 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. The Loan Agreement shall continue in full force
and effect in accordance with the provisions thereof on the date hereof.
6. Miscellaneous.
6.1 Counterparts. This Third Amendment may be executed in
identical counterpart copies, each of which shall be an original, but all of
which shall constitute one and the same agreement.
6.2 Headings. Section headings used herein are for convenience
of reference only, are not part of this Third Amendment, and are not to be taken
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into consideration in interpreting this Third Amendment.
6.3 Recitals. The recitals set forth at the beginning of this
Third Amendment are true and correct, and such recitals are incorporated into
and are a part of this Third Amendment.
6.4 Governing Law. This Third Amendment shall be governed by,
and construed and enforced in accordance with, the laws of the State of Illinois
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
6.5 No Novation. Except as specifically set forth in paragraph
2 of this Third Amendment, the execution, delivery and effectiveness of this
Third Amendment shall not (a) limit, impair, constitute a waiver of or otherwise
affect any right, power or remedy by 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 (c) alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Loan Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.
6.6 Conflict of Terms. In the event of any inconsistency
between the provisions of this Third Amendment and any provision of the Loan
Agreement, the terms and provisions of this Third Amendment shall govern and
control.
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IN WITNESS WHEREOF, this Third Amendment has been duly executed
as of the date first written above.
BORROWER:
BUSINESS LOAN CENTER, INC.,
a Delaware corporation
By: ______________________________
Jennifer Goldstein
Chief Financial Officer
PARENT:
BLC FINANCIAL SERVICES, INC.,
a Delaware corporation
By: ______________________________
Robert F. Tannenhauser
President
LENDER:
TRANSAMERICA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By: ______________________________
Russell L. Bonder
Senior Account Executive
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SCHEDULE 2.1(b)(ii)
Availability Limitation re Defaulted Portion
of Net Eligible Non-Guaranteed Notes Receivable
Solely for purposes of the borrowing availability calculation
in Section 2.1(b)(ii), at any time when the Defaulted Portion of Net Eligible
Non-Guaranteed Notes Receivable is more than ten percent (10%) of Borrower's
Non-Guaranteed Notes Receivable (measured by the respective aggregate
outstanding principal amounts as of the end of each month), the maximum amount
of the Defaulted Portion of Net Eligible Non-Guaranteed Notes Receivable shall
not exceed the applicable limits set forth below:
Date or Period Maximum Amount
Prior to December 31, 1998 $2,500,000
As of December 31, 1998 PFQEDP + CFQO% - CFQEDP% + $100,000
As of March 31, 1999 PFQEDP + CFQO% - CFQEDP% + $75,000
As of June 30, 1999 PFQEDP + CFQO% - CFQEDP% + $50,000
As of September 30, 1999 PFQEDP + CFQO% - CFQEDP% + $25,000
As of the end of each
subsequent fiscal quarter PFQEDP + CFQO% - CFQEDP%
At all times after The maximum amount calculated as of December 31, 1998 other
the end of the most recently ended than a date that is the fiscal quarter +
$300,000 end of a fiscal quarter
"PFQEDP" means the amount of the Defaulted Portion of Net Eligible
Non-Guaranteed Notes Receivable as of the end of the prior fiscal quarter.
"CFQO%" means the amount of the new Net Eligible Non-Guaranteed Notes Receivable
originated by Borrower during the current fiscal quarter, multiplied by 0.025.
"CFQEDP%" means the amount of the Defaulted Portion of Net Eligible
Non-Guaranteed Notes Receivable as of the end of the current fiscal quarter,
multiplied by (a) 0.005 for each fiscal quarter during the fiscal year ending
June 30, 1999, (b) 0.01 for each fiscal quarter during the fiscal year ending
June 30, 2000, or (c) 0.015 for each fiscal quarter during the fiscal year
ending June 30, 2001.
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FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT ("Fourth Amendment")
is entered into as of December ___, 1998, by and between BUSINESS LOAN CENTER,
INC., a Delaware corporation ("Borrower"), BLC FINANCIAL SERVICES, INC., a
Delaware corporation, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation ("Lender"), with reference to the following facts:
RECITALS
A. Pursuant to the Loan Agreement dated as of March 25, 1998 executed
by Borrower, Parent and Lender, as amended by the First Amendment to Loan
Agreement dated as of June 24, 1998, the Second Amendment to Loan Agreement
dated as of September 15, 1998, and the Third Amendment to Loan Agreement dated
as of October 1, 1998 (collectively, the "Loan Agreement"), Lender agreed to
make certain financial accommodations to or for the benefit of Borrower upon the
terms and conditions set forth therein. Unless otherwise noted in this Fourth
Amendment, (i) capitalized terms used herein shall have the meanings attributed
to them in the Loan Agreement, (ii) references to Sections shall refer to
Sections of the Loan Agreement or Schedules thereto, as applicable, and (iii)
references to Schedules shall refer to Schedules to the Loan Agreement.
B. Borrower has requested, and Lender has agreed, to amend certain
provisions of the Loan Agreement, all on the terms and conditions set forth
below.
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:
A G R E E M E N T
1. Incorporation of Loan Agreement and Other Loan Documents. Except as
expressly modified under this Fourth Amendment, all of the terms and conditions
set forth in the Loan Agreement and the other Loan Documents are incorporated
herein by this reference, and Borrower hereby acknowledges, confirms, and
ratifies its obligations under the Loan Agreement and the other Loan Documents.
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<PAGE>
2. Amendments to Loan Agreement and other Loan Documents. As of the
date of this Fourth Amendment, the Loan Agreement and the other Loan Documents
are hereby amended in the following manner:
2.1 Amendment to Add New Defined Term. Section 1.1 of the Loan
Agreement is amended by adding the following new definition in appropriate
alphabetical order:
"Fourth Amendment" shall mean the Fourth Amendment to
Loan Agreement dated as of December __, 1998, amending this
Agreement.
2.2 Amendment to Increase Maximum Credit Line. The definition
of "Maximum Credit Line" in Section 1.1 is amended by substituting the phrase
"$50,000,000" for the amount "$35,000,000" therein. The same substitution shall
be deemed made by this Fourth Amendment with respect to all other references in
the Loan Agreement or the other Loan Documents to the maximum amount of the
credit facility under the Loan Agreement or the principal amount of the
Revolving Credit Note.
3. Amendment Fee. In consideration of Lender's agreement to enter into
this Fourth Amendment, Borrower agrees to pay to Lender a fully earned and
non-refundable fee in the amount of $200,000 (the "Amendment Fee"). The
Amendment Fee shall be due and payable by Borrower to Lender as follows:
(a) $100,000 shall be due and payable on the date that this
Fourth Amendment becomes effective pursuant to Section 4 of this Fourth
Amendment;
(b) $50,000 shall be due and payable on the earlier of (i) August
27, 1999, and (ii) the Termination Date; and
(c) $50,000 shall be due and payable on the earlier of (i) August
27, 2000, and (ii) the Termination Date.
If not paid as and when due, such payments of the Amendment Fee may be charged
by Lender to Borrower's account as Revolving Loans.
4. Conditions to Effectiveness. The amendments set forth in Section 2
of this Fourth Amendment are subject to satisfaction of each of the following
conditions:
(a) receipt by Lender of a copy of this Fourth Amendment, duly
executed by Borrower, Parent, and Lender;
(b) receipt by Lender of an amended and restated version of the
Revolving Credit Note, in the form attached as Exhibit A to this Fourth
Amendment, duly executed by Borrower;
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<PAGE>
(c) receipt by Lender of such officer's certificates, board of
directors' resolutions, or other evidence satisfactory to Lender of each of
Borrower's and Parent's corporate authority and legal ability to execute,
deliver and perform this Fourth Amendment and to consummate the transaction
contemplated hereunder;
(d) payment by Borrower of that portion of the Amendment Fee
payable on the effective date of this Fourth Amendment; and
(e) the absence of any Defaults or Events of Default.
5. Entire Agreement. This Fourth Amendment, together with the Loan
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Fourth Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.
6. Representations and Warranties. Borrower hereby confirms 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 (a) that 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. The Loan Agreement shall continue in full force
and effect in accordance with the provisions thereof on the date hereof.
7. Miscellaneous.
7.1 Counterparts. This Fourth Amendment may be executed in
identical counterpart copies, each of which shall be an original, but all of
which shall constitute one and the same agreement.
7.2 Headings. Section headings used herein are for convenience
of reference only, are not part of this Fourth Amendment, and are not to be
taken into consideration in interpreting this Fourth Amendment.
7.3 Recitals. The recitals set forth at the beginning of this
Fourth Amendment are true and correct, and such recitals are incorporated into
and are a part of this Fourth Amendment.
7.4 Governing Law. This Fourth Amendment shall be governed by,
and construed and enforced in accordance with, the laws of the State of Illinois
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
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<PAGE>
7.5 No Novation. Except as specifically set forth in paragraph
2 of this Fourth Amendment, the execution, delivery and effectiveness of this
Fourth Amendment shall not (a) limit, impair, constitute a waiver of or
otherwise affect any right, power or remedy by 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 (c) alter, modify, amend or
in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Loan Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.
7.6 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.
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<PAGE>
IN WITNESS WHEREOF, this Fourth Amendment has been duly executed
as of the date first written above.
BORROWER:
BUSINESS LOAN CENTER, INC.,
a Delaware corporation
By:______________________________
Jennifer Napier
Chief Financial Officer
PARENT:
BLC FINANCIAL SERVICES, INC.,
a Delaware corporation
By: ______________________________
Robert F. Tannenhauser
President
LENDER:
TRANSAMERICA BUSINESS CREDIT
CORPORATION, a Delaware corporation
By:______________________________
Russell L. Bonder
Senior Account Executive
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POOLING AND SERVICING AGREEMENT
Dated as of December 23, 1998
between
Marine Midland Bank
(Trustee)
and
BUSINESS LOAN CENTER, INC.
(Seller and Servicer)
Business Loan Center SBA Loan-Backed
Adjustable Rate Certificates, Series 1998-1,
Class A and Class B
<PAGE>
TABLE OF CONTENTS
Section Page
- -------- ------
ARTICLE I
DEFINITIONS
ARTICLE II
SALE AND CONVEYANCE OF THE TRUST FUND
Section 2.01 Sale and Conveyance of Trust Fund.................... 1
Section 2.02 Possession of SBA Files.............................. 1
Section 2.03 Books and Records.................................... 1
Section 2.04 Delivery of SBA Loan Documents....................... 2
Section 2.05 Acceptance by Trustee of the Trust Fund;............. 4
Section 2.06 [Intentionally Omitted].............................. 5
Section 2.07 Authentication of Certificates....................... 5
Section 2.08 Fees and Expenses of the Trustee..................... 6
Section 2.09 Sale and Conveyance of the Subsequent SBA Loans...... 6
Section 2.10 Optional Purchase of Defaulted SBA Loans............. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations of the Seller........................ 1
Section 3.02 Individual SBA Loans................................. 4
Section 3.03 Purchase and Substitution of Defective............... 9
ARTICLE IV
THE CERTIFICATES
Section 4.01 The Certificates...................................... 1
Section 4.02 Registration of Transfer and Exchange of Certificates. 1
Section 4.03 Mutilated, Destroyed, Lost or Stolen Certificates..... 5
Section 4.04 Persons Deemed Owners................................. 5
ARTICLE V
ADMINISTRATION AND SERVICING OF SBA LOANS
Section 5.01 Duties of the Servicer................................. 1
Section 5.02 Liquidation of SBA Loans............................... 4
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Section 5.03 Establishment of Principal and......................... 5
Section 5.04 Permitted Withdrawals From the......................... 6
Section 5.05 [Intentionally Omitted]................................ 8
Section 5.06 Transfer of Accounts................................... 8
Section 5.07 Maintenance of Hazard Insurance........................ 8
Section 5.08 [Intentionally Omitted]................................ 8
Section 5.09 Fidelity Bond.......................................... 8
Section 5.10 Title,Management and Disposition....................... 9
Section 5.11 [Intentionally Omitted.]...............................10
Section 5.12 Collection of Certain SBA Loan Payments................10
Section 5.13 Access to Certain Documentation and....................10
Section 5.14 Superior Liens.........................................11
ARTICLE VI
PAYMENTS TO THE CERTIFICATEHOLDERS
Section 6.01 Establishment of Certificate Account;.................. 1
Section 6.02 Establishment of Spread Account;....................... 2
Section 6.03 Establishment of Expense Account;...................... 3
Section 6.04 Establishment of Pre-Funding Account; Deposits in Pre-
Funding Account; Permitted Withdrawals from Pre-Funding
Account......................................................... 5
Section 6.05. Establishment of Capitalized Interest Account;
Deposits in Capitalized Interest Account; Permitted
Withdrawals from Capitalized Interest Account................... 5
Section 6.06 Investment of Accounts................................. 6
Section 6.07 Distributions.......................................... 7
Section 6.08 [Intentionally Omitted]................................ 8
Section 6.09 Statements............................................. 9
Section 6.10 Advances by theServicer................................11
Section 6.11 Compensating Interest..................................12
Section 6.12 Reports of Foreclosure and Abandonment.................12
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 [Omitted].............................................. 1
Section 7.02 Satisfaction of Mortgages and Collateral............... 1
Section 7.03 Servicing Compensation................................. 2
Section 7.04 Annual Statement as to Compliance...................... 2
Section 7.05 Annual Independent Public.............................. 3
Section 7.06 SBA's, and Trustee's Right to Examine.................. 3
Section 7.07 Reports to the Trustee; Principal and
Interest Account Statements..................................... 3
Section 7.08 Premium Protection Fee and Servicing Fee............... 4
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ARTICLE VIII
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01 Financial Statements................................... 1
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.................... 1
Section 9.02 Merger or Consolidation of the Servicer................ 2
Section 9.03 Limitation on Liability of the......................... 2
Section 9.04 Servicer Not to Resign................................. 2
ARTICLE X
DEFAULT
Section 10.01 Events of Default..................................... 1
Section 10.02 Trustee to Act; Appointment of Successor.............. 2
Section 10.03 Waiver of Defaults.................................... 4
Section 10.04. Control by Majority Certificateholders............... 4
ARTICLE XI
TERMINATION
Section 11.01 Termination.......................................... 1
Section 11.02 Accounting Upon Termination of Servicer.............. 2
ARTICLE XII
THE TRUSTEE
Section 12.01 Duties of Trustee..................................... 1
Section 12.02 Certain Matters Affecting the Trustee................. 2
Section 12.03 Trustee Not Liable for Certificates................... 3
Section 12.04 Trustee May Own Certificates.......................... 4
Section 12.05 Servicer To Pay Trustee's Fees........................ 4
Section 12.06 Eligibility Requirements for Trustee.................. 4
Section 12.07 Resignation and Removal of the Trustee................ 5
Section 12.08 Successor Trustee..................................... 6
Section 12.09 Merger or Consolidation of Trustee.................... 6
Section 12.10 Appointment of Co-Trustee or Separate................. 7
Section 12.11 Authenticating Agent.................................. 8
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Section 12.12 Tax Returns and Reports............................... 9
Section 12.13 Protection of Trust Fund.............................. 9
Section 12.14 Representations, Warranties and Covenants of Trustee..10
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 Acts of Certificateholders........................... 1
Section 13.02 Amendment............................................ 1
Section 13.03 Recordation of Agreement............................. 2
Section 13.04 Duration of Agreement................................ 2
Section 13.05Governing Law.......................................... 2
Section 13.06 Notices.............................................. 2
Section 13.07 Severability of Provisions........................... 3
Section 13.08 No Partnership....................................... 3
Section 13.09 Counterparts......................................... 3
Section 13.10 Successors and Assigns............................... 3
Section 13.11 Headings............................................. 3
Section 13.12 Paying Agent......................................... 3
Section 13.13 Notification to Rating Agency........................ 4
Section 13.14 Third Party Rights................................... 4
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EXHIBIT INDEX
EXHIBIT A Contents of SBA File
EXHIBIT B-1 Form of Class A Certificate
EXHIBIT B-2 Form of Class B Certificate
EXHIBIT C Principal and Interest Account
Letter Agreement
EXHIBIT D [Omitted]
EXHIBIT E [Omitted]
EXHIBIT E(1) Wiring Instructions Form
EXHIBIT F-1 Initial Certification
EXHIBIT F-2 Final Certification
EXHIBIT G [Omitted]
EXHIBIT H SBA Loan Schedule
EXHIBIT I Request for Release of Documents
EXHIBIT J Form of Liquidation Report
EXHIBIT K Form of Delinquency Report
EXHIBIT L Servicer's Monthly Computer Tape Format
EXHIBIT M Multi-Party Agreement
EXHIBIT N Spread Account Agreement
EXHIBIT O-1 Form of Transferee Letter
EXHIBIT O-2 Form of Rule 144A Certification
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Agreement dated as of December 23, 1998 between Marine Midland Bank, as
trustee (the "Trustee"), and Business Loan Center, Inc., as Seller (the
"Seller") and as Servicer (the "Servicer"):
PRELIMINARY STATEMENT
The Seller, in the ordinary course of its business, originates and
acquires SBA ss. 7(a) Loans (the "SBA ss. 7(a) Loans") to small businesses in
compliance with the provisions of the Small Business Act and the rules and
regulations thereunder, which SBA ss. 7(a) Loans are evidenced by the SBA Notes
in favor of the Seller.
Pursuant to and in accordance with the provisions of the Small Business
Act and the Loan Guaranty Agreement, a portion of each SBA ss. 7(a) Loan has
been guaranteed by the Small Business Administration (the "SBA").
The Seller has previously sold the Guaranteed Interest (as defined
herein) in the SBA ss. 7(a) Loans to certain Registered Holders pursuant to SBA
Form 1086 Agreements between such Registered Holders, the SBA and the Seller.
The parties hereto acknowledge that the SBA is the party in interest with
respect to the Guaranteed Interest.
Pursuant to and in accordance with policies of the SBA, the Servicer is
required to retain a portion of the interest received on the Guaranteed Interest
of each SBA ss. 7(a) Loan sold to the Trust Fund (such portion, the "Premium
Protection Fee").
To facilitate the sale of the Unguaranteed Interest (as defined below)
in the SBA ss.7(a) Loans, net of the Servicing Fee, and the servicing of the SBA
Loans by the Servicer, the Seller and the Servicer are entering into this
Agreement with the Trustee. The Seller is transferring the Unguaranteed Interest
in the SBA Loans to the Trustee for the benefit of the SBA and the
Certificateholders under this Agreement, pursuant to which Certificates are
being issued, denominated on the face thereof as Business Loan Center SBA
Loan-Backed Adjustable Rate Certificates, Series 1998-1, Class A and Class B,
representing in the aggregate a 100% undivided beneficial ownership interest in
the right to receive the principal portion of the Unguaranteed Interests of the
SBA Loans together with interest thereon at the then applicable Class A or Class
B Remittance Rate, as the case may be. The Unguaranteed Interest of the Initial
SBA Loans have an aggregate outstanding principal balance of $21,431,228.10 as
of December 23, 1998 (the "Cut-Off Date"), after application of payments
received by the Servicer on or before such date.
The parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings. This Agreement
relates to a Trust Fund evidenced by Business Loan Center SBA Loan-Backed
Adjustable Rate Certificates, Series 1998-1, Class A and Class B. Unless
otherwise provided, all calculations of interest pursuant to this Agreement
including, but not limited to, the Class A and Class B Interest Distribution
Amounts, are based on a 360-day year and twelve 30-day months.
ACCOUNT: The Certificate Account, the Pre-Funding Account and the
Capitalized Interest Account established by the Trustee for the benefit of the
Certificateholders; the Expense Account established by the Trustee for the
benefit of the Trustee; and the Spread Account held by the Spread Account
Custodian pursuant to the Spread Account Agreement. The Trustee's obligation to
establish and maintain the Certificate Account is not delegable.
ACCOUNT NUMBER: The number assigned to each SBA Loan by the Seller, as
set forth in Exhibit H hereto.
ACCOUNT PROPERTY: Has the meaning set forth in Section 3 of the Spread
Account Agreement.
ADDITION NOTICE: With respect to the transfer of Subsequent SBA Loans
to the Trust Fund pursuant to Section 2.09 herein, notice, which shall be given
not later than three Business Days prior to the related Subsequent Transfer
Date, of the Seller's designation of Subsequent SBA Loans to be sold to the
Trust Fund and the aggregate Principal Balance of such Subsequent SBA Loans.
ADDITIONAL FEE: With respect to each Additional Fee SBA Loan, the fee
payable to the SBA by the Seller equal to 40 basis points or 50 basis points per
annum, as the case may be, on the outstanding balance of the Guaranteed Interest
of such Additional Fee SBA Loan.
ADDITIONAL FEE SBA LOAN: An SBA ss. 7(a) Loan sold in the secondary
market on or after September 1, 1993 (unless the related SBA ss. 7(a) Loan was
approved by the SBA on or after October 12, 1995), for which the related
Additional Fee is 40 basis points per annum, or an SBA ss. 7(a) Loan approved by
the SBA on or after October 12, 1995 (regardless of whether it was sold in the
secondary market), for which the related Additional Fee is 50 basis points per
annum.
ADJUSTED CLASS A INTEREST DISTRIBUTION AMOUNT: With respect to each
Remittance Date, the product of (A) the aggregate amount of interest payable
with respect to each SBA Loan in accordance with its terms, net of the interest
payable to the Registered Holder, the Premium Protection Fee, the Excess Spread,
the Servicing Fee, the FTA's Fee, the Additional Fee, the Extra Interest and the
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Annual Expense Escrow Amount allocable to such interest (plus, for the
Remittance Dates occurring in January 1999, February 1999 and March 1999, any
amounts transferred from the Pre-Funding Account and the Capitalized Interest
Account for such Remittance Date to be applied as a payment of interest on the
Certificates) and (B) a fraction, the numerator of which is the amounts set
forth in clauses (i) and (ii) of the definition of Class A Interest Distribution
Amount with respect to such Remittance Date, and the denominator of which is the
sum of the amounts set forth in clauses (i) and (ii) of the definition of Class
A Interest Distribution Amount and the amounts set forth in clauses (i) and (ii)
of the definition of Class B Interest Distribution Amount, each with respect to
such Remittance Date.
ADJUSTED CLASS B INTEREST DISTRIBUTION AMOUNT: With respect to each
Remittance Date, the product of (A) the aggregate amount of interest payable
with respect to each SBA Loan in accordance with its terms, net of the interest
payable to the Registered Holder, the Premium Protection Fee, the Excess Spread,
the Servicing Fee, the FTA's Fee, the Additional Fee, the Extra Interest and the
Annual Expense Escrow Amount allocable to such interest (plus, for the
Remittance Dates occurring in January 1999, February 1999 and March 1999, any
amounts transferred from the Pre-Funding Account and the Capitalized Interest
Account for such Remittance Date to be applied as a payment of interest on the
Certificates) and (B) a fraction, the numerator of which is the amounts set
forth in clauses (i) and (ii) of the definition of Class B Interest Distribution
Amount with respect to such Remittance Date, and the denominator of which is the
sum of the amounts set forth in clauses (i) and (ii) of the definition of Class
A Interest Distribution Amount and the amounts set forth in clauses (i) and (ii)
of the definition of Class B Interest Distribution Amount, each with respect to
such Remittance Date.
ADJUSTED SBA LOAN REMITTANCE RATE: With respect to any SBA Loan, a
percentage per annum equal to the sum of (i) the then applicable weighted
average Class A and Class B Remittance Rates and (ii) 0.05% per annum, relating
to the Annual Expense Escrow Amount.
ADJUSTMENT DATE: For the Interest Accrual Periods commencing in
February, March and April, the Adjustment Date shall be the first Business Day
of the preceding January. For the Interest Accrual Periods commencing in May,
June and July, the Adjustment Date shall be the first Business Day of the
preceding April. For the Interest Accrual Periods commencing in August,
September and October, the Adjustment Date shall be the first Business Day of
the preceding July. For the Interest Accrual Periods commencing in November,
December and January, the Adjustment Date shall be the first Business Day of the
preceding October. However, for the January 1999 Remittance Date, interest on
the Class A and Class B Certificates will accrue based upon the Prime Rate in
effect on the first Business Day of December, 1998.
AGGREGATE CLASS A CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Class A Certificate Principal Balance less the sum
of all amounts previously distributed to the Class A Certificateholders in
respect of principal.
AGGREGATE CLASS B CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Class B Certificate Principal Balance less the sum
of all amounts previously distributed to the Class B Certificateholders in
respect of principal.
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AGREEMENT: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
ANNUAL EXPENSE ESCROW AMOUNT: $7,500 per annum plus out-of-pocket
expenses (estimated to be approximately $300 per annum).
ASSIGNMENT OF MORTGAGE: With respect to those SBA Loans secured by a
Mortgaged Property, an assignment of the Mortgage, notice of transfer or
equivalent instrument sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the transfer of the
related SBA Loan to the Trustee subject to the Multi-Party Agreement.
AUTHENTICATING AGENT: Initially, Marine Midland Bank and thereafter,
any successor appointed pursuant to Section 12.11.
AVAILABLE FUNDS: With respect to each Remittance Date, the sum of (i)
the Unguaranteed Percentage of all amounts received from any source by the
Servicer or any Subservicer during the preceding calendar month (including
Excess Spread) with respect to principal and interest on the SBA Loans (net of
the amount payable to the Registered Holders, the Premium Protection Fee, the
FTA's Fee, the Additional Fee, and the Servicing Fee), (ii) advances by the
Servicer, (iii) amounts to be transferred from the Pre-Funding Account and
Capitalized Interest Account with respect to the January 1999, February 1999 and
March 1999 Remittance Dates, (iv) amounts in the Spread Account and (v) with
respect to the First Remittance Date, the Initial Certificate Deposit Amount.
BIF: The Bank Insurance Fund, or any successor thereto.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in the States of New York or Delaware are
authorized or obligated by law or executive order to be closed.
CAPITALIZED INTEREST ACCOUNT: As described in Section 6.05.
CAPITALIZED INTEREST REQUIREMENT: With respect to the Remittance Dates
in January 1999, February 1999 and March 1999, the excess, if any, of (i) 30
days' interest (or, with respect to the Remittance Date in January 1999, the
actual number of days from the Closing Date to but not including such Remittance
Date) calculated at the weighted average Class A and Class B Remittance Rates on
the excess of (a) the Aggregate Class A and Class B Certificate Principal
Balances for such Remittance Date over (b) the aggregate Principal Balances of
the SBA Loans for such Remittance Date over (ii) any Pre-Funding Earnings to be
transferred to the Certificate Account on such Remittance Date pursuant to
Section 6.04(d).
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CERTIFICATE: Any Class A or Class B Certificate executed by the
Servicer and authenticated by the Trustee or the Authenticating Agent
substantially in the form annexed hereto as Exhibits B-1 and B-2.
CERTIFICATE ACCOUNT: As described in Section 6.01.
CERTIFICATEHOLDER or HOLDER: Each Person in whose name a Class A or
Class B Certificate is registered in the Certificate Register, except that,
solely for the purposes of giving any consent, waiver, request or demand
pursuant to this Agreement, any Certificate registered in the name of the
Seller, the Servicer, any Subservicer or any affiliate of any of them, shall be
deemed not to be outstanding and the undivided Percentage Interest evidenced
thereby shall not be taken into account in determining whether the requisite
percentage of Certificates necessary to effect any such consent, waiver, request
or demand has been obtained.
CERTIFICATE REGISTER: As described in Section 4.02.
CERTIFICATE REGISTRAR: Initially, Marine Midland Bank, and thereafter,
any successor appointed pursuant to Section 4.02.
CLASS A CARRY-FORWARD AMOUNT: The amount, if any, by which (i) the
Class A Principal Distribution Amount with respect to any preceding Remittance
Date exceeded (ii) the amount of the actual principal distribution to the Class
A Certificates on such Remittance Date.
CLASS A CERTIFICATE: A Certificate denominated as a Class A
Certificate.
CLASS A CERTIFICATEHOLDER: A holder of a Class A Certificate.
CLASS A INTEREST DISTRIBUTION AMOUNT: With respect to each Remittance
Date, the sum of (i) the interest accrued for the related Interest Accrual
Period at the then applicable Class A Remittance Rate on the Aggregate Class A
Certificate Principal Balance outstanding immediately prior to such Remittance
Date and (ii) the amount of the shortfall, if any, of the interest that the
Class A Certificates were entitled to receive on a preceding Remittance Date but
did not receive plus interest thereon at the then applicable Class A Remittance
Rate compounded monthly; provided, however, that on each Remittance Date after
the first Remittance Date the amount set forth in Clause (i) of Class A Interest
Distribution Amount will be increased or decreased, as the case may be, to equal
the Adjusted Class A Interest Distribution Amount for such Remittance Date.
CLASS A PERCENTAGE: With respect to each Remittance Date, 92%,
representing the beneficial ownership interest of the Class A Certificates in
the Trust Fund.
CLASS A PRINCIPAL DISTRIBUTION AMOUNT: With respect to each Remittance
Date, the Class A Percentage multiplied by the sum of, without duplication, (i)
the Unguaranteed Percentage of all payments and other recoveries of principal of
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an SBA Loan (net of amounts reimbursable to the Servicer pursuant to this
Agreement) received by the Servicer or any Subservicer in the related Due
Period, excluding amounts received relating to SBA Loans which have been
delinquent 24 months or have been determined to be uncollectible, in whole or in
part, by the Servicer to the extent that the Class A Certificateholders have
previously received the Class A Percentage of the Principal Balance of such SBA
Loans; (ii) the principal portion of any Unguaranteed Interest actually
purchased by the Seller for breach of a representation and warranty or other
defect and actually received by the Trustee as of the related Determination
Date; (iii) any Substitution Adjustments deposited in the Principal and Interest
Account and transferred to the Certificate Account as of the related
Determination Date; (iv) the Unguaranteed Percentage of all losses on SBA Loans
which were finally liquidated during the applicable Due Period; and (v) the
Unguaranteed Percentage of the then outstanding principal balance of any SBA
Loan which, as of the first day of the related Due Period, has been delinquent
24 months or has been determined to be uncollectible, in whole or in part, by
the Servicer and (vi) the amount, if any, released from the Pre-Funding Account
on the January 1999, February 1999 and March 1999 Remittance Dates.
CLASS A REMITTANCE RATE: During the initial Interest Accrual Period
6.75% per annum. During each subsequent Interest Accrual Period, the Prime Rate
in effect on the preceding Adjustment Date minus 1.00% per annum.
CLASS B CARRY-FORWARD AMOUNT: The amount, if any, by which (i) the
Class B Principal Distribution Amount with respect to any preceding Remittance
Date exceeded (ii) the amount of the actual principal distribution to the Class
B Certificates on such Remittance Date.
CLASS B CARRY-FORWARD INTEREST AMOUNT: For the Class B Certificates on
any Remittance Date, an amount equal to the product of (i) the Class B Interest
Distribution Amount for such Remittance Date times (ii) a fraction, the
numerator of which is the Class B Carry-Forward Amount for the Class B
Certificates and the denominator of which is the Aggregate Class B Certificate
Principal Balance.
CLASS B CERTIFICATE: A Certificate denominated as a Class B
Certificate.
CLASS B CERTIFICATEHOLDER: A holder of a Class B Certificate.
CLASS B INTEREST DISTRIBUTION AMOUNT: With respect to each Remittance
Date, the sum of (i) the interest accrued for the related Interest Accrual
Period at the then applicable Class B Remittance Rate on the Aggregate Class B
Certificate Principal Balance outstanding immediately prior to such Remittance
Date and (ii) the amount of the shortfall, if any, of the interest that the
Class B Certificates were entitled to receive on a preceding Remittance Date but
did not receive plus interest thereon at the then applicable Class B Remittance
Rate compounded monthly; provided, however, that on each Remittance Date after
the first Remittance Date the amount set forth in Clause (i) of Class B Interest
Distribution Amount will be increased or decreased, as the case may be, to equal
the Adjusted Class B Interest Distribution Amount for such Remittance Date.
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CLASS B PERCENTAGE: With respect to each Remittance Date, 8%,
representing the beneficial ownership interest of the Class B Certificates in
the Trust Fund.
CLASS B PRINCIPAL DISTRIBUTION AMOUNT: With respect to each Remittance
Date, the Class B Percentage multiplied by the sum of, without duplication, (i)
the Unguaranteed Percentage of all payments and other recoveries of principal of
an SBA Loan (net of amounts reimbursable to the Servicer pursuant to this
Agreement) received by the Servicer or any Subservicer in the related Due
Period, excluding amounts received relating to SBA Loans which have been
delinquent 24 months or have been determined to be uncollectible, in whole or in
part, by the Servicer to the extent that the Class B Certificateholders have
previously received the Class B Percentage of the Principal Balance of such SBA
Loans; (ii) the principal portion of any Unguaranteed Interest actually
purchased by the Seller for breach of a representation or warranty or other
defect and actually received by the Trustee as of the related Determination
Date; (iii) any Substitution Adjustments deposited in the Principal and Interest
Account and transferred to the Certificate Account as of the related
Determination Date; (iv) the Unguaranteed Percentage of all losses on SBA Loans
which were finally liquidated during the applicable Due Period; and (v) the
Unguaranteed Percentage of the then outstanding principal balance of any SBA
Loan which, as of the first day of the related Due Period, has been delinquent
24 months or has been determined to be uncollectible, in whole or in part, by
the Servicer, and (vi) the amount, if any, released from the Pre-Funding Account
on the January 1999, February 1999 and March 1999 Remittance Dates.
CLASS B REMITTANCE RATE: During the initial Interest Accrual Period
6.95% per annum. During each subsequent Interest Accrual Period, the Prime Rate
in effect on the preceding Adjustment Date minus 0.80% per annum.
CLOSING DATE: December 30, 1998
CODE: The Internal Revenue Code of 1986, as amended, or any successor
legislation thereto.
COLLATERAL: All items of property (including a Mortgaged Property),
whether real or personal, tangible or intangible, or otherwise, pledged by an
Obligor or others to a Seller (including guarantees on behalf of the Obligor) to
secure payment under an SBA Loan.
COMMERCIAL PROPERTY: Real property (other than agricultural property or
Residential Property) that generally is used by the Obligor in the conduct of
its business.
COMPENSATING INTEREST: As defined in Section 6.11.
CONFIDENTIAL PLACEMENT MEMORANDUM: The Confidential Private Placement
Memorandum dated December 28, 1998 prepared by the Seller in connection with the
offer and sale of the Class A Certificates.
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CORPORATE TRUST OFFICE: The principal office of the Trustee at which at
any particular time its corporate trust business shall be administered which
office at the date of the execution of this Agreement is located at Marine
Midland Bank, 140 Broadway, New York, New York 10005, 12th Floor, Attention
Corporate Trust Department or at any other time at such other address as the
Trustee may designate from time to time by notice to the parties hereto.
CURTAILMENT: With respect to an SBA Loan, any payment of principal
received during a Due Period as part of a payment that is in excess of five
times the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the SBA Loan in full, nor is intended to cure a delinquency.
CUT-OFF DATE: December 23, 1998.
DEFINITIVE CERTIFICATES: Certificates of any Class issued in
definitive, full registered, certificated form without interest coupons in
minimum denominations of $100,000 and integral multiples of $1,000 in excess of
such minimum amount.
DEFAULTED SBA LOAN: Any SBA Loan as to which the Obligor has failed to
make payment in full of three or more consecutive Monthly Payments.
DELETED SBA LOAN: An SBA Loan replaced by a Qualified Substitute SBA
Loan.
DESIGNATED DEPOSITORY INSTITUTION: With respect to the Principal and
Interest Account, or items of Account Property held in deposit accounts, an
entity which is an institution whose deposits are insured by either the BIF or
SAIF administered by the FDIC, the unsecured and uncollateralized long-term debt
obligations of which shall be rated A or better by the Rating Agency or A1 by
the Rating Agency, and which is either (i) a federal savings association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, or (iv) a principal subsidiary of a bank holding company, in each case
acting or designated by the Servicer as the depository institution for the
Principal and Interest Account.
DETERMINATION DATE: That day of each month which is the third Business
Day prior to the Remittance Date.
DUE DATE: The day of the month on which the Monthly Payment is due
from the Obligor on an SBA Loan.
DUE PERIOD: With respect to each Remittance Date, the calendar month
preceding the month in which such Remittance Date occurs.
ERISA: The Employee Retirement Income Security Act of 1974, as amended,
or any successor legislation thereto.
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EVENT OF DEFAULT: As described in Section 10.01.
EXCESS PAYMENTS: With respect to a Due Period, any amounts received on
an SBA Loan in excess of the Monthly Payment due on the Due Date relating to
such Due Period which does not constitute either a Curtailment or a Principal
Prepayment or a payment with respect to an overdue amount. Excess Payments are
payments of principal for purposes of this Agreement.
EXCESS PROCEEDS: As of any Remittance Date, with respect to any
Liquidated SBA Loan, the excess, if any, of (a) the Unguaranteed Percentage of
the total Net Liquidation Proceeds, over (b) the Unguaranteed Percentage of the
Principal Balance of such SBA Loan as of the date such SBA Loan became a
Liquidated SBA Loan plus 30 days interest thereon at the then applicable
Adjusted SBA Loan Remittance Rate; provided, however, that such excess shall be
reduced by the amount by which interest accrued on the advance, if any, made by
the Servicer at the related SBA Loan Interest Rate(s) exceeds interest accrued
on such advance at the then applicable weighted average Class A and Class B
Remittance Rates.
EXCESS SPREAD: With respect to any Remittance Date, the amount, if any,
by which (i) the interest collected by the Servicer or any Subservicer on the
principal portion of the Guaranteed Interest of each SBA ss.7(a) Loan exceeds
(ii) the sum of (a) the interest payable to the Registered Holder, (b) the FTA's
Fee, (c) the Premium Protection Fee, (d) with respect to the Additional Fee SBA
Loans, the Additional Fee and (e) the Servicing Fee allocable to the Guaranteed
Interest.
EXPENSE ACCOUNT: The expense account established and maintained by the
Trustee in accordance with Section 6.03 hereof.
EXTRA INTEREST: With respect to each SBA Loan, for each Remittance Date
the product of (i) the principal portion of the Unguaranteed Interest of such
SBA Loan for such Remittance Date and (ii) one-twelfth of the applicable Extra
Interest Percentage.
EXTRA INTEREST PERCENTAGE: With respect to each SBA Loan, the excess of
(i) the SBA Loan Interest Rate that would be in effect for such SBA Loan as of
the Cut-Off Date without giving effect to any applicable lifetime floors or caps
over (ii) the sum of the rates used in determining the Servicing Fee and the
Annual Expense Escrow Amount and 6.766% per annum (i.e., the initial weighted
average Class A and Class B Remittance Rates without giving effect to any
applicable lifetime floors or caps on the SBA Loans).
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
FIDELITY BOND: As described in Section 5.09.
FNMA: The Federal National Mortgage Association and any successor
thereto.
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FORECLOSED PROPERTY: As described in Section 5.10.
FORECLOSED PROPERTY DISPOSITION: The final sale of a Foreclosed
Property acquired in foreclosure or by deed in lieu of foreclosure. The proceeds
of any Foreclosed Property Disposition constitute part of the definition of
Liquidation Proceeds.
FTA: Colson Services Corp., in its capacity as the Fiscal and Transfer
Agent of the SBA under the Multi-Party Agreement, or any successor thereto
appointed by the SBA.
FTA'S FEE: With respect to the Guaranteed Interest of each SBA ss. 7(a)
Loan sold into the secondary market, the monthly fee payable to the FTA in
accordance with Form 1086 and the SBA Rules and Regulations.
FUNDING PERIOD: The period commencing on the Closing Date and ending on
the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account is less than $100,000, (ii) the date on which an Event of
Default occurs or (iii) at the close of business on March 26, 1999.
GUARANTEED INTEREST: As to any SBA ss. 7(a) Loan, the right to receive
the guaranteed portion of the principal balance thereof together with interest
thereon at the then applicable SBA Loan Interest Rate. Certificateholders have
no right or interest in the Guaranteed Interest.
INDIVIDUAL CERTIFICATE: Any Certificate registered in the name of a
holder.
INITIAL CERTIFICATE DEPOSIT AMOUNT: A deposit of $64,484.18 required to
be made by the Seller into the Certificate Account
on the Closing Date.
INITIAL SPREAD ACCOUNT DEPOSIT: A deposit of $535,780.70 required to be
made by the Spread Account Depositor into the Spread Account on the Closing
Date, such deposit being equal to 2.5% of the Original Pool Principal Balance.
INITIAL SBA LOANS: The SBA Loans listed on Exhibit H hereto and
delivered to the Trustee on the Closing Date.
INSTITUTIONAL ACCREDITED INVESTOR: Any Person satisfying the definition
of "Accredited Investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any
insurance policy covering an SBA Loan, Collateral or Foreclosed Property,
including but not limited to title, hazard, life, health and/or accident
insurance policies.
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INTEREST ACCRUAL PERIOD: With respect to each Remittance Date, the
period commencing on the 15th day of the month preceding such Remittance Date
and ending on the 14th day of the month of such Remittance Date. However, for
the Remittance Date occurring in January 1999, the period commencing on the
Closing Date and ending on January 14, 1998.
LIQUIDATED SBA LOAN: Any defaulted SBA Loan or Foreclosed Property as
to which the Servicer has determined that all amounts which it reasonably and in
good faith expects to recover have been recovered from or on account of such SBA
Loan.
LIQUIDATION PROCEEDS: Cash, including Insurance Proceeds, proceeds of
any Foreclosed Property Disposition, revenues received with respect to the
conservation and disposition of a Foreclosed Property, and any other amounts
received in connection with the liquidation of defaulted SBA Loans, whether
through trustee's sale, foreclosure sale or otherwise.
LOAN GUARANTY AGREEMENT: The Loan Guaranty Agreement (Deferred
Participation) (SBA Form 750) dated March 27, 1997 between the SBA and Business
Loan Center, Inc., as such agreement may be amended, supplemented or replaced
from time to time.
LOAN-TO-VALUE RATIO OR LTV: With respect to any SBA Loan, (a) the
outstanding principal amount of such SBA Loan as of the Cut-off Date, divided by
(b) the excess of (i) the total net collateral value (as determined by the
Seller in accordance with its underwriting criteria) of the primary and
secondary Collateral securing such loan at the time of origination over (ii) the
principal balance of any Prior Lien as of the date of origination of the related
SBA Loan.
MAJORITY CERTIFICATEHOLDERS: The Holder or Holders of Class A and Class
B Certificates evidencing an Aggregate Class A Certificate Principal Balance and
Aggregate Class B Certificate Principal Balance in excess of 50% of the
Aggregate Class A Certificate Principal Balance and Aggregate Class B
Certificate Principal Balance.
MONTHLY ADVANCE: An advance made by the Servicer pursuant to Section
6.10 hereof.
MONTHLY PAYMENT: The monthly payment of principal and/or interest
required to be made by an Obligor on the related SBA Loan, as adjusted pursuant
to the terms of the related SBA Note.
MORTGAGE: The mortgage, deed of trust or other instrument creating a
lien on a Mortgaged Property.
MORTGAGED PROPERTY: The underlying real property, if any, securing an
SBA Loan, consisting of a Commercial Property or Residential Property and any
improvements thereon.
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MULTI-PARTY AGREEMENT: That certain Multi-Party Agreement dated as of
December 23, 1998 among the Seller, the Trustee, the SBA and the FTA,
substantially in the form of Exhibit M hereto, as amended from time to time by
the parties thereto.
NET LIQUIDATION PROCEEDS: Liquidation Proceeds net of (i) any
reimbursements to the Servicer made therefrom pursuant to Section 5.04(b) and
(ii) amounts required to be released to the related Obligor pursuant to
applicable law.
1933 ACT: The Securities Act of 1933, as amended.
OBLIGOR: The obligor on an SBA Note.
OFFICER'S CERTIFICATE: A certificate delivered to the Trustee signed by
the Chairman of the Board, the President, an Executive Vice President, a Vice
President, an Assistant Vice President, the Treasurer, the Secretary, or one of
the Assistant Secretaries of a Seller or the Servicer as required by this
Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may, without
limitation, be counsel for the Seller or Servicer, reasonably acceptable to the
Trustee and experienced in matters relating thereto.
ORIGINAL CLASS A CERTIFICATE PRINCIPAL BALANCE: $24,316,729.85.
ORIGINAL CLASS B CERTIFICATE PRINCIPAL BALANCE: $2,114,498.25.
ORIGINAL POOL PRINCIPAL BALANCE: $21,431,228.10.
ORIGINAL PRE-FUNDED AMOUNT: $5,000,000 representing the amount
deposited in the Pre-Funding Account on the Closing Date.
OVERFUNDED INTEREST AMOUNT: With respect to each Subsequent Transfer
Date occurring in January 1999, the difference between (i) three-months'
interest on the aggregate Principal Balances of the Subsequent SBA Loans
acquired by the Trust Fund on such Subsequent Transfer Date, calculated at the
weighted average Class A and Class B Remittance Rates, and (ii) three-months'
interest on the aggregate Principal Balances of the Subsequent SBA Loans
acquired by the Trust Fund on such Subsequent Transfer Date, calculated at the
rate at which Pre-Funding Account moneys are invested as of such Subsequent
Transfer Date.
With respect to each Subsequent Transfer Date occurring in February
1999, the difference between (i) two-months' interest on the aggregate Principal
Balances of the Subsequent SBA Loans acquired by the Trust Fund on such
Subsequent Transfer Date, calculated at the weighted average Class A and Class B
Remittance Rates, and (ii) two-months' interest on the aggregate Principal
Balances of the Subsequent SBA Loans acquired by the Trust Fund on such
Subsequent Transfer Date, calculated at the rate at which Pre-Funding Account
moneys are invested as of such Subsequent Transfer Date.
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With respect to each Subsequent Transfer Date occurring in March 1999,
the difference between (i) one-month's interest on the aggregate Principal
Balances of the Subsequent SBA Loans acquired by the Trust Fund on such
Subsequent Transfer Date, calculated at the weighted average Class A and Class B
Remittance Rates, and (ii) one-month's interest on the aggregate Principal
Balances of the Subsequent SBA Loans acquired by the Trust Fund on such
Subsequent Transfer Date, calculated at the rate at which Pre-Funding Account
moneys are invested as of such Subsequent Transfer Date.
PAYING AGENT: Initially, Marine Midland Bank, and thereafter, any other
Person that meets the eligibility standards for the Paying Agent specified in
Section 13.12 hereof and is authorized by the Trustee to make payments on the
Certificates on behalf of the Trustee.
PERCENTAGE INTEREST: With respect to a Class A or Class B Certificate,
the portion of the Trust Fund evidenced by such Class A or Class B Certificate,
expressed as a percentage, the numerator of which is the denomination
represented by such Class A or Class B Certificate and the denominator of which
is the Original Class A Certificate Principal Balance or Original Class B
Certificate Principal Balance, as the case may be. The Certificates are issuable
only in the minimum Percentage Interest corresponding to a minimum denomination
of $100,000 and integral multiples of $1,000 in excess thereof, except for one
Certificate of each Class which may be issued in a different denomination to
equal the remainder of the Original Class A Certificate Principal Balance or
Original Class B Certificate Principal Balance, as the case may be.
PERMITTED INSTRUMENTS: As used herein, Permitted Instruments shall
include the following:
(i) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality
thereof, provided such obligations are backed by the full faith and
credit of the United States, FHA debentures, Federal Home Loan Bank
consolidated senior debt obligations, and FNMA senior debt obligations,
but excluding any of such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or call for redemption;
(ii) federal funds, certificates of deposit, time deposits
and banker's acceptances (having original maturities of not more than
365 days) of any bank or trust company incorporated under the laws of
the United States or any state thereof, provided that the short-term
debt obligations of such bank or trust company at the date of
acquisition thereof have been rated Duff 1+ or better by the Rating
Agency;
(iii) deposits of any bank or savings and loan association
which has combined capital, surplus and undivided profits of at least
$3,000,000 which deposits are held only up to the limits insured by the
BIF or SAIF administered by the FDIC, provided that the unsecured
long-term debt obligations of such bank or savings and loan association
have been rated AAA or better by the Rating Agency;
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(iv) commercial paper (having original maturities of not
more than 365 days) rated Duff 1+ or better by the Rating Agency;
(v) debt obligations rated AAA by the Rating Agency (other
than any such obligations that do not have a fixed par value and/or
whose terms do not promise a fixed dollar amount at maturity or call
date);
(vi) investments in money market funds rated AAA or better
by the Rating Agency the assets of which are invested solely in
instruments described in clauses (i)-(v) above; including, without
limitation, any fund which the Trustee or an affiliate of the Trustee
serves as an investment advisor, administrator, shareholder, servicing
agent and/or custodian or sub-custodian, notwithstanding that (a) the
Trustee or an affiliate of the Trustee charges and collects fees and
expenses from such funds for services rendered, (b) the Trustee charges
and collects fees and expenses for services rendered pursuant to this
Agreement, and (c) services performed for such funds and pursuant to
this Agreement may converge at any time (the parties hereto
specifically authorize the Trustee or an affiliate of the Trustee to
charge and collect all fees and expenses from such funds for services
rendered to such funds, in addition to any fees and expenses the
Trustee may charge and collect for services rendered pursuant to this
Agreement).
(vii) guaranteed investment contracts or surety bonds
providing for the investment of funds in an account or insuring a
minimum rate of return on investments of such funds, which contract or
surety bond shall:
(a) be an obligation of an insurance company or other
corporation whose debt obligations or insurance financial
strength or claims paying ability are rated "AAA" by the
Rating Agency; and
(b) provide that the Trustee may exercise all of the
rights of the Seller under such contract or surety bond
without the necessity of the taking of any action by the
Seller;
(viii) A repurchase agreement that satisfies the following
criteria:
(a) Must be between the Trustee and a dealer bank or
securities firm described in 1. or 2. below:
1. Primary dealers on the Federal Reserve
reporting dealer list which are rated AA" or
better by the Rating Agency, or
2. Banks rated "AA" or better by the Rating
Agency.
(b) The written repurchase agreement must include the
following:
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1. Securities which are acceptable for the
transfer are:
A. Direct U.S. government securities, or
B. Securities of Federal Agencies backed by
the full faith and credit of the U.S.
government (and FNMA & FHLMC)
2. the term of the repurchase agreement may be
up to 60 days
3. the collateral must be delivered to the
Trustee or third party custodian acting as
agent for the Trustee by appropriate book
entries and confirmation statements must have
been delivered before or simultaneous with
payment (perfection by possession of
certificated securities)
4. Valuation of collateral
The securities must be valued
weekly, marked-to-market at
current market price plus
accrued interest. The value of
the collateral must be equal to
at least 104% of the amount of
cash transferred by the Trustee
or custodian for the Trustee to
the dealer bank or security
firm under the repurchase
agreement plus accrued
interest. If the value of
securities held as collateral
slips below 104% of the value
of the cash transferred by the
Trustee plus accrued interest,
then additional cash and/or
acceptable securities must be
transferred. If, however, the
securities used as collateral
are FNMA or FHLMC, then the
value of collateral must equal
at least 105%; and
(ix) any other investment acceptable to the Rating Agency,
written confirmation of which shall be furnished to the Trustee prior
to any such investment. Provided that if such Permitted Instrument is
not so rated by the Rating Agency, there must be an equivalent rating
by a Substitute Rating Agency.
PERSON: Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.
POOL PRINCIPAL BALANCE: The aggregate Principal Balances as of any date
of determination.
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PRE-FUNDED AMOUNT: With respect to any date of determination, the
amount on deposit in the Pre-Funding Account.
PRE-FUNDING ACCOUNT: The Pre-Funding Account established in accordance
with Section 6.04 hereof and maintained by the Trustee.
PRE-FUNDING EARNINGS: With respect to the Remittance Date in January
1999, the actual investment earnings earned during the period from the Closing
Date through the Business Day immediately preceding the Determination Date in
January 1999 (inclusive) on the Pre-Funded Amount. With respect to the
Remittance Dates in February 1999 and March 1999, the actual investment earnings
earned during the period from the Determination Date in January 1999 and
February 1999, respectively, through the Business Day immediately preceding the
Determination Date in February 1999 and March 1999, respectively (inclusive), on
the Pre-Funded Amount.
PREMIUM PROTECTION FEE: As to any SBA Loan and any date of
determination, an amount equal to 0.60% per annum of the then outstanding
principal balance of the related Guaranteed Interest.
PRIME RATE: With respect to any date of determination, the lowest prime
lending rate published in the Money Rate Section of The Wall Street Journal, on
the next succeeding Business Day.
PRINCIPAL AND INTEREST ACCOUNT: The principal and interest account
established by the Servicer pursuant to Section 5.03
hereof.
PRINCIPAL BALANCE: With respect to any SBA Loan or related Foreclosed
Property, at any date of determination, (i) the Unguaranteed Percentage of the
principal balance of the SBA Loan outstanding as of the Cut-Off Date (or
applicable Subsequent Cut-Off Date with respect to Subsequent SBA Loans) after
application of principal payments received on or before such date, minus (ii)
the sum of (a) the Unguaranteed Percentage of the principal portion of the
Monthly Payments received during each Due Period ending prior to the most recent
Remittance Date, which were distributed pursuant to Section 6.07 on any previous
Remittance Date, and (b) the Unguaranteed Percentage of all Principal
Prepayments, Curtailments, Excess Payments, Insurance Proceeds, Released
Mortgaged Property Proceeds, Net Liquidation Proceeds and net income from a
Foreclosed Property to the extent applied by the Servicer as recoveries of
principal in accordance with the provisions hereof, which were distributed
pursuant to Section 6.07 on any previous Remittance Date. The Principal Balance
of any Liquidated SBA Loan or any SBA Loan that has been paid off will equal $0.
PRINCIPAL PREPAYMENT: Any payment or other recovery of principal on an
SBA Loan equal to the outstanding principal balance thereof, received in advance
of the final scheduled Due Date which is intended to satisfy an SBA Loan in
full.
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PRIOR LIEN: With respect to any SBA Loan secured by a lien on a
Mortgaged Property which is not a first priority lien, each lien relating to the
corresponding Mortgaged Property having a prior priority lien.
QUALIFIED INSTITUTIONAL BUYER: As used herein, has the meaning ascribed
to such term in Rule 144A under the Securities Act.
QUALIFIED SUBSTITUTE SBA LOAN: An SBA loan or SBA loans substituted for
a Deleted SBA Loan pursuant to Section 2.05 or 3.03 hereof, which (i) has or
have an SBA Loan interest rate or rates of not less than (and not more than two
percentage points more than) the SBA Loan Interest Rate for the Deleted SBA
Loan, (ii) substantially relates or relate to the same type of Collateral as the
Deleted SBA Loan, (iii) matures or mature no later than (and not more than one
year earlier than) the Deleted SBA Loan, (iv) has or have a Loan-to-Value Ratio
or Loan-to-Value Ratios at the time of such substitution no higher than the
Loan-to Value Ratio of the Deleted SBA Loan at such time, (v) has or have a
principal balance or principal balances relating to an unguaranteed interest or
unguaranteed interests (after application of all payments received on or prior
to the date of substitution) equal to or less than the Principal Balance of the
Unguaranteed Interest or Unguaranteed Interests as of such date of the Deleted
SBA Loan, (vi) has or have the same Unguaranteed Percentage at the time of
substitution as the Deleted SBA Loan; (vii) was or were originated under the
same program type as the Deleted SBA Loan; and (viii) complies or comply as the
date of substitution with each representation and warranty set forth in Section
3.02.
RATING AGENCY: Duff & Phelps Credit Rating Co. or any successor
thereto.
RATING AGENCY CONDITION: With respect to any specified action, that the
Rating Agency shall have notified the Servicer and the Trustee, orally or in
writing, that such action will not result in a reduction or withdrawal of the
rating assigned by the Rating Agency to either Class of Certificates.
RECORD DATE: With respect to any Remittance Date, the close of business
on the last day of the month immediately preceding the month of the related
Remittance Date (or with respect to the first Remittance Date, the close of
business on the Closing Date).
With respect to the Special Remittance Date, February 28, 1999.
REGISTERED HOLDER: With respect to any SBA ss. 7(a) Loan, the Person
identified as such in the applicable SBA Form 1086, and any permitted assignees
thereof.
REIMBURSABLE AMOUNTS: As of any date of determination, an amount
payable to the Servicer and/or the Seller with respect to (i) the Monthly
Advances and Servicing Advances reimbursable pursuant to Section 5.04(b), (ii)
any advances reimbursable pursuant to Section 9.01 and not previously reimbursed
pursuant to Section 6.03(c)(i), and (iii) any other amounts reimbursable to the
Servicer or the Seller pursuant to this Agreement.
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RELEASED MORTGAGED PROPERTY PROCEEDS: As to any SBA Loan secured by a
Mortgaged Property, proceeds received by the Servicer in connection with (a) a
taking of an entire Mortgaged Property by exercise of the power of eminent
domain or condemnation or (b) any release of part of the Mortgaged Property from
the lien of the related Mortgage, whether by partial condemnation, sale or
otherwise, which are not released to the Obligor in accordance with applicable
law, the SBA or the Registered Holder in accordance with the SBA Rules and
Regulations, the Servicer's customary SBA loan servicing procedures and this
Agreement.
REMITTANCE DATE: The 15th day of any month or if such 15th day is not a
Business Day, the first Business Day immediately following, commencing in
January 1999.
RESIDENTIAL PROPERTY: Any one or more of the following, (i) single
family dwelling unit not attached in any way to another unit, (ii) row house,
(iii) two-family house, (iv) low-rise condominium, (v) planned unit development,
(vi) three- or four-family house, (vii) high-rise condominium, (viii) mixed use
building or (ix) manufactured home (as defined in the FNMA/FHLMC
Seller-Servicers' Guide) to the extent that it constitutes real property in the
state in which it is located.
RESPONSIBLE OFFICER: When used with respect to the Trustee, any officer
assigned to the Corporate Trust Division, including any Vice President,
Assistant Vice President any Assistant Secretary, any trust officer or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to the Seller, the President, any Vice President, Assistant
Vice President, Treasurer or any Secretary or Assistant Secretary.
RULE 144A CERTIFICATION: A letter substantially in the form attached
hereto as Exhibit O-2-A or Exhibit O-2-B.
SAIF: The Savings Association Insurance Fund, or any successor thereto.
SBA: The United States Small Business Administration, an agency of the
United States Government.
SBA FILE: As described in Exhibit A.
SBA Form 1086: The Secondary Participation Guaranty Agreement and
Certification on SBA Form 1086, pursuant to which investors purchased the
Guaranteed Interest.
SBA LOAN: An individual loan, the Unguaranteed Interest of which is
transferred to the Trust Fund pursuant to this Agreement, together with the
rights and obligations of a holder thereof and payments thereon and proceeds
therefrom, the SBA Loans originally subject to this Agreement being identified
on the SBA Loan Schedule as set forth on Exhibit H. Any loan which, although
intended by the parties hereto to have been, and which purportedly was,
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transferred and assigned to the Trust Fund by the Seller (as indicated by the
SBA Loan Schedule), in fact was not transferred and assigned to the Trust Fund
for any reason whatsoever, including, without limitation, the incorrectness of
the statement set forth in Section 3.02(h) hereof with respect to the loan,
shall nevertheless be considered an "SBA Loan" for all purposes of this
Agreement. For the purposes of this Agreement, references to SBA Loans are
equivalent to references to SBA ss. 7(a) Loans.
SBA LOAN INTEREST RATE: With respect to any date of determination, the
then applicable annual rate of interest borne by an SBA Loan, pursuant to its
terms, which, as of the Cut-Off Date, is shown on the SBA Loan Schedule.
SBA LOAN SCHEDULE: The schedule of SBA Loans listed on Exhibit H
attached hereto and delivered to the Trustee on the Closing Date, or Subsequent
Transfer Date, as the case may be, such schedule identifying each SBA Loan by
address of the related premises, and the name of the Obligor and setting forth
as to each Initial SBA Loan the following information: (i) the Principal Balance
as of the close of business on the Cut-Off Date, (ii) the Account Number, (iii)
the original principal amount of the SBA Loan, (iv) the SBA Loan date and
original number of months to maturity, in months, (v) the SBA Loan Interest Rate
as of the Cut-Off Date or Subsequent Cut-Off Date, as the case may be, and
guaranteed rate payable to the Registered Holder and the FTA, (vi) when the
first Monthly Payment was due, (vii) the Monthly Payment as of the Cut-Off Date,
or Subsequent Cut-Off Date, as the case may be, (viii) the remaining number of
months to maturity as of the Cut-Off Date, or Subsequent Cut-Off Date, as the
case may be (ix) the Unguaranteed Percentage, (x) the SBA loan number, (xi) the
margin which is added to the Prime Rate to determine the SBA Loan Interest Rate
or, in the case of fixed rate SBA Loans, the rate of interest specified in the
related SBA Note, and (xii) the lifetime minimum and maximum SBA Loan Interest
Rates, if applicable.
SBA NOTE: The note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under an SBA Loan.
SBA RULES AND REGULATIONS: The Small Business Act, as amended, codified
at 15 U.S.C. 631 et. seq., the Loan Guarantee Agreement, all legislation binding
on the SBA regarding financial transactions, all rules and regulations
promulgated from time to time thereunder, the Loan Guaranty Agreement and SBA
Standard Operating Procedures and official notices as from time to time are in
effect.
SBA ss. 7(a) LOAN: An SBA Loan originated pursuant to Section 7(a) of
the SBA Rules and Regulations. For purposes of this Agreement, references to SBA
ss. 7(a) Loans are equivalent to references to SBA Loans.
SECURITIES ACT: The Securities Act of 1933, as amended.
SECURITIES LEGEND: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF,
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BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS AND ONLY (1) IN CERTIFICATED FORM (A) PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE
ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER,
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (B)
TO AN "INSTITUTIONAL ACCREDITED INVESTOR" (WITHIN THE MEANING OF RULE
501(a)(1)-(3) or (7) UNDER THE SECURITIES ACT) PURCHASING FOR INVESTMENT AND NOT
FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE SUBJECT TO (A)
THE RECEIPT BY THE TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN THE
AGREEMENT AND (B) THE RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE ACCEPTABLE
TO THE TRUSTEE THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE
SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE
JURISDICTION, (2) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES
ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (3) PURSUANT
TO A VALID REGISTRATION STATEMENT. "
SELLER: Business Loan Center, Inc., a Delaware corporation, and its
respective successors and assigns as Seller hereunder.
SERIES: 1998-1.
SERVICER: Business Loan Center, Inc., a Delaware corporation, and its
successors and permitted assigns as Servicer hereunder.
SERVICER'S CERTIFICATE: The certificate as defined in Section 6.09.
SERVICING ADVANCES: All reasonable and customary "out-of-pocket" costs
and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property or other Collateral, (ii)
any enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the Foreclosed Property, (iv) compliance with the
obligations under clause (iv) of Section 5.01(a) and Sections 5.02 and 5.07,
which Servicing Advances are reimbursable to the Servicer to the extent provided
in Section 5.04(b) and (v) in connection with the liquidation of an SBA Loan,
expenditures relating to the purchase or maintenance of any Prior Lien pursuant
to Section 5.14, for all of which costs and expenses the Servicer is entitled to
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reimbursement thereon up to a maximum rate per annum equal to the related SBA
Loan Interest Rate, except that any amount of such interest accrued at a rate in
excess of the weighted average Class A and Class B Remittance Rates with respect
to the Remittance Date on or prior to which the Unguaranteed Percentage of the
Net Liquidation Proceeds will be distributed shall be reimbursable only from
Excess Proceeds.
SERVICING FEE: As to each SBA Loan, the annual fee payable to the
Servicer. Such fee shall be calculated and payable monthly from the amounts
received in respect of interest on the Guaranteed Interest and the Unguaranteed
Interest of such SBA Loan, shall accrue at the rate of 0.40% per annum on the
entire principal balance of such SBA Loan and shall be computed on the basis of
the same principal amount and for the period respecting which any related
interest payment on an SBA Loan is computed. The Servicing Fee is payable solely
from the interest portion of related (i) Monthly Payments, (ii) Liquidation
Proceeds or (iii) Released Mortgaged Property Proceeds collected by the
Servicer, or as otherwise provided in Section 5.04. The Servicing Fee includes
any servicing fees owed or payable to any Subservicer.
SERVICING OFFICER: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the SBA Loans whose name
appears on a list of servicing officers furnished to the Trustee by the Servicer
on the Closing Date hereof and as such list may from time to time be amended.
SPECIAL REMITTANCE DATE: March 30, 1999.
SPECIFIED SPREAD ACCOUNT REQUIREMENT: The maximum amount of Spread
Account Balance required to be on deposit at any time in the Spread Account
which, with respect to any Remittance Date, shall be equal to the sum of (i) the
then outstanding Principal Balance with respect to all SBA Loans 180 days or
more delinquent and (ii) the greater of (a) 5.0% of the then outstanding Pool
Principal Balance or (b) 2.5% of the Original Pool Principal Balance; provided,
however, that for purposes of clauses (i) and (ii)(a), there shall be excluded
the Principal Balance of SBA Loans which have been delinquent 24 months or have
been determined to be uncollectible, in whole or in part, by the Servicer, to
the extent that the Certificateholders have previously received the Principal
Balance of such SBA Loans provided, however, that in no event shall the Spread
Account Balance exceed the then outstanding Class A Certificate Balance.
SPREAD ACCOUNT: The Spread Account established in accordance with the
terms of the Spread Account Agreement and maintained by the Spread Account
Custodian for distribution in accordance with the provisions of Section 6.02
hereof.
SPREAD ACCOUNT AGREEMENT: The Agreement dated as of December 30, 1998
by and among the Spread Account Depositor and the Spread Account Custodian,
substantially in the form attached hereto as Exhibit N, as amended from time to
time by the parties thereto.
SPREAD ACCOUNT BALANCE: As of any date of determination, the sum of the
aggregate amount then on deposit in the Spread Account.
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SPREAD ACCOUNT CUSTODIAN: Marine Midland Bank, in its capacity as
Spread Account Custodian under the Spread Account Agreement, or any successor
thereto.
SPREAD ACCOUNT DEPOSITOR: Business Loan Center Financial Corp. II, a
Delaware corporation, a wholly owned subsidiary of Business Loan Center, Inc.
SPREAD ACCOUNT EXCESS: As defined in Section 6.02(b)(iii).
SUBSEQUENT CUT-OFF DATE: The beginning of business on each date
specified in a Subsequent Transfer Agreement with respect to those Subsequent
SBA Loans which are transferred and assigned to the Trust Fund pursuant to the
related Subsequent Transfer Agreement.
SUBSEQUENT SBA LOANS: The SBA Loans sold to the Trust Fund pursuant to
Section 2.09, which shall be listed on the Schedule of SBA Loans attached to the
related Subsequent Transfer Agreement.
SUBSEQUENT TRANSFER AGREEMENT: Each Subsequent Transfer Agreement dated
as of a Subsequent Transfer Date executed by the Trustee and the Seller, by
which Subsequent SBA Loans are sold and assigned to the Trust Fund.
SUBSEQUENT TRANSFER DATE: The date specified as such in each Subsequent
Transfer Agreement.
SUBSERVICER: Any person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies any requirements set forth in Section
5.01(b) hereof in respect of the qualification of a Subservicer.
SUBSERVICING AGREEMENT: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain SBA Loans
as provided in Section 5.01(b), a copy of which shall be delivered, along with
any modifications thereto, to the Trustee and the SBA.
SUBSTITUTE RATING AGENCY: Moody's Investors Service, Inc. and/or
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies.
SUBSTITUTION ADJUSTMENT: As to any date on which a substitution occurs
pursuant to Sections 2.05 or 3.03, the amount (if any) by which the aggregate
unguaranteed portions of the principal balances (after application of principal
payments received on or before the date of substitution) of any Qualified
Substitute SBA Loans as of the date of substitution are less than the aggregate
of the Principal Balance of the related Deleted SBA Loans.
TAX RETURN: The federal income tax return to be filed on behalf of the
Trust Fund together with any and all other information reports or returns that
may be required to be furnished to the Certificateholders or filed with the
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Internal Revenue Service or any other governmental taxing authority under any
applicable provision of federal, state or local tax laws.
TERMINATION PRICE: The price defined in Section 11.01
hereof.
TRANSFEREE LETTER: A letter substantially in the form attached hereto
as Exhibit O-1.
TRUST FUND: The segregated pool of assets subject hereto, constituting
the trust created hereby and to be administered hereunder, consisting of: (i)
the Unguaranteed Interest of such SBA Loans as from time to time are subject to
this Agreement, together with, subject to the Multi-Party Agreement, the SBA
Files relating thereto and all proceeds thereof, (ii) the Unguaranteed Interest
of such assets (including any Permitted Instruments) as from time to time are
identified as Foreclosed Property or are deposited in or constitute the
Certificate Account, (iii) the Trustee's rights under all insurance policies
with respect to the SBA Loans required to be maintained pursuant to this
Agreement and the Unguaranteed Interest of any Insurance Proceeds, (iv) the
Unguaranteed Interest of any Liquidation Proceeds and (v) the Unguaranteed
Interest of any Released Mortgaged Property Proceeds, including all earnings
thereon and proceeds thereof. Amounts deposited in the Principal and Interest
Account, Pre-Funding Account, Capitalized Interest Account and the Spread
Account shall be held by the Trustee or the Spread Account Custodian, as the
case may be, but shall not constitute part of the Trust Fund. Also, neither the
Servicing Fee nor the Premium Protection Fee shall constitute part of the Trust
Fund.
TRUSTEE: Marine Midland Bank, or its successor in interest, or any
successor trustee appointed as herein provided.
TRUSTEE'S DOCUMENT FILE: The documents delivered pursuant to Section
2.04.
UNGUARANTEED INTEREST: The sum of (i) that portion of an SBA Loan not
guaranteed by the SBA pursuant to the SBA Rules and Regulations and not
constituting the Premium Protection Fee, the FTA's Fee, with respect to the
Additional Fee SBA Loans, the Additional Fee and the Servicing Fee, and (ii) the
Excess Spread.
UNGUARANTEED PERCENTAGE: With respect to any SBA ss. 7(a) Loan, the
quotient, expressed as a percentage, the numerator of which shall be the
principal portion of the Unguaranteed Interest of such SBA ss. 7(a) Loan as of
the Cut-Off Date (or, in the case of a Subsequent SBA Loan, as of the Subsequent
Cut-Off Date) and the denominator of which shall be the sum of the principal
portion of the Unguaranteed Interest and the principal portion of the Guaranteed
Interest of such SBA ss. 7(a) Loan as of the Cut-Off Date (or, in the case of a
Subsequent SBA Loan, as of the Subsequent Cut-Off Date).
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ARTICLE II
SALE AND CONVEYANCE OF THE TRUST FUND
Section 2.01. Sale and Conveyance of Trust Fund.
(a) The Seller hereby sells, transfers, assigns, sets over and
conveys to the Trustee without recourse and for the benefit of the SBA and the
Certificateholders, as their interests may appear, subject to the terms of this
Agreement and the Multi-Party Agreement, all of the right, title and interest of
the Seller in and to the Unguaranteed Interests of the Initial SBA Loans and the
Subsequent SBA Loans, and all other assets included or to be included in the
Trust Fund.
(b) The rights of the Certificateholders to receive payments
with respect to the SBA Loans in respect of the Certificates, and all ownership
interests of the Certificateholders in such payments, shall be as set forth in
this Agreement. The Servicing Fee shall not constitute part of the Trust Fund
and Certificateholders shall have no interest in, and are not entitled to
receive any portion of, the Servicing Fee.
Section 2.02. Possession of SBA Files.
(a) Upon the issuance of the Certificates, the ownership of
each SBA Note, the Mortgage and the contents of the related SBA File relating to
the Initial SBA Loans is, and upon each Subsequent Transfer Date the ownership
of each Mortgage Note, the Mortgage and the contents of the related Mortgage
File relating to the applicable Subsequent SBA Loans will be, vested in the
Trustee for the benefit of the SBA and the Certificateholders, as their
interests may appear.
(b) Pursuant to Section 2.04, with respect to the Initial SBA
Loans, the Seller has delivered or caused to be delivered, and, on each
Subsequent Transfer Date, the Seller will deliver or cause to be delivered, each
SBA Note relating to an SBA ss. 7(a) Loan to the FTA.
Section 2.03. Books and Records.
The sale of the Unguaranteed Interest of each SBA Loan shall
be reflected on the Seller's balance sheets and other financial statements as a
sale of assets by the Seller and the Seller shall respond to any third-party
inquiry that such transfer is so reflected as a sale. The Seller shall be
responsible for maintaining, and shall maintain, a complete set of books and
records for each SBA Loan which shall be clearly marked to reflect the ownership
of the Unguaranteed Interest in each SBA Loan by the Trustee for the benefit of
the SBA and the Certificateholders, as its interests may appear.
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Section 2.04. Delivery of SBA Loan Documents.
The Seller, (i) contemporaneously with the delivery of this Agreement,
has delivered or caused to be delivered to the Trustee or, with respect to the
SBA Notes relating to the SBA ss. 7(a) Loans being delivered pursuant to (a)
below, to the FTA, each of the following documents for each Initial SBA Loan and
(ii) on each Subsequent Transfer Date, will deliver or cause to be delivered to
the Trustee or with respect to the SBA Notes relating to the SBA ss. 7(a) Loans
being delivered pursuant to paragraph (a) below, to the FTA, each of the
following documents for each Subsequent SBA Loan originated by the Seller:
(a) The original SBA Note, endorsed by means of an allonge as
follows: "Pay to the order of Marine Midland Bank, and its successors and
assigns, as trustee under that certain Pooling and Servicing Agreement dated as
of December 23, 1998, for the benefit of the United States Small Business
Administration and holders of Business Loan Center SBA Loan-Backed Certificates,
Series 1998-1, Class A and Class B, as their respective interests may appear,
without recourse" and signed, by facsimile or manual signature, in the name of
the Seller by a Responsible Officer, with all prior and intervening endorsements
showing a complete chain of endorsement from the originator to the Seller, if
the Seller was not the originator;
(b) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Mortgage, with evidence of recording
thereon, (ii) a copy of the Mortgage certified as a true copy by a Responsible
Officer of the Seller where the original has been transmitted for recording
until such time as the original is returned by the public recording office or
duly licensed title or escrow officer or (iii) a copy of the Mortgage certified
by the public recording office in those instances where the original recorded
Mortgage has been lost;
(c) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Assignment of Mortgage from the Seller
endorsed as follows: "Marine Midland Bank, ("Assignee") its successors and
assigns, as trustee under the Pooling and Servicing Agreement dated as of
December 23, 1998 subject to the Multi-Party Agreement dated as of December 23,
1998" with evidence of recording thereon (provided, however, that where
permitted under the laws of the jurisdiction wherein the Mortgaged Property is
located, the Assignment of Mortgage may be effected by one or more blanket
assignments for SBA Loans secured by Mortgaged Properties located in the same
county), or (ii) a copy of such Assignment of Mortgage certified as a true copy
by a Responsible Officer of the Seller where the original has been transmitted
for recording (provided, however, that where the original Assignment of Mortgage
is not being delivered to the Trustee, each such Responsible Officer may
complete one or more blanket certificates attaching copies of one or more
Assignments of Mortgage relating to the Mortgages originated by the Seller);
(d) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of all intervening assignments, if any,
showing a complete chain of title from the originator to the Seller, including
warehousing assignments, with evidence of recording thereon if such assignments
were recorded, (ii) copies of any assignments certified as true copies by a
Responsible Officer of the Seller where the originals have been submitted for
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recording until such time as the originals are returned by the public recording
office, or (iii) copies of any assignments certified by the public recording
officer in any instances where the original recorded assignments have been lost;
(e) With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of all title insurance policies relating to
the Mortgaged Properties to the extent the Seller obtained such policies or (ii)
copies of any title insurance policies or other evidence of lien position,
including but not limited to Policy Insurance Record of Title ("PIRT") policies,
limited liability reports and lot book reports, to the extent the Seller obtains
such policies or other evidence of lien position, certified as true by the
Seller;
(f) For all SBA Loans, blanket assignment of all Collateral
securing the SBA Loan, including without limitation, all rights under applicable
guarantees and insurance policies;
(g) For all SBA Loans, irrevocable power of attorney of the
Seller to the Trustee to execute, deliver, file or record and otherwise deal
with the Collateral for the SBA Loans in accordance with the Agreement. The
power of attorney will be delegable by the Trustee to the Servicer and any
successor servicer and will permit the Trustee or its delegate to prepare,
execute and file or record UCC financing statements and notices to insurers; and
(h) For all SBA Loans, blanket UCC-1 financing statements
identifying by type all Collateral for the SBA Loans in the SBA Loan Pool and
naming the Trustee as secured party and the Seller as the debtor. The UCC-1
financing statements will be filed promptly following the Closing Date in New
York and Delaware and will be in the nature of protective notice filings rather
than true financing statements.
The Seller shall, within ten Business Days after the receipt thereof,
and in any event, within one year of the Closing Date (or with respect to the
Subsequent SBA Loans, within one year of the related Subsequent Transfer Date),
deliver or cause to be delivered to the Trustee: (i) the original recorded
Mortgage in those instances where a copy thereof certified by the Seller was
delivered to the Trustee; (ii) the original recorded Assignment of Mortgage from
the Seller to the Trustee, which, together with any intervening assignments of
Mortgage, evidences a complete chain of title from the originator to the Trustee
in those instances where copies thereof certified by the Seller were delivered
to the Trustee; and (iii) any intervening assignments of Mortgage in those
instances where copies thereof certified by the Seller were delivered to the
Trustee. Notwithstanding anything to the contrary contained in this Section
2.04, in those instances where the public recording office retains the original
Mortgage, Assignment of Mortgage or the intervening assignments of the Mortgage
after it has been recorded, the Seller shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage,
Assignment of Mortgage or assignments of Mortgage certified by the public
recording office to be a true copy of the recorded original thereof. All SBA
Loan documents held by the Trustee or the FTA, as the case may be, as to each
SBA Loan are referred to herein as the "Trustee's Document File."
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Although it is the intent of the parties to this Agreement that the
conveyance of the Seller's right, title and interest in and to the Unguaranteed
Interests of the SBA Loans and other assets in the Trust Fund pursuant to this
Agreement shall constitute a purchase and sale and not a loan, in the event that
such conveyance is deemed to be a loan, it is the intent of the parties to this
Agreement that the Seller shall be deemed to have granted, and hereby does
grant, to the Trustee for the benefit of the Certificateholders and the SBA a
first priority perfected security interest in all of the Seller's right, title
and interest in, to and under the Unguaranteed Interests of the SBA Loans and
other assets in the Trust Fund, and that this Agreement shall constitute a
security agreement under applicable law.
All recording required pursuant to this Section 2.04 shall be
accomplished by and at the expense of the Servicer.
Section 2.05. Acceptance by Trustee of the Trust Fund; Certain
Substitutions; Certification by Trustee.
(a) The SBA shall cause the FTA to execute and deliver on the
Closing Date (or, with respect to the Subsequent SBA Loans, on the related
Subsequent Transfer Date), for each SBA ss. 7(a) Loan, an acknowledgment of
receipt of the SBA Note by the FTA in the form attached as Exhibit 1 to the
Multi-Party Agreement, and declares that the FTA will hold such documents and
any amendments, replacements or supplements thereto, as agent for the benefit of
the SBA and the Certificateholders. The Trustee agrees, for the benefit of the
SBA and the Certificateholders, to review each Trustee's Document File within 90
days after the Closing Date or Subsequent Transfer Date, as the case may be (or,
with respect to any Subsequent SBA Loan or Qualified Substitute SBA Loan, within
45 days after the assignment thereof), and to deliver to the Certificateholders,
the Seller, the SBA and the Servicer a certification in the form attached hereto
as Exhibit F-1. Within 360 days after the Closing Date (or, with respect to any
Qualified Substitute SBA Loan, within 360 days after the assignment thereof),
the Trustee shall deliver to the Servicer, the Seller, the SBA, the Rating
Agency and any Certificateholder who requests a copy from the Trustee a final
certification in the form attached hereto as Exhibit F-2 evidencing the
completeness of the Trustee's Document Files.
(b) If the Trustee or the SBA, as the case may be, during the
process of reviewing the Trustee's Document Files finds any document
constituting a part of a Trustee's Document File which is not properly executed,
has not been received, is unrelated to an SBA Loan identified in the SBA Loan
Schedule, or does not conform in a material respect to the requirements of
Section 2.04 or the description thereof as set forth in the SBA Loan Schedule,
the Trustee or the SBA, as the case may be, shall promptly so notify the
Servicer and the Seller. In performing any such review, the Trustee or the SBA,
as the case may be, may conclusively rely on the Seller as to the purported
genuineness of any such document and any signature thereon. It is understood
that the scope of the Trustee's and the SBA's review of the SBA Files is limited
solely to confirming that the documents listed in Section 2.04 have been
executed and received and relate to the SBA Loans identified in the SBA Loan
Schedule. The Seller agrees to use reasonable efforts to remedy a material
defect in a document constituting part of an SBA File of which it is so notified
by the Trustee or the SBA, as the case may be. If, however, within 60 days after
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the Trustee's or the SBA's notice to it respecting such material defect the
Seller has not remedied the defect and such defect materially and adversely
affects the value of the related SBA Loan, the Seller will (i) substitute in
lieu of such SBA Loan a Qualified Substitute SBA Loan in the manner and subject
to the conditions set forth in Section 3.03 or (ii) purchase the Unguaranteed
Interest of such SBA Loan at a purchase price equal to the Principal Balance of
such Unguaranteed Interest as of the date of purchase, plus 30 days' interest on
such Principal Balance, computed at the Adjusted SBA Loan Remittance Rate as of
the next succeeding Determination Date, plus any accrued unpaid Servicing Fees,
Monthly Advances and Servicing Advances reimbursable to the Servicer, which
purchase price shall be deposited in the Principal and Interest Account on the
next succeeding Determination Date.
(c) Upon receipt by the Trustee and the SBA of a certification
of a Servicing Officer of the Servicer of such purchase and the deposit of the
amounts described above in the Principal and Interest Account (which
certification shall be in the form of Exhibit I hereto), the Trustee and the SBA
shall release to the Servicer for release to the Seller the related Trustee's
Document File and the Trustee and the SBA shall execute, without recourse, and
deliver such instruments of transfer necessary to transfer such SBA Loan to the
Seller. All costs of any such transfer shall be borne by the Servicer.
(d) If in connection with taking any action the Servicer
requires any item constituting part of the Trustee's Document File, or the
release from the lien of the related SBA Loan of all or part of any Mortgaged
Property or other Collateral, the Servicer shall deliver to the Trustee and the
SBA a certificate to such effect in the form attached as Exhibit I hereto. Upon
receipt of such certification, the Trustee or the SBA, as the case may be, shall
deliver to the Servicer the requested documentation and the Trustee shall
execute, without recourse, and deliver such instruments of transfer necessary to
release all or the requested part of the Mortgaged Property or other Collateral
from the lien of the related SBA Loan.
On the Remittance Date in March of each year, the Trustee shall deliver
to the Seller, the SBA and the Servicer a certification detailing all
transactions with respect to the SBA Loans for which the Trustee holds a
Trustee's Document File pursuant to this Agreement during the prior calendar
year or part thereof. Such certification shall list all Trustee's Document Files
which were released by or returned to the Trustee or the FTA during the prior
calendar year, the date of such release or return and the reason for such
release or return.
Section 2.06. [Intentionally Omitted]
Section 2.07. Authentication of Certificates.
The Trustee acknowledges the assignment to it on behalf of the Trust
Fund of the Unguaranteed Interests in the SBA Loans and the delivery to the
Trustee and the FTA of the Trustee's Document Files and, concurrently with such
delivery, has authenticated or caused to be authenticated and delivered to or
upon the order of the Seller, in exchange for the Unguaranteed Interests in the
SBA Loans, the Trustee's Document Files and the other assets included in the
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definition of Trust Fund, Certificates duly authenticated by the Trustee in
authorized denominations.
Section 2.08. Fees and Expenses of the Trustee.
The fees and expenses of the Trustee including (i) the annual fees of
the Trustee, payable quarterly in advance, and subject to rebate to the Servicer
as additional servicing compensation hereunder for any fraction of a calendar
quarter in which this Agreement terminates, (ii) any other fees and expenses to
which the Trustee is entitled pursuant to this Agreement or its written
agreement with the Seller, and (iii) reimbursements to the Servicer for any
advances made by the Servicer to the Expense Account pursuant to Section 6.03
hereof, shall be paid from the Expense Account in the manner set forth in
Section 6.03 hereof; provided, however, that the Seller shall be liable for any
expenses of the Trust Fund incurred prior to the Closing Date. The Servicer and
the Trustee hereby covenant with the Certificateholders that every material
contract or other material agreement entered into by the Trustee, or the
Servicer, acting as attorney-in-fact for the Trustee, on behalf of the Trust
Fund shall expressly state therein that no Certificateholder shall be personally
liable in connection with such contract or agreement.
Section 2.09. Sale and Conveyance of the Subsequent SBA Loans.
(a) Subject to the conditions set forth in paragraph (b)
below, in consideration of the Trustee's delivery on the related Subsequent
Transfer Dates to or upon the order of the Seller of all or a portion of the
balance of funds in the Pre-Funding Account, the Seller shall on any Subsequent
Transfer Date sell, transfer, assign, set over and otherwise convey without
recourse, to the Trustee all right, title and interest of the Seller in and to
the Unguaranteed Interest of each Subsequent SBA Loan listed on the SBA Loan
Schedule delivered by the Seller on such Subsequent Transfer Date, all its
right, title and interest in and to principal collected and interest accruing on
the Unguaranteed Interest of each such Subsequent SBA Loan on and after the
related Subsequent Cut-Off Date and all its right, title and interest in the
Unguaranteed Interest in all insurance policies; provided, that the Seller
reserves and retains all of its right, title and interest in and to principal
(including Principal Prepayments) collected and interest accruing on each such
Subsequent SBA Loan prior to the related Subsequent Cut-Off Date. The transfer
by the Seller of the Unguaranteed Interest of the Subsequent SBA Loans set forth
on the SBA Loan Schedule to the Trustee shall be absolute and shall be intended
by all parties hereto to be treated as a sale by the Seller.
Although it is the intent of the parties to this Agreement that the
conveyance of the Seller's right, title and interest in and to the Unguaranteed
Interests of the SBA Loans and other assets in the Trust Fund pursuant to this
Agreement shall constitute a purchase and sale and not a loan, in the event that
such conveyance is deemed to be a loan, it is the intent of the parties to this
Agreement that the Seller shall be deemed to have granted, and hereby does
grant, to the Trustee for the benefit of the Certificateholders and the Trustee
a first priority perfected security interest in all of the Seller's right, title
and interest in, to and under the Unguaranteed Interests of the SBA Loans and
other assets in the Trust Fund, and that this Agreement shall constitute a
security agreement under applicable law.
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The amount released from the Pre-Funding Account shall be one-hundred
percent (100%) of the aggregate Principal Balances as of the related Subsequent
Cut-Off Date of the Subsequent SBA Loans so transferred on the related
Subsequent Transfer Date.
(b) The Seller shall transfer to the Trustee the Unguaranteed
Interest of the Subsequent SBA Loans and the other property and rights related
thereto described in paragraph (a) above only upon the satisfaction of each of
the following conditions on or prior to the related Subsequent Transfer Date:
(i) the Seller shall have provided the Trustee with a
timely Addition Notice and shall have provided any information
reasonably requested by it with respect to the Subsequent SBA
Loans;
(ii) the Seller shall have delivered to the Trustee a
duly executed written assignment (including an acceptance by
the Trustee) that shall include SBA Loan Schedules, listing
the Subsequent SBA Loans and any other exhibits listed
thereon;
(iii) the Seller shall have deposited in the
Principal and Interest Account all collections in respect of
the Subsequent SBA Loans received on or after the related
Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of the
Seller, the Servicer or the Spread Account Depositor was
insolvent nor will any of them have been made insolvent by
such transfer nor is any of them aware of any pending
insolvency;
(v) such addition will not result in a material
adverse tax consequence to the Trust Fund or the Holders of
the Certificates;
(vi) the Funding Period shall not have terminated;
(vii) the Seller shall have delivered to the Trustee
an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (b) and in the
related Subsequent Transfer Agreement;
(viii) the Seller shall have delivered to the Rating
Agency and the Trustee, Opinions of Counsel with respect to
the transfer of the Subsequent SBA Loans substantially in the
form of the Opinions of Counsel delivered to the Trustee on
the Closing Date (bankruptcy, corporate and tax opinions);
(ix) the FTA shall have delivered, pursuant to
Section 2.05(a) hereof, an acknowledgment of receipt of the
SBA Note relating to such SBA ss. 7(a) Loan in the form
attached as Exhibit 1 to the Multi-Party Agreement; and
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(x) the Transfer of the Subsequent SBA Loans to the
Trust Fund will not result in a change to the top 5 Obligors.
(c) The obligation of the Trust Fund to purchase the
Unguaranteed Interest of a Subsequent SBA Loan on any Subsequent Transfer Date
is subject to the requirement, as evidenced by a certificate from a Responsible
Officer of the Seller, that such Subsequent SBA Loan conforms in all material
respects to the representations and warranties concerning the individual Initial
SBA Loans set forth in Sections 3.01 and 3.02 (except that any reference therein
to the Cut-Off Date shall be deemed a reference to the applicable Subsequent
Cut-Off Date) and that the inclusion of all Subsequent SBA Loans being
transferred to the Trust Fund on such Subsequent Transfer Date will not change,
in any material respect, the characteristics of the Initial SBA Loans, in the
aggregate, set forth in Sections 3.01 and 3.02 or in the Confidential Placement
Memorandum under the headings "Summary of Terms -- The SBA Loan Pool" and "The
SBA Loan Pool." Further, each Subsequent SBA Loan must be an SBA ss.7(a) Loan.
Additionally, following each Subsequent Transfer Date, the weighted average
number of months since origination of all the SBA ss.7(a) Loans (including the
SBA ss.7(a) Loans being purchased on such Subsequent Transfer Date) shall be no
less than approximately four months.
(d) In connection with the transfer and assignment of the
Subsequent SBA Loans, the Seller agrees to satisfy the conditions set forth in
Sections 2.01, 2.02, 2.03, 2.04 and 2.05.
(e) In connection with each Subsequent Transfer Date, on the
Remittance Dates in January 1999, February 1999 and March 1999 and the Special
Remittance Date, the Seller shall determine, and the Trustee shall cooperate
with the Seller in determining (i) the amount and correct dispositions of the
Capitalized Interest Requirements, Overfunded Interest Amounts, and Pre-Funding
Earnings and (ii) any other necessary matters in connection with the
administration of the Pre-Funding Account and of the Capitalized Interest
Account. If any amounts are incorrectly released to the Seller from the
Capitalized Interest Account, the Seller shall immediately repay such amounts to
the Trustee.
Section 2.10. Optional Purchase of Defaulted SBA Loans.
The Servicer shall have the right, but not the obligation, to purchase
the Unguaranteed Interest of any Defaulted SBA Loan for a purchase price equal
to the Principal Balance of such Unguaranteed Interest as of the date of
repurchase, plus 30 days' interest on such Principal Balance, computed at the
Adjusted SBA Loan Remittance Rate as of the next succeeding Determination Date,
plus any accrued unpaid Servicing Fees, Monthly Advances and Servicing Advances
reimbursable to the Servicer, which purchase price shall be deposited in the
Principal and Interest Account on the next succeeding Determination Date. Any
such repurchase shall be accomplished in the manner specified in Section
2.05(b). In no event shall the aggregate Principal Balance of the Unguaranteed
Interests of all Defaulted SBA Loans purchased pursuant to this Section 2.10
exceed 5% of the sum of (i) the Original Pool Principal Balance and (ii) the
Original Pre-Funded Amount.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations of the Seller.
The Seller hereby represents and warrants to the Trustee and the
Certificateholders that as of the Closing Date:
(a) The Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and has all licenses necessary to carry on its business as now
being conducted and is licensed, qualified and in good standing in each state
where the laws of such state require licensing or qualification in order to
conduct business of the type conducted by the Seller and perform its obligations
hereunder; the Seller has corporate power and authority to execute and deliver
this Agreement and to perform in accordance herewith and therewith; the
execution, delivery and performance of this Agreement (including all instruments
of transfer to be delivered pursuant to this Agreement) by the Seller and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action; this Agreement
evidences the valid, binding and enforceable obligation of the Seller; and all
requisite action has been taken by the Seller to make this Agreement valid,
binding and enforceable upon the Seller in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at law or in
equity, none of which will affect the ownership of the SBA Loans by the Trustee,
as trustee.
(b) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Seller makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Seller of the documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date hereof,
are not subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may be taken
or review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
documents on the part of the Seller and the performance by the Seller of its
obligations under this Agreement and such of the other documents to which it is
a party;
(c) The consummation of the transactions contemplated by this
Agreement will not result in the breach of any terms or provisions of the
articles of incorporation or bylaws of the Seller or result in the breach of any
term or provision of, or conflict with or constitute a default under or result
in the acceleration of any obligation under, any material agreement, indenture
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<PAGE>
or loan or credit agreement or other material instrument to which the Seller or
its property is subject, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its property is
subject;
(d) Neither this Agreement nor any statement, report or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made;
(e) The Seller does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant contained in
this Agreement;
(f) There is no action, order, suit, proceeding or
investigation pending or, to the best of the Seller's knowledge, threatened
against the Seller which, either in any one instance or in the aggregate, may
(i) except as described in the Confidential Placement Memorandum, result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Seller or in any material impairment of the right or
ability of the Seller to carry on its business substantially as now conducted,
or in any material liability on the part of the Seller or of any action taken or
to be taken in connection with the obligations of the Seller contemplated
herein, or which would be likely to impair materially the ability of the Seller
to perform under the terms of this Agreement or (ii) which would draw into
question the validity of this Agreement or the SBA Loans;
(g) The Trust Fund will not constitute an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
(h) The Seller is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Seller or its properties or might have consequences that would
materially and adversely affect its performance hereunder;
(i) The statements contained in the Confidential Placement
Memorandum which describe the Seller or the SBA Loans or matters or activities
for which the Seller is responsible in accordance with the Confidential
Placement Memorandum, this Agreement and all documents referred to therein or
herein or delivered in connection therewith or herewith, or which are
attributable to the Seller therein or herein are true and correct in all
material respects, and the Confidential Placement Memorandum does not contain
any untrue statement of a material fact with respect to the Seller or the SBA
Loans and does not omit to state a material fact necessary to make the
statements contained therein with respect to the Seller or the SBA Loans not
misleading in light of the circumstances under which they were made. The Seller
is not aware that the Confidential Placement Memorandum contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances under which they were made. There is no fact peculiar to the
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<PAGE>
Seller or the SBA Loans and known to the Seller that materially adversely
affects or in the future may (so far as the Seller can now reasonably foresee)
materially adversely affect the Seller or the SBA Loans or the ownership
interests therein represented by the Certificates that has not been set forth in
the Confidential Placement Memorandum;
(j) No Certificateholder is subject to state licensing
requirements solely by virtue of holding the Certificates;
(k) The transfer, assignment and conveyance of the SBA Notes
and the Mortgages by the Seller pursuant to this Agreement are not, or with
respect to the Subsequent SBA Loans, will not be, subject to the bulk transfer
laws or any similar statutory provisions in effect in any applicable
jurisdiction and do not violate the SBA Rules and Regulations;
(l) The origination and collection practices used by the
Seller with respect to each SBA Note and Mortgage relating to the Initial SBA
Loans have been, and the origination and collection practices to be used by the
Seller with respect to each Subsequent SBA Loan and Mortgage relating to each
Subsequent SBA Loan will have been in all material respects legal, proper,
prudent and customary in the SBA loan origination and servicing business;
(m) Each Initial SBA Loan was and each Subsequent SBA Loan
will be, selected from among the existing SBA loans in the Seller's portfolio at
the date hereof, or in the case of the Subsequent SBA Loans, at the related
Subsequent Cut-Off Date, in a manner not designed to adversely affect the
Certificateholders;
(n) The Seller received fair consideration and reasonably
equivalent value or, in the case of the Subsequent SBA Loans, will have received
fair consideration and reasonably equivalent value, in exchange for the sale of
the Unguaranteed Interest of the SBA Loans evidenced by the Certificates;
(o) Neither the Seller nor any of its affiliates sold, or in
the case of the Subsequent SBA Loans will have sold, any interest in any SBA
Loan evidenced by the Certificates with any intent to hinder, delay or defraud
any of their respective creditors;
(p) The Seller is solvent, and the Seller will not be rendered
insolvent as a result of the transfer of the SBA Loans to the Trust Fund or the
sale of the Certificates, the Seller is paying its debts and after giving effect
to the transactions contemplated herein, the Seller will have adequate capital
to conduct its business;
(q) The chief executive office and legal name of the Seller is
as set forth on the respective UCC-1 financing statement filed on behalf of the
Seller pursuant to Section 2.04(h), such office is the place where the Seller is
"located" for the purposes of Section 9-103(3)(d) of the Uniform Commercial Code
as in effect in the State of New York, and neither the location of such office
nor the legal name of the Seller has changed in the past four months. The Seller
has no trade names, fictitious names, or "doing business as" names, except for
"Business Loan Center;"
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(r) The Seller will treat the transfer of the SBA Loans as a
sale for federal income tax and accounting purposes;
(s) To the best of Seller's knowledge, all tax returns have
been filed on a timely basis;
(t) The Seller will maintain separate books and records, will
not commingle assets and will hold itself out as a separate entity from the
Spread Account Depositor; and
(u) The Class A Certificates shall have been rated "AAA" by
DCR.
Section 3.02. Individual SBA Loans.
The Seller hereby represents and warrants to the Trustee, and the
Certificateholders, with respect to each Initial SBA Loan originated or acquired
by the Seller, as of the Closing Date, and with respect to each Subsequent SBA
Loan originated by the Seller, as of the related Subsequent Transfer Date:
(a) The information with respect to each SBA Loan set forth in
the SBA Loan Schedule is true and correct;
(b) All of the original or certified documentation set forth
in Section 2.04 (including all material documents related thereto) has been or
will be delivered to the Trustee or the FTA, on behalf of the Trustee, on the
Closing Date or as otherwise provided in Section 2.04;
(c) Each Mortgaged Property is improved by a Commercial
Property or a Residential Property and does not constitute other than real
property under state law;
(d) Except with respect to no more than 1% of the SBA Loans,
each SBA Loan has been originated by the Seller or its predecessors and is being
serviced by the Servicer;
(e) Except with respect to no more than 5% of the SBA Loans,
each SBA Loan is an SBA ss. 7(a) Loan and is secured by one or more items of
collateral;
(f) Except for approximately 4.95% which adjust monthly, each
SBA Note will, with respect to principal payments, adjust quarterly and provide
for a schedule of Monthly Payments which are, if timely paid, sufficient to
fully amortize the principal balance of such SBA Note on its maturity date;
(g) With respect to those SBA Loans secured by a Mortgaged
Property, each Mortgage is a valid and subsisting lien of record on the
Mortgaged Property subject only to any applicable Prior Liens on such Mortgaged
Property and subject in all cases to such exceptions that are generally
acceptable to banking institutions in connection with their regular commercial
lending activities, and such other exceptions to which similar properties are
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<PAGE>
commonly subject and which do not individually, or in the aggregate, materially
and adversely affect the benefits of the security intended to be provided by
such Mortgage;
(h) Immediately prior to the transfer and assignment herein
contemplated, the Seller held good and indefeasible title to, and was the sole
owner of, the Unguaranteed Interest of each SBA Loan conveyed by the Seller
subject to no liens, charges, mortgages, encumbrances or rights of others except
as set forth in Section 3.02(g) or other liens which will be released
simultaneously with such transfer and assignment; and immediately upon the
transfer and assignment herein contemplated, the Trustee will hold good and
indefeasible title, to, and be the sole owner of, each SBA Loan subject to no
liens, charges, mortgages, encumbrances or rights of others except (i) as set
forth in Section 3.02(g), (ii) the interests of the SBA or (iii) other liens
which will be released simultaneously with such transfer and assignment;
(i) As of the Cut-Off Date (or, with respect to any Subsequent
SBA Loan, as of the related Subsequent Cut-Off Date), no SBA Loan is 30 or more
days delinquent in payment;
(j) To the best of the Seller's knowledge, there is no
delinquent tax or assessment lien on any Mortgaged Property, and each Mortgaged
Property is free of material damage and is in good repair;
(k) The SBA Loan is not subject to any right of rescission,
subordination, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the SBA Note or any related
Mortgage, or the exercise of any right thereunder, render either the SBA Note or
any related Mortgage unenforceable in whole or in part, or subject to any right
of rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto;
(l) Each SBA Loan at the time it was made complied and, as of
the Closing Date, complies in all material respects with applicable state and
federal laws and regulations, including, without limitation, usury, equal credit
opportunity, disclosure and recording laws and, if applicable, the SBA Rules and
Regulations;
(m) Each SBA Loan originated by the Seller was originated in
accordance with the underwriting criteria set forth in the Confidential
Placement Memorandum.
(n) Pursuant to the SBA Rules and Regulations, the Seller
requires that the improvements upon each Mortgaged Property are covered by a
valid and existing hazard insurance policy with a generally acceptable carrier
that provides for fire and extended coverage representing coverage described in
Section 5.07;
(o) Pursuant to the SBA Rules and Regulations, the Seller
requires that if a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy is in effect with respect to such Mortgaged
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<PAGE>
Property with a generally acceptable carrier in an amount representing coverage
described in Section 5.07;
(p) Each SBA Note, any related Mortgage and any other
agreement pursuant to which Collateral is pledged to a Seller is the legal,
valid and binding obligation of the maker thereof and is enforceable in
accordance with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law), none of which will prevent the ultimate realization of the security
provided by the Collateral or other agreement, and all parties to each SBA Loan
had full legal capacity to execute all SBA Loan documents and convey the estate
therein purported to be conveyed;
(q) The Servicer has caused and will cause to be performed any
and all acts reasonably required to be performed to preserve the rights and
remedies of the Trustee in any insurance policies applicable to the SBA Loans
including, without limitation, in each case, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Trustee or
Seller, respectively;
(r) Each original Mortgage was recorded, and all subsequent
assignments of the original Mortgage have been recorded in the appropriate
jurisdictions wherein such recordation is necessary to perfect the lien thereof
as against creditors of the Seller (or, subject to Section 2.04 hereof, are in
the process of being recorded);
(s) Each SBA Loan conforms, and all such SBA Loans in the
aggregate conform, to the description thereof set forth in the Confidential
Placement Memorandum;
(t) The terms of the SBA Note and the related Mortgage or
other security agreement pursuant to which Collateral was pledged have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the SBA and
the Certificateholders and which has been delivered to the Trustee;
(u) To the best of the Seller's knowledge there are no
material defaults in complying with the terms of any applicable Mortgage, and
all taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid, or an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed but is not yet due and payable;
(v) To the best of the Seller's knowledge there is no
proceeding pending or threatened for the total or partial condemnation of any
Mortgaged Property, nor is such a proceeding currently occurring, and such
property is undamaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty, so as to affect adversely the value of the
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<PAGE>
Mortgaged Property as security for the SBA Loan or the use for which the
premises were intended;
(w) Each Mortgaged Property which is the primary collateral
for the related SBA Loan was, at the time of origination of such SBA Loan, and
to the best of the Seller's knowledge, is, as of the Cut-off Date, free of
contamination from toxic substances or hazardous wastes or is subject to ongoing
environmental rehabilitation approved by the SBA;
(x) The proceeds of the SBA Loan have been fully disbursed,
and there is no obligation on the part of the Seller to make future advances
thereunder and the Guaranteed Portion of the SBA Loan has been sold in the
Secondary Market pursuant to SBA Form 1086. Any and all requirements as to
disbursements of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making or closing or recording the SBA Loans were
paid;
(y) There is no obligation on the part of the Seller or any
other party (except for any guarantor of an SBA Loan) to make Monthly Payments
in addition to those made by the Obligor;
(z) No statement, report or other document signed by the
Seller constituting a part of the SBA File contains any untrue statement of fact
provided by the Seller or omits to state a fact necessary to make the statements
contained therein provided by the Seller not misleading in light of the
circumstances under which they were made;
(aa) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Certificateholders to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Obligor;
(bb) No SBA Loan has a shared appreciation feature, or other
contingent interest feature;
(cc) With respect to each SBA Loan secured by a Mortgaged
Property and that is not a first mortgage loan, either (i) no consent for the
SBA Loan is required by the holder of any related Prior Lien or (ii) such
consent has been obtained;
(dd) Each SBA Loan was originated to a business located in the
State identified in the SBA Loan Schedule;
(ee) All parties which have had any interest in the SBA Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in compliance with
any and all applicable licensing requirements of the laws of the state wherein
any Mortgaged Property is located, and (2)(A) organized under the laws of such
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<PAGE>
state, or (B) qualified to do business in such state, or (C) federal savings and
loan associations or national banks having principal offices in such state, or
(D) not doing business in such state;
(ff) Any related Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is
no homestead or other exemption available to the Mortgagor which would
materially interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(gg) There is no default, breach, violation or event of
acceleration existing under the SBA Note and no event which, with the passage of
time or with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; and neither
the Servicer nor the Seller have waived any default, breach, violation or event
of acceleration;
(hh) All parties to the SBA Note and any related Mortgage or
other document pursuant to which Collateral was pledged had legal capacity to
execute the SBA Note and any such Mortgage or other document and each SBA Note
and Mortgage or other document have been duly and properly executed by such
parties;
(ii) The SBA Loan was not selected for inclusion under this
Agreement from the Seller's portfolio of comparable SBA loans on any basis which
would have a material adverse affect on a Certificateholder;
(jj) All amounts received on and after the Cut-Off Date or,
with respect to the Subsequent SBA Loans, received on and after the related
Subsequent Cut-Off Date, with respect to the SBA Loans have been, to the extent
required by this Agreement, deposited into the Principal and Interest Account
and are, as of the Closing Date, or, with respect to the Subsequent SBA Loans,
as of the related Subsequent Transfer Date, in the Principal and Interest
Account;
(kk) With respect to those SBA Loans secured by Collateral
other than a Mortgaged Property, the related Note, security agreements, if any,
and UCC-1 filed with respect to such Collateral creates a valid and subsisting
lien of record on such Collateral subject only to any Prior Liens, if any, on
such Collateral and subject in all cases to such exceptions that are generally
acceptable to lending institutions in connection with their regular commercial
lending activities, and such other exceptions to which similar Collateral is
commonly subject and which do not individually, or in the aggregate, materially
and adversely affect the benefits of the security intended to be provided by
such Note, security agreement and UCC-1;
(ll) Each SBA Loan is secured by one or more items of
Collateral and at the time the related SBA Loan was originated, the aggregate
value of all Collateral securing such SBA Loan was at least equal to the
original principal amount of the related SBA Loan and all Prior Liens securing
the related Collateral;
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<PAGE>
(mm) To the best of Seller's knowledge, there are no
governmental proceedings or investigations pending or threatened which would
adversely affect payment on the SBA Loans;
(nn) Each SBA Loan is personally guaranteed by a principal of
the Obligor; and
(oo) Each SBA Loan qualifies to be guaranteed by the SBA.
Section 3.03. Purchase and Substitution of Defective SBA Loans.
It is understood and agreed that the representations and warranties
set forth in Sections 3.01 and 3.02 shall survive delivery of the Certificates
to the Certificateholders. Upon discovery by the Servicer, any Subservicer or
the Trustee of a breach of any of such representations and warranties which
materially and adversely affects the value of the SBA Loans or the interest of
the Certificateholders or the SBA therein or which materially and adversely
affects the interests of the Certificateholders and the SBA in the related SBA
Loan in the case of a representation and warranty relating to a particular SBA
Loan (notwithstanding that such representation and warranty was made to the
Seller's best knowledge), the party discovering such breach shall give prompt
written notice to the others. Within 60 days of the earlier of its discovery or
its receipt of notice of any breach of a representation or warranty, the Seller
shall (a) promptly cure such breach in all material respects, (b) purchase the
Unguaranteed Interest of such SBA Loan by depositing in the Principal and
Interest Account, on the next succeeding Determination Date, an amount and in
the manner specified in Section 2.05(b), or (c) if within two years of the
Closing Date, remove such SBA Loan from the Trust Fund (in which case it shall
become a Deleted SBA Loan) and substitute one or more Qualified Substitute SBA
Loans. Any such substitution shall be accompanied by payment by the Seller of
the Substitution Adjustment, if any.
As to any Deleted SBA Loan for which the Seller substitutes a Qualified
Substitute SBA Loan or Loans, the Servicer shall effect such substitution by
delivering to the Trustee and the FTA a certification in the form attached
hereto as Exhibit I, executed by a Servicing Officer, and shall also deliver to
the Trustee and the FTA, as applicable, the documents constituting the Trustee's
Document File for such Qualified Substitute SBA Loan or Loans.
The Servicer shall deposit in the Principal and Interest Account the
Unguaranteed Percentage of all payments of principal received in connection with
such Qualified Substitute SBA Loan or Loans after the date of such substitution
together with all interest (net of the portion thereof required to be paid to
the related Registered Holder, the FTA's Fee, the Premium Protection Fee and the
Servicing Fee allocable to such Qualified Substitute SBA Loan or Loans and the
Additional Fee with respect to each Additional Fee SBA Loan). Monthly Payments
received with respect to Qualified Substitute SBA Loans on or before the date of
substitution will be retained by the Seller. The Trust Fund will own all
payments received with respect to the Unguaranteed Interest on the Deleted SBA
Loan on or before the date of substitution, and the Seller shall thereafter be
entitled to retain all amounts subsequently received in respect of such Deleted
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SBA Loan. The Servicer shall give written notice to the Trustee that such
substitution has taken place and shall amend the SBA Loan Schedule to reflect
the removal of such Deleted SBA Loan from the terms of this Agreement and the
substitution of the Qualified Substitute SBA Loan or Loans. Upon such
substitution, such Qualified Substitute SBA Loan or Loans shall be subject to
the terms of this Agreement in all respects, including Sections 2.04 and 2.05,
and the Seller shall be deemed to have made with respect to such Qualified
Substitute SBA Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Sections 3.01 and 3.02. On the date
of such substitution, the Seller will remit to the Servicer, and the Servicer
will deposit into the Principal and Interest Account an amount equal to the
Substitution Adjustment.
In addition to the cure, purchase and substitution obligation in
Section 2.05 and this Section 3.03, the Seller shall indemnify and hold harmless
the Trust Fund, the Trustee and the Certificateholders against any loss,
damages, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments and other costs and expenses resulting from any claim, demand, defense
or assertion based on or grounded upon, or resulting from, a breach of the
Seller's representations and warranties contained in this Agreement. It is
understood and agreed that the obligations of the Seller set forth in Sections
2.05 and 3.03 to cure, purchase or substitute for a defective SBA Loan and to
indemnify the Certificateholders and the Trustee as provided in Sections 2.05
and 3.03 constitute the sole remedies of the Trustee and the Certificateholders
respecting a breach of the foregoing representations and warranties.
Any cause of action against the Servicer or the Seller relating to or
arising out of the breach of any representations and warranties made in Sections
2.05, 3.01 or 3.02 shall accrue as to any SBA Loan upon (i) discovery of such
breach by any party and notice thereof to the Seller and or notice thereof by
the Seller to the Trustee, (ii) failure by the Seller to cure such breach or
purchase or substitute such SBA Loan as specified above, and (iii) demand upon
the Seller by the Trustee for all amounts payable hereunder in respect of such
SBA Loan.
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ARTICLE IV
THE CERTIFICATES
Section 4.01. Certificates.
The Class A and Class B Certificates shall be substantially in
the forms annexed hereto as Exhibits B-1 and B-2 and shall, upon original issue,
be executed and delivered by the Servicer to the Trustee for authentication and
redelivery to or upon the order of the Seller, upon receipt by the Trustee and
the FTA of the documents specified in Section 2.04. All Certificates shall be
executed on behalf of the Servicer by its President, its Treasurer, one of its
Executive Vice Presidents, one of its Vice Presidents or one of its Assistant
Vice Presidents, in the denominations specified in the definition of Percentage
Interest, and shall be authenticated on behalf of the Trustee by one of its
Responsible Officers. Certificates bearing the signatures of individuals who
were at the time of the execution or authentication of the Certificates the
proper officers of the Servicer or a Responsible Officer of the Trustee, as the
case may be, shall bind the Servicer or the Trustee, as the case may be,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the delivery of such Certificates or did not hold such offices
at the date of such Certificates. All Certificates issued hereunder shall be
dated the date of their authentication.
Section 4.02. Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at the office of the
Certificate Registrar, in New York, New York, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, it shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. The Certificate Register shall contain the name, remittance
instructions, Class and Percentage Interest of each Certificateholder, as well
as the Series and the number in the Series. Marine Midland Bank is initially
appointed Certificate Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided.
(b) Each Class of Certificates shall be issued in minimum
denominations of $100,000 original principal amount and integral multiples of
$1,000 in excess thereof, except that one Class A Certificate and one Class B
Certificate may be in a different denomination so that the sum of the
denominations of all outstanding Class A Certificates and Class B Certificates
shall equal the Original Class A Certificate Principal Balance and the Original
Class B Certificate Principal Balance, respectively. On the Closing Date, the
Trustee will authenticate Individual Certificates all in an aggregate principal
amount that shall equal the Original Class A Certificate Principal Balance and
the Original Class B Certificate Principal Balance.
(c) [Intentionally Omitted.]
(d) [Intentionally Omitted.]
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<PAGE>
(e) [Intentionally Omitted.]
(f) [Intentionally Omitted.]
(g) Subject to the preceding paragraphs, upon surrender for
registration of transfer of any Certificate at the office of the Certificate
Registrar and, upon satisfaction of the conditions set forth below, the Servicer
shall execute in the name of the designated transferee or transferees, a new
Certificate of the same Percentage Interest and dated the date of authentication
by the Trustee. The Certificate Registrar shall notify the Servicer and the
Trustee of any such transfer.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates in authorized denominations of a like Class and
aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at such office. Whenever any Certificates are so surrendered for
exchange, the Servicer shall execute the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for transfer or exchange shall be accompanied by wiring
instructions, if applicable, in the form of Exhibit E(1).
(h) No service charge shall be made for any transfer or
exchange of Certificates, but prior to transfer the Certificate Registrar may
require payment by the transferor of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates.
All Certificates surrendered for transfer and exchange shall
be marked canceled by the Authenticating Agent and retained for one year and
destroyed thereafter.
(i) By acceptance of an Individual Certificate, whether upon
original issuance or subsequent transfer, each holder of such a Certificate
acknowledges the restrictions on the transfer of such Certificate set forth in
the Securities Legend and agrees that it will transfer such a Certificate only
as provided herein. In addition to the provisions of Section 4.02(n) the
following restrictions shall apply with respect to the transfer and registration
of transfer of an Individual Certificate to a transferee that takes delivery in
the form of an Individual Certificate:
(i) The Certificate Registrar shall register the
transfer of an Individual Certificate if the requested
transfer is being made to a transferee who has provided the
Certificate Registrar with a Rule 144A Certification.
(ii) The Certificate Registrar shall register the
transfer of any Individual Certificate (other than the initial
delivery of the Class B Certificates to the Spread Account
Depositor) if (x) the transferor has advised the Certificate
Registrar in writing that the Certificate is being transferred
to an Institutional Accredited Investor; and (y) prior to the
transfer the transferee furnishes to the Certificate Registrar
a Transferee Letter, provided that, if based upon an Opinion
of Counsel to the effect that the delivery of (x) and (y)
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above are not sufficient to confirm that the proposed transfer
is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of
the Securities Act and other applicable laws, the Certificate
Registrar may as a condition of the registration of any such
transfer require the transferor to furnish other
certifications, legal opinions or other information prior to
registering the transfer of an Individual Certificate.
(j) [Intentionally Omitted.]
(k) [Intentionally Omitted.]
(l) [Intentionally Omitted.]
(m) The Securities Legend shall be placed on any Individual
Certificate issued in exchange for or upon transfer of another Individual
Certificate or of a beneficial interest in the Global Certificate.
(n) Subject to the restrictions on transfer and exchange set
forth in this Section 4.02, the holder of any Individual Certificate may
transfer or exchange the same in whole or in part (in an initial certificate
balance equal to the minimum authorized denomination or any integral multiple of
$1,000 in excess thereof) by surrendering such Certificate at the Corporate
Trust Office, or at the office of any transfer agent, together with an executed
instrument of assignment and transfer satisfactory in form and substance to the
Certificate Registrar in the case of transfer and a written request for exchange
in the case of exchange. The holder of a beneficial interest in a Global
Certificate may, subject to the rules and procedures of the Depository, cause
the Depository (or its nominee) to notify the Certificate Registrar in writing
of a request for transfer or exchange of such beneficial interest for an
Individual Certificate or Certificates. Following a proper request for transfer
or exchange, the Certificate Registrar shall, within five Business Days of such
request made at such Corporate Trust Office, cause the Trustee to authenticate
and the Certificate Registrar to deliver at such Corporate Trust Office, to the
transferee (in the case of transfer) or holder (in the case of exchange) or send
by first class mail at the risk of the transferee (in the case of transfer) or
holder (in the case of exchange) to such address as the transferee or holder, as
applicable, may request, an Individual Certificate or Certificates, as the case
may require, for a like aggregate Percentage Interest and in such authorized
denomination or denominations as may be requested. The presentation for transfer
or exchange of any Individual Certificate shall not be valid unless made at the
Corporate Trust Office by the registered holder in person, or by a duly
authorized attorney-in-fact.
(o) No transfer of any Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act and
any applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, unless such transfer is made in
reliance upon Rule 144A under the Securities Act and except for the initial
issuance of the Class B Certificates to the Spread Account Depositor, (i) the
Trustee may require a written Opinion of Counsel (which may be in-house counsel)
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acceptable to and in form and substance reasonably satisfactory to the Trustee
that such transfer may be made pursuant to an exemption, describing the
applicable exemption and the basis therefor, from said Act and laws or is being
made pursuant to said Act and laws, which Opinion of Counsel shall not be an
expense of the Trustee, the Seller, the Servicer or the Trust Fund and (ii) the
Trustee shall require the transferee to execute a Transferee Letter certifying
to the Seller and the Trustee the facts surrounding such transfer, which
Transferee Letter shall not be an expense of the Trustee, the Seller, the
Servicer or the Trust Fund. The holder of a Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee, the Seller and
the Servicer against any liability that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws. None of
the Seller, the Servicer, the Trustee or the Trust Fund intends or is obligated
to register or qualify any Certificate under the Securities Act or any state
securities laws.
(p) No Class B Certificate may be acquired directly or
indirectly, for or on behalf of: (i) an employee benefit plan or other
retirement arrangement subject to ERISA, and/or Section 4975 of the Code, or
(ii) any entity, the assets of which would be deemed plan assets under the
Department of Labor regulations set forth at 29 C.F.R. ss.2510.3-101, other than
an "insurance company general account" within the meaning of Section V(e) of
Prohibited Transaction Class Exemption 95-60 (collectively, a "Plan"). No
transfer of a Class B Certificate representing an Individual Certificate shall
be made unless the Trustee shall have received a certification from the
transferee of such Individual Certificate, acceptable to and in form and
substance satisfactory to the Trustee and the Seller, to the effect that such
transferee is either: (i) not acquiring a Class B Certificate, directly or
indirectly, for or on behalf of a Plan, or (ii) is acquiring such Class B
Certificate, directly or indirectly, for or on behalf of an "insurance company
general account" within the meaning of Section V(e) of Prohibited Transaction
Class Exemption 95-60. Notwithstanding anything else to the contrary herein, in
the event any purported transfer of any Class B Certificate representing an
Individual Certificate is made without delivery of the certification referred to
above, such certification shall be deemed to have been made by the Transferee by
its acceptance of such Individual Certificate. In addition, any purported
transfer of a Class B Certificate representing an Individual Certificate
directly or indirectly to or on behalf of a Plan other than an "insurance
company general account" within the meaning of Section V(e) of Prohibited
Transaction Class Exemption 95-60 shall be void and of no effect. The
acquisition of a Class B Certificate representing an interest in a Global
Certificate shall be deemed a representation by the acquirer that it is either:
(i) not acquiring a Class B Certificate, directly or indirectly, for or on
behalf of a Plan, or (ii) is acquiring such Class B Certificate directly or
indirectly, for or on behalf of an "insurance company general account" within
the meaning of Section V(e) of Prohibited Transaction Class Exemption 95-60.
(q) Notwithstanding any other provision of this Agreement to
the contrary, on the Closing Date, the Trustee shall authenticate in the name
of, and deliver to, the Spread Account Depositor, the Class B Certificate in the
form of a single Individual Certificate in an aggregate principal amount equal
to the Original Class B Principal Balance. The Class B Certificate may not be
sold, pledged, transferred, assigned or otherwise conveyed, in whole or in part,
without the prior written approval of the SBA, a copy of which approval shall be
furnished to the Trustee. A legend to such effect shall be placed on the Class B
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Certificate. The holder of the Class B Certificate shall at all times be the
Spread Account Depositor unless the SBA has consented and a written Opinion of
Counsel acceptable to and in form and substance reasonably satisfactory to the
SBA and the Trustee is delivered.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Trustee and the Certificate Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Servicer, the Trustee and the
Certificate Registrar such security or indemnity as may be required by each of
them to save each of them harmless, then, in the absence of notice to the
Servicer, the Trustee and the Certificate Registrar that such Certificate has
been acquired by a bona fide purchaser, the Servicer shall execute and deliver,
and the Trustee shall authenticate, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest, but bearing a number not contemporaneously
outstanding. Upon the issuance of any new Certificate under this Section 4.03,
the Servicer and the Trustee may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses connected therewith. Any duplicate Certificate
issued pursuant to this Section 4.03 shall constitute complete and indefeasible
evidence of ownership in the Trust Fund, as if originally issued, whether or not
the mutilated, destroyed, lost or stolen Certificate shall be found at any time.
Section 4.04. Persons Deemed Owners.
Prior to due presentation of a Certificate for registration of
transfer, the Servicer, the Seller, the Trustee, the Paying Agent and the
Certificate Registrar may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
remittances pursuant to Section 6.07 and for all other purposes whatsoever, and
the Seller, the Servicer, the Trustee and the Certificate Registrar shall not be
affected by notice to the contrary.
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ARTICLE V
ADMINISTRATION AND SERVICING OF SBA LOANS
Section 5.01. Duties of the Servicer.
(a) The Servicer covenants and agrees that it shall act as
agent (and the Servicer is hereby appointed to act as agent) on behalf of the
Trust Fund and that, in such capacity, it shall: (i) prepare and file, or cause
to be prepared and filed, in a timely manner, any Tax Return required to be
filed by the Trust Fund; (ii) prepare and forward, or cause to be prepared and
forwarded, to the Trustee, the Certificateholders and to the Internal Revenue
Service and any other relevant governmental taxing authority all information
returns or reports as and when required to be provided to them in accordance
with any provision of federal, state or local income tax laws; (iii) to the
extent that the affairs of the Trust Fund are within its control, conduct such
affairs at all times that any Certificates are outstanding so as to maintain the
status of the Trust Fund as a grantor trust under any applicable federal, state
and local laws; (iv) pay the amount of any and all federal, state, and local
taxes, imposed on the Trust Fund when and as the same shall be due and payable
(but such obligation shall not prevent the Servicer or any other appropriate
Person from contesting any such tax in appropriate proceedings and shall not
prevent the Servicer from withholding payment of such tax, if permitted by law,
pending the outcome of such proceedings); (v) ensure that any such returns or
reports filed on behalf of the Trust Fund are properly executed by the
appropriate person; and (vi) represent the Trust Fund in any administrative or
judicial proceedings relating to an examination or audit by any governmental
taxing authority, request an administrative adjustment as to any taxable year of
the Trust Fund, enter into settlement agreements with any governmental taxing
agency, extend any statute of limitations relating to any item of the Trust Fund
and otherwise act on behalf of the Trust Fund in relation to any tax matter
involving the Trust Fund. The Servicer shall indemnify the Trustee and the Trust
Fund for any liability it may incur in connection with this Section 5.01(a),
which indemnification shall survive the termination of the Trust Fund; provided,
however, that the Servicer shall not indemnify the Trustee for the Trustee's
negligence, willful misconduct or bad faith.
(b) The Servicer, as independent contract servicer, shall
service and administer the SBA Loans and shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement and the Multi-Party Agreement and the SBA Rules
and Regulations. The Servicer may enter into Subservicing Agreements for any
servicing and administration of SBA ss. 7(a) Loans with any entity approved with
prior written consent by the SBA. Any such Subservicing Agreement must be
approved by the SBA and shall be consistent with and not violate the provisions
of this Agreement and the Multi-Party Agreement. The Servicer shall be entitled
to terminate any Subservicing Agreement in accordance with the terms and
conditions of such Subservicing Agreement and to either itself directly service
the related SBA ss. 7(a) Loans or enter into a Subservicing Agreement with a
successor subservicer which qualifies hereunder.
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(c) Notwithstanding any Subservicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Servicer and a Subservicer or reference to actions taken through a Subservicer
or otherwise, the Servicer shall remain obligated and primarily liable to the
Trustee, for itself and on behalf of the Certificateholders, the SBA and the
Certificateholders for the servicing and administering of the SBA Loans in
accordance with the provisions of this Agreement and the Multi-Party Agreement
and the SBA Rules and Regulations, without diminution of such obligation or
liability by virtue of such Subservicing Agreements or arrangements or by virtue
of indemnification from the Subservicer and to the same extent and under the
same terms and conditions as if the Servicer alone were servicing and
administering the SBA Loans. For purposes of this Agreement, the Servicer shall
be deemed to have received payments on SBA Loans when any Subservicer has
received such payments. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
(d) Any Subservicing Agreement that may be entered into and
any transactions or services relating to the SBA Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Trustee, the SBA and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer
except as set forth in Section 5.01(e).
(e) In the event the Servicer shall for any reason no longer
be the Servicer (including by reason of an Event of Default), the Trustee or its
designee shall, subject to Section 10.02 hereof and the Multi-Party Agreement,
thereupon assume all of the rights and obligations of the Servicer under each
Subservicing Agreement that the Servicer may have entered into, unless the
Trustee is then permitted and elects to terminate any Subservicing Agreement in
accordance with its terms. The Trustee, its designee or the successor servicer
for the Trustee shall be deemed to have assumed all of the Servicer's interest
therein and to have replaced the Servicer as a party to each Subservicing
Agreement to the same extent as if the Subservicing Agreements had been assigned
to the assuming party, except that the Servicer shall not thereby be relieved of
any liability or obligations under the Subservicing Agreements. The Servicer at
its expense and without right of reimbursement therefor, shall, upon request of
the Trustee, deliver to the assuming party all documents and records relating to
each Subservicing Agreement and the SBA Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreements to the assuming party.
(f) So long as it is consistent with the terms of this
Agreement and the Multi-Party Agreement, the SBA Agreement (as defined in the
Multi-Party Agreement) and the SBA Rules and Regulations, the Servicer may
waive, modify or vary any term of any SBA Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Obligor if in the Servicer's determination such waiver, modification,
postponement or indulgence is not materially adverse to the interests of the SBA
and the Certificateholders, provided, however, that (unless (x) the Obligor is
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in default with respect to the SBA Loan, or such default is, in the judgment of
the Servicer, imminent and (y) the Servicer determines that any modification
would not be considered a new loan for federal income tax purposes) the Servicer
may not permit any modification with respect to any SBA Loan that would change
the SBA Loan Interest Rate, defer (subject to Section 5.12), or forgive the
payment of any principal or interest (unless in connection with the liquidation
of the related SBA Loan), or extend the final maturity date on such SBA Loan
without the consent of the SBA, if such consent is then required by the SBA
Rules and Regulations. The Servicer may exercise all unilateral servicing
actions permitted by participating lenders in accordance with the SBA Rules and
Regulations. No costs incurred by the Servicer or any Subservicer in respect of
Servicing Advances shall for the purposes of distributions to Certificateholders
be added to the amount owing under the related SBA Loan. Without limiting the
generality of the foregoing, so long as it is consistent with the SBA Rules and
Regulations, the Servicer shall continue, and is hereby authorized and empowered
to execute and deliver on behalf of the Trustee, the SBA and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the SBA Loans and with respect to any Mortgaged Properties or other
Collateral. If reasonably required by the Servicer, each Certificateholder
and/or the Trustee shall furnish the Servicer, within 5 Business Days of receipt
of the Servicer's request, with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement. Any such request to the Trustee
shall be accompanied by a certification in the form of Exhibit I attached hereto
signed by a Servicing Officer.
The Servicer, in servicing and administering the SBA Loans,
shall employ or cause to be employed procedures (including collection,
foreclosure and Foreclosed Property management procedures) and exercise the same
care that it customarily employs and exercises in servicing and administering
SBA Loans for its own account, in accordance with the SBA Rules and Regulations
and giving due consideration to the Certificateholders' and the SBA's reliance
on the Servicer.
(g) On and after such time as the Trustee receives the
resignation of, or notice of the removal of, the Servicer from its rights and
obligations under this Agreement, and with respect to resignation pursuant to
Section 9.04, after receipt of the Opinion of Counsel required pursuant to
Section 9.04 addressed to the SBA and the Trustee, the Trustee or its designee
shall assume all of the rights and obligations of the Servicer, subject to
Section 10.02 hereof and the Multi-Party Agreement. The Servicer shall, upon
request of the Trustee but at the expense of the Servicer, deliver to the
Trustee all documents and records (including computer tapes and diskettes)
relating to the SBA Loans and an accounting of amounts collected and held by the
Servicer and otherwise use its best efforts to effect the orderly and efficient
transfer of servicing rights and obligations to the assuming party.
(h) For so long as any of the Certificates are outstanding and
are "restricted securities" within the meaning of Rule 144(a)(3) of the
Securities Act, (1) the Servicer will provide or cause to be provided to any
holder of such Certificates and any prospective purchaser thereof designated by
such a holder, upon the request of such holder or prospective purchaser, the
information required to be provided to such holder or prospective purchaser by
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Rule 144A(d)(4) under the Securities Act; and (2) the Servicer shall update such
information from time to time in order to prevent such information from becoming
false and misleading and will take such other actions as are necessary to ensure
that the safe harbor exemption from the registration requirements of the
Securities Act under Rule 144A is and will be available for resales of such
Certificates conducted in accordance with Rule 144A.
Section 5.02. Liquidation of SBA Loans.
In the event that any payment due under any SBA Loan and not postponed
pursuant to Section 5.01 is not paid when the same becomes due and payable, or
in the event the Obligor fails to perform any other covenant or obligation under
the SBA Loan, the Servicer shall take such action in accordance with the
applicable SBA Rules and Regulations as it shall deem to be in the best
interests of the Certificateholders and the SBA. With respect to any such SBA
ss. 7(a) Loan for which the SBA has expressed to the Servicer the SBA's desire
to assume servicing of such SBA Loan consistent with the SBA Rules and
Regulations, the Trustee shall, upon written direction of the Servicer, deliver
to the SBA or its designee all or any portion of the Trustee's Document File
relating to such SBA ss. 7(a) Loan and the Trustee shall execute such documents,
including but not limited to an endorsement of the related SBA Note and an
assignment of the related Mortgage, as the Servicer or the SBA shall request.
Expenses incurred in connection with any such action shall be the responsibility
of the Servicer and shall not be chargeable to the Principal and Interest
Account or the Certificate Account. Subject to the SBA Rules and Regulations and
with the prior written consent of the SBA (if required by the SBA Rules and
Regulations), the Servicer shall foreclose upon or otherwise comparably effect
the ownership of Mortgaged Properties or other Collateral relating to defaulted
SBA ss. 7(a) Loans for which the related SBA ss. 7(a) Loan is still outstanding,
as to which no satisfactory arrangements can be made for collection of
delinquent payments in accordance with the provisions of Section 5.10. In
connection with such foreclosure or other conversion, the Servicer shall
exercise collection and foreclosure procedures with the same degree of care and
skill in its exercise or use as it would exercise or use under the circumstances
in the conduct of its own affairs. The Unguaranteed Percentage of any amounts
advanced in connection with such foreclosure or other action shall constitute
"Servicing Advances." The Servicer shall take into account the existence of any
hazardous substances, hazardous wastes or solid wastes on Mortgaged Properties
in determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property, and will not foreclose on a Mortgaged
Property where it has cause to believe such substances exist unless it has
received a Phase I environmental report and such report reveals no environmental
problems, or such Mortgaged Property is subject to an environmental
rehabilitation for which the Seller is not responsible.
After an SBA Loan has become a Liquidated SBA Loan, the Servicer shall
promptly prepare and forward to the Trustee and the SBA and upon request, any
Certificateholder, a Liquidation Report, in the form attached hereto as Exhibit
J, detailing the Liquidation Proceeds received from the Liquidated SBA Loan,
expenses incurred with respect thereto, and any loss incurred in connection
therewith.
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Section 5.03. Establishment of Principal and Interest Accounts;
Deposits in Principal and Interest Accounts.
(a) The Servicer shall cause to be established and maintained
one or more Principal and Interest Accounts, in one or more Designated
Depository Institutions, in the form of time deposit or demand accounts, which
may be interest-bearing or such accounts may be trust accounts wherein the
moneys therein are invested in Permitted Instruments, titled "Business Loan
Center, Inc., in trust for the registered holders of Business Loan Center, SBA
Loan-Backed Adjustable Rate Certificates, Series 1998-1, Class A and Class B."
Such Principal and Interest Accounts shall be insured by the BIF or SAIF
administered by the FDIC to the maximum extent provided by law. The creation of
any Principal and Interest Account shall be evidenced by a letter agreement in
the form of Exhibit C hereto.
A copy of such letter agreement shall be furnished to the
Trustee, the SBA and, upon request, any Certificateholder.
(b) The Servicer and each Subservicer shall deposit without
duplication (within two Business Days of receipt thereof) in the Principal and
Interest Account and retain therein:
(i) the Unguaranteed Percentage of all payments
received after the Cut-Off Date on account of principal on the
SBA Loans, including the Unguaranteed Percentage of all Excess
Payments, Principal Prepayments and Curtailments collected
after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on
account of interest on the SBA Loans (net of the portion
thereof required to be paid to the related Registered Holders,
the Premium Protection Fee, the FTA's Fee and the Servicing
Fee with respect to each SBA Loan, the Additional Fee with
respect to each Additional Fee SBA Loan, and other servicing
compensation payable to the Servicer as permitted herein);
(iii) the Unguaranteed Percentage of all Net
Liquidation Proceeds;
(iv) the Unguaranteed Percentage of all Insurance
Proceeds (other than amounts to be applied to restoration or
repair of any related Mortgaged Property, or to be released to
the Obligor in accordance with customary servicing
procedures);
(v) the Unguaranteed Percentage of all Released
Mortgaged Property Proceeds;
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(vi) any amounts paid in connection with the
repurchase of the Unguaranteed Interest of any SBA Loan and
the amount of any Substitution Adjustment received pursuant to
Sections 2.05 and 3.03;
(vii) any amount required to be deposited in the
Principal and Interest Account pursuant to Section 5.10; and
(viii) the amount of any losses incurred in
connection with investments in Permitted Instruments.
(c) The foregoing requirements for deposit in the Principal
and Interest Account shall be exclusive, it being understood and agreed that,
without limiting the generality of the foregoing, payments with respect to the
Guaranteed Interest, the Premium Protection Fee, the FTA's Fee and the Servicing
Fee, with respect to each SBA Loan and the Additional Fee with respect to each
Additional Fee SBA Loan, together with the difference between any Liquidation
Proceeds and the related Net Liquidation Proceeds, need not be deposited by the
Servicer in the Principal and Interest Account.
(d) Any interest earnings on funds held in the Principal and
Interest Account paid by a Designated Depository Institution shall be for the
account of the Servicer and may only be withdrawn from the Principal and
Interest Account by the Servicer immediately following its monthly remittance to
the Trustee pursuant to Section 5.04(a). Any reference herein to amounts on
deposit in the Principal and Interest Account shall refer to amounts net of such
investment earnings.
Section 5.04. Permitted Withdrawals From the Principal and Interest
Account
The Servicer shall withdraw funds from the Principal and Interest
Account for the following purposes:
(a) to effect the remittance to the Trustee on each
Determination Date for deposit in the Certificate Account, the portion of the
Available Funds for the related Remittance Date that is net of Compensating
Interest, Monthly Advances and amounts then on deposit in the Spread Account;
(b) to reimburse itself for any accrued unpaid Servicing Fees
and Premium Protection Fees allocable to the SBA Loans, unreimbursed Monthly
Advances and for unreimbursed Servicing Advances to the extent deposited in the
Principal and Interest Account (and not netted from Monthly Payments received).
The Servicer's right to reimbursement for unpaid Servicing Fees and, except as
provided in the following sentence, Servicing Advances and Monthly Advances
shall be limited to Liquidation Proceeds, Released Mortgaged Property Proceeds,
Insurance Proceeds and such other amounts as may be collected by the Servicer
from the Obligor or otherwise relating to the SBA Loan in respect of which such
unreimbursed amounts are owed. The Servicer's right to reimbursement for
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Servicing Advances and Monthly Advances in excess of such amounts shall be
limited to any late collections of interest received on the SBA Loans generally,
including Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and any other amounts;
(c) to withdraw any amount received from an Obligor that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction;
(d) (i) to make investments in Permitted Instruments and (ii)
to pay to itself, as permitted by Section 5.03(d), interest paid in respect of
Permitted Instruments or by a Designated Depository Institution on funds
deposited in the Principal and Interest Account;
(e) to withdraw any funds deposited in the Principal and
Interest Account that were not required to be deposited therein or were
deposited therein in error;
(f) to pay itself servicing compensation pursuant to Section
7.03 hereof or interest as permitted under the definition of Excess Proceeds;
and
(g) to clear and terminate the Principal and Interest Account
upon the termination of this Agreement.
So long as no default or Event of Default shall have occurred
and be continuing, and consistent with any requirements of the Code, the
Principal and Interest Account shall either be maintained with a Designated
Depository Institution as an interest-bearing account meeting the requirements
set forth in Section 5.03(a), or the funds held therein may be invested by the
Servicer (to the extent practicable) in Permitted Instruments, as directed in
writing by the Servicer. In either case, funds in the Principal and Interest
Account must be available for withdrawal without penalty, and any Permitted
Instruments must mature not later than the Business Day immediately preceding
the Determination Date next following the date of such investment (except that
if such Permitted Instrument is an obligation of the institution that maintains
such account, then such Permitted Instrument shall mature not later than such
Determination Date) and shall not be sold or disposed of prior to its maturity.
All Permitted Instruments must be held by or registered in the name of "Business
Loan Center, Inc. in trust for the registered holders of Business Loan Center
SBA Loan-Backed Adjustable Rate Certificates, Series 1998-1." All interest or
other earnings from funds on deposit in the Principal and Interest Account (or
any Permitted Instruments thereof) shall be the exclusive property of the
Servicer, and may be withdrawn from the Principal and Interest Account pursuant
to clause (d) above. The amount of any losses incurred in connection with the
investment of funds in the Principal and Interest Account in Permitted
Instruments shall be deposited in the Principal and Interest Account by the
Servicer from its own funds immediately as realized without reimbursement
therefor.
Section 5.05. [Intentionally Omitted]
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Section 5.06. Transfer of Accounts.
The Servicer may, upon written notice to the Trustee and the
SBA, transfer any Principal and Interest Account to a different Designated
Depository Institution.
Section 5.07. Maintenance of Hazard Insurance.
The Servicer shall comply with the SBA Rules and Regulations
concerning the issuance and maintenance of fire and hazard insurance with
extended coverage customary in the area where the Mortgaged Property is located.
If at origination of an SBA Loan, to the best of the Servicer's knowledge after
reasonable investigation, the related Mortgaged Property is in an area
identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available)
consistent with the SBA Rules and Regulations, the Servicer will require the
related Obligor to purchase a flood insurance policy with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(i) the full insurable value of the Mortgaged Property, or (ii) the maximum
amount of insurance available under the National Flood Insurance Act of 1968, as
amended. The Servicer shall also maintain, to the extent such insurance is
available, and required by the SBA Rules and Regulations and the Servicer's
policies on Foreclosed Property constituting real property, fire and hazard
insurance in the amounts described above and liability insurance. Any amounts
collected by the Servicer under any such policies (other than amounts to be
applied to the restoration or repair of the Mortgaged Property, or to be
released to the Obligor in accordance with the SBA Rules and Regulations) shall
be deposited in the Principal and Interest Account, subject to withdrawal
pursuant to Section 5.04. It is understood and agreed that no earthquake or
other additional insurance need be required by the Servicer of any Obligor or
maintained on Foreclosed Property, other than pursuant to such applicable laws
and regulations as shall at any time be in force and as shall require such
additional insurance. All policies required hereunder shall be endorsed with
standard mortgagee clauses with losses payable to the Servicer or its
affiliates.
Section 5.08. [Intentionally Omitted]
Section 5.09. Fidelity Bond.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy,
in a minimum amount equal to $500,000, and a maximum deductible of $25,000, if
commercially available, with coverage on all employees acting in any capacity
requiring such persons to handle funds, money, documents or papers relating to
the SBA Loans ("Servicer Employees"). The fidelity bond shall insure the
Trustee, its officers and employees against losses resulting from forgery,
theft, embezzlement or fraud by such Servicer Employees. The errors and
omissions policy shall insure against losses resulting from the errors,
omissions and negligent acts of such Servicer Employees. No provision of this
Section 5.09 requiring such fidelity bond and errors and omissions insurance
shall relieve the Servicer from its duties as set forth in this Agreement. Upon
the request of the Trustee, the SBA or any Certificateholder, the Servicer shall
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cause to be delivered to the Trustee, the SBA or such Certificateholder a
certified true copy of such fidelity bond and insurance policy. The current
issuer of such fidelity bond is Travelers Casualty and Surety and the current
issuer of such insurance policy is Lloyds of London.
Section 5.10. Title, Management and Disposition of Foreclosed Property
In the event that title to a Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (a "Foreclosed Property"), the
deed or certificate of sale may be taken in the name of the Trustee on behalf of
the Trust Fund for the benefit of the Certificateholders and the SBA, as their
interests may appear under the Multi-Party Agreement dated the date of this
Agreement.
Unless the servicing of a Foreclosed Property relating to an SBA ss.
7(a) Loan is assumed by the SBA pursuant to the SBA Rules and Regulations, the
Servicer, subject to Sections 5.01 and 5.02 hereof, shall manage, conserve,
protect and operate each Foreclosed Property for the SBA and the
Certificateholders solely for the purpose of its prudent and prompt disposition
and sale. The Servicer shall, either itself or through an agent selected by the
Servicer, manage, conserve, protect and operate the Foreclosed Property in the
same manner that it manages, conserves, protects and operates other foreclosed
property for its own account, and in the same manner that similar property in
the same locality as the Foreclosed Property is managed. The Servicer shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Servicer deems to be in the best interest of the SBA and the
Certificateholders.
The Servicer shall cause to be deposited in the Principal and Interest
Account, no later than five Business Days after the receipt thereof, the
Unguaranteed Percentage of all revenues received with respect to the
conservation and disposition of the related Foreclosed Property net of Servicing
Advances.
The disposition of Foreclosed Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer,
with SBA concurrence (if required by the SBA Rules and Regulations), deems to be
in the best interest of the SBA and the Certificateholders. The Unguaranteed
Percentage of the proceeds of sale of the Foreclosed Property shall promptly,
but in no event later than two Business Days after receipt, be deposited in the
Principal and Interest Account as received from time to time and, as soon as
practicable thereafter, the expenses of such sale shall be paid. The Servicer
shall, subject to Section 5.04, reimburse itself for any related unreimbursed
Servicing Advances, unpaid Servicing Fees and unreimbursed Monthly Advances, and
the Servicer shall deposit in the Principal and Interest Account the
Unguaranteed Percentage of the net cash proceeds of such sale to be distributed
to the Certificateholders in accordance with Section 6.07 hereof.
In the event any Mortgaged Property is acquired as aforesaid or
otherwise in connection with a default or imminent default on an SBA Loan, the
Servicer shall dispose of such Mortgaged Property within two years after its
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acquisition unless the Servicer and the Trustee shall have received an Opinion
of Counsel also addressed to the SBA to the effect that such longer retention
will not cause the Trust Fund to be subject to Federal income tax.
Section 5.11. [Intentionally Omitted.]
Section 5.12. Collection of Certain SBA Loan Payments.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the SBA Loans, and shall cause the
Obligors under the SBA Loans, to the extent such procedures shall be consistent
with this Agreement, to comply with the terms and provisions of any applicable
hazard insurance policy. Consistent with the foregoing and the SBA Rules and
Regulations, the Servicer may in its discretion waive or permit to be waived any
fee or charge (other than the Servicing Fee, without the written consent of the
SBA) which the Servicer would be entitled to retain hereunder as servicing
compensation and extend the due date for payments due on an SBA Note for a
period (with respect to each payment as to which the due date is extended) not
greater than 180 days after the initially scheduled due date for such payment
provided that the Servicer determines such extension would not be considered a
new mortgage loan for federal income tax purposes. In the event the Servicer
shall consent to the deferment of the due dates for payments due on an SBA Note,
the Servicer shall nonetheless make payment of any required Monthly Advance with
respect to the payments so extended to the same extent as if such installment
were due, owing and delinquent and had not been deferred, and shall be entitled
to reimbursement therefor in accordance with Section 5.04(b) hereof.
Section 5.13. Access to Certain Documentation and Information
Regarding the SBA Loans.
The Servicer shall provide to the Trustee and the SBA access to the
documentation regarding the SBA Loans required by applicable local, state and
federal regulations, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer designated by it.
Section 5.14. Superior Liens.
If the Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by a Prior Lien, or
has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Servicer shall take, on
behalf of the SBA and the Trust Fund, whatever actions are necessary to protect
the interests of the Certificateholders and the SBA, and/or to preserve the
security of the related SBA Loan. The Servicer shall immediately notify the
Trustee, the Rating Agency and the SBA of any such action or circumstances. The
Servicer will advance the necessary funds to cure the default or reinstate the
superior lien, if such advance is in the best interests of the
Certificateholders and the SBA. The Servicer shall thereafter take such action
as is necessary to recover the amount so advanced.
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ARTICLE VI
PAYMENTS TO THE CERTIFICATEHOLDERS
Section 6.01. Establishment of Certificate Account; Deposits in
Certificate Account; Permitted Withdrawals from
Certificate Account.
(a) No later than the Closing Date, the Trustee will establish
and maintain with itself in its trust department a trust account, which shall
not be interest-bearing, titled "Certificate Account, Marine Midland Bank, as
trustee for the registered holders of Business Loan Center SBA Loan-Backed
Adjustable Rate Certificates, Series 1998-1, Class A and Class B" (the
"Certificate Account"). The Trustee shall, promptly upon receipt, deposit in the
Certificate Account and retain therein:
(i) the Available Funds (net of the amount of Monthly
Advances and Compensating Interest deposited pursuant to
subclause (ii) below and amounts then on deposit in the Spread
Account) remitted by the Servicer;
(ii) the Compensating Interest and the portion of the
Monthly Advance remitted to the Trustee by the Servicer;
(iii) amounts transferred from the Spread Account
pursuant to Section 6.02(b)(i);
(iv) amounts required to be paid by the Servicer
pursuant to Section 6.06(e) in connection with losses on
investments of amounts in the Certificate Account; and
(v) amounts transferred from the Pre-Funding Account
pursuant to Section 6.04 and the Capitalized Interest Account
pursuant to Section 6.05, respectively.
(b) Amounts on deposit in the Certificate Account shall be withdrawn on
each Remittance Date by the Trustee, or the Paying Agent, on its behalf, to
effect the distribution described in Section 6.07(b) and thereafter by the
following parties in no particular order of priority:
(i) by the Trustee, to invest amounts on deposit in
the Certificate Account in Permitted Instruments pursuant to
Section 6.06;
(ii) by the Trustee, to pay on a monthly basis to the
Servicer as additional servicing compensation interest paid
and earnings realized on Permitted Instruments;
(iii) by the Trustee, to withdraw any amount not
required to be deposited in the Certificate Account or
deposited therein in error; and
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(iv) by the Trustee, to clear and terminate the
Certificate Account upon the termination of this Agreement in
accordance with the terms of Section 11.01 hereof.
Section 6.02. Establishment of Spread Account; Deposits in
Spread Account; Permitted Withdrawals from Spread
Account.
(a) No later than the Closing Date, the Trustee will establish
with the Spread Account Custodian an Account in accordance with the terms of the
Spread Account Agreement (the "Spread Account"). The Spread Account shall be the
property of the Spread Account Depositor, subject to the terms hereof and of the
Spread Account Agreement, and the funds held therein may be invested in
Permitted Instruments. The Spread Account shall not constitute part of the Trust
Fund. The Trustee or the Spread Account Custodian, as the case may be, shall,
promptly upon receipt, deposit into the Spread Account or, in the case of the
Trustee, transfer to the Spread Account Custodian for deposit in the Spread
Account:
(i) on the Closing Date, the Initial Spread Account
Deposit made by the Spread Account Depositor;
(ii) on each Remittance Date, that portion of the
Available Funds, if any, required to be deposited into the
Spread Account pursuant to Section 6.07(b)(iii) until the
Spread Account Balance equals the then applicable Specified
Spread Account Requirement; and
(iii) amounts required to be paid by the Servicer
pursuant to Section 6.06(e) in connection with losses on
investments of amounts in the Spread Account.
(b) Amounts on deposit in the Spread Account shall be
withdrawn by the Spread Account Custodian and transferred to the Trustee for
distribution in the manner set forth in subclause (c) below on each Remittance
Date in the following order of priority:
(i) to deposit in the Certificate Account an amount
by which (a) the sum of the Class A Interest Distribution
Amount, the Class A Principal Distribution Amount and the
Class A Carry Forward Amount exceeds (b) the Available Funds
for such Remittance Date (but excluding from such definition
of Available Funds, amounts in the Spread Account); and
(ii) to the extent that the amount then on deposit in
the Spread Account after giving effect to all required
transfers from the Spread Account to the Certificate Account
on such Remittance Date then exceeds the Specified Spread
Account Requirement as of such Remittance Date (such excess, a
"Spread Account Excess"), an amount equal to such Spread
Account Excess shall be distributed by the Spread Account
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Custodian to the Certificate Account to pay interest and
principal to the Class B Certificateholders, as payment of the
Trustee's fees and expenses, to pay the Servicer up to the
Reimbursable Amounts and then to the Spread Account Depositor
in the priority as set forth in Section 6.07(b);
and also, in no particular order of priority:
(iii) to invest amounts on deposit in the Spread
Account in Permitted Instruments pursuant to Section 6.06;
(iv) to withdraw any amount not required to be
deposited in the Spread Account or deposited therein in error;
and
(v) to clear and terminate the Spread Account upon
the termination of this Agreement in accordance with the terms
of Section 11.01.
(c) Any amounts which are required to be withdrawn from the
Spread Account pursuant to paragraph (b) above shall be withdrawn from the
Spread Account in the following order of priority: (i) first, from any
uninvested funds therein, and (ii) second, from the proceeds of the liquidation
of any investments therein pursuant to Section 6.06(b).
(d) Any amounts which are distributed by the Spread Account
Custodian to the Spread Account Depositor pursuant to paragraph (b)(ii) above
will not be required to be refunded, regardless of whether there are sufficient
funds on a subsequent Remittance Date to make a full distribution to holders of
the Certificates on such Remittance Date.
Section 6.03. Establishment of Expense Account; Deposits in
Expense Account; Permitted Withdrawals from Expense
Account
(a) No later than the Closing Date, the Trustee will establish
with itself an account for the benefit of the Trustee to pay its fees and
expenses related to the Trust Fund (the "Expense Account"). The Expense Account
shall not constitute part of the Trust Fund and is for the benefit of the
Trustee and, on a subordinate basis, for the benefit of the Servicer as
described in (b)(ii) and (c) below. The Trustee shall deposit into the Expense
Account:
(i) on each Remittance Date from the amounts on
deposit in the Certificate Account or as stated in Section
6.02(b)(ii), an amount equal to one-twelfth of the Annual
Expense Escrow Amount; and
(ii) upon receipt, amounts required to be paid by the
Servicer pursuant to Section 6.06(e) in connection with losses
on investments of amounts in the Expense Account.
If, at any time the amount then on deposit in the Expense Account shall be
insufficient to pay in full the fees and expenses of the Trustee then due, the
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Trustee shall make demand on the Servicer to advance the amount of such
insufficiency, and the Servicer shall promptly advance such amount to the
Trustee. Thereafter, the Servicer shall be entitled to reimbursement from the
Expense Account for the amount of any such advance from any excess funds
available pursuant to subclause (c)(ii) below. Without limiting the obligation
of the Servicer to advance such insufficiency, in the event the Servicer does
not advance the full amount of such insufficiency by the Business Day
immediately preceding the Determination Date, the amount of such insufficiency
shall be deposited into the Expense Account for payment to the Trustee pursuant
to Section 6.07(b)(vi), to the extent of available funds in the Certificate
Account.
(b) The Trustee, at the direction of the Servicer, may invest
amounts on deposit in the Expense Account in Permitted Instruments pursuant to
Section 6.06 hereof, and the Trustee shall withdraw amounts on deposit in the
Expense Account to:
(i) pay the Trustee's fees and expenses as described
in Section 2.08 hereof;
(ii) pay on a monthly basis to the Servicer as
additional servicing compensation interest paid and earnings
realized on Permitted Instruments;
(iii) withdraw any amounts not required to be
deposited in the Expense Account or deposited therein in
error; and
(iv) clear and terminate the Expense Account upon the
termination of this Agreement in accordance with the terms of
Section 11.01.
(c) On the twelfth Remittance Date following the Closing Date,
and on each twelfth Remittance Date thereafter, the Trustee shall determine that
all payments required to be made during the prior twelve month period pursuant
to subclauses (b)(i), (b)(ii) and (b)(iii) above, have been made, and, if all
such payments have been made, from the amounts remaining in the Expense Account,
the Trustee shall (in the following order of priority):
(i) reimburse the Servicer and/or the Seller, for
reimbursable advances made pursuant to Section 9.01;
(ii) reimburse the Servicer for advances made by it
pursuant to the last paragraph of subclause (a) above; and
(iii) remit to the Servicer as additional servicing
compensation any amounts remaining in the Expense Account
after payments made pursuant to subclauses (b)(i), (b)(ii),
(b)(iii), (c)(i) and (c)(ii), above.
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Section 6.04. Establishment of Pre-Funding Account; Deposits in
Pre-Funding Account; Permitted Withdrawals from
Pre-Funding Account.
(a) No later than the Closing Date, the Spread Account
Depositor shall establish and maintain with the Trustee in its trust department
a trust account, which shall not be interest-bearing, titled "Business Loan
Center SBA Pre-Funding Account 1998-1" (the "Pre-Funding Account"). The
Pre-Funding Account shall not constitute part of the Trust Fund. The Spread
Account Depositior shall be deemed the owner of the Pre-Funding Account for
Federal income tax purposes. The Trustee shall, promptly upon receipt, deposit
into the Pre-Funding Account and retain therein the Original Pre-Funded Amount
from the proceeds of the sale of the Certificates.
(b) On each Subsequent Transfer Date, the Servicer shall
instruct the Trustee to withdraw from the Pre-Funding Account an amount equal to
100% of the aggregate Principal Balances of the Subsequent SBA Loans as of the
related Subsequent Cut-Off Date sold to the Trust Fund on such Subsequent
Transfer Date and pay such amount to or upon the order of the Seller with
respect to such transfer.
(c) If at the end of the Funding Period amounts still remain
in the Pre-Funding Account, the Servicer shall instruct the Trustee to withdraw
from the Pre-Funding Account on the immediately following Remittance Date and
deposit such amounts in the Certificate Account. However, if at the close of
business on March 26, 1999, amounts still remain in the Pre-Funding Account, the
Servicer shall instruct the Trustee to withdraw from the Pre-Funding Account on
the Special Remittance Date and deposit in the Certificate Account any
Pre-Funded Amount then remaining in the Pre-Funding Account, and then the
Pre-Funding Account shall be closed.
(d) On the Remittance Dates occurring in January 1999,
February 1999 and March 1999, the Trustee shall transfer from the Pre-Funding
Account to the Certificate Account, the Pre-Funding Earnings, if any, applicable
to each such Remittance Date.
Section 6.05. Establishment of Capitalized Interest Account;
Deposits in Capitalized Interest Account; Permitted
Withdrawals from Capitalized Interest Account.
(a) No later than the Closing Date, the Seller shall
establish and maintain with the Trustee in its trust department a trust account,
which shall not be interest bearing, titled "Business Loan Center SBA
Capitalized Interest Account 1998-1" (the "Capitalized Interest Account"). The
Capitalized Interest Account shall not constitute part of the Trust Fund. The
Seller shall be deemed the owner of the Capitalized Interest Account for Federal
income tax purposes. The Trustee shall, promptly upon receipt, deposit into the
Capitalized Interest Account $59,625.00. If prior to the end of the Funding
Period the funds on deposit in the Pre-Funding Account are invested in a
guaranteed investment contract, repurchase agreement or other arrangement
acceptable to the Rating Agency, that constitutes a Permitted Instrument, the
Trustee shall, within one Business Day of its receipt of notification of
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satisfaction of the Rating Agency Condition, withdraw from the Capitalized
Interest Account and pay to the Seller the amount set forth in such
notification.
(b) On each Subsequent Transfer Date the Seller may instruct
the Trustee to withdraw from the Capitalized Interest Account and pay on such
Subsequent Transfer Date to the Seller the Overfunded Interest Amount for such
Subsequent Transfer Date, as calculated by the Seller pursuant to Section
2.09(e) hereof.
(c) On the Remittance Dates occurring in January 1999,
February 1999 and March 1999 the Trustee shall transfer from the Capitalized
Interest Account to the Certificate Account, the Capitalized Interest
Requirement, if any, for such Remittance Dates.
(d) On the Special Remittance Date, the Trustee shall
transfer from the Capitalized Interest Account to the Certificate Account the
Capitalized Interest Requirement, if any, for such Special Remittance Date. Any
amounts remaining in the Capitalized Interest Account after taking into account
such transfer shall be paid on such Special Remittance Date to the Seller, and
the Capitalized Interest Account shall be closed.
Section 6.06. Investment of Accounts.
(a) So long as no default or Event of Default shall have
occurred and be continuing, and consistent with any requirements of the Code,
all or a portion of any Account which is not by the terms of this Agreement to
be held uninvested by the Trustee or the Spread Account Custodian shall be
invested and reinvested by the Trustee or the Spread Account Custodian, as
directed in writing by the Servicer, in one or more Permitted Instruments in the
name of the Trustee or the Spread Account Custodian, as the case may be, bearing
interest or sold at a discount. No such investment in the Certificate Account,
the Pre-Funding Account, the Capitalized Interest Account, the Expense Account
and the Spread Account shall mature later than the Business Day immediately
preceding the next Remittance Date and no such investment in the Expense Account
shall mature later than the Business Day immediately preceding the date such
funds will be needed to pay fees or premiums; provided, however, the Trustee or
any affiliate thereof, may be the obligor on any investment which otherwise
qualifies as a Permitted Instrument and any investment on which the Trustee is
the obligor may mature on such Remittance Date or date when needed, as the case
may be.
(b) If any amounts are needed for disbursement from any
Account held by the Trustee or the Spread Account Custodian and sufficient
uninvested funds are not available to make such disbursement, the Trustee or the
Spread Account Custodian, as the case may be, shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Account. Neither the Trustee nor the Spread Account Custodian shall be liable
for any investment loss or other charge resulting therefrom.
(c) Subject to Section 12.01 hereof, neither the Trustee nor
the Spread Account Custodian shall in any way be held liable by reason of any
insufficiency in any Account held by the Trustee or the Spread Account Custodian
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resulting from any investment loss on any Permitted Instrument included therein
(except to the extent that the Trustee is the obligor thereon).
(d) The Trustee and the Spread Account Custodian shall invest
and reinvest funds in the Accounts held by the Trustee or the Spread Account
Custodian, to the fullest extent practicable, in such manner as the Servicer
shall from time to time direct in writing, but only in one or more Permitted
Instruments, provided, however that any amounts held uninvested in the
Pre-Funding Account shall be, as soon as practicable, invested in one or more
Permitted Instruments.
(e) All income or other gain from investments in any Account
held by the Trustee or the Spread Account Custodian shall be deposited in such
Account, as the case may be, immediately on receipt, and the Trustee or the
Spread Account Custodian shall notify the Servicer of any loss resulting from
such investments. The Servicer shall remit the amount of any such loss, from its
own funds, without reimbursement therefor, to the Trustee or the Spread Account
Custodian, as the case may be, for deposit in the Account from which the related
funds were withdrawn for investment by the next Determination Date following
receipt by the Servicer of such notice.
Section 6.07. Distributions.
(a) The rights of the Certificateholders to receive
distributions from the proceeds of the Trust Fund, and all ownership interests
of the Certificateholders in such distributions, shall be as set forth in this
Agreement.
(b) On each Remittance Date the Trustee shall withdraw from
the Certificate Account the sum of (A) that portion of the Available Funds
received from the Servicer pursuant to Section 6.01(a)(i), (B) the amounts
received pursuant to Section 6.01(a)(ii) and (iv) and (C) the amounts deposited
therein pursuant to Section 6.02(b)(i), and make distributions thereof in the
following order of priority:
(i) First, to the Class A Certificates in an amount
up to the Class A Interest Distribution Amount;
(ii) Second, to the Class A Certificates in an amount
up to the sum of (a) the Class A Principal Distribution Amount
and (b) the Class A Carry Forward Amount;
(iii) Third, to the Spread Account, any remaining
Available Funds unless and until the amount therein equals the
Specified Spread Account Requirement;
(iv) Fourth, to the Class B Certificates in an amount
up to the Class B Interest Distribution Amount minus the Class
Carry Forward Interest Amount for the Class B Certificates;
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(v) Fifth, to the Class B Certificates, in an amount
up to the sum of (a) the Class B Principal Distribution Amount
and (b) the Class B Carry Forward Amount;
(vi) Sixth, to the Expense Account in an amount up to
one-twelfth of the Annual Expense Escrow Amount plus any
amount required to be paid to the Trustee pursuant to Section
6.03(a) resulting from insufficiencies in the Expense Account;
(vii) Seventh, to the Class B Certificates, the
Class Carry Forward Interest Amount for the Class B
Certificates;
(viii) Eighth, to the Servicer in an amount up to
the Reimbursable Amounts;
(ix) Ninth, any remaining amounts to the Spread
Account Depositor.
Additionally, on the Special Remittance Date, the Trustee shall
withdraw from the Certificate Account the amount, if any, deposited therein
pursuant to Section 6.01(a)(v) and make distributions thereof as follows: from
amounts transferred from the Pre-Funding Account, distributions of principal to
the Class A and Class B Certificates pro rata based upon the Class A and Class B
Percentages.
(c) All distributions made to the Certificateholders of a
particular Class will be made on a pro rata basis among the Certificateholders
of record of the applicable Class on the next preceding Record Date based on the
Percentage Interest represented by their respective Certificates on such date,
and shall be made by check or, upon request by a Certificateholder, by wire
transfer of immediately available funds to the account of such Certificateholder
at a bank or other entity having appropriate facilities therefor, and, in the
case of wire transfers, at the expense of such Certificateholder unless such
Certificateholder shall own of record Certificates which have initial
Certificate Principal Balances aggregating at least $5,000,000.
Section 6.08. [Intentionally Omitted]
Section 6.09. Statements.
Each month, not later than 12:00 noon New York time on the
Determination Date, the Servicer shall deliver to the Trustee, by telecopy, for
distribution to the Certificateholders, the receipt and legibility of which
shall be confirmed telephonically, with hard copy thereof and the Servicer's
Monthly Computer Tape in the form attached hereto as Exhibit L (both in hard
copy and in computer tape form) to be delivered on the Business Day following
the Determination Date, a certificate signed by a Servicing Officer (a
"Servicer's Certificate") stating the date (day, month and year), the Series
number of the Certificates, the date of this Agreement, and, as of the close of
business on the Record Date for such month:
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(i) Available Funds for the related Remittance Date,
in the aggregate and by component;
(ii) The Aggregate Class A Certificate Principal
Balance, the Aggregate Class B Certificate Principal Balance
and the Pool Principal Balance as reported in the prior
Servicer's Certificate pursuant to subclause (xii) below, or,
in the case of the first Determination Date, the Original
Class A and Class B Certificate Principal Balance and the
Original Pool Principal Balance;
(iii) The number and Principal Balances of all SBA
Loans which were the subject of Principal Prepayments during
the Due Period and the number and Principal Balances of all
Defaulted SBA Loans purchased by the Servicer during the Due
Period;
(iv) The product of the Unguaranteed Percentage
multiplied by all Curtailments which were received during the
Due Period;
(v) The product of the Unguaranteed Percentage
multiplied by all Excess Payments and the product of the
Unguaranteed Percentage multiplied by all Monthly Payments in
respect of principal received during the Due Period;
(vi) The aggregate amount of interest received on
each SBA Loan net of the FTA's Fee, the Premium Protection
Fee, the Additional Fee and the portion thereof payable to the
Registered Holders;
(vii) The amount of the Monthly Advances to be made
on the Determination Date and the Compensating Interest
payment to be made on the Determination Date;
(viii) The delinquency and foreclosure information
set forth in the form attached hereto as Exhibit K;
(ix) The product of the Unguaranteed Percentage
multiplied by the amount of any losses realized on a
Liquidated SBA Loan;
(x) The Class A and Class B Interest Distribution
Amounts and Principal Distribution Amounts for the Remittance
Date with the components thereof stated separately;
(xi) The amount, if any, to be transferred from the
Spread Account to the Certificate Account pursuant to Section
6.02(b)(i);
(xii) The Aggregate Class A Certificate Principal
Balance, Aggregate Class B Certificate Principal Balance and
the Pool Principal Balance after giving effect to the
distribution to be made on the Remittance Date;
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(xiii) The Excess Spread, the Spread Account Balance
and the Specified Spread Account Requirement with respect to
such Remittance Date;
(xiv) The weighted average maturity and weighted
average SBA Loan Interest Rate;
(xv) The Servicing Fees and amounts to be deposited
to the Expense Account;
(xvi) The amount of all payments and reimbursements
to the Servicer pursuant to Section 5.04 (b), (c), (d)(ii),
(e) and (f);
(xvii) The Class A and Class B Remittance Rates with
respect to such Remittance Date;
(xviii) During the Funding Period, the aggregate
Principal Balance of the Subsequent SBA Loans purchased during
the prior Due Period and the amount on deposit in the
Pre-Funding Account and the Capitalization Interest Account as
of the end of such Due Period; and
(xix) Such other information as the
Certificateholders, the Trustee or the Rating Agency may
reasonably require; provided, however, that the Servicer shall
have no obligation to distribute such information directly to
any Certificateholder.
The Trustee shall forward such report to the Certificateholders and the
Rating Agency on the Remittance Date, together with a separate report indicating
the amount of funds deposited in the Certificate Account pursuant to Section
6.01(a)(iv); and the amounts which are reimbursable to the Servicer or the
Seller pursuant to Sections 6.03(c)(i), 6.03(c)(ii) and 6.07(b)(viii) (all
reports prepared by the Trustee of such withdrawals and deposits will be based
in whole or in part upon the information provided to the Trustee by the
Servicer).
To the extent that there are inconsistencies between the telecopy of
the Servicer's Certificate and the hard copy thereof, the Trustee shall be
entitled to rely upon the telecopy. In the case of information furnished
pursuant to subclauses (ii), (iii), (iv), (v), (x) and (xii), above, the amounts
shall be expressed in a separate section of the report as a dollar amount for
each Class per $1,000 original dollar amount as of the Cut-Off Date.
Additionally, on the Special Remittance Date the Trustee shall, based
upon information received from the Servicer, forward to the Certificateholders
and the Rating Agency a report setting forth the amount of principal and
interest, if any, being paid to each Class of Certificates on the Special
Remittance Date.
(a) Within a reasonable period of time after the end of each
calendar year, the Servicer shall furnish to the Trustee for distribution to
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each Person who at any time during the calendar year was a Certificateholder
such information as is reasonably necessary to provide to such Person a
statement containing the information set forth in subclauses (vi), (x), and
(xiv), above, aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the
Servicer shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Servicer pursuant to any
requirements of the Code as from time to time are in force.
(b) Upon reasonable advance notice in writing, the Servicer
will provide to each Certificateholder which is a savings and loan association,
bank or insurance company certain reports and access to information and
documentation regarding the SBA Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the Office of Thrift
Supervision or other regulatory authorities with respect to investment in the
Certificates.
(c) The Servicer shall furnish to each Certificateholder,
during the term of this Agreement, such periodic, special, or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable, or appropriate with respect to the Certificateholder or otherwise
with respect to the purposes of this Agreement, all such reports or information
to be provided by and in accordance with such applicable instructions and
directions as the Certificateholder may reasonably require; provided, that the
Servicer shall be entitled to be reimbursed by such Certificateholder for the
Servicer's actual expenses incurred in providing such reports if such reports
are not producible in the ordinary course of the Servicer's business. The Rating
Agency shall receive copies of any such reports or information furnished to the
Certificateholders.
Section 6.10. Advances by the Servicer.
Not later than the close of business on each Determination Date, the
Servicer may in its sole discretion, if it determines such amount is
recoverable, remit to the Trustee for deposit in the Certificate Account an
amount (as indicated in the Servicer's Certificate prepared pursuant to Section
6.09), to be distributed on the related Remittance Date pursuant to Section
6.07, equal to the amount by which (i) 30 days' interest at a rate equal to the
then applicable Adjusted SBA Loan Remittance Rate on the aggregate Class A and
Class B Principal Balances immediately prior to the related Remittance Date
(plus or minus the difference, if any, between (A) the sum of the Class A and
Class B Interest Distribution Amounts and (B) the sum of the Adjusted Class A
and Adjusted Class B Interest Distribution Amounts for the related Remittance
Date) exceeds (ii) the amount received by the Servicer as of the related Record
Date in respect of interest on the Unguaranteed Interest of the SBA Loans minus
the Servicing Fee allocable to the Unguaranteed Interest (plus, for the
Remittance Dates in January 1999, February 1999 and March 1999, the sum of (i)
all funds to be transferred to the Certificate Account from the Capitalized
Interest Account for such Remittance Date pursuant to Section 6.05(c) and (ii)
the Pre-Funding Earnings for the applicable Remittance Date), the Premium
Protection Fee, the Additional Fee, the Servicing Fee, and the FTA's Fee, such
excess being defined herein as the "Monthly Advance." The Servicer may reimburse
itself for Monthly Advances made pursuant to Section 5.04. Notwithstanding the
foregoing, the Servicer shall not be required to make a Monthly Advance with
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respect to an SBA Loan if it determines, in good faith, that such advance would
be nonrecoverable from amounts received in respect of the SBA Loans.
Section 6.11. Compensating Interest.
The Certificateholders shall be entitled to a full month's interest on
the principal portion of the Unguaranteed Interest of each SBA Loan at the then
applicable Class A or Class B Remittance Rate, as the case may be. Not later
than the close of business on each Determination Date, with respect to each SBA
Loan for which a Principal Prepayment or Curtailment was received during the
related Due Period, the Servicer shall remit to the Trustee for deposit in the
Certificate Account from amounts otherwise payable to it as servicing
compensation, an amount (such amount required to be delivered to the Trustee is
referred to herein as "Compensating Interest") (as indicated in the Servicer's
Certificate prepared pursuant to Section 6.09) equal to the difference between
(a) 30 days' interest at the Adjusted SBA Loan Remittance Rate on the Principal
Balance of each such SBA Loan as of the beginning of the Due Period applicable
to the Remittance Date on which such amount will be distributed, and (b) the
amount of interest actually received on the Unguaranteed Interest of each such
SBA Loan for such Due Period net of the portion thereof payable to the
Registered Holder, the Premium Protection Fee, the FTA's Fee, the Servicing Fee
and the Excess Spread and, with respect to each Additional Fee SBA Loan, the
Additional Fee.
Section 6.12. Reports of Foreclosure and Abandonment of Mortgaged
Property
Each year the Servicer shall make the reports of foreclosures and
abandonments of any Mortgaged Property required by Section 6050J of the Code.
Promptly after filing each such report with the Internal Revenue Service, the
Servicer shall provide the Trustee with an Officer's Certificate certifying that
such report has been filed.
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ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01. [Intentionally Omitted]
Section 7.02. Satisfaction of Mortgages and Collateral and Release
of SBA Files
The Servicer shall maintain the Fidelity Bond as provided for in
Section 5.09 insuring the Servicer against any loss it may sustain with respect
to any SBA Loan not satisfied in accordance with the procedures set forth
herein.
Upon the payment in full of any SBA Loan, or the receipt by the
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Servicer will immediately notify the FTA and
the Trustee by a certification in the form of Exhibit I attached hereto (which
certification shall include a statement to the effect that all amounts received
or to be received in connection with such payment which are required to be
deposited in the Principal and Interest Account pursuant to Section 5.03 have
been or will be so deposited) of a Servicing Officer and shall request delivery
to it of the Trustee's Document File. Upon receipt of such certification and
request, the FTA and the Trustee shall release, within 3 Business Days, the
related Trustee's Document File to the Servicer. Expenses incurred in connection
with any instrument of satisfaction or deed of reconveyance shall be payable
only from and to the extent of servicing compensation and shall not be
chargeable to the Principal and Interest Account or the Certificate Account.
Subject to the Multi-Party Agreement, from time to time and as
appropriate for the servicing or foreclosure of any SBA Loan, the FTA and the
Trustee shall, upon request of the Servicer and delivery to the FTA and the
Trustee of a certification in the form of Exhibit I attached hereto signed by a
Servicing Officer, release the related Trustee's Document File to the Servicer
within 3 Business Days, and the Trustee shall execute such documents as shall be
necessary to the prosecution of any such proceedings. The Servicer shall return
the Trustee's Document File to the FTA and the Trustee when the need therefor by
the Servicer no longer exists, unless the SBA Loan has been liquidated and the
Unguaranteed Percentage of the Liquidation Proceeds relating to the SBA Loan
have been deposited in the Principal and Interest Account and remitted to the
Trustee for deposit in the Certificate Account or the SBA File or such document
has been delivered to an attorney, or to a public trustee or other public
official as required by law, for purposes of initiating or pursuing legal action
or other proceedings for the foreclosure of the Mortgaged Property or other
Collateral either judicially or non-judicially, and the Servicer has delivered
to the FTA and the Trustee a certificate of a Servicing Officer certifying as to
the name and address of the Person to whom such SBA File or such document was
delivered and the purpose or purposes of such delivery. Upon receipt of a
certificate of a Servicing Officer stating that such SBA Loan was liquidated,
the servicing receipt shall be released by the Trustee to the Servicer.
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The Trustee shall execute and deliver to the Servicer any court
pleadings, requests for trustee's sale or other documents provided to it
necessary to the foreclosure or trustee's sale in respect of a Mortgaged
Property or other Collateral or to any legal action brought to obtain judgment
against any Obligor on the SBA Note or Mortgage or other agreement securing
Collateral or to obtain a deficiency judgment, or to enforce any other remedies
or rights provided by the SBA Note or Mortgage or other agreement securing
Collateral or otherwise available at law or in equity. Together with such
documents or pleadings, the Servicer shall deliver to the Trustee a certificate
of a Servicing Officer requesting that such pleadings or documents be executed
by the Trustee and certifying as to the reason such documents or pleadings are
required and that the execution and delivery thereof by the Trustee will not
invalidate or otherwise affect the lien of the Mortgage or other agreement
securing Collateral, except for the termination of such a lien upon completion
of the foreclosure or trustee's sale. The Trustee shall, upon receipt of a
written request from a Servicing Officer, execute any document provided to the
Trustee by the Servicer or take any other action requested in such request, that
is, in the opinion of the Servicer as evidenced by such request, required by any
state or other jurisdiction to discharge the lien of a Mortgage or other
agreement securing Collateral upon the satisfaction thereof and the Trustee will
sign and post, but will not guarantee receipt of, any such documents to the
Servicer, or such other party as the Servicer may direct, within five Business
Days of the Trustee's receipt of such certificate or documents. Such certificate
or documents shall establish to the Trustee's satisfaction that the related SBA
Loan has been paid in full by or on behalf of the Obligor and that such payment
has been deposited in the Principal and Interest Account.
Section 7.03. Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be
entitled to withdraw from the Principal and Interest Account or to retain from
interest payments on the SBA Loans the Servicer's Servicing Fee and the Premium
Protection Fee in accordance with Section 5.04(b). Additional servicing
compensation in the form of assumption and other administrative fees, interest
paid on funds on deposit in the Principal and Interest Account, interest paid
and earnings realized on Permitted Instruments, amounts remitted pursuant to
Section 6.03(c)(iii) and late payment charges shall be retained by or remitted
to the Servicer to the extent not required to be remitted to the Trustee for
deposit in the Certificate Account. The Servicer shall be required to pay all
expenses incurred by it in connection with its servicing activities hereunder
and shall not be entitled to reimbursement therefor except as specifically
provided for herein.
Section 7.04. Annual Statement as to Compliance.
The Servicer will deliver to the Trustee, the SBA and the Rating Agency
on or before September 30 of each year beginning September 30, 1999, an
Officer's Certificate stating that (i) the Servicer has fully complied with the
provisions of Articles V and VII, (ii) a review of the activities of the
Servicer during the preceding calendar year and of performance under this
Agreement has been made under such officer's supervision, (iii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
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default known to such officers and the nature and status thereof and the action
being taken by the Servicer to cure such default and (iv) the Servicer has not
lost its license to originate or sell SBA ss. 7(a) Loans or had its license
suspended. The Seller will deliver to the Trustee on or before September 30 of
each year beginning September 30, 1999 an Officer's Certificate describing the
status of compliance with the requirements under this Agreement. Upon the
reasonable request to the Trustee by a Certificateholder, and at the expense of
the Seller, the Trustee shall deliver to the Certificateholder the above
referenced Officer's Certificates.
Section 7.05. Annual Independent Public Accountants' Servicing
Report
On or before September 30 of each year relating to the fiscal year
ending on the preceding June 30th (commencing with the fiscal year ending June
30, 1999), the Servicer, at its expense, shall cause (i) Richard A. Eisner &
Company, LLP or (ii) a firm of nationally recognized independent public
accountants reasonably acceptable to the Trustee to furnish a letter or letters
to the Trustee and the Rating Agency to the effect that such firm has with
respect to the Servicer's overall servicing operations examined such operations
in accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers, and stating such firm's conclusions relating thereto. Upon the
reasonable request to the Trustee by a Certificateholder, and at the expense of
the Seller, the Trustee shall deliver to the Certificateholder the above
referenced Officer's Certificate.
Section 7.06. SBA's, and Trustee's Right to Examine Servicer Records
and Audit Operations
The SBA and the Trustee shall have the right upon reasonable prior
notice, during normal business hours and as often as reasonably required, to
examine and audit any and all of the books, records or other information of the
Servicer, whether held by the Servicer or by another on behalf of the Servicer,
which may be relevant to the performance or observance by the Servicer of the
terms, covenants or conditions of this Agreement. No amounts payable in respect
of the foregoing shall be paid from the Trust Fund.
Section 7.07. Reports to the Trustee; Principal and Interest Account
Statements.
Not later than 20 days after each Record Date, the Servicer shall
forward to the Trustee and the SBA a statement, certified by a Servicing
Officer, setting forth the status of the Principal and Interest Account as of
the close of business on the preceding Record Date and showing, for the period
covered by such statement, the aggregate of deposits into the Principal and
Interest Account for each category of deposit specified in Section 5.03, the
aggregate of withdrawals from the Principal and Interest Account for each
category of withdrawal specified in Section 5.04, the aggregate amount of
permitted withdrawals not made in the related Due Period, and the amount of any
Monthly Advances or payments of Compensating Interest, in each case, for the
related Due Period.
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Section 7.08. Premium Protection Fee and Servicing Fee .
Pursuant to and in accordance with the policies of the SBA and SBA Form
1086, the Servicer shall retain the Premium Protection Fee and the Servicing Fee
for each SBA ss. 7(a) Loan. The Premium Protection Fee and the Servicing Fee
shall not constitute part of the Trust Fund and Certificateholders shall have no
interest in, and are not entitled to receive any portion of, either the Premium
Protection Fee or the Servicing Fee. If the Servicer is replaced as servicer
pursuant to any provision of this Agreement, it shall no longer be entitled to
the Premium Protection Fee and the Servicing Fee but, instead, the successor
servicer shall be entitled thereto.
<PAGE>
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ARTICLE VIII
REPORTS TO BE PROVIDED BY SERVICER
Section 8.01. Financial Statements.
The Servicer understands that, in connection with the transfer of the
Certificates, Certificateholders may request that the Servicer make available to
prospective Certificateholders the annual audited financial statements of the
Servicer for one or more of the most recently completed five fiscal years, which
request shall not be unreasonably denied.
The Servicer also agrees to make available on a reasonable basis to any
prospective Certificateholder a knowledgeable financial or accounting officer
for the purpose of answering reasonable questions respecting recent developments
affecting the Servicer or the financial statements of the Servicer and to permit
any prospective Certificateholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying such prospective
Certificateholder that the Servicer has the ability to service the SBA Loans in
accordance with this Agreement.
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ARTICLE IX
THE SERVICER
Section 9.01. Indemnification; Third Party Claims.
(a) The Servicer agrees to indemnify and hold the Trustee, the
SBA, and each Certificateholder harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the SBA, and any
Certificateholder may sustain in any way related to the failure of the Servicer
to perform its duties and service the SBA Loans in compliance with the terms of
this Agreement. The Servicer shall immediately notify the Trustee, the SBA and
each Certificateholder if a claim is made by any party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Trustee) the
defense of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and satisfy any
judgment or decree which may be entered against the Servicer, the Trustee, the
SBA, and/or a Certificateholder in respect of such claim. The Trustee may
reimburse the Servicer from the Expense Account pursuant to Section 6.03(c)(i)
for all amounts advanced by it pursuant to the preceding sentence except when
the claim relates directly to the failure of the Servicer to service and
administer the SBA Loans in compliance with the terms of this Agreement.
(b) The Seller agrees to indemnify and hold the Trustee, the
SBA and each Certificateholder harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the SBA, and any
Certificateholder may sustain in any way related to the failure of the Servicer,
if it is an affiliate thereof, or the failure of the Seller to perform its
respective duties in compliance with the terms of this Agreement and in the best
interests of the SBA and the Certificateholders. The Seller shall immediately
notify the Trustee, the SBA, and each Certificateholder if a claim is made by a
third party with respect to this Agreement, and the Seller shall assume (with
the consent of the Trustee) the defense of any such claim and pay all expenses
in connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Servicer, the Seller, the Trustee, the SBA and/or a Certificateholder in respect
of such claim. The Trustee may reimburse the Seller from the Expense Account
pursuant to Section 6.03(c)(i) for all amounts advanced by them pursuant to the
preceding sentence except when the claim relates directly to the Seller's
indemnification pursuant to Section 2.05 and Section 3.03 or to the failure of
the Servicer, if it is an affiliate of a Seller, to perform its obligations to
service and administer the Mortgages in compliance with the terms of this
Agreement, or the failure of the Seller to perform its duties in compliance with
the terms of this Agreement and in the best interests of the SBA and the
Certificateholders.
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Section 9.02. Merger or Consolidation of the Servicer.
The Servicer will keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign entity, in each jurisdiction necessary to protect the
validity and enforceability of this Agreement or any of the SBA Loans and to
perform its duties under this Agreement.
Any Person into which the Servicer may be merged or consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to all or substantially all
of the business of the Servicer, shall be an established mortgage loan servicing
institution that has a net worth of at least $15,000,000 and shall be an
approved SBA guaranteed lender in good standing, operating pursuant to an
effective Loan Guaranty Agreement, and shall be the successor of the Servicer,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding. The Servicer shall send notice of any such merger or
consolidation to the Trustee, the Rating Agency and the SBA.
Section 9.03. Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities or persons respecting any matters arising hereunder. Subject to the
terms of Section 9.01 herein, the Servicer shall have no obligation to appear
with respect to, prosecute or defend any legal action which is not incidental to
the Servicer's duty to service the SBA Loans in accordance with this Agreement.
Section 9.04. Servicer Not to Resign.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (i) by mutual consent of the Servicer, the SBA, the Trustee
and the Majority Certificateholders, (ii) in connection with a merger,
conversion or consolidation permitted pursuant to Section 9.02 and with the
consent of the SBA and written notice to the Rating Agency (in which case the
Person resulting from the merger, conversion or consolidation shall be the
successor of the Servicer), or (iii) upon the determination that the Servicer's
duties hereunder are no longer permissible under applicable law or
administrative determination and such incapacity cannot be cured by the
Servicer. Any such determination permitting the resignation of the Servicer
shall be evidenced by a written Opinion of Counsel (who may be counsel for the
Servicer) to such effect delivered to the Trustee, the SBA and to each
Certificateholder, which Opinion of Counsel shall be in form and substance
acceptable to the Trustee. No such resignation shall become effective until a
successor has assumed the Servicer's responsibilities and obligations hereunder
in accordance with Section 10.02.
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ARTICLE X
DEFAULT
Section 10.01. Events of Default.
(a) In case one or more of the following Events of Default
by the Servicer shall occur and be continuing, that is to say:
(i) (A) the failure by the Servicer to make any
required Servicing Advance, to the extent such failure
materially and adversely affects the interests of the
Certificateholders; (B) the failure by the Servicer to make
any required Monthly Advance to the extent such failure
materially and adversely affects the interests of the
Certificateholders; (C) the failure by the Servicer to remit
any Compensating Interest to the extent such failure
materially and adversely affects the interests of the
Certificateholders; or (D) any failure by the Servicer to
remit to Certificateholders, or to the Trustee for the benefit
of the Certificateholders, any payment required to be made
under the terms of this Agreement which continues unremedied
after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to
the Servicer by the Trustee or to the Servicer and the Trustee
by any Certificateholder; or
(ii) failure by the Servicer or the Seller duly to
observe or perform, in any material respect, any other
covenants, obligations or agreements of the Servicer or the
Seller as set forth in this Agreement, which failure continues
unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer or the Seller,
as the case may be, by the Trustee or to the Servicer, or the
Seller, as the case may be, and the Trustee by any
Certificateholder; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction for the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force,
undischarged or unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of
a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability
to pay its debts as they become due, file a petition to take
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advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations.
(b) then, and in each and every such case, so long as an Event
of Default shall not have been remedied, and in the case of clause (i) above
(except for clause (i)(B)), if such Event of Default shall not have been
remedied within 30 days after the Servicer has received notice of such Event of
Default, (x) with respect solely to clause (i)(B) above, if such Monthly Advance
is not made earlier than 4:00 p.m. New York time on the Determination Date, the
Trustee shall give immediate telephonic notice of such failure to a Servicing
Officer of the Servicer and, unless such failure is cured, either by receipt of
payment or receipt of evidence (e.g., a wire reference number communicated by
the sending bank) that such funds have been sent, by 12:00 Noon New York time on
the second Business Day thereafter, the Trustee shall immediately assume,
pursuant to Section 10.02 hereof, the duties of a successor Servicer; and (y) in
the case of clauses (i)(A), (i)(C), (i)(D), (iii), (iv) and (v), the Majority
Certificateholders, by notice in writing to the Servicer (except with respect to
(iii), (iv) and (v) for which no notice is required) may, in addition to
whatever rights such Certificateholders may have at law or equity including
damages, injunctive relief and specific performance, in each case immediately
terminate all the rights and obligations of the Servicer under this Agreement
and in and to the SBA Loans and the proceeds thereof, as Servicer. Upon such
receipt by the Servicer of a second written notice from the Majority
Certificateholders stating that they or it intend to terminate the Servicer as a
result of such Event of Default, all authority and power of the Servicer under
this Agreement, whether with respect to the SBA Loans or otherwise, shall,
subject to Section 10.02 and the Multi-Party Agreement, pass to and be vested in
the Trustee and the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the SBA Loans and related documents. The Servicer agrees to
cooperate with the Trustee in effecting the termination of the Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the Trustee for administration by it of all amounts which shall at
the time be credited by the Servicer to each Principal and Interest Account or
thereafter received with respect to the SBA Loans. The Trustee shall provide
notice to the SBA of any Event of Default hereunder.
Section 10.02. Trustee to Act; Appointment of Successor
On and after the time of the Servicer's immediate termination, or the
Servicer's receipt of notice if required by Section 10.01, or at any time if the
Trustee receives the resignation of the Servicer evidenced by an Opinion of
Counsel pursuant to Section 9.04 or the Servicer is removed as Servicer pursuant
to this Article X, the Trustee shall be the successor in all respects to the
Servicer in its capacity as Servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof; provided, however, that the Trustee shall
not be liable for any actions of any Servicer prior to it, and that the Trustee
shall not be obligated to make advances or payments pursuant to Sections 6.03,
6.10, 6.11, 5.10 or 5.14 but only to the extent the Trustee determines
reasonably and in good faith that such advances would not be recoverable, such
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determination to be evidenced with respect to each such advance by a
certification of a Responsible Officer of the Trustee. As compensation therefor,
the Trustee shall be entitled to all funds relating to the SBA Loans which the
Servicer would have been entitled to receive from the Principal and Interest
Account pursuant to Section 5.04, the Servicing Fee and the Premium Protection
Fee, if the Servicer had continued to act as Servicer hereunder, together with
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Sections 7.01 and 7.03.
Notwithstanding the above, the Trustee shall, if it is unable to so act
or if the SBA so requests in writing to the Trustee, appoint, or petition a
court of competent jurisdiction to appoint, any established servicing
institution acceptable to the SBA including but not limited to the SBA, and
satisfying the Rating Agency Condition that has a net worth of not less than
$15,000,000, and which is an approved SBA guaranteed lender in good standing,
operating pursuant to an effective Loan Guaranty Agreement, as the successor to
the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder. Any
collections received by the Servicer after removal or resignation shall be
endorsed by it to the Trustee and remitted directly to the Trustee or, at the
direction of the Trustee, to the successor servicer. As compensation, any
successor servicer (including, without limitation, the Trustee) so appointed
shall be entitled to receive all funds relating to the SBA Loans which the
Servicer would have been entitled to receive from the Principal and Interest
Account pursuant to Section 5.04 if the Servicer had continued to act as
Servicer hereunder and shall be entitled to the Servicing Fee and the Premium
Protection Fee, together with other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 7.03.
In the event the Trustee is required to solicit bids as provided herein, the
Trustee shall solicit, by public announcement, bids from banks and mortgage
servicing institutions meeting the qualifications set forth above. Such public
announcement shall specify that the successor servicer shall be entitled to the
full amount of the aggregate Servicing Fees and Premium Protection Fees as
servicing compensation, together with the other servicing compensation in the
form of assumption fees, late payment charges or otherwise. Within thirty days
after any such public announcement, the Trustee shall negotiate and effect the
sale, transfer and assignment of the servicing rights and responsibilities
hereunder to the qualified party submitting the highest qualifying bid. The
Trustee shall deduct from any sum received by the Trustee from the successor to
the Servicer in respect of such sale, transfer and assignment all costs and
expenses of any public announcement and of any sale, transfer and assignment of
the servicing rights and responsibilities hereunder and the amount of any
unreimbursed Servicing Advances and Monthly Advances. After such deductions, the
remainder of such sum shall be paid by the Trustee as a servicing fee to the SBA
at the time of such sale, transfer and assignment to the Servicer's successor.
The Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. The Servicer
agrees to cooperate with the Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Trustee or such successor servicer, as applicable, all amounts which then
have been or should have been deposited in the Principal and Interest Account or
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Spread Account by the Servicer or which are thereafter received with respect to
the SBA Loans. Neither the Trustee nor any other successor servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Trustee to each Certificateholder and the SBA
and the Trustee and the SBA shall have consented thereto. The Trustee shall not
resign as servicer until a successor servicer reasonably acceptable to the SBA
has been appointed.
Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on SBA Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Servicer pursuant to Section 7.03 or otherwise as
provided in this Agreement. The Servicer, the Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 10.03. Waiver of Defaults.
The SBA may, or the Majority Certificateholders may, on behalf of all
Certificateholders, and subject to the consent of the SBA, which consent may not
be unreasonably withheld, and satisfaction of the Rating Agency Condition, waive
any events permitting removal of the Servicer pursuant to this Article X;
provided, however, that the Majority Certificateholders or the SBA may not waive
a default in making a required distribution on a Certificate without the consent
of the holder of such Certificate. Upon any waiver of a past default, such
default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto except to the extent expressly so waived.
Section 10.04. Control by Majority Certificateholders and Others.
The SBA may, or the Majority Certificateholders with the consent of the
SBA may direct the time, method and place of conducting any proceeding relating
to the Trust Fund or the Certificates or for any remedy available to the Trustee
with respect to the Certificates or exercising any trust or power conferred on
the Trustee with respect to the Certificates or the Trust Fund provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Agreement;
(ii) the Trustee shall have been provided with
indemnity satisfactory to it; and
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(iii) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such
direction; provided, however, that the Trustee, as the case
may be, need not take any action which it determines might
involve it in liability or may be unjustly prejudicial to the
Certificateholders not so directing.
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ARTICLE XI
TERMINATION
Section 11.01. Termination.
This Agreement shall terminate upon notice to the Trustee of the
earlier of the following events: (a) the final payment or other liquidation of
the last SBA Loan or the disposition of all property acquired upon foreclosure
or deed in lieu of foreclosure of any SBA Loan and the remittance of all funds
due thereunder, or (b) mutual consent of the Servicer and all Certificateholders
in writing; provided, however, that in no event shall the Trust Fund established
by this Agreement terminate later than twenty-one years after the death of the
last surviving lineal descendant of Joseph P. Kennedy, late Ambassador of the
United States to the Court of St. James, alive as of the date hereof.
The Servicer may, at its option, terminate this Agreement on any date
on which the Pool Principal Balance is less than 10% of the sum of (i) the
Original Pool Principal Balance and (ii) the Original Pre-Funded Amount by
purchasing, on the next succeeding Remittance Date, all of the Unguaranteed
Interests in the SBA Loans and Foreclosed Properties at a price equal to the sum
of (i) 100% of the then outstanding Aggregate Class A and Class B Certificate
Principal Balances, and (ii) 30 days' interest thereon at the then applicable
Class A and Class B Remittance Rates, as the case may be (the "Termination
Price"). Notwithstanding the prior sentence, if at the time the Servicer
determines to exercise such option the unsecured long-term debt obligations of
the Servicer are not rated at least BBB by the Rating Agency, if the Rating
Agency is still rating the Certificates, the Servicer shall give the Rating
Agency prior written notice of the Servicer's determination to exercise such
option and shall not exercise such option, without the consent of the Rating
Agency, prior to furnishing the Rating Agency with an Opinion of Counsel, in
form and substance reasonably satisfactory to the Rating Agency, that the
exercise of such option would not be deemed a fraudulent conveyance by the
Servicer.
Notice of any termination, specifying the Remittance Date upon which
the Trust Fund will terminate and that the Certificateholders shall surrender
their Certificates to the Trustee for payment of the final distribution and
cancellation shall be given promptly by the Servicer by letter to
Certificateholders mailed during the month of such final distribution before the
Determination Date in such month, specifying (i) the Remittance Date upon which
final payment of the Certificates will be made upon presentation and surrender
of Certificates at the office of the Trustee therein designated, (ii) the amount
of any such final payment and (iii) that the Record Date otherwise applicable to
such Remittance Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Servicer shall give such notice to the Trustee therein
specified. The Servicer shall give such notice to the Trustee at the time such
notice is given to Certificateholders. Any obligation of the Servicer to pay
amounts due to the Trustee shall survive the termination of this Agreement.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
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in the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto and shall
at the expense of the Trust Fund cause to be published once, in the national
edition of The Wall Street Journal notice that such money remains unclaimed. If
within six months after the second notice all of the Certificates shall not have
been surrendered for cancellation, the Trustee may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If within the period then specified in the escheat laws of the State of
New York after the second notice all the Certificates shall not have been
surrendered for cancellation, the Seller shall be entitled to all unclaimed
funds and other assets which remain subject hereto and the Trustee upon transfer
of such funds shall be discharged of any responsibility for such funds and the
Certificateholders shall look to the Seller for payment.
Section 11.02. Accounting Upon Termination of Servicer
Upon termination of the Servicer under Article X hereof, the Servicer
shall:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee the funds in any Principal and Interest Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all SBA Files and related documents and statements
held by it hereunder and a SBA Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee and, upon request, to the Certificateholders a full
accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for the payments
or charges with respect to the SBA Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the SBA Loans to its successor and to more fully and definitively
vest in such successor all rights, powers, duties, responsibilities, obligations
and liabilities of the Servicer under this Agreement.
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ARTICLE XII
THE TRUSTEE
Section 12.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default has occurred and has not been cured or waived,
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement, provided, however that the
Trustee shall not be responsible for the accuracy or content of any resolution,
certificate, statement, opinion, report, document, order or other instrument
furnished by the Servicer or the Seller hereunder. If any such instrument is
found not to conform to the requirements of this Agreement in a material manner,
the Trustee shall take action as it deems appropriate to have the instrument
corrected, and if the instrument is not corrected to the Trustee's satisfaction,
the Trustee will provide notice thereof to the Certificateholders and the
Servicer.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct or bad faith; provided, however, that:
(a) Prior to the occurrence of an Event of Default, and after
the curing of all such Events of Default which may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Agreement, the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished to
the Trustee and conforming to the requirements of this Agreement;
(b) The Trustee shall not be personally liable for an error of
judgment made in good faith by officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent facts;
(c) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Majority Certificateholders, relating to
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the time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement;
(d) In the absence of actual knowledge of an officer of the
Trustee in its Corporate Trust Office of an Event of Default, the Trustee shall
not be required to take notice or be deemed to have notice or knowledge of any
default or Event of Default unless the Trustee shall be specifically notified in
writing by the Servicer or any of the Certificateholders. In the absence of
actual knowledge or receipt of such notice, the Trustee may conclusively assume
that there is no default or Event of Default; and
(e) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability for the performance of any of
its duties hereunder or the exercise of any of its rights or powers if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 12.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 12.01:
(i) The Trustee may request and rely and shall be
protected in acting or refraining from acting upon any
resolution, Officer's Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any
opinion of counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such opinion of counsel;
(iii) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to institute, conduct or defend by litigation
hereunder or in relation hereto at the request, order or
direction of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon
the occurrence of an Event of Default (which has not been
cured), to exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of care and
skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's
own affairs;
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(iv) The Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by Holders of Certificates evidencing Percentage Interests
aggregating not less than 25% provided, however, that if the
payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable
expense of every such examination shall be paid by the
Servicer or, if paid by the Trustee, shall be repaid by the
Servicer upon demand from the Servicer's own funds;
(vi) The right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable
for other than its negligence or willful misconduct or bad
faith in the performance of such act;
(vii) The Trustee shall not be required to give any
bond or surety in respect of the execution of the trust
created hereby or the powers granted hereunder;
(viii) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys; and
(ix) In the event that the Trustee is also acting as
Paying Agent; Registrar or Spread Account Custodian, the
rights and protections afforded to the Trustee shall be
afforded to such Paying Agent, Registrar or Spread Account
Custodian.
Section 12.03. Trustee Not Liable for Certificates
or SBA Loans.
The recitals contained herein and in the Certificates (other
than the certificate of authentication on the Certificates) shall be taken as
the statements of the Servicer, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement or of the Certificates or of any SBA Loan or
related document. The Trustee shall not be accountable for the use or
application by the Servicer of any of the Certificates or of the proceeds of
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such Certificates, or for the use or application of any funds paid to the
Servicer in respect of the SBA Loans or deposited in or withdrawn from the
Principal and Interest Account by the Servicer. The Trustee shall not be
responsible for the legality or validity of the Agreement or the validity,
priority, perfection or sufficiency of the security for the Certificates issued
or intended to be issued hereunder.
Section 12.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates with the same rights it would have if it were
not Trustee, and may otherwise deal with the parties hereto.
Section 12.05. Servicer To Pay Trustee's Fees and Expenses.
The Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and the Servicer will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith, provided that the Trustee shall have no
lien on the Trust Fund for the payment of its fees and expenses. To the extent
that actual fees and expenses of the Trustee exceed the amount available for
payment thereof on deposit in the Expense Account as of the date such fees and
expenses are due and payable, the Servicer shall reimburse the Trustee for such
shortfall out of its own funds without reimbursement therefor, except as
provided in Section 6.03. The Trustee and any director, officer, employee or
agent of the Trustee and the Spread Account Custodian and any director, officer,
employee or agent of the Spread Account Custodian shall be indemnified by the
Servicer and held harmless against any loss, liability or expense (i) incurred
in connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder, and (ii) resulting from any error in any tax or information return
prepared by the Servicer. The obligations of the Servicer under this Section
12.05 shall survive payment of the Certificates, and shall extend to any
co-trustee appointed pursuant to this Article XII.
Section 12.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be (i) a national banking
association or banking corporation or trust company organized and doing business
under the laws of any state or the United States of America, (ii) authorized
under such laws to exercise corporate trust powers, (iii) having a combined
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capital and surplus of at least $30,000,000, (iv) having unsecured and
unguaranteed long-term debt obligations rated at least Baa2 by Moody's Investors
Service, Inc., BBB by the Rating Agency (provided the Rating Agency is rating
the unsecured and unguaranteed long-term debt obligations of the Trustee) or
such other rating as is acceptable to the SBA, (v) is subject to supervision or
examination by federal or state authority, (vi) is an approved SBA guaranteed
lender in good standing, operating pursuant to an effective Loan Guaranty
Agreement, and (vii) is reasonably acceptable to the SBA. If such banking
association publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section its combined capital and surplus shall be
deemed to be as set forth in its most recent report of condition so published.
In case at any time the Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Trustee shall (a) give prompt notice to the
SBA and each Certificateholder that it has so ceased to be eligible to be the
Trustee and (b) resign, upon the request of the SBA or the Majority
Certificateholders, in the manner and with the effect specified in Section
12.07.
Section 12.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Servicer, the SBA, and to
all Certificateholders. Upon receiving such notice of resignation, the Servicer
shall with the consent of the SBA promptly appoint a successor trustee by
written instrument, in duplicate, which instrument shall be delivered to the
resigning Trustee and to the successor trustee. A copy of such instrument shall
be delivered to the Certificateholders by the Servicer. Unless a successor
trustee shall have been so appointed and have accepted appointment within 60
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee. If the resigning Trustee fails to petition an appropriate court, the
SBA may, after such 60 day period, petition any court of competent jurisdiction
for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 12.06 and shall fail to resign after written
request therefor by the Servicer, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Servicer
may remove the Trustee and appoint, subject to the approval of the SBA, a
successor trustee by written instrument, in duplicate, which instrument shall be
delivered to the Trustee so removed and to the successor trustee. A copy of such
instrument shall be delivered to the Certificateholders and the SBA by the
Servicer.
The Majority Certificateholders with the consent of the SBA, which
consent will not be unreasonably withheld, and upon satisfaction of the Rating
Agency Condition, or the SBA may at any time remove the Trustee and appoint a
successor trustee by written instrument or instruments, in triplicate, signed by
such Holders or their attorneys-in-fact duly authorized, one complete set of
which instruments shall be delivered to the Servicer, one complete set to the
Trustee so removed and one complete set to the successor Trustee so appointed.
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Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 12.08.
Section 12.08. Successor Trustee.
Any successor trustee appointed as provided in Section 12.07 shall
execute, acknowledge and deliver to the Servicer and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all SBA
Files and related documents and statements held by it hereunder, and the
Servicer and the predecessor trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for more fully and
certainly vesting and confirming in the successor trustee all such rights,
powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 12.06.
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Servicer fails to mail such notice within 10 days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the Servicer.
Section 12.09. Merger or Consolidation of Trustee.
Any Person into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation or national banking association
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation or national banking association succeeding
to the business of the trustee, shall be the successor of the Trustee hereunder,
provided such corporation or national banking association shall be eligible
under the provisions of Section 12.06, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. The Trustee shall send notice of any
such merger or consolidation to the Rating Agency.
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Section 12.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and the SBA pursuant to the procedure set forth below, to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust Fund, and to vest in such
Person or Persons, in such capacity, such title to the Trust Fund, or any part
thereof, and, subject to the other provisions of this Section 12.10, such
powers, duties, obligations, rights and trusts as the Servicer and the Trustee
may consider necessary or desirable. If the Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in case an Event of Default shall have occurred and be continuing, the
Trustee alone shall have the power to make such appointment. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 12.06 hereunder. No notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 12.08 hereof. The Trustee shall notify the SBA prior to
the appointment of any co-trustee(s) or separate trustee(s) and the SBA shall
have ten Business Days from its receipt of such notice to notify the Trustee
whether it, in its reasonable judgment, disapproves of such co-trustee(s) or
separate trustee(s). If the SBA does not notify the Trustee within such time
frame, it will be deemed to have approved such co-trustee(s) or separate
trustee(s). If the SBA notifies the Trustee within such time frame that it, in
its reasonable judgment, disapproves of such co-trustee(s) or separate
trustee(s) (which notice shall be accompanied by the name(s) of the SBA's
alternative proposed co-trustee(s) or separate trustee(s)), such appointments
shall not be effective.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 12.10, all rights, powers, duties and obligations
conferred or imposed upon the trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or as
successor to the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article XII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
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of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. The Trustee shall not be responsible
for any action or inaction of any such separate trustee or co-trustee. If any
separate trustee or co-trustee shall die, become incapable of acting, resign or
be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee.
Section 12.11. Authenticating Agent.
Upon the request of the Servicer, the Trustee shall appoint an
Authenticating Agent, initially, Marine Midland Bank, with power to act on the
Trustee's behalf and subject to its direction in the authentication and delivery
of the Certificates in connection with transfers and exchanges under Section
4.02, as fully to all intents and purposes as though the Authenticating Agent
had been expressly authorized by that Section to authenticate and deliver
Certificates. For all purposes of this Agreement, the authentication and
delivery of Certificates by the Authenticating Agent pursuant to this Section
shall be deemed to be the authentication and delivery of Certificates by the
Trustee. Such Authenticating Agent shall at all times be a Person meeting the
requirements for the Trustee set forth in Section 12.06.
Any corporation or national banking association into which any
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation or national banking association resulting from
any merger, consolidation or conversion to which any Authenticating Agent shall
be a party, or any corporation or national banking association succeeding to the
corporate trust business of any Authenticating Agent, shall be the successor of
the Authenticating Agent hereunder, if such successor corporation or national
banking association is otherwise eligible under this Section, without the
execution or filing of any further act on the part of the parties hereto or the
Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving notice of
resignation to the Trustee and the Servicer. The Trustee may at any time
terminate the agency of any Authenticating Agent by giving written notice of
termination to such Authenticating Agent and the Servicer. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section, the Trustee
shall promptly appoint a successor Authenticating Agent and shall give written
notice of such appointment to all Certificateholders as their names and
addresses appear on the Certificate Register. The Servicer agrees to pay to the
Authenticating Agent from time to time reasonable compensation for its services.
The provisions of Sections 4.04 and 12.03 shall be applicable to any
Authenticating Agent.
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<PAGE>
Section 12.12. Tax Returns and Reports.
The Trustee, upon request, will furnish the Servicer with all such
information as may be reasonably required in connection with the Servicer's
preparation of all Tax Returns of the Trust Fund and, upon request within five
(5) Business Days after its receipt thereof, shall (i) sign on behalf of the
Trust Fund any Tax Return that the Trustee is required to sign pursuant to
applicable federal, state or local tax laws, and (ii) cause such Tax Return to
have been returned to the Servicer for filing; provided, however, the Trustee
shall have no liability for any taxes required pursuant to any such Tax Return.
The Servicer shall prepare and file or cause to be filed with the
Internal Revenue Service Federal tax information returns with respect to the
Trust Fund and the Certificates containing such information and at the times and
in the manner as may be required by the Code or applicable Treasury regulations,
and shall furnish to each Holder of Certificates at any time during the calendar
year for which such returns or reports are made such statements or information
at the times and in the manner as may be required thereby. The Trustee shall
sign all tax information returns filed pursuant to this Section and any other
returns as may be required by the Code, and in doing so shall rely entirely
upon, and shall have no liability for information provided by, or calculations
provided by, the Servicer.
Section 12.13. Protection of Trust Fund.
(a) The Trustee will hold the Trust Fund and such other assets
as may from time to time be deposited with it hereunder in trust for the benefit
of the Holders and the SBA and at the request of the Seller or the SBA will from
time to time execute and deliver all such supplements and amendments hereto
pursuant to Section 13.02 hereof and all instruments of further assurance and
other instruments, and will take such other action upon such request as it deems
reasonably necessary or advisable, to:
(i) more effectively hold in trust all or any
portion of the Trust Fund or such other assets;
(ii) perfect, publish notice of, or protect the
validity of any grant made or to be made by this Agreement;
(iii) enforce any of the SBA Loans; or
(iv) preserve and defend title to the Trust Fund and
the rights of the Trustee, and the ownership interests of the
Certificateholders represented thereby, in such Trust Fund
against the claims of all Persons and parties.
The Trustee shall send copies of any request received from the Seller
or the SBA to take any action pursuant to this Section 12.13 to the Holders.
XII-9
<PAGE>
(b) Subject to Article X hereof, the Trustee shall have the
power to enforce, and shall enforce the obligations of the other parties to this
Agreement by action, suit or proceeding at law or equity, and shall also have
the power to enjoin, by action or suit in equity, any acts or occurrences which
may be unlawful or in violation of the rights of the Holders; provided, however,
that nothing in this Section 12.13 shall require any action by the Trustee
unless the Trustee shall first (i) have been furnished indemnity satisfactory to
it and (ii) when required by this Agreement, have been requested to take such
action by the Majority Certificateholders, the SBA or the Seller in accordance
with the terms of this Agreement.
(c) The Trustee shall execute any instrument required pursuant
to this Section so long as such instrument does not conflict with this Agreement
or with the Trustee's fiduciary duties.
Section 12.14. Representations, Warranties and
Covenants of Trustee.
The Trustee hereby makes the following representations, warranties and
covenants on which the Seller, the Servicer, the SBA and the Certificateholders
shall rely:
(a) The Trustee is a banking corporation and trust company
duly organized, validly existing and in good standing under the laws of the
State of New York.
(b) The Trustee has full power, authority and legal right to
execute, deliver and perform this Agreement, and shall have taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement.
(c) The execution, delivery and performance by the Trustee of
this Agreement shall not (i) violate any provision of any law or any order,
writ, judgment or decree of any court, arbitrator or governmental authority
applicable to the Trustee or any of its assets, (ii) violate any provision of
the corporate charter or By-laws of the Trustee or (iii) violate any provision
of, or constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of any lien on any properties included in
the Trust Fund pursuant to the provisions of, any mortgage, indenture, contract,
agreement or other undertaking to which it is a party, which violation, default
or lien could reasonably be expected to materially and adversely affect the
Trustee's performance or ability to perform its duties under this Agreement or
the transactions contemplated in this Agreement.
(d) The execution, delivery and performance by the Trustee of
this Agreement shall not require the authorization, consent or approval of, the
giving of notice to, the filing or registration with or the taking of any other
action in respect of any governmental authority or agency regulating the banking
and corporate trust activities of the Trustee.
(e) This Agreement has been duly executed and delivered by the
Trustee and constitutes the legal, valid and binding agreement of the Trustee,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
XII-10
<PAGE>
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or the application of equitable principles
in any proceeding, whether at law or in equity. The Trustee hereby agrees and
covenants that it will not at any time in the future, deny that this Agreement
constitutes the legal, valid and binding agreement of the Trustee.
(f) The Trustee shall not take any action, or fail to take any
action, if such action or failure to take action will materially interfere with
the enforcement of any rights of the SBA or the Certificateholders under this
Agreement or the Certificates.
(g) The Trustee will comply at all times with the provisions
of the SBA Rules and Regulations in respect of its activities concerning the SBA
Loans, and will at all times hold an effective Loan Guaranty Agreement.
XII-11
<PAGE>
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Acts of Certificateholders.
Except as otherwise specifically provided herein, whenever
Certificateholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Certificateholders if the Majority
Certificateholders agree to take such action or give such consent or approval.
Section 13.02. Amendment.
(a) This Agreement may be amended from time to time by the
Seller, the Servicer and the Trustee by written agreement, upon the prior
written consent of the SBA, without the notice to or consent of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the Trustee, adversely affect the interests of any
Certificateholder or any other party and further provided that no such amendment
shall reduce in any manner the amount of, or delay the timing of, any amounts
received on SBA Loans which are required to be distributed on any Certificate
without the consent of the Holder of such Certificate, or change the rights or
obligations of any other party hereto without the consent of such party.
(b) This Agreement may be amended from time to time by the
Seller, the Servicer, the Trustee and the Majority Certificateholders, upon the
prior written consent of the SBA, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Holders; provided, however, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
any amounts which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate or reduce the percentage of Holders
which are required to consent to any such amendment without the consent of the
Holders of 100% of the Certificates affected thereby and, provided further, that
no amendment affecting only one class of Certificates shall require the approval
of Holders of Certificates of the other Class.
(c) It shall not be necessary for the consent of Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
XIII-1
<PAGE>
Section 13.03. Recordation of Agreement.
To the extent permitted by applicable law, this Agreement is subject
to recordation in all appropriate public offices for real property records in
all of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer at the Certificateholders' expense on direction of the Majority
Certificateholders, but only when accompanied by an Opinion of Counsel to the
effect that such recordation materially and beneficially affects the interests
of the Certificateholders or is necessary for the administration or servicing of
the SBA Loans.
Section 13.04. Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
SECTION 13.05. GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 13.06. Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to (i) in
the case of the Servicer and the Seller, Business Loan Center, Inc., 645 Madison
Avenue, 18th Floor, New York, New York 10022, Attn: Robert Tannenhauser or such
other addresses as may hereafter be furnished to the Certificateholders in
writing by the Seller and the Servicer, (ii) in the case of the Trustee, Marine
Midland Bank, 140 Broadway, New York, New York 10005, 12th Floor, Attention:
Corporate Trust Department, (iii) in the case of the Certificateholders, as set
forth in the Certificate Register, (iv) in the case of Duff & Phelps Credit
Rating Co. to 55 East Monroe Street, Chicago, Illinois, 60603, to, and (v) in
the case of the SBA, the United States Small Business Administration, 409 Third
Street, S.W., Washington, D.C. 20416, Attention: Associate Administrator for
Financial Assistance. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
XIII-2
<PAGE>
Section 13.07. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 13.08. No Partnership.
Nothing herein contained shall be deemed or construed to create a
co-partnership or joint venture between the parties hereto and the services of
the Servicer shall be rendered as an independent contractor and not as agent for
the Certificateholders.
Section 13.09. Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same agreement.
Section 13.10. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Seller and the Servicer, the Trustee and the Certificateholders and their
respective successors and assigns.
Section 13.11. Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 13.12. Paying Agent.
The Trustee hereby appoints Marine Midland Bank as Paying Agent. The
Trustee may appoint one or more other Paying Agents or successor Paying Agents
meeting the eligibility requirements of a Trustee set forth in Section 12.06
(i), (ii), (iii), (iv), (v) and (vii) hereof.
Each Paying Agent, immediately upon such appointment, shall signify
its acceptance of the duties and obligations imposed upon it by this Agreement
by written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee, subject to the provisions of Section 6.06, that such Paying Agent
will:
XIII-3
<PAGE>
(a) allocate all sums received for distribution to the Holders
of Certificates for which it is acting as Paying Agent on each Remittance Date
among such Holders in the proportion specified by the Trustee; and
(b) hold all sums held by it for the distribution of amounts
due with respect to the Certificates in trust for the benefit of the Holders
entitled thereto until such sums shall be paid to such Holders or otherwise
disposed of as herein provided and pay such sums to such Persons as herein
provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent signed by
the Trustee.
In the event of the resignation or removal of any Paying Agent other
than the Trustee such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor, or if there be no successor, to the
Trustee.
Upon the appointment, removal or notice of resignation of any Paying
Agent, the Trustee shall notify the Certificateholders by mailing notice thereof
to their addresses appearing on the Certificate Register.
Section 13.13. Notification to Rating Agency.
The Trustee shall give prompt notice to the Rating Agency of the
occurrence of any of the following events of which it has received notice: (1)
any modification or amendment to this Agreement, (2) any change of the Trustee,
the Servicer or the Paying Agent, (3) any Event of Default or waiver of an Event
of Default, (4) that any superior lienholder has accelerated or intends to
accelerate the obligations secured by a Prior Lien, and (5) the final payment of
all the Certificates. The Servicer shall promptly deliver to the Rating Agency a
copy of each of the Servicer's Certificates. Further, the Servicer shall give
prompt notice to the Rating Agency if the Servicer or any of its affiliates
acquire any Certificates.
Section 13.14. Third Party Rights
The Trustee, the FTA, the Spread Account Custodian and the Servicer
agree that the SBA shall be deemed a third-party beneficiary of this Agreement
entitled to all the rights and benefits set forth herein as fully as if it were
a party hereto.
XIII-4
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized as of the day and year first above written.
BUSINESS LOAN CENTER, INC.,
as Seller and Servicer
By:
------------------------------
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By:
------------------------------
Name: Susan Barstock
Title: Assistant Vice President
XIII-5
<PAGE>
Acceptance of Marine Midland Bank
Marine Midland Bank hereby accepts its appointment under the
within instrument to serve as initial Authenticating Agent, Certificate
Registrar and Paying Agent. In connection therewith, Marine Midland Bank agrees
to be bound by all applicable provisions of such instrument.
MARINE MIDLAND BANK, as initial
Authenticating Agent,
Certificate Registrar and
Paying Agent
By:
------------------------------
Name: Susan Barstock
Title: Assistant Vice President
XIII-6
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On the ____ day of ____________ before me, a Notary Public in
and for said State, personally appeared ____________________ known to me to be
an officer of the Trustee, the trust company that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said banking corporation, and acknowledged to me that such banking corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------
Notary Public
My Commission expires
--------
XIII-7
<PAGE>
STATE OF ____________)
: ss.:
COUNTY OF __________)
On the ____ day of ______________ before me, a Notary Public
in and for the State of New York, personally appeared ___________ known to me to
be the ____________ of Business Loan Center, Inc., one of the entities that
executed the within instrument and also known to me to be the person who
executed it on behalf of said entity, and acknowledged to me that such entity
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------
Notary Public
My Commission expires
--------
XIII-8
<PAGE>
EXHIBIT A
CONTENTS OF SBA FILE
With respect to each SBA Loan, the SBA File shall include a copy of
any of the following items delivered to the Trustee or, with respect to 1 below
for the SBA ss. 7(a) Loans, the FTA:
1. The original SBA Note, endorsed by means of an
allonge as follows: "Pay to the order of Marine
Midland Bank, and its successors and assigns, as
trustee under that certain Pooling and Servicing
Agreement dated as of December 23, 1998 for the
benefit of the United States Small Business
Administration and holders of Business Loan Center
SBA Loan-Backed Adjustable Rate Certificates, Series
1998-1, Class A and Class B, as their respective
interests may appear, without recourse" and signed,
by facsimile or manual signature, in the name of the
Seller by a Responsible Officer, with all prior and
intervening endorsements showing a complete chain of
endorsement from the originator to the Seller, if the
Seller was not the originator;
2. With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Mortgage, with
evidence of recording thereon, (ii) a copy of the
Mortgage certified as a true copy by a Responsible
Officer of the Seller where the original has been
transmitted for recording until such time as the
original is returned by the public recording office
or duly licensed title or escrow officer or (iii) a
copy of the Mortgage certified by the public
recording office in those instances where the
original recorded Mortgage has been lost;
3. With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) the original Assignment of
Mortgage from the Seller endorsed as follows: "Marine
Midland Bank, ("Assignee") its successors and
assigns, as trustee under the Pooling and Servicing
Agreement dated as December 23, 1998 subject to the
Multi-Party Agreement dated as of December 23, 1998"
with evidence of recording thereon (provided,
however, that where permitted under the laws of the
jurisdiction wherein the Mortgaged Property is
located, the Assignment of Mortgage may be effected
by one or more blanket assignments for SBA Loans
secured by Mortgaged Properties located in the same
county), or (ii) a copy of such Assignment of
Mortgage certified as a true copy by a Responsible
Officer of the Seller where the original has been
transmitted for recording (provided, however, that
where the original Assignment of Mortgage is not
A-1
<PAGE>
being delivered to the Trustee, each such Responsible
Officer may complete one or more blanket certificates
attaching copies of one or more Assignments of
Mortgage relating to the Mortgages originated by the
Seller);
4. With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of all intervening
assignments, if any, showing a complete chain of
title from the originator to the Seller, including
warehousing assignments, with evidence of recording
thereon if such assignments were recorded, (ii)
copies of any assignments certified as true copies by
a Responsible Officer of the Seller where the
originals have been submitted for recording until
such time as the originals are returned by the public
recording officer, or (iii) copies of any assignments
certified by the public recording office in any
instances where the original recorded assignments
have been lost;
5. With respect to those SBA Loans secured by Mortgaged
Properties, either: (i) originals of all title
insurance policies relating to the Mortgaged
Properties to the extent the Seller obtained such
policies or (ii) copies of any title insurance
policies or other evidence of lien position,
including but not limited to PIRT policies, limited
liability reports and lot book reports, to the extent
the Seller obtains such policies or other evidence of
lien position, certified as true by the Seller;
6. For all SBA Loans, blanket assignment of all
Collateral securing the SBA Loan, including without
limitation, all rights under applicable guarantees
and insurance policies;
7. For all SBA Loans, irrevocable power of attorney of
the Seller to the Trustee to execute, deliver, file
or record and otherwise deal with the Collateral for
the SBA Loans in accordance with the Agreement. The
power of attorney will be delegable by the Trustee to
the Servicer and any successor servicer and will
permit the Trustee or its delegate to prepare,
execute and file or record UCC financing statements
and notices to insurers; and
8. For all SBA Loans, blanket UCC-1 financing statements
identifying by type all Collateral for the SBA Loans
in the SBA Loan Pool and naming the Trustee as
Secured Party and the Seller as the Debtor. The UCC-1
financing statements will be filed promptly following
the Closing Date in New York and Delaware and will be
in the nature of protective notice filings rather
than a true financing statement.
A-2
<PAGE>
EXHIBIT B-1
[FORM OF CLASS A CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR
BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE,
AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS
AND ONLY (1) IN CERTIFICATED FORM (A) PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR
ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER
HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, OR (B) TO AN "INSTITUTIONAL ACCREDITED
INVESTOR" WITHIN THE MEANING THEREOF IN RULE 501(a)(1)-(3) or (7) OF REGULATION
D UNDER THE SECURITIES ACT PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO (A) THE RECEIPT BY THE
TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN THE AGREEMENT AND (B)
THE RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT
SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY
STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (2) PURSUANT
TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS, OR (3) PURSUANT TO A VALID REGISTRATION
STATEMENT.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON.
B-1-1
<PAGE>
BUSINESS LOAN CENTER SBA LOAN-BACKED ADJUSTABLE RATE CERTIFICATES
Series 1998-1 Original Class A Certificate
Class A Principal Balance:
No. 1 $24,316,729.85
Original Dollar Amount as
of the Cut-Off Date
Represented by this
Certificate: 100%
$24,316,729.85
Remittance Rate: Percentage Interest of
Variable the Class A Certificates
Evidenced by this
Certificate: 100%
Date of Pooling and Servicer:
Servicing Agreement Business Loan Center, Inc.
and Cut-Off Date:
December 23, 1998
First Remittance Date: Latest Maturity Date:
January 15, 1999 January 2025
CUSIP No.: 123280 AC 3
Closing Date: Trustee:
December 30, 1998 Marine Midland Bank
Business Loan Center, Inc. certifies that ABN AMRO Incorporated is the
registered owner of a percentage interest (the "Percentage Interest") in the
Unguaranteed Interest in a pool of loans partially guaranteed by the U.S. Small
Business Administration (the "SBA Loans") and serviced by Business Loan Center,
Inc. (hereinafter called the "Servicer," in its capacity as the Servicer, and
the "Seller," in its capacity as the Seller, which terms include any successor
entity under the Agreement referred to below). The SBA Loans were originated or
purchased by the Seller. The SBA Loans will be serviced pursuant to the terms
and conditions of that certain Pooling and Servicing Agreement dated as of
December 23, 1998 (the "Agreement") between Marine Midland Bank, as trustee (the
"Trustee") and Business Loan Center, Inc., as Seller and Servicer, certain of
the pertinent provisions of which are set forth herein. To the extent not
defined herein, the capitalized terms used herein have the meanings assigned in
the Agreement. This Certificate is issued under and is subject to the terms,
B-1-2
<PAGE>
provisions and conditions of the Agreement, to which Agreement the holder of
this Certificate by virtue of the acceptance hereof assents and by which such
holder is bound.
On each Remittance Date, commencing on January 15, 1999, the Trustee
or Paying Agent shall distribute to the Person in whose name this Certificate is
registered at the close of business on the last day of the month next preceding
the month of such distribution (or on the Closing Date for the First Remittance
Date) (the "Record Date"), an amount equal to the product of the Percentage
Interest of the Class A Certificates evidenced by this Certificate and the
amount required to be distributed to Holders of Class A Certificates on such
Remittance Date pursuant to Section 6.07 of the Agreement.
During the initial Interest Accrual Period, this Certificate will bear
interest at the rate of 6.75% per annum. During each subsequent Interest Accrual
Period, this Certificate will bear interest at a per annum rate equal to the
Prime Rate in effect on the preceding Adjustment Date minus 1.00% per annum,
subject to the limits described in the Agreement.
Distributions on this Certificate will be made by the Trustee
or Paying Agent by check mailed to the address of the Person entitled thereto as
such name and address shall appear on the Certificate Register or, upon written
request to the Trustee, by wire transfer of immediately available funds to the
account of the Person entitled thereto as shall appear on the Certificate
Register without the presentation or surrender of this Certificate or the making
of any notation thereon, at a bank or other entity having appropriate facilities
therefor, and, in the case of wire transfers, at the expense of such Person
unless such Person shall own of record Certificates which have initial
Certificate Principal Balances aggregating at least $5,000,000.
Notwithstanding the above, the final distribution on this Certificate
will be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Class A
Certificate at the office or agency maintained for that purpose by the
Certificate Registrar in New York, New York.
This Certificate is one of a duly authorized issue of Certificates
designated as Business Loan Center SBA Loan-Backed, Adjustable Rate
Certificates, Series 1998-1, Class A and Class B (herein called the
"Certificates") and representing undivided ownership in the right to receive the
principal portion of the Unguaranteed Interests of the SBA Loans together with
interest thereon at the then applicable Class A or Class B Remittance Rate, as
the case may be.
Neither the Certificates nor the SBA Loans represent an obligation of,
or an interest in, the Servicer and (except for the Excess Spread, which is
guaranteed by the SBA for up to 120 days of accrued interest) are not insured or
guaranteed by the Federal Deposit Insurance Corporation, the Small Business
Administration, the Government National Mortgage Association or the Veterans
Administration or any other governmental agency. The Certificates are limited in
right of payment to certain collections and recoveries respecting the SBA Loans,
all as more specifically set forth herein and in the Agreement. In the event
Servicer funds are advanced with respect to any SBA Loan, such advance is
reimbursable to the Servicer from late recoveries of interest on the SBA Loans
generally.
B-1-3
<PAGE>
As provided in the Agreement, deposits and withdrawals from the
Certificate Account, the Spread Account and the Expense Account may be made by
the Trustee from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the Servicer of
advances made, or certain expenses incurred, by it, and investment in Permitted
Instruments.
Subject to certain restrictions, the Agreement permits the amendment
thereof with respect to certain modifications (a) by the Seller, the Servicer
and the Trustee without the consent of the Certificateholders and (b) by the
Seller, the Servicer and the Trustee with the consent of the Majority
Certificateholders. The Agreement permits the Majority Certificateholders to
waive, on behalf of all Certificateholders, any default by the Servicer in the
performance of its obligations under the Agreement and its consequences, except
in a default in making any required distribution on a Certificate. Any such
consent or waiver by the Majority Certificateholders shall be conclusive and
binding on the holder of this Certificate and upon all future holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Agreement permits the Majority
Certificateholders to waive, on behalf of all Certificateholders, any default by
the Servicer in the performance of its obligations under the Agreement and its
consequences, except in a default in making any required distribution on a
Certificate. Any such consent or waiver by the Majority Certificateholders shall
be conclusive and binding on the holder of this Certificate and upon all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Certificate Registrar in
New York, New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to, the Trustee, duly executed by the holder
hereof or such holder's attorney duly authorized in writing, and thereupon one
or more new Certificates in authorized denominations evidencing the same
aggregate undivided Percentage Interest will be issued to the designated
transferee or transferees.
The Certificates are issuable only as registered Certificates. As
provided in the Agreement and subject to certain limitations therein set forth,
the Certificate is exchangeable for a new Certificate evidencing the same
undivided ownership interest, as requested by the holder surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Certificate Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Servicer, the Seller, the Trustee and the Certificate Registrar,
and any agent of any of the foregoing, may treat the person in whose name this
B-1-4
<PAGE>
Certificate is registered as the owner hereof for all purposes, and none of the
foregoing shall be affected by notice to the contrary.
Except for certain obligations of the Servicer to the Trustee, the
obligations created by the Agreement shall terminate upon notice to the Trustee
of the later of the following events: (i) the final payment or other liquidation
of the last SBA Loan or the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure of any SBA Loan and the remittance of
all funds due thereunder or (ii) mutual consent of the Servicer and all
Certificateholders in writing; provided, however, that in no event shall the
Trust Fund established by the Agreement terminate later than twenty-one years
after the death of the last surviving lineal descendant of Joseph P. Kennedy,
late Ambassador of the United States to the Court of St. James, alive as of the
date of the Agreement.
B-1-5
<PAGE>
IN WITNESS WHEREOF, the Servicer has caused this Certificate
to be duly executed.
Business Loan Center, Inc.
Servicer
By:
-------------------------
Name:
Title:
Dated:
-------------------------
This is one of the
Certificates referred
to in the within-mentioned
Agreement.
Marine Midland Bank,
as Trustee
By:
----------------------------
Authorized Signatory
or
Marine Midland Bank,
as Authenticating Agent
By:
----------------------------
Authorized Signatory
B-1-6
<PAGE>
EXHIBIT B-2
[FORM OF CLASS B CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR
BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE,
AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS
AND ONLY (1) IN CERTIFICATED FORM (A) PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR
ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER
HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, OR (B) TO AN "INSTITUTIONAL ACCREDITED
INVESTOR" WITHIN THE MEANING THEREOF IN RULE 501(a)(1)-(3) OR (7) OF REGULATION
D UNDER THE SECURITIES ACT PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO (A) THE RECEIPT BY THE
TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN THE AGREEMENT AND (B)
THE RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT
SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY
STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (2) PURSUANT
TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS, OR (3) PURSUANT TO A VALID REGISTRATION
STATEMENT.
THIS CERTIFICATE MAY NOT BE ACQUIRED FOR OR ON BEHALF OF (1) AN EMPLOYEE BENEFIT
PLAN OR RETIREMENT ARRANGEMENT SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, AND/OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, OR (2) ANY ENTITY, THE ASSETS OF WHICH WOULD BE DEEMED
PLAN ASSETS UNDER THE DEPARTMENT OF LABOR REGULATIONS SET FORTH AT 29 C.F.R.
ss.2510.3-101, OTHER THAN AN "INSURANCE COMPANY GENERAL ACCOUNT" WITHIN THE
MEANING OF SECTION V(E) OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60.
B-2-1
<PAGE>
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON.
THE RIGHTS OF THE HOLDERS OF THE CLASS B CERTIFICATES TO RECEIVE DISTRIBUTIONS
WITH RESPECT TO INTEREST AND PRINCIPAL WILL BE SUBORDINATED TO SUCH RIGHTS OF
THE HOLDERS OF THE CLASS A CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
THIS CLASS B CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE CONVEYED, IN WHOLE OR IN PART, WITHOUT THE PRIOR WRITTEN APPROVAL OF
THE UNITED STATES SMALL BUSINESS ADMINISTRATION, A COPY OF WHICH APPROVAL SHALL
BE FURNISHED TO THE TRUSTEE.
B-2-2
<PAGE>
BUSINESS LOAN CENTER SBA LOAN-BACKED ADJUSTABLE RATE CERTIFICATES
Series 1998-1 Original Class B Certificate
Class B Principal Balance:
No. 1 $2,114,498.25
Original Dollar Amount as
of the Cut-Off Date
Represented by this
Certificate:
$2,114,498.25
Remittance Rate: Percentage Interest of
Variable the Class B Certificates
Evidenced by this
Certificate: 100%
Date of Pooling and Servicer:
Servicing Agreement Business Loan Center, Inc.
and Cut-Off Date:
December 23, 1998
First Remittance: Latest Maturity Date: January 2025
Date:
January 15, 1999
Closing Date: Trustee:
December 30, 1998 Marine Midland Bank
Business Loan Center, Inc. certifies that Business Loan Center
Financial Corp. II is the registered owner of a percentage interest (the
"Percentage Interest") in the Unguaranteed Interest in a pool of loans partially
guaranteed by the U.S. Small Business Administration (the "SBA Loans") and
serviced by Business Loan Center, Inc. (hereinafter called the "Servicer," in
its capacity as the Servicer, and the "Seller," in its capacity as the Seller,
which terms include any successor entity under the Agreement referred to below).
The SBA Loans were originated or purchased by the Seller. The SBA Loans will be
serviced pursuant to the terms and conditions of that certain Pooling and
Servicing Agreement dated as of December 23, 1998 (the "Agreement") between
Marine Midland Bank, as trustee (the "Trustee") and Business Loan Center, Inc.,
as Seller and Servicer, certain of the pertinent provisions of which are set
forth herein. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the holder of this Certificate by virtue of the acceptance
hereof assents and by which such holder is bound.
B-2-3
<PAGE>
On each Remittance Date, commencing on January 15, 1998, the Trustee
or Paying Agent shall distribute to the Person in whose name this Certificate is
registered at the close of business on the last day of the month next preceding
the month of such distribution (or on the Closing Date for the First Remittance
Date) (the "Record Date"), an amount equal to the product of the Percentage
Interest of the Class B Certificates evidenced by this Certificate and the
amount required to be distributed to Holders of Class B Certificates on such
Remittance Date pursuant to Section 6.07 of the Agreement.
During the initial Interest Accrual Period, this Certificate will bear
interest at the rate of 6.95% per annum. During each subsequent Interest Accrual
Period, this Certificate will bear interest at a per annum rate equal to the
Prime Rate in effect on the preceding Adjustment Date minus 0.80%, subject to
the limits described in the Agreement.
Distributions on this Certificate will be made by the Trustee or
Paying Agent by check mailed to the address of the Person entitled thereto as
such name and address shall appear on the Certificate Register or, upon written
request to the Trustee, by wire transfer of immediately available funds to the
account of the Person entitled thereto as shall appear on the Certificate
Register without the presentation or surrender of this Certificate or the making
of any notation thereon, at a bank or other entity having appropriate facilities
therefor, and, in the case of wire transfers, at the expense of such Person
unless such Person shall own of record Certificates which have initial
Certificate Principal Balances aggregating at least $5,000,000.
Notwithstanding the above, the final distribution on this Certificate
will be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Certificate at the
office or agency maintained for that purpose by the Certificate Registrar in New
York, New York.
This Certificate is one of a duly authorized issue of Certificates
designated as Business Loan Center SBA Loan-Backed, Adjustable Rate
Certificates, Series 1998-1, Class A and Class B (herein called the
"Certificates") and representing undivided ownership in the right to receive the
principal portion of the Unguaranteed Interests of the SBA Loans together with
interest thereon at the then applicable Class A or Class B Remittance Rate, as
the case may be.
Neither the Certificates nor the SBA Loans represent an obligation of,
or an interest in, the Servicer and (except for the Excess Spread, which is
guaranteed by the SBA for up to 120 days of accrued interest) are not insured or
guaranteed by the Federal Deposit Insurance Corporation, the Small Business
Administration, the Government National Mortgage Association or the Veterans
Administration or any other governmental agency. The Certificates are limited in
right of payment to certain collections and recoveries respecting the SBA Loans,
all as more specifically set forth herein and in the Agreement. In the event
Servicer funds are advanced with respect to any SBA Loan, such advance is
reimbursable to the Servicer from late recoveries of interest on the SBA Loans
generally.
B-2-4
<PAGE>
As provided in the Agreement, deposits and withdrawals from the
Certificate Account, the Spread Account and the Expense Account may be made by
the Trustee from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the Servicer of
advances made, or certain expenses incurred, by it, and investment in Permitted
Instruments.
Subject to certain restrictions, the Agreement permits the amendment
thereof with respect to certain modifications (a) by the Seller, the Servicer
and the Trustee without the consent of the Certificateholders and (b) by the
Seller, the Servicer and the Trustee with the consent of the Majority
Certificateholders. The Agreement permits the Majority Certificateholders to
waive, on behalf of all Certificateholders, any default by the Servicer in the
performance of its obligations under the Agreement and its consequences, except
in a default in making any required distribution on a Certificate. Any such
consent or waiver by the Majority Certificateholders shall be conclusive and
binding on the holder of this Certificate and upon all future holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Agreement permits the Majority
Certificateholders to waive, on behalf of all Certificateholders, any default by
the Servicer in the performance of its obligations under the Agreement and its
consequences, except in a default in making any required distribution on a
Certificate. Any such consent or waiver by the Majority Certificateholders shall
be conclusive and binding on the holder of this Certificate and upon all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Certificate Registrar in
New York, New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to, the Trustee, duly executed by the holder
hereof or such holder's attorney duly authorized in writing, and thereupon one
or more new Certificates in authorized denominations evidencing the same
aggregate undivided Percentage Interest will be issued to the designated
transferee or transferees.
The Certificates are issuable only as registered Certificates. As
provided in the Agreement and subject to certain limitations therein set forth,
the Certificate is exchangeable for a new Certificate evidencing the same
undivided ownership interest, as requested by the holder surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Certificate Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Servicer, the Seller, the Trustee and the Certificate Registrar,
and any agent of any of the foregoing, may treat the person in whose name this
B-2-5
<PAGE>
Certificate is registered as the owner hereof for all purposes, and none of the
foregoing shall be affected by notice to the contrary.
Except for certain obligations of the Servicer to the Trustee,
the obligations created by the Agreement shall terminate upon notice to the
Trustee of the later of the following events: (i) the final payment or other
liquidation of the last SBA Loan or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any SBA Loan and the
remittance of all funds due thereunder or (ii) mutual consent of the Servicer
and all Certificateholders in writing; provided, however, that in no event shall
the Trust Fund established by the Agreement terminate later than twenty-one
years after the death of the last surviving lineal descendant of Joseph P.
Kennedy, late Ambassador of the United States to the Court of St. James, alive
as of the date of the Agreement.
B-2-6
<PAGE>
IN WITNESS WHEREOF, the Servicer has caused this Certificate
to be duly executed.
Business Loan Center, Inc.
Servicer
By:
-------------------------
Name:
Title:
Dated:
-------------------------
This is one of the
Certificates referred
to in the within-mentioned
Agreement.
Marine Midland Bank,
as Trustee
By:
----------------------------
Authorized Signatory
or
Marine Midland Bank,
as Authenticating Agent
By:
----------------------------
Authorized Signatory
B-2-7
<PAGE>
EXHIBIT C
PRINCIPAL AND INTEREST ACCOUNT LETTER AGREEMENT
(date)
To:
-------------------------------
-------------------------------
-------------------------------
(the "Depository")
As "Servicer" under the Pooling and Servicing Agreement, dated as of
December 23, 1998, Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1 Class A and Class B (the "Agreement"), we hereby
authorize and request you to establish an account, as a Principal and Interest
Account pursuant to Section 5.03 of the Agreement, to be designated as
______________________________________ in trust for the registered holders of
Business Loan Center SBA Loan-Backed Adjustable Rate Certificates, Series
1998-1." All deposits in the account shall be subject to withdrawal therefrom by
order signed by the Servicer. You may refuse any deposit which would result in
violation of the requirement that the account be fully insured as described
below. This letter is submitted to you in duplicate. Please execute and return
one original to us.
BUSINESS LOAN CENTER, INC.
By: _____________________
Name: _____________________
Title: _____________________
C-1
<PAGE>
The undersigned, as Depository, hereby certifies that the above
described account has been established under Account Number __________, at the
office of the depository indicated above, and agrees to honor withdrawals on
such account as provided above. The amounts deposited at any time in the account
will be insured to the maximum amount provided by applicable law by the Federal
Deposit Insurance Corporation.
-------------------------------
(Name of Depository)
By: _____________________
Name: _____________________
Title: _____________________
C-2
<PAGE>
EXHIBIT D
[OMITTED]
D-1
<PAGE>
EXHIBIT E
[OMITTED]
E-1
<PAGE>
EXHIBIT E(1)
WIRING INSTRUCTIONS FORM
_______________, 19__
[Paying Agent]
[Trustee]
- ------------------------
- ------------------------
- ------------------------
Re: Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1, [Class A] [Class B] Number
Dear Sir:
In connection with the sale of the above-captioned Certificate
by ___________________________________ to _________________________________,
("Transferee") you, as Paying Agent, are instructed to make all remittances to
Transferee as Certificateholder as of ____________, 19__ by wire transfer. For
such wire transfer, the wiring instructions are as follows:
------------------------
------------------------
------------------------
--------------------------------
Transferee
Certificateholder's mailing address:
Name:
Address:
E(1)-1
<PAGE>
EXHIBIT F-1
FORM OF INITIAL CERTIFICATION
____________ , 199_
[Seller]
[Servicer]
[SBA]
Re: Pooling and Servicing Agreement
Business Loan Center SBA Loan-Backed
Adjustable Rate Certificates,
Series 1998-1, dated as of December 23, 1998
between Business Loan Center, Inc.
and Marine Midland Bank, as Trustee
Gentlemen:
In accordance with Section 2.05 of the above-captioned Pooling
and Servicing Agreement (the "Agreement"), the undersigned, as Trustee, hereby
certifies that, except as noted on the attachment hereto, if any (the "Loan
Exception Report"), it has received each of the documents required to be
delivered to it pursuant to Section 2.04 of the Agreement (not including the
original SBA Notes relating to the SBA ss. 7(a) Loans, which are to be delivered
to the FTA) with respect to each [Initial] [Subsequent] SBA Loan listed in the
SBA Loan Schedule and the documents contained therein appear to bear original
signatures.
The Trustee has made no independent examination of any such
documents beyond the review specifically required in the above-referenced
Pooling and Servicing Agreement.
F-1-1
<PAGE>
The Trustee makes no representations as to: (i) the validity,
legality, sufficiency, enforceability or genuineness of any such documents or
any of the SBA Loans identified on the SBA Loan Schedule, or (ii) the
collectibility, insurability, effectiveness or suitability of any such SBA Loan.
MARINE MIDLAND BANK, as Trustee
By:______________________________
Name:____________________________
Title:___________________________
F-1-2
<PAGE>
EXHIBIT F-2
FORM OF FINAL CERTIFICATION
[date]
[Servicer]
[Seller]
[SBA]
Re: Pooling and Servicing Agreement, Business Loan Center
SBA Loan-Backed Adjustable Rate Certificates,
Series 1998-1, dated as of December 23, 1998
between Business Loan Center, Inc.
and Marine Midland Bank, as Trustee
Gentlemen:
In accordance with Section 2.05 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies that,
except as noted on the attachment hereto, as to each SBA Loan listed in the SBA
Loan Schedule (other than any SBA Loan paid in full or listed on the attachment
hereto) it has reviewed the documents delivered to it pursuant to Section 2.04
of the Pooling and Servicing Agreement and has determined that (i) all such
documents are in its possession, (ii) such documents have been reviewed by it
and have not been mutilated, damaged, torn or otherwise physically altered and
relate to such SBA Loan and (iii) based on its examination or inquiry, and only
as to the foregoing documents, the information set forth in the SBA Loan
Schedule respecting such SBA Loan is correct. The Trustee has made no
independent examination or inquiry of such documents beyond the review
specifically required in the above-referenced Pooling and Servicing Agreement.
The Trustee makes no representations as to: (i) the validity, legality,
enforceability or genuineness of any such documents contained in each or any of
the Loans identified on the SBA Loan Schedule, or (ii) the collectibility,
insurability, effectiveness or suitability of any such SBA Loan or (iii) the
compliance by such documents with statutory or regulatory guidelines.
MARINE MIDLAND BANK, as Trustee
By:______________________________
Name:____________________________
Title:___________________________
F-2-1
<PAGE>
EXHIBIT G
[OMITTED]
G-1
<PAGE>
EXHIBIT H
SBA LOAN SCHEDULE
[NOT ATTACHED]
H-1
<PAGE>
EXHIBIT I
REQUEST FOR RELEASE OF DOCUMENTS
To: [Trustee]
Re: Pooling and Servicing Agreement, Business Loan Center SBA
Loan-Backed Adjustable Rate Certificates, Series 1998-1,
dated as of December 23, 1998
In connection with the administration of the pool of SBA Loans
held by you, we request the release, and acknowledge receipt, of the (Trustee's
SBA File/[specify document]) for the SBA Loan described below, for the reason
indicated. Please execute the attached documents, if any, for the described SBA
Loan for the reasons indicated.
Obligor's Name, Address & Zip Code:
SBA Loan Number:
Business Loan Center, Inc. Loan Number:
Reason for Requesting Documents (check one)
____ 1. SBA Loan Paid in Full
(Servicer hereby certifies that all amounts
received in connection therewith have been credited
to the Principal and Interest Account and remitted to
the Trustee for deposit into the Certificate Account
pursuant to the Pooling and Servicing Agreement.)
____ 2. SBA Loan Liquidated
(Servicer hereby certifies that all proceeds of
foreclosure, insurance or other liquidation have been
finally received and credited to the Principal and
Interest Account and remitted to the Trustee for
deposit into the Certificate Account pursuant to the
Pooling and Servicing Agreement.)
____ 3. SBA Loan in Foreclosure
_____4. SBA Loan Repurchased Pursuant to Section 11.01
of the Pooling and Servicing Agreement.
I-1
<PAGE>
_____5. SBA Loan Repurchased or Substituted Pursuant to
Article II or III of the Pooling and Servicing
Agreement (Servicer hereby certifies that the
repurchase price or Substitution Adjustment has been
credited to the Principal and Interest Account and/or
remitted to the Trustee for deposit into the
Certificate Account pursuant to the Pooling and
Servicing Agreement.)
____ 6. Collateral Being Released Pursuant to Section 5.01(f) of
the Pooling and Servicing Agreement.
____ 7. SBA Loan Collateral being substituted or subordinated.
If box 1 or 2 above is checked, and if all or part of the
Trustee's SBA File was previously released to us, please release to us our
previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified SBA Loan.
If box 3, 4, 5, 6 or 7 above is checked, upon our return of
all of the above documents to you, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
BUSINESS LOAN CENTER, INC.
as Servicer
By:______________________________
Name:____________________________
Date:____________________________
Documents returned to Trustee:
- -------------------------------
Trustee
By: ___________________________
Date: _________________________
I-2
<PAGE>
EXHIBIT J
FORM OF LIQUIDATION REPORT
Customer Name:
Account number:
Original Principal Balance:
1. Unguaranteed Percentage of Liquidation Proceeds
Principal Prepayment $________
Property Sale Proceeds ________
Insurance Proceeds ________
Other (Itemize) ________
Unguaranteed Percentage of
Total Proceeds $_______
2. Servicing Advances $________
Monthly Advances ________
Total Advances $_______
3. Net Liquidation Proceeds $_______
(Line 1 minus Line 2)
4. Principal Balance of the SBA
Loan on date of liquidation $_______
5. Realized (Loss) or Gain $_______
(Line 3 minus Line 4)
J-1
<PAGE>
EXHIBIT K
FORM OF DELINQUENCY REPORT
DELINQUENCY AND FORECLOSURE INFORMATION
<TABLE>
<CAPTION>
RANGES # GROSS GROSS CERT. UNGTD
SERIES (IN DAYS) ACCT AMOUNT PCT AMOUNT PCT
<S> <C> <C> <C> <C> <C> <C>
1 TO 29 DAYS
30 TO 59 DAYS
60 TO 89 DAYS
90 TO 179 Days
180 to 719 Days
720 AND OVER
FORECLOSURE REO
PROPERTY DELINQUENCY
OUTSTANDING
</TABLE>
K-1
<PAGE>
EXHIBIT L
SERVICER'S MONTHLY COMPUTER TAPE FORMAT
The computer tape to be delivered to the Trustee pursuant to
Section 6.09 shall contain the following information for each SBA Loan as of the
related Record Date:
1. Name of the Obligor, address of the Mortgaged Property, if
applicable, and Account Number.
2. The SBA Loan Interest Rate.
3. The Monthly Payment.
4. The dates on which the payments were received for the
applicable Due Period and the amount of such payments
segregated into the following categories; (a) total
interest received (including Servicing Fee, interest
payable to holder of the Guaranteed Interest, the Premium
Protection Fee, FTA's Fee, Excess Spread, Extra Interest
and, if applicable, Additional Fee); (b) interest payable
to the holder of the Guaranteed Interest and FTA's Fee;
(c) principal and Excess Payments received; (d)
Curtailments received; and (e) Principal Prepayments
received.
5. The SBA Loan principal balance.
6. The SBA Loan date and original term to maturity.
7. A "Delinquency Flag" noting that the SBA Loan is current
or delinquent. If delinquent, state the date on which the
last payment was received.
8. For any SBA Loan that is not either 24 months delinquent
or otherwise determined to be uncollectible, a
"Foreclosure Flag" noting that the SBA Loan is the
subject of foreclosure proceedings.
9. For any SBA Loan that is not either 24 months delinquent
or otherwise determined to be uncollectible, an "REO
Flag" noting that the Mortgaged Property is an REO
Property.
10. A "Liquidated SBA Loan Flag" noting that the SBA Loan is
a Liquidated SBA Loan and the Net Liquidation Proceeds
received in connection therewith.
11. Any additional information reasonably requested by the
Trustee.
L-1
<PAGE>
EXHIBIT M
MULTI-PARTY AGREEMENT
AMONG BUSINESS LOAN CENTER, INC., MARINE MIDLAND BANK,
COLSON SERVICES CORP. AND SBA
This Multi-Party Agreement is entered into as of December 23, 1998
(this "Agreement"), by and among Business Loan Center, Inc. (the "SBA Lender"),
Marine Midland Bank, as Trustee ("Trustee"), Colson Services Corp. ("FTA"), and
the United States Small Business Administration ("SBA").
The SBA Lender has made and intends to continue to make loans to small
businesses under the Small Business Act, as amended.
SBA guarantees a portion of each SBA Lender Loan (as defined herein)
in accordance with 13 C.F.R. Part 120 and a Small Business Administration Loan
Guaranty Agreement (SBA Form 750), dated March 27, 1997, between SBA and
Business Loan Center, Inc. as amended, supplemented or replaced from time to
time ("the SBA Agreement").
Because SBA guarantees a portion of each SBA Lender Loan (as defined
herein), SBA has an interest in the SBA Lender Loans, the underlying collateral,
and the Loan Documents (as defined herein).
The SBA Lender has entered into certain Secondary Participation
Guaranty Agreements on SBA Form 1086 (each, a "Participation Agreement") with a
purchaser (each, a "Guaranteed Holder"), FTA and SBA. Under the Participation
Agreements, the SBA Lender has sold the guaranteed portion (the "Guaranteed
Interest") in certain SBA Lender Loans. SBA has caused FTA to issue a
certificate to each Guaranteed Holder which entitles the Guaranteed Holder to
receive the payments and other recoveries of principal relating to the
Guaranteed Interest on the related SBA Lender Loans, together with interest on
the Guaranteed Interest at a per annum rate in effect from time to time in
accordance with the Participation Agreement.
M-1
<PAGE>
The SBA Lender and the Trustee have entered into a Pooling and
Servicing Agreement dated as of December 23, 1998 (the "Pooling and Servicing
Agreement") which establishes a trust (the "Trust"). Under the Pooling and
Servicing Agreement, the SBA Lender will convey the Conveyed Interest (as
defined herein) to the Trust. The Trust will issue certificates (the
"Certificates") evidencing the right to receive the Unguaranteed Interest in the
SBA Lender Loans together with interest.
13 C.F.R. Section 120.420 and the SBA Agreement require the SBA Lender
to obtain SBA's written consent before it sells the Unguaranteed Interest.
The SBA Lender, the Trustee and SBA want to assure consistency between
the SBA Agreement and the Pooling and Servicing Agreement and clarify the
respective rights of the parties.
The SBA Lender, Trustee, FTA and SBA agree as follows:
1. Definitions. In this Agreement, the following terms have the
following meanings:
a. "Conveyed Interest": the Unguaranteed Interest
plus the amount by which the interest collected by the
Servicer on the principal portion of the Guaranteed Interest
of each SBA Lender Loan in the Loan Pool exceeds the sum of
(a) the interest payable to the Registered Holder, (b) the
fees payable to SBA and FTA, (c) the Servicing Fee (d) the
Premium Protection Fee and (e) with respect to Additional Fee
SBA Loans, the Additional Fee (each as defined in the Pooling
and Servicing Agreement).
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b. "Event of Default": as defined in the Pooling and
Servicing Agreement.
c. "Loan Documents": all Notes, mortgages, deeds of
trust, security deeds, security agreements, instruments of
hypothecation, guarantees and other agreements and documents
that relate to the SBA Lender Loans.
d. "Notes": the notes evidencing the SBA Lender
Loans.
e. "Premium Protection Fee": 0.60% per annum of the
then outstanding principal balance of the Guaranteed Interest.
f. "SBA Lender Loan Debtor": any debtor obligated
under an SBA Lender Loan.
g. "SBA Lender Loans": the loans listed on Exhibit
H, as amended or supplemented from time to time, of the
Pooling and Servicing Agreement (including any Subsequent SBA
Loans (as defined in the Pooling and Servicing Agreement)) and
any other loans included in the Trust Fund (as defined in the
Pooling and Servicing Agreement).
h. "SBA Rules and Regulations": the Small Business
Act, as amended, the SBA Agreement, all legislation binding on
SBA with respect to financial transactions, all rules and
regulations promulgated from time to time under the Small
Business Act, and SBA Standard Operating Procedures and
official Notices as from time to time in effect.
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i. "Servicer": the Servicer (as defined in the
Pooling and Servicing Agreement) and, if applicable, any
Subservicer (as defined in the Pooling and Servicing
Agreement).
j. "Servicing Fee": 0.40% per annum of the then
outstanding principal balance of the entire SBA Lender Loans.
k. "Spread Account Excess": as defined in the
Pooling and Servicing Agreement.
l. "Unguaranteed Interest": the portion of each SBA
Lender Loan not guaranteed by SBA.
2. SBA's Guaranteed Interest. The SBA Lender, the Trustee (on behalf
of itself and the holders of the Certificates) and FTA acknowledge SBA's
interest in the Guaranteed Interest of all SBA Lender Loans, together with the
collateral securing the SBA Lender Loans and the Loan Documents, and in all
payments and recoveries with respect to the SBA Lender Loans and the collateral
or any other source, including insurance proceeds and recoveries from
guarantees, and agree to recognize and uphold such interest under SBA Rules and
Regulations. The SBA Lender and Trustee will execute any release, assignment,
endorsement or other document that SBA may from time to time reasonably request
with respect to the Guaranteed Interest. Each of SBA Lender and Trustee will
remit funds it receives in respect of the Guaranteed Interest in the SBA Lender
Loans to FTA or SBA, as appropriate. If SBA purchases the Guaranteed Interest in
any SBA Lender Loan, any recoveries from the SBA Lender Loan Debtor or the
collateral securing the SBA Lender Loan will be distributed pro rata to SBA as
holder of the Guaranteed Interest and to the Trustee as holder of the
Unguaranteed Interest.
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3. Unguaranteed Interest. SBA acknowledges that it has no interest in
the Unguaranteed Interest, the Servicing Fee or the Premium Protection Fee. SBA
further acknowledges that it has no interest in any collateral that secures any
SBA Lender Loan or any Loan Document, except to the extent the collateral
secures or a Loan Document relates to the Guaranteed Interest. The collateral
for an SBA Lender Loan secures the Guaranteed Interest and the Unguaranteed
Interest pari passu and all recoveries from insurance, guarantees or any other
source will be shared pro rata. If SBA receives any amount in respect of the
Conveyed Interest, SBA will remit the sum to Trustee for the credit of the SBA
Lender, provided that in no event will SBA have any obligation to pay any amount
not owed by SBA under SBA Rules and Regulations. If SBA receives any amount in
respect of the Servicing Fee or the Premium Protection Fee, SBA will remit the
sum to the SBA Lender, for distribution to itself, or, if the SBA Lender is not
the Servicer, the Servicer, provided that Trustee shall have given FTA and SBA
15 days prior written notice under this Agreement of the change in Servicer.
This Agreement constitutes a notice of claims assignment for the full term of
the Pooling and Servicing Agreement under the Federal Assignment of Claims Act
of 1940, as amended, 31 U.S.C. Section 3727, with respect to any right to
payment of any Unguaranteed Interest or the Servicing Fee or the Premium
Protection Fee.
4. SBA Consent to Pooling and Servicing Agreement.
(a) SBA consents to the SBA Lender's execution and
performance of the Pooling and Servicing Agreement and the
transactions contemplated in it including, but not limited to,
the sales of the Class A Certificates (as defined in the
Pooling and Servicing Agreement).
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(b) Notwithstanding anything to the contrary
contained in the Pooling and Servicing Agreement, a default by
the SBA Lender under another agreement or a default by an
entity other than the SBA Lender under another agreement may
not be an event of default under the Pooling and Servicing
Agreement. Trustee waives any rights it may have, including
rights of set-off and banker's liens, to any account of the
SBA Lender into which payments from the SBA Lender Loan
Debtors are received and the Principal and Interest Account
(as defined in the Pooling and Servicing Agreement).
(c) It is a condition precedent to the effectiveness
of this Agreement that SBA receive opinions of counsel stating
that the Multi-Party Agreement is enforceable against the
Trustee and the SBA Lender.
5. SBA Lender to Retain Ultimate Risk of Loss. As required by 13
C.F.R. Section 120.420(b)(2), the SBA Lender must retain an economic risk in and
bear the ultimate risk of loss on the Unguaranteed Interest. The SBA Lender will
establish the Spread Account under the Pooling and Servicing Agreement and cause
a wholly-owned subsidiary to be and remain the Spread Account Depositor (as
defined in the Pooling and Servicing Agreement) and cause a wholly-owned
subsidiary to retain the Class B Certificates in accordance with Section 11
hereof.
6. Premium Protection Fee and Servicing Fee. The Servicer will retain
the Premium Protection Fee and the Servicing Fee with respect to all SBA Lender
Loans.
7. Restriction on Use of SBA Lender Loans. The SBA Lender will not use
the SBA Lender Loans or the collateral supporting the SBA Lender Loans for any
borrowing or other financing not related to financing of the guaranteed or
unguaranteed portions of the SBA Lender Loans.
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8. FTA To Hold Original SBA Lender Notes; Possession of Loan
Documents. (a) The SBA Lender will deliver all original Notes relating to the
Initial SBA Loans (as defined in the Pooling and Servicing Agreement) to FTA
prior to the issuance of the Certificates and the SBA Lender will deliver all
original Notes relating to the Subsequent SBA Loans (as defined in the Pooling
and Servicing Agreement) to FTA prior to each Subsequent Transfer of the
Subsequent SBA Loans. Each Note will be endorsed by means of an allonge (an
endorsement of the Note constituting a separate piece of paper) as follows: "Pay
to the order of Marine Midland Bank, and its successors and assigns, as trustee
under the Pooling and Servicing Agreement dated as of December 23, 1998, for the
benefit of the United States Small Business Administration and the holders of
Business Loan Center SBA Loan-Backed Certificates, Series 1998-1, Class A and
Class B as their respective interests may appear, without recourse." Upon
receiving the Note, FTA will deliver to SBA Lender and the Trustee a receipt for
such Note in the form of Exhibit 1.
(b) The Notes are being delivered to FTA for the
purposes of protecting the SBA's and the Certificateholders'
respective interests. SBA appoints FTA as its fiscal and
transfer agent and each of SBA and the Trustee appoint FTA as
its agent to hold the Notes. FTA does not and will not during
the term of this Agreement have any interest in the SBA Lender
Loans in the Loan Pool or the related Loan Documents.
(c) FTA will not release any Note to either the SBA
Lender or any other person except (i) upon receipt from the
SBA Lender of a Request for Release of Note in the form of
Exhibit 3, along with a consent to release from the Trustee,
or (ii) with SBA's prior written consent. Upon receipt of the
required request and consent, FTA will release, within 3
Business Days, the related Note. The Servicer will return the
Notes to FTA in accordance with the appropriate provisions of
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the Pooling and Servicing Agreement and when the Notes are
returned to FTA, FTA will issue a receipt in the form of
Exhibit 1 hereto. SBA will notify Duff and Phelps Credit
Rating Co. if FTA releases any Note solely upon the
instructions of SBA.
(d) Upon reasonable notice to FTA, SBA will have the
right during normal business hours to inspect the original
Notes at FTA's office.
(e) The SBA Lender will deliver to the Trustee the
Loan Documents and assignments of Loan Documents in accordance
with the Pooling and Servicing Agreement. All instruments of
assignment will assign the applicable collateral to "Marine
Midland Bank ("Assignee") its successors and assigns, as
trustee under the Pooling and Servicing Agreement dated as of
December 23, 1998, subject to the Multi-Party Agreement dated
as of December 23, 1998". All financing statements will name
the Trustee as secured party. Any power of attorney from the
SBA Lender to Trustee must require the Trustee to deal with
the collateral in accordance with the terms of the Pooling and
Servicing Agreement and this Agreement.
(f) If the Servicer or SBA must be the record owner
or secured party with respect to any Note or any loan document
or any collateral securing any Note for any purpose including,
without limitation, to liquidate (including by any judicial
means) or otherwise pursue remedies against any SBA Lender
Loan Debtor or any collateral securing any Note, the Trustee
will assign such Note or collateral to the Servicer, or SBA,
as necessary.
9. Servicing of SBA Lender Loans. The Servicer will service the SBA
Lender Loans. The Servicer will remit funds to which the Guaranteed Holders or
SBA is entitled in accordance with the terms of the Participation Agreements,
and will remit to the Trustee funds which are required to be remitted to the
Trustee in accordance with the terms of the Pooling and Servicing Agreement. The
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Servicer must proceed with all collection, enforcement of remedies and
liquidation actions against SBA Lender Loan Debtors in default in accordance
with SBA Rules and Regulations. The Servicer must perform all servicing
activities in accordance with SBA Rules and Regulations, the Participation
Agreements and, to the extent there is no conflict, the Pooling and Servicing
Agreement. Property acquired through foreclosure or deed in lieu of foreclosure
will be titled in the name of Trustee for the benefit of SBA and the holders of
the Certificates, as their interests may appear, subject to the terms of this
Agreement. The Servicer will continue to administer such property and will be
responsible for its disposition in accordance with the SBA Rules and Regulations
and, to the extent there is no conflict, the terms of the Pooling and Servicing
Agreement. The Servicer will distribute disposition proceeds to SBA, as party in
interest with respect to the Guaranteed Interest, and to Trustee in respect of
the Unguaranteed Interest, pro rata. SBA may, at its option, assume servicing of
any SBA Lender Loan in accordance with SBA Rules and Regulations. Unless the
Trustee becomes the Servicer, the Trustee will not take (i) any action regarding
the servicing of any SBA Lender Loan or (ii) any action with respect to any SBA
Lender Loan Debtor or any collateral securing any SBA Lender Loan. Any actions
required of SBA Lender under the Pooling and Servicing Agreement or this
Agreement may be performed by or through a subservicer approved by SBA under an
agreement approved by SBA, but any such subservicing arrangement will not limit
or reduce the SBA Lender's obligations or liabilities as servicer under the
Pooling and Servicing Agreement or this Agreement.
10. Default Under Pooling and Servicing Agreement. The Trustee will
give SBA prompt written notice of an Event of Default and prompt written notice
of any termination of the Servicer as Servicer under the Pooling and Servicing
Agreement. Upon an Event of Default and termination of the Servicer as Servicer
in accordance with the terms of the Pooling and Servicing Agreement, Trustee may
be substituted as Servicer so long as Trustee is then an approved SBA
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participating lender in good standing, operating under a current Small Business
Administration Loan Guaranty Agreement (Deferred Participation) (Form 750). If
Trustee does not meet that condition or is otherwise unable to act or if the SBA
requests in writing, Trustee will appoint another Servicer in accordance with
the Pooling and Servicing Agreement. Any successor Servicer must agree to be
bound by the terms of this Agreement and must execute an agreement in the form
of Exhibit 2. Any substitute Servicer will be entitled to receive the Servicing
Fee and the Premium Protection Fee.
11. Transferees. Other than the issuance of the Certificates, Trustee
will not sell, participate, pledge, hypothecate, enter into any repurchase
agreement with respect to, or otherwise transfer any of its interest in any SBA
Lender Loan or any Note without SBA's prior written consent. The proposed
transferee must be an approved SBA participating lender in good standing,
operating under a current Small Business Administration Loan Guaranty Agreement
(Deferred Participation) (Form 750) and must be acceptable to SBA. Upon
consenting to any proposed transfer, SBA will give FTA prompt written notice.
Any transferee must agree to be bound by the terms of this Agreement. Upon
initial issuance, the Class B Certificate will be issued to and registered in
the name of Business Loan Center Financial Corp. II, a wholly-owned subsidiary
of the SBA Lender which will retain legal and beneficial ownership of the Class
B Certificate. The SBA Lender agrees that Business Loan Center Financial Corp.
II will not sell, pledge, transfer, assign or otherwise convey, in whole or in
part, the Class B Certificate without the prior written consent of SBA.
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12. SBA Lender Acknowledgment of Continuing Obligation; No Assumption
of Liabilities. No action taken by Trustee, SBA or the Servicer under this
Agreement, the SBA Agreement, or the Pooling and Servicing Agreement will
release or relieve SBA Lender of any of its obligations to SBA or to the
Trustee. None of SBA, Trustee, FTA or the Servicer will incur any liability or
obligation to SBA Lender by reason of any reasonable or customary action taken
in carrying out the provisions of this Agreement. Neither the execution of this
Agreement, nor the taking of any action by Trustee, SBA, FTA or the Servicer
under this Agreement will be an assumption by Trustee, SBA, FTA or the Servicer
of any liabilities or obligations of SBA Lender. The provisions of this Section
will survive termination of this Agreement.
13. FTA's and SBA's Limited Liability and Expenses. (a) FTA may rely
upon any signature, notice, certificate, or other document reasonably believed
by it to be genuine and to have been signed by the party purporting to sign it.
SBA Lender will assume liability for and indemnify, protect, and hold harmless
FTA from any liabilities or losses arising out of this Agreement, except in the
case of FTA's gross negligence or willful misconduct. SBA Lender will reimburse
FTA for all expenses, taxes, and other charges that FTA incurs in administering
this Agreement. SBA Lender will pay FTA its standard fee for its services under
this Agreement. In performing its obligations under this Agreement, FTA will not
follow instructions from any party other than SBA or, pursuant to Section 8(c),
upon the request of the SBA Lender and concurring instructions of Trustee. The
SBA Lender will not hold FTA liable for any action taken in accordance with such
instructions.
(b) SBA may rely on any signature, notice,
certificate, request or other document reasonably believed by
it to be genuine and to have been signed by the party
purporting to sign it. SBA Lender will assume liability for
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and indemnify, protect and hold harmless SBA from all
liabilities or losses arising out of this Agreement, except in
the case of gross negligence or willful misconduct. Upon
request by SBA, SBA Lender will reimburse SBA for all expenses
and other charges that SBA incurs in connection with this
Agreement.
(c) The provisions of this Section 13 will survive
any termination of this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts each of which will be an original.
15. Inconsistencies. If any provision of this Agreement is
inconsistent with any provision in any other agreement, including but not
limited to the Pooling and Servicing Agreement, the provision of this Agreement
controls. The Pooling and Servicing Agreement and any agreements entered into in
connection with such agreement are amended to the extent necessary to give
effect to the prior sentence. The SBA Agreement is amended to provide that FTA
will hold the Notes that are transferred pursuant to the Pooling and Servicing
Agreement and that the Trustee may hold the Loan Documents as provided in this
Agreement.
16. Amendment and Term. This Agreement may not be terminated or
amended without the prior written consent of the parties. Neither the SBA
Agreement nor the Pooling and Servicing Agreement may be amended in any manner
that would impair the respective rights of the SBA or the Trustee under this
Agreement without the prior written consent of the party so affected.
17. Governing Law. Except to the extent inconsistent with Federal Law,
in which case Federal Law will govern, this Agreement will be interpreted and
construed in accordance with the laws of the State of New York, without
reference to its conflict of laws rules.
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18. Successors and Assigns. This Agreement binds and benefits the
parties and their respective successors and
assigns.
19. Section Headings. The section headings in this Agreement are for
convenience only, and are without substantive meaning or content.
20. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will be given no effect and will not
invalidate any other provision of this Agreement.
21. Notices and Deliveries. Except as otherwise expressly provided in
this document, all notices or deliveries under this Agreement will be given by
actual delivery to the parties at the addresses below or to such other addresses
that any party may designate for itself by written notice to each of the other
parties. All notices will be effective upon receipt by the applicable party.
If to the SBA Lender, at:
Business Loan Center, Inc.
645 Madison Avenue
New York, New York 10022
Telecopy No.: 212 751-9345
Attention: Robert Tannenhauser
If to the Trustee, at:
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Administration
If to FTA, at:
Colson Services Corp.
120 Broadway, 19th floor
New York, New York 10271
Attn: President
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If to SBA, at:
U.S. Small Business Administration
409 3rd Street, S.W.
Washington, D.C. 20416
Attn: Associate Administrator for
Financial Assistance
Additionally, the SBA Lender will provide SBA with a copy of (i) the
SBA Loan Schedule included as Exhibit H to the Pooling and Servicing Agreement,
as amended or supplemented from time to time, along with any amendments thereto
delivered to the Trustee, and (ii) each delinquency and foreclosure report
prepared in accordance with clause (viii) of Section 6.09 of the Pooling and
Servicing Agreement. Such Schedules and reports will be sent (to the extent
practicable, in electronic format) to Mr. James Hammersley, Director of
Secondary Market Sales ([email protected]).
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IN WITNESS WHEREOF the SBA Lender, the Trustee, FTA, and SBA
have executed this Agreement below.
BUSINESS LOAN CENTER, INC.
By:
------------------------------
MARINE MIDLAND BANK, not in
its individual capacity
but solely as Trustee
By:
-----------------------------
UNITED STATES SMALL BUSINESS
ADMINISTRATION
By:
-----------------------------
Name: Jane Palsgrove Butler
Title: Associate Administrator
for Financial Assistance
COLSON SERVICES CORP.
By:
------------------------------
Name: Roy Simpson, Jr.
Title: Executive Vice President
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EXHIBIT 1
ACKNOWLEDGMENT OF RECEIPT OF NOTE
___________, 199_
In accordance with Section 8 of the Multi-Party Agreement,
dated as of December 23, 1998, by and among Business Loan Center, Inc., Marine
Midland Bank, Colson Services Corp. ("Colson") and the United States Small
Business Administration ("SBA"), Colson, hereby acknowledges receipt of the SBA
guaranteed Note described below with respect to the following:
MAKER:
ORIGINAL PRINCIPAL AMOUNT:
DATE OF NOTE:
SBA LOAN NUMBER (GP NUMBER):
BUSINESS LOAN CENTER, INC. ACCOUNT NUMBER:
COLSON SERVICES CORP.
By:_______________________________
Its:______________________________
INSTRUCTIONS TO COLSON SERVICES CORP. One original executed copy of this receipt
should be made available for pick-up at the office of Colson or delivered to
Marine Midland Bank, as trustee, 140 Broadway, 12th Floor, New York, New York
10005, and a copy to Business Loan Center, Inc., 645 Madison Avenue, New York,
New York 10022.
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EXHIBIT 2
The undersigned consents and agrees to be bound as successor
Servicer by the terms of foregoing Multi-Party Agreement dated as of December
23, 1998 among Business Loan Center, Inc., Marine Midland Bank, as Trustee,
Colson Services Corp. and the United States Small Business Administration.
-----------------------------------
By: ___________________________________
Name:____________________________
Title:___________________________
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EXHIBIT 3
REQUEST FOR RELEASE OF NOTE
_____________, 199_
Colson Services Corp.
As Agent for the United States
Small Business Administration
120 Broadway, 19th floor
New York, NY 10271
In accordance with Section 8(c) of the Multi-Party Agreement dated as
of December 23, 1998 by and among Business Loan Center, Inc., Marine Midland
Bank, Colson Services Corp. ("Colson") and the United States Small Business
Administration ("SBA") and, subject to your receipt of concurrence from Marine
Midland Bank, as Trustee, Business Loan Center, Inc. hereby requests release of
the Note described below:
OBLIGOR'S NAME AND ADDRESS:
SBA LOAN NUMBER (GP NUMBER):
Reason for Requesting Note
(ONE OF THESE MUST BE CHECKED)
____1. SBA Loan Paid in Full
____2. SBA Loan Liquidated
____3. SBA Loan in Foreclosure
____4. SBA Loan repurchased pursuant to Section 11.01 of the Pooling and
Servicing Agreement, dated as of December 23, 1998, relating to
Business Loan Center SBA Loan-Backed Adjustable Rate Certificates,
Series 1998-1 (The "Pooling and Servicing Agreement")
____5. SBA Loan repurchased or substituted pursuant to Article II or
Article III of the Pooling and Servicing Agreement
____6. Collateral being released pursuant to Section 5.01(f) of the
Pooling and Servicing Agreement
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____7. SBA Loan collateral being substituted or subordinated
BUSINESS LOAN CENTER, INC.
By: ________________________
Its: ________________________
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EXHIBIT N
SPREAD ACCOUNT AGREEMENT
This Spread Account Agreement is dated as of December 30, 1998
(the "Agreement") among Business Loan Center Financial Corp. II, a Delaware
corporation, as Spread Account Depositor (the "Spread Account Depositor"),
Marine Midland Bank, as trustee (the "Trustee"), and Marine Midland Bank, in its
capacity as custodian hereunder (the "Spread Account Custodian"). All
capitalized terms used but not otherwise defined herein shall have the meanings
set forth in the Pooling and Servicing Agreement referred to below.
WHEREAS, Business Loan Center, Inc. (the "Seller"), and Marine
Midland Bank, in its capacity as Trustee, have entered into a Pooling and
Servicing Agreement, dated as of December 23, 1998 (the "Pooling and Servicing
Agreement"), in connection with the establishment of a Trust (the "Trust") and
the issuance of Business Loan Center SBA Loan-Backed, Adjustable Rate
Certificates, Series 1998-1, representing an undivided beneficial ownership
interest in the Trust;
WHEREAS, the Spread Account Depositor wishes to establish the
Spread Account (the "Account") with the Spread Account Custodian, to be used in
accordance with the provisions of Section 6.02 of the Pooling and Servicing
Agreement; and
WHEREAS, the Spread Account Custodian herein agrees to
maintain the Account in accordance with the terms of this Agreement and the
Pooling and Servicing Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
Section 1. Definitions. In addition to those terms defined in the
Pooling and Servicing Agreement and otherwise herein, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
"Account" has the meaning set forth in the second
WHEREAS clause hereof.
"Account Property" has the meaning set forth in Section
3 hereof.
"Certificated Securities" has the meaning set forth in
Section 8-102(4) of the UCC.
"Clearing Corporation" has the meaning set forth in
Section 8-102(5) of the UCC.
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"Eligible Deposit Account" means either (a) a
segregated account with a Designated Depository Institution
(as defined in the Pooling and Servicing Agreement) or (b) a
segregated trust account with the corporate trust department
of a depository institution organized under the laws of the
United States of America or any one of the States (or any
domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such
account.
"Delivery" when used with respect to Account Property
means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
instruments and are susceptible of physical delivery ("Physical Property"):
(i) transfer of possession thereof to the Spread Account
Custodian, endorsed to, or registered in the name of,
the Spread Account Custodian or its nominee or endorsed
in blank;
(b) with respect to a certificated security:
(i) delivery thereof in bearer form to the Spread Account
Custodian; or
(ii) delivery thereof in registered form to the Spread
Account Custodian and
(A) the certificate is endorsed to the Spread Account
Custodian or in blank by effective endorsement; or
(B) the certificate is registered in the name of the
Spread Account Custodian, upon original issue or
registration of transfer by the issuer;
(c) with respect to an uncertificated security:
(i) the delivery of the uncertificated security to the
Spread Account Custodian; or
(ii) the issuer has agreed that it will comply with
instructions originated by the Spread Account Custodian
without further consent by the registered owner;
(d) with respect to any security issued by the U.S. Treasury that
is a book-entry security held through the Federal Reserve System pursuant to
Federal book-entry regulations:
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(i) a Federal Reserve Bank by book entry credits the
book-entry security to the securities account (as
defined in 31 CFR Part 357) of a participant (as
defined in 31 CFR Part 357) which is also a securities
intermediary; and
(ii) the participant indicates by book entry that the
book-entry security has been credited to the Spread
Account Custodian's securities account;
(e) with respect to a security entitlement:
(i) the Spread Account Custodian becomes the entitlement
holder; or
(ii) the securities intermediary has agreed that it will
comply with entitlement orders originated by the Spread
Account Custodian without further consent by the
entitlement holder;
(f) for the purpose of clauses (b) and (c) hereof "delivery"
means:
(i) with respect to a certificated security:
(A) the Spread Account Custodian acquires possession
thereof;
(B) another person (other than a securities
intermediary) either acquires possession thereof
on behalf of the Spread Account Custodian or,
having previously acquired possession thereof,
acknowledges that it holds for the Spread Account
Custodian; or
(C) a securities intermediary acting on behalf of the
Spread Account Custodian acquires possession of
thereof, only if the certificate is in registered
form and has been specially endorsed to the Spread
Account Custodian by an effective endorsement;
(ii) with respect to an uncertificated security:
(A) the issuer registers the Spread Account Custodian
as the registered owner, upon original issue or
registration of transfer; or
(B) another person (other than a securities
intermediary) either becomes the registered owner
thereof on behalf of the Spread Account Custodian
or, having previously become the registered owner,
acknowledges that it holds for the Spread Account
Custodian;
(g) for purposes of this definition, except as otherwise
indicated, the following terms shall have the meaning assigned to each such term
in the UCC:
(i) "certificated security"
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(ii) "effective endorsement"
(iii) "entitlement holder"
(iv) "instrument"
(v) "securities account"
(vi) "securities entitlement"
(vii) "securities intermediary"
(viii) "uncertificated security"
(h) in each case of Delivery contemplated herein, the Spread
Account Custodian shall make appropriate notations on its records, and shall
cause the same to be made on the records of its nominees, indicating that
securities are held in trust pursuant to and as provided in this Agreement.
"Depositary" has the meaning set forth in 31 C.F.R.
306.118 or similar federal regulations governing the transfer
of securities issued by the United States Treasury which are
maintained in book-entry form.
"Securities Intermediary" has the meaning set forth
in Section 8-102 (a)(14) of the UCC.
"Instruments" has the meaning set forth in Section
9-105(l)(ii) of the UCC but excludes any "instruments" that
are "certificated securities" as defined in Section 8-102(l)
(a) of the UCC.
"Physical Property" has the meaning set forth in
clause (i) of the definition of "Delivery" in this Section 1.
"UCC" means the New York Uniform Commercial Code.
"Uncertificated Security" has the meaning set forth
in Section 8-102(a)(18) of the UCC.
Section 2. Appointment of Spread Account Custodian. The Spread Account
Depositor and the Trustee hereby appoint Marine Midland Bank as their agent
under this Agreement to act on their behalf in accordance with the terms of this
Agreement with respect to their interests in the Account and all amounts and
investments deposited therein or credited thereto. Marine Midland Bank hereby
accepts and acknowledges its appointment as agent on behalf of the Spread
Account Depositor and the Trustee.
N-4
<PAGE>
Section 3. Pledge of Security Interest. The Spread Account Depositor
hereby assigns, sells, conveys and transfers to the Spread Account Custodian and
its successors and assigns, and grants thereto a security interest in, all of
its right, title and interest in and to all amounts payable to the Spread
Account pursuant to Section 6.02 of the Pooling and Servicing Agreement, the
Account, all amounts deposited therein or credited thereto, from time to time,
and all proceeds of the foregoing, including, without limitation, all other
amounts and investments held from time to time in the Account (whether in the
form of deposit accounts, Physical Property, book-entry securities,
Uncertificated Securities, or otherwise) in consideration of its right to
receive Excess Spread in accordance with Section 6.02 of the Pooling and
Servicing Agreement (all of the foregoing, collectively, the "Account
Property"), to have and to hold all the aforesaid property, rights and
privileges unto the Spread Account Custodian, its successors and assigns, in
trust for the benefit of the Trustee and the Certificateholders, subject to the
terms and provisions, set forth in this Agreement. The Spread Account Custodian
hereby acknowledges such transfer and, upon receipt, shall hold and distribute
the Account Property in accordance with the terms and provisions of this
Agreement.
Section 4. Establishment of the Account. In consideration of its right
to receive Excess Spread in accordance with Section 6.02 of the Pooling and
Servicing Agreement, the Spread Account Depositor hereby establishes and shall
hereafter maintain with the Spread Account Custodian the Account as a separate
trust account to include the money and other property deposited and held therein
pursuant hereto. The Account shall be a segregated trust account maintained in
New York and initially established with the Spread Account Custodian and
maintained with the Spread Account Custodian in the Corporate Trust Department
of the Spread Account Custodian. The Spread Account Custodian acknowledges the
interest of the Trustee in the Account, as set forth herein and in Article VI of
the Pooling and Servicing Agreement. The Spread Account Custodian further
acknowledges and agrees that (i) any deposits to the Account shall be made
solely by the Servicer or the Trustee in accordance with Section 6.02(a) of the
Pooling and Servicing Agreement; (ii) any withdrawals from the Account shall be
made by the Spread Account Custodian solely upon instructions therefor given by
the Trustee as specifically set forth in Section 6.02(b) of the Pooling and
Servicing Agreement; and (iii) the Seller, the Servicer and the Spread Account
Depositor shall have no rights to receive any amounts in the Account other than
as specifically set forth herein and in Section 6.02(b) of the Pooling and
Servicing Agreement.
Section 5. Delivery of Account Property. With respect to the Account
Property, the Spread Account Depositor and the Spread Account Custodian agree
that:
(a) any Account Property that is held in deposit
accounts shall be held solely in an Eligible Deposit Account;
and each such deposit account shall be subject to the
exclusive dominion and control of the Spread Account
Custodian, and the Spread Account Custodian shall have sole
signature authority with respect thereto;
N-5
<PAGE>
(b) any Account Property that is Physical Property
shall be delivered to the Spread Account Custodian in
accordance with paragraph (a) of the definition of "Delivery"
and shall be held, pending maturity or disposition, solely by
the Spread Account Custodian or a securities intermediary (as
such term is defined in Section 8-102(a)(14) of the Relevant
UCC);
(c) any Account Property that is a "certificated
security" under Article 8 of the Relevant UCC shall be
delivered to the Spread Account Custodian in accordance with
paragraph (b) of the definition of "Delivery" and shall be
held, pending maturity or disposition, solely by the Spread
Account Custodian or a securities intermediary (as such term
is defined in Section 8-102(a)(14) of the Relevant UCC);
(d) any Account Property that is an "uncertificated
security" under Article 8 of the Relevant UCC shall be
delivered to the Spread Account Custodian in accordance with
paragraph (c) of the definition of "Delivery" and shall be
maintained by the Spread Account Custodian, pending maturity
or disposition, through continued registration on the books
and records of the issuer thereof of the ownership of such
security by the Spread Account Custodian (or its nominee) or a
securities intermediary (as such term is defined in Section
8-102(a)(14) of the Relevant UCC);
(e) any Account Property that is a book-entry
security held through the Federal Reserve System pursuant to
Federal book-entry regulations shall be delivered to the
Spread Account Custodian in accordance with paragraph (d) of
the definition of "Delivery" and shall be maintained by the
Spread Account Custodian, pending maturity or disposition,
through continued book-entry registration of such Account
Property in the name of the Spread Account Custodian or a
securities intermediary (as such term is defined in Section
8-102(a)(14) of the Relevant UCC), and
(f) any Account Property held through a securities
intermediary (as such term is defined in Section 8-102(a)(14)
of the Relevant UCC) shall be held in a securities account (as
such term is defined in Section 8-501(a) of the Relevant UCC)
that is established by such securities intermediary in the
name of the Spread Account Custodian for which the Spread
Account Custodian is the sole entitlement holder (as defined
in Section 8-102(a)(7) of the Relevant UCC).
Section 6. Investment. Amounts held in the Account shall be invested in
Permitted Instruments in accordance with the provisions of Section 6.06 of the
Pooling and Servicing Agreement. All such investments shall be made in the name
of the Spread Account Custodian or its nominee, and all income and gain realized
thereon shall be retained in the Account until withdrawals are permitted under
Section 6.02(b)(iii) of the Pooling and Servicing Agreement.
N-6
<PAGE>
Section 7. Statement of Account. On or before each Determination Date,
the Spread Account Custodian shall deliver to the Trustee, the Servicer and the
Spread Account Depositor an account statement of the Spread Account Custodian
setting forth, as of such date, (i) the amount on deposit in the Account, (ii)
the activity in the Account for the preceding month and (iii) the amount of any
income or gain (or loss) on amounts held in the Account.
Section 8. Termination. This Agreement shall terminate upon
the termination of the Pooling and Servicing Agreement in accordance with its
terms. Upon termination of this Agreement, any amounts on deposit in the Account
shall be paid by the Spread Account Custodian to the Spread Account Depositor in
accordance with the terms of the Pooling and Servicing Agreement.
Section 9. Amendment. This Agreement may be amended by the Spread
Account Depositor and the Spread Account Custodian with the consent of the
Trustee. The parties hereto agree to make any changes to this Agreement required
by the Rating Agency in order to obtain an investment-grade rating.
Section 10. Counterparts. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same Agreement.
SECTION 11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW.
Section 12. Notices. All demands, notices and communications upon or
to the Spread Account Depositor, the Servicer, the Spread Account Custodian or
the Trustee under this Agreement shall be in writing, personally delivered or
mailed by certified mail, return receipt requested, and shall be deemed to have
been duly given upon receipt (a) in the case of the Trustee, at the address
therefor set forth in Section 13.06 of the Pooling and Servicing Agreement; (b)
in the case of the Spread Account Custodian, c/o Marine Midland Bank at 140
Broadway, New York, New York 10005, 12th Floor, Attention: Corporate Trust
Department; and (c) in the case of the Spread Account Depositor, c/o Business
Loan Center, Inc., 645 Madison Avenue, New York, New York 10022.
Section 13. Severability of Provisions. If any one or more of the
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such agreements, provisions or terms shall be
deemed severable from the remaining agreements, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other
provisions of this Agreement.
N-7
<PAGE>
Section 14. Assignment; Benefit of Agreement. Notwithstanding anything
to the contrary contained herein, this Agreement may not be assigned by the
Spread Account Depositor Spread Account Custodian without the prior written
consent of the Trustee. Subject to the foregoing, this Agreement will inure to
the benefit of and be binding upon the parties hereto and the Trustee and their
respective successors and permitted assigns.
N-8
<PAGE>
IN WITNESS WHEREOF, the Spread Account Depositor, the Trustee
and the Spread Account Custodian have caused this Spread Account Agreement to be
duly executed by their respective officers as of the day and year first above
written.
MARINE MIDLAND BANK,
as Trustee
By:
------------------------------
Authorized Officer
MARINE MIDLAND BANK,
as Spread Account Custodian
By:
------------------------------
Name:________________________
Title:_______________________
BUSINESS LOAN CENTER FINANCIAL CORP. II
as Spread Account Depositor
By:
-----------------------------
Name: ___________________________
Title: ___________________________
N-9
<PAGE>
EXHIBIT O-1
FORM OF TRANSFEREE LETTER [NON-RULE 144A]
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, New York 10005
Business Loan Center, Inc.,
as Servicer
645 Madison Avenue
New York, New York 10022
Attention: Corporate Trust Administration
__________, 199_
Re: Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1, Class
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
institutional "Accredited Investor," as defined in the Pooling and Servicing
Agreement pursuant to which the Certificates were issued (the "Agreement"), and
have such knowledge and experience in financial and business matters that we are
capable of evaluating the merits and risks of investments in the Certificates,
(c) we have had the opportunity to ask questions of and receive answers from the
Seller concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are acquiring the Certificates for investment
for our own account and not with a view to any distribution of such Certificates
(but without prejudice to our right at all times to sell or otherwise dispose of
the Certificates in accordance with clause (f) below), (e) we have not offered
or sold any Certificates to, or solicited offers to buy any Certificates from,
any person, or otherwise approached or negotiated with any person with respect
thereto, or taken any other action which would result in a violation of Section
5 of the Act, (f) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of counsel satisfactory to the addressees of this Certificate that
such sale, transfer or other disposition may be made pursuant to an exemption
O-1-1
<PAGE>
from the Act, (2) the purchaser or transferee of such Certificate has executed
and delivered to you a certificate to substantially the same effect as this
certificate if required by the Agreement, and (3) the purchaser or transferee
has otherwise complied with any conditions for transfer set forth in the
Agreement and (g) with respect to a Class B Certificate, the purchaser is not
acquiring a Class B Certificate, directly or indirectly, for or on behalf of:
(i) an employee benefit plan or other retirement arrangement subject to the
Employee Retirement Income Security Act of 1974, as amended, and/or Section 4975
of the Internal Revenue Code of 1986, as amended, or (ii) any entity, the assets
of which would be deemed plan assets under the Department of Labor regulations
set forth at 29 C.F.R. ss.2510.3-101.
Very truly yours,
-------------------------
Print Name of Transferee
By:
----------------------
Authorized Officer
O-1-2
<PAGE>
EXHIBIT O-2-A
FORM OF RULE 144A CERTIFICATION
Business Loan Center, Inc.,
as Servicer
645 Madison Avenue
New York, New York 10022
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Administration
_________, 199_
Re: Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1, Class A
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have had the
opportunity to ask questions of and receive answers from the Seller concerning
the purchase of the Certificates and all matters relating thereto or any
additional information deemed necessary to our decision to purchase the
Certificates, (c) we have not, nor has anyone acting on our behalf offered,
transferred, pledged, sold or otherwise disposed of the Certificates, any
interest in the Certificates or any other similar security to, or solicited any
offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from, or otherwise approached or negotiated with respect to the Certificates,
any interest in the Certificates or any other similar security with, any person
in any manner, or made any general solicitation by means of general advertising
or in any other manner, or taken any other action, that would constitute a
distribution of the Certificates under the Act or that would render the
disposition of the Certificates a violation of Section 5 of the Act or require
registration pursuant thereto, nor will act, nor has authorized or will
authorize any person to act, in such manner with respect to the Certificates,
(d) we are a "qualified institutional buyer" as that term is defined in Rule
144A under the Act and have completed the form of certification to that effect
O-2-A-1
<PAGE>
attached hereto as Annex 1. We are aware that the sale to us is being made in
reliance on Rule 144A. We are acquiring the Certificates for our own account or
for resale pursuant to Rule 144A and further, understand that such Certificates
may be resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own account or for
the account of a qualified institutional buyer to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A, or (ii)
pursuant to another exemption from registration under the Act.
O-2-A-2
<PAGE>
ANNEX 1 TO EXHIBIT O-2-A
[Date]
[Placement Agent]
[Address]
[Issuer]
[Address]
Re: Business Loan Center SBA Loan-Backed Adjustable
Rate Certificates, Series 1998-1, Class A and Class B
(the "Confidentially Offered Securities")
Ladies and Gentlemen:
In connection with our purchase of Confidentially Offered Securities,
the undersigned certifies to each of the parties to whom this letter is
addressed that it is a qualified institutional buyer (as defined in Rule 144A
under the Securities Act of 1933, as amended (the "Act")) as follows:
1. It owns and/or invests on a discretionary basis eligible securities
(excluding affiliate's securities, bank deposit notes and CD's, loan
participations, repurchase agreements, securities owned but subject to a
repurchase agreement and currency, interest rate and commodity swaps),
as described below:
Amount:(1) $_________________; and
2. The dollar amount set forth above is:
a. greater than $100 million and the undersigned is one of the
following entities:
(1) |_| an insurance company as defined in Section
2(13) of the Act;* or
- -----------------
1 Must be calculated using only securities which the undersigned
beneficially held as of the date below.
O-2-A-3
<PAGE>
(2) |_| an investment company registered under the
Investment Company Act or any business development
company as defined in Section 2(a)(48) of the
Investment Company Act of 1940 or as defined in
Section 202(a)(22) of the Investment Advisers Act
of 1940; or
(3) |_| a Small Business Investment Company licensed
by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business
Investment Act of 1958; or
(4) |_| a plan (i) established and maintained by a
state, its political subdivisions, or any agency
or instrumentality of a state or its political
subdivisions, the laws of which permit the
purchase of securities of this type, for the
benefit of its employees and (ii) the governing
investment guidelines of which permit the purchase
of securities of this type; or
(5) |_| a corporation (other than a U.S. bank, savings
and loan association or equivalent foreign
institution), partnership, Massachusetts or
similar business trust, or an organization
described in Section 501(c)(3) of the Internal
Revenue Code; or (6) |_| a U.S. bank, savings and
loan association or equivalent foreign
institution, which has an audited net worth of at
least $25 million as demonstrated in its latest
annual financial statements as of a date not more
than 16 months preceding the date of sale in the
case of a U.S. institution or 18 months in the
case of a foreign institution.; or
- -------------------------
*
A purchase by an insurance company for one or more of its separate accounts,
as defined by section 2(a)(37) of the Investment Company Act of 1940, which
are neither registered nor required to be registered thereunder, shall be
deemed to be a purchase for the account of such insurance company.
O-2-A-4
<PAGE>
(7) |_| an investment adviser registered under the
Investment Advisers Act; or
b. |_| greater than $10 million, and the undersigned is a
broker-dealer registered with the SEC; or
c. |_| less than $10 million, and the undersigned is a
broker-dealer registered with the SEC and will only
purchase Rule 144A securities in riskless principal
transactions (as defined in Rule 144A); or
d. |_| less than $100 million, and the undersigned is an
investment company registered under the Investment
Company Act of 1940, which, together with one or more
registered investment companies having the same or an
affiliated investment adviser, owns at least $100
million of eligible securities; or
e. |_| less than $100 million, and the undersigned is an
entity, all the equity owners of which are qualified
institutional buyers.
The undersigned further certifies that it is purchasing
Confidentially Offered Securities for its own account or for the account of
others that independently qualify as "Qualified Institutional Buyers" as defined
in Rule 144A. It is aware that the sale of the Confidentially Offered Securities
are being made in reliance on its continued compliance with Rule 144A. It is
aware that the transferor may rely on the exemption from the provisions of
Section 5 of the Act provided by Rule 144A. The undersigned understands that the
Confidentially Offered Securities may be resold, pledged or transferred only to
a person reasonably believed to be a Qualified Institutional Buyer that
purchases for its own account or for the account of a Qualified Institutional
Buyer to whom notice is given that the resale, pledge or transfer is being made
in reliance in Rule 144A.
The undersigned agrees that if at some time before the
expiration of the holding period described in Rule 144 it wishes to dispose of
or exchange any of the Confidentially Offered Securities, it will not transfer
or exchange any of the Confidentially Offered Securities to a Qualified
Institutional Buyer without first obtaining a letter in the form hereof from the
transferee and delivering such certificate to the addressees hereof.
O-2-A-5
<PAGE>
IN WITNESS WHEREOF, this document has been executed by the
undersigned who is duly authorized to do so on behalf of the undersigned
Qualified Institutional Buyer on the _____ day of ___________, 1998.
Name of Institution
Signature
Name
Title**
- -------------------------
**
Must be President, Chief Financial Officer, or other executive officer.
<PAGE>
EXHIBIT O-2-B
FORM OF RULE 144A CERTIFICATION
Business Loan Center, Inc.,
as Servicer
645 Madison Avenue
New York, New York 10022
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Administration
_________, 199_
Re: Business Loan Center SBA Loan-Backed Adjustable Rate
Certificates, Series 1998-1, Class B
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have had the
opportunity to ask questions of and receive answers from the Seller concerning
the purchase of the Certificates and all matters relating thereto or any
additional information deemed necessary to our decision to purchase the
Certificates, (c) we have not, nor has anyone acting on our behalf offered,
transferred, pledged, sold or otherwise disposed of the Certificates, any
interest in the Certificates or any other similar security to, or solicited any
offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from, or otherwise approached or negotiated with respect to the Certificates,
any interest in the Certificates or any other similar security with, any person
in any manner, or made any general solicitation by means of general advertising
or in any other manner, or taken any other action, that would constitute a
distribution of the Certificates under the Act or that would render the
disposition of the Certificates a violation of Section 5 of the Act or require
registration pursuant thereto, nor will act, nor has authorized or will
authorize any person to act, in such manner with respect to the Certificates,
(d) we are a "qualified institutional buyer" as that term is defined in Rule
144A under the Act and have completed the form of certification to that effect
attached hereto as Annex 1 and (e) with respect to a Class B Certificate, we are
not acquiring a Class B Certificate, directly or indirectly, for or on behalf
of: (i) an employee benefit plan or other retirement arrangement subject to the
Employee Retirement Income Security Act of 1974, as amended, and/or Section 4975
of the Internal Revenue Code of 1986, as amended, or (ii) any entity, the assets
of which would be deemed plan assets under the Department of Labor regulations
set forth at 29 C.F.R. ss.2510.3-101. We are aware that the sale to us is being
made in reliance on Rule 144A. We are acquiring the Certificates for our own
account or for resale pursuant to Rule 144A and further, understand that such
Certificates may be resold, pledged or transferred only (i) to a person
reasonably believed to be a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance on Rule
144A, or (ii) pursuant to another exemption from registration under the Act.
O-2-B-1
<PAGE>
ANNEX 1 TO EXHIBIT O-2-B
[Date]
[Placement Agent]
[Address]
[Issuer]
[Address]
Re: Business Loan Center SBA Loan-Backed Adjustable
Rate Certificates, Series 1998-1, Class A and Class B
(the "Confidentially Offered Securities")
Ladies and Gentlemen:
In connection with our purchase of Confidentially Offered Securities,
the undersigned certifies to each of the parties to whom this letter is
addressed that it is a qualified institutional buyer (as defined in Rule 144A
under the Securities Act of 1933, as amended (the "Act")) as follows:
1. It owns and/or invests on a discretionary basis eligible securities
(excluding affiliate's securities, bank deposit notes and CD's, loan
participations, repurchase agreements, securities owned but subject to a
repurchase agreement and currency, interest rate and commodity swaps),
as described below:
Amount:2 $_________________; and
2. The dollar amount set forth above is:
a. greater than $100 million and the undersigned is one of the
following entities:
(1) |_| an insurance company as defined in Section
2(13) of the Act;* or
(2) |_| an investment company registered under the
Investment Company Act or any business development
company as defined in Section 2(a)(48) of the
Investment Company Act of 1940 or as defined in
Section 202(a)(22) of the Investment Advisers Act
of 1940; or
- -------------------------
2 Must be calculated using only securities which the undersigned beneficially
held as of the date below.
O-2-B-3
<PAGE>
(3) |_| a Small Business Investment Company licensed
by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business
Investment Act of 1958; or
(4) |_| a plan (i) established and maintained by a
state, its political subdivisions, or any agency
or instrumentality of a state or its political
subdivisions, the laws of which permit the
purchase of securities of this type, for the
benefit of its employees and (ii) the governing
investment guidelines of which permit the purchase
of securities of this type; or
(5) |_| a corporation (other than a U.S. bank, savings
and loan association or equivalent foreign
institution), partnership, Massachusetts or
similar business trust, or an organization
described in Section 501(c)(3) of the Internal
Revenue Code; or
(6) |_| a U.S. bank, savings and loan association or
equivalent foreign institution, which has an
audited net worth of at least $25 million as
demonstrated in its latest annual financial
statements as of a date not more than 16 months
preceding the date of sale in the case of a U.S.
institution or 18 months in the case of a foreign
institution.; or
O-2-B-4
<PAGE>
(7) |_| an investment adviser registered under the
Investment Advisers Act; or
b. |_| greater than $10 million, and the undersigned is a
broker-dealer registered with the SEC; or
c. |_| less than $10 million, and the undersigned is a
broker-dealer registered with the SEC and will only purchase
Rule 144A securities in riskless principal transactions (as
defined in Rule 144A); or
d. |_| less than $100 million, and the undersigned is an
investment company registered under the Investment Company
Act of 1940, which, together with one or more registered
investment companies having the same or an affiliated
investment adviser, owns at least $100 million of eligible
securities; or
e. |_| less than $100 million, and the undersigned is an
entity, all the equity owners of which are qualified
institutional buyers.
The undersigned further certifies that it is purchasing
Confidentially Offered Securities for its own account or for the account of
others that independently qualify as "Qualified Institutional Buyers" as defined
in Rule 144A. It is aware that the sale of the Confidentially Offered Securities
are being made in reliance on its continued compliance with Rule 144A. It is
aware that the transferor may rely on the exemption from the provisions of
Section 5 of the Act provided by Rule 144A. The undersigned understands that the
Confidentially Offered Securities may be resold, pledged or transferred only to
a person reasonably believed to be a Qualified Institutional Buyer that
purchases for its own account or for the account of a Qualified Institutional
Buyer to whom notice is given that the resale, pledge or transfer is being made
in reliance in Rule 144A.
The undersigned agrees that if at some time before the
expiration of the holding period described in Rule 144 it wishes to dispose of
or exchange any of the Confidentially Offered Securities, it will not transfer
or exchange any of the Confidentially Offered Securities to a Qualified
Institutional Buyer without first obtaining a letter in the form hereof from the
transferee and delivering such certificate to the addressees hereof.
O-2-B-5
<PAGE>
IN WITNESS WHEREOF, this document has been executed by the
undersigned who is duly authorized to do so on behalf of the undersigned
Qualified Institutional Buyer on the _____ day of ___________, 1998.
Name of Institution
Signature
Name
Title**
- -------------------------
**
Must be President, Chief Financial Officer, or other executive officer.
O-2-B-6
<PAGE>
SUBSCRIPTION AGREEMENT
_______ __, 1999
BLC Financial Services, Inc., a Delaware corporation (the
"Company"), hereby agrees with the Purchaser listed on the signature page hereto
(the "Purchaser") as follows:
Section 1. ISSUANCE OF NOTES.
Section 1.1. Authorization. The Company has duly authorized
the issue of up to $5,000,000 aggregate principal amount of its 9% Convertible
Subordinated Notes due February 1, 2003 (the "Notes"), substantially in the form
attached hereto as Exhibit A.
Section 1.2. Purchase and Sale of the Notes; the Closing. In
reliance upon the representations of the Purchaser contained in Section 1.3
hereof and, subject to the terms and conditions set forth herein, the Company
shall sell to the Purchaser on the date hereof and, subject to the terms and
conditions hereof, the Purchaser shall purchase from the Company on the date
hereof the principal amount of the Notes set forth below the Purchaser's
signature at an aggregate purchase price equal to 100% of the aggregate
principal amount of the Notes being purchased (the "Purchase Price").
On the date hereof, the Company will deliver to the Purchaser
such Notes, registered in the Purchaser's name or in the name of the Purchaser's
nominee, as may be specified by the Purchaser, duly executed and dated the date
hereof, against the Purchaser's delivery to the Company (or to persons at the
direction of the Company) of immediately available funds in the amount of the
Purchase Price.
Section 1.3. Representations of the Purchaser.
The Purchaser represents and warrants to the Company that on
the date hereof and as of the Closing Date:
(a) Distribution. The Purchaser is not acquiring the Notes
with a view to the distribution or sale of such in violation of the Securities
Act of 1933, as amended (the "Securities Act").
(b) Offering of Purchaser Notes. The Purchaser has not offered
the Notes for sale by any means of general solicitation or general advertising
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including, but not limited to, any advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
were invited by any general solicitation or general advertising.
(c) Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 under the Securities Act and falls into
the category of "accredited investor" initialled by the Purchaser below:
Initials
____ (1) a bank as defined in Section 3(a)(2) of the Securities
Act, or a savings and loan association or other institution
as defined in Section 3(a)(5)(A) of the Securities Act,
whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended; an insurance
company as defined in Section 2(13) of the Securities Act;
an investment company registered under the Investment
Company Act of 1940, as amended, or a business development
company as defined in Section 2(a)(48) of that Act; a Small
Business Investment Company licensed by the United States
Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1953; a plan
established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of $5
million; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, as amended,
if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of that Act, which is either a
bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit
plan has total assets in excess of $5 million or, if a
self-directed plan, with the investment decisions made
solely by persons that are accredited investors;
____ (2) a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940,
as amended;
____ (3) an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, or a corporation,
Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring Notes or shares
of Common Stock, with total assets in excess of $5,000,000;
____ (4) a director or executive officer of the Company;
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____ (5) a natural person whose net worth, individually or
together with that person's spouse, currently exceeds
$1,000,000;
____ (6) a natural person who had an individual income (not
including such person's spouse's income) in excess of
$200,000 in 1997 and 1998, or joint income with such
person's spouse in excess of $300,000 in each of those
years, and who reasonably expects to reach the same income
level in 1999;
____ (7) a trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring shares of
Common Stock, whose purchase is directed by a person having
such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits
and risks entailed in the purchase of Notes or shares of
Common Stock; or
____ (8) an entity in which all of the equity owners are
"accredited investors."
The Purchaser (i) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks entailed in the purchase of Notes and (ii) has had an
opportunity to investigate the terms of the Notes, the business and financial
condition of the Company, to ask questions of the Company and to obtain such
information as the Purchaser requires from the Company.
Section 2. REPRESENTATIONS OF THE COMPANY. The Company
represents and warrants to the Purchaser that on the date hereof and as of the
Closing Date:
Section 2.1. Organization and Authority of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and the
Company has all requisite corporate power and authority to own or hold under
lease the property it purports to own or hold under lease, to transact the
business it transacts and proposes to transact, to execute and deliver this
Agreement and the Subscription Agreement, with respect to Notes issued to other
purchasers of Notes and all other documents and agreements contemplated hereby
and thereby (this Agreement, and all such other documents and agreements,
collectively, the "Transaction Documents") and to perform the provisions hereof
and thereof and to consummate the transactions contemplated hereby and thereby.
(b) The execution, delivery and performance of the Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized and approved by the Company. Each of the
Transaction Documents has been duly authorized, executed and delivered by, and
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each is the valid and binding obligation of, the Company, enforceable against
the Company in accordance with its terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally.
Section 2.2. Private Placement Memorandum.
(a) The Company has provided the Purchaser with the
Confidential Private Placement Memorandum dated February 1, 1999 (the
"Memorandum") that (when read in conjunction with this Agreement and the
schedules and exhibits hereto and thereto) describes, among other things, in all
material respects the business, properties, assets, operations and financial
condition of the Company.
(b) As of the Closing Date, the Memorandum does not contain,
any untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 3. MISCELLANEOUS.
Section 3.1. Reliance on and Survival of Representations. All
representations, warranties, covenants and agreements of the Company herein and
in any certificates or other instruments delivered pursuant to any of the other
Transaction Documents by the Company shall (i) be deemed to be material and to
have been relied upon by each Purchaser, notwithstanding any investigation
heretofore or hereafter made by any Purchaser or on its behalf, and (ii) survive
the execution and delivery of this Agreement and of the Notes, for so long as
the Notes are outstanding.
Section 3.2. Successors and Assigns. This Agreement shall bind
and inure to the benefit of and be enforceable by the Company, each Purchaser
and each of the Purchasers' respective successors and assigns, and, in addition,
shall inure to the benefit of and be enforceable by each person who shall from
time to time be a Purchaser of Notes.
Section 3.3. Notices. All notices and other communications
provided for in this Agreement shall be in writing and delivered by registered
or certified mail, postage prepaid, or delivered by overnight courier (for next
business day delivery) or telecopied, addressed as follows, or at such other
address as any of the parties hereto may hereafter designate by notice to the
other parties given in accordance with this Section:
(i) if to the Company:
BLC Financial Services, Inc.
645 Madison Avenue
New York, New York 10022
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Attention: Robert F. Tannenhauser
Telephone: (212) 751-5626
Telecopy: (212) 751-9345
With a copy of any notice to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153-0119
Attention: Simeon Gold, Esq.
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
(ii) if to the Purchasers, at the address of such
Purchaser as it appears on the books and records of
the Company.
Any such notice or communication shall be deemed to have been
duly given on the fifth day after being so mailed, the next business day after
delivery by overnight courier, when sent by telecopier or upon receipt when
delivered personally.
Section 3.4. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
Section 3.5. Governing Law. This Agreement and the Notes and
(unless otherwise provided) all amendments, supplements, waivers and consents
relating hereto or thereto shall be governed by and construed in accordance with
the laws of the State of New York.
Section 3.6. Waiver of Jury Trial. EACH OF THE PURCHASER AND
THE COMPANY HEREBY AGREE TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE
COLLATERAL DOCUMENTATION, THE NOTES OR ANY OTHER AGREEMENTS RELATING TO THE
NOTES OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including without limitation, contract claims, tort
claims, breach of duty claims and all other common law and statutory claims. The
Purchaser and the Company each acknowledge that this waiver is a material
inducement to enter into a business relationship, that each has already relied
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on the waiver in entering into this Agreement, and that each will continue to
rely on the waiver in their related future dealings. The Purchaser and the
Company further warrant and represent that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. NOTWITHSTANDING ANYTHING TO
THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE NOTES OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE NOTES. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
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IN WITNESS WHEREOF, the undersigned has executed this
Agreement on the day and year first written above.
Very truly yours,
-------------------------------------
PRINT OR TYPE NAME OF PURCHASER
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
Notes Purchased: $
---------------
The foregoing Subscription Agreement
is hereby accepted as of the date first
above written:
BLC FINANCIAL SERVICES, INC.
By:
-----------------------------------
Name: Robert F. Tannenhauser
Title: President and Chief
Executive Officer
Conversion
Price of
Notes Purchased: $
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TABLE OF CONTENTS
Page
Section 1. ISSUANCE OF NOTES...........................................1
Section 1.1. Authorization...................................1
Section 1.2. Purchase and Sale of the Notes; the Closing.....1
Section 1.3. Representations of the Purchaser................1
Section 2. REPRESENTATIONS OF THE COMPANY..............................3
Section 2.1. Organization and Authority of the Company.......3
Section 2.2. Private Placement Memorandum....................4
Section 3. MISCELLANEOUS...............................................4
Section 3.1. Reliance on and Survival of Representations.....4
Section 3.2. Successors and Assigns..........................4
Section 3.3. Notices.........................................5
Section 3.4. Counterparts....................................5
Section 3.5. Governing Law...................................6
Section 3.6. Waiver of Jury Trial............................6
Exhibit A - Form of Note
i
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EXHIBIT B
BLC FINANCIAL SERVICES, INC.
SUBSCRIPTION AGREEMENT
Dated _______ __, 1999
9% Convertible Subordinated Notes due 2003
8
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from BLC
Financial Services and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 5,957,000
<SECURITIES> 10,877,000
<RECEIVABLES> 34,513,000
<ALLOWANCES> 914,000
<INVENTORY> 0
<CURRENT-ASSETS> 16,296,000
<PP&E> 1,778,000
<DEPRECIATION> 571,000
<TOTAL-ASSETS> 68,037,000
<CURRENT-LIABILITIES> 2,283,000
<BONDS> 4,725,000
0
0
<COMMON> 202,000
<OTHER-SE> 18,945,000
<TOTAL-LIABILITY-AND-EQUITY> 68,037,000
<SALES> 0
<TOTAL-REVENUES> 19,422,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,886,000
<INCOME-PRETAX> 5,154,000
<INCOME-TAX> 2,051,000
<INCOME-CONTINUING> 3,103,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,103,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.14
</TABLE>
