EXHIBIT 10.4

 

REVOLVING LOAN AGREEMENT

 

THIS REVOLVING LOAN AGREEMENT (“Agreement”) is made as of this 25th day of
April, 2001, by and between RANCON REALTY FUND IV, a California limited
partnership (“Borrower”), and MID-PENINSULA BANK, a California Banking
Corporation (“Lender”).

 

1. DEFINITIONS OF TERMS USED IN THIS AGREEMENT.

 

1.1 Advance. A disbursement under the Loan to Borrower pursuant to the term
hereof.

 

1.2 Borrower’s Interest Rate. The rate of interest to be paid to Lender in
respect to the Loan as set forth in the Note.

 

1.3 Collateral Pool. The parcels of the Property described and defined in
Paragraph 2.3 hereof.

 

1.4 Default Interest. That rate of interest specified in the Note which shall be
in effect in the event of default hereunder or under the Note.

 

1.5 Environmental Indemnity. The unsecured environmental indemnity agreement
executed in favor of Lender of even date herewith.

 

1.6 Governmental Authority. The authority of the United States, the State of
California, any political subdivision thereof, any city and any governmental or
quasigovernmental agency, department, commission, board, bureau or
instrumentality of any of them, or any court, administrative tribunal, or public
utility.

 

1.7 Governmental Requirements. Any present or future law, ordinance, order, rule
or regulation of a Governmental Authority applicable to Borrower or the
construction, maintenance, use, operation or sale of the Property.

 

1.8 Loan. The amount evidenced by the Note, i.e., in the maximum amount of Seven
Million Two Hundred Thousand and No/ 100ths Dollars ($7,200,000.00).

 

1.9 Loan Fee. The loan fee to be paid to Lender in consideration for Lender
agreeing to make the Loan and entering into this Agreement, which fee shall not
be subject to reduction or be refundable under any circumstances, and which fee
is the sum of Seventy-Two Thousand and No/ 100ths Dollars ($72,000.00), payable
upon Recordation.

 

1.10 Maturity Date. The date upon which the indebtedness evidenced by the Note
shall be due and payable in full, being the date of April 15, 2004.

 

1.11 Note. The Promissory Note Secured by Deed of Trust (Revolving Credit
Facility) of even date herewith executed by Borrower as maker and payable to
Lender or order, in the principal amount of the Loan, evidencing Advances of a
revolving nature which will be made, repaid and remade from time to time.

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1.12 Property. Those certain parcels of real property now and hereafter legally
described in the Trust Deed and in Paragraph 2.3 hereof.

 

1.13 Recordation. The act of recording the Trust Deed in the official records of
the Counties in which the parcels constituting the Collateral Pool are situated.

 

1.14 Title Insurer. The issuer of a lender’s title insurance policy to Lender,
i.e., Chicago Title Insurance Company.

 

1.15 Trust Deed. The deed of trust in favor of Lender of even date herewith
encumbering the Property and given to secure the Note.

 

2. LOAN.

 

2.1 Loan. Borrower has requested and Lender has agreed to provide to Borrower a
revolving line of credit in the maximum amount of Seven Million Two Hundred
Thousand and No/100ths Dollars ($7.200,000.00). From time to time during the
term of the Loan, at such times as Borrower is not in default hereunder or under
the Note or Trust Deed, Lender shall make Advances to Borrower for any purpose,
in the form of deposits to Borrower’s account or such other account as selected
by Borrower, but in no event shall the sum of all cash Advances outstanding at
any time exceed the lesser of. (a) the “Borrowing Base” (as defined
hereinafter); or (b) Seven Million Two Hundred Thousand and No/100ths Dollars
($7,200,000.00).

 

2.2 Advances. The date and amount of each Advance made by Lender and of each
repayment of principal thereon received by Lender shall be recorded by Lender in
its records. The aggregate unpaid principal amount so recorded by Lender shall
constitute prima facie evidence of the principal amount owing and unpaid on the
Note, provided, however, that the failure by Lender to record any such amount or
any error in so recording any such amount shall not limit or otherwise affect
the obligations of the Borrower under this Agreement or the Note to repay the
principal amount of the Loan together with all interest accrued or accruing
thereon.

 

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2.3 Borrowing; Base. The Trust Deed shall encumber in a first lien position the
following parcels of property having the noted appraised values as of the date
hereof (“Appraised Value”) (said parcels, less any parcels released from the
Trust Deed from time to time, are collectively called the Collateral Pool):

 

LOCATION

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   APPRAISED
VALUE

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1. 674 Brier Drive,

San Bernardino, California (“IRC Property”)

   $ 6,200,00.00

2. 390 East Hospitality Way

San Bernardino, California (“TGI Property”)

   $ 1,850,000.00

3. 555 East Hospitality Way

San Bernardino, California (“CC Property”)

   $ 5,400,000.00

TOTAL:

   $ 13,450,000.00

 

2.3.1 The maximum outstanding principal balance of the Loan shall not exceed at
any time the lesser of fifty-four percent (54%) of the appraised value of the
Collateral Pool (“Borrowing Base”) or Seven Million Two Hundred Thousand and
No/100ths Dollars ($7,200,000.00). Accordingly, the Borrowing Base as of the
date hereof is Seven Million Two Hundred Thousand and No/100ths Dollars
($7,200,000.00.00).

 

2.3.2 Provided Borrower is not in default under the Loan, Borrower may remove
parcels from the Collateral Pool and thereby revise the Borrowing Base downward,
as follows:

 

(a) Release. Provided Borrower is not in default hereunder, Borrower shall be
entitled to request that Lender release the lien of the Trust Deed from one or
more parcels of the Collateral Pool upon either payment of a cash release price
and/or a reduction in the Borrowing Base in an amount equal to the portion of
the then Borrowing Base allocable to said parcel or parcels to be released which
is required to be paid in order to reduce the outstanding principal balance of
the Loan to the new, reduced Borrowing Base required amount, thereby decreasing
the Borrowing Base in either case. The allocable portion of the Borrowing Base
shall be $2,915,000.00 for the CC Property, $1,000,000.00 for the TGI Property
and $3,350,000.00 for the IRC Property. At the time of the release of the IRC
Property, the real property described as Parcel IV in the Trust Deed shall be
released for no consideration.

 

(b) Example 1: At the time of the release, the outstanding principal balance of
the Loan is $7,200,000.00 and the property to be released is the CC Property.
The Borrowing Base is reduced to fifty-four percent (54%) of the Appraised Value
of the remaining Collateral (TGI Property and the IRC Property) ($8,050,000.00),
being the amount of $4,347,000.00, resulting in a required cash release price
payment of $2,853,000.00 to be applied to the principal balance of the Loan.

 

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Example 2: Same facts as in Example 1, except that the outstanding principal
balance of the Loan at the time of the release is $4,000,000.00. No cash release
price is due since the Loan balance is less than the new Borrowing Base of
$4,347,000.00.

 

2.4 Written and Telephone Notice Authorizations. Unless and until Borrower
delivers to Lender written notice to the contrary, Borrower shall request
Advances either in writing or by facsimile (510-351-8828) or by telephone
(510-346-7338). If requested by Lender, within three (3) days after a telephonic
or facsimile authorization, Borrower shall deliver to Lender a written
confirmation of such telephonic authorization. Borrower understands that it
shall be fully responsible for any and all Advances outstanding under the Note
which are made in reliance on telephone calls, and that Borrower’s failure to
send a written confirmation will not negate the previous telephonic request.

 

2.5 Loan. Lender and Borrower agree that Lender shall make the Loan to Borrower
and Borrower shall accept the Loan upon the terms, conditions, covenants,
representations and warranties contained herein. All Advances disbursed
hereunder shall be evidenced by the Note and all Advances shall bear interest
from the date of the Advance until paid at the rate of Borrower’s Interest or
Default Interest, as the case may be, and shall be secured by the Trust Deed.

 

3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and warrants,
which representations and warranties shall survive any investigations,
inspections or inquiries made by Lender or any of its representatives or the
disbursement of Loan proceeds hereunder, that:

 

3.1 Financial Statements. The financial statements heretofore delivered to
Lender are true and correct in all respects, fairly present the respective
financial conditions of the subjects thereof as of their respective dates; no
materially adverse change has occurred in the financial conditions reflected
therein since their respective dates and no additional borrowings have been made
by Borrower since the date thereof other than the borrowing contemplated hereby
or approved by Lender.

 

3.2 Litigation. There are no actions, suits or proceedings pending or, to the
knowledge of Borrower, threatened against or affecting it, or the Property, or
involving the validity or enforceability of the Trust Deed or the priority of
the lien thereof, at law or in equity, or before or by any Governmental
Authority.

 

3.3 No Breach. The consummation of the transaction hereby contemplated and
performance of this Agreement, the Note and Trust Deed will not result in any
breach of, or constitute a default under any mortgage, deed of trust, lease,
bank loan or security agreement, corporate charter, by laws or other instrument
to which the Borrower is a party or by which it may be bound or affected.

 

3.4 Other Liens. Borrower has made no contract or arrangement of any kind, the
performance of which by the other party thereto would give rise to a lien on the
Property or any portion thereof.

 

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3.5 No Default. There is no default on the part of Borrower under this
Agreement, the Note or the Trust Deed, and no event has occurred and is
continuing which with notice or the passage of time or either would constitute a
default under any term or provision thereof.

 

3.6 Accuracy. All documents, reports, instruments, papers, information and forms
of evidence delivered to Lender by Borrower with respect to the Loan are
accurate and correct, are complete insofar as completeness may be necessary to
give Lender true and accurate knowledge of the subject matter thereof, and do
not contain any misrepresentations or omissions. Lender may rely on such
documents, reports, instruments, papers, information and forms of evidence
without investigation or inquiry, and any payment made by Lender in reliance
thereon shall be a complete release in its favor of all sums so paid.

 

4. BORROWER’S COVENANTS. Borrower covenants and agrees until the full and final
payment of the Loan, unless Lender waives compliance in writing, that it will:

 

4.1 Title Insurance. Deliver or cause to be delivered to Lender at Recordation a
1992 ALTA Lender’s Policy Title Insurance or its equivalent with liability limit
equal to $’7,200,000.00, issued by Title Insurer, insuring Lender’s interest
under the Trust Deed as a valid first lien on the Property, together with a CLTA
111.11 revolving loan endorsement and such other endorsements to said policy as
Lender may require. Said policy shall contain only such exceptions from its
coverage as shall have been approved in writing by Lender.

 

4.2 Financial Information. Furnish to Lender at least annually, by March 31 of
each year, copies of Borrower’s full and complete financial statement concerning
income, expenses, assets, and liabilities applicable or attributable to the
Property and the operations thereof, together with rent rolls for the Property.
Such statement shall be and shall be certified as true, complete and correct by
Borrower. Borrower shall also furnish to Lender within fifteen (15) days of
filing copies of Borrower’s federal and State tax returns and I OK reports for
Rancon Financial Corporation.

 

4.3 Taxes. Pay and discharge all lawful claims, including taxes, assessments,
and governmental charges or levies imposed upon it or its income or profits or
upon any properties belonging to it prior to the date upon which penalties
attach thereto; provided that Borrower shall not be required to pay any such
tax, assessment, charge, or levy, the payment of which is being contested in
good faith and by proper proceedings.

 

4.4 Notification of Default. Promptly notify Lender in writing of the occurrence
of any event of default under this Agreement, the Note or the Trust Deed or of
any facts then in existence which would become an event of default hereunder or
there under upon the giving of notice or the lapse of time or both.

 

4.5 Payment of Costs. Pay all costs and expenses required to satisfy the
conditions of this Agreement. Without limitation of the generality for the
foregoing, Borrower will pay:

 

4.5.1 all taxes and recording expenses, including stamp taxes, if any; and

 

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4.5.2 the fees of Lender’s counsel in connection with the negotiation and
preparation of this Agreement and the Loan Documents, Lender’s Loan Fee,
appraisal fee, environmental inspection fee, title insurance premium and any and
all other costs incurred by Lender in connection with the Loan.

 

4.6 No Conveyance or Encumbrance. Not to sell, convey, transfer, dispose of or
further encumber the Property or any part thereof or any interest therein or
enter into a lease covering all or any portion thereof or an undivided interest
therein, either voluntarily, involuntarily or otherwise, or enter into an
agreement so to do without the prior written consent of Lender being first had
and obtained. All easements, declarations of covenants, conditions and
restrictions, and private or public dedications affecting the Property shall be
submitted to Lender for its approval and such approval shall be obtained prior
to the execution or granting of any thereof by Borrower, accompanied by a
drawing or survey showing the precise location of each thereof.

 

4.7 Furnishing Notices. Borrower shall promptly furnish Lender with copies, or
notify Lender in writing, of the following:

 

4.7.1 any communication, whether written or oral, that Borrower may receive from
any governmental, judicial or legal authority, giving notice of any claim or
assertion that the Property fails in any respect to comply with any Governmental
Requirements, or of any dispute which may exist between Borrower and any
governmental, judicial or legal authority that may adversely affect Borrower, or
the Property;

 

4.7.2 any material adverse change in Borrower’s financial condition or
operations or in the physical condition of the Property;

 

4.7.3 any filings (with true copies thereof) with any Governmental Authority
regarding or pursuant to any law related to Hazardous Materials (as defined in
the Trust Deed) or the environment;

 

4.7.4 any proceeding or inquiry by any Governmental Authority (including,
without limitation, the California State Department of Health Services) with
respect to the presence of any Hazardous Materials on the Property or the
migration thereof from or to other property;

 

4.7.5 all claims made or threatened by any third party against Borrower or the
Property relating to any loss or injury resulting from any Hazardous Materials;

 

4.7.6 Borrower’s discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property or any part thereof to be subject
to any restriction on the ownership, occupancy, transferability or use of the
Property under any Hazardous Materials Laws; or

 

4.7.7 any proposed or contemplated change in the organization or management of
Borrower or in the nature of its business.

 

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4.8 Debt Coverage Ratio. Borrower shall, at all times, maintain a Debt Coverage
Ratio, as hereinafter defined, of at least 1.25 to 1.00 for the IRC Property and
for the CC Property and of at least 1.50 to 1.00 for the TGI Property. For the
purposes hereof, the term “Debt Coverage Ratio” shall be defined as a debt
coverage ratio, calculated by dividing (i) the Net Operating Income, as
hereinafter defined, generated by rents from tenants in occupancy under leases
of the parcels constituting the Property paying rent for a specified period of
time, taking into account any vacancy factor deemed appropriate by Lender, by
(ii) the debt service (i.e., principal and interest payments) that would be
payable on a loan in an amount equal to the Borrowing Base of the parcel of the
Property in question if the debt service was calculated on the basis of a
twenty-five (25) year amortization period and a per annum interest rate equal to
the Borrower’s Interest Rate in effect on the date of determination. For the
purposes hereof, the term “Net Operating Income” shall be defined as any and all
gross rents and expense reimbursements collected from tenants under leases of
the parcels constituting the Property for a specified period of time less all
bona fide normal, customary and reasonable operating expenses actually paid
during such period and less applicable management costs and reasonable reserves,
as determined by Lender. The date(s) of determination shall be on or about April
15, 2001 and each anniversary thereof during the term of the Loan based upon the
financial data for the Property furnished by Borrower to Lender for the
immediately preceding twelve (12) month period.

 

5. DEFAULT. At the option of Lender, the following shall constitute events of
default hereunder (including, if Borrower consists of more than one person, the
occurrence of any of such events with respect to any one or more of said
persons):

 

5.1 Any default in the performance of any covenant, condition or agreement set
forth herein, in the Trust Deed, Note or other documents evidencing or securing
the Loan.

 

5.2 Borrower voluntarily suspends the transaction of business or there is an
attachment, execution or other judicial seizure of any portion of Borrower’s
assets and such seizure is not discharged within ten (10) days.

 

5.3 Borrower becomes insolvent or unable to pay its debts as they mature or
makes an assignment for the benefit of creditors.

 

5.4 Borrower files or there is filed against Borrower a petition to have
Borrower adjudicated a bankrupt or a petition of reorganization or arrangement
under any law relating to bankruptcy unless, in the case of a petition filed
against Borrower, the same is dismissed within ten (10) days.

 

5.5 Borrower applies for or consents to the appointment of a receiver, trustee
or conservator for any portion of Borrower’s property or such appointment is
made without Borrower’s consent and is not vacated within ten (10) days.

 

5.6 Any representation by Borrower to Lender concerning Borrower’s financial
condition or credit standing or any representation or warranty contained herein
proves to be false or misleading.

 

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5.7 The imposition, voluntary or involuntary, of any lien or encumbrance upon
the Property without Lender’s written consent or unless an adequate counter bond
is provided and such lien is accordingly released within ten (10) days of the
imposition of such lien.

 

5.8 The amendment of any lease of the Property or any amendment of Borrower’s
partnership agreement made without Lender’s prior written consent.

 

6. REMEDIES. If any of the events of default set forth in Paragraph 5 occur,
then Lender, in addition to its other rights hereunder, may at its option,
without prior demand or notice.

 

6.1 Declare the Note and all Advances thereunder immediately due and payable and
cease making Advances under the Loan.

 

6.2 Proceed as authorized by law to satisfy the indebtedness of Borrower to
Lender and in that regard, Lender shall be entitled to all of the rights,
privileges and benefits contained in the Trust Deed or other Loan documents.

 

7. GENERAL CONDITIONS.

 

7.1 No Waiver. No delay or omission of Lender in exercising any right or power
arising from any default by Borrower shall be construed as a waiver of such
default or as an acquiescence therein, nor shall any single or partial exercise
thereof preclude any further exercise thereof. Lender may, at its option, waive
any of the conditions herein and any such waiver shall not be deemed a waiver of
Lender’s rights hereunder but shall be deemed to have been made in pursuance of
this Agreement and not in modification thereof. No waiver of any event of
default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.

 

7.2 No Third Party Benefits. This Agreement is made for the sole benefit of
Borrower and Lender, their successors and assigns and no other person or persons
shall have any rights or remedies under or by reason of this Agreement nor shall
Lender owe any duty whatsoever to any claimant to exercise any right or power of
Lender hereunder or arising from any default by Borrower.

 

7.3 Notice. All notices or demands of any kind which either party may be
required or desire to serve upon the other under the terms of this Agreement
shall be in writing and shall be given by personal delivery, national overnight
courier, or by certified or registered United States mail, postage prepaid.
Notices addressed to Lender shall be sent to Lender at 420 Cowper Street, Palo
Alto, California 94301, and notices addressed to Borrower shall be sent to the
address set forth below its signature. Notices shall be effective upon receipt
or when proper delivery is refused. In case of service by mail, notices shall be
deemed complete at the expiration of the second day after the date of mailing.
Either party may change its address for purposes of notice by giving notice of
such change of address to the other party in accordance with the provisions of
this paragraph.

 

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7.4 Entire Agreement. This Agreement, the other documents evidencing or securing
the Loan constitute the entire understanding between the parties regarding the
matters mentioned in or incidental to this Agreement. The Loan documents
supersede all oral negotiations and prior writings concerning the subject matter
of the Loan documents. This Agreement may not be modified, amended or terminated
except by a written agreement signed by each of the parties hereto.

 

7.5 Documentation. In addition to the instruments and documents mentioned or
referred to herein, Borrower will, at its own cost and expense, supply Lender
with such other instruments, documents, information and data as may, in Lender’s
opinion, be reasonably necessary for the purposes hereof, all of which shall be
in form and content acceptable to Lender.

 

7.6 Borrower Information. Borrower agrees that Lender may provide any financial
or other information, data or material in Lender’s possession relating to
Borrower, the Loan, this Agreement or the Property, to Lender’s parent,
affiliate, subsidiary, participants or service providers, without further notice
to Borrower.

 

7.7 Not Assignable. Neither this Agreement nor any right of Borrower to receive
any sums, proceeds or disbursements hereunder, or under the Note may be
assigned, pledged, hypothecated, anticipated or otherwise encumbered by Borrower
without the prior written consent of Lender. Subject to the foregoing
restrictions, this Agreement shall inure to the benefit of Lender, its
successors and assigns and bind Borrower, its heirs, executors, administrators,
successors and assigns.

 

7.8 Time is of the Essence. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.

 

7.9 Supplement to Loan_ Documents. The provisions of this Agreement are not
intended to supersede the provisions of the Trust Deed or any other document
evidencing or securing the Loan but shall be construed as supplemental thereto.

 

7.10 Governing Law. This Agreement (and any and all disputes between the parties
arising directly or indirectly from the transaction or from the lending
relationship contemplated hereunder) shall be governed by and construed in
accordance with the laws of the State of California.

 

7.11 Governmental Regulations. If payment of the indebtedness secured by the
Trust Deed is to be insured or guaranteed by any governmental agency, Borrower
shall comply with all rules, regulations, requirements and statutes relating
thereto or provided in any commitment issued by any such agency to insure or
guarantee payment of such indebtedness.

 

7.12 Collection Costs. Borrower shall pay promptly to Lender without demand,
with interest thereon from date of expenditure at the Default Interest rate,
reasonable attorneys’ fees and all costs and other expenses paid or incurred by
Lender in enforcing or exercising its rights or remedies created by, connected
with or provided in this Agreement, and payment thereof shall be secured by the
Trust Deed.

 

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7.13 Survival. The representations, warranties and covenants herein shall
survive the disbursement of the Loan and shall remain in force and effect until
the Loan is paid in full.

 

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.

 

LENDER:

 

BORROWER:

MID-PENINSULA BANK,

 

RANCON REALTY FUND IV, a

a California Banking Corporation

 

California limited partnership

By:

 

 

 

Its:

 

/s/ Judy Paris

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Judy Paris

Senior Vice-President

 

By:

 

Rancon Financial Corporation,

a California corporation, a

general partner

       

By:

 

/s/ Daniel Lee Stephenson

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Daniel Lee Stephenson

           

Its President

       

By:

 

/s/ Daniel Lee Stephenson

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Daniel Lee Stephenson,

           

A general partner

       

Address:

       

400 South El Camino Real, Ste. 1100

       

San Mateo, CA 94402

 

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