for payment of the rent shall be automatically vested in the insurer to secure the lessee's payment of the rent to the insurer.

(c) The insurer may pay claims for the guaranteed rent where the lessor has been notified by the insurer, in writing, to postpone dispossession of the lessee, if in the judgment of the insurer it would be in the best interest of the insurer or the lessee and consistent with SBA's statutory purpose to permit the lessee to continue to occupy the property.

[34 FR 14881, Sept. 27, 1969, as amended at 36 FR 3185, Feb. 19, 1971; 39 FR 11417, Mar. 28, 1974]

$106.13 Assignments, subleases and surrenders after occupancy.

(a) The interest of the lessee in the leased premises shall not be voluntarily assigned or transferred by corporate merger or capital stock transfer to a new lessee without the prior written consent of the lessor and the insurer.

(b) The lessee shall not sublease the entire premises or any portion thereof without the prior written consent of the lessor and the insurer.

(c) The lessor shall not consent to an assignment or sublease by the tenant without the prior written consent of the insurer.

(d) If the lessor gives consent in violation of paragraph (c) of this section, the policy of lease guarantee insurance shall be suspended for the remainder of the term of the assigned lease or for the term of the sublease, regardless of whether the entire premises are subleased.

(e) In the case of a transfer by assignment or sublease of the leasehold estate or any portion thereof to a new tenant, a lessor who desires to retain the insurance of the rent in its original amount by obtaining the insurer's consent endorsed on the policy shall submit to the insurer such information concerning the assignee or sublessee as the insurer may require.

(f) If the assignee or sublessee is a small business concern and proposes to conduct business operations within the premises and the risks of management and financial structure have not increased, the insurer may consent to the

assignment or sublease without payment of a new premium.

(g) If the insurer finds that the risk of the new management or financial structure of the assignee or sublessee is an increased risk, the insurer shall treat the assignment or sublease as a new lease and shall give consent only if the insurer is paid a premium based on the original rent or the rent of the sublease, the remaining months of the policy term and the prevailing rate schedule at the time the insurer's consent is requested.

(h) If the lessee, without default voluntarily vacates or surrenders possession of the leased premises to the lessor or to any other occupant (including any corporate survivor of a corporate merger with the lessee) with the consent of the lessor, the insurance shall terminate.

§ 106.14 Acquisition of premises by insured lessee.

If during the term of an insured lease an insured lessee exercises an option to purchase the premises or purchases an undivided interest in the premises or acquires any of a corporate lessor's capital stock, the initial amount of insured rent shall be reduced by an amount equivalent to the lessee's acquired interest in the premises or in the capital stock of the lessor.

§ 106.15 Acquisition of lessee by lessor. If, during the term of an insured lease, the lessor, its subsidiaries or affiliates or any individual in control of the lessor acquires an interest in the lessee, the initial amount of insured rent shall be reduced by an amount equivalent to the acquired interest in the lessee.

$106.16 Effect of condemnation and casualty losses on insurance.

(a) In the event the property described in the lease which is the subject of the insurance is totally condemned or totally destroyed, the insurance is terminated as of the date of title vesting in the condemnor or as of the date of the casualty loss.

(b) In the event of partial condemnation or partial casualty losses, the amount of insurance is abated by the ratio which the minimum rent as

abated by the terms of the lease bears to the guaranteed or insured minimum rent.

§ 106.17 Lease guarantee administration.

(a) Direct guarantees. All policies of insurance which are issued directly by SBA will be serviced by SBA.

(b) Participation guarantees. All policies of insurance which are issued by a participant shall be serviced by the participant.

§ 106.18 Rights and obligations of assignees of the lease rerental guarantee insurance policy.

An assignee of a lease rental guarantee insurance policy becomes a loss payee for its interest in rental payments made by the insurer after default by the tenant through an assignment of interest endorsement to the policy. Such rental payments will be made only when the lessor, or the assignee acting as lessor, is in compliance with the provisions of the policy and § 106.11 of these regulations.

[39 FR 11417, Mar. 28, 1974]

LEVERAGE

EXEMPTIONS

107.1201 Exemptions. 107.1202 Savings clause.

APPENDIX I TO PART 107-GUIDE TO ACCOUNT

ING STANDARDS AND FINANCIAL REPORTING
REQUIREMENTS FOR SBIC

APPENDIX II TO PART 107-CHART OF AC-
COUNTS FOR SBICS

APPENDIX III TO PART 107-VALUATION GUIDELINES FOR SBICS

AUTHORITY: Title III of the Small Business Investment Act, 15 U.S.C. 681 et seq., as amended; 15 U.S.C. 687(c); 15 U.S.C. 683; 15 U.S.C. 687d; 15 U.S.C. 687g; 15 U.S.C. 687b; 15 U.S.C. 687m, as amended by Pub. L. 102-366. SOURCE: 48 FR 45017, Sept. 30, 1983, unless otherwise noted.

REGULATIONS

$107.1 Scope of part 107.

The regulations in this part implement Title III of the Small Business Investment Act of 1958, as amended. All Licensees, including section 301 (d) Licensees, must comply with all applica

§ 107.3 Definition of terms. 2

Accumulated Prioritized Payments means Prioritized Payments which are not payable as of any given date because the Licensee has insufficient cumulative Earmarked Profits. It is the aggregate of cumulative Prioritized Payments less Earned Prioritized Payments.

Act means the Small Business Investment Act of 1958, as amended.

Affiliate or Affiliates has the meaning set forth in § 121.401.

Articles mean articles of incorporation or charter for a Corporate Licensee and the partnership agreement or certificate for an Unincorporated Licensee.

Assistance or Assisted means Financing of or Management Services rendered to a Small Concern by a Licensee pursuant to the Act and these regulations.

Associate of a Licensee means:

(a)(1) An officer, director, employee or agent of a corporate Licensee; (2) a

1 The accounting guidelines for SBICS include Audit Guide for SBICS, Guide for the Preparation of the Annual Report, SBA Form 468, and the System of Account Classification, and are set forth as appendices A, B, and C to these regulations.

2 Terms defined in this section are capitalized hereafter.

Control Person, employee or agent of an Unincorporated Licensee; (3) a manager or Investment Adviser of any Licensee, which terms (manager or Investment Adviser) include any Person contracting with a Control Person of an Unincorporated Licensee to serve as manager or Investment Adviser to such Licensee, or (4) any Person regularly serving a Licensee on retainer in the capacity of attorney at law; or

(b)(1) Any Person owning or controlling, directly or indirectly, ten percent or more of any class of stock of a Corporate Licensee; or (2) any Person owning or controlling, directly or indirectly, a limited partner's interest representing ten percent or more of the partnership capital of an Unincorporated Licensee; Provided, however, That if a Person described in the preceding paragraph (b)(2) of this definition is an Institutional Investor and the amount of such Person's investment in a Licensee, including commitments, does not exceed 5 percent of that Person's net worth, then such Person shall not be considered an Associate unless the amount of such Person's limited partnership interest represents 33 percent or more of partnership capital.

(c) Any officer, director, partner, manager, or employee of any Associate described in paragraph (a) or (b) of this definition: Provided, however, That subject to paragraph (b) of this definition, a Person with no other relationship to any Associate described in paragraph (a) or (b) of this definition but that of a limited partner shall not be considered an Associate of such Associate.

(d) Any Person which directly or indirectly Controls or is Controlled by, or is under common Control with, a Licensee or any Person described in paragraphs (a) and (b) of this definition; or

(e) Any Close Relative of any Person described in paragraphs (a) and (b) of this definition; or

(f) Any concern in which (1) any Person described in paragraphs (a) through (e) of this definition is an officer of director or (2) any such Person (or group of two or more such Persons acting in concert) who owns or Controls, directly or indirectly, a ten or more percent equity interest (exclusive of any interest attributable solely because of owner

ship of an equity interest in the Licensee).

(g) For the purposes of this definition, any Person in any of the relationships described in paragraphs (a) through (f) of this definition within six months before or after the date on which the Licensee provided Assistance, shall be deemed to have been in such relationship as of the date of the Licensee's Assistance.

(h) A Section 301(d) Licensee and a participant Licensee owning stock thereof, or securities evidencing a contribution to the partnership capital thereof, pursuant to §107.712 as well as Associates of such section 301(d) Licensee and such participant Licensee shall be deemed Associates of each other.

Central Registration Agent or CRA means one or more agents appointed by SBA for the purpose of issuing TCs and performing the functions enumerated in §107.250(b) and performing similar functions for Debentures and Participating Securities funded outside the pooling process.

Close relative means ancestor, lineal descendant, brother or sister and lineal descendants of either, spouse, aunt, uncle, father-in-law, mother-in-law, son-in-law, brother-in-law, daughterin-law, or sister-in-law.

Combined Capital means the sum of Regulatory Capital and outstanding Leverage.

Commitment means a written agreement between a Licensee and a Small Concern that obligates the Licensee to provide Financing (except a guarantee) to a Small Concern (whose eligibility has already been determined by the Licensee) in a fixed or determinable sum, by a fixed or determinable future date. In this context the term "agreement” means that there has been agreement on the principal economic terms of the Financing; Provided, however, that the terms of the Commitment may include reasonable conditions precedent not within the control of the Licensee to the Licensee's obligation to fund the Commitment.

Common Control means a condition where two or more Licensees either through ownership, management, contract, or otherwise, are under the Control of one group or Person. Two or

more Licensees are presumed to be under Common Control if they are affiliates of each other by reason of common ownership or common officers, directors, or general partners; or if they are managed or their investments are significantly directed either by a common independent investment advisor or managerial contractor, or by two or more such contractors that are affiliates of each other. This presumption may be rebutted by evidence satisfactory to SBA. The term "affiliate" is defined in § 121.401 of this title.

Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Licensee or a Small Concern, whether through the ownership of voting securities, by contract, or otherwise.

Control Person means (a) A general partner of an Unincorporated Licensee, including all general partners of a partnership serving either as a general partner of an Unincorporated Licensee or as a general partner of any other (intervening) partnership, limited or general, that serves directly or indirectly as a general partner of an Unincorporated Licensee;

(b) Any officer, director, agent or employee of a corporate general partner of an Unincorporated Licensee, or of any corporation that is a general partner in a partnership serving as a general partner of an Unincorporated Licensee, or as a general partner of any other (intervening) partnership, limited or general, that serves directly or indirectly as a general partner of an Unincorporated Licensee;

(c) Any Person that participates in the investment decisions of the general partner of an Unincorporated Licensee and owns or controls, directly or indirectly, an interest of 10 percent or more as a stockholder in, or limited partner of, any corporation or limited partnership that serves directly or indirectly as a general partner of such Unincorporated Licensee;

(d) Any Person that does not participate in the investment decisions of the general partner of an Unincorporated Licensee and owns or controls, directly or indirectly, an interest of 40 percent or more as a stockholder in, or limited partner of, any corporation or limited

partnership that serves directly or indirectly as a general partner of such Unincorporated Licensee.

Corporate License: see Licensee.

Cost of Money generally includes all consideration that a Small Concern and/or its affiliates is (are) contractually obligated to pay to a Licensee and/or the Associates of such Licensee in connection with Financial Assistance from such Licensee, such as interest, discounts, points, fees, commissions, and any other thing of value, except as hereinafter set forth.

(a) The following fees and charges are not to be included in calculating Cost of Money:

(1) Processing fees determined in accordance with § 107.402;

(2) Out-of-pocket conveyance and/or recordation fees and taxes;

(3) Reasonable closing costs;

(4) A reasonable fee for arranging financing from non-SBIC non-Associate sources of capital, whether or not the Licensee participates in such financing, if there is a written agreement in advance with the Small Concern to pay such fee;

(5) Fees for management consulting services, but only if calculated on a per hour, commercially reasonable basis for services actually rendered,

(6) Prepayment penalties pursuant to § 107.402;

(7) Reasonable and necessary out-ofpocket expenses incurred in monitoring the financing; and

(8) Board of Director fees not to exceed those paid to other outside directors and pursuant to § 107.903(f).

(b) All other fees and charges shall be included in calculating Cost of Money.

Debenture Rate means the interest rate, as published from time to time in the FEDERAL REGISTER by SBA, for ten year debentures issued by Licensees and funded through public sales of certificates bearing SBA's guarantee. User or guarantee fees, if any, paid by a Licensee are not considered in determining the Debenture rate.

Debentures means debt obligations issued by Licensees pursuant to section 303(a) of the Act and held or guaranteed by SBA.

Debt Securities means securities evidencing a Loan with options or any right to acquire Equity Securities in a