Document:

cog3312015ex102e

CABOT OIL & GAS CORPORATION
PERFORMANCE SHARE AWARD AGREEMENT

This Performance Share Award Agreement (the “Agreement”), made and entered into by and between Cabot Oil & Gas Corporation (the “Company”) with its principal office at 840 Gessner Road, Suite 1400, Houston, Texas 77024 and [ Participant Name ], (the “Employee”), is dated as of [ grant date ].

As an additional incentive and inducement to the Employee to remain in the employment of the Company or its subsidiaries, and to devote his or her best efforts to the business and affairs of the Company, the Company hereby awards to the Employee a Performance Award of [ number of shares granted ] performance shares (the “Performance Shares”) upon the terms and conditions hereinafter set forth.

This Agreement is expressly subject to the terms and provisions of the Company’s 2014 Incentive Plan (the “Plan”).  In the event there is a conflict between the terms of the Plan and this Agreement, the terms of the Plan shall control.  All undefined capitalized terms used herein that are not otherwise defined shall have the meanings assigned to them in the Plan.

1.     The performance period for the Performance Shares subject to this Agreement shall be the period beginning January 1, 2015 and ending December 31, 2017 (the “Performance Period”).

2.     Each Performance Share represents the right to receive, after the end of the Performance Period and based on the Company’s performance, the aggregate of from 0 to 100% of the Fair Market Value of a share of Common Stock payable in Common Stock.  The number of shares of Common Stock to be issued shall be determined based on the relevant criteria as of the end of the Performance Period.  Cash will be paid in lieu of the issuance of fractional shares of Common Stock.  The determination of the amount to be distributed with respect to a Performance Share at the end of the Performance Period shall be based upon the Company’s achievement of performance criteria established by the Committee for the Performance Period as set forth below (the “Performance Criteria”).

There are three (3) Performance Criteria that determine the number of shares of Common Stock of the Company issued per Performance Share.  The attainment of one Performance Criterion will result in the receipt of 1/3, the attainment of two Performance Criteria will result in the receipt of 2/3 and the attainment of three Performance Criteria will result in the receipt of 3/3, respectively, of the Performance Shares in shares of Common Stock.  The three Performance Criteria for total Company performance are as follows:

		
	(i)
	1,000 MMcfe/d or greater production, averaged over the three year performance period;

		
	(ii)
	$1.75/Mcfe or below finding costs (all sources), averaged over the three year performance period (oil conversion based on economic rate - oil versus gas); and

		
	(iii)
	200% or greater reserve replacement, averaged over the three year performance period.

3.    As soon as practicable following the completion of the Performance Period, the Committee shall determine, in writing, the extent to which the Performance Criteria have been met and the amount to be distributed with respect to a Performance Share as provided in Section 2 hereof and the Company shall issue to the Employee the appropriate number of shares of Common Stock.  The Committee has sole and absolute authority and discretion to determine the amount to be distributed with respect to Performance Shares.  The determination of the Committee shall be binding and conclusive on the Employee.  

Notwithstanding anything in this Agreement to the contrary, the Employee shall not be entitled to any Common Stock with respect to the Performance Shares unless and until the Committee determines and certifies the extent to which the Performance Criteria have been met.

4.    Except as otherwise provided in this Section 4, Section 6, or Section 7, in the event the Employee’s employment is terminated for any reason prior to the completion of the Performance Period, the Performance Shares shall be immediately forfeited unless otherwise determined by the Committee.  In the case of the termination of employment by reason of death, disability, or retirement (under a Company approved retirement plan), the Performance Shares shall not be so forfeited and shall otherwise be payable as set forth herein as if such employment continued through the end of the Performance Period.  Notwithstanding the foregoing and in the case of a retirement, Employee must be an employee of the Company on September 30th of the year the award is granted in order to continue vesting in the award.  Further, Employee must be an active employee of the Company at the time the Compensation Committee of the Board of Directors certifies the results of the Performance Shares for employment termination other than death, disability or retirement.

5.     At the same time that the Company delivers the shares of Common Stock pursuant to the vesting of the Performance Shares pursuant to Section 3 or Section 7, the Company shall also pay to the Employee an amount in cash equal to the dividends that would have been paid on each share of Common Stock delivered had such share been outstanding from the date of grant until the date shares are delivered to the Employee.  The dividend equivalent payment pursuant to this Section 5 shall be paid without interest or earnings, and will be subject to the payment of applicable withholding taxes.  No dividend equivalent payments will be made with respect to Performance Shares that do not vest pursuant to this Agreement.

6.    In consideration of (i) the Company disclosing and providing access to Confidential Information, as more fully described in Section 6(a) below, (ii) the grant by the Company of the Performance Shares to provide an economic incentive to Employee to use Employee’s best efforts during his/her employment with the Company to advance the business and goodwill of the Company and in order to protect the Company’s interests in its Confidential Information and goodwill after the date hereof, and (iii) other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Employee, intending to be legally bound, hereby agrees as follows:

(a)    Employee hereby covenants and agrees that at all times during his or her employment with the Company and for a period of twenty-nine (29) months after a termination of the Employee’s employment by reason of retirement as provided in Section 4, he or she will not, without the prior written consent of the Company’s chief legal officer, either directly or indirectly, for himself/herself or on behalf of or in conjunction with any other person, company, partnership, corporation or other entity, engage in any activities prohibited in the following subsections (1) through (3) of this Section 6(a):

(1)    Employee shall not assist or directly or indirectly provide services, whether as a partner, employee, consultant, officer, director, manager, agent, associate, investor, or otherwise, to any person or entity which is at the time of such assistance or provision a “Competitor” of the Company.  For purposes of this Section 6, the term “Competitor” means any person or entity that is engaged in the exploration and production of oil, gas or other hydrocarbons, the transportation thereof, any other midstream activities or the provision of oilfield services in any state or county/parish thereof in which the Company conducts business and/or has established business plans to conduct business activities within the twelve month period preceding Employee’s termination.

(2)  In order to assist Employee with his or her duties, the Company shall continue to provide the Employee with access to confidential and proprietary information and other confidential information which is either information not known by actual or potential competitors, customers and third parties of the Company or is proprietary information of the Company (“Confidential Information”).  Such Confidential Information shall include all non-public information the Employee acquired as a result of his or her positions with the Company that might be of any value to a competitor of the Company.  Examples of such Confidential Information include, without limitation, non-public information about the Company’s customers, suppliers, and potential acquisition targets; its business operations, structure and methods of operation; its services and pricing; its processes, machines and inventions; it research and know-how; its business planning and strategies; information maintained in its computer systems; devices, processes, compilations of information and records; and future business plans.  Employee agrees that such Confidential Information remains confidential even if committed to the Employee’s memory.  Employee agrees not to use, divulge, or furnish or make accessible to any third party, company, corporation or other organization (including but not limited to customers, competitors, or governmental agencies), without the Company’s prior written consent, any Confidential Information of the Company, except as necessary in performing his or her duties on behalf of the Company during his or her employment with the Company.  The Employee’s obligations under this Section will not apply to the extent that (i) the disclosure of Confidential Information is required by applicable law; provided that, prior to disclosing such Confidential Information, to the fullest extent practicable Employee must notify the Company thereof, which notice will include the basis upon which Employee believes the information is required to be disclosed, or (ii) information otherwise determined to be Confidential Information is or becomes generally available to the public or to persons generally knowledgeable in the Company’s industry without violation of this Agreement by Employee.

(3)  Employee agrees that whenever the Employee’s employment with the Company ends for any reason, (i) all documents containing or referring to the Company’s Confidential Information as may be in the Employee’s possession, or over which the Employee may have control, and all other property of the Company provided to Employee by the Company during the course of Employee’s employment with the Company will be returned to the Company immediately, with no request being required; and (ii) all Company computer and computer-related equipment and software, and all Company property, files, records, documents, drawings, specifications, lists, equipment and similar items relating to the business of the Company, whether prepared by the Employee or otherwise, coming into the Employee’s possession or control during the course of his or her employment shall remain the exclusive property of the Company, and shall be delivered by the Employee to the Company immediately, with no request being required.

(b)    Employee specifically recognizes and affirms that each of the covenants contained in Section 6(a)(1) through (3) of this Agreement is a material and important term of this Agreement which has induced the Company to provide for the award of Performance Shares granted hereunder, the disclosure of the Confidential Information referenced herein, and the other promises made by the Company herein, and the Employee further agrees that in the event that he or she retires and thereafter (A) the Company determines that Employee has breached any term of Section 6(a) (1) through (3) or (B) all or any part of Section 6(a) is held or found invalid or 

unenforceable for any reason whatsoever by a court of competent jurisdiction in any action between the Employee and the Company, in addition to any other remedies at law or in equity the Company may have available to it, the Employee shall lose the right to receive Performance Shares and any unvested Performance Shares shall be deemed forfeited effective as of the date (A) the Company determines that Employee has breached any term of Section 6(a) or (B) all or any part of Section 6(a) is held or found invalid or unenforceable for any reason whatsoever by a court of competent jurisdiction in an action between the Employee and the Company.

(c)    The Employee and the Company agree that the restrictions set forth in Section 6(a) are reasonable, including the geographic area, duration as to time, and scope of activities restrained.  The Employee further agrees that if any covenant contained in Section 6(a) is found by a court of competent jurisdiction to contain limitations as to time, geographical area, or scope of activity that are not reasonable and impose a greater restraint than is necessary to protect the goodwill or other business interest of the Company, then the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill and other business interests of the Company and to enforce the covenants as reformed.

(d)    The covenants on the part of Employee in this Section 6 are considered independent of any other agreement, and the fact that the Employee has a claim against the Company, whether predicated upon this Agreement or otherwise, is not a defense to enforcement of this Section 6.

7.    Upon either of a Change in Control (as defined below) or the Company's ceasing to have publicly traded Common Stock as a result of a business combination or other extraordinary transaction, in each case prior to the completion of the Performance Period, the Performance Period shall be deemed complete and the Employee shall have earned 100% of the Performance Shares.  If the Company ceases to have publicly traded Common Stock, then instead of any share of Common Stock that would otherwise be issued there shall instead be paid an amount of cash equal to the value of the consideration received by the shareholder of the Company in respect of a share of Common Stock in connection with the Change in Control or business combination or other extraordinary transaction.

“Change in Control” shall mean:

		
	(I)
	The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‐3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (I), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (iv) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (III) of this definition; or

		
	(I)
	Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

		
	(III)
	Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation, or the similar managing body of a non-corporate entity, resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or 

		
	(I)
	Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than a liquidation or dissolution in connection with a transaction to which subsection (III) applies.

8.    This Agreement is not an employment agreement.  Nothing contained herein shall be construed as creating any employment relationship other than one at will.

9.    This Agreement shall inure to the benefit of and be binding upon the heirs, legatees, distributees, executors and administrators of the Employee and the successors and assigns of the Company.  In no event shall Performance Shares granted hereunder be voluntarily or involuntarily sold, pledged, assigned or transferred by the Employee other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order.

10.    This Agreement shall be governed by the laws of the State of Delaware, without giving effect to conflict of law rules or principles.  Any action or proceeding seeking to enforce any provision of or based on any right arising out of this Agreement may be brought against the Employee or the Company only in the courts of the State of Delaware or, if it has or can acquire jurisdiction, in the United States District Court for the District of Delaware, and the Employee and the Company consent to the jurisdiction of such courts (and of the appropriate appellate courts) in any action or proceeding and waives any objection to venue laid herein.

11.    Employee agrees that as a condition to the award of the Performance Shares hereby, that Employee shall pay to the Company at the time or times requested by the Company, an amount of cash or shares of Common Stock equal to the amount the Company is required by any governmental authority to withhold for tax purposes with respect to any payment of earned Performance Shares, unless the Employee makes other prior arrangements for such withholding as may be approved by the Company.

12.    The Employee shall have no rights of a shareholder with respect to the shares of Common Stock potentially deliverable pursuant to this Agreement unless and until such time as the ownership of such shares of Common Stock has been transferred to the Employee.

IN WITNESS WHEREOF, the parties hereto cause this Agreement to be executed as of the date hereof.

Company:

CABOT OIL & GAS CORPORATION

/s/  Scott C. Schroeder            
By:    Scott C. Schroeder
Title:    Executive Vice President and
Chief Financial Officer

Employee:

By:    [ Participant Name ]exhibit10-1.htm

AMENDED AND RESTATED

CREDIT AGREEMENT

This Amended and Restated Credit Agreement (“Agreement”) is entered into as of April 16, 2015, by and among the financial institutions from time to time signatory hereto (individually, a “Lender” and collectively, the “Lenders”), California Bank & Trust, as Administrative Agent for the Lenders (in such capacity, the “Agent”), and Owens Realty Mortgage, Inc., a Maryland corporation (“Borrower”).  The Lenders are California Bank & Trust and First Bank and the terms “Lender” and “Lenders” includes Agent in its capacity as provider of Swing Line Loans.

This Agreement amends and restates in its entirety that certain Credit Agreement dated February 5, 2014 by and between California Bank & Trust and Borrower, and any indebtedness outstanding thereunder shall be deemed to be outstanding under this Agreement.

In consideration of all present and future loans and credit from time to time made available by Lenders to or in favor of Borrower, and in consideration of all present and future Indebtedness (as herein defined) of Borrower to Lenders, Borrower represents, warrants, covenants and agrees as follows:

SECTION 1                      DEFINITIONS.

           (a)  Defined Terms. As used in this Agreement, the following terms shall have the respective meanings set forth below:

“Addendum” shall mean the Addendum to Credit Agreement (Agency Provisions), attached hereto.

“Advance Formula” shall have the respective meaning ascribed to such term in the Advance Formula Agreement.

“Advance Formula Agreement” shall mean an Advance Formula Agreement executed and delivered by Borrower unto Agent, as the same may be amended, modified, restated, substituted and/or replaced from time to time.

“Affiliate” or “Affiliates” shall mean, when used with respect to any Person, any other Person which, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person.  For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Affiliate Receivables” shall mean, as of any time of determination, any amounts (whether in respect of loans or advances, accounts receivable, notes receivable or otherwise) owing to Borrower or another Loan Party from any of its/their Subsidiaries or Affiliates (other than Affiliates which are Guarantors of all Indebtedness) at such time.

“Agreement” shall mean this Credit Agreement, as the same may be amended or modified from time to time.

“Authorized Officer” shall mean the chief executive officer, the president or the chief financial officer, or in his/her absence, another responsible senior officer, of Borrower or any other Loan Party, or the general partner of, or the partner or one of the partners required to bind, Borrower or any other Loan Party, as applicable.

“CPA” shall mean independent certified public accountants of recognized standing selected by Borrower or another Loan Party, as applicable, and acceptable to Agent.

“Capital Expenditure” shall mean any expenditure by a Person for (a) an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classified in relevant financial statements of such Person as equipment, real property, a fixed asset or a similar type of capitalized asset in accordance with GAAP, or (b) an asset relating to or acquired in connection with an acquired business, and (c) any and all acquisition costs related to (a) or (b) above.

  

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“Collateral” shall mean all property, assets and rights in which a Lien or other encumbrance in favor of or for the benefit of Agent, for and on behalf of Lenders, is or has been granted or arises or has arisen, or may hereafter be granted or arise, under or in connection with any Loan Document, or otherwise, to secure the payment or performance of any portion of the Indebtedness.

“Commitment”  (a) As to each Lender, the commitment of such Lender to make its Pro Rata Share of the Loan and all advances with respect thereto in the aggregate amount equal to such Lender’s Commitment as shown in the Addendum to Credit Agreement; (b) as to all Lenders, the aggregate commitment of all Lenders to make Loans and all advances with respect thereto, which aggregate commitment shall be the Total Commitment.  The Swing Line Loans are a subfacility and do not increase the Total Commitment nor the Commitment amount of any Lender beyond its Commitment as a Lender.

“Compliance Certificate” shall mean a Compliance Certificate in such form and detail as may be required by or otherwise satisfactory to Agent, certified by an Authorized Officer of Borrower, certifying that, as of the date thereof, to the best of such Authorized Officer’s knowledge, no Default or Event of Default shall have occurred and be continuing or exist, or if any Default or Event of Default shall have occurred and be continuing or exist, specifying, in detail, the nature and period of existence thereof and any action taken or proposed to be taken by Borrower and/or any other Loan Party in respect thereof, and also certifying as to whether Borrower and/or any other Loan Party, as applicable, is/are in compliance with any financial covenant(s) contained in this Agreement and as more particularly described in said Compliance Certificate (which Compliance Certificate shall set forth, in reasonable detail, the calculations and the resultant ratios or financial tests of the Borrower and/or such Loan Party, as applicable, determined thereunder).

“Consolidated” or “consolidated” shall mean, when used with reference to any financial term in this Agreement, the aggregate for two or more persons of the amounts signified by such term for all such persons determined on a consolidated basis in accordance with GAAP.  Unless otherwise specified herein, references to "consolidated" financial statements or data of Borrower includes consolidation with its Subsidiaries in accordance with GAAP.

“Current Maturities of Long Term Debt” shall mean, in respect of any applicable Person(s) and as of any applicable date of determination thereof, that portion of the Long Term Debt of such Person(s) that should be classified as a current liability at such time in accordance with GAAP, including, without limitation, that portion of capital lease obligations of such Person(s) that would be so classified at such time, but excluding principal amounts due at maturity intended to be refinanced or outstanding amounts on lines of credit.

"Debt" shall mean, as of any applicable date of determination, the total liabilities of a Person at such time, as determined in accordance with GAAP. In the case of Borrower, the term "Debt" shall include, without limitation, the Indebtedness.

“Debt Service Coverage Ratio” shall mean, in respect of any applicable Person(s) and for any applicable period of determination and as of any applicable date of determination, the ratio of (a) (i) the Net Income of such Person(s) for such period (before deduction for applicable income and other taxes of such Person(s) determined by reference to income or profits of such Person(s)), plus (ii), to the extent deducted in the computation of such Net Income, the amount of depreciation and amortization expense and interest expense of such Person(s) for such period, to (b) the sum of (i) the Current Maturities of Long Term Debt of such Person(s) at such time of determination plus (ii) the interest expense of such Person(s) for such period, not including construction loan interest where an interest reserve is in place.

“Debt-to-Tangible Net Worth Ratio” shall mean, in respect of any applicable Person(s) and as of any applicable date of determination thereof, the ratio of (a) the total Debt of such Person(s) at such time,  to (b) the Tangible Net Worth of such Person(s) at such time.

“Default” shall mean any condition or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.

“Distributions” shall mean, in respect of any applicable Person(s), dividends on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any Equity Interest of such Person(s) or of any warrants, options or other rights to acquire the same.

  

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“Eligible Loan Note” shall have the meaning ascribed to such term in the Advance Formula Agreement.

“Eligible Owned Real Property” shall have the meaning ascribed to such term in the Advance Formula Agreement.

“Environmental Laws” shall mean all laws, statutes, codes, ordinances, rules, regulations, orders, decrees and directives issued by any federal, state, local, foreign or other governmental or quasi-governmental authority or body (or any agency, instrumentality or political subdivision thereof) relating to the environment or pertaining to Hazardous Materials; any so-called “superfund” or “superlien” law pertaining to Hazardous Materials on or about any Property at any time owned, leased or otherwise used by Borrower or any of its Subsidiaries (if applicable), or any portion thereof, including, without limitation, those relating to soil, surface, subsurface groundwater conditions and the condition of the ambient air; and any other federal, state, foreign or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any Hazardous Material, as now or at any time hereafter in effect.

“Equity Interest” shall mean, with respect to any Person, (i) all of the shares of capital stock of (or other ownership or profit interests in) such Person, (ii) all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, (iii) all of the securities convertible into or exchangeable for shares of capital stock (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and (iv) all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.

“Event of Default” shall mean the occurrence or existence of any of the conditions or events set forth in Section 6 of this Agreement.

“GAAP” shall mean generally accepted accounting principles consistently applied.

“Guarantor” or “Guarantors” shall mean, as the context dictates, any Person(s) (other than Borrower) who shall, at any time, guarantee or otherwise be or become obligated for the repayment of all or any part of the Indebtedness.

“Hazardous Materials” shall mean all of the following:  any asbestos, petroleum, petroleum by-products, flammable explosives, radioactive materials, and any hazardous or toxic materials, as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), or in any other Environmental Law.

"Indebtedness" shall mean any and all present and future indebtedness, obligations or liabilities of the Borrower and/or any other Loan Party to Agent and/or any Lender arising under this Agreement or any other Loan Document, evidenced or incurred, whether absolute or contingent, direct or indirect, voluntary or involuntary, liquidated or unliquidated, joint or several, now or hereafter existing or arising, due or to become due, whether known or unknown, and whether originally payable to Agent, the Lenders or to a third party and subsequently acquired by Agent and/or any Lender, including, without limitation, (a) any and all direct indebtedness of the Borrower and/or any other Loan Party to Agent and/or any Lender, including indebtedness evidenced by any and all promissory notes executed in connection with this Agreement; (b) any and all indebtedness, obligations or liabilities of the Borrower and/or any other Loan Party to Agent and/or any Lender arising under any guaranty of the promissory notes evidencing this Agreement where the Borrower and/or any other Loan Party has guaranteed the payment of indebtedness owing to Agent and/or any Lender from a third party; (c) any and all indebtedness, obligations or liabilities of the Borrower and/or any other Loan Party to Agent and/or any Lender arising from applications or agreements for the issuance of letters of credit under this Agreement; (d) late charges, loan fees or charges and overdraft indebtedness; (e) any agreement to indemnify Agent and Lenders for environmental liability or to clean up hazardous waste; (f) any and all indebtedness, obligations or liabilities for which the Borrower and/or any other Loan Party would otherwise be liable to Agent and/or Lenders under this Agreement, any of the Loan Documents, any guaranty of the obligations under this Agreement or any environmental indemnity executed in connection with this Agreement, were it not for the invalidity, irregularity or unenforceability of them by reason of any bankruptcy, insolvency or other law or order of any kind, or for any other reason, including, without limit, liability for interest and attorneys' fees on, or in connection with, any of the Indebtedness from and after the filing by or against the Borrower and/or any other Loan Party of a bankruptcy petition, whether an involuntary or voluntary bankruptcy case, including, without limitation, all attorneys' fees and costs incurred in connection with motions for relief from stay, cash collateral motions, nondischargeability motions, preference liability motions, fraudulent conveyance liability motions, fraudulent transfer liability motions and all other motions brought by the Borrower, any other Loan Party, Agent or any Lender or third parties in any way relating to Agent’s or any Lender’s rights with respect to Borrower, any other Loan Party or third party and/or affecting any collateral securing any obligation owed under this Agreement by the Borrower, any other Loan Party or any third party, probate proceedings, on appeal or otherwise; (g) any and all amendments, modifications, restatements, renewals and/or extensions of any of the above, including, without limit, amendments, modifications, restatements, renewals and/or extensions which are evidenced by new or additional instruments, documents or agreements; (h) all costs incurred by Agent or any Lender in establishing, determining, continuing, or defending the validity or priority of its security interest, or in pursuing its rights and remedies under this Agreement, the other Loan Documents, any guaranty of the obligations of Borrower under this Agreement or any environmental indemnity executed in connection with this Agreement or in connection with any proceeding involving Agent as a result of any financial accommodation to Borrower; and (i) all costs of collecting Indebtedness, including, without limit, attorneys' fees and costs.

  

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“Leased Property” shall mean any real Property of Borrower or any of its Subsidiaries (if applicable) which constitutes Collateral and which is subject to a lease under which Borrower or such Subsidiary, to the extent applicable, is the lessor or landlord.

“Lien” shall mean any mortgage, pledge, encumbrance, security interest, assignment, lien or charge or other interest of any kind upon any property or assets, whether real, personal or mixed, to secure any indebtedness, obligation or liability owed to or claimed by any Person, whether arising under or based upon contract, law or otherwise.

“Liquid Assets” shall mean, in respect of any applicable Person(s) and as of any applicable date of determination, the sum of unrestricted cash, unrestricted marketable securities, FDIC insured accounts and United States government securities of such Person(s) at such time, but excluding any assets held in a “401K” account, individual retirement account (IRA), pension or other type of retirement account or annuity, Rule 144 securities, securities pledged to secure any debt whether or not the debt is currently outstanding, securities not fully transferable until conditions are met, and assets held in joint accounts with any party who is not the Borrower.

“Loan(s)” shall mean each loan (including Swing Line Loans), advance or other extension of credit made by Lenders to or otherwise in favor of Borrower.

“Loan Documents” shall mean this Agreement and any and all notes, instruments, documents, and agreements at any time evidencing, governing, securing or otherwise relating to any Loan(s) and/or any of the Indebtedness and Treasury Management Agreements, subject to the following:  “Loan Documents” do not include any environmental indemnity or any guaranty.  Notwithstanding any provision in any Loan Document, Borrower’s obligations under any environmental indemnity are not secured by any deed of trust or mortgage.

“Loan Party” shall mean each Borrower, each Guarantor and each other Person who shall, at any time, be liable for the payment of all or any part of the Indebtedness or who shall own any property that is, at any time, subject to a Lien which secures all or any part of the Indebtedness.

“Long Term Debt” shall mean, in respect of any applicable Person(s) and as of any applicable date of determination thereof, all Debt of such Person(s) which should be classified as “funded indebtedness” or “long term indebtedness” on a balance sheet of such Person(s) as of such date in accordance with GAAP, including, without limitation, to the extent not otherwise included, capital lease obligations of such Person(s) to the extent classified as long term at such time.

“Master Revolving Notes” shall mean collectively, the Amended and Restated Master Revolving Note in the principal amount of $20,000,000, by Borrower to the order of California Bank & Trust and the Master Revolving Note in the principal amount of $10,000,000, by Borrower to the order of First Bank, each dated as of the date hereof (as each may have been amended, modified or supplemented).

  

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“Maturity Date” means the Maturity Date set forth in the Master Revolving Notes or any replacement notes issued by Lenders.

“Material Adverse Effect” shall mean any act, event, condition or circumstance which has had or could have a material and adverse effect on (i) the business, operations, condition (financial or otherwise), performance, prospects, assets or liabilities of any Loan Party, (ii) the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party or by which it is bound, or the enforceability of any of the Indebtedness or any Loan Document or any rights or remedies of Agent or Lenders thereunder, or (iii) any Loan Party’s interest in, or the value, perfection or priority of Agent’s, for and on behalf of Lender’s security interest or lien in any Collateral or the ability of Agent to realize on any Collateral.

“Net Income” shall mean, in respect of any applicable Person(s) and for any applicable period of determination, the net income (or loss) of such Person(s) for such period, as determined in accordance with GAAP.

“PBGC” shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.

"Person" or "person" shall mean any individual, corporation, partnership, joint venture, limited liability company, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity.

“Primary Collateral” shall mean Collateral that is subject to a (a) Pledge Agreement (Real Property Secured Note) executed by Borrower or any other Loan Party in favor of Agent, for and on behalf of the Lenders, (b) Amended and Restated Pledge Agreement (Real Property Secured Note) executed by Borrower or any other Loan Party in favor of Agent, for and on behalf of the Lenders, (c) Limited Liability Company Membership Interest Pledge Agreement executed by Borrower in favor of Agent, for and on behalf of the Lenders; (d) Amended and Restated Security Agreement executed by Borrower in favor of Lender, or (e) deed of trust or mortgage executed by Borrower or any other Loan Party in favor of Agent, for and on behalf of the Lenders and Swing Line Lender.

 

 

“Property” shall mean any real or personal property now or at any time owned, occupied or operated by Borrower and/or any of its Subsidiaries (if applicable).

Pro Rata Share.  With respect to all matters relating to any Lender, the percentage obtained by dividing (a) the Commitment of that Lender by (b) the Total Commitment.  Any Swing Line Loan made by Agent will be included for Pro Rata Share purposes, as a Loan made by Agent as though that Loan were made by Agent as a Lender.

“Subordinated Debt" shall mean any Debt of Borrower which has been subordinated to the Indebtedness pursuant to a subordination agreement in form and content satisfactory to Agent.

“Subsidiary” or “Subsidiaries” shall mean as to any particular parent entity, any corporation, partnership, limited liability company or other entity (whether now existing or hereafter organized or acquired) in which more than fifty percent (50%) of the outstanding equity ownership interests having voting rights as of any applicable date of determination, shall be owned directly, or indirectly through one or more Subsidiaries, by such parent entity.

“Swing Line Loan” shall mean any Loan funded with Agent’s funds as set forth in the Addendum, which Loan automatically converts on the following business day to a Loan to be settled among Lenders and repaid by Borrower.

“Tangible Net Worth” shall mean, in respect of any applicable Person(s) and as of any applicable date of determination, (a) the net book value of all assets of such Person(s) at such time (excluding Affiliate Receivables, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill, and all other intangible assets of such Person(s)), after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), less (b) all Debt of such Person(s) at such time.

“Treasury Management Agreement” shall mean any agreement, document or instrument governing the provision of depository, treasury and/or cash management services, including, without limitation, deposit accounts, overdraft protection, credit, debit and purchase cards, funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services.

  

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Total Commitment.  Thirty Million Dollars ($30,000,000.00).

“Unencumbered” shall mean, in respect of any property or asset of any Person(s), such property or asset is free and clear of all Liens (other than Liens to or in favor of Agent, for and on behalf of Lenders), and no Lien of any nature whatsoever (other than Liens to or in favor of Agent, for and on behalf of Lenders) shall be placed or exist upon or in respect of any such property or asset.

“Uniform Commercial Code” shall mean the California Uniform Commercial Code, as amended, supplemented, revised or replaced from time to time.

(b)  Accounting Principles. Unless expressly provided to the contrary, all accounting and financial terms and calculations hereunder or pursuant hereto shall be defined and determined in accordance with GAAP.

(b) Section Headings and References. Section headings and numbers have been set forth herein for convenience only; unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

(c) Construction and Interpretation. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, and the term “including” is not limiting.  The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Agent, Lenders or Borrower, whether under any rule of construction or otherwise; on the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

SECTION 2                       LOAN DOCUMENTS.  Each Loan will be subject to the terms of the Advance Formula Agreement and shall be evidenced by a promissory note or other agreement or evidence of indebtedness acceptable to Lenders, in each case, executed and delivered by Borrower unto each Lender, as applicable; and each Loan shall be subject to the terms, covenants and conditions of each such promissory note or other agreement or evidence of indebtedness, together with this Agreement and the other Loan Documents. The funding, disbursement and extension of any Loan to or in favor of Borrower shall be subject to the execution and/or delivery unto Lenders or Agent of such Loan Documents as Agent or Lenders may reasonably require, and shall be further subject to the satisfaction of such other conditions and requirements as Agent and Lenders may from time to time require.

SECTION 3                      REPRESENTATIONS AND WARRANTIES. Borrower, for and on behalf of itself, hereby represents and warrants, and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement, and thereafter, so long as any Indebtedness remains unpaid and outstanding:

(a)            Authority. It is duly organized, validly existing and in good standing under the laws of the State of Maryland; it is duly qualified and authorized to do business in each jurisdiction where the character of its assets or the nature of its activities makes such qualification necessary, and it has the legal power and authority to own its properties and assets and to carry out its business as now being conducted in each such jurisdiction wherein such qualification is necessary; execution, delivery and performance of this Agreement, and any and all other Loan Documents to which Borrower is a party or by which it is otherwise bound, are within Borrower’s respective powers and authorities, have been duly authorized by all requisite corporate or other necessary or appropriate action, and are not in contravention or violation of law or the terms of Borrower’s organizational or other governing documents, and do not require the consent or approval of any governmental body, agency or authority.

(b)           Real Estate Investment Trust.  It is duly organized, validly existing and in good standing as a real estate investment trust, and has taken such actions as are necessary to preserve its status as a real estate investment trust.  It is also in compliance with the terms and provisions of its Articles of Incorporation and other organizational documents, as they have been amended, modified, and corrected.

  

6

  

(c)            Enforceability of Agreement and Loan Documents. This Agreement, and any other Loan Documents contemplated hereby, when executed, issued and/or delivered by Borrower, or by which Borrower is otherwise bound, will be valid and binding and legally enforceable against Borrower in accordance with their terms.

(d)           Non-Contravention. The execution, delivery and performance of this Agreement, and any other Loan Documents required under or contemplated by this Agreement to which Borrower is a party or by which it is otherwise bound, and the issuance of this Agreement and any such other Loan Documents by Borrower, and the borrowings and other transactions contemplated hereby and thereby, are not in contravention or violation of the unwaived terms of any indenture, agreement or undertaking to which Borrower is a party or by which it or any of its property or assets is bound, and will not result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of Borrower, except to or in favor of Agent, for and on behalf of Lenders.

(e)           Litigation or Proceedings. No litigation or other proceeding before any court or administrative agency is pending, or, to the knowledge of Borrower or any of its officers, is threatened against Borrower, the outcome of which could result in a Material Adverse Effect.

(f)            No Liens. There are no Liens on any of Borrower’s Property or assets, except Permitted Encumbrances (as hereinafter defined).

	
  

	
(g)    

	
No Defaults. There exists no Default or Event of Default under any of the Indebtedness.

(h)           Financial Statements; No Material Adverse Change. The most recent financial statements with respect to Borrower delivered to Agent and to any Lender fairly present the financial condition of Borrower as of the date thereof and for the period(s) covered thereby in accordance with GAAP, and since September 30, 2013, there has been no material adverse change in the condition (financial or otherwise) of Borrower.

(i)            Subsidiaries. As of the date of this Agreement, Borrower has no Subsidiaries, except those, if any, disclosed on the Schedule of Subsidiaries attached to this Agreement, which Schedule sets forth the name, place of incorporation, and percentage of ownership of Borrower in each such Subsidiary.

(j)            Regulation U or G; Margin Stock. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying “margin stock” or “margin securities” within the meanings of Regulation U or Regulation G of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder.

(k)           Legal Name. Borrower’s true and correct legal name is that set forth on the signature page to this Agreement. Except as disclosed in writing to Agent on or before the date of this Agreement, Borrower has not conducted business under any name other than that set forth on the signature page to this Agreement.

(l)            Solvency. Borrower is solvent and is able to pay its debts (including, without limit, trade debts) as they mature.

(m)           Taxes. All taxes, assessments and other similar imposts and charges levied, assessed or imposed upon Borrower and/or any of its property or assets have been paid, except to the extent being diligently contested in good faith.

(n)           Hazardous Materials. Borrower has not used Hazardous Materials on, in, under or otherwise affecting any Property now or at any time owned, occupied or operated by Borrower or upon which  Borrower has a place of business in any manner which violates any Environmental Law(s), to the extent that any such violation could result in a Material Adverse Effect. Borrower has never received any notice of any violation of any Environmental Law(s), and to the best of Borrower’s knowledge, there have been no actions commenced or threatened by any party against Borrower or any of the Property for non-compliance with any Environmental Law(s), which, in any case, could result in a Material Adverse Effect.

(o)            Leases. All leases covering any Leased Property, if any, are in full force and effect, there are no defaults under any of the provisions thereof, and all conditions to the effectiveness or continuing effectiveness thereof required to be satisfied as of the date hereof have been satisfied.

  

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SECTION 4                      AFFIRMATIVE COVENANTS. So long as either Lender shall have any commitment or obligation, if any, to make or extend any Loans to or in favor of Borrower, and/or so long as any Indebtedness remains unpaid and outstanding, Borrower covenants and agrees that it shall:

(a)      Financial Statements; Reporting Requirements. Provide to Agent, or cause to be provided to Agent, the following, each of which shall be prepared in accordance with GAAP, and shall be in form and detail acceptable to Agent:

	
(i)  

	
As soon as available, and in any event within ninety (90) days after and as of the end of each fiscal year of Borrower, annual CPA audited consolidated financial statements of Borrower for and as of the end of each such fiscal year, containing the balance sheet of Borrower as of the close of each such fiscal year, statements of income, expenses and retained earnings and a statement of cash flows of Borrower for each such fiscal year, and such other comments and financial details as are usually included in similar reports or as may be requested by Agent, certified by an Authorized Officer of Borrower.

	
(ii)  

	
As soon as available, and in any event within forty-five (45) days after and as of the end of each fiscal quarter of Borrower (i.e., March 31, June 30, September 30 and December 31), internally prepared consolidated financial statements of Borrower, containing the balance sheet of Borrower as of the end of each such period, statements of income, expenses and retained earnings and a statement of cash flows for Borrower for such period and for the portion of the fiscal year of Borrower through the end of the period then ending, and such other comments and financial details as are usually included in similar reports or as may be requested by Agent, certified by an Authorized Officer of Borrower.

	
(iii)  

	
Simultaneous with the delivery to Agent of the respective financial statements required above, a Compliance Certificate, in the form attached as a Schedule to this Agreement.

	
(iv)  

	
Within twenty (20) days after and as of the end of each calendar month, a Borrowing Base Certificate of Borrower as of such time, each of which Borrowing Base Certificate shall include a schedule identifying (A) each Eligible Loan Note at such time, and such other matters and information relating to the Eligible Loan Notes as Agent may request, and (B) each Eligible Owned Property at such time, and such other matters and information relating to the Eligible Owned Property as Agent may request, with a certificate setting forth Borrower’s calculation of the Advance Formula as of the date of such borrowing base report. Each borrowing base certificate so delivered to Agent shall be certified by an Authorized Officer of Borrower.  The Borrowing Base Certificate shall be in the form attached as a Schedule to this Agreement.

	
(v)  

	
As soon as available, and in any event within forty-five (45) days after and as of the end of each fiscal quarter of Borrower, a financial statement and rent roll for each parcel(s) of real Property securing any Eligible Loan Note, reflecting income, expenses, assets and liabilities attributable to such Property and the operations thereof, and the name of each lessee, the net monthly rental for each space in such Property and such other information as Agent may request, certified by an Authorized Officer of Borrower.

	
(vi)  

	
Upon request by Agent, brokerage and bank statements for Borrower and such other information and documents as Agent may request to show Borrower’s Liquid Assets.

	
(vii)  

	
No later than thirty (30) days prior to the end of each fiscal year of Borrower, updated financial projections for Borrower, including projected income, expenses, balance sheet and statement of cash flows, for the immediately following fiscal year.

	
(viii)  

	
Promptly after becoming aware of the occurrence or existence of any Default or Event of Default, or of any other condition, occurrence or event which has had or could reasonably be expected to have a Material Adverse Effect, a written statement of an Authorized Officer of Borrower setting forth the details of such Default or Event of Default, or such other condition or occurrence, and the action which Borrower has taken or caused to be taken, or proposes to take or cause to be taken, with respect thereto.

	
(ix)  

	
Such other information concerning Borrower, any other Loan Party, or the Collateral as Agent shall reasonably request from time to time.

  

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(b) Keeping of Books and Records; Inspections and Audits. Keep proper books of record and account in which full and correct entries shall be made of all of its financial transactions and its assets and businesses so as to permit the presentation of financial statements (including, without limitation, any financial statements required to be delivered to Agent pursuant to this Agreement) prepared in accordance with GAAP; permit Agent, or its representatives, at reasonable times and intervals, to visit all of Borrower’s offices and to make inquiries as to Borrower’s respective financial matters with its respective directors, officers, employees, and independent certified public accountants; and permit Agent, through Agent’s authorized attorneys, accountants and representatives, to inspect, audit and examine Borrower’s books, accounts, records, ledgers and assets and properties of every kind and description, wherever located, at all reasonable times during normal business hours including, without limit, audits of Borrower’s accounts receivable, inventory and other Collateral to be conducted not less frequently than annually. Borrower shall reimburse Agent for all reasonable costs and expenses incurred by Agent in connection with such inspections, examinations and audits, and to pay to Agent such fees as Agent may reasonably charge in respect of such inspections, examinations and audits, or as otherwise mutually agreed upon by Borrower and Agent.

(c) Maintain Insurance. Keep its insurable properties (including, without limitation, any Collateral at any time securing all or any part of the Indebtedness) adequately insured and maintain (i) insurance against fire and other risks customarily insured against under an “all-risk“ policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of Borrower, (ii) necessary workers’ compensation insurance, (iii) public liability and product liability insurance, and (iv) such other insurance as may be required by law or as may be reasonably required in writing by Agent, all of which insurance shall be in such amounts, contain such terms, be in such form, be for such purposes, prepaid for such time periods, and written by such companies as may be satisfactory to Agent.  All such policies shall contain a provision whereby they may not be canceled or materially amended except upon thirty (30) days’ prior written notice to Agent.  Borrower will promptly deliver to Agent, at Agent’s request, evidence satisfactory to Agent that such insurance has been so procured and, with respect to casualty insurance, made payable to Agent.  If Borrower fails to maintain satisfactory insurance as herein provided, Agent shall have the option (but not the obligation) to do so, and Borrower agrees to repay Agent, upon demand, with interest at the highest rate of interest applicable to any of the Indebtedness, all amounts so expended by Agent.

(d) Pay Taxes. Pay promptly and within the time that they can be paid without late charge, penalty or interest, all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon Borrower and/or its property or assets, except to the extent being diligently contested in good faith and, if requested by Agent, bonded in an amount and manner satisfactory to Agent.  If Borrower fails to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest, Agent shall have the option (but not the obligation) to do so, and Borrower agrees to repay Agent, upon demand, with interest at the highest rate of interest applicable to any of the Indebtedness, all amounts so expended by Agent.

(e) Maintain Existence. Do or cause to be done all things necessary to preserve and keep in full force and effect Borrower’s corporate or other applicable existence, including its status as a real estate investment trust, rights and franchises and comply with all applicable laws, ordinances and government rules and regulations to which it is subject; continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year; at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property and keep the same in good repair, working order and condition; maintain all permits, licenses, approvals and agreements which it is required to maintain or comply with, where the failure to do so could result in a Material Adverse Effect; maintain Borrower’s same place(s) of business, chief executive office or residence, as applicable, as currently exists, and not relocate said address(es) without giving Agent ninety (90) days’ prior written notice of such proposed change, but the giving of such notice shall not cure or remedy any Default or Event of Default caused by such change; and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

  

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(f) Environmental Laws. Comply, and cause each of its Subsidiaries (to the extent applicable) to comply, in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required under applicable Environmental Laws, where the failure to do so could result in a Material Adverse Effect; and promptly provide to Agent, immediately upon receipt thereof, copies of any material correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a violation of any Environmental Laws by Borrower and/or any of its Subsidiaries, or of any circumstance or condition which requires or may require a financial contribution by Borrower and/or any of its Subsidiaries, or a clean-up, removal, remedial action or other response by or on behalf of Borrower and/or any of its Subsidiaries under applicable Environmental Law(s), or which seeks damages or civil, criminal, or punitive penalties from Borrower and/or any of its Subsidiaries for any violation or alleged violation of any Environmental Law(s) by Borrower and/or any of its Subsidiaries. Borrower hereby indemnifies, saves and holds Agent and Lenders, and any of Agent’s and Lender’s past, present and future officers, directors, shareholders, employees, representatives and consultants, harmless from and against any and all losses, damages, suits, penalties, costs, liabilities and expenses (including, without limitation, reasonable legal expenses and attorneys’ fees) incurred or arising out of any claim, loss or damage of any property, injuries to or death of any persons, contamination of or adverse effects on the environment, or other violation or asserted violation of any applicable Environmental Law(s); provided, however, that the foregoing indemnification shall not be applicable, and Borrower shall not be liable for any such losses, damages, suits, penalties, costs, liabilities or expenses, to the extent (but only to the extent) the same arise or result from any gross negligence or willful misconduct of Agent or any of its agents or employees. The provisions of this Section shall survive repayment of the Indebtedness and satisfaction of all obligations of Borrower to Lenders and termination of this Agreement.

(g)  Maintain Bank Accounts. Maintain all of Borrower’s principal bank accounts with Agent and notify Agent immediately in writing of the establishment or existence of any other bank account, deposit account or other account into which money may be deposited (other than with Agent); provided, however, providing any such notice to Agent shall not waive the occurrence or existence of any Default or Event of Default arising or existing as a result of the establishment or existence of any account(s) in violation of this Section. At Agent’s and Borrower’s collective discretion, Borrower may keep certain accounts with any Lender.

(h)  Copies of Leases. Deliver to Agent copies of all leases existing and in effect with respect to any Leased Property, and deliver to Agent copies of all proposed leases (whether as of the date of this Agreement or hereafter) with respect to any such Leased Property prior to execution thereof. All leases with respect to any such Leased Property (and renewals, extensions and material modifications thereof), and all tenants of such Leased Property, shall be subject to Agent’s written approval prior to execution of any lease (or any renewal, extension or material modification thereof), including, without limitation, Agent’s approval of the financial statements of each proposed tenant, which approval shall be in the sole discretion of Agent.  Agent may require financial information concerning each proposed tenant of any such Leased Property, including a minimum of one (1) year's operating statements. Borrower shall use its best efforts to keep any such Leased Property fully leased.  Borrower shall fully and faithfully perform each and every covenant, agreement, or obligation of lessor or landlord under any and all leases covering any portion of any such Leased Property.  Upon the request of Agent, Borrower shall provide Agent with a current rent roll supplying the name of each tenant of any such Leased Property and the net monthly rental for each space and such other information as Agent may request.

 (i)  ERISA Compliance. At all times meet, and cause each of its Subsidiaries to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA; promptly after Borrower knows or has reason to know of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or that the PBGC or Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to Agent a certificate of an Authorized Officer of Borrower setting forth details as to such event or proceedings and the action which Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and upon the request of Agent, furnish to Agent (or cause the plan administrator to furnish Agent) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by Borrower or any of its Subsidiaries not later than ten (10) days after such report has been so filed. Borrower shall be permitted to voluntarily terminate employee pension or benefit plans, so long as any such voluntary termination is done in accordance with ERISA and does not result in a material liability or obligation to such Borrower and does not result in a Material Adverse Effect.

 (j)   Liquid Assets. At all times, be and remain the owner of Unencumbered Liquid Assets having a value (as such value is determined by Agent) of not less than Two Million Dollars ($2,000,000.00).

 (k)  Debt-to-Tangible Net Worth Ratio. Maintain, at all times, a Debt-to-Tangible Net Worth Ratio of not more than 0.50 to 1.00.

  

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 (l)  Debt Service Coverage Ratio. Maintain a consolidated Debt Service Coverage Ratio of not less than 1.50 to 1.00 as of the end of each of Borrower’s fiscal quarters through and including Borrower’s fiscal quarter ending December 31, 2014, and not less than 1.75 to 1.00 as of Borrower’s fiscal quarter ending March 31, 2015 and as of the end of each fiscal quarter thereafter. For purposes of this Agreement, the Debt Service Coverage Ratio shall be calculated quarterly as of the end of each fiscal quarter of Borrower, commencing with the fiscal quarter ending as of March 31, 2014, and the relevant period of determination for the calculation to occur as of March 31, 2014, shall be the one (1) fiscal quarter period ending as of such date; the relevant period of determination for the quarterly calculation to occur as of June 30, 2014, shall be the two (2) fiscal quarter period ending as of such date; the relevant period of determination for the quarterly calculation to occur as of September 30, 2014, shall be the three (3) fiscal quarter period ending as of such date; and the relevant period of determination for the quarterly calculation to occur as of December 31, 2014, and for each succeeding quarterly calculation, shall be the four (4) fiscal quarter period ending as of each such date.  When the relevant period of determination for any calculation is less than four (4) fiscal quarters, the percentage of Current Maturities of Long Term Debt to be included in the calculation shall be based on the applicable number of quarters covered (i.e., 25% of Current Maturities of Long Term Debt when the relevant period of determination is one fiscal quarter; 50% of Current Maturities of Long Term Debt when the relevant period of determination is two fiscal quarters; and 75% of Current Maturities of Long Term Debt when the relevant period of determination is three fiscal quarters).

(m)  Disbursement Requests.  Submit requests for disbursements under the Loan in the form of the Disbursement Request attached as a schedule to this Agreement.

SECTION 5                NEGATIVE COVENANTS. So long as Agent or any Lender shall have any commitment or obligation, if any, to make or extend any Loans to or in favor of Borrower, and/or so long as any Indebtedness remains unpaid and outstanding, Borrower covenants and agrees that it shall not, without the prior written consent of Agent:

(a)   Redeem Stock. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so, unless Borrower has previously provided to Agent a proforma compliance certificate showing compliance with the Agreement immediately following such purchase, redemption, retirement or acquisition.

(b)  Liens. Create, incur, assume or suffer to exist any Lien of any kind upon any of its property or assets, whether now owned or hereafter acquired, other than the following (collectively, “Permitted Encumbrances”):

	
  

	
    (i)

	
Liens to or in favor of Agent created by the Loan Documents;

	
(ii)  

	
Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings diligently pursued (provided the period of time for such contestation does not exceed thirty (30) days) and, if requested by Agent, bonded in an amount and manner satisfactory to Agent;

	
(iii)  

	
Liens, not delinquent, created by statute in connection with workers’ compensation, unemployment insurance, social security, old age pensions (subject to the applicable provisions of this Agreement) and similar statutory obligations;

	
(iii)  

	
Liens in favor of mechanics, materialmen, carriers, warehousemen or other like statutory or common law Liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and

	
(iv)  

	
other Liens described in the Schedule attached hereto, entitled “Additional Permitted Liens.”

(c)       Debt. Incur, create, assume or permit to exist any Debt of any kind or nature whatsoever, except  (without duplication) for (i) the Indebtedness, (ii) Subordinated Debt, (iii) existing indebtedness (if any) to the extent set forth in the Schedule of Debt attached hereto or in the most recent financial statements of Borrower delivered to Agent prior to the date of this Agreement, (iv) unsecured trade indebtedness, utility indebtedness and non-extraordinary accounts payable incurred and paid in the ordinary course of business, (v) secured Debt incurred in the ordinary course of Borrower’s business that is secured by Liens of the type described in Section B of the Schedule of Additional Permitted Liens attached hereto and that satisfies all of the requirements in Section B of the Schedule of Additional Permitted Liens attached hereto; (vi) other unsecured Debt not to exceed Five Hundred Thousand Dollars ($500,000.00), in aggregate, at any time outstanding; and (vii) secured Debt not to exceed an aggregate of Twenty Million Dollars ($20,000,000.00) that is secured by Liens of the type described in Section A of the Schedule of Additional Permitted Liens attached hereto and that satisfies all of the requirements in Section A in the Schedule of Additional Permitted Liens attached hereto.

  

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(e)       Loans and Advances. Make loans, advances or extensions of credit to any Person, except as authorized by Borrower’s Articles of Incorporation, as amended.

(f)  Guaranties. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, except (i) guaranties in favor of Agent; and (ii) the endorsement of negotiable instruments in the ordinary course of business for deposit or collection.

(g)       Asset Dispositions; Dissolution; Mergers; Capital Structure; Business Purpose. (i) Sell, lease (as lessor), transfer or otherwise dispose of any of its properties or assets, except as to the sale of inventory in the ordinary course of business; (ii) change its name,  its corporate identity or structure, its form of organization or the state in which it has been formed or organized; (iii) dissolve or liquidate or consolidate with or merge into any other Person, or permit any other Person to merge into it; (iv) acquire all or substantially all the properties or assets of any other Person; (v) enter into any reorganization or recapitalization, or reclassify its capital stock; (vi) enter into any sale-leaseback transaction; (vii) permit any levy, attachment or restraint to be made affecting any of Borrower's assets; (viii) permit any judicial officer or assignee to be appointed or to take possession of any or all of Borrower's assets; or (ix) make any other change in Borrower's financial structure or in any of its business objects, purposes or operations which, in the opinion of Agent, could result in a Material Adverse Effect; (x) enter into any transaction not in the ordinary course of Borrower’s business; or (xi) make any payment on account of any Subordinated Debt in violation of the provisions of any subordination agreement between Agent and the applicable subordinated debt holder, or otherwise fail to comply with the terms and conditions set forth in any such subordination agreement.

(i)       Investments. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for (i) the common stock of any Subsidiaries owned by Borrower on the date of this Agreement, as more particularly described in the Schedule of Subsidiaries attached hereto, (ii) certificates of deposit or time deposits with Agent or any Lender, and (iii) direct obligations of the United States of America, or any agency thereof, maturing within one (1) year from the date of acquisition thereof.

(j)       Apply Proceeds to Purchase or Carry Margin Stock. Apply any of the proceeds of any loan, advance or other extension of credit by Agent or Lenders to or in favor of Borrower, directly or indirectly to the purchase or carrying of any “margin stock” or “margin securities” within the meanings of Regulation U or Regulation G of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder; or extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock or margin securities.

(k)       Pension Plans; PBGC. Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plan established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan; or permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result in a liability of Borrower to the PBGC which, in the opinion of Agent, will result in a Material Adverse Effect.

SECTION 6                      EVENTS OF DEFAULT.  An “Event of Default” shall be deemed to have occurred or exist under this Agreement upon the occurrence and/or existence of any of the following conditions or events:

	
  

	
(a)

	
Borrower and/or any other Loan Party shall fail to pay the principal of or interest on or shall otherwise fail to pay any other amount owing by Borrower and/or such Loan Party to Agent or Lenders, when due, whether under any of the Indebtedness or otherwise, and such default in payment shall continue unremedied or uncured beyond any applicable period of grace provided with respect thereto, if any, in the relevant Loan Document(s);

	
  

	
(b)

	
any representation, warranty, certification or statement made or deemed to have been made by Borrower and/or any other Loan Party herein, or in any certificate, financial statement or other document or agreement delivered by or on behalf of Borrower and/or any such Loan Party in connection with the Indebtedness or any of the Loan Documents shall prove to be untrue or incomplete in any material respect;

 

  

12

  

 

	
(c)           

	
Borrower or any other Loan Party shall fail to maintain in effect insurance required on any of the Primary Collateral in accordance with the requirements of the Loan Documents;

	
(d)           

	
Borrower or any other Loan Party shall fail to observe or perform any condition, covenant or agreement set forth herein or in any other Loan Document; provided, however, that notwithstanding any provision to the contrary in this Agreement or such other Loan Document, if such failure does not constitute an Event of Default under any of the other subsections of this Section and is capable of being remedied or cured, it shall not constitute an Event of Default unless it continues for 30 days or more after the earlier to occur of (i) written notice thereof to Borrower from Agent; and (ii) the date on which Borrower or such other Loan Party knew or should have known of the occurrence of such failure;

	
  

	
(e)

	
if there shall be any change, for any reason whatsoever, in the management, ownership or control of Borrower or any other Loan Party which, in the sole discretion of Agent, could result in a Material Adverse Effect;

	
  

	
(f)

	
if (i) any party subordinating its claims to that of Agent's or Lenders’ terminates, rescinds, revokes or violates the terms of its subordination, or (ii) any Loan Party (other than Borrower) dies or terminates, rescinds, revokes or violates the terms of any guaranty, pledge, collateral assignment, subordination agreement or other document, instrument or agreement entered into by such Loan Party in favor of Agent or either Lender, including, without limitation, any document evidencing the pledge by such Loan Party of property that is subject to a Lien which secures all or any part of the Indebtedness;

	
  

	
(g)

	
Borrower and/or any other Loan Party shall (i) fail to pay when due any of its Debt (other than to Lenders and Agent), or shall fail to observe or perform any term, condition, covenant or agreement of Borrower and/or any such Loan Party set forth in any document, instrument or agreement evidencing, securing or relating to such Debt, and such failure shall remain unremedied or uncured beyond any applicable period of grace or cure, if any, provided with respect thereto so as to permit the holder(s) of such Debt to accelerate the maturity or payment of such Debt, or (ii) shall fail to observe or perform any term, condition, covenant or agreement of Borrower and/or any such Loan Party set forth in any material agreement, contract, indenture, instrument or undertaking to which Borrower and/or any such Loan Party is a party with any one or more third parties (other than the Loan Documents, environmental indemnity in favor of Agent and Lenders or any guaranty of the Indebtedness) or by which it may be otherwise bound, and such failure could result in the acceleration of the maturity or payment of Borrower's indebtedness to others, whether under any such agreement, contract, indenture, instrument or undertaking or otherwise, or which failure could result in a Material Adverse Effect;

	
  

	
(h)

	
if Borrower and/or any other Loan Party (i) become(s) insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy, or a reorganization, arrangement or creditor composition proceeding, (ii) cease(s) doing business as a going concern, (iii) is enjoined restrained or in any way prevented by court order or other legal or administrative action or proceedings from continuing to conduct all or any material part of its business affairs, (iv)  is the subject of a dissolution, merger or consolidation, or (v) has any of its property or assets attached, seized, subject to a writ or distress warrant, or come into the possession of any trustee, receiver, controller, custodian, assignee for the benefit of creditors or any other person or entity having powers or duties like or similar to the powers and duties of trustee, receiver, controller, custodian or assignee for the benefit of creditors, and the same are not released, discharged or bonded against within thirty (30) days thereafter;

	
  

	
(i)

	
if any reportable event, which the Agent determines constitutes grounds for the termination of any deferred compensation plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such plan, shall have occurred and be continuing thirty (30) days after written notice of such determination shall have been given to Borrower by Agent, or any such plan shall be terminated within the meaning of Title IV of ERISA, or a trustee shall be appointed by the appropriate United States District Court to administer any such plan, or the PBGC shall institute proceedings to terminate any plan;

 

  

13

  

 

	
  

	
(j)

	
if (i) there shall be rendered against Borrower and/or any other Loan Party one or more judgments for the payment of money  which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive; or (ii) a levy, lien, writ of attachment or garnishment against any of the property or assets of Borrower and/or any other Loan Party shall be issued and levied in any action(s) and not released or appealed and bonded in an amount and manner satisfactory to Agent within thirty (30) days after such issuance and levy, or (iii) a settlement, or a series of related settlements, is agreed upon by Borrower and/or any other Loan Party for the payment or money or the delivery of goods or services by Borrower and/or such Loan Party;

	
(k)           

	
if (i) Agent deems itself or Lenders insecure, believing that the prospect of payment or performance of any of the Indebtedness is impaired or shall fear deterioration, removal or waste of any of the Collateral; or (ii) in the opinion of Agent, a Material Adverse Effect has resulted or occurred or could result or occur; or

	
  

	
(l)

	
the occurrence or existence of any “Default” or “Event of Default”, as the case may be, set forth in any other Loan Document.

SECTION 7                      REMEDIES.  Upon the occurrence and at any time during the continuance or existence of any Event of Default, Agent may, with or without notice to Borrower, declare all outstanding Indebtedness to be due and payable, whereupon all such Indebtedness then outstanding shall immediately become due and payable, without further notice or demand, and any commitment or obligation, if any, on the part of Agent and Lenders to make or extend Loans shall immediately terminate. Further, upon the occurrence or at any time during the continuance or existence of any Event of Default hereunder, Agent may collect, deal with and dispose of all or any part of any Collateral in any manner permitted or authorized by the Uniform Commercial Code or other applicable law (including public or private sale), and after deducting expenses (including, without limitation, reasonable attorneys’ fees and expenses), Agent may apply the proceeds thereof in part or full payment of any of the Indebtedness, whether due or not, in any manner or order Agent elects (subject to the terms of this Agreement).  In addition to the foregoing, upon the occurrence and at any time during the continuance or existence of any Event of Default hereunder, Agent may exercise any and all rights and remedies available to it as a result thereof, whether under this Agreement or other Loan Documents, at law (including, without limit, the Uniform Commercial Code), or otherwise. Notwithstanding anything to the contrary set forth in any other Loan Document, Lenders shall not be obligated to make or extend any Loans or advances to any Borrower(s) during the existence of any Default or Event of Default.

SECTION 8                      APPLICATION OF PROCEEDS FOLLOWING EVENT OF DEFAULT TO PAYMENT OF AGENT FEES AND EXPENSES.  Notwithstanding anything to the contrary in this Agreement, following the occurrence of an Event of Default and the termination of Lenders’ obligation to make disbursements, the acceleration of the indebtedness owing by Borrower to Lenders under this Agreement or the other Loan Documents, or the exercise of any remedy in accordance with the provisions of the Loan Documents, Agent shall apply the proceeds of the collateral, together with any offsets, voluntary payments by Borrower or others and any other sums received or collected in respect of such indebtedness first, to pay all incurred and unpaid fees and expenses (including attorney’s fees) of Agent under the Loan Documents and any protective advances made by Agent with respect to the collateral under or pursuant to the terms of any Loan Document, next to the indebtedness owed to Lenders in accordance with their Pro Rata Shares and then, if there is any excess, to Borrower.

SECTION 9                      DEMAND BASIS LOANS. Borrower hereby acknowledges and agrees that in the event that any of the Indebtedness shall at any time be on a demand basis, Borrower’s compliance with the terms and conditions set forth herein, and the absence of any Event of Default hereunder, shall not, in any way whatsoever, limit, restrict or otherwise affect or impair Agent’s right or ability to make demand for payment of any or all of such Indebtedness which may be on a demand basis at any such time, in Agent’s sole and absolute discretion, with or without reason or cause, and the existence of any Event of Default hereunder shall not be the sole reason or basis for enabling Agent to make demand for payment of all or any part of such Indebtedness.

  

14

  

SECTION 10                    WAIVERS OF DEFAULTS; NO FORBEARANCE.  No Event of Default shall be waived by Agent or Lenders except in writing and a waiver of any Event of Default shall not be a waiver of any other default or of the same default on a future occasion. No forbearance on the part of the Agent and Lenders in enforcing any of its rights or remedies under this Agreement or any other Loan Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by Borrower hereunder or any such other Loan Document, shall constitute a waiver of any of the terms of this Agreement or such Loan Document or of any such right or remedy. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise hereof, shall preclude other or further exercise of the rights of the parties under this Agreement and/or the other Loan Documents.

SECTION 11                     GOVERNING LAW.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.

SECTION 12                     SUCCESSORS AND ASSIGNS.  This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that Borrower shall not assign or transfer any of its respective rights or obligations hereunder or otherwise in respect of any of the Indebtedness without the prior written consent of Agent.

SECTION 13                      COUNTERPARTS.  This Agreement may be executed in several counterparts, each of which shall constitute an original instrument, but when taken together shall constitute one and the same instrument.

SECTION 14                      USA PATRIOT ACT.  To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.  WHAT THIS MEANS FOR YOU:  when you open an account, Agent or any Lender will ask your name, address, date of birth, and other information that will allow Agent and Lenders to identify you.  Agent or any Lender may also ask to see your driver’s license, or other identifying documents.

SECTION 15                      NOTICES.  Unless otherwise provided in this Agreement, all notices and other communications by any party to the other party(ies) relating to this Agreement shall be in writing and shall be given by personal delivery, by United States mail, postage prepaid, by reputable overnight courier or by facsimile, and addressed or delivered to the respective party(ies) at the addresses stated below, or to such other addresses as such party(ies) may from time to time specify to the other(s) in writing.  Requests for information made to Borrower by Agent from time to time hereunder may be made orally or in writing, at Agent’s discretion.

Borrower Address:

Owens Realty Mortgage, Inc.

2221 Olympic Boulevard

Walnut Creek, California 94595

Facsimile No.:  (925) 935-1486

Attention: William C. Owens

Agent Address:

California Bank & Trust

456 Montgomery Street, 23rd Floor

San Francisco, California 94104

Facsimile No.: (415) 875-1456

Attention:  Thomas C. Paton, Jr.

Lender Address:

See Signature Page(s)

SECTION 16                      COSTS AND EXPENSES.  Borrower shall pay or reimburse Agent and Lenders for (a) all costs, expenses, fees and charges paid or incurred by Agent or any Lender (including, without limitation, Agent's and each Lender’s attorneys' fees and costs and/or fees, transfer charges and costs of Agent's and Lender’s in-house counsel) in connection with the preparation, closing and consummation of this Agreement and/or the other Loan Documents and/or the Loans or transactions contemplated hereby or thereby, or in connection with the administration or enforcement of this Agreement or any of the other Loan Document, and (b) all stamp and other taxes and duties (except for taxes on the overall net income of Agent and any Lender imposed by the jurisdiction in which Agent's and each Lender’s principal executive office is located) payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby, and any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes or duties.  In addition, Borrower shall immediately and without demand reimburse Agent and Lenders for all sums expended by Agent or Lenders in connection with any action brought by Agent or Lenders in respect of any Default or Event of Default or to enforce any provision of this Agreement or the other Loan Documents and/or to exercise or enforce any rights or remedies of Agent or Lenders.  Borrower authorizes and approves all advances and payments by Agent and Lenders for items described in this Section as Indebtedness secured by the Collateral.

  

15

  

SECTION 17                      INDEMNIFICATION AND HOLD HARMLESS.  WITHOUT LIMITING ANY OTHER PROVISIONS OF THIS AGREEMENT, BORROWER AGREES TO INDEMNIFY AND HOLD AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ALL LOSSES, COSTS, DAMAGES, LIABILITIES AND EXPENSES, INCLUDING, WITHOUT LIMITATION, OUTSIDE ATTORNEYS’ FEES AND DISBURSEMENTS, INCURRED BY AGENT AND ANY LENDER IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY LOANS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR BY REASON OF ANY DEFAULT OR EVENT OF DEFAULT, OR ENFORCING THE OBLIGATIONS OF BORROWER OR ANY LOAN PARTY UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AS APPLICABLE, OR IN EXERCISING ANY RIGHTS OR REMEDIES OF AGENT OR ANY LENDER OR IN THE PROSECUTION OR DEFENSE OF ANY ACTION OR PROCEEDING CONCERNING ANY MATTER GROWING OUT OF OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT BE APPLICABLE, AND THE BORROWER SHALL NOT BE LIABLE FOR ANY SUCH LOSSES, COSTS, DAMAGES, LIABILITIES OR EXPENSES, TO THE EXTENT (BUT ONLY TO THE EXTENT) THE SAME ARISE OR RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SEEKING TO BE INDEMNIFIED OR ANY OF ITS AGENTS OR EMPLOYEES. THE PROVISIONS OF THIS SECTION SHALL SURVIVE REPAYMENT OF THE INDEBTEDNESS AND SATISFACTION OF ALL OBLIGATIONS OF BORROWER TO LENDERS AND TERMINATION OF THIS AGREEMENT.

 

SECTION 18                      AMENDMENTS AND WAIVERS.  All amendments to or waivers or terminations of this Agreement or the other Loan Documents must be in writing.  All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are hereby superseded and merged into this Agreement and the Loan Documents.  Time is of the essence for the performance of all obligations set forth in this Agreement.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. Borrower acknowledges that Agent and Lenders may provide information regarding Borrower and the Loans to Agent's and each Lender’s parent, Subsidiaries, Affiliates and service providers.

SECTION 19                      REINSTATEMENT; SEVERABILITY.  Agent’s and each Lender’s rights under this Agreement and the other Loan Documents shall be reinstated and revived, and the enforceability of this Agreement and the other Loan Documents shall continue, with respect to any amount at any time paid on account of the Indebtedness which thereafter shall be required to be restored or returned by Agent or any Lender, all as though such amount had not been paid.  The rights of Agent and Lenders created or granted herein and the enforceability of this Agreement and the other Loan Documents at all times shall remain effective to cover the full amount of all the Indebtedness even though the Indebtedness, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against Borrower.

SECTION 20                      WAIVER OF JURY TRIAL.  BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES.  TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.

 

  

16

  

This Agreement was executed as of the date first written above.

AGENT:                                                                                     BORROWER:

 

	

CALIFORNIA BANK & TRUST

	

OWENS REALTY MORTGAGE, INC.,

	 	

a Maryland corporation

	 	 
	 	 
	By:_________________________________ 	By:_________________________________
	      Thomas C. Paton, Jr. 	      William C. Owens
	      Senior Vice President and Manager 	      President

 

LENDERS:

 

	

CALIFORNIA BANK & TRUST

	 
	 	 
	 	 
	 	 
	By:_________________________________	Address:  456 Montgomery Street, 23rd Floor
	      Thomas C. Paton, Jr.	San Francisco, CA  94104
	      Senior Vice President and Manager 	Facsimile No.: (415) 875-1456
	 	Attn: Thomas C. Paton, Jr.

 

 

 

	

FIRST BANK

	 
	 	 
	 	 
	 	 
	By:_________________________________	Address:  456 Montgomery Street, Suite 400
	      William G. Nelle, Jr. 	San Francisco, CA  94104
	      Senior Vice President 	Facsimile No.: (415) 398-7190
	 	Attn: William G. Nelle, Jr.

 

ACKNOWLEDGED AND AGREED:

 

CALIFORNIA BANK & TRUST

By: _______________________________

          Thomas C. Paton, Jr.

          Senior Vice President and Manager

 

  

17

  

 

 

SCHEDULE OF SUBSIDIARIES

(Section 3(i))

	
Subsidiary Name

	
State of Organization

	
Fictitious Business Name

	
720 University, LLC

	
Wyoming

	  
	
Baldwin Ranch Subdivision, LLC

	
California

	  
	
The Last Resort and Marina, LLC

	
California

	
The Last Resort and Marina

	
Lone Star Golf, Inc.

	
Maryland

	
Auburn Valley Golf Club

	
Wolfe Central, LLC

	
California

	  
	
54th Street Condos, LLC

	
Arizona

	  
	
AMFU, LLC

	
Arizona

	  
	
Phillips Road, LLC

	
Washington

	  
	
TOTB Miami, LLC

	
Florida

	  
	
Broadway & Commerce, LLC

	
Washington

	  
	
Bensalem Primary Fund, LLC*

	
Pennsylvania

	  
	
Brannan Island, LLC

	
California

	  
	
Tahoe Stateline Venture, LLC

	
California

	  
	
Sandmound Marina, LLC

	
California

	
Piper Point Marina

*Being dissolved

 

  

18

  

SCHEDULE OF DEBT

(Section 5(c))

None.

 

  

19

  

SCHEDULE OF ADDITIONAL PERMITTED LIENS

(Section 5(b))

	
A.

	
Liens to which Agent has consented in writing and are subject to an intercreditor agreement between Agent, for and on behalf of Lenders and such other secured party in form and substance satisfactory to Agent.  Agent agrees to not unreasonably withhold its consent to Liens on real or personal property (other than Primary Collateral) in favor of one other secured party that satisfies each of the following conditions:

	
  

	
1.

	
The principal indebtedness secured or potentially to be secured by the Liens is $20,000,000.00 or less;

	
  

	
2.

	
The conditions, terms and covenants for the indebtedness secured or potentially to be secured by the Liens are not materially different than the conditions, terms and covenants for Borrower’s indebtedness to Lenders; and

	
  

	
3.

	
The Liens secure (a) real property owned by Borrower and/or (b) promissory notes payable to Borrower secured by real property that, in Agent’s reasonable judgment, have an aggregate fair market value that, in Agent’s judgment, do not materially exceed the value of the collateral secured the indebtedness.

	
B.

	
Liens on real property owned by Borrower (other than Primary Collateral) that secures property acquisition loans, construction loans and long-term financing related to that real property made to Borrower, incurred by Borrower in the ordinary course of its business.

	
C.

	
Liens on real or personal property owned by Borrower (i) that are junior in priority to a Lien in favor of Agent and Lenders; and (ii) to which Agent, in its sole and absolute discretion, has consented in writing.

 

  

20

  

FORM OF COMPLIANCE CERTIFICATE

(Section 4(a)(iii))

To:          California Bank & Trust

456 Montgomery Street, 23rd Floor

San Francisco, CA  94104

Attn.: Thomas C. Paton, Jr.

From:      Owens Realty Mortgage, Inc.

This Compliance Certificate is given pursuant to Section 4(a)(iii) of the Amended and Restated Credit Agreement, dated April 16, 2015 between California Bank & Trust (“Agent”) and Owens Realty Mortgage, Inc. (“Borrower”), as it may have been amended, modified or supplemented (“Credit Agreement”).  All initially capitalized terms used but not defined in this Compliance Certificate shall have the meanings assigned to such terms in the Credit Agreement.

The undersigned hereby certifies that:

1. I am an Authorized Officer of Borrower, and hold the following position with Borrower: _________________________.   I am authorized to execute and deliver this Certificate to Agent on behalf of Borrower.

 

2. I have reviewed and am familiar with the terms of the Credit Agreement and the other Loan Documents and have made, or caused to be made under my supervision, a detailed review of the transactions and condition (financial and otherwise) of Borrower during the accounting period covered by the attached financial statements.

 

3. Attached hereto are the following [check as applicable]:

 

____   Consolidated financial statements of Borrower for and as of its fiscal year ending _________________, containing the balance sheet of Borrower for and as of the close of such fiscal year, statements of income, expenses and retained earnings and a statement of cash flows of Borrower for such fiscal year, and such other comments and financial details as are usually included in similar reports, prepared in accordance with GAAP, all of which are true, complete and correct to the best of my knowledge, and which have been audited by and are accompanied by a report and opinion of an independent certified public accountant.

 

____           Internally prepared consolidated financial statements of Borrower for and as of its fiscal quarter ending ___________________, containing the balance sheet of Borrower as of the end of such quarter, statements of income, expenses and retained earnings and a statement of cash flows for Borrower for such quarter and for the portion of the fiscal year of Borrower through the end of the period then ending, and such other comments and financial details as are usually included in similar reports, prepared in accordance with GAAP, all of which are true, complete and correct to the best of my knowledge.

 

4. The review described in paragraph 2 above did not disclose, and, to the best of my knowledge, there existed no condition, event or occurrence which constituted a Default or Event of Default during, or at the end of, the accounting period covered by the attached financial statements, and there exists no condition, event or occurrence which constitutes a Default or Event of Default as of the date of this Compliance Certificate, except as set forth in paragraph 5, below.

 

5. Describe any exceptions to paragraph 4 hereof by listing, in detail and with specific reference to specific sections of the Credit Agreement or applicable Loan Document, the nature of the condition, event or occurrence, the period during which it has existed and the actions that Borrower and/or any other Loan Party has taken, is taking or proposes to take with respect to such condition, event or circumstance.

 

6. The schedules attached hereto and incorporated herein by this reference set forth the financial data and computations evidencing Borrower’s compliance, or non-compliance, with the covenants set forth in Credit Agreement Section 4(j) (Unencumbered Liquid Assets), Section 4(k) (Debt-to-Tangible Effective Net Worth Ratio), and Section 4(l) (Debt Service Coverage Ratio), all of which data and computations are true and correct.

 

  

21

  

7. This Compliance Certificate is effective and correct as of _________________________.

 

8. I represent and warrant that the foregoing is true, complete and correct, and that the information reflected in this Compliance Certificate and the attachments complies with the representations and warranties contained in the Credit Agreement and the other Loan Documents.

 

9. This Compliance Certificate, together with the financial statements and the computations set forth in the schedules attached hereto are made and delivered to Agent on _________________.

 

OWENS REALTY MORTGAGE, INC.,

a Maryland corporation

By:_____________________________________

Name:

Title:

 

  

22

  

Schedule to Compliance Certificate

As of:________________

 

Financial Covenants

 

I           Liquid Assets (per Credit Agreement  Section 4-j)

 

Unencumbered Liquid Assets                                                                                 ___________

 

Requirement: Not less than $2,000,000

 

In Compliance?                                                                                                           Yes/No

 

 

II           Debt-To-Tangible Net Worth Ratio (Section 4-k)

 

	
A.  

	
Debt                                                                                                                     ___________

 

	
B.  

	
Tangible Net Worth                                                                                          ___________

 

	
C.  

	
Ratio of-A to B                                                                                                   ___________

 

Requirement:  Not to exceed 0.50 to 1

 

In compliance?                                                                                                           Yes/No

 

 

III           Debt Service Coverage Ratio (Section 4-l)

 

	
A.  

	
EBITDA (for the period beginning_____and ending________)             ___________

 

	
B.  

	
Debt Service

 

	
1.  

	
Total Interest Expense (per financial statement)                                  ___________

 

	
2.  

	
Less interest expense excluded (as defined)                                         ___________

 

	
3.  

	
Net Interest Expense ( B 1 less B 2)                                                        ___________

 

	
4.  

	
Current Maturity of Long Term Debt (per financial statement) at   ___________

 

	
5.  

	
Less excluded items

 

(a) principal amounts due at maturity intended to be refinanced __________

(b) outstanding amounts on lines of credit if included in B 4). ___________

	
6.  

	
Net Current Maturity of Long Term Debt (B 4 less B 5 (a&b)    ___________

 

	
7.  

	
Applicable %  of Current Portion of Long Term Debt (Section 4-l (4))_________

 

	
8.  

	
Applicable Current Maturity of Long Term Debt (B 6 times  B 7)___________

 

Ratio of A to B 8                                                                                           ___________

 

Requirement through the quarter ending 12/31/2014 not less than 1.50 to 1

Thereafter not less than 1.75 to 1

In Compliance?                                                                                                      Yes/No

 

 

  

23

  

FORM OF BORROWING BASE CERTIFICATE

(Section 4(a)(iv))

To:          California Bank & Trust

456 Montgomery Street, 23rd Floor

San Francisco, CA  94104

Attn.: Thomas C. Paton, Jr.

From:      Owens Realty Mortgage, Inc.

This Borrowing Base Certificate is given pursuant to Section 4(a)(iv) of the Amended and Restated Credit Agreement, dated April 16, 2015 among California Bank & Trust (“Agent”), the financial institutions from time to time signatory thereto (“Lenders”) and Owens Realty Mortgage, Inc. (“Borrower”), as it may have been amended, modified or supplemented (“Credit Agreement”), and the Amended and Restated Advance Formula Agreement dated April 16, 2015 among Agent, Lenders and Borrower, as it may have been amended, modified or supplemented (“Advance Formula Agreement”).  All initially capitalized terms used but not defined in this Borrowing Base Certificate shall have the meanings assigned to such terms in the Credit Agreement or the Advance Formula Agreement, as applicable.

The undersigned hereby certifies that:

10. I am an Authorized Officer of Borrower, and hold the following position with Borrower: _________________________.   I am authorized to execute and deliver this Certificate to Agent on behalf of Borrower.

 

11. I have reviewed and am familiar with the terms of the Credit Agreement, the Advance Formula Agreement, the other Loan Documents, and have made, or caused to be made under my supervision, a detailed review of the transactions and condition of Borrower, the Eligible Loan Notes, and the Eligible Owned Real Properties.

 

12. Each of the following is an Eligible Loan Note, with a statement of the current outstanding principal balance and Appraised Value of the real property securing the Eligible Loan Note:

 

	  	
Note

	
Outstanding Principal Balance of Note

	
Appraised Value of Real Property Securing Note

	
Borrowing Availability (Lesser of 75% of Outstanding Principal Balance of Note and 50% of Appraised Value of Real Property Securing Note)

	
a.

	  	  	  	  
	
b.

	  	  	  	  

 

Each of the Eligible Loan Notes satisfies all of the requirements set forth in Section 1(B) of the Advance Formula Agreement.

 

The aggregate amount of borrowing availability based on Eligible Loan Notes is $_________________,

 

13. Each of the following is an Eligible Owned Real Property, with a statement of its Appraised Value:

 

	  	
Property

	
Appraised Value

	
Borrowing Availability (50% of Appraised Value)

	
a.

	  	  	  
	
b.

	  	  	  

 

Each of the Eligible Owned Real Properties satisfies all of the requirements set forth in Section 1(C) of the Advance Formula Agreement.

 

  

24

  

The aggregate amount of borrowing availability based on Eligible Owned Real Property is $____________.

 

14. Under the Advance Formula Agreement, the maximum amount that may be borrowed from Lenders (including from Agent with respect to a Swing Line Loan) is $______________, consisting of the lesser of (a) $30,000,000.00 or (b) the sum of (i) the borrowing availability under the Eligible Loan Notes plus (ii) the borrowing availability under the Eligible Owned Real Properties.

 

15. The current outstanding principal balance owed by Borrower to Lenders (including to Agent with respect to any Swing Line Loan) under the Advance Formula Agreement is $___________________.

 

16. The remaining borrowing availability under the Advance Formula Agreement is $___________________.

 

17. This Borrowing Base Certificate is effective and correct as of __________________.

 

18. I represent and warrant that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties contained in the Credit Agreement, the Advance Formula Agreement, and the other Loan Documents.

 

19. This Borrowing Base Certificate is made and delivered to Agent on _________________.

 

OWENS REALTY MORTGAGE, INC.,

a Maryland corporation

By:_____________________________________

Name:

Title:

 

  

25

  

FORM OF DISBURSEMENT REQUEST

(Section 4(m))

To:          California Bank & Trust

456 Montgomery Street, 23rd Floor

San Francisco, CA  94104

Attn.: Thomas C. Paton, Jr.

From:      Owens Realty Mortgage, Inc.

This Disbursement Request is given pursuant to the Amended and Restated Credit Agreement, dated April 16, 2015 among California Bank & Trust (“Agent”), the financial institutions signatory thereto from time to time (“Lenders”) and Owens Realty Mortgage, Inc. (“Borrower”), as it may have been amended, modified or supplemented (“Credit Agreement”), the Amended and Restated Advance Formula Agreement, dated April 16, 2015 among Agent, Lenders and Borrower, as it may have been amended, modified or supplemented (“Advance Formula Agreement”), the Master Revolving Note in the principal amount of $20,000,000, by Borrower to the order of California Bank & Trust (as it may have been amended, modified or supplemented, the “CB&T Note”) and the Master Revolving Note in the principal amount of $10,000,000, by Borrower to the order of First Bank, each dated as of the date of the Loan Agreement (as it may have been amended, modified or supplemented, the “First Bank Note” and together with the CB&T Note, the “Master Revolving Notes”).  All initially capitalized terms used but not defined in this Disbursement Request shall have the meanings assigned to such terms in the Credit Agreement.

The undersigned hereby certifies that:

	
1.  

	
I am an Authorized Officer of Borrower, and hold the following position with Borrower: _________________________.   I am authorized to execute and deliver this Disbursement Request to Agent on behalf of Borrower.

 

	
2.  

	
On behalf of Borrower, I represent and warrant that the statements made in the Compliance Certificate and Borrowing Base Certificate most recently delivered to Agent are true, complete and correct as of the dates thereof, and that Borrower is entitled under the Loan Documents, as of the date hereof, to receive the disbursement requested by this Disbursement Request.

 

	
3.  

	
On behalf of Borrower, I request that Agent disburse the sum of $_______________ to Borrower pursuant to the Credit Agreement, the Advance Formula Agreement and the Master Revolving Notes in the following manner:

 

□           Swing Line Loan in the amount of $___________________.

 

□           Loan in the amount of $___________________.

 

	
4.  

	
This Disbursement Request is made and delivered to Agent on _________________.

 

OWENS REALTY MORTGAGE, INC.,

a Maryland corporation

By:_____________________________________

                                                                                                          Name:

Title:

 

  

26

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