Fillable Printable North Carolina Loan Participation Program
Fillable Printable North Carolina Loan Participation Program
North Carolina Loan Participation Program
NORTH CAROLINA
LOAN PARTICIPATION PROGRAM
Agreement No. _________________
MASTER LOAN PARTICIPATION AGREEMENT
between
RURAL ECONOMIC DEVELOPMENT CENTER, INC.
and
_________________________________________________
(PARTICIPATING LENDER NAME)
___________________________________________________________
(PARTICIPATING LENDER ADDRESS)
___________________________________________________________
(PARTICIPATING LENDER CITY/STATE/ZIP)
ATTN: ___________________________________________________________
(PARTICIPATING LENDER CONTACT & TITLE)
PHONE: _______________________ FAX: _______________________
(PARTICIPATING LENDER) (PARTICIPATING LENDER)
EMAIL: __________________________________________
(PARTICIPATING LENDER)
FEIN: _________________________________
(PARTICIPATING LENDER)
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NORTH CAROLINA LOAN PARTICIPATION PROGRAM
MASTER LOAN PARTICPATION AGREEMENT
This Loan Participation Agreement (the "Agreement") is entered into as of this ___________ day
of _________, 20______ by and between _________________________________ (the "Lender"), a
(national/state banking association, a Corporation, etc.), having its principal office located at
________________________________________________ and the Rural Economic Development
Center, Inc. (the “Rural Center”), having its principal office located at 4021 Carya Drive, Raleigh,
North Carolina 27610.
RECITALS
Whereas the State of North Carolina through the Department of Commerce has created the
SSBCI Loan Participation Program (as hereinafter defined) under the authority granted to it by the federal
State Small Business Credit Initiative ("SSBCI") of the Small Business Jobs Act of 2010 (Title III of
Public Law 111-240); the Allocation Agreement, as amended and dated January 25, 2012 between the
United States Treasury (the "US Treasury") and the State of North Carolina; and
Whereas the purpose of the SSBCI Loan Participation Program (the “Program") is to foster
economic development in North Carolina by enhancing the availability of credit to small and medium-
sized businesses from private sources of capital; and
Whereas, in pursuit of those goals, the Department of Commerce has entered into a contract with
the Rural Center to offer the Program; and the Rural Center may be willing, from time to time, to
purchase participation interests in loans, including principal and interest payable there under, made by the
Lender to certain Program-eligible businesses.
Now therefore, in consideration of the premises and the agreements contained herein, the Lender
and the Rural Center hereby agree as follows:
1. DEFINITIONS
In addition to the words and terms defined elsewhere is this Agreement, each of the following
words and terms used in this Agreement shall have the following meaning unless the context or use
indicates a different meaning. Definitions shall be applicable to both the singular and plural forms of the
terms as the context may require:
"Allocated Funds" means funds awarded to the State of North Carolina on account of the Allocation
Agreement as amended and dated January 25, 2012, between the US Treasury and the State of North
Carolina.
"Borrower" means the recipient of a Loan from the Lender for which a Participation Certificate has been
or will be issued by the Lender and acknowledged by the Rural Center, and all successors and assigns of
such Borrower; provided such Borrower:
A. is a for-profit corporation, limited liability company, partnership, joint venture, sole
proprietorship, state-designated charitable, religious, or other non-profit or eleemosynary
institution, government-owned corporation, consumer or marketing cooperatives, or faith-based
organization having five hundred (500) or fewer employees and the loan proceeds will be used
for a business purpose in the State of North Carolina;
B. is not:
i. a business engaged in speculative activities that develop profits from fluctuations in price
rather than through normal course of trade, such as wildcatting for oil and dealing in
commodities futures, unless those activities are incidental to the regular activities of the
Borrower and part of a legitimate risk management strategy to guard against price
fluctuations related to the regular activities of the Borrower;
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ii. a business that earns more than half of its annual net revenue from lending activities;
unless the Borrower is a non-bank or non-bank holding company certified as a
Community Development Financial Institution (CDFI);
iii. a business engaged in pyramid sales, where a participant's primary incentive is based on
the sales made by an ever-increasing number of participants;
iv. a business engaged in activities that are prohibited by federal law or applicable law in the
jurisdiction where the business is located or conducted, including the production,
servicing, or distribution of otherwise legal products that are to be used in connection
with an illegal activity, such as selling drug paraphernalia or operating a motel that
knowingly permits illegal prostitution; or
v. a business engaged in gambling enterprises, unless the Borrower earns less than 33
percent of its annual net revenue from lottery sales; and
C. is not an executive officer, director or principal shareholder of the Lender or a company which
controls the Lender, or a subsidiary or affiliate of the Lender; nor a member of the immediate
family of an executive officer, director or principal shareholder of the Lender or a company
which controls the Lender, or a subsidiary or affiliate of the Lender; nor an entity controlled by an
executive officer, director or principal shareholder of the Lender or a company which controls the
Lender, or a subsidiary or affiliate of the Lender; nor a member of the immediate family of an
entity controlled by an executive officer, director or principal shareholder of the Lender or a
company which controls the Lender, or a subsidiary or affiliate of the Lender. For purposes of
this paragraph, the terms "executive officer," "director," "principal shareholder," and "immediate
family" shall be as defined in 12 C.F.R. Sec. 215.2 (1991), including any amendments thereto.
"Closing Documents" means all documents executed or delivered by the Borrower or the Lender with
respect to a Loan, including without limitation a copy of the Note, the loan agreement, any security
agreement, any financing statement or Uniform Commercial Code filing, any guaranty, any mortgage or
assignment of rents, any pledge agreements, and any other document that secures repayment of the Loan.
"Commitment Letter" is a contingent commitment letter prepared by the Rural Center notifying the
Lender that the Rural Center is willing to purchase a Participation interest in a loan, and sets forth any
special conditions related to the Participation that are binding. All commitments are contingent upon the
Lender and Borrower meeting all requirements and providing adequate support documentation sufficient
to comply with applicable laws and regulations to allow the Rural Center to file the Loan Documents in
order to obligate and obtain funds. (A sample Commitment Letter is attached as Exhibit A). The
Commitment Letter, together with any approved revisions, will also set forth other terms and conditions
specific to an individual Participation and are binding on the Lender and the Borrower.
"Lender" means a financial institution with which the Rural Center has entered into an agreement or
contract to provide loans to small businesses, in which the Rural Center purchases an undivided interest in
the otherwise qualifying loan.
"Lender Rate" means an interest rate set by the Lender, either fixed, adjustable, or variable (determined
by the promissory note) used in calculating the amount of interest shared by the Lender and the Rural
Center pro rata on a given Loan, which rate shall initially be that referenced in the Commitment Letter
related to such Loan. If the Lender Rate is adjustable or variable, the Rural Center rate shall be adjusted
upwards or downwards every time the interest rate charged the Borrower is adjusted, so that the pro rata
share shall always be the same as it was on the Purchase Date.
"Loan" means a loan made by the Lender to a Borrower in which the Rural Center has or will have a
Participation.
"Loan Documents" means the Closing Documents, the Participation Certificate, the Commitment Letter,
and all other documents executed or delivered by the Borrower, guarantor, or Lender with respect to a
Loan, including without limitation the Borrower's application, business plan, and historical and projected
financial statements and any financial statements and reports delivered by the Borrower to the Lender on
an ongoing basis, the Lender's financial, repayment and collateral analysis, credit reports, and all periodic
reports required to be delivered to the Rural Center by the Lender under this Agreement.
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"Note" means the promissory note of the Borrower payable to the order of the Lender evidencing the
Loan.
"Participation" means, with respect to a Loan, the Rural Center’s undivided participation interest in
such Loan, the Loan Documents and all of the Lender's right, title and interest pertaining to the Loan and
all proceeds arising therefrom including, without limitation, any collateral for such Loan and any
guaranties, mortgages, or other security interests obtained in connection therewith, expressed as a
percentage and calculated from time to time by reference to the outstanding principal balance of the Loan.
"Participation Amount" means, with respect to a Loan, that portion of the original principal amount of
the Loan purchased by the Rural Center from the Lender, minus the aggregate principal amount repaid, as
of any date, on that portion of such Loan purchased by the Rural Center from the Lender.
"Participation Certificate" means the document evidencing the Rural Center‘s Participation with
respect to a Loan made between the Lender and the Borrower. A sample Participation Certificate is
attached hereto as Exhibit B.
“Participation Percentage” means the Rural Center’s undivided participation interest in such Loan
divided by the amount of the Loan as set forth in the Commitment Letter and the Participation Certificate.
"Project" means the project of the Borrower for which Loan funds are to be used, including without
limitation the Loan, any equity or any other funds provided by owners, shareholders, banks, or other
financial institutions.
"Prompt Payment" means the time period within which the Lender must forward or remit the Rural
Center‘s pro rata share of the Borrower’s payment of its Loan to the Rural Center in order to avoid late
fees hereunder. If the Rural Center has one Participation with Lender, payment is considered timely for
this purpose if the Lender remits in immediate funds said payment to the Rural Center within five (5)
business days of receipt of payment. If the Rural Center has more than one Participation with Lender,
payment may be combined for all Participations and remitted within five (5) business days of the end of
each month. In the event a payment is not remitted to the Rural Center within five (5) business days of its
above mentioned due date, a late fee of the greater of 4% of the total payment due (per payment being
withheld) or $50 (per payment being withheld), whichever is greater, shall be automatically assessed.
Arrearage will be determined from the date the payment should have been remitted through the date the
payment is actually remitted. This late fee will be immediately due and owing. Additionally, any and all
late fees due to Lender’s delinquency shall not be the responsibility of, and shall not be absorbed by or
charged to, the Borrower. In compelling circumstances and upon the Lender’s written request, the Rural
Center may, within its sole discretion, agree to waive any late fees due to a late payment.
"Purchase Date" means, with respect to a Participation, the date on which such Participation is
purchased.
"Servicing Expenses" means any and all out-of-pocket liabilities, obligations, losses, penalties, expenses
(including reasonable legal expenses and fees), disbursements, costs and damages, but excluding salaries
and wages of its officers and employees and overhead expenses, incurred by the Lender, or for which the
Lender is responsible, directly or indirectly, in connection with or arising as a result of (a) the
enforcement of rights or remedies with respect to a Loan or the collection of same (including those arising
due to suits, claims or counterclaims by another party against the Lender), and (b) the protection of the
interests in any collateral securing the repayment of the Loan. “Servicing Expenses” does NOT include
services or products provided by or through the Lender for the benefit of the Borrower, guarantor, or
other responsible party to facilitate their compliance with agreed terms and conditions. The mere fact that
the Lender pays an expense does not in itself qualify it as a “Servicing Expense;” rather there must be a
clear correlation to the enforcement of the Lender’s rights or remedies. Business restructuring expenses
do not constitute “Servicing Expenses” unless prior written approval is obtained from the Rural Center.
2. APPLICATIONS AND APPROVAL; SALE AND PURCHASE OF PARTICIPATION
2.1 Applications. The Lender shall accept applications from prospective Borrowers and, if found
creditworthy by the Lender and meeting the Program requirements contained in Section 3 below, the
Lender shall submit the Application for Participation in substantially the form attached hereto as Exhibit
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D, supporting documents, and the details of the proposed Loan in a form satisfactory to the Rural Center,
for the Rural Center 's review and purchase approval. The Lender must also obtain and submit to the
Rural Center a Certification executed by the Borrower (with necessary attachments) in substantially the
form attached hereto as Exhibit C. The Rural Center expressly reserves the right, in its sole discretion, to
accept or reject any Borrower and/or any Loan. Once the Lender receives a Commitment Letter, it may
consummate the Loan and shall sell a Participation therein to the Rural Center, pursuant to the terms and
conditions set forth herein.
2.2 Maximum Rural Center Participation Amount. The Lender shall sell, assign and transfer,
and the Rural Center shall purchase and accept, subject to the terms and conditions of this Agreement, a
Participation of not less than Thirty Seven Thousand Five Hundred Dollars ($37,500) nor more than Two
Hundred Fifty Thousand Dollars ($250,000). In no case shall the amount of a Participation exceed fifteen
percent (15%) of the lesser of the appraised value or the total cost of any Project for which a Loan is
made, and in no case shall the term of the Loan be any longer than ten (10) years, however the loan may
be amortized for a longer period, but not longer than twenty (20) years; unless the President or authorized
designee of the Rural Center documents in writing that it is in the best interests of the State to waive the
above limitations. The Rural Center’s Participation is computed by dividing the Rural Center’s principal
balance by the Loan’s principal balance. The Lender is responsible for monitoring and ensuring that, at
any given time, the Rural Center’s Participation never exceeds its participation percentage. In the event
the Rural Center’s Participation is ever greater than the Rural Center’s original participation percentage,
the Lender must immediately pay the Rural Center the excess principal to bring the Rural Center’s
Participation into compliance with the Commitment Letter.
2.3 The Rural Center Commitment. Upon receipt from the Lender of an Application for
Participation with the applicable documents, the Rural Center, in its sole discretion, shall determine
whether it will purchase a Participation interest in the loan. The Rural Center shall make every attempt to
make its determination within thirty (30) days of receipt of the Application for Participation and
applicable documents. If the Rural Center approves the Application for Participation, it will issue and
send, via electronic communication, a Commitment Letter to the Lender, which shall remain in effect for
thirty (30) days. The Lender shall, within thirty (30) days after the Commitment Letter is issued, sign it
and return the original to the Rural Center or the Commitment Letter shall expire. If the Lender does not
close the Loan within one hundred twenty (120) days after the Commitment Letter is issued, the Rural
Center’s commitment will expire, unless a written extension of time is granted by the Rural Center. The
Rural Center , in its sole discretion, may grant an extension of time provided that no material change in
either the scope of the Project, the financial condition of the Borrower (including guarantors), or its ability
to repay the Loan as originally approved has occurred. If the Rural Center declines the Application for
Participation, it will make every attempt to so advise the Lender within thirty (30) days of receipt of the
application.
2.4 Purchase and Funding of Participation. Upon the closing of a Loan for which the Lender
has received a Commitment Letter, the Lender shall notify the Rural Center’s Vice President for Finance
and Administration, or authorized designee, of the closing and shall deliver all Closing Documents to the
Rural Center within fifteen (15) business days of the closing, otherwise the Rural Center’s Participation
shall be void, unless the fifteen day period is waived or extended in writing by the Rural Center. The
Rural Center shall acknowledge the Participation Certificate (a sample of which is attached as Exhibit B)
by having its President or authorized designee execute the Certificate and return it to the Lender. The
Rural Center shall process the Participation Certificate and any other documents necessary to fund its
Participation, and then simultaneously or as soon as practicable shall initiate the actions to cause delivery
of its Participation Amount to the Lender. The Participation will be considered funded on the date the
Rural Center funds are transferred to the Lender by ACH transfer. Interest will begin to accrue on the date
of closing. The Lender will be responsible for the timely movement/distribution of the Rural Center funds
to the Borrower.
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3. SSBCI PROGRAM REQUIREMENTS
Obligations of the Rural Center will cease immediately without penalty or further payment being
required if the Allocated Funds for the Program are no longer available (whether they have all been
otherwise utilized or the Rural Center no longer has access to them). The Rural Center and the Lender
acknowledge that the Program will be funded, in whole or in part, by State Small Business Credit
Initiative Program funds, as available, and as such, both the Rural Center and the Lender agree that the
use of funds pursuant to this Agreement shall be governed by, and not be in derogation of, any rules,
regulations, or guidelines for the Program promulgated or issued by the US Treasury or the State of North
Carolina. As to each Loan in which the Rural Center purchases a Participation, the Lender agrees that it
will have determined that all of the following are true and correct:
A. The proceeds of the Loan will not be used:
i. to repay delinquent federal or state income taxes unless the Borrower has a payment plan
in place with the relevant taxing authority;
ii. to repay taxes held in trust or escrow (e.g., payroll or sales taxes);
iii. to reimburse funds owed to any owner of the Borrower, including any equity injection or
injection of capital for the Borrower's continuance;
iv. to purchase any portion of any ownership interest in the Borrower;
v. for activities that relate to acquiring or holding passive investments, such as commercial
real estate ownership and the purchase of securities; and lobbying activities, as defined in
Section 3(7) of the Lobbying Disclosure Act of 1995, P.L. 104-65, as amended; or
vi. to refinance a loan previously made to the Borrower by the Lender;
B. No principal of the Borrower or the Lender has been convicted of a sex offense against a minor
(as such terms are defined in Section 111 of the Sex Offender Registration and Notification Act
(42 U.S.C. § 16911));
C. The Lender is in material compliance with all federal and state laws, rules, and regulations
pertaining to the making of loans (including 31 C.F.R. § 103.121);
D. The Borrower is ready to implement the Project and has the financial ability to carry out the
Project;
E. The Borrower is responsible and creditworthy;
F. The Loan is protected by security, which may include, as available, first or second mortgage
positions on real or personal property, royalty payments on sales of products or services, or any
other security satisfactory to the Lender to secure repayment of the Loan. Personal notes or
guaranties have been executed by persons owning more than twenty (20) percent of the Borrower;
G. The Loan Documents are in an amount and form, and contain such terms and provisions with
respect to property insurance, repairs, alterations, payment of taxes and assessments, delinquency
charges, default remedies, additional security, and other matters, adequate to protect the State’s
interest in ensuring repayment;
H. Guarantors are responsible and creditworthy. Guarantors’ assets have been verified and will
undergo periodic review both to ensure their continuing capacity to provide performance
guaranties in the amounts required to ensure repayment, and to ensure that the same assets have
not been pledged or are supporting other loans or guaranties.
4. COMPENSATION TO LENDER
The Borrower shall pay interest to the Lender at the rate agreed upon between the Lender and the
Borrower. All application and origination fees collected by the Lender, with respect to the Loan, will be
shared pro rata with the Rural Center, unless waived by the Rural Center.
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5. OWNERSHIP INTEREST IN PARTICIPATION LOAN, LOAN DOCUMENTS AND
RECORDS, LIENS, SECURITY, GUARANTIES, AND OTHER COLLATERAL
5.1 The Rural Center's Undivided Interest. Upon the Rural Center’s purchase of a
Participation in a Loan, and pursuant to the provisions of Section 2, the Rural Center shall, without the
necessity of any written instrument of assignment or other document, become vested with an undivided
equitable ownership interest (proportional to such Participation from time to time) in: (i) the Loan; (ii) the
Loan Documents; and (iii) any other rights and claims of the Lender with respect to the Loan. If the
Lender acquires any security interests or liens granted by any of the Loan Documents, the Rural Center
shall have an undivided interest in such security interest or lien equal to its Participation in the Loan,
notwithstanding the fact that the security interest or lien is in the name of, and/or possession is maintained
by, the Lender.
5.2 The Lender as Trustee. All Loan Documents and the rights conveyed by them executed and
delivered in connection with the Loan shall be held by the Lender in trust for the pro rata benefit of the
Lender and the Rural Center, and as servicing agent for the Rural Center. The Lender is authorized to
retain the Note and the Loan Documents in the Lender's name and to deal with parties other than the
Rural Center as though the Lender were an absolute owner of the Loan and the Loan Documents. Any
person, firm or corporation may deal with the Lender concerning the Loan in the same manner as if the
Participation was not outstanding and the Lender was the sole owner of the Loan, as limited by Section
6.5, 6.6, and 6.7 of this Agreement. The Lender may perform any of its obligations hereunder by or
through its agents, employees or attorneys.
5.3 Limits of the Rural Center's Interest. Although the Lender holds for the Rural Center’s
proportional benefit all collateral securing performance and payment of a Borrower's obligations and
liabilities under and in connection with any Loan, the Rural Center shall have no interest in any other
property taken as security for any other credit, loan or financial accommodation made or furnished to the
Borrower by the Lender in which the Rural Center has no Participation. This shall include any property
now or hereafter in the Lender's possession or under the Lender's control or in any deposit held that may
be or may become security for performance or payment of a Borrower's or guarantor's obligations and
liabilities under and in connection with other indebtedness owing to Lender by reason of the general
description contained in any other instrument held by the Lender or by reason of any right of setoff,
counterclaim, banker's lien or otherwise; provided, however, if such property, deposit, indebtedness or the
proceeds thereof shall be applied to the payment or reduction of principal, interest, fees or any other
amounts owing by a Borrower or guarantor in connection with a Loan, then the Rural Center shall be
entitled to its pro rata share of such payment. All collateral securing performance and payment of a
Borrower's obligations and liabilities under and in connection with any Loan may be used by Lender in
connection with other indebtedness owing to Lender, but only if indebtedness is specifically subordinate
to the Loan.
6. COLLECTIONS, DISBURSEMENTS AND ADMINISTRATION
6.1 Collection and Transfer of Payments.
A. The Lender, as servicer of the Loan, shall be obligated to collect, as the Rural Center’s trustee
with respect to the Rural Center's pro rata share thereof, all payments of interest and principal
due and payable on the Loan, together with any charges, fees, costs, expenses and any and all
other amounts due on or in connection with the Loan Documents, including without
limitation all Servicing Expenses incurred by Lender. If the Lender receives, collects or
applies in full an interest payment with respect to a Loan, the Lender will remit to the Rural
Center its pro rata share. If the Lender receives, collects or applies only a partial payment of
interest with respect to a Loan, unless the Rural Center has subordinated with respect to
payment, the Lender will remit to the Rural Center interest on the Participation Amount of
such Loan at a rate equal to the amount due the Rural Center under the preceding sentence
multiplied by the Participation Percentage. If the Lender receives, collects or applies a
principal payment or prepayment with respect to a Loan, the Lender will remit to the Rural
Center its pro rata share of such amount. Unless the Lender is otherwise entitled to apply
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payments as provided in Section 9 hereof, the Lender shall promptly remit the Rural Center’s
share of payments on account of principal and interest to the Rural Center within five (5)
business days of receipt or five (5) business days of the end of each month if the Rural Center
has more than one Participation.
B. Payments are to be made by ACH transfer from the Lender’s account. Payments must be
coordinated with the Rural Center’s loan servicing representative in the Rural Center
Accounting Office. A Monthly Report/Payment Distribution Summary and Transmittal must
be completed and submitted with each and every payment remitted to the Rural Center. If the
Rural Center has more than one Participation Loan with the Lender, the Lender may make
one ACH transfer combining payments into one remittance. The Report/Payment Distribution
Summary and Transmittal shall disclose information, including but not limited to, the date the
Lender received payment from or on behalf of each Borrower, the manner in which the
Lender apportioned said payment between interest and principal between the Lender and the
Rural Center, and the outstanding balance of the Loan. In the event that a Borrower fails to
remit a scheduled payment to the Lender, the Lender, nevertheless, must submit the Monthly
Report/Payment Distribution Summary and Transmittal to the Rural Center indicating either
that no payment was received or that no payment was due and owing to the Rural Center.
6.2 Loan Servicing and Application of Payments.
A. In its handling of the Loan and any collateral security rights under the Loan Documents, the
Lender shall exercise the same care and due diligence it exercises when it processes loans and
collateral security rights on its own behalf and within the covenants and requirements in
Sections 6.5, 6.6, and 6.7. Except for the express warranties contained herein, the Loan and
Participation shall be for the amounts specified in the Commitment Letter. Except as
provided for in Section 18.1, a Participation or a Loan may not be transferred by the Rural
Center or the Lender (as applicable), in whole or in part, without the written consent of the
other party. It is also understood that the Lender shall have no independent responsibility for
the performance of a Borrower's obligation, nor for any failure or delay in exercising any
rights or powers given the Lender by the Loan Documents, beyond undertaking the same care
that the Lender exercises in the making and handling of loans and credits for its own account.
B. All security evidenced by the Loan Documents and any additional security given by a
Borrower shall be held by the Lender primarily as security for the Loan and shall not be used
or applied toward payment of other obligations of the Borrower to the Lender, as long as the
Loan remains unpaid and as long as this Agreement remains in effect; provided however, that
nothing herein shall prevent the Lender from collecting payments from the Borrower for
other indebtedness, or foreclosing upon other security that is not securing a Loan covered
under this Agreement, if the other loans or credits are in default, are separately stated on the
books of the Lender, and the security or other collateral is segregated at all times, and
provided that any such action triggers an event of default under the Loan Documents.
C. The Lender shall, if possible, provide the Rural Center with advance notice of a change in the
Lender Rate with respect to a Loan, and shall in all cases provide such notice to the Rural
Center no later than the date on which the first payment affected by the rate change is
delivered to the Rural Center.
6.3 Lender's Late Payments to the Rural Center.
A. If the Lender fails to make Prompt Payment to the Rural Center for it’s pro rata share of any
payment the Lender receives from, or on behalf of, the Borrower with respect to a Loan, the
Lender shall pay the Rural Center a late fee and/or interest as described in Section 1 (Prompt
Payment) of this Agreement.
B. If all or part of any payment made to the Lender is rescinded or must otherwise be returned to
a Borrower for any reason (other than the Lender's negligence or misconduct), and if the
Lender has, prior thereto, paid to the Rural Center its pro rata share of such payment, the
Lender shall, after telephone notice to the Rural Center and confirmed later in writing,
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subtract the appropriate portion of such rescinded or returned payment from the Rural
Center's next payment hereunder.
6.4 Application of Monies. Except as provided in Section 6.7, all monies collected or received
by the Lender in connection with any Loan (other than the fees) shall be applied and distributed in the
following order of priority: (i) to the payment of all Servicing Expenses (if any); (ii) to the payment of
accrued and unpaid interest on the Note; and (iii) to the payment of principal on the Note. Before any
distribution to the Rural Center, with respect to any such application being made, the amount thereof shall
be adjusted to the extent that any amount is owed by either party to the other, in accordance with the
terms hereof.
6.5 Lender's Powers. The Rural Center authorizes the Lender, and the Lender hereby agrees, to
act as trustee for the Rural Center subject to the limitations contained herein, including the provisions of
Sections 6.2(B), 6.6 and 6.7 hereof: (i) to negotiate, control, manage and service the Loan; (ii) to enforce
or to refrain from enforcing the Loan Documents; (iii) to give consents, commitments or waivers in
connection with the Loan Documents; (iv) to acquire additional security for the Loan; (v) to take or
refrain from taking any action and make any determination provided for herein or in the Loan Documents;
and (vi) to exercise all such powers as are incidental thereto. The Lender acknowledges its status as
trustee and represents that it has the power to perform the services listed in this Section. In acting under
this Agreement, the Lender agrees to exercise the same degree of care in administering each Loan as it
would use in managing its own loans in which no Participation has been issued. The Lender agrees that
the exercise of these fiduciary responsibilities as trustee for the Rural Center includes the full and
complete pursuit of amounts owed in relation to any unpaid portion of the entire Loan until released from
that responsibility in writing by the Rural Center, while the Rural Center retains an undivided interest in
the Loan and any related Loan Documents. Further, the Lender agrees that it will take no independent
action, unless agreed to in advance and in writing by the Rural Center, that directly, or indirectly by
nature of a proceeding or process, releases the Borrower or any guarantor or other responsible party or
entity, in full or in partial satisfaction, from a continuing responsibility to repay the Loan and/or other
applicable charges/fees in relation to debt collection activities, until all amounts due are paid in full.
6.6 Lender's Covenants with Respect to the Loans.
A. The Lender hereby covenants with respect to each Loan that it shall not, without the Rural
Center’s prior written consent or approval:
i. consent to or accept any cancellation, termination, revision, or settlement of any
Loan Document, or agree to any transfer or termination of any instrument now or
hereafter assigned to it as security for the Loan;
ii. release, partially or fully, any collateral given as security for the Loan or any
guarantor of the Loan;
iii. extend the maturity date of the Loan or the date of any interest or principal
payment there under;
iv. reduce the amount of any payment of principal or the applicable Lender Rate;
v. increase the maximum amount of the Loan or the obligations of the Lender or the
Rural Center pursuant to any Loan Document;
vi. require the acceptance of a new note evidencing the Loan, in substitution for the
Note;
vii. waive or consent to the modification of any Loan Document that would cause the
Loan to no longer be in compliance with the requirements of Section 3; or
viii. consent to any amendment or modification to a Loan Document that would be, in
the judgment of a prudent financial manager, material to the Loan.
B. In the event that the Lender breaches any of the above enumerated covenants, it agrees that it
shall purchase the Rural Center’s outstanding Participation as of the date of the breach.
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C. In the event that Lender seeks the Rural Center’s consent or approval for any of the matters
enumerated above the Rural Center shall make every effort to respond to the Lender's request
within ten (10) business days after such request. Such response may be by telephone, to be
confirmed in writing promptly thereafter.
D. Upon the occurrence of any default by the Borrower or guarantor under any of the Loan
Documents, the Lender shall consult in good faith with the Rural Center. Notwithstanding the
foregoing, if such a default is caused by the nonpayment of principal or interest, by the
bankruptcy of the Borrower or a guarantor, or by the occurrence of an event that would have
a material adverse effect on the repayment of the Loan or the collateral securing the Loan (in
the Lender's reasonable judgment), the Lender shall not waive such default without the
written consent of the Rural Center. If, at any time during the continued occurrence of such a
default, the Rural Center informs the Lender of its desire that the Lender commence
foreclosure proceedings under the terms of the Loan Documents, the Lender shall either
commence such proceedings or purchase the Rural Center’s Participation in accordance with
Section 7 hereof.
6.7 Subordination after Default. The Lender and the Rural Center may agree to the
subordination of amounts (both principal and interest) owed to the Rural Center under certain
circumstances. Such subordination shall be effective only if noted on both the relevant the Commitment
Letter and Participation Certificate. If the Lender and the Rural Center so agree, the amounts owed by the
Lender to the Rural Center with respect to a Participation shall be subordinated to amounts owed by the
Borrower to the Lender from and after the occurrence of all of the following events: (i) the occurrence of
any default under any of the applicable Loan Documents; (ii) notice thereof to the Rural Center; (iii)
acceleration of the applicable Loan; and (iv) commencement and continuation of foreclosure proceedings
and other collection efforts, which shall include enforcing all guaranties with respect thereto.
However, in any foreclosure proceeding where the Lender is the successful bidder at the
foreclosure sale and the sale results in a loss to either the Lender and/or the Rural Center, or if Lender
otherwise acquires title to such property in lieu of a foreclosure, such as by a deed in lieu of foreclosure,
and in any such case the Lender subsequently sells the foreclosed or otherwise acquired property within
twelve (12) months thereafter for a gain or profit in excess of the value of the loan, the Lender is
obligated to remit a pro rata share of said gain or profit equal to the Rural Center Participation Amount
within thirty (30) calendar days thereafter. This also applies to any situation where the Lender takes
judicial or non-judicial ownership of collateral assets for subsequent disposition.
Breach of any of the Covenants or requirements specified in Sections 6.5, 6.6, or 6.7 renders all
subordination null and void as of the date of the breach. Unless a new subordination agreement is
executed in writing by the Lender and the Rural Center, any amounts recovered upon the Borrower’s
default are to be distributed on a pro rata basis equal to the Rural Center Participation Amount, plus
recovered interest and fees if any.
6.8 Retention of Counsel. In the event of actual or threatened litigation affecting a Loan or the
security for such Loan, and if the Lender is of the opinion that the services of an attorney should be
retained to protect those interests, the Lender may, following ten (10) business days' prior written notice
to the Rural Center (unless, in the judgment of the Lender, immediate action is required, whereupon any
reasonable form of notice to the Rural Center shall be acceptable), retain counsel to represent the Lender.
The Lender shall seek to cause the Borrower to pay the reasonable fees and expenses of such counsel in
accordance with the terms and conditions of the Loan Documents, but if the Borrower fails to pay such
fees and expenses, then the Lender shall pay all reasonable costs thereof as Servicing Expenses. The
Rural Center shall not have any right in connection with such litigation to retain other counsel, except at
the sole cost and expense of the Rural Center.
7. REPURCHASE BY LENDER OF THE PARTICIPATION
7.1 Repurchase by Lender. At any time during which the Loan is outstanding, the Lender shall
have the unconditional right, within its sole and exclusive discretion, to repurchase the Participation in the
Loan, upon written notice to the Rural Center.
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7.2 Price Payable by the Lender. The purchase price to be paid by the Lender to the Rural
Center under Sections 6.6(B) and 7.1 hereof shall be an amount equal to the Participation Amount,
together with any accrued interest thereon and fees (if any).
7.3 Consummation of Repurchase. Any such repurchase shall occur on a date selected by the
Lender, which date shall be no later than (a) ten (10) business days after the giving of written notice by
the Lender of the exercise of its option to repurchase, or (b) twenty-five (25) business days after the
Lender begins foreclosure proceedings. The purchase price paid by the Lender to the Rural Center shall
be paid on such date in immediately available funds, and concurrently therewith the Rural Center shall
execute, and deliver to the Lender, document(s) reassigning to the Lender the Participation, without
recourse, covenant or warranty, express or implied (except that the Rural Center shall warrant its
ownership of the Participation, the amount of indebtedness outstanding thereunder and its authority and
capacity to execute such documents).
8. LENDER'S RIGHT OF OFFSET
To the extent that at any time a Borrower, guarantor or any other party makes any payment under
the relevant Loan Documents to the Lender by exercise of a right of offset of any kind, including any
right applying to deposits, accounts, moneys or other property of such Borrower or guarantor deposited at
or held by the Lender (but excluding any property securing the Loan pursuant to the Loan Documents),
such payments shall be applied to reduce the Loan. Immediately thereafter, the Borrower’s outstanding
balance shall be automatically readjusted to reflect such payment, and the Lender shall purchase from the
Rural Center as much of the Participation Amount so as to return the Lender's and the Rural Center's
respective interests to the percentages existing prior to the offset.
9. SUBORDINATION OF THE RURAL CENTER'S PARTICIPATION
TO SERVICING EXPENSES
Subject to the terms and conditions of this Agreement, each Participation shall be subordinated in
payment until such time as the Lender's Servicing Expenses (if any) with respect to the applicable Loan
have been paid in full. Accordingly, and in consideration thereof, Servicing Expenses shall be the sole
responsibility of the Lender, and the Lender hereby indemnifies the Rural Center for any and all liability
for Servicing Expenses. In all other events, subject to the terms of this Agreement, payments made on the
Participation shall be pari passu with amounts retained by the Lender with respect to the Borrower’s
outstanding balance, pro rata in accordance with their respective percentage interests.
10. BOOKKEEPING ENTRIES
The Lender will reduce, for the purpose of recording the value of its assets in its financial books
and records, the value of any Loan asset by the amount of the Rural Center’s Participation Amount. The
Lender shall, within ten (10) business days after a request by the Rural Center or US Treasury, allow the
Rural Center or US Treasury to examine the Lender's books and records concerning the Loan.
11. ACKNOWLEDGEMENTS AND AGREEMENTS BY THE PARTIES
The Rural Center and the Lender acknowledge and agree with respect to each Loan that:
A. The Lender is expected to exercise due diligence in determining (i) the accuracy of any
statement, warranty, representation or certification made by the Borrower and/or any
guarantors in, or in connection with, any document relevant to the Loan, and (ii) the financial
condition of the Borrower and any guarantor with respect to the Loan or the performance or
observance of any obligations by the Borrower or any guarantor with respect to the Loan.
B. The sale of a Participation does not constitute the sale of a "security" under or as defined in
the Securities Act of 1933 and the Securities Exchange Act of 1934.
