I. Background and Scope

   A. UCC Article 9 in Texas adopted in 1967, last major revisions in 1973

   B. Technology Advances - code needed updating

   C. National Committee started redrafting in 1993 and completed work in 1998

   D. Texas law changed in 1999

   E. Recent changes SB 433 (attached)

   F. Continuum- intangible to real property

   G. Covers Personal property, not real property

   H. Elements:  Attachment, value, perfection

II. Major Changes

   A. Rules for perfecting changed

        1. File in Debtor's state of incorporation

        2. Debtor does not have to sign financing statements

        3. Description of collateral in the financing statement can be very broad

            a) "all assets" is acceptable

            b) "all personal property" is acceptable

   B. Authentication replaces signing

       1. Allows for electronic signatures

       2. 9.102(a)(7)

   C. Record replaces a writing

       1. Allows for electronic communication and storage

       2. 9.102(a)(70)

       3. tangible or electronic storage

   D. Description of Collateral

       1. Security agreement must reasonably identify the collateral for attachment
            use of categories is acceptable, 9.108

       2. Financing statements description is less critical (now "all personal property" will be acceptable)

       3. Need more detailed description for:

           a) commercial tort claim 9.108(c)(1)

       4. Need more detailed description in consumer transactions for:

           a) consumer goods

           b) securities entitlement

           c) securities account

           d) commodity account

               9.108(c)(2)

   E. Supporting Obligations 9.102(a)(78)

       1. A security interest in the obligation automatically perfects a security interest in the underlying supporting                  obligation

       2. e.g. account is collateral, and account is guaranteed by X.
                 Result: attachment in the account automatically perfects secured party's interest in the guarantee of X.                   9.203(f), 9.203(g)

   F. Sale of Notes or Payment Intangibles

       1. UCC now applies to the sale of these items

       2. a sale automatically perfects into the purchaser its security interest in the note or payment intangibles sold

       3. e.g. - sale of note portfolio
                   - sale of credit card accounts
                   - sale of loan participation

       4. Affects priority vis-a-vis a bankruptcy trustee

   G. Bailments (excluding goods covered by a Negotiable document - e.g. negotiable warehouse receipt)

       1. Secured party could perfect by deemed possession if collateral was held by bailee and secured party gave                   notice to bailee of secured parties' interest (old 9.305)

       2. Under new 9, bailee must acknowledge that it holds possession for secured parties' benefit.  Mere notice                  to bailee is no longer sufficient

III. Types of Collateral

   A. Existing types (classes) of Collateral:

        1. Tangible personal property (moveable goods)

            a) consumer goods

            b) equipment (catch all)

            c) farm products - farming operations

            d) inventory - held for sale or lease

        2. Intangible personal property

            a) accounts

            b) instruments (negotiable)

            c) chattel paper

            d) documents (document of title, bills of lading, warehouse receipts)

            e) general intangibles (catch all)

    B. Revised or Expanded Classes of Collateral

        1. Accounts

            a) expanded to include health care insurance receivables

            b) expanded to include all rights to payment also for any property sold, leased, licensed or assigned

            c) have to file to perfect for sales of accounts

        2. Commercial Tort Claims

            a) specific identification required

            b) excludes personal tort claims

        3. Deposit Accounts

        4. Electronic Chattel Paper

        5. Letter of Credit Rights

        6. Intangibles

            a) now includes new subcategory - payment intangibles

            b) no filing needed on sale of payment intangibles to perfect

        7. Software

        8. Supporting obligations

IV. Perfection

     A. Possession - e.g. money

     B. Control - bailment, held by third party

     C. Filing - third party notice

     D. Filing vs. Control - Bankruptcy Priority

     E. See attached Table.

V. Transition Rules

     A. Effective date of new Article 9 is July 1, 2001

        1. Any new transaction after June 30, 2001, will be under the new law:

        2. All existing transactions on June 30, 2001, will be subject to the new law, but parties will have time                        to transition.

        3. Transition rules are in transition.  Senate Bill 433 codifies the transition rules from footnote located                        under various sections to a new subchapter G (§9.701, et seq.)

        4. If there is an action, case or proceeding commenced before July 1, 2001, the new Article 9 does not                        apply to that lawsuit .  9.702(c).

        5. If prior transaction was outside of Article 9 and now would be covered by new Article 9, the transaction                        may be terminated, completed or enforced under old law or new law.  9.702(b).

        6. If attached and perfected before July 1, 2001, and those same actions would produce attachment and                        perfection under New Article 9, then the security interest is perfected under New Article 9 and no                        action is necessary. 9.703(a).

        7. If attached and perfected before July 1, 2001, and those same actions would not produce attachment                      and perfection under New Article 9, then the security interest remains perfected until July 1, 2002,                      and remains enforceable and perfected thereafter (without interruption) if secured party complies as                      the new enforcement and perfection rules before July 1, 2002.  9.703(b).  Examples:

            a) Third party bailments - bailee must acknowledge in writing

            b) Third party bank depository - Bank must acknowledge control in writing

            c) Commercial Tort Claim as collateral - need to describe claim specifically in security agreement and file                     UCC-1

            d) Existing filing under D/B/As - need to file amendment to correct and reflect legal name

            e) Securities Accounts - need specific description of account - around security agreement

            f) Changes in collateral categories (e.g. from intangible to accounts)

                1) Health Care Insurance proceeds was outside of Article 9, now an account, file UCC-1 to perfect

                2) lottery winnings - now an account file UCC-1.

       8. If security interest is enforceable as of July 1, 2001, then it remains enforceable until July 1, 2002, so long                      as new enforceability provisions are met before July 1, 2002, and is perfected by that time.   9.704

       9. If financing statement filed and perfected a security interest before July 1, 2001, under old law, it remains                     effective until the earlier of its expiration or June 30, 2006.  (May need to search in 2 states until then)                     9.705(c)

     10. "Continuation Statements" are filed in new state to continue Old Article 9 financing statement, and use                     special form of continuation statement called an "Initial Filing" or "In-lieu filing" to be filed in the                     correct office under New Article 9.  New five year period begins to run from the time of the new filing.                      9.706

VI. Proactive Measure beginning July 1, 2001

     A. For non Texas organizations, obtain UCC searches in both States

     B. Obtain corporate documents early to verify full legal name

       1. disregard "dba" name

       2. may need charter number and tax ID number for some state filings

     C. Obtain applicable addresses for residence, sole place of business and chief executive office

     D. Procedures for change of address (how will loan services find out?)

     E. For perfection by filing and control, elect both methods.  Control will "trump" filing, but filing may be                      quicker.   Need perfection priority over the bankruptcy trustee

     F. Identify transaction which are bailments and verify bailee has returned a written acknowledgment of the                     bailment

     G. Verify that you have a control agreement with third party depositaries

       1. Third party bank's right of set off is superior unless waived or subordinated

       2. Bank - time deposit

       3. Brokerage Houses - securities accounts.

     H. Commitment Letter can authorize pre-filing of UCC financing statements

       I. Change in Categories - may need to amend and/or file UCC financing statements

       1. assignment of contract rights - was an intangible now an account

       2. assignment of earnest money contract - was an intangible, now an account

       3. commercial tort claim need filing or control before July 1, 2002

VII. Helpful Web Sites

     A. New law and changes

       1. www.intercountyclearance.com/Ra9/Ra9.html gives state by state map on status of new Article 9

       2. www.iaca.org - International Association of Corporation Administrators.  Model forms available

       3. www.nccusl.org/nccusl/default.asp Uniform law commissioner web site

     B. Secretaries of State

       1. www.krahmer.net/whereto.htm

              listing of web sites for each state along with addresses and phone numbers

       2. Delaware

           www.state.de.us/corp/ucc.htm

       3. Nevada

           www.sos.state.nv.us/comm_rec/index.htm

       4. California

           www.ss.ca.gov/business/ucc/ucc.htm

       5. New York

           www.dos.state.ny.us/corp/corpwww.htm

VIII. Items to keep in mind

     A. Texas will continue to accept non-standard UCC forms; Some states will not.   Check with other state filing                  requirements

     B. Most states have adopted New Article 9.  Some have not.  Need to check the law in other states.  Should                 consider double UCC searches (both states) until July 1, 2006

     C. Electronic and fax filings are now possible.

     D. Can file UCC-1s before closing

     E. Can file UCC continuation statements while debtor is in bankruptcy - filing time not tolled

     F. Change in Debtor's Name

       1. perfection and priority in existing collateral continue

       2. perfection and priority in after acquired property continues for four (4) months - need to amend UCC                      financing statement

     G. Change in Debtor location

       1. perfection and priority in existing collateral continues for four (4) months from date of location change

       2. perfection and priority in after acquired collateral does not continue; no four (4) month grace period.                        Must refile in new jurisdiction to perfect