DATE: November 29, 2000

SUBJECT: New Usury Exemptions

Two new usury exemptions are created by Section 25118 of the Corporations Code which was added by Assembly Bill 244 (Chapter 468).

Since the application of these exemptions depends on factors which we will normally not have available to us, the issuance of a usury endorsement based on these exemptions is expected to be very difficult and approval of the Regional Legal Department is required.

Both exemptions apply ONLY IF the following three criteria are met:

  1. The loan is NOT for personal, family or household purposes (i.e. the new exemptions only apply to commercial transactions).
  2. The loan is NOT executed or guaranteed by any of the following:
    1. an individual,
    2. a revocable trust with one or more individuals as trustors,
    3. a partnership with one or more individuals as general partners.
  3. One of the following applies:
    1. The lender and the borrower or guarantor have a preexisting personal or business relationship, or
    2. The lender and the borrower or guarantor are sophisticated enough to be able to protect their own interests.

New exemption No. 1:

The borrower or guarantor has total assets of at least $2,000,000 based on a financial statement which is not more than 90 days old and which was prepared BOTH in accordance with GAAP and Securities and Exchange Commission rules (even if the transaction is not subject to SEC rules).

New exemption No. 2

The loan is, basically, for at least $300,000.