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month period, the Small Concern's pretax cash flow from operations for the most recent fiscal year was at least ten percent (10%) of the Small Concern's average contributed capital for such fiscal year.

(4) Computing the Capital Impairment Percentage. Licensee shall add Adjusted Unrealized Gain (Loss) on Securities Held to the sum of Undistributed Net Realized Earnings plus Includible NonCash Gains. If the result is zero or greater, no Capital Impairment exits and no further computations shall be performed pursuant to this paragraph (h). If the result is less than zero, Licensee shall drop the negative sign, divide by Regulatory Capital (excluding Treasury Stock), and multiply by one hundred (100). The result shall be Licensee's Capital Impairment Percentage.

(5) Determination of maximum permissible Capital Impairment Percentage. (i) A section 301(c) Licensee shall determine its maximum permissible Capital Impairment Percentage at the intersection of its Leverage Percentage and its Equity Investment Percentage in the table in paragraph (h)(6) of this section. As used in such table, "Equity Investments" includes those Debt Securities which, after consideration of all of the terms, conditions and documentation of such financing, are determined by Licensee's Board of Directors or General Partner(s) to have in excess of fifty percent (50%) of the anticipated return on such financing represented by the potential for equity appreciation.

(ii) A section 301(d) Licensee's maximum permissible Capital Impairment Percentage is seventy-five percent (75%).

(6) Capital Impairment condition. If Licensee's Capital Impairment Percentage is greater than its maximum permissible Capital Impairment Percentage, Licensee has a condition of Capital Impairment; Provided, however, that until the close of Licensee's fiscal year next succeeding April 25, 1995, a section 301(c) Licensee shall not have a condition of Capital Impairment if its Capital Impairment Percentage is less than or equal to fifty percent (50%).

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(7) Forbearance for Licensees with outstanding Participating Securities. (i) At any time during the first forty-eight (48) months following its initial issuance of Participating Securities, any Licensee which has Leverage consisting of a minimum of two-thirds Participating Securities and has at least two-thirds of its Loans and Investments, at cost, in Equity Capital Investments, shall not be considered to have a condition of Capital Impairment unless such Licensee's Capital Impairment Percentage equals or exceeds eighty-five percent (85%).

(ii) At any time during the first sixty (60) months following its initial issuance of Participating Securities, a Licensee which has Leverage consisting of a minimum of two-thirds Participating Securities and has at least twothirds of its Loans and Investment, at cost, in Start-up Financings shall not be considered to have a condition of Capital Impairment unless such Licensee's Capital Impairment Percentage equals or exceeds eighty-five percent (85%). "Start-up Financing" shall mean an Equity Capital Investment in growth-oriented Small Concern

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which:

(A) Is engaged in activities including, but not limited to, technology development or commercialization, manufacturing, and/or exporting;

(B) At the time of the investment has not been in existence, in any form, for more than three fiscal years;

(C) Has not had sales exceeding $5 million or positive cash flow in any fiscal year; and

(D) Is not formed for the purpose of acquiring any existing business.

(iii) At any time during the fifth year following its initial issuance of Partici

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pating Securities, any Licensee which meets the Leverage and investment ratios set forth in paragraph (h)(7)(i) of this section, and does not have a Capital Impairment Percentage which equals or exceeds eighty-five percent (85%), shall not be considered to have a condition of Capital Impairment if, within thirty (30) days of Licensee's determination that it has a condition of Capital Impairment, such Licensee either:

(A) Increases its Regulatory Capital by a cash contribution equal to fifteen percent (15%) of its outstanding Leverage and places such funds in an escrow account, or other account satisfactory to SBA, for the benefit of SBA, or

(B) Provides SBA with a guarantee satisfactory to SBA, for the benefit of SBA, equal to fifteen percent (15%) of its outstanding Leverage.

(iv) At any time during the sixth year following its initial issuance of Participating Securities, any Licensee which meets the Leverage and investment ratios set forth in paragraph (h)(7)(i) of this section, and does not have a Capital Impairment Percentage which equals or exceeds eighty-five percent (85%), shall not be considered to have a condition of Capital Impairment if, within thirty (30) days of Licensee's determination that it has a condition of Capital Impairment, such Licensee either:

(A) Increases its Regulatory Capital by a cash contribution equal to thirty percent (30%) of its outstanding Leverage and places such funds in an escrow account, or other account satisfactory to SBA, for the benefit of SBA, or

(B) Provides SBA with a guarantee satisfactory to SBA, for the benefit of SBA, equal to thirty percent (30%) of its outstanding Leverage; Provided, however, that any escrowed funds or guarantee received pursuant to paragraphs (h)(7)(iii) of this section shall be credited toward the requirements of this paragraph (h)(7)(iv).

(v) Any funds placed in an escrow or other account pursuant to paragraph (h)(7) (iii) or (iv) of this section shall not be eligible for Leverage purposes.

(vi) Any fee and/or any claim to repayment by the party making the capital contribution or by the guarantor must be deferred and subordinate to all

outstanding Leverage plus any unpaid Earned Prioritized Payments and other earned amounts.

(vii) Any funds in the escrow account and/or any guarantee received by SBA under this paragraph (h)(7) of this section shall be utilized to pay or repay any amounts due SBA in the event of an acceleration or mandatory redemption under § 107.261, or shall be released and returned to Licensee at such time as the sum of Licensee's Adjusted Unrealized Gain (Loss) on Securities Held and Undistributed Net Realized Earnings plus Includible Non-Cash Gains is determined by SBA to be zero or great

er.

(8) Quarterly Requirement and Procedure. Each Licensee is responsible, on a quarterly basis, for determining whether it has a condition of Capital Impairment and for promptly notifying SBA if it has such condition; Provided, however, that SBA is not precluded from making it with determination.

(i) Collection or compromise of SBA claims. SBA may, upon such conditions and for such consideration as it deems reasonable, collect or compromise all claims relating to Preferred or Participating Securities or obligations held or guaranteed by SBA, and all legal or equitable rights accruing to SBA.

§ 107.215 Commitments by SBA.

(a) General. A Licensee may apply for SBA's conditional commitment to reserve an amount of Leverage against which SBA may purchase its Preferred Securities or guarantee its Debentures or Participating Securities as and when offered for future public sales. The amount of any such commitment shall be not less than $1,000,000 but not more than 100 percent of Regulatory Capital. Applications shall be prepared and submitted in accordance with §107.210(b), as amended from time to time, except to the extent that this § 107.215 is inconsistent therewith.

(b) Commitment fees. The Licensee shall pay to SBA a nonrefundable fee of 3% of the face amount of the Debentures or Participating Securities reserved under the commitment or, in the case of Preferred Securities reserved under a commitment, 1% of the issue price of such Preferred Securities. No request for a draw will be ap

proved unless this fee has been paid in full. The 2% fee required to be paid by issuers of Debentures or Participating Securities pursuant to §107.210(d) shall be credited against the 3% commitment fee paid pursuant to this paragraph (b).

(c) Automatic cancellation of commitment. Unless the full amount of the commitment fee is paid by 5:00 p.m. Eastern Time on the 30th calendar day following SBA's issuance of its commitment, the commitment shall be automatically cancelled.

(d) Lapse of commitment. Notwithstanding payment of the commitment fee, SBA's commitment shall automatically lapse at 5:00 p.m. Eastern Time on the 60th calendar day preceding the close of the next full Federal fiscal year following issuance of such commitment.

(e) Additional record-keeping requirements. Following notification that SBA's commitment has been granted, a Licensee shall submit a Financial Statement on SBA Form 468 (Short Form) as of the close of each quarter of its fiscal year to SBA within 30 days after the close of the quarter, or with any request for a draw that is made within such 30-day period. If a Licensee is not in compliance with this paragraph, no draw request shall be considered.

(f) Draws. (1) Minimum amount of draw. The minimum face amount of Debentures or Participating Securities that may be issued in connection with a draw against SBA's commitment is $1,000,000; plus multiples of $100,000 above $1,000,000. Preferred Securities may be issued in any amount.

(2) Conditions to draws. No Licensee shall be eligible to make a draw against SBA's commitment unless it is in compliance with all applicable provisions of the Act and SBA regulations (i.e., no unresolved statutory or regulatory violations); Provided, however, that a Licensee that is not in compliance may nevertheless be eligible for draws if SBA determines that

(i) The Licensee's outstanding violations are of non-substantive provisions of the Act or regulations and that the Licensee has not repeatedly violated non-substantive provisions of the Act or regulations or

(ii) The Licensee has agreed with SBA as to a course of action for the resolution of its violations and such agreement does not preclude the issuance of Leverage by the Licensee.

(3) Procedures for funding draws. (i) General. A request for a draw, which may be submitted at any time, is submitted in the form of a request that the Licensee's Preferred Security be purchased by SBA; or that its Debenture or Participating Security be guaranteed by SBA, sold to a short-term investor and subsequently included in the next pool for which the Licensee's securities are eligible. The following documentation shall accompany each such request for a draw:

(A) If such request is submitted within 30 days following the close of the Licensee's fiscal quarter, the request shall be accompanied by a Financial Statement on SBA Form 468 (Short Form) reflecting the Licensee's condition as of the close of that fiscal quarter; otherwise, the request shall be accompanied by a formal statement of no material adverse change in financial condition since the filing of the most recent SBA Form 468 (Long or Short Form).

(B) A certified statement executed by an officer of the Licensee or of a corporate general partner of the Licensee, or by an individual that is authorized to act as or for a general partner of the Licensee, as the case may be, representing that to the best of its knowledge and belief the Licensee is in compliance with all provisions of the Act and SBA regulations (i.e., no unresolved regulatory or statutory violations) or a statement as to the specific nature of any violations of which it is aware.

(C) A statement that the proceeds are needed to fund a particular Small Concern, which statement shall also inIclude the name and address of the Small Concern, the amount of the Licensee's proposed Financing, and the scheduled closing date thereof. Within 30 calendar days after the actual closing date, the Licensee shall submit an SBA Form 1031 confirming the closing of the transaction(s) with the proceeds of the draw or, within 60 calendar days after the scheduled closing date, the Licensee shall submit a written expla

nation of the failure to close. Failure to submit an accurate Form 1031 or satisfactory written explanation of failure to close will preclude consideration of any subsequent draw requests, and may be deemed an event affecting the Licensee's good standing or constituting consent to restricted operations, as the case may be.

(ii) Draw process. (A) General. By submitting a request for a draw, a Licensee is conclusively presumed to have authorized SBA to purchase its Preferred Security, or to have authorized SBA or any agent or trustee designated by SBA to guaranty its Debenture or Participating Security and to sell it with SBA's guarantee, to enter into any agreements (and to bind the Licensee to such agreements) that may be necessary to effect:

(1) The sale of the Licensee's security to a short-term investor,

(2) Its purchase on the Licensee's behalf (or by the Licensee itself), and

(3) The subsequent pooling of that security with other securities with the same maturity date: Provided, however, That the Licensee shall retain the right to repurchase its securities upon notice to SBA at least 10 days prior to the cut-off date for the pool in which the Licensee's security is to be included by tendering the face amount of the Debenture, or the face amount of the Participating Security plus Earned Prioritized Payments, as the case may be, to the short-term investor.

(B) Debentures. An SBA guaranteed Debenture shall be sold to a short-term investor at a discount calculated with reference to a rate determined by the Secretary of the Treasury in accordance with section 303(b) of the Act (but without regard to any interest subsidy to which the Licensee may be otherwise entitled), as if the maturity date of the Debenture were the next scheduled date for the sale of pool certificates: Provided, however, That if the actual sale of pool certificates shall take place after the scheduled date, the Licensee shall pay to the short-term investor, on the actual sale date, an additional sum equal to daily interest as scheduled on the Debenture, at the same rate, from the scheduled sale date to the actual sale date. Failure to make such interest payment on the

closing date shall constitute an event giving rise to a condition affecting the Licensee's good standing.

(C) Participating securities. The Licensee's Participating Security shall be sold to a short-term investor for a sum equal to the face amount thereof. The Licensee shall undertake, with SBA's guarantee, to pay the short-term investor, at the closing of the next scheduled sale of pool certificates, Prioritized Payments as scheduled on the Security at a rate determined by the Secretary of the Treasury in accordance with section 303(b) of the Act, as if the maturity date of the Participating Security were the next scheduled date for the sale pool certificates. [59 FR 48562, Sept. 22, 1994]

§ 107.220 Leverage for 301(c) Licens

ees.

(a) General. SBA may provide Leverage to any Section 301(c) Licensee through the purchase or guarantee of Debentures and/or Participating Securities.

(b) Leverage formula. After March 31, 1993, the amount of Leverage a section 301(c) Licensee may have outstanding at any time shall not exceed the following amounts:

(1) If Leverageable Capital is not more than $15,000,000, Leverage shall not exceed three hundred percent (300%) of Leverageable Capital;

(2) If Leverageable Capital is more than $15,000,000 but not more than $30,000,000, Leverage shall not exceed $45,000,000 plus two hundred percent (200%) of the mount of Leverageable Capital over $15,000,000;

(3) If Leverageable Capital is more than $30,000,000, Leverage shall not exceed $75,000,000 plus one hundred percent (100%) of the amount of Leverageable Capital over $30,000,000, but not to exceed an additional $15,000,000.

(c) Maximum limits and exceptions. Notwithstanding paragraph (b) of this section, in no event shall the aggregate amount of outstanding Leverage of any Licensee or group of two or more Licensees (including both section 301(c) and section 301(d) Licensees) under Common Control exceed $90,000,000 unless SBA determines, on a case-by-case basis, to permit a higher aggregate

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amount for companies under Common Control and SBA imposes such additional terms and conditions as it determines appropriate to minimize the risk of loss to SBA in the event of default.

(d) Grandfather clause. Nothing in these provisions shall require any section 301(c) Licensee that on March 31, 1993, has outstanding Debentures in excess of three hundred percent (300%) of Leverageable Capital to prepay such excess. Any such Licensee may apply for an additional Debenture guarantee or Participating Security guarantee, provided that the proceeds are used solely to pay the amount due on any such maturing Debenture. The maturity of such new Debenture or Participating Security shall not be later than September 30, 2002.

(e) Limits on Participating Securities. The aggregate amount of Participating Securities outstanding from a Licensee shall not exceed two hundred percent (200%) of Leverageable Capital.

$107.230 Leverage for 301(d) Licens

ees.

(a) General. SBA may provide Leverage to any Section 301(d) Licensee through the purchase or guarantee of Debentures and/or Participating Securities, and/or through the purchase of Preferred Securities.

(b) Articles requirements for Preferred Securities Leverage. In addition to the requirements specified in §107.101, no Preferred Securities will be acquired by SBA from any Section 301(d) Licensee unless the following provisions are contained in such Licensee's Articles:

(1) Corporate Section 301(d) Licensees. (i) Payment of dividends to SBA. Preferred stock issued by a corporate Section 301(d) Licensee to SBA after November 21, 1989, shall provide for the preferred payment of cumulative dividends at a rate of four percent (4%) per annum on the par value of such stock, accruing from the date of issuance to the date of payment, both inclusive. Such dividends shall be declared and payable from Retained Earnings Available for Distribution before any amount shall be set aside for or paid to any other class of stock. In the event SBA has received less than four percent (4%) in any fiscal year, the defi

ciency shall be payable on a preferred basis from subsequent Retained Earnings Available for Distribution without interest thereon. Before any declaration of dividends or any Distribution (other than to SBA), all dividends accumulated and unpaid on Preferred Securities issued to SBA shall be paid. The dividend rate on nonvoting Preferred Securities purchased by SBA prior to November 21, 1989, shall remain three percent (3%) of their par value and otherwise be subject to the provisions of this paragraph.

(ii) Mandatory redemption of Preferred Securities. Preferred Securities purchased by SBA on or after November 21, 1989, shall be redeemed by the issuer not later than fifteen (15) years from the date of issuance, at a price not less than the par value, plus any unpaid dividends accrued to the redemption date. SBA may, in its discretion, guarantee Debentures offered for sale by such Licensee at the Debenture sale immediately preceding such fifteenth anniversary date, pursuant to section 321 of the Act, in such amounts as will permit the simultaneous redemption of such Preferred Securities, including all or any part of accrued and unpaid dividends, for immediate payment to SBA. SBA shall not pay any part of the interest on such Debentures except pursuant to its guarantee. See also §107.230(f).

(2) Unincorporated Section 301(d) Licensees. (i) Payment of Distributions to SBA. Preferred limited partnership interests issued to SBA by a limited partnership section 301(d) Licensee shall provide for Distributions to SBA on a preferred and cumulative basis at an annual rate of four percent (4%) on the entire amount of SBA's capital contribution (with no adjustments other than those reflecting prior returns of capital), accruing from the date of issuance to the date of Distribution, both inclusive. SBA shall be paid from Retained Earnings Available for Distribution. In the event SBA has received less than four percent (4%) in any fiscal year, the deficiency shall be payable on a preferred basis from subsequent Retained Earnings Available for Distribution without interest thereon. Before any allocation or Distribu tion (other than to SBA), all accu

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