Wallis N. Boggus Capitol Services, Inc. 800 Brazos, Suite 1100 Austin, Texas FAX: BIOGRAPHICAL INFORMATION

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1 Wallis N. Boggus Capitol Services, Inc. 800 Brazos, Suite 1100 Austin, Texas FAX: BIOGRAPHICAL INFORMATION PROFESSIONAL ACTIVITIES ARTICLES Uniform Commercial Code and Registered Agent Services, Capitol Services, Inc., 2000 to present Director, Uniform Commercial Code Section, Texas Secretary of State, Chairman, Secured Transactions Section, International Association of Corporation Administrators, Chairman, Filing Officer Group, Revised Article 9 Task Force Member, Technology Advisory Group, Revised Article 9 Task Force Consultant for International Secured Transactions Registries, Checchi Consulting, Inc. and the U.S. Agency for International Development UCC Revised Article 9 Filing System: The Next Generation UCC Filing Office: Not a Perfect World, The Secured Lender, 1992 EDUCATION M.B.A., B.B.A.

2 Revised UCC Article 9 Filing System The Next Generation State Bar of Texas LAU Seminar Revised Article 9 The First 2 Years October 2, 2003 San Antonio, Texas By Wallis N. Boggus CAPITOL SERVICES, INC. 800 Brazos, Suite 1100 Austin, Texas wboggus@capitolservices.com

3 I. INTRODUCTION...1 II. BACKGROUND...1 III. PREPARING THE FINANCING STATEMENT...1 A. MEDIA NEUTRALITY...1 B. SIGNATURE REQUIREMENTS...1 C. DEBTOR NAME...1 D. COLLATERAL...3 IV. COMMUNICATING THE RECORD TO THE FILING OFFICE...3 A. METHOD OR MEDIUM OF COMMUNICATION...3 B. NATIONAL FORM FINANCING STATEMENT AND AMENDMENT...4 C. DETERMINATION OF JURISDICTION...4 D. CENTRAL FILING OFFICES...4 E. FOREIGN DEBTORS...4 F. FILING FEES...4 V. FILING OFFICE PROCEDURES...5 A. MODEL ADMINISTRATIVE RULES ( MARS )...5 B. GROUNDS FOR REJECTION...5 C. FILE NUMBERS...6 D. DEBTOR NAME INDEXING...6 E. RECORDS DURATION AND OFFICE RETENTION...7 F. RA9 FILING SYSTEM OR OPEN DRAWER CONCEPT...7 VI. SEARCHING THE FILING SYSTEM...7 A. OFFICIAL RECORDS...7 B. FILING OFFICE STANDARD SEARCH LOGIC...8 C. DETERMINATION OF JURISDICTION...8 D. DEBTOR NAME...8 E. SEARCH REQUEST FEES...8 VII. TRANSITION...8 A. IN LIEU OF CONTINUATION STATEMENT FILING...9 B. REAL CONTINUATION...9 C. 1-YEAR SAFE HARBOR...9 D. PARALLEL SEARCH SYSTEMS...9 VIII. CONCLUSION...10 APPENDIX A...11 UCC FINANCING STATEMENT FORMS...11 APPENDIX B...20 IACA MODEL ADMINISTRATIVE RULE 407 & 408 (DEBTOR NAME INDEXING).20 APPENDIX C...22 IACA MODEL ADMINISTRATIVE RULE 503 (SEARCH LOGIC)...22 i

4 Revised UCC Article 9 Filing System: The Next Generation A comparative primer on filing, searching, and transition I. INTRODUCTION Imagine a UCC filing system where you are not required to file and search in multiple filing offices across the nation; a system that does not require the searcher to ponder and search all conceivable names for a debtor that a secured lender may have specified in a financing statement; a system where filing office discretion to reject filings is minimized, formalized, and uniform; a system that offers nearly real-time information. You have just imagined the next generation UCC filing system envisioned for UCC Article 9. II. BACKGROUND The National Conference of Commissioners on Uniform State Laws has not significantly revised Article 9 of the Uniform Commercial Code since 1972, and no revisions have been as significant as the current Revised UCC Article 9 that has now been adopted or is under consideration for adoption in most states. Effective July 1, 2001, Revised UCC Article 9 ( RA9 ) will offer greater certainty in financial transactions through clarification, simplification, and modernization of the nation s secured transaction process. The filing provisions of RA9 authorize filing by electronic means that will enable filing officers to create systems that go beyond the paperbound systems that exist today and create filing systems for the new millennium. RA9 promotes uniformity among states from forms to practice through the creation of a national form and delegation of uniform procedural model rule-making responsibility to the International Association of Corporation Administrators. This article offers a review of significant RA9 changes with a unique focus on changes that impact the operation of the filing office. The article explores how filing systems will operate under RA9, providing a comparative primer on filing, searching, and transition. 1 III. PREPARING THE FINANCING STATEMENT A. Media Neutrality Paperbound terminology in prior law, such as writings, used to describe such things as financing statements was eliminated and replaced with media neutral terminology. RA9 adopts the media neutral term, record to define the collection of information that comprises a financing statement. The word, presentation used in the prior law to describe financing statement transmittal to the filing office, was replaced with the word, communicate. RA9 s modern terminology clarifies the sufficiency of electronic filing and any other means of communication that may be devised in the future. As a result, RA9 promotes electronic and other modes of communicating records to the filing office in every way, shape, and form. B. Signature Requirements The current reference to signed used in prior article 9 was abandoned in favor of a media neutral term authenticate which further eliminates any perceived requirement to file paper. Financing statement filings, which include amendments, terminations, assignments, and continuations by definition, will no longer require signatures of either the debtor or secured party. However, the debtor must authenticate the security agreement or otherwise authorize the filing of a financing statement or an amendment that adds collateral. C. Debtor Name RA9 provisions relating to specifying the debtor in a financing statement are clear: the secured lender has to get the name right. Type of organization, organizational ID, and the state of organization are new debtor related elements designed to spur the lender to obtain and review organizational records so that the exact legal name of the debtor can be specified. Filing under a trade name of the debtor, either organizational or individual, will most likely be ineffective due to RA9 s clarity on what causes a financing statement to be seriously misleading. Filers must

5 identify the debtor name as an individual or an organization because individual names consist of components (last, first, middle, suffix) that may be varied to some degree and discovered through application of computer search logic. National forms (Appendix I) prescribed by RA9 are formatted to assist the lender in compliance with the new requirements and include explicit instructions in regard to specifying the name of the debtor. Under prior law, financing statements were sufficient even if they contained minor errors if the errors were not seriously misleading. An incorrect debtor name specified in a filing was often deemed to be a minor error not seriously misleading even though the filing was not revealed in response to a search of the filing office records under the correct name of the debtor. Prior law offered no guidance or standards to determine when errors were misleading, which led to questionable decision-making by the courts. RA9, on the other hand, prescribes a search test standard for determining sufficiency whereby financing statements not revealed by search of the official records under the correct name of the debtor using the standard search logic of the filing office are seriously misleading, and therefore ineffective. If the debtor is a corporation, limited liability company, limited partnership, or other entity registered with the state, the debtor name is the exact name of the entity as registered with the state. Reliance on either a secretary of state or private database search to verify the name of an organization is insufficient due to possible aberrations in data entry at the filing office. Inspection of organizational documents filed with the state is essential. Verifying the name of an organization registered with the state is highly objective if the secured lender relies on organizational documents in the form of copies available from the registration office. But what about individuals like, John Doe? Is there an official record that can be relied upon to verify the name of an individual? Perusing personal documents such as a birth certificate, social security card, driver s license, credit card, and other identification may be useful to discover name usage variations, but how reliable are these records and do they substantiate the correct name? Individuals can and do change their names. Customarily, American women adopt their husband s surname at marriage. However, women sometimes adopt both family surnames with a hyphen like Alice Smith-Jones. Some individuals decide to adopt completely new identities. Entertainers are likely to adopt new names that seem to fit or portray the desired image. More common are nicknames that seem to attach to individuals in the form of given names like Bob for Robert, Jeff for Jeffrey, and Beth for Elizabeth. Also, naming conventions vary internationally by culture. In America, a surname or family name is thought of as the last name. However, many Asian cultures adopt the surname or family name as the first name. Therefore, determining the correct name of an individual for filing purposes is somewhat problematic in that it involves a subjective process with some risk of error. The level of risk that a secured lender perceives may justify the requirement that the individual organize as a registered entity. Things to do and consider when naming a debtor that is an individual in a financing statement: 1. Examine, copy, and retain multiple identification records to reveal name variations. (i.e., social security card, driver s license, tax returns, etc.) For example, if all of these records identify the name of the debtor as Elizabeth Kay Smith, footing is established for use of the name Elizabeth even though she may go by or appear to sign Beth. What, if these records show different names, should more weight be given to certain records? Perhaps the individual s usage of a nickname should be factored into the analysis? Since such a decision requires a lot of subjective judgment, the prudent secured lender will opt to record financing statements on multiple names. 2. Is the surname or family name the first or the last name? If it is the first name, the RA9 financing statement form instructions (1.b) specify that the surname should be identified as the last name. Determine which of the remaining names represent the first given name. The remaining names are identified as middle names. 3. If the individual has only one name such as Cher, the name should be listed in the space provided for last name. 4. Don t rely on signatures, even if legible, to discern the name of an individual. A signature is not the name of an individual. 2

6 An individual s signature is merely a symbol adopted to authenticate records. Valid signatures may include an X, a thumbprint, and a happy face. 5. Trade names adopted by individuals and organizations are not correct debtor names. A trade name does not represent a legal entity apart from the individual. The debtor is the individual and the name of the debtor is the name of the individual. However, a partnership with a partnership agreement is an organization. 6. Never combine multiple debtor names like: LAST NAME FIRST NAME MIDDLE NAME SUFFIX Smith Jack and Jill N. and M. LAST NAME FIRST NAME MIDDLE NAME SUFFIX Jack Smith DBA/Jack s U Serve 7. Do identify suffix to distinguish filings by lineage: LAST NAME FIRST NAME MIDDLE NAME SUFFIX Smith Jack N. Jr. 8. Proof spelling of the debtor name on the financing statement. The following would be a fatal error presuming the last name was Smith: LAST NAME FIRST NAME MIDDLE NAME SUFFIX Smit Jack N. Jr. D. Collateral The scope of collateral in which a security interest can be perfected by filing is expanded under RA9. Some of the new items are software license fees, instruments, stock certificates, and credit card receivables. Judicial decisions under prior law did not permit generic collateral descriptions such as all assets. However, RA9 expressly authorizes an all assets or all personal property collateral description. IV. Communicating the Record to the Filing Office A. Method or Medium of Communication Some states, like Texas and Iowa, developed electronic filing systems for use under prior law, but secured lenders were concerned about the legal sufficiency of electronic filing because prior law used paperbound terminology and did not explicitly authorize electronic filing. RA9, however, explicitly authorizes electronic filing by permitting a financing statement record to be communicated to the filing office by any method or medium of communication authorized by the filing office. Because the filing office is given broad discretion to authorize communication methods or mediums, the filing office can authorize electronic filing and even do so exclusively, eliminating written or paper form filing altogether. Even though RA9 provisions permit the filing office to eliminate paper form filing, no filing office is planning to eliminate paper filing in the near term. Filing officers will lead the way to paperless filing by developing electronic filing solutions, however, secured lenders must adopt these paperless systems in order to ultimately improve filing office performance. Improving and sustaining the performance of the filing office is dependent on minimizing, if not eliminating, paper form filing. UCC filing systems can only operate as efficiently as the least efficient process. Paper form recording is expensive, labor intensive, time consuming, error prone and reduces the ability of filing office to meet secured lender expectations. The filing office cannot fulfill a search request by a lender to reflect all filings through the lender s file date (known as Through-date or Certdate ) until the office has processed all records received through the lender s file date. Because there are numerous factors that affect filing office performance under the current paperbound regime, it may take days, sometimes weeks, for the filing office to record all paper forms received through the lender s file date. Use of paperless recording technology is key to improving filing office efficiency. 3

7 B. National Form Financing Statement and Amendment In a cooperative effort, filing officers of the International Association of Corporation Administrators ( IACA ) developed a written form financing statement and amendment acceptable by all filing jurisdictions. As a result, RA9 prescribes these forms for filing in a filing office that accepts written records. Since 1995 many states have accepted a similar form designed to allow all parties to transition to the new financing statement format. The format and field elements of the form are designed to improve information gathering and presentation by secured lenders and increase the reliability of filing office recording. RA9 forms reduce filing office guesswork by improving the clarity of communication between the secured lender and the filing office. C. Determination of Jurisdiction unitary filing approach that involves county clerks or other local recorders, however, a central database should be maintained whereby complete searches and copies of UCC records are available from the central filing office and local offices. Filing with the office of the secretary of state under RA9 is required to perfect a security interest or agricultural lien except where filing is required with the county clerk or other office designated for the filing or recording of a mortgage on the related real property, if: 1. the collateral is as-extracted collateral or timber to be cut; or 2. the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures. E. Foreign Debtors The proper place to file with respect to foreign debtors is in the District of Columbia. After all states enact RA9, multi-jurisdictional filing will become extinct with the exception of nebulous collateral that may or may not be fixtures, in which case it may be prudent to record a financing statement in the central filing office and a fixture filing in the office where mortgages on real property are recorded. Prior law requires filing in each and every state where a debtor s collateral is located or relocated. The place of filing under RA9 is either, a) state of organization if the organization is registered with a state; b) state of the chief executive office if the organization is unregistered and has more than one place of business; or, c) state where an individual resides in the case of an individual or sole proprietor. As a result, in most cases only a single filing in a single state filing office will be required even though the debtor s collateral is located in a number of states. D. Central Filing Offices Under prior article 9 variations in many states, filers were required to file identical financing statements with both the secretary of state and another local filing office. Dual filing is not an alternative under RA9 nor have any adopting states thus far manufactured a variation to continue the requirement of dual filing. Under RA9, some states may adopt a decentralized or 4 F. Filing Fees In most filing offices under prior law, filing fees were based on use or nonuse of the state approved written standard forms and other variables such as the specified number of debtor names and the number of pages of the financing statement. RA9 prescribes a user-friendly fee structure driven by method of communication that is designed to offer a significant discount to users of electronic filing. Actual filing fees may vary by state, but RA9 fees for Texas are as follows in part: (1) $15 if the record is communicated in writing and consists of one or two pages; (2) $30 if the record is communicated in writing and consists of more than two pages; and (3) $5 if the record is communicated by another medium (i.e., electronic) authorized by filing-office rule; (4) $60 if the financing statement indicates that it is filed in connection with a publicfinance transaction; and (5) $60 if the financing statement indicates that it is filed in connection with a manufactured-home transaction.

8 V. FILING OFFICE PROCEDURES A. Model Administrative Rules ( MARS ) RA9 requires uniformity among states to the extent possible and does so elegantly with respect to the most transparent issues of filing office operation such as: acceptable mediums of communication, filing and indexing procedures, rejection reasons, and search methodology. While RA9 provides more explicit direction to filing officers with respect to filing procedures than prior law, the filing officer is still required to engineer most of the operating procedures for the filing office. To that end, however, RA9 cleverly delegates model procedural rule-making responsibility to the International Association of Corporation Administrators ( IACA ), an association of high-level corporation and UCC filing office administrators. UCC filing officers of IACA were involved in the development of RA9 from ground zero and contributed valuable expertise regarding filing system operation. Significant products of the IACA filing officers included the development of a nationally accepted written financing statement and model administrative rules ( MARS ). MARS is an extremely comprehensive policies and procedures manual developed primarily for implementation by all filing offices in the country to achieve uniformity and secondarily to communicate filing office policy and procedures to the public served by the filing office. MARS covers topics from office hours and filing fees to record indexing and search logic. Recognizing IACA members unique expertise, RA9 specifically requires the secretary of state to consult with the most recent version of MARS promulgated by IACA and to report to the Legislature periodically on the operation of the filing office including a statement regarding the extent to which the rules adopted by the filing office are not in harmony with the most recent version of MARS. Cooperation of IACA filing officers on uniform efforts such as MARS offers the best chance for lasting filing office uniformity within the current state law framework. statutory reason for filing office refusal to accept, filing occurs nonetheless when a financing statement has been communicated to the filing office by a method or medium acceptable by the filing office. As a result, greater uniformity and less subjectivity with respect to filing office acceptance policy should ensue. According to RA9, the filing office may only reject records for the following reasons: For Initial Financing Statements: 1. The record does not provide a name for the debtor. 2. The record does not indicate whether the debtor is an individual or an organization. 3. If the debtor is identified as an individual, the record does not identify the debtor's last name. 4. If the financing statement indicates that the debtor is an organization, the record does not provide the following: a. Type of organization for the debtor; b. Jurisdiction of organization for the debtor; or c. Organizational identification number for the debtor or indicate that the debtor has none. 5. The record does not provide a mailing address for the debtor. 6. The record does not provide a name and mailing address for the secured party of record. 7. If an assignment is reflected, the record does not provide a name and mailing address for the assignee. B. Grounds for Rejection The filing office has no burden to judge the sufficiency of filings as a condition for filing nor is the filing office required to notify the lender regarding possible defects. In the absence of any 5

9 For Amendments: Amendments include termination, continuation, assignment, party information and collateral change records. 1. The record fails to identify by file number the initial financing statement to which it relates. 2. The record identifies an initial financing statement whose effectiveness has lapsed. 3. A continuation statement is not filed within the prescribed 6-month window. 4. A statement of assignment fails to provide the name and mailing address for assignee. 5. Amendment that adds a debtor must provide financing statement required information regarding the debtor (see above Financing statement 1-5). 6. Amendment that adds a secured party must provide a name and mailing address for the secured party. For Both Initial Financing Statements and Amendments: 1. The record is not communicated by a method or medium of communication authorized by the filing office. 2. An amount equal to or greater than the applicable filing fee is not tendered. C. File Numbers The file number assigned by the filing office to an initial financing statement under RA9 has two functions. The primary function of the number is to sufficiently identify each filing and supply a unique key for reference purposes. Additionally, RA9 adds a check digit component to the file number useful in determining the acceptability of subsequent amendment filings. Under prior law, filing offices compared secured party or debtor names on the amendment to the financing statement record to determine the acceptability of amendment filings. The current practice is subjective, judgmental, error prone and as a result is not permitted under RA9. Under RA9, the filing office is authorized to reject amendment filings when the amendment does not reference a valid filing number for a financing statement. Because the filing office assigns filing numbers to financing statements sequentially, it would not be difficult for the secured lender to accidentally reference a file number for a financing statement that he did not have an interest. The check digit cleverly substitutes for the function of secured party or debtor name matching by the filing office. For example, if the secured lender transposed two digits in the file number, the check digit would allow the filing office to objectively determine that the file number was invalid and provide cause for refusal. Due to the technical change involved to implement the check digit scheme, RA9 permits the filing office to delay deployment until January 1, D. Debtor Name Indexing Knowledge of filing office debtor name indexing and search procedures is key to understanding the inner workings of the UCC filing system and the premium placed on getting the debtor name right. Current rules 407 and 408 (Appendix II) of the IACA Model Administrative Rules ( MARS ) outline filing office debtor name indexing procedures. Rule 407 relates to the submission of a record within a form such as the written form UCC Financing Statement prescribed by RA9 that contains designated fields for individuals and organizations and, if an individual, the specific components; last (surname/family name), first, middle, suffix. Rule 408 describes the filing office indexing procedures in the event the record is communicated on a form that does not contain designated fields. It is important to recognize that the filing office is authorized to make certain indexing judgments following Rule 408 when the record is communicated within a form that does not contain designated fields. It is equally important to recognize that the filing office is not authorized to make indexing judgments following Rule 407 for a record that is communicated within a form that contains designated fields such as the RA9 prescribed financing statement. 6

10 E. Records Duration and Office Retention Under RA9, financing statements and related amendments may be purged from the filing office records no sooner than one year after the effectiveness of a filed financing statement has lapsed with respect to all secured parties of record. The effectiveness of a filed financing statement will lapse unless a continuation statement is filed within the 6-month window preceding the expiration of the effective term of the financing statement. Financing statements lapse five years after the date of filing with the exception of a financing statement filed in connection with a public-finance or manufactured-home transaction which is effective for 30 years after the date of filing and a financing statement filed in connection with a transmitting utility which is effective indefinitely unless terminated. F. RA9 Filing System or Open Drawer Concept Under prior law, filing officers exercised precarious judgment regarding the refusal of financing statements and amendments. Filing office refusal to record financing statements and amendments caused concern that hidden liens could be created by action of the filing office, because prior law similar to RA9, provides that filing occurs upon presentation of the financing statement along with tender of the filing fee. Therefore, a financing statement or amendment presented to the filing office but rejected may nonetheless be filed. As a result, RA9 expressly prescribes limited grounds for refusal of financing statements and amendments by the filing office. Filing office recording and indexing actions relative to amendments were also cause for concern under prior law because certain filing office actions that manifest in search reports may inadvertently presume the legal status of the financing statement and the underlying parties to the filing. The filing office assumed the burden of dissecting the interest of secured parties to assist searchers, which led to excessive reliance by secured lenders on search reports from the filing office. As a result of confusion with respect to filing office duties and responsibilities under prior law, RA9 and MARS clarify filing office operation, shifting the burden of determining the legal effect of filing office records and the status 7 of parties associated to the records to the secured lenders that review them. In compliance with RA9 or MARS, recording action by the filing office relative to a financing statement amendment will not result in the deletion of previously filed financing statement or amendment information. Assignments and amendments that add or change debtor or secured party information will result in additions to, but not deletions from, the financing statement record. A secured party termination statement will not inactivate the financing statement or otherwise affect the record status of any debtor or secured party. Only expiration of the effective term of the financing statement will cause the change in record status of the filing from active to inactive. A continuation statement filed by only one of multiple secured parties of record will not cause the filing office to inactivate the record status of other secured parties that did not continue their interests. The continuation will continue the filing for an additional effective term and the filing system will reflect all parties even though one or more parties may not legally have an interest in the financing statement. All financing statement and amendment information will be provided to searchers until lapse and one year after if requested. Researchers will have the burden of determining legal effect and will no longer be able to rely on filing office action such as the exclusion of terminated or non-continued interests or the change or deletion of information as a basis for determining legal effect or the legal status of the parties. VI. SEARCHING THE FILING SYSTEM A. Official Records It is important to recognize that RA9 imposes a search test to determine the sufficiency of a financing statement with an inexact debtor name based on a search of the records of the filing office using the filing office standard search logic. Venue shopping for search results under prior law to justify financing statement sufficiency has caused uncertainty and a lack of confidence in the effectiveness of the filing system. Involved in a priority dispute under prior law, a lender that recorded a financing statement on the incorrect name of the debtor was quick to produce evidence that the filing was revealed in response to a search of a private database under the correct name. With

11 respect to searches conducted via private database search providers, these searches probably do not constitute a search of the filing office records using filing office standard search logic. Private database search providers purchase UCC records in bulk computer format from the filing office and import the data into private database systems that operate privately developed search logic and client interfaces. Generally, UCC records acquired by private companies become private company records upon transmission to the private company beyond the control of the filing office. With respect to search logic, private database search providers typically provide broader search results than the results from the filing office using the standard filing office search logic. Certainly useful for a variety of purposes including the discovery of filings that need to be corrected, secured lenders should exercise caution in reliance on private database searches to determine the sufficiency of financing statements. B. Filing Office Standard Search Logic Filing systems today are highly automated, meaning that to a great extent both input and output is dependent upon specified logic in the form of a computer program. Typically, highvolume filing states such as California, Florida, New York, and Texas rely almost exclusively on embedded computer search logic to fulfill search requests on debtor names while lower volume filing offices tend to use a combination of human and computer logic to compile search results. Reliance on computer logic exclusively eliminates the inconsistency of human judgment and increases searcher confidence in the filing system search function. MARS Rule 503 (Appendix III) outlines the standardized search logic prescribed by IACA for use by filing offices. The logic outlined in Rule 503 is designed for filing offices that manage UCC records utilizing a computer system and the logic is designed for exclusive application without human judgment. The logic is not intended for use within manual or nonautomated filing systems. The search logic allows the filing office to create standardized search strings for the financing statement record at the time of recording and to standardize the search criteria in a reflective fashion at the time of searching. Applying the logic reduces the undesirable effects of computer-based searching by eliminating the significance of spacing, punctuation, and letter case. Further, the logic eliminates the significance of common business name endings like Inc, Company, Co., etc., and the word the that may appear at the beginning of a name. Rule 503 also prescribes special logic applicable to individual names allowing some limited variability in search name specification. C. Determination of Jurisdiction For 5 years beginning July 1, 2001, searches will need to be conducted in the state where the debtor is organized or located and in any other jurisdiction where the debtor does business or where assets of the debtor may or may have been located. After the 5-year transition period, searches need only be conducted consistent with RA9 place of filing provisions, so long as every state adopts RA9 with the prescribed July 1, 2001, effective date. D. Debtor Name The secured lender should search under the correct name of the debtor she intends to record a financing statement against or perform a search to reflect or same debtor search to request the filing office to automatically search under the debtor name specified in the financing statement. E. Search Request Fees Similar to filing fees, RA9 offers a simpler communication-based structure designed to provide a significant discount for use of electronic searching. Actual search fees may vary by state, but the RA9 fees for Texas, for example, are as follows: (1) $15 if the request is communicated in writing; and (2) an amount established by the filing office if the request is communicated by another medium authorized by filing-office rule. VII. TRANSITION The following summary oversimplifies the transition of prior law transactions for compliance with RA9. Application of the transition provisions requires secured transaction analysis by legal counsel on a case-by-case basis as certain 8

12 transactions involve unique transition requirements. RA9 provides that financing statements effective under prior law will continue to be effective under RA9 until they lapse. Prior to lapse of prior law financing statements or July 1, 2006, whichever occurs first, prior law filings must be continued in the new filing jurisdiction if the initial financing statement was recorded in a jurisdiction other than where the debtor is organized or located. Prior law financing statements must be amended to comply with RA9 within the 1-year safe harbor provision. A. In lieu of Continuation Statement Filing When an initial financing statement was not recorded in the state of organization, the secured lender should record an in lieu continuation statement in the state of organization. An in lieu filing may be recorded at any time after adoption of RA9 but before the financing statement would otherwise lapse in the prior filing office. An inlieu filing is a new RA9 compliant financing statement that identifies the prior financing statement and most recent continuation statement and includes the filing office, date, filing number and indicates that the pre-effective-date financing statement remains effective. While not required by RA9, copies of the subject financing statement and associated amendments should be attached to the in-lieu filing. An in-lieu continuation filing achieves relate-back priority to the initial filing date of the financing statement in the old jurisdiction. B. Real Continuation When an initial financing statement was recorded in the state of organization, the secured lender should record a real continuation statement on the normal schedule (within 6 months prior to expiration). If the debtor name and collateral description is insufficient under revised article 9, the secured lender should record an amendment as soon as possible after the effective date of RA9 to ensure compliance with RA9. 9 C. 1-Year Safe Harbor The safe harbor rule was designed to give secured lenders the ability to shore-up secured transactions and/or filings that complied with prior law but do not satisfy the requirements of RA9. Example, if the correct name of debtor is A & B, Inc. but the secured lender specified, A and B, Inc., the financing statement should be amended to reflect the correct name. Search logic used by many filing offices today would equate and with &, but under MARS no words or symbols are made equivalent to any other words or symbols. So, while the secured lender s filing would pass the search test for sufficiency of the debtor name today, it would not pass under RA9. Secured parties must therefore: 1. File financing statements or otherwise comply with RA9 requirements for transactions that did not require filing under prior law; and 2. Amend existing financing statements that are outdated or flawed in some way for use under RA9 so they comply with RA9 requirements. D. Parallel Search Systems Complete transition to RA9 will require at least 5 years to accomplish, or until all prior law filings have either lapsed or have been continued under RA9. During the interim, searches must be conducted under both RA9 and prior law. This means that if the debtor does business in multiple states then searches must be conducted in all states where the debtor does business and where the debtor s collateral may be or may have been located (prior law) and where the entity was organized or is located (RA9). To further complicate matters, MARS prescribes search logic that is perhaps stricter than the search logic used by many filing offices under current law so it may be necessary for filing offices to provide search capability under both prior law and RA9 search conditions. Ideally, states will maintain a cut-off database for searching for prior law filings using prior law search logic. If RA9 search logic is stricter than the logic employed by a given filing office under prior law, it will be imperative that the filing office segregate the prior law filings from RA9 filings in some way so that prior law

13 search logic does not operate to reveal RA9 filings, otherwise confusion may be created regarding the sufficiency of RA9 filings that are not revealed using RA9 search logic, but revealed using prior law search logic. VIII. CONCLUSION Change is not easy and it is unlikely that transition from prior law to RA9 will be any exception. Transition may prove to be a foggy passage to greater certainty, simplicity, clarity, flexibility, and uniformity in the country s secured financing system. When the fog lifts at the end of the transition period, smooth sailing should prevail and RA9 should prove to accelerate the efficiency and effectiveness of the secured financing process. Filing officers throughout the country are challenged to meet RA9 expectations by replacing today s non-uniform filing systems with uniform filing systems geared for the next generation. Filing officers play an important role in advancing the cause of RA9, charting the course for future filing systems, and lessening the impact of change during the transition. However, the most significant parties to RA9 are secured lenders who can turn the prospect of next generation filing systems into reality by adopting paperless filing systems authorized by the filing office. 10

14 APPENDIX A Revised UCC Article 9 UCC Financing Statement Forms 11

15 UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS (front and back) CAREFULLY A. NAME & PHONE OF CONTACT AT FILER [optional] B. SEND ACKNOWLEDGMENT TO: (Name and Address) THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) - do not abbreviate or combine names 1a. ORGANIZATION'S NAME OR 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 1c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 1d. TAX ID #: SSN OR EIN ADD'L INFO RE ORGANIZATION DEBTOR 1e. TYPE OF ORGANIZATION 1f. JURISDICTION OF ORGANIZATION 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) - do not abbreviate or combine names 2a. ORGANIZATION'S NAME 1g. ORGANIZATIONAL ID #, if any NONE OR 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 2c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 2d. TAX ID #: SSN OR EIN ADD'L INFO RE ORGANIZATION DEBTOR 2e. TYPE OF ORGANIZATION 2f. JURISDICTION OF ORGANIZATION 3. SECURED PARTY'S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P) - insert only one secured party name (3a or 3b) 3a. ORGANIZATION'S NAME 2g. ORGANIZATIONAL ID #, if any NONE OR 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 3c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 4. This FINANCING STATEMENT covers the following collateral: 5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCC FILING 6. This FINANCING STATEMENT is to be filed [for record] (or recorded) in the REAL 7. Check to REQUEST SEARCH REPORT(S) on Debtor(s) ESTATE RECORDS. Attach Addendum [if applicable] [ADDITIONAL FEE] [optional] All Debtors Debtor 1 Debtor 2 8. OPTIONAL FILER REFERENCE DATA FILING OFFICE COPY NATIONAL UCC FINANCING STATEMENT (FORM UCC1) (REV. 07/29/98)

16 Instructions for National UCC Financing Statement (Form UCC1) Please type or laser-print this form. Be sure it is completely legible. Read all Instructions, especially Instruction 1; correct Debtor name is crucial. Follow Instructions completely. Fill in form very carefully; mistakes may have important legal consequences. If you have questions, consult your attorney. Filing office cannot give legal advice. Do not insert anything in the open space in the upper portion of this form; it is reserved for filing office use. When properly completed, send Filing Office Copy, with required fee, to filing office. If you want an acknowledgment, complete item B and, if filing in a filing office that returns an acknowledgment copy furnished by filer, you may also send Acknowledgment Copy; otherwise detach. If you want to make a search request, complete item 7 (after reading Instruction 7 below) and send Search Report Copy, otherwise detach. Always detach Debtor and Secured Party Copies. If you need to use attachments, use 8-1/2 X 11 inch sheets and put at the top of each sheet the name of the first Debtor, formatted exactly as it appears in item 1 of this form; you are encouraged to use Addendum (Form UCC1Ad). A. To assist filing offices that might wish to communicate with filer, filer may provide information in item A. This item is optional. B. Complete item B if you want an acknowledgment sent to you. If filing in a filing office that returns an acknowledgment copy furnished by filer, present simultaneously with this form a carbon or other copy of this form for use as an acknowledgment copy. 1. Debtor name: Enter only one Debtor name in item 1, an organization's name (1a) or an individual s name (1b). Enter Debtor s exact full legal name. Don t abbreviate. 1a. Organization Debtor. Organization means an entity having a legal identity separate from its owner. A partnership is an organization; a sole proprietorship is not an organization, even if it does business under a trade name. If Debtor is a partnership, enter exact full legal name of partnership; you need not enter names of partners as additional Debtors. If Debtor is a registered organization (e.g., corporation, limited partnership, limited liability company), it is advisable to examine Debtor s current filed charter documents to determine Debtor's correct name, organization type, and jurisdiction of organization. 1b. Individual Debtor. Individual means a natural person; this includes a sole proprietorship, whether or not operating under a trade name. Don t use prefixes (Mr., Mrs., Ms.). Use suffix box only for titles of lineage (Jr., Sr., III) and not for other suffixes or titles (e.g., M.D.). Use married woman s personal name (Mary Smith, not Mrs. John Smith). Enter individual Debtor s family name (surname) in Last Name box, first given name in First Name box, and all additional given names in Middle Name box. For both organization and individual Debtors: Don t use Debtor s trade name, DBA, AKA, FKA, Division name, etc. in place of or combined with Debtor s legal name; you may add such other names as additional Debtors if you wish (but this is neither required nor recommended). 1c. An address is always required for the Debtor named in 1a or 1b. 1d. Debtor s taxpayer identification number (tax ID #) social security number or employer identification number may be required in some states. 1e,f,g. Additional information re organization Debtor is always required. Type of organization and jurisdiction of organization as well as Debtor s exact legal name can be determined from Debtor s current filed charter document. Organizational ID #, if any, is assigned by the agency where the charter document was filed; this is different from tax ID #; this should be entered preceded by the 2-character U.S. Postal identification of state of organization if one of the United States (e.g., CA12345, for a California corporation whose organizational ID # is 12345); if agency does not assign organizational ID #, check box in item 1g indicating none. Note: If Debtor is a trust or a trustee acting with respect to property held in trust, enter Debtor's name in item 1 and attach Addendum (Form UCC1Ad) and check appropriate box in item 17. If Debtor is a decedent's estate, enter name of deceased individual in item 1b and attach Addendum (Form UCC1Ad) and check appropriate box in item 17. If Debtor is a transmitting utility or this Financing Statement is filed in connection with a Manufactured-Home Transaction or a Public-Finance Transaction as defined in applicable Commercial Code, attach Addendum (Form UCC1Ad) and check appropriate box in item If an additional Debtor is included, complete item 2, determined and formatted per Instruction 1. To include further additional Debtors, or one or more additional Secured Parties, attach either Addendum (Form UCC1Ad) or other additional page(s), using correct name format. Follow Instruction 1 for determining and formatting additional names. 3. Enter information for Secured Party or Total Assignee, determined and formatted per Instruction 1. If there is more than one Secured Party, see Instruction 2. If there has been a total assignment of the Secured Party s interest prior to filing this form, you may either (1) enter Assignor S/P s name and address in item 3 and file an Amendment (Form UCC3) [see item 5 of that form]; or (2) enter Total Assignee s name and address in item 3 and, if you wish, also attaching Addendum (Form UCC1Ad) giving Assignor S/P s name and address in item Use item 4 to indicate the collateral covered by this Financing Statement. If space in item 4 is insufficient, put the entire collateral description or continuation of the collateral description on either Addendum (Form UCC1Ad) or other attached additional page(s). 5. If filer desires (at filer's option) to use titles of lessee and lessor, or consignee and consignor, or seller and buyer (in the case of accounts or chattel paper), or bailee and bailor instead of Debtor and Secured Party, check the appropriate box in item 5. If this is an agricultural lien (as defined in applicable Commercial Code) filing or is otherwise not a UCC security interest filing (e.g., a tax lien, judgment lien, etc.), check the appropriate box in item 5, complete items 1-7 as applicable and attach any other items required under other law. 6. If this Financing Statement is filed as a fixture filing or if the collateral consists of timber to be cut or as-extracted collateral, complete items 1-5, check the box in item 6, and complete the required information (items 13, 14 and/or 15) on Addendum (Form UCC1Ad). 7. This item is optional. Check appropriate box in item 7 to request Search Report(s) on all or some of the Debtors named in this Financing Statement. The Report will list all Financing Statements on file against the designated Debtor on the date of the Report, including this Financing Statement. There is an additional fee for each Report. If you have checked a box in item 7, file Search Report Copy together with Filing Officer Copy (and Acknowledgment Copy). Note: Not all states do searches and not all states will honor a search request made via this form; some states require a separate request form. 8. This item is optional and is for filer's use only. For filer's convenience of reference, filer may enter in item 8 any identifying information (e.g., Secured Party's loan number, law firm file number, Debtor's name or other identification, state in which form is being filed, etc.) that filer may find useful.

17 UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY 9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT 9a. ORGANIZATION'S NAME OR 9b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME,SUFFIX 10. MISCELLANEOUS: 11. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one name (11a or 11b) - do not abbreviate or combine names 11a. ORGANIZATION'S NAME THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY OR 11b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 11c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 11d. TAX ID #: SSN OR EIN ADD'L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION ORGANIZATION DEBTOR 12. ADDITIONAL SECURED PARTY'S or ASSIGNOR S/P'S NAME - insert only one name (12a or 12b) 12a. ORGANIZATION'S NAME 11g. ORGANIZATIONAL ID #, if any NONE OR 12b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 12c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description: collateral, or is filed as a fixture filing. 14. Description of real estate: 15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest): 17. Check only if applicable and check only one box. Debtor is a Trust or Trustee acting with respect to property held in trust or Decedent's Estate 18. Check only if applicable and check only one box. Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction effective 30 years Filed in connection with a Public-Finance Transaction effective 30 years FILING OFFICE COPY NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)