of any form of security agreement or mortgage (e.g. chattel mortgage) necessary in a jurisdiction where the Uniform Commercial Code has not been adopted.

(b) Guarantees. If, in considering the risk involved in guaranteeing a financing, net worth is a significant factor relied on to offset other risks, such net worth must ordinarily be pledged as additional collateral for the program guarantee (an irrevocable letter of credit may be substituted under terms and conditions acceptable to the Program). If a closely-held corporation will be the Obligor, all major stockholders will ordinarily be required to provide their personal guarantees as additional collateral for the Program guarantee. If a subsidiary corporation, without substantial assets in addition to the vessel or facility is Obligor, the parent corporation will ordinarily be required to provide its guarantee as additional collateral for the Program guarantee. Personal or entity guarantees will always be required as additional collateral for Program guarantees where necessary to assure that the principal parties in interest, who ultimately stand most to benefit from the Project, are held accountable for the performance and operation of the Project.

(c) Limitation of liability. In no instance will equity contributors be permitted to limit their liability on a guarantee only to the amount of their initial equity contribution. Equity contributors will, additionally, be required to be at least jointly and severally liable for the amount of the guaranteed obligation which corresponds to the percentage of their ownership interest in the Project. Such equity contributors may, however, be required to be liable for more than such percentage. Under appropriate circumstances, and at the Program's sole discretion, the lessor of a financing lease may be treated differently.

(d) Dual-use Capital Construction Fund agreement. In the case of fishing vessels, the Program may require, as additional collateral, execution of a dual-use Capital Construction Fund Program agreement, and annual deposit into such fund (on a tax-deferred basis) of a reasonable portion of the

net income of the vessel. Dual-use agreements provide for all the normal benefits of the Capital Construction Fund Program, but also give the Program control of withdrawals from a Capital Construction Fund and allow the Program to use these reserved funds, in the event of a default, to repay the debt obligation involved in the guaranteed financing. This control insures that the Obligor will have an emergency reserve of funds, as well as a reserve for reconditioning of the vessel. At the Program's discretion, reserved funds not required in connection with the vessel for which financing is guaranteed may be withdrawn for other qualified purposes.

(e) Reconstruction or reconditioning. The Chief, Financial Services Division, may, in his discretion, require such additional security or collateral as may be necessary to secure the Program's interest.

§ 255.11 Miscellaneous requirements.

(a) Insurance. All vessels and facilities for which financing is guaranteed shall be continuously insured during the term of the Program guarantee with such casualty, liability, breach of warranty, keyman, title, and/or other insurance in such form and amounts as the Program deems necessary. The Program shall ordinarily be the sole loss payee on all such insurances. No such insurances may be cancelled without 20 days prior written notice to the Chief, Financial Services Division. The Program's standard endorsements regarding the insured's breach of warranties, negligence, omission, etc., as well as an admission of seaworthiness or property soundness, shall be a part of all such insurances.

(b) Bids and project costs. If application for Program guarantee is first made before a contract for the vessel or facility to be financed is executed, not less than three responsive bids for the vessel or facility will ordinarily be required. Ordinarily, the lowest bid will be accepted, unless the Obligor and the Program agree that it is advisable to accept a higher bid. If application for a Program guarantee is first made after a contract for the vessel or facility has been executed, the Pro

gram may not guarantee a financing in an amount higher than would fairly and reasonably have resulted if competitive bidding had occurred. All applicants are encouraged to obtain at least three competitive bids, and applicants without such bids who first apply after a contract has been executed may be required by the Program to establish, at their expense, independent confirmation acceptable to the Program that the contract cost is both fair and reasonable. Approvals and commitments for Program guarantees will be based on the initial contract cost, and contract cost overruns may or may not, at the sole discretion of the Program, be added to the amount of the guaranteed financing.

(c) Property inspection. The Program will require inspection and approval of all vessels and facilities before providing a financing guarantee. For all guarantees involving financings of more than $500,000, the Program, where appropriate, will require inspection and approval by certified architects or engineers (either marine or real property architects or engineers). For program guarantees for financing of less than $500,000, the required property inspection and approval may, at the Program's discretion, be made by any competent authority acceptable to the Program. The required property inspection and approval should involve assessment of at least the following:

(1) Adequacy of workmanship;

(2) Fitness and sufficiency for the intended purpose;

(3) Reasonableness of cost;

(4) Compliance with basic contract specifications regarding the property;

and

(5) The identification and recommended resolution of any significant deficiencies.

Where financing for used vessels or facilities is to be guaranteed, the inspection and approval assessment will be adjusted to provide the normal assurances associated with financing the acquisition of used property. Issuance of guarantees of financings involving more than $5,000,000 may be conditioned upon additional requirements regarding the inspection and approval of a vessel or facility. Program guaran

tees of financings involving more than $5,000,000 should always be conditioned on comprehensive on site inspection, by certified architects and engineers, and inspection of the vessel or facility to be financed at appropriate times during construction, reconstruction, or reconditioning. The Program may require American Bureau of Shipping classification requirements for all Program guarantees involving fishing vessels costing more than $5,000,000, and applicants are urged presently to consider voluntary use of the American Bureau of Shipping classification program for the construction of all fishing vessels costing over $5,000,000. All required property inspections and approvals must be conducted by competent and impartial authorities acceptable to the Program. Architects, engineers, surveyors, or appraisers employed by contractors constructing, reconstructing, or reconditioning a vessel or facility, or by parties selling used vessels or facilities, are not acceptable for meeting this requirement. The cost of inspection and approval services in connection with a vessel or facility may be included in the actual cost of the vessel or facility and, thus, guaranteed by the Program.

(d) Maintenance reviews. All vessels and facilities for which financing is guaranteed under the Program shall be inspected at least once every three years by a competent and impartial authority acceptable to the Program. A full inspection report, identifying deficiencies and recommending the action necessary for their correction, will be provided to the Obligor and to the Program. Failure to provide this tri-annual inspection, or correct deficiencies identified by it, will constitute a default of the terms and conditions of mortgages securing the Program's guarantee and a cause, at the Program's discretion, for acceleration and liquidation of the debt obligation. Special property inspections may be required whenever the Program deems it necessary to preserve its collateral. All such inspections shall be at the expense of the Obligor. This requirement extends to all supplementary collateral for Program guarantees.

(e) Terms and conditions of Program guarantees. The Program will, on a

case-by-case basis, specify in detail the precise terms and conditions prerequisite to the Program's willingness to provide a guarantee. These terms and conditions are at the Program's sole discretion, and an applicant's failure to comply with them will result in nonqualification for a Program guar

antee.

(f) Program Obligees. The applicant may choose the Obligee to fund the debt to be guaranteed by the Program. Obligees may be any financial institution, public agency, or other party. The Program may, however, refuse to guarantee financing unless it has approved the terms and conditions of the financing (including particularly the interest rate and other amortization provisions) before the Obligor makes a firm commitment to an Obligee. Failure to first obtain the Program's approval may result in the Program's refusal to issue the guarantee despite the fact that the Obligor may have created a binding contract with an Obligee, abrogation of which may result in loss to the Obligor. The Program will assist those whose applications for Program guarantees are approved to gain access to the private market for appropriate financing, but only as a gratuitous service. Arrangements between the Obligor and the Obligee are a matter of private contract between those two parties, and the Program will not in any way be responsible to either for nonperformance by the other.

(g) Closing-(1) Contracts. All debt obligations and associated contractual arrangments which comprise the financing will be documented by standard Program forms, which may not be altered or amended in any way by insertion, deletion, or variation without prior Program approval (which will be sparingly granted).

(2) Closing schedules. The Program will attempt to meet the closing schedules (where reasonable) of Obligors and Obligees. The Program, however, accepts no responsibility for adverse interest-rate fluctuations, loss of commitments, or other consequences of non-compliance with Obligors' or Obligees' closing schedules. Obligors and Obligees should work closely with the Program to assure reasonable closing

schedules, since internal workload and personnel considerations sometimes affect the Program's ability to meet otherwise desirable schedules.

(3) Closing vessel financings. The Program will attempt to close guarantees on financings involving fishing vessels with minimal services from private attorneys and/or other private contractors.

(4) Closing shoreside facilities financings. Closings for guarantees of financing for fisheries shoreside facilities will require substantial services from private attorneys and/or other contractors at the expense of the Obligor. The choice of such private contractors for any portion of the closing process is subject to Program approval. Services required to be provided by private contractors may include: title searches; preparation of legal documents; actual closing, escrow, and disbursement services; and the provision of a legal opinion from acceptable counsel regarding the validity and binding effect of transactions, compliance with procedures specified by the Program, and other assurances.

(5) Paying agents. The Chief, Financial Services Division, in his discretion, may require the use of a paying agent or trustee. Where paying agents are used, Obligors or Obligees will be responsible for their cost.

(a) Filing and commitment fees. The Program's filing and commitment fee shall be 2 of 1 percent of the first $2,000,000 principal amount (or portion thereof) of the Program guarantee for which application is made and 1/4 of 1 percent of all principal amount over $2,000,000. The fee shall be due at the time an application is submitted, and no application for guarantee shall be accepted unless the full filing and commitment fee accompanies it. The filing fee shall be 75 percent of the filing and commitment fee, and once an application for a guarantee is accepted, no portion of the filing fee shall be returned for any reason. The commitment fee shall be the remaining 25 percent of the filing and commitment fee, and shall be returnable only if a refund is requested before the

Program issues an Approval in Principle letter or if the application is declined.

(b) Guarantee fee. The Agency guarantee fee shall be:

(1) For guarantees on financings not involving underutilized fisheries risks, 4 of 1 percent of the average unpaid principal balance of the debt obligation for which the guarantee is outstanding during each year of the life of the guarantee; and

(2) For guarantees on financings involving underutilized fisheries risks, 1 percent of the average unpaid principal balance of the debt obligation for which the guarantee is outstanding during each year of the life of the guarantee.

The guarantee fee shall be due in advance based upon the financing's amortization schedule. The first annual guarantee fee shall be due at closing of the guarantee. Each subsequent annual guarantee fee shall be due on the anniversary date of the closing of the guarantee. No refund of guarantee fees shall be made regardless of the status of the financing or the guarantee during the year to which the guarantee fee relates.

(c) Refinancing/assumption fee. The Program's refinancing/assumption fee shall be 14 of 1 percent of the principal amount of the debt obligation to be refinanced or assumed, and is due upon application for a guarantee for the refinancing/assumption. The refinancing/assumption fee is non-returnable regardless of the subsequent disposition of an application. The Chief, Financial Services Division, may, however, (1) waive the refinancing/assumption fee where the refinancing/assumption is primarily to protect the Program's interest or (2) charge an actual cost fee, not to exceed $1,000, where the refinancing/assumption does not substitute a wholly different obligor for the initial obligor.

(d) Where payable. Fees shall be paid by check mailed to: U.S. Department of Commerce, National Oceanic and Atmospheric Administration, NBOC 1, Room 122, 11420 Rockville Pike, Rockville, Maryland 20852. Checks shall be made payable to: "NMFS/FSFF".

§ 255.13 Demands and payment.

All demands by Obligees, whose debt has been guaranteed under the provisions of this Program, for payment of all or any portion of a guaranteed obligation in default shall be made in writing to the Chief, Financial Services Division, F/UD5, 3300 Whitehaven St., NW., Washington, D.C. 20235, by certified mail, return receipt requested. In the event the Program does not acknowledge timely receipt of a demand alleged to have been timely made, the demander must possess evidence of the demand's timely delivery to the Program. Payment of demands shall be made within 30 days after receipt of a timely demand by the Chief, Financial Services Division. Demands may be made by Obligees' duly authorized agents or trustees.

§ 255.14 Default/liquidation of collateral.

(a) Default. In the event of default by an Obligor which results in the payment by the Program to an Obligee of the guaranteed debt, the Program shall ordinarily foreclose on its collateral and institute personal collection proceedings against the Obligor and the guarantors of the financing. At the Program's sole discretion, other remedies which are deemed most appropriate to protect the Program's interest may be pursued.

(b) Liquidation of collateral. If the Program is the highest bidder at a foreclosure sale of collateral, the Program (as the new owner of the collateral) may, in its sole discretion, subsequently complete, recondition, reconstruct, renovate, repair, maintain, operate, charter, lease, or sell such collateral. In the event there is a willing buyer for such collateral at an amount at least equal, or almost equal, to the amount owed the Program, the Program may convey title to such collateral, upon proper payment, without competitive bidding or other contracting procedures. If there is not a willing buyer for such collateral at an amount equal, or almost equal, to the amount owed the Program, the collateral will ordinarily be disposed of by competitive bidding-unless the Program decides that it can best recover without competitive bidding. Any deficiency re

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(a) Secretary. The Secretary of the Interior or his authorized representative.

(b) Administrator. The Maritime Administrator in the Department of Commerce or his authorized representative.

(c) Director. The Director, Bureau of Commercial Fisheries, Department of the Interior, or his authorized representative.

(d) Person. Individual, association partnership or corporation, or any one or all as the context requires.

(e) Fishery. A segment of the commercial fishing industry engaged in the catching of a single species or a group of species of fish and shellfish. Any other species taken must be caught incidentally while fishing for and using gear designed for the capture of the species comprising the fishery.

(f) Expanded areas. Fishing grounds not usually fished by the majority of the vessels operating in the fishery for which the proposed vessel is designed.

(g) Newly developed gear. The most modern gear available that is suitable for use in the fishery for which the proposed vessel is designed.

§ 256.3 Eligibility requirements.

(a) Vessel will be of advance design: In order to be considered to be of advance design, the vessel must be designed to have significant advantages in utility and efficiency over a significant number of vessels engaged in the fishery in which the proposed vessel is designed to operate.

(b) No economic hardship to efficient vessel operators: The determination that operation of a proposed vessel will not cause economic hardship to efficient vessel operators already operating in that fishery shall be made by the Secretary after notice and hearing, taking into consideration the condition of the resource, the efficiency of the vessels and gear being operated in that fishery compared with the proposed vessel, the prospects of the market for the species caught, and the degree and duration of any anticipated economic hardship.