Document:

Amended and Restated Revolving Line of Credit Loan Agreement

 Exhibit 10.1 

 
 

 
 AMENDED AND RESTATED 
 REVOLVING LINE OF CREDIT LOAN AGREEMENT 
 (Borrowing Base) 

By and Between 

CALIFORNIA BANK & TRUST 
 a California banking corporation 
 1900 Main Street, Suite 200, Irvine,
California 92614 
 (“Lender”) 
 And 
 TRI POINTE HOMES, LLC, 

a Delaware limited liability company 
 19520 Jamboree Road, Suite 200, Irvine, California 92612 

(“Borrower”) 
 Dated as of May 29, 2012 
 MAXIMUM REVOLVING
LINE OF CREDIT AMOUNT: $20,000,000.00 

 TABLE OF CONTENTS 

 

											
	 	 	 	 	 	 	 	  	Page	 
	 1.
	 	 DEFINITIONS AND GENERAL PROVISIONS
	  	 	1	  
		 	 1.1
	 	 Definitions
	  	 	1	  
		 	 1.2
	 	 General Provisions
	  	 	18	  
			
	 2.
	 	 BORROWING BASE
	  	 	19	  
		 	 2.1
	 	 Loan Facility
	  	 	19	  
		 		 	 2.1.1
	 	Commitment	  	 	19	  
		 		 	 2.1.2
	 	Purpose of the Loan	  	 	19	  
		 		 	 2.1.3
	 	Purpose of the Project Loans	  	 	20	  
		 		 	 2.1.4
	 	Approval of Qualified Projects	  	 	20	  
		 		 	 2.1.5
	 	Interest Payments	  	 	21	  
		 		 	 2.1.6
	 	Principal Payments	  	 	22	  
		 		 	 2.1.7
	 	Loan Term	  	 	23	  
		 		 	 2.1.8
	 	Terms of Project Advances	  	 	23	  
				
		 	 2.2
	 	 Available Commitment; Borrowing Base
	  	 	23	  
		 		 	 2.2.1
	 	Available Commitment	  	 	23	  
		 		 	 2.2.2
	 	Amount of Borrowing Base and Borrowing Availability	  	 	23	  
		 		 	 2.2.3
	 	Determination of Borrowing Availability	  	 	24	  
				
		 	 2.3
	 	 Letter of Credit Advances
	  	 	25	  
		 		 	 2.3.1
	 	Issuance of Letter of Credit	  	 	25	  
		 		 	 2.3.2
	 	Issuance Procedure	  	 	25	  
		 		 	 2.3.3
	 	Purpose of Letter of Credit; General Letter of Credit Terms and Conditions	  	 	26	  
		 		 	 2.3.4
	 	Reimbursement of Lender for Payment of Drafts Drawn or Drawn and Accepted Under the Letter of Credit	  	 	26	  
		 		 	 2.3.5
	 	Reimbursement Obligations	  	 	26	  
		 		 	 2.3.6
	 	Nature of Reimbursement Obligations	  	 	26	  
				
		 	 2.4
	 	 Loan Advances; Project Monitoring
	  	 	27	  
		 		 	 2.4.1
	 	Method for Advances	  	 	27	  
		 		 	 2.4.2
	 	Use of Advances	  	 	27	  
		 		 	 2.4.3
	 	Draw Requests	  	 	27	  
		 		 	 2.4.4
	 	Limitations on Borrower’s Rights to Advances	  	 	27	  
		 		 	 2.4.5
	 	Excess Loan Balance Repayment	  	 	28	  
		 		 	 2.4.6
	 	Appraisals and Evaluations	  	 	28	  
		 		 	 2.4.7
	 	Borrower’s Accounts	  	 	28	  
		 		 	 2.4.8
	 	Project Cost Savings and Excess Costs	  	 	28	  
				
		 	 2.5
	 	 Fees
	  	 	29	  
		 		 	 2.5.1
	 	Commitment Fee	  	 	29	  
		 		 	 2.5.2
	 	Borrowing Base Fees	  	 	29	  
		 		 	 2.5.3
	 	Letter of Credit Fee	  	 	29	  
		 		 	 2.5.4
	 	Unused Fee	  	 	29	  
		 		 	 2.5.5
	 	Other Fees	  	 	29	  
			
	 3.
	 	 THE COLLATERAL
	  	 	30	  
		 	 3.1
	 	 Security
	  	 	30	  
		 	 3.2
	 	 Releases of Collateral
	  	 	30	  
		 		 	 3.2.1
	 	General Requirements for Releases	  	 	30	  

  
 i 

											
		 		 	3.2.2	 	Sales of Lots or Homes Pursuant to a Purchase Contract	  	 	31	  
		 		 	 3.2.3
	 	Dedications	  	 	31	  
			
	 4.
	 	 CONDITIONS PRECEDENT
	  	 	31	  
		 	 4.1
	 	 Conditions Precedent to Effectiveness of this Agreement and to the Effectiveness of the Commitment
	  	 	31	  
		 		 	 4.1.1
	 	Representations and Warranties Accurate	  	 	31	  
		 		 	 4.1.2
	 	Defaults	  	 	31	  
		 		 	 4.1.3
	 	Documents	  	 	32	  
		 		 	 4.1.4
	 	Plat and/or Survey	  	 	32	  
		 		 	 4.1.5
	 	Restrictive Covenants	  	 	32	  
		 		 	 4.1.6
	 	Soils Test	  	 	32	  
		 		 	 4.1.7
	 	Environmental Assessment	  	 	32	  
		 		 	 4.1.8
	 	Environmental Indemnity	  	 	32	  
		 		 	 4.1.9
	 	Preliminary Title Report	  	 	33	  
		 		 	 4.1.10
	 	Flood Report	  	 	33	  
		 		 	 4.1.11
	 	Deed of Trust/Title Policy	  	 	33	  
		 		 	 4.1.12
	 	Completion of Filings and Recordings	  	 	33	  
		 		 	 4.1.13
	 	Payment of Costs, Expenses, and Fees	  	 	33	  
		 		 	 4.1.14
	 	Appraisal	  	 	33	  
		 		 	 4.1.15
	 	Other Items or Actions by Borrower	  	 	33	  
				
		 	 4.2
	 	 Amendment Closing Date
	  	 	33	  
				
		 	 4.3
	 	 Conditions Precedent to Admission of Land as Lots Under Development
	  	 	33	  
		 		 	 4.3.1
	 	Request	  	 	34	  
		 		 	 4.3.2
	 	Defaults	  	 	34	  
		 		 	 4.3.3
	 	Documents and Information	  	 	34	  
		 		 	 4.3.4
	 	Inspection	  	 	34	  
		 		 	 4.3.5
	 	Map	  	 	34	  
		 		 	 4.3.6
	 	Utilities	  	 	34	  
		 		 	 4.3.7
	 	Lot Limitations	  	 	34	  
		 		 	 4.3.8
	 	Other	  	 	34	  
				
		 	 4.4
	 	 Conditions Precedent to Admission of Land as Developed Lots
	  	 	34	  
		 		 	 4.4.1
	 	Request	  	 	34	  
		 		 	 4.4.2
	 	Defaults	  	 	34	  
		 		 	 4.4.3
	 	Documents and Information	  	 	35	  
		 		 	 4.4.4
	 	Lot Limitations	  	 	35	  
		 		 	 4.4.5
	 	Other	  	 	35	  
				
		 	 4.5
	 	 Conditions Precedent to Admission of Land as Presold, Spec and/or Model Homes
	  	 	35	  
		 		 	 4.5.1
	 	Request	  	 	35	  
		 		 	 4.5.2
	 	Defaults	  	 	35	  
		 		 	 4.5.3
	 	Documents and Information	  	 	35	  
		 		 	 4.5.4
	 	Home Construction Information	  	 	35	  
		 		 	 4.5.5
	 	Other	  	 	36	  
				
		 	 4.6
	 	 Additional Conditions Precedent to All Advances
	  	 	36	  
				
		 	 4.7
	 	 Waiver of Conditions Precedent
	  	 	37	  
			
	 5.
	 	 BORROWER’S REPRESENTATIONS AND WARRANTIES
	  	 	37	  
		 	 5.1
	 	 Closing Representations and Warranties
	  	 	37	  
		 		 	 5.1.1
	 	Limited Liability Company Existence and Authorization	  	 	37	  
		 		 	 5.1.2
	 	No Approvals, etc	  	 	37	  
		 		 	 5.1.3
	 	No Conflicts	  	 	37	  

  
 ii 

											
		 		 	 5.1.4
	 	Execution and Delivery and Binding Nature of Loan Documents	  	 	37	  
		 		 	 5.1.5
	 	Legal Proceedings; Hearings, Inquiries, and Investigations	  	 	37	  
		 		 	 5.1.6
	 	No Event of Default	  	 	37	  
		 		 	 5.1.7
	 	Approvals and Permits; Assets and Property	  	 	38	  
		 		 	 5.1.8
	 	ERISA	  	 	38	  
		 		 	 5.1.9
	 	Compliance with Law	  	 	38	  
		 		 	 5.1.10
	 	Full Disclosure	  	 	38	  
		 		 	 5.1.11
	 	Use of Proceeds; Margin Stock	  	 	38	  
		 		 	 5.1.12
	 	Governmental Regulation	  	 	38	  
		 		 	 5.1.13
	 	Material Agreements; No Material Defaults	  	 	39	  
		 		 	 5.1.14
	 	Title to Property	  	 	39	  
		 		 	 5.1.15
	 	Payment of Taxes	  	 	39	  
		 		 	 5.1.16
	 	No Condemnation	  	 	39	  
		 		 	 5.1.17
	 	Borrowing Base	  	 	39	  
				
		 	5.2	 	 Representations and Warranties Upon Requests for Advances
	  	 	40	  
				
		 	5.3	 	 Representations and Warranties Upon Delivery of Financial Statements, Documents, and Other Information
	  	 	40	  
				
		 	5.4	 	 USA Patriot Act Notification
	  	 	40	  
			
	 6.
	 	 BORROWER AFFIRMATIVE COVENANTS
	  	 	40	  
		 	6.1	 	 Limited Liability Company Existence
	  	 	40	  
				
		 	6.2	 	 Books and Records; Access By Lender
	  	 	40	  
				
		 	6.3	 	 Special Covenants Relating to Collateral
	  	 	40	  
		 		 	6.3.1	 	Defense of Title	  	 	40	  
		 		 	 6.3.2
	 	Further Assurances	  	 	41	  
		 		 	 6.3.3
	 	Plats, Annexations and Approvals	  	 	41	  
		 		 	 6.3.4
	 	Utilities	  	 	42	  
		 		 	 6.3.5
	 	Plans and Specifications	  	 	42	  
		 		 	 6.3.6
	 	Compliance with Permitted Exceptions	  	 	42	  
		 		 	 6.3.7
	 	Project Development	  	 	42	  
		 		 	 6.3.8
	 	Title Policy Endorsements	  	 	43	  
		 		 	 6.3.9
	 	Improvement Districts	  	 	43	  
		 		 	 6.3.10
	 	Appraisals	  	 	44	  
				
		 	 6.4
	 	 Information and Statements
	  	 	44	  
		 		 	 6.4.1
	 	Monthly Sales Reports	  	 	44	  
		 		 	 6.4.2
	 	Quarterly Financial Statements	  	 	44	  
		 		 	 6.4.3
	 	Annual Financial Statements	  	 	44	  
		 		 	 6.4.4
	 	Annual Business Plan	  	 	45	  
		 		 	 6.4.5
	 	Compliance Certificates	  	 	45	  
		 		 	 6.4.6
	 	Monthly Borrowing Base Certificate	  	 	45	  
		 		 	 6.4.7
	 	Other Items and Information	  	 	45	  
				
		 	 6.5
	 	 Law; Judgments; Material Agreements; Approvals and Permits
	  	 	45	  
				
		 	 6.6
	 	 Taxes and Other Debt
	  	 	46	  
				
		 	 6.7
	 	 Assets and Property
	  	 	46	  
				
		 	 6.8
	 	 Insurance
	  	 	46	  
		 		 	 6.8.1
	 	Property	  	 	46	  
		 		 	 6.8.2
	 	Liability	  	 	46	  
		 		 	 6.8.3
	 	Flood	  	 	46	  
		 		 	 6.8.4
	 	Worker’s Compensation	  	 	46	  
		 		 	 6.8.5
	 	Contractors	  	 	46	  

  
 iii

											
		 		 	 6.8.6
	 	Additional Insurance	  	 	47	  
				
		 	 6.9
	 	 Commencement and Completion
	  	 	47	  
				
		 	 6.10
	 	 Rights of Inspection; Agency
	  	 	48	  
					
		 		 	 6.10.1
	 	Generally	  	 	48	  
		 		 	 6.10.2
	 	Inspector(s)	  	 	48	  
				
		 	 6.11
	 	 Verification of Costs
	  	 	48	  
				
		 	 6.12
	 	 Use of Proceeds
	  	 	48	  
				
		 	 6.13
	 	 Costs and Expenses of Borrower’s Performance of Covenants and Satisfaction of Conditions
	  	 	48	  
				
		 	 6.14
	 	 Notification
	  	 	48	  
				
		 	 6.15
	 	 Financial Covenants
	  	 	48	  
					
		 		 	 6.15.1
	 	No Other Debt	  	 	49	  
		 		 	 6.15.2
	 	No Other Loan Defaults	  	 	49	  
				
		 	 6.16
	 	 Books and Records; Names; Place of Business and Chief Executive Office
	  	 	49	  
				
		 	 6.17
	 	 Proceeds of Purchase Contracts
	  	 	49	  
					
		 		 	 6.17.1
	 	After Event of Default or Unmatured Event of Default	  	 	49	  
		 		 	 6.17.2
	 	Payments to Lender	  	 	49	  
			
	 7.
	 	 BORROWER NEGATIVE COVENANTS
	  	 	49	  
		 	 7.1
	 	 Corporate Restrictions
	  	 	49	  
		 	 7.2
	 	 Name, Fiscal Year, Accounting Method, and Lines of Business
	  	 	49	  
		 	 7.3
	 	 Change in Ownership
	  	 	49	  
		 	 7.4
	 	 Loans
	  	 	50	  
		 	 7.5
	 	 Liens and Encumbrances
	  	 	50	  
		 	 7.6
	 	 Indebtedness
	  	 	50	  
		 	 7.7
	 	 Acquisition of Assets
	  	 	50	  
			
	 8.
	 	 EVENTS OF DEFAULT AND REMEDIES
	  	 	50	  
				
		 	 8.1
	 	 Events of Default
	  	 	50	  
		 	 8.2
	 	 Rights and Remedies of Lender
	  	 	52	  
			
	 9.
	 	 BANK’S OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK
	  	 	53	  
			
	 10.
	 	 NO BROKERS
	  	 	53	  
			
	 11.
	 	 PROVISIONS IN THE NOTE GOVERN THIS AGREEMENT
	  	 	53	  
			
	 12.
	 	 COUNTERPART EXECUTION
	  	 	53	  
			
	 13.
	 	 MISCELLANEOUS
	  	 	54	  
		 	 13.1
	 	 Assignment
	  	 	54	  
		 	 13.2
	 	 Notices
	  	 	54	  
		 	 13.3
	 	 Authority to File Notices
	  	 	54	  
		 	 13.4
	 	 Inconsistencies with the Loan Documents
	  	 	55	  
		 	 13.5
	 	 No Waiver
	  	 	55	  
		 	 13.6
	 	 Lender Approval of Instruments and Parties
	  	 	55	  
		 	 13.7
	 	 Lender Determination of Facts
	  	 	55	  

  
 iv 

									
		 	 13.8
	 	Incorporation of Preamble: Recitals and Exhibits	  	 	55	  
		 	 13.9
	 	Third-Party Consultants	  	 	55	  
		 	 13.10
	 	Payment of Expenses	  	 	55	  
		 	 13.11
	 	Disclaimer by Lender	  	 	55	  
		 	 13.12
	 	Indemnification	  	 	56	  
		 	 13.13
	 	Titles and Headings	  	 	56	  
		 	 13.14
	 	Brokers	  	 	56	  
		 	 13.15
	 	Change, Discharge, Termination or Waiver	  	 	56	  
		 	 13.16
	 	Choice of Law	  	 	56	  
		 	 13.17
	 	Disbursements in Excess of Loan Amount	  	 	56	  
		 	 13.18
	 	Participations	  	 	56	  
		 	 13.19
	 	Time Is of the Essence	  	 	57	  
		 	 13.20
	 	Attorneys’ Fees	  	 	57	  
		 	 13.21
	 	Signs	  	 	57	  
		 	 13.22
	 	Subordination to Certain Easements, Dedications and Restrictions	  	 	57	  
		 	 13.23
	 	Waiver of Right to Trial by Jury	  	 	57	  
			
	 14.
	 	 EXHIBITS
	  	 	57	  
			
	 15.
	 	 ADDITIONAL ADVANCES
	  	 	58	  

  
 v 

  
 

 
 AMENDED AND RESTATED 
 REVOLVING LINE OF CREDIT LOAN AGREEMENT 
 (Borrowing Base) 

THIS AMENDED AND RESTATED REVOLVING LINE OF CREDIT LOAN AGREEMENT (Borrowing Base) (“Agreement”), is entered into as of
the date set forth above by and between TRI POINTE HOMES, LLC, a Delaware limited liability company (“Borrower”), and CALIFORNIA BANK & TRUST, a California banking corporation (“Lender”). 

RECITALS 
 A. Borrower has applied to Lender for an increase to its current revolving line of credit loan to the maximum sum not to exceed Twenty Million Dollars ($20,000,000.00) for the purpose of providing
Borrower with funds for the development of residential lots, the construction of existing and future residential home projects within the state of California (individually, a “Qualified Project”, collectively “Qualified
Projects”), and the issuance of letters of credit for the payment of costs incurred or associated with said projects (“Loan”). 
 B. Borrower is executing in connection with this Agreement, among other things, a Amended and Restated Construction Loan Promissory Note (Construction Revolving Line of Credit) of even date
herewith (“Note”). 
 C. As Qualified Projects are admitted into the Loan, as provided herein,
Borrower’s obligations under the Loan shall be secured by, among other things, each and every “Deed of Trust” and certain other “Security Documents” (as defined below) pursuant to which Borrower shall grant to
Lender a first and prior lien on and security interest in all the real and personal property comprising each said Qualified Project. 
 NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree as follows: 

AGREEMENT 
 1.
DEFINITIONS AND GENERAL PROVISIONS. 
 1.1 Definitions. In this Agreement, the following terms shall
have the following meanings: 
 “A&D Budget” shall mean, for each Qualified Project for
which A&D Improvements are to be constructed, the cost breakdown/budget for such A&D Improvements, which budget shall be satisfactory to Lender in all respects. For purposes of this Agreement, all such budgets shall be referred to
individually and collectively in the singular. 
 “A&D Improvements” shall mean, for each
and every Qualified Project financed hereunder, (i) those certain offsite improvements on the Property (including without limitation curbs, grading, storm and sanitary sewers, paving, sidewalks, landscaping, hardscaping, sprinklers, electric
lines, gas lines, telephone lines, cable television lines, fiber optic lines, pipelines and other utilities) necessary to make the Property suitable for the construction of single family residential homes thereon, and (ii) any common area
improvements to be constructed on the Property. For purposes of this Agreement, all such improvements for each and every Qualified Project funded by a Loan made hereunder shall be referred to individually and collectively in the singular.

  
 1 

 “Advance” means an advance of Loan proceeds by Lender to
Borrower hereunder, including without limitation Project Advances and Letter of Credit Advances. 

“Affiliate” of any Person means (i) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such Person and (ii) any other Person that beneficially owns at least ten percent (10%) of the voting common stock or partnership interest or limited liability company interest,
as applicable, of such Person. For the purposes of this definition, “control” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, partnership interests, by contract or otherwise: and the terms “controlling” and “controlled” have meanings correlative to the foregoing. 

“Agreement” means this Revolving Line of Credit Loan Agreement (Borrowing Base). 

“Amendment Closing Date” shall mean the date on which all of the conditions precedent set forth in
Section 4.2 of this Agreement for the increase in the Loan as set forth herein are satisfied as determined by Lender. 
 “Appraisal” means each appraisal of the Land and the Improvements (a) ordered by Lender, (b) prepared by an appraiser satisfactory to Lender, (c) in compliance with all
federal and state standards for appraisals, (d) reviewed by Lender, and (e) in form and substance satisfactory to Lender based on its standards and practices applied in reviewing real estate appraisals. 

“Appraised Value”, for each Qualified Project to be financed hereunder, (a) shall mean the bulk sale
value of the Lots after completion of any and all required development and infrastructure improvements, and (b) shall mean, with respect to each Home, the lesser of (i) the value of such Home as determined by the Appraisal (as adjusted by
Lender in its discretion), which value shall be determined without lot premiums, options or upgrades, or (b) Borrower’s estimated sales price of such Home, as set forth in the Appraisal and as approved by Lender pursuant to the terms of
this Agreement. 
 “Approvals and Permits” means, for each and every Qualified Project financed
hereunder, each and all approvals, authorizations, bonds, consents, certificates, franchises, licenses, permits, registrations, qualifications, and other actions and rights granted by or filings with any Persons necessary, or appropriate, for the
improvement and development of the Land or for the conduct of the business and operations of Borrower. 

“Architect” shall mean the architect for each Qualified Project to be financed hereunder, which architect
shall be reviewed and approved by Lender in its discretion. For purposes of this Agreement, all such architects shall be referred to individually and collectively in the singular. 

“Architect’s Agreement” shall mean any agreement between the Architect and Borrower for each
Qualified Project to be financed by a Loan to be made hereunder. For purposes of this Agreement, all such agreements shall be referred to individually and collectively in the singular. 

“Assignment of Architect’s Agreement” shall mean, for each Qualified Project financed by a Loan to
be made hereunder, that certain Assignment of Architect’s Contract, Plans and Specifications executed by Borrower for the benefit of Lender (including the consent of Architect to said assignment), pursuant to which Borrower shall assign to
Lender, subject to and in accordance with the provisions thereof, all of Borrower’s right, title and interest in, to and under the Architect’s Agreement and the Plans and Specifications. For purposes of this Agreement, all such assignments
shall be referred to individually and collectively in the singular. 
 “Assignment of Engineering
Contract” shall mean, for each Qualified Project financed by a Loan to be made hereunder, that certain Assignment of Engineering Contract, Plans and Specifications by Borrower for the benefit of Lender (including the consent of Engineer to
said assignment), pursuant to which Borrower shall assign to Lender, subject to and in accordance with the provisions thereof, all of 

  
 2 

 
Borrower’s right, title and interest in, to and under the Engineering Contract and/or Plans and Specifications (as applicable). For purposes of this Agreement, all such assignments shall be
referred to individually and collectively in the singular. 
 “Assignment of Permits” shall
mean, for each Qualified Project financed by a Loan to be made hereunder, that certain Assignment of Agreements, Permits, Licenses and Approvals executed by Borrower. For purposes of this Agreement, all such assignments shall be referred to
individually and collectively in the singular. 
 “Authorization Form” shall mean that certain
Signature Authorization Form and Disbursement Instructions of even date herewith executed by Borrower. 

“Available Commitment” shall be the lesser of (i) the Commitment Amount, as in effect from time to
time, or (ii) the Borrowing Base, subject to the limitations set forth in Sections 2.1.1 and 2.2.1. 

“Base Appraisal” shall mean, with respect to each Home financed by a Loan to be made hereunder, the
lesser of (i) the value of such Home as determined by the Appraisal (as adjusted by Lender in its reasonable discretion) for the model plan type of said Home, which value shall be determined without lot premiums, options or upgrades (unless
included by Lender in its sole discretion), or (ii) Borrower’s estimated sales price of such Home. For purposes of this Agreement, all such appraisals shall be referred to individually and collectively in the singular. Any and all FNMA
appraisals shall establish the retail value of each model plan type to be financed in connection with each Qualified Project. 
 “Borrowing Availability” shall mean: 
 (a)
An amount equal to the lesser of the Commitment Amount or Reduced Commitment Amount, as applicable, or the Borrowing Base as calculated each Calendar Month, 
 less 
 (b) The sum of the Loan Balance, 

less 
 (c) Any reductions as provided in Section 2.1.3(d). 

“Borrowing Base” shall be equal to the sum of: 

(a) The respective Maximum Allowed Advances multiplied by the applicable Draw Percentages for all Lots Under
Development, Developed Lots, Spec Homes, Presold Homes and Model Homes for all Qualified Projects; and 
 (b)
Any committed portion of the Letter of Credit Line under this Loan. 
 “Borrowing Base
Certificate” means a certificate, in form and substance reasonably satisfactory to Lender, delivered to Lender by Borrower in accordance with Section 6.4.6 setting forth, among other things, a current and detailed computation of the
Borrowing Base and Borrowing Availability with respect to Lots Under Development, Developed Lots, Spec Homes, Presold Homes, and Model Homes, and containing such other information as Lender may reasonably request. An initial form of the Borrowing
Base Certificate is attached hereto as Exhibit “A”. 
 “Borrowing Base
Fees” shall mean the following fees which are due and payable upon entry of Qualified Projects into the Borrowing Base: 
 (a) A closing fee of Five Thousand Dollars ($5,000.00) for each Project Loan. 
 “Budget” shall mean each and every A&D Budget and/or Home Construction Budget approved by Lender for each and every Qualified Project to be financed by a Loan to be made hereunder.

  
 3 

 “Bulk Finished Lot Value” shall mean, for each Qualified
Project financed hereunder, the bulk sale value of the Lots included in said Project after completion of the A&D Improvements as determined by a qualified appraiser, which appraisal shall be satisfactory to Lender in all respects. 

“Bulk Lot Sale” shall have the meaning given to such term in Section 2.1.6(a) below. 

“Business Day” means each day of the year other than Saturdays, Sundays, Holidays, and days on which
banking institutions are generally authorized or obligated by law or executive order to close in California. 

“Business Hour” means each hour of each Business Day between 9:00 a.m. to 4:00 p.m. (California
time). 
 “Calendar Month” shall mean the twelve (12) calendar months of the year. Any
payment or obligation that is due or required to be performed within a specified number of Calendar Months shall become due on the day in the last of such specified number of Calendar Months that corresponds numerically to the date on which such
payment or obligation was incurred or commenced, provided, however, that with respect to any obligation that is incurred or commences on the 29th, 30th, or 31st day of any Calendar Month and if the Calendar Month in which such payment or
obligation would otherwise be due does not have a numerically corresponding date, such payment or obligation shall become due on the first day of the next succeeding Calendar Month. 

“Calendar Quarter” shall mean a period of three (3) consecutive Calendar Months, commencing on the
Initial Closing Date and continuing through the Loan Term. 
 “Capital Contributions” means the
contributions to the capital of Borrower made or required to be made by Capital Contributor pursuant to the Operating Agreement and made or required to be made by Capital Contributor pursuant to this Agreement. 

“Capital Contributor” means, individually and collectively, VII/TPC HOLDINGS, L.L.C., a Delaware limited
liability company. 
 “Closing Date” shall mean, individually and collectively, as applicable,
(a) the date upon which all of the initial conditions precedent set forth in Section 4.1 of this Agreement were satisfied (“Initial Closing Date”), (b) the date upon which all of the additional conditions precedent
set forth in Section 4.2 of this Agreement have been satisfied (“Amendment Closing Date”), and (c) the future date(s) upon which future Deeds of Trust for any Future Projects are recorded in the Official Records of each
applicable County (each, a “Subsequent Closing Date”). 
 “Collateral” means
all property, interests in property, and rights to property securing any or all Obligations from time to time. 

“Commitment” means the agreement by Lender in Section 2.1.1 to make Advances pursuant to the terms
and conditions herein. 
 “Commitment Amount” means (a) during the Initial Line Period, the
sum of Twenty Million Dollars ($20,000,000.00), and (b) during the Reduction Period, beginning upon the last day of the first Calendar Quarter following the Initial Line Maturity Date, and on or prior to the last day of each Calendar Quarter
thereafter during the Reduction Period, the Commitment Amount shall be reduced in the amount of Five Million Dollars ($5,000,000.00) (each, “Reduced Commitment Amount”): 

 

					
	 Date
	  	Reduced Commitment Amount	 
	 Initial Line Maturity Date
	  	$	20,000,000.00	  
	 First Calendar Quarter
	  	$	15,000,000.00	  

  
 4 

					
	 Date
	  	Reduced Commitment Amount	 
	 Second Calendar Quarter
	  	$	10,000,000.00	  
	 Third Calendar Quarter
	  	$	5,000,000.00	  
	 Fourth Calendar Quarter
	  	$	0.00	  

 “Commitment Fee” means that certain facility fee (a) that is
calculated, during the Initial Line Period, commencing on April 19, 2012, at the rate of one-half of one percent (0.50%) per annum on the full Commitment Amount, and (b) that is calculated, during the Reduction Period, at the rate of
one-half of one percent (0.50%) per annum based on the then-applicable Reduced Commitment Amount, and all said fees shall be payable pursuant to Section 2.5.1 below. During the Initial Line Period from and after April 19, 2012, said fees
shall be paid in advance on an annual basis, and during the Reduction Period, said fees shall be paid in advance on a quarterly basis such that each quarterly fee payment shall be based on a one-eighth of one percent (0.125%) of the then-applicable
Reduced Commitment Amount. 
 “Construction Assignments” shall mean, for each Qualified Project
to be entered into the Borrowing Base, the Assignment of Permits, Assignment of Engineering Contract, Assignment of Architect’s Agreement, and all other assignment and other related documents encumbering the Collateral, which assignments may be
included within a single document to be executed by Borrower in connection with each Qualified Project to be financed hereunder. 
 “Contractor” shall mean the general contractor for each Qualified Project to be financed hereunder, which contractor shall be reviewed and approved by Lender in its discretion. For
purposes of this Agreement, all such contractor shall be referred to individually and collectively in the singular. Borrower shall be permitted to act as an “owner/builder” for any Qualified Project and, as a result, Borrower shall
not be required to enter into any contract, agreement or other document with a general contractor to perform general contracting services for said Project, unless and until (a) Lender shall have reviewed and approved of said general contractor
and the terms of any such contract, agreement or other document with Borrower relating to said Project, and (b) Borrower shall have delivered to Lender a fully executed assignment in form and content acceptable to Lender in its sole discretion
assigning to Lender all of Borrower’s rights, title and interest in said contract, agreement or other document, and said general contractor shall have consented in writing in form and content acceptable to Lender in its sole discretion to said
assignment. 
 “Construction Contract” shall mean any agreement between the Contractor and
Borrower for each Qualified Project to be financed by a Loan to be made hereunder. For purposes of this Agreement, all such agreements shall be referred to individually and collectively in the singular. 

“County” shall mean each and every county in which a Qualified Project to be financed hereunder is
located. 
 “Debt” means, as to any Person, without limitation, (i) all obligations of such
Person which in accordance with GAAP would be shown on a balance sheet of such Person as a liability (including without limitation obligations for borrowed money and for the deferred purchase price of property or services and obligations evidenced
by bonds, debentures, notes or similar instruments), (ii) all rental obligations under leases required to be capitalized under GAAP, (iii) the stated amount of all letters of credit issued for the account of such Person or upon which such
Person would be obligated to reimburse the issuer thereof for draws, (iv) liabilities in respect of unfunded vested benefits under plans covered by ERISA, and (v) indebtedness of others secured by any lien upon property owned by such
Person whether or not assumed. 
 “Dedication” means a transfer by Borrower, or the granting of
easements, rights of way, and licenses by Borrower, to municipalities, utility providers, municipal districts, property owners, and property owners’ associations in connection with the development of the Project, for the purpose of providing

  
 5 

 
streets, common areas, parks, open space, water, waste water and sewage treatment facilities, hillside and other areas, and similar land and improvements. 

“Deed of Trust” shall mean, for each Qualified Project entered into the Borrowing Base, a Construction
Deed of Trust, Assignment of Leases and Rents and Security Agreement (Including Fixture Filing) (as the same may be amended from time to time) executed by Borrower, as trustor, to Title Company, as trustee, and naming Lender as beneficiary, creating
a first lien on the Property, the Improvements, and all other buildings, fixtures and improvements now or hereafter owned or acquired by Borrower and situated thereon, and all rights and easements appurtenant thereto, which Deed of Trust shall be in
form and content acceptable to Lender in its discretion. Each Deed of Trust shall secure indebtedness in the Commitment Amount. Upon the entry of each Qualified Project into the Borrowing Base, a separate Deed of Trust shall encumber all of the Lots
in the applicable Future Project. All Lots in a Qualified Project shall be subject to a Tentative Map or a Final Map, and Lender shall have no obligation to make any Advances of Hard Costs for the construction of any Homes in said Qualified Project,
unless and until Lender receives evidence satisfactory to Lender in its discretion of the recording of the Final Map for said Qualified Project. If, with Lender’s prior approval, additional Lots Under Development, Developed Lots, Spec Homes,
Presold Homes and Model Homes for a Qualified Project are added into the Borrowing Base, the Deed of Trust for said Qualified Project shall be amended to secure such additional property being added into the Borrowing Base in the form and content
required by Lender in its discretion, and Borrower shall pay all costs and expenses incurred by Lender in connection with encumbering all of said property with the applicable Deed of Trust, including without limitation the payment of title insurance
and endorsement costs, closing and recording fees, legal fees and all other related charges. For purposes of this Agreement, all such deeds of trust and amendments thereto securing the Loan may be referred to individually and collectively in the
singular as the “Deed of Trust.” 
 “Default Interest Rate” shall have the
meaning given to such term in the Note. 
 “Developed Lots” means those certain Lots in a
Qualified Project for which all A&D Improvements have been constructed and completed and said Lots are in condition for the construction of Homes thereon. 
 “Draw Percentage” shall mean (a) for the A&D Improvements, the percentage of completion for said improvements as certified by Borrower in its Borrowing Base Certificate, and
(b) for all Home Improvements, the applicable percentage for the subject Improvements pursuant to the Home Construction Draw Reference Chart attached hereto as Exhibit “D”. 

“Draw Request” means a completed, written request for an Advance from Borrower to Lender, which request
shall be in form reasonably satisfactory to Lender, and shall be accompanied by such other documents and information as Lender may require or specify from time to time. 

“EBITDA” means, with respect to any Person (or any asset of any Person) for a period, an amount equal to
the earnings of such Person before the payment of interest expenses, taxes, depreciation expenses and amortization costs. The EBITDA of a Person shall be adjusted to reflect the Person’s allocable share of such amounts from any Person (or asset
of any Person) the accounts of which are not consolidated with the financial statements of the first Person in accordance with GAAP, but only to the extent that such amounts could have been paid to such Person. 

“Engineer” shall mean the engineer for each Qualified Project to be financed hereunder, which engineer
shall be reviewed and approved by Lender in its discretion. For purposes of this Agreement, all such engineers shall be referred to individually and collectively in the singular. 

“Engineering Contract” shall mean any agreement between the Engineer and Borrower for each Qualified
Project to be financed by a Loan to be made hereunder. For purposes of this Agreement, all such agreements shall be referred to individually and collectively in the singular. 

  
 6 

 “Environmental Indemnity” means, for each Qualified
Project, that certain Environmental Indemnity executed by Borrower, which indemnity shall be in form and content acceptable to Lender in its discretion. 
 “ERISA” means the Employee Retirement Income Security Act of 1974 and the regulations and published interpretations thereunder, as in effect from time to time. 

“Event of Default” shall mean all of the events described in Section 8.1. 

“Existing Projects” shall mean those certain Qualified Projects included in the Loan as of the date of
this amendment, which Qualified Projects are listed in Exhibit “E” attached hereto and incorporated herein by reference. 
 “Final Map” shall mean the final tract or plat map for the Property for each Qualified Project to be financed by a Project Loan to be made hereunder, which map shall be in form and
content acceptable to Lender in its discretion. 
 “Financing Statement” shall mean, for each
Qualified Project to be entered into the Borrowing Base to be made hereunder, a UCC-1 financing statement executed by Borrower, as debtor, in favor of Lender, as secured party, perfecting Lender’s security interest in the Collateral now owned
or hereafter acquired by Borrower. The Financing Statement shall be in form and content satisfactory to Lender, and shall be filed in the Office of the Secretary of State of the State in which the subject Collateral is located (and in such other
offices for recording or filing such statements in such jurisdictions as Lender shall require to perfect Lender’s security interest or reflect such interest in appropriate public records). For purposes of this Agreement, all such financing
statements shall be referred to individually and collectively in the singular. 
 “First Payment
Date” shall mean the first day of the first Calendar Month after the Closing Date or, in Lender’s sole discretion, the first day of the second Calendar Month after the Closing Date. 

“Force Majeure Event” shall mean acts of God or the elements, including fire, flood, windstorm,
hailstorm, earthquake and lightning, acts of war, riot or civil insurrection, and strikes, labor disputes, delays in delivery of materials and disruption of shipping (to the extent such strikes, labor disputes, delays in delivery of materials and
disruption of shipping affect not only Borrower but also similarly situated real estate owners and/or contractors in the vicinity of the Property, or are otherwise not the result of an intentional or grossly negligent act or failure to act by
Borrower) and other natural causes reasonably beyond the control of Borrower; provided, however, that inclement weather shall be considered a Force Majeure Event only to the extent it is significantly more severe than typical for the location and
time of year in which such inclement weather occurred. 
 “Funding Disbursement Account” shall
mean that certain deposit account in the name of Borrower, maintained as account number 3090391061 at Lender, into which account all Advances shall be deposited to be applied by Borrower as provided herein. 

“Future Project” shall mean each Qualified Project for which a Project Loan will be made hereunder after
the Amendment Closing Date. 
 “GAAP” means generally accepted accounting principles
consistently applied. 
 “Geographic Concentration Limitation” shall have the meaning given to
such term in the Maximum Aggregate Loan Allocation(s). 
 “Governmental Authority” means any
government, any court, and any agency, authority, body, bureau, department, or instrumentality of any government. 

  
 7 

 “Hard Costs” means, for each Qualified Project to be
financed hereunder, the onsite cost of labor and materials directly related to the construction of the Improvements, including the A&D Improvements and each Home as set forth in the A&D Budget and Home Construction Budget, as applicable,
including without limitation construction costs, which costs shall be subject to Lender’s review and approval and shall specifically exclude costs to be funded from general budget categories for overhead, supervision, general and
administrative, and marketing expenses, and shall also not include any costs and expenses related to upgrades, options or decorator items; provided, however, that with respect to any Model Home, Hard Costs may include costs and expenses related to
upgrades, options or decorator items as may be approved by Lender. 
 “Home” or
“Unit” shall mean, for each Qualified Project to be financed hereunder, a single family dwelling unit which shall be a Spec, Presold or Model Home to be constructed on the Property of any one (1) of the model, design and type
generally described in the Plans and Specifications for the applicable Project, including any furniture, furnishings, fixtures and equipment to be installed therein as shown on said Plans and Specifications. A Home may include an attached unit,
which shall include any completed Home that is designed pursuant to the Plans and Specifications to share at least one (1) common wall with another Home. Homes may be entered into the Borrowing Base upon confirmation of trenching by Lender.

 “Home Construction Budget” shall mean, for each Qualified Project in which Homes are to be
constructed that are to be financed hereunder, the detailed line-item cost breakdown and budget for the Presold, Spec and Model Homes approved by Lender, which budget shall be comprised of the Lot Release Price for the release of the Lot into the
Loan for the construction of a Home thereon, and the Hard Costs and Soft Costs for the Home to be constructed on said Lot, and which budget shall be in conformity with the sources and uses of funds for the Presold, Spec and Model Homes as approved
by Lender in its sole discretion. For purposes of this Agreement, all such budgets shall be referred to individually and collectively in the singular. 
 “Home Advance Maturity Date(s)” shall mean the term in which a Home may remain in the Borrowing Base for the purposes of calculating the Borrowing Availability: 

(a) With respect to Presold or Spec Homes, twelve (12) Calendar Months after the initial entry of such Presold
or Spec Home into the Borrowing Base; and 
 (b) With respect to Model Homes, twenty-four
(24) Calendar Months after the initial entry of such Model Home into the Borrowing Base (provided, however, that said maturity date may be extended for a six-month period if Borrower is in compliance with the Model Extension Conditions, and
provided that an additional extension may be permitted only at Lender’s sole discretion). 
 Provided, however, that in no
event shall a Home remain in the Borrowing Base beyond the Maturity Date. 
 “Improvements”
means, for each and every Qualified Project to be financed hereunder, the improvements to be made on the Land (or applicable portion thereof), which shall include all construction and development of the infrastructure and all other housing
improvements made in preparation for the development and marketing of the Land (or applicable portion thereof). 

“Initial Closing Date” shall mean the date on which all of the initial conditions precedent set forth in
Section 4.1 of this Agreement were satisfied as determined by Lender. 
 “Initial Line Maturity
Date” shall mean April 19, 2014. 
 “Initial Line Period” shall mean that certain
thirty-six (36) Calendar Month period commencing on April 19, 2011, and ending on the Initial Line Maturity Date (i.e., April 19, 2014). 

  
 8 

 “Intangible Assets” means all intangible assets of Borrower
under GAAP, including without limitation copyrights, franchises, goodwill, licenses, loan origination fees, non-competition agreements, conveyance/organization/formation costs (to the extent required to be capitalized under GAAP), patents, service
marks, service names, trademarks, trade names, write up in the book value of any asset in excess of the acquisition cost of the asset, any amount (however designated on the balance sheet) representing the excess of the purchase price paid for assets
or stock acquired over the value assigned thereto on the books of Borrower, loans and advances to partners/employees/affiliates of Borrower, unamortized leasehold improvement expenses not recoverable at the end of the lease term, and unamortized
Debt discount and deferred discount. 
 “Interest Incurred” shall mean, for any period, the sum
of all interest incurred by a Person on a consolidated basis during such period, whether capitalized or expensed. 
 “Interest Rate” shall mean the rate of interest set forth in the Note. 
 “Land” or “Property” means that certain real property more particularly described in each Deed of Trust with respect to each and every real property and all improvements
located or to be constructed thereon located in each and every County for each Qualified Project to be financed by a Loan to be made hereunder. For purposes of this Agreement, all such properties shall be referred to individually and collectively in
the singular. 
 “Letter of Credit” shall mean any letter of credit to be issued by Lender under
the Letter of Credit Line. 
 “Letter of Credit Advance” shall mean each and every Advance of
Loan funds to be made by Lender if there is any draw upon any Letter of Credit issued pursuant to this Agreement. 
 “Letter of Credit Fee” means that certain fee due and payable by Borrower on each Letter of Credit issued hereunder, which fee shall be calculated at the rate of one percent
(1.00%) per annum on the face amount of the Letter of Credit, and said fee shall be payable as a condition to the issuance of each Letter of Credit and on each twelve-month anniversary of the issuance date of said Letter of Credit, if said
Letter of Credit is to be extended beyond a twelve-month term. 
 “Letter of Credit Request”
means each and every written request by Borrower for the issuance of a Letter of Credit hereunder, which request shall include the fully-executed application and/or amendment documents in the forms attached hereto as Exhibit “B”.

 “Letter of Credit Line” shall mean that certain line of credit to be provided under the Loan
for the purposes set forth in Section 2.3 of this Agreement, which line of credit shall not exceed at any time the sum of Two Million Dollars ($2,000,000.00) (“LOC Total Commitment Amount”). The Letter of Credit Line shall be a
revolving line of credit. Prior to the Maturity Date, the Letter of Credit Line may be drawn, repaid and drawn again through individual Advances in repetition, subject to the limitations herein, so long as: 

(1) The sum of (a) the amounts outstanding on the Letter of Credit Line, and (b) the cumulative Letter of
Credit Line amounts that are committed but not yet advanced on the Letter of Credit Line, never exceed the LOC Total Commitment Amount; and 
 (2) The sum of (a) the amounts outstanding on the Loan, and (b) the cumulative Loan amounts that are committed but not yet advanced on the Loan, never exceed the Commitment Amount; and

 (3) No Event of Default has occurred and is continuing. 

  
 9 

 Upon the Maturity Date, if the Loan is not renewed as provided herein, all amounts
outstanding on the Letter of Credit Line shall be repaid during the Reduction Period as set forth herein. 

“LOC Maximum Commitment Amount” shall mean the amount committed under each Letter of Credit, which sum
shall not exceed the sum equal to (a) the lesser of (i) Two Million Dollars ($2,000,000.00) or (ii) ten percent (10%) of the then applicable Commitment Amount, less (b) any outstanding committed portion of the
Letter of Credit Line that Borrower has requested and Lender has approved in its discretion be available for disbursement under the Loan. 
 “LOC Total Commitment Amount” shall mean the sum of all amounts committed under any Letters of Credit issued hereunder plus all Letter of Credit Advances in the aggregate, which sum shall
not exceed Two Million Dollars ($2,000,000.00). 
 “Lien or Encumbrance” and “Liens and
Encumbrances” mean, respectively, each and all of the following: (i) any lease or other right to use; (ii) any assignment as security, conditional sale, grant in trust, lien, mortgage, pledge, security interest, title retention
arrangement, other encumbrance (voluntary or involuntary), stop notice, or other interest or right securing the payment of money or the performance of any other liability or obligation, whether voluntarily or involuntarily created and whether
arising by agreement or under any law, ordinance, regulation, or rule (federal, state, or local); and (iii) any option, right of first refusal, or other right to purchase. 

“Liquidity” shall mean the amount of any Person’s unencumbered cash, marketable securities
(including without limitation stocks and bonds), undrawn availability under lines of credit and unencumbered cash equivalents, as determined in accordance with GAAP. 

“Loan Balance” means an amount, at any point in time, equal to (a) the sum of all outstanding
Advances disbursed under the Loan, after giving effect to any borrowings and prepayments or repayments of Advances occurring prior thereto, plus (b) with respect to all outstanding Letters of Credit issued hereunder, the aggregate
amount of all said Letters of Credit and all unreimbursed Letter of Credit Advances. 
 “Loan”
means the revolving line of credit from Lender to Borrower described in this Agreement, which Loan shall include all the aggregate of all Project Loans made and all Letters of Credit issued hereunder. 

“Loan Allocation” shall mean: 

(a) With respect to each Lot to be constructed in a Qualified Project, the lesser of: 

(1) the pro rata sum of the costs to be advanced by Lender as shown in the A&D Budget delivered to Lender
with respect to such Lot; or 
 (2) the Maximum Allowed Advance for said Lot. 

(b) With respect to each Home to be constructed in a Qualified Project, the lesser of: 

(1) the sum of the costs to be advanced by Lender as shown in the Home Construction Budget delivered to Lender
with respect to such Home; or 
 (2) the Maximum Allowed Advance for said Home. 

“Loan Documents” means this Agreement, the Note, the Deeds of Trust, the Environmental Indemnities and
other Security Documents, and all other guaranties, agreements, documents, or instruments signed by Borrower and evidencing, guarantying, securing or containing agreements with respect to any 

  
 10 

 
and all Advances made hereunder, as such agreements, documents, and instruments may be amended, modified, extended, renewed, or supplemented from time to time. 

“Loan Payment Date” means the first day of each Calendar Month after the Closing Date provided, however,
that at Lender’s option, the First Payment Date may be the first day of the second calendar month after the Closing Date. 
 “Loan Term” means the period commencing with the Closing Date and ending on the applicable Maturity Date. 

“Lot Advance Maturity Date(s)” shall mean the term in which a Lot may remain in the Borrowing Base for
the purposes of calculating the Borrowing Availability: 
 (a) With respect to Developed Lots, twenty-four
(24) Calendar Months after the initial entry of such Developed Lots into the Borrowing Base (less any time that has elapsed from the entry of said Lots into the Borrowing Base as either Lots Under Development to the date of entry into the
Borrowing Base as Developed Lots); or 
 (b) With respect to Lots Under Development, twelve
(12) Calendar Months after the initial entry of such Lots Under Development into the Borrowing Base. 
 Provided, however,
that in no event shall a Lot remain in the Borrowing Base beyond the Maturity Date. 
 “Lot Concentration
Limitation” shall have the meaning given to such term in the Maximum Aggregate Loan 
 Allocation(s). 

“Lots” means, with respect to each Qualified Project to be financed hereunder, one (1) or more than
one (1) of the lots into which the subject Property is to be or has been divided, as set forth on the Final Map. 
 “Lots Under Development” means a portion of the Land for which Borrower has satisfied the conditions set forth in Section 4.3. 

“Material Adverse Change” means any change in the assets, business, financial condition, operations, or
results of operations of Borrower or any Project or any other event or condition that in the reasonable opinion of Lender (i) is reasonably likely to affect in a material adverse respect the likelihood of performance by Borrower of any of the
obligations in the Loan Documents, (ii) is reasonably likely to affect in a material adverse respect the ability of any Borrower to perform any of the Obligations in any of the Loan Documents, (iii) is reasonably likely to affect in a
material adverse respect the legality, validity, or binding nature of any of the Obligations in the Loan Documents or any lien, security interest, or other encumbrance securing any of the Obligations under the Loan Documents, or (iv) could
affect the priority of any lien or encumbrance securing any of the Obligations in the Loan Documents. 

“Maturity Date” means (a) the final maturity date — i.e., April 19, 2015, subject
to extension of the maturity of the Loan during the Reduction Period as set forth in Section 2.1.7(a) below, or (b) such earlier date upon the acceleration of the repayment of the Loan as provided in the Loan Documents after the occurrence
of the Event of Default. 
 “Maximum Allowed Advance” shall have the following meanings:

  

	 	•	 	 Lots Under Development: The sum of all Advances and Reserved Allocations committed but not disbursed for said Lots shall not exceed the lesser
of (i) fifty percent (50%) of Total Project Costs, or (ii) fifty percent (50%) of the Bulk Finished Lot Value for said Lots, subject to Lender’s approval. 

  
 11 

	 	•	 	 Developed Lots: The sum of all Advances and Reserved Allocations committed but not disbursed for said Lots shall not exceed the lesser of
(i) fifty percent (50%) of Total Project Costs, or (ii) fifty percent (50%) of the Bulk Finished Lot Value for said Lots, subject to Lender’s approval. 

 

	 	•	 	 Spec Homes: The sum of all Advances and Reserved Allocations committed but not disbursed for said Homes shall not exceed the lesser of
(i) seventy percent (70%) of Total Project Costs, or (ii) sixty-five percent (65%) of the Base Appraisal for said Homes, subject to Lender’s approval. 

 

	 	•	 	 Presold Homes: The sum of all Advances and Reserved Allocations committed but not disbursed for said Homes shall not exceed the lesser of
(i) seventy-five percent (75%) of Total Project Costs, or (ii) seventy percent (70%) of the Base Appraisal for said Homes, subject to Lender’s approval. 

 

	 	•	 	 Model Homes: The sum of all Advances and Reserved Allocations committed but not disbursed for said Homes shall not exceed the lesser of
(i) seventy-five percent (75%) of Total Project Costs, or (ii) seventy-five percent (75%) of the Base Appraisal for said Homes, subject to Lender’s approval. 

“Maximum Aggregate Loan Allocation(s)” shall mean each and every one of the following: 

(a) All Qualified Projects included in the Borrowing Base must be located in the State of California
(“Geographic Concentration Limitation”). 
 (b) With respect to all Lots to be included
in the Borrowing Base, (“Lot Concentration Limitation”): 
 (1) For all Qualified
Projects financed hereunder, the aggregate Loan Allocations for all Lots Under Development and Developed Lots for all said Qualified Projects (whether Advances have been made and/or have been committed but have not yet advanced) shall not exceed
twenty-five percent (40%) of the Commitment Amount (i.e., $8,000,000.00 in the aggregate); and/or 

(2) For each and every Qualified Project financed hereunder, the total number of Lots Under Development and
Developed Lots shall not exceed the lesser of: (A) twenty-four (24) months’ appraised absorption per Qualified Project; or (B) twenty-four (24) months’ actual absorption per Project, as determined by Lender from time to
time based upon the actual prior three-month Home sales average for said Qualified Project. 
 (c) With
respect to all Spec Homes to be included in the Borrowing Base (“Spec Home Concentration Limitation”): 
 (1) For all Qualified Projects financed hereunder, the aggregate Loan Allocations for all Spec Homes for all said Projects (whether Advances have been made and/or have been committed but have not
yet advanced) shall not exceed thirty percent (30%) of the Commitment Amount; and/or 
 (2) For each
and every Qualified Project financed hereunder, the total number of Spec Homes shall not exceed the lesser of: (A) twelve (12) Spec Homes for the subject Project; (B) four (4) months’ appraised absorption for the subject
Project; or (C) four (4) months’ actual absorption for the subject Project, as determined by Lender from time to time based upon the actual prior three-month Home sales average for said Qualified Project. 

  
 12 

 (d) With respect to the total number of all Homes to be included in
the Borrowing Base, (“Home Concentration Limitation”): 
 (1) For each and every
Qualified Project financed hereunder, the total number of Homes shall not exceed the lesser of: (A) nine (9) months’ appraised absorption per Project; or (B) nine (9) months’ actual absorption per Project, as determined
by Lender from time to time based upon the actual prior three-month Home sales average for said Project. 

“Model Extension Conditions” shall mean (a) at the time the applicable notice of such extension is
given to Lender and at the time of such extension, no Event of Default, or no Unmatured Event of Default, shall have occurred and be continuing; and (b) there shall have been no Material Adverse Change in the financial condition of Borrower
since the Initial Closing Date. 
 “Model Home” shall mean, with respect to each Qualified
Project to be financed hereunder, a Home constructed and furnished initially for inspection by prospective purchasers, which Model Home will not be sold until all of the other Homes of its respective plan type in said Project are sold, and which
otherwise shall remain as collateral for the Loan until the Loan is paid in full. If permitted by Lender in its sole discretion for any Project, a Model Home may be sold and leased back to Borrower pursuant to a lease that is assigned to Lender and
that is acceptable in form and content to Lender and, in such event, said Model Home shall remain as a model for said Project to be used for the marketing of the Project until all Homes in the Project of the same plan type as said Model Home have
been sold. 
 “Net Sales Proceeds” means, for any sale of any portion of the Qualified Project,
the gross sales price, less to the extent paid by or charged to Borrower: (a) customary tax prorations; (b) customary real estate brokerage commissions payable to any Person who is neither (i) an Affiliate of Borrower or employed by
Borrower, nor (ii) engaged in on-site sales at said Project; and (c) reasonable and customary closing costs, including escrow fees, title insurance premiums, prorations, and recording costs as reflected on the settlement statement and
reasonably approved by Lender. 
 “Net Income” means, for any period, without duplication, the
net income (or loss) of Borrower determined in accordance with GAAP; provided, however, for purposes of determining compliance with the covenants set forth in Section 6.15 below, Net Income may not be zero dollars $0.00 or less. 

“Net Worth” shall mean the amount by which a Person’s Total Assets exceeds Total Liabilities less,
to the extent included in Total Assets, the sum of: 
 (a) the total book value of all assets of a Person
and its subsidiaries properly classified as intangible assets under GAAP, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and rights with respect to the foregoing; plus 
 (b) all amounts representing any write-up in the book value of any assets of a Person and its subsidiaries resulting from a revaluation thereof subsequent to said Person’s balance sheet date;

 (c) Intangible Assets. 

“Non-Related Party” shall mean a person or entity that is not an Affiliate of Borrower, nor an officer
of, or parent or subsidiary corporation of a shareholder of Borrower, or any person or entity otherwise controlled directly or indirectly by Borrower or Borrower’s shareholders, or a parent or subsidiary corporation or partnership of Borrower
or its shareholders. 

  
 13 

 “Note” means that certain Amended and Restated Construction
Loan Promissory Note (Construction Revolving Line of Credit) of even date herewith, executed by Borrower and payable to Lender, evidencing Borrower’s indebtedness hereunder. 

“Obligations” means the obligations of Borrower under the Loan Documents. 

“Organizational Documents” shall include Borrower’s articles of incorporation and by-laws and any
amendments thereto, and any certificates required to be filed by said corporation with any Governmental Authority. 
 “Permitted Exceptions” means (i) all items shown in Schedule B Part 1 of the Title Policy; (ii) Liens and Encumbrances granted to Lender to secure the Obligations; and
(iii) other permitted exceptions pursuant to the Deed of Trust. 
 “Permitted Expenses”
shall mean all expenses to be paid or reimbursed for the purposes set forth in Section 2.4.2 that are budgeted by Borrower in any and all Budgets for Project Loans and are budgeted in Borrower’s annual business plan submitted to Lender and
that are approved by Lender in its reasonable discretion. 
 “Person” means a natural person, a
partnership, a joint venture, an unincorporated association, a limited liability company, a corporation, a trust, any other legal entity, or any Governmental Authority. 

“Plans and Specifications” means, with respect to any Qualified Project financed by a Loan to be made
hereunder, the plans and specifications for the construction of the A&D Improvements and/or the Homes, as applicable, that have been approved by Lender pursuant to this Agreement. 

“Presold Home” shall mean a Home that is subject to: 

(a) A duly executed Purchase Contract, escrow instructions or deposit receipt without contingencies (other than the
sale of an existing residency contingency); 
 (b) A prequalification letter or mortgage commitment from
an institutional mortgage lender or such other information or verification as Lender may require concerning the ability of the prospective buyer to obtain financing or otherwise acquire the Home; and 

(c) A cash earnest money deposit or down payment of at least Five Thousand Dollars ($5,000.00) (which deposit
requirement shall be increased to twenty percent (20%) of the purchase price for said Home if the prospective buyer failed to satisfy the requirement in subsection (b) above, unless said buyer demonstrates availability of funds for an
all-cash purchase offer, in which case the deposit shall not be required to be increased to twenty percent (20%) of the purchase price). 
 “Project” means the Land and the Improvements to be constructed for the development and marketing of a residential subdivision, each of which project shall be acquired, developed and
constructed with the proceeds of a Loan to be made hereunder as approved by Lender. No Advances for any Project shall be approved and made unless and until a Tentative Map or Final Map has been recorded for the subject Property. In any event, no
Advance shall be made for any Homes to be constructed in a Project unless and until a Final Map has been recorded for the subject Project. For purposes of this Agreement, all such projects shall be referred to individually and collectively in the
singular. In the event a Qualified Project is entered into the Borrowing Base prior to the recordation of the Final Map for the applicable Project, Lender shall require, among other things, that an ALTA survey must be delivered to Lender for review
and approval and/or Title Company shall agree in writing to issue the required Title Policy with all requested survey endorsements. 

  
 14 

 “Project Advance” means an advance of Loan proceeds by
Lender to Borrower hereunder for the payment or reimbursement of any Permitted Expenses for Qualified Projects, which advance shall not be a Letter of Credit Advance. 

“Project Loan” shall mean, for each Qualified Project to be included in the Borrowing Base, the aggregate
of all Loan Allocations for all Lots and/or Homes to be included in the Borrowing Base for said Qualified Project. For purposes of this Agreement, all such loans shall be referred to individually and collectively in the singular. 

“Project Loan Request” means each and every written request by Borrower for the inclusion of a Qualified
Project into the Borrowing Base. 
 “Project Revenues” means all lease or rent payments,
profits, proceeds, revenues and receipts received by Borrower or on its behalf in connection with or arising out of the Qualified Projects. 
 “Property” or “Land” means that certain real property more particularly described in each Deed of Trust with respect to each and every real property and all improvements
located or to be constructed thereon located in each and every County for each Qualified Project to be financed by a Loan to be made hereunder. For purposes of this Agreement, all such properties shall be referred to individually and collectively in
the singular. 
 “Purchase Contract” means: 

(a) For the sale of any Lot or Lots, a bona fide written agreement between Borrower and a Non-Related Party
(provided that an Affiliate of Borrower may be a purchaser) for sale in the ordinary course of Borrower’s business, accompanied by a cash earnest money deposit or down payment in an amount that is customary and is not subject to any
contingencies (including without limitation “free look” or other similar contingencies related to the sale of other property of the purchaser, but excluding conditions precedent to the closing of any such sale to a Non-Related
Party); and/or 
 (b) For the sale of any Home or Homes, a bona fide, arm’s-length written
agreement entered into between Borrower and a Non-Related Party for the sale in the ordinary course of Borrower’s business of any Home for a sales price at least equal to the Maximum Allowed Advance. The Sales Agreement shall be conforming to
any and all rules or regulations promulgated by any federal, state or local governmental entity with jurisdiction over the subject Project. A Sales Agreement shall be considered “without contingencies” if the buyer’s obligation
to purchase is not contingent upon the sale of the buyer’s existing residence and provided there are no other contingencies to the buyer’s obligation to purchase the Home other than financing, title and inspection contingencies which are
normally included in Sales Agreements for newly constructed residences in the Project. 
 “Qualified
Project” means any Project that satisfies the following conditions: 
 (a) Lender has received a
Project Loan Request executed by Borrower; 
 (b) Borrower has satisfied all of the terms and conditions
set forth in Section 2.1.4 prior to entry of the Project into the Loan; 
 (c) Lender has received a
fully executed Deed of Trust for the Property included in the Project, which Deed of Trust shall be recorded in the County in which said Property is located; 
 (d) Lender has received a fully executed Environmental Indemnity for the Property included in the Project, and has received fully executed Construction Assignments for the Project; 

  
 15 

 (e) Upon recordation of said Deed of Trust, Lender shall have
received a Title Policy issued by the Title Company; and 
 (f) Lender shall have received, reviewed and
approved any and all Project information required by Lender hereunder. 
 “Reduced Commitment
Amount” shall mean the mandatory reductions in the Commitment Amount during the Reduction Period, as set forth above in the definition of Commitment Amount. 

“Reduction Period” shall mean, as set forth in Section 2.1.7 below, that twelve (12) month
period during which all existing Qualified Projects entered into the Borrowing Base as of the Initial Line Maturity Date shall remain in the Borrowing Base and during which Lender’s obligation to include any new Qualified Projects into the
Borrowing Base shall terminate. 
 “Release Price” means, for all Lots and Homes to be sold and
released and hereunder, the greater of (i) one hundred percent (100%) of the Net Sales Proceeds for said Lot or Home, or (ii) the Maximum Allowed Advance for said Lot or Home. 

“Required Principal Payment” means (a) in connection with each Release Price paid to Lender in
connection with the sale of a Lot or Home, the Release Note Payment Amount to be applied to the outstanding Loan Balance, and (b) that certain quarterly principal payment to be made during the Reduction Period in order to reduce the outstanding
Loan Balance to an amount not greater than the then-applicable Reduced Commitment Amount. 

“Requirements” means any and all obligations, other terms and conditions, requirements, and restrictions
in effect now or in the future by which Borrower or any or all of the Project is bound or which are otherwise applicable to any or all of the Project, construction of any improvements thereon, or occupancy, ownership, or use of the Project
(including, without limitation, such obligations, other terms and conditions, restrictions, and requirements imposed by: (i) any law, ordinance, regulation, or rule (federal, state, or local); (ii) any Approvals and Permits; (iii) any
Permitted Exceptions; (iv) any condition, covenant, restriction, easement, right of way, or reservation applicable to the Land; (v) insurance policies; (vi) any other agreement, document, or instrument to which Borrower is a party or
by which Borrower or any or all of the Project or the business or operations of Borrower is bound; or (vii) any judgment, order, or decree of any arbitrator, other private adjudicator, or Governmental Authority to which Borrower is party or by
which Borrower or any of the Project is bound). 
 “Reserved Allocation” shall mean, for each
Lot and Home included in the Borrowing Base, the difference at any time and from time to time between (i) the Loan Allocation for said Lot or Home less (ii) the principal amount with respect to such Lot and Home
previously included in an Advance for the construction of Improvements on such Lot and Home. 
 “Sale
Deposits” shall have the meaning given to such term in Section 2.1.6 below. 
 “Security
Documents” means the Deeds of Trust, the Construction Assignments, the Financing Statements, and such other assignments and security interests as may be required or granted pursuant to the terms of the Loan Documents. 

“Spec Home” means any Home in a Qualified Project that is not a Presold Home or Model Home. 

“Spec Home Concentration Limitation” shall have the meaning given to such term in the Maximum Aggregate
Loan Allocation(s). 
 “Soft Costs” means, for each Qualified Project to be financed hereunder,
the fees and costs that are not directly related to the onsite construction of the A&D Improvements or Homes for said Project, as applicable, which fees and costs shall include any Loan fees, plus any other costs, fees or expenses

  
 16 

 
approved by Lender, including without limitation interest, inspection fees, escrow and title fees, processing and closing fees, wiring fees, legal fees, appraisals and all closing costs,
insurance costs, and costs of direct project supervision, and also including without duplication costs to be funded from general budget categories for overhead, supervision, general and administrative, and marketing expenses, provided that the
foregoing in the aggregate shall not exceed the amount of the Soft Costs set forth in the A&D Budget or Home Construction Budget, as applicable. 
 “Subsequent Closing Date” shall mean the date on which each Deed of Trust for a Future Project is recorded and a Qualified Project is entered into the Borrowing Base. 

“Taking” means the taking of any or all of the Project, any interest therein, or any right thereto for
public or quasi public use by the power of eminentVII/TPC Holdings, L.L.C., a Delaware limited liability company domain, by condemnation (including, without limitation inverse condemnation), or any event in lieu thereof and any damage to the Project
as the result of any taking of any other part of the Project or any property in the vicinity of the Project. 

“Tangible Net Worth” shall mean a Person’s Net Worth less Intangible Assets. 

“Tentative Map” shall mean the tentative tract map for the Property for each Qualified Project to be
financed by a Loan to be made hereunder, which map shall be in form and content acceptable to Lender in its discretion and shall not be subject to any conditions that, in Lender’s reasonable judgment, cannot be reasonably satisfied by Borrower.

 “Title Company” means a title company selected by Borrower and reasonably acceptable to
Lender. 
 “Title Policy” means the title insurance policies to be provided by Borrower under
Section 4.1.11. 
 “Total Assets” shall mean all assets of a Person determined in
accordance with GAAP. All real estate assets held for development or sale shall be valued on an undepreciated cost basis. The assets of a Person on the financial statements of a Person shall be adjusted to reflect such Person’s allocable share
of such asset, for the relevant period or as of the date of determination, taking into account (a) the relative proportion of each such item derived from assets directly owned by such Person, and (b) such Person’s respective ownership
interest in its subsidiaries. 
 “Total Project Costs” shall mean: 

(a) For all A&D Improvements to be financed hereunder, the sum of the land costs and the total Hard Costs and
Soft Costs for the A&D Improvements pursuant to the applicable A&D Budgets; and 
 (b) For all
Homes to be financed hereunder, the sum of the Hard Costs and Soft Costs for the Homes pursuant to the applicable Home Construction Budgets. 
 “Total Liabilities” shall be defined in accordance with GAAP and shall include all payable and accruals (but shall exclude liabilities related to inventory not owned). 

“Total Liabilities-to-Tangible Net Worth Ratio” means, with respect to each Person, the ratio of such
Person’s (a) Total Liabilities to (b) Tangible Net Worth. 
 “Unmatured Event of
Default” means any condition or event that with notice, passage of time, or both would, if not cured within the time periods (if any) permitted pursuant to the Loan Documents, be an Event of Default. 

  
 17 

 “Unused Fee” shall mean that certain fee in the amount of
two-tenths of one percent (0.20%) per annum multiplied by the amount equal to the difference between the Commitment Amount and the Average Quarterly Outstanding Loan Balance of the Loan that Borrower shall pay to Lender, if the “Average
Quarterly Outstanding Loan Balance” (as defined below) of the Loan falls below fifty percent (50%) of the Commitment Amount. The Unused Fee shall be calculated commencing on April 19, 2012 and continuing on a quarterly basis and
due and payable quarterly in arrears (i) within ten (10) days following the last day of each June, September, December and March, (ii) on the Maturity Date, and (iii) on the date the Loan Commitment has been terminated. As used
herein “Average Quarterly Outstanding Loan Balance” shall mean, for each Calendar Quarter (or portion thereof), the outstanding Loan Balance during such Calendar Quarter (or portion thereof) divided by the number of days in that
quarter (or portion thereof). If the Unused Fee is being computed for less than a full quarter, the percentages used above will be computed on a daily basis for the number of days for which such fee is being computed. 

 

	 	1.2	General Provisions. 

 (a) Singular and Plural Terms. Any defined term used in the plural in any Loan Document shall refer to all members of the relevant class and any defined term used in the singular shall refer
to any number of the members of the relevant class. 
 (b) Accounting Principles. Any accounting
term used and not specifically defined in any Loan Document shall be construed in conformity with, and all financial data required to be submitted under any Loan Document shall be prepared in conformity with, generally accepted accounting principles
applied on a consistent basis. 
 (c) Exhibits Incorporated. All exhibits to this Agreement, as now
existing and as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. 
 (d) References. Any reference to any Loan Document or other document shall include such document both as originally executed and as it may from time to time be supplemented, modified or
amended. References herein to Articles, Sections and Exhibits shall be construed as references to this Agreement unless a different document is named. References to subparagraphs shall be construed as references to the same section in which the
reference appears unless a different section is named. 
 (e) Other Terms. The term
“document” is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. The terms “including” and “include” mean “including
(include) without limitation.” The term “or” is not exclusive. The requirement that any party “deliver” any item to another party shall be construed to require that the first party “deliver or cause to be
delivered” such item to the second party. The term “any,” as a modifier to any noun, shall be construed to mean “any or all” preceding the same noun in the plural. The term “agreement” includes both written and
oral agreements. The terms “law” and “laws,” unless otherwise modified, mean, collectively, all federal, state and local laws, rules, regulations, codes and administrative and judicial precedents. The terms “herein,”
“hereunder” and other similar compounds of the word “here” refer to the entire document in which the term appears and not to any particular provision or section of the document. The use of the pronoun “its” shall be
deemed to also refer to “his,” “hers,” “its,” or “theirs.” This Section 1.2 shall apply to all of the Loan Documents and the Indemnity. 

(f) Headings. Section and section headings are included in the Loan Documents for convenience of reference
only and are not part of the Loan Documents for any other purpose. 
 (g) Other Documents. In the
event of any conflict between the provisions of this Agreement and those of any other Loan Document, this Agreement shall prevail. 
 (h) Intention. The provisions of this Article 1 shall not apply in any instance where a different meaning, construction or reference is clearly intended. 

  
 18 

 (i) Recitals. Borrower has applied to Lender for the Loan for
the purpose of developing the Qualified Projects. Lender is willing to make such Loan to Borrower on the terms and subject to the conditions contained in this Agreement and the other Loan Documents. 

(j) Amendment and Restatement. This Agreement amends and restates that certain Revolving Line of Credit Loan
Agreement (as the same has been amended from time to time, the “Prior Agreement”) dated as of April 19, 2011, and any inconsistencies between this Agreement and the Prior Agreement shall be controlled by the terms of this
Agreement. 
  

	2.	BORROWING BASE. 

  

	 	2.1	Loan Facility. 

  

	 	2.1.1	Commitment. 

 (a) Amount of Commitment. Subject to the terms and conditions of this Agreement, Lender agrees to make Advances and/or issue Letters of Credit from time to time until the Maturity Date up to
the maximum amount of the Borrowing Availability, provided that the aggregate amount of all Loan Allocations and Letters of Credit outstanding and committed at any time and from time to time, shall not exceed the least of (i) the Commitment
Amount, or (ii) the Borrowing Availability at such time, or (iii) the Maximum Allowed Advances for all Homes and Lots to be entered into the Loan plus the LOC Total Commitment Amount. 

(b) Use of Loan Proceeds. Proceeds of Advances may be used only for the purpose paying and/or reimbursing
Permitted Expenses as described in Section 2.4.2 below. 
 (c) Revolving Line of Credit.
Advances shall be on a revolving basis. Advances repaid may be re-borrowed subject to the terms and the conditions herein. Although the outstanding principal of the Note may be zero from time to time, the Loan Documents shall remain in full force
and effect until the Commitment terminates and all other Obligations are paid and performed in full. 
 (d)
Suspension or Termination of Commitment. Upon the occurrence of an Unmatured Event of Default or an Event of Default and so long as such Unmatured Event of Default or Event of Default continues, Lender in its absolute and sole discretion,
and without notice, may suspend the commitment to make Advances. In addition, upon the occurrence of an Event of Default, Lender in its absolute and sole discretion, and without notice, may terminate the commitment to make Advances. The obligation
of Borrower to repay Advances shall be evidenced by the Note. 
  

	 	2.1.2	Purpose of the Loan. 

 (a) The purpose of this Agreement is to set forth the general terms and conditions for the entry of Qualified Projects into a borrowing base revolving line of credit loan in the total sum of Twenty
Million Dollars ($20,000,000.00), which line of credit is being extended to provide funding for the development and construction of future residential home projects by Borrower. This Agreement (i) shall set forth the basic approval requirements
for said Projects, (ii) shall set forth the basic terms and conditions for the disbursement of Loan funds for said Projects, and (iii) establishes a revolving line of credit under which Advances may be made, repaid and made again, subject
to the aggregate loan limits and time limits set forth herein. 
 (b) The Loan is being made for the
purpose of (i) providing financing for Future Projects, and (ii) providing a Letter of Credit facility for the issuance of Letters of Credit for future residential projects to be owned and developed by Borrower. Each new Qualified Project
submitted for inclusion in the Loan shall be presented to Lender for approval in compliance with the requirements of Section 2.1.4 below. No new Qualified Project will be approved for inclusion in the Borrowing Base after the Initial Line
Maturity Date. 

  
 19 

 (c) For each Qualified Project which is approved for financing
hereunder, (i) a single Deed of Trust shall be executed to secure any and all such credit facilities, and (ii) any and all Project Loans shall be cross-defaulted and cross-collateralized. 

2.1.3 Purpose of the Project Loans. Each Advance made for the Qualified Projects included within the Borrowing Base from
time to time shall be for the purpose of paying for or reimbursing Borrower for certain costs and expenses incurred in connection with the construction of A&D Improvements, Presold, Spec and/or Model Homes thereon and for other costs and
expenses incidental to said Qualified Projects, as more particularly provided in this Agreement. This Loan shall constitute a revolving line of credit. 
 (a) Revolving Line of Credit. During the Loan Term, Advances for Qualified Projects may be drawn, repaid and drawn again through individual Advances in repetition, subject to the limitations
herein, so long as (i) any Advance requested hereunder shall not exceed the Borrowing Availability as of the date said Advance is requested, and (ii) the aggregate Loan Allocations for the Lots and Homes included in the Qualified Projects
shall, never exceed the Maximum Aggregate Loan Allocations, and so long as no Event of Default has occurred and is continuing. 
 (b) Continuation of Revolving Line after Initial Line Maturity Date. After the Initial Line Maturity Date, no new Project will be approved to be a Qualified Project for entry into the
Borrowing Base, but Advances for all Qualified Projects included in the Borrowing Base as of the Initial Line Maturity Date may continue to be drawn to complete all Improvements remaining to be constructed as part of said Qualified Projects, subject
to the limitations herein. 
 (c) Evidence of Loan Advances. Amounts outstanding under the Loan
shall be evidenced by the Note and shall be secured by the Deed of Trust. Loan Advances for each Qualified Project shall be charged and funded under the Note. In the event of any inconsistency between the Note and this Agreement, the provisions of
this Agreement shall prevail. 
 (d) Reduction of Borrowing Availability for Non-Compliance with Maximum
Aggregate Loan Allocations. Notwithstanding any other provision of this Agreement to the contrary, in the event that the aggregate Loan Allocations for the Lots and Homes included in the Qualified Projects exceeds any Maximum Aggregate Loan
Allocation, then the Borrowing Availability shall be reduced in the amount by which said Loan Allocations exceeds any Maximum Aggregate Loan Allocation. 
 2.1.4 Approval of Qualified Projects. Subject to the terms and conditions of this Agreement, Lender agrees to include Qualified Projects into the Borrowing Base, as said Projects are
approved by Lender in its discretion during the Loan Term. Lender shall have no obligation to approve of any Qualified Project unless and until: 
 (a) Tract Map(s). Borrower has provided Lender with an approved Tentative Map or recorded Final Map for said Project to be financed. Provided, however, that notwithstanding any provision of
this Agreement to the contrary, Lender may agree to enter a Qualified Project into the Borrowing Base prior to the recordation of the Final Map, but Lender shall have no obligation to disburse any Loan funds for any Hard Costs for any Home
Improvements to be constructed as part of said Qualified Project unless and until the Final Map for the Qualified Project is recorded with the Official Records of the County. In the event a Qualified Project Loan is entered into the Borrowing Base
prior to the recordation of the Final Map for said Qualified Project, Lender shall require, among other things, that an ALTA survey must be delivered to Lender for review and approval and/or Title Company shall agree in writing to issue the required
Title Policy with all requested survey endorsements. 
 (b) Project Loan Information. Borrower
shall have submitted for Lender’s review and approval in its sole and absolute discretion: 
 (i) An
executed Project Loan Request; and 

  
 20 

 (ii) To the extent said information is available for the A&D
Improvements and/or Home Improvements to be constructed as part of the Qualified Project as of the date of entry into the Borrowing Base — 
 (A) Copies of the Plans and Specifications, Architect’s Agreement, Construction Contract, Engineering Contract, and all other agreements, entitlements, CC&Rs, preliminary title report,
permits, licenses and approvals concerning said Project submitted for approval; 
 (B) All cost breakdowns
for the Improvements to be constructed as part of the Qualified Project as of the date of entry into the Borrowing Base; 
 (C) Project sources and uses of funds, Project economics and feasibility, market data and other similar information concerning said Qualified Project as reasonably requested by Lender; 

(iii) Any and all of the applicable information concerning the Project set forth in Exhibit “C”
attached hereto; and 
 (iv) All other information reasonably requested by Lender. 

(c) Additional Project Requirements. Lender shall have no obligation to enter any Future Project into the
Borrowing Base if (i) there is a continuing Unmatured Event of Default or Event of Default, and/or (ii) if the entry of said Future Project into the Borrowing Base would violate any of the Maximum Aggregate Loan Allocation limitations. In
the event Borrower seeks approval of the entry of a Future Project into the Borrowing Base under terms and conditions different from those approval terms set forth herein, then Lender shall review and approve or disapprove of such Future Project
pursuant to Lender’s underwriting guidelines in effect at the time of such application for approval. 

(d) Existing Projects. The parties hereto acknowledge and agree that all Existing Project shall be and
remain in the Borrower Base, subject to the terms and conditions from forth herein from and after the Amendment Closing Date. In connection with amended and restated this Agreement and certain other of the Loan Documents, Borrower shall deliver the
following fully executed original documents: (i) an Amendment to Deed of Trust of even date herewith relating to the existing Deed of Trust for each Existing Project; (ii) an Amended and Restated Subordination Agreement for the Existing
Project known as “Tamarind”; (iii) a Reaffirmation and Amendment of Subordination Agreement for the Existing Project known as “Candera”; and (iv) such other related documents evidencing, relating to and securing the
obligations hereunder as reasonably required by Lender. 
 2.1.5 Interest Payments. Interest on the unpaid
outstanding principal amount of the Loan shall accrue at the Interest Rate(s) specified in the Note. 
 (a)
Payment. Interest at the Interest Rate shall accrue on the outstanding and unpaid sum of Advances disbursed under the Loan, including without limitation all unreimbursed Letter of Credit Advances, commencing on the date of each such
Advance under the Loan, until repaid. Interest accruing under the Note shall be due and payable on each Loan Payment Date, commencing on the First Payment Date, until repayment in full, together with all other sums owed to Lender pursuant to any
Loan Document. 
 (b) Rate After Default. Upon and after the occurrence of an Event of Default
hereunder or under any of the Loan Documents, at the option of Lender, the outstanding Loan Balance shall bear interest, payable on demand, at a rate per annum equal to the Default Interest Rate. The application of the Default Interest Rate shall
not be interpreted or deemed to extend any cure period set forth in this Agreement or otherwise to limit any of Lender’s remedies under this Agreement or any of the other Loan Documents. 

  
 21 

 (c) Computation of Interest. Interest shall be calculated on a
360-day year for all Advances, but, in any case, shall be computed for the actual number of days in the period for which interest is charged, which period shall consist of 365 days on an annual basis. If any payment of interest under the Note
would otherwise be due on a day which is not a Business Day, the payment instead shall be due on the next succeeding Business Day and such extension of time shall be included in computing the interest due in respect of said payment. 

(d) No Deductions. All payments of principal or interest under the Note shall be made without deduction of
any present and future taxes, levies, deductions, charges or withholding, which amounts shall be paid by Borrower. Borrower will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than
that required by the Note. 
 (e) Order of Application. Any payments received by Lender will be
applied as set forth herein and in the Note. 
 (f) Interest Reserve; Other Amounts. Borrower
hereby authorizes Lender to disburse the proceeds of the Loan to pay interest accrued on the Loan and other expenses set forth in the A&D Budget and the applicable Home Construction Budgets, notwithstanding that Borrower may not have requested a
disbursement of such amount. The authorization hereby granted shall be irrevocable and at Lender’s discretion, and no further direction or authorization from Borrower shall be necessary for Lender to make such disbursements. Nothing contained
herein shall be deemed to obligate Lender to make such disbursements to pay interest beyond the portions of any Project Loan specifically allocated to the payment of interest under an approved Budget. 

(g) Full Recourse; Payments. The Loan shall be full recourse against Borrower. All amounts payable by
Borrower on or with respect to the Loan, or pursuant to the terms of any other Loan Documents, shall be paid in lawful money of the United States of America to Lender at Central Note Department, P.O. Box 518, Lawndale, California
90260–0518, in same day funds, not later than 11:00 a.m. (Pacific time) on the date due. 
  

	 	2.1.6	Principal Payments. 

 (a) Bulk Sale of Lots. In the event that Borrower shall desire to enter into a bulk sale of any Lots (each, a “Bulk Lot Sale”) Borrower shall cause to be delivered through
any sale escrow to Lender any deposits (collectively “Sale Deposits”) to be received by Borrower in connection with any such Bulk Lot Sale for any Lots in a Qualified Project (each, a “Bulk Lot Sale”) pursuant to a
Purchase Contract for such bulk sale. All Sale Deposits shall be applied by Lender upon receipt for the payment of the Obligations as provided in this Agreement. 

(b) Sale and Release of Lots and Homes. Immediately upon the sale and closing of Lots and Homes, Borrower
shall pay to Lender any and all Release Prices payable under Section 3.2 below, which Release Prices shall be applied by Lender to repay sums due and owing under the Note. 

(c) Required Principal Payments During the Reduction Period. During the Reduction Period, commencing with
the first Loan Payment Date occurring on or after the end of the first Calendar Quarter following the Initial Line Maturity Date and continuing at the end of each Calendar Quarter thereafter, Borrower shall make any Required Principal Payment
necessary to reduce the outstanding Loan Balance to a sum not in excess of the then-applicable Reduced Commitment Amount. 
 (d) Voluntary Loan Prepayment. Borrower shall have the right to prepay the Loan, in whole or in part, at any time, without premium or penalty, provided that Borrower must pay, together with
any prepayment, all accrued but unpaid interest upon the principal so prepaid. Prior to the Initial Line Maturity Date, no prepayment of the Loan shall reduce the Commitment Amount, unless Borrower relinquishes in writing its right to obtain an
Advance of all or any of the amount so prepaid; 

  
 22 

 
during the Reduction Period, principal payment(s) may be required as provided herein to reduce the Loan Balance to the applicable Reduced Commitment Amount. 

(e) Payments of Principal and Interest to Balance the Loan. Principal and interest shall be payable in
accordance with the terms of the Note; provided, however, that in addition to payments required pursuant to the terms of the Note, if for any reason at any time the outstanding principal amount of Advances under the Loan exceeds the Available
Commitment, Borrower shall make a payment to Lender in an amount equal to such excess principal amount within the earlier of (a) one (1) Business Day after notice from Lender, (3) five (5) days after delivery of a Borrowing Base
Certificate and/or other financial reports of Borrower reflecting that such a payment is due, and (c) five (5) days after Lender notifies Borrower (which notice may be oral, to be followed promptly by written notice setting forth the
Lender’s calculations) of Lender’s determination of the Borrowing Base and Borrowing Availability pursuant to Section 2.2.3. Any funds paid hereunder shall be applied by Lender to the outstanding Loan Balance. 

 

	 	2.1.7	Loan Term. 

 (a) Upon the Initial Line Maturity Date, Lender and Borrower shall initiate a twelve (12) month period (“Reduction Period”) to reduce the Commitment Amount under the terms and
conditions set forth herein. 
 (b) During the Reduction Period, (i) no new Qualified Projects shall
be entered into the Borrowing Base, and (ii) Advances under existing Project Loans shall continue to be made for the construction of Improvements for the subject Projects, subject to the limitations set forth herein. 

 

	 	2.1.8	Terms of Project Advances. 

 (a) Lots entered into the Borrowing Base shall be removed from the Borrowing Base on the applicable Lot Advance Maturity Date. 

(b) Homes entered into the Borrowing Base shall be removed from the Borrowing Base on the applicable Home Advance
Maturity Date; provided, however, that the Home Advance Maturity Date for Model Homes in a Project may be extended for a six-month period if Borrower has satisfied the Model Extension Conditions. 

 

	 	2.2	Available Commitment; Borrowing Base. 

 2.2.1 Available Commitment. The Available Commitment shall be determined in accordance with this Section 2.2 and shall be the lesser of (a) the applicable Commitment Amount or
Reduced Commitment Amount, as in effect from time to time, or (b) the Borrowing Base. 
 (i) The
Available Commitment for all Qualified Projects shall be the difference between the amount set forth in 2.2.1 above less the amounts of all Letters of Credit issued under Section 2.3 below. 

(ii) The Available Commitment for all Letters of Credit to be issued hereunder shall be no greater than the LOC
Total Commitment Amount of Two Million Dollars ($2,000,000.00). 
 2.2.2 Amount of Borrowing Base and Borrowing
Availability. Subject to the provisions of Section 2.2.3 below, the Borrowing Base and Borrowing Availability shall be determined by Lender based on each Borrowing Base Certificate delivered pursuant to Section 6.4.6. 

  
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	 	2.2.3	Determination of Borrowing Availability. 

 (a) General Determination. The Borrowing Availability shall be determined by Lender based upon: 
 (i) Each Borrowing Base Certificate most recently submitted by Borrower from time to time (adjusted as determined by Lender from time to time to reflect portions of the Project sold, property
released from the Deed of Trust, and other adjustments and limitations pursuant to this Agreement); 
 (ii)
Lender’s inspections made pursuant to Sections 4.3.4 and 6.10 (as such inspections may result in any adjustment to reflect any variance between (A) the Borrowing Base Certificate and (B) the result of such inspections or
other information available to Lender); and 
 (iii) Such other information as Lender may reasonably
require in order to verify such amounts. 
 Each Borrowing Base Certificate shall accurately reflect the valuation of the
Property included in the Borrowing Base as of the last day of the Calendar Month immediately preceding the Calendar Month in which such certificate is due, shall accurately recite the amounts of the Letters of Credit issued to date, and shall
accurately calculate the Borrowing Availability as of the date of said certificate. Without limiting the foregoing, each Borrowing Base Certificate shall exclude the Loan Allocations for any and all Lots and Homes that have been released from the
Deed of Trust, and each Borrowing Base Certificate shall reflect any reductions in the Loan Balance. 
 (b)
Right to Exclude/Adjust. Lender, in its discretion, may exclude Lots or Homes from the Borrowing Base, adjust the Appraised Value of Lots or Homes, and/or adjust the applicable classification of property included in the Borrowing Base if:

 (i) A portion of the Project is subject to unrepaired material damage or destruction which Borrower
has not undertaken to repair; 
 (ii) [intentionally omitted]; 

(iii) Lender determines, based on the information provided by Borrower pursuant to Section 6.4, that
reclassification of property included in the Borrowing Base is appropriate due to loss or change of zoning or other Approvals and Permits, Borrower’s failure to satisfy applicable conditions for inclusion in the designated classification, or
the occurrence of a Material Adverse Change; 
 (iv) Lender determines that Spec Homes are to be removed
from the Borrowing Base under Section 2.2.3(d) in order to remargin the Loan (provided, however, that Lender shall only be permitted to make such determination in the event that Borrower has failed to comply with the provisions of
Section 2.2.3(d)(i) to remargin the Loan). 
 The exclusion of any Property from the Borrowing Base shall not require Lender
to release such property from the Deed of Trust, and Lender shall be obligated to release Collateral only pursuant to the provisions of Section 3.2. Lender shall notify Borrower of any exclusion or adjustment in the Borrowing Base in writing
with the Lender’s calculations. 
 (c) Specific Limitations. Lender has no commitment to
Advance Loan funds for any Project that would violate: 
 (i) Any applicable Maximum Aggregate Loan
Allocation(s), including without limitation (1) the Geographic Concentration Limitations, (2) the Lot Concentration Limitation to fund the development of Lots Under Development and/or Developed Lots, (3) the Spec Home

  
 24 

 
Concentration Limitation for Spec Homes constructed hereunder, and/or (4) the Home Concentration Limitation for all Homes constructed hereunder; 

(ii) The Loan Allocations applicable to the Lots and Homes to be financed hereunder; and/or 

(iii) The Borrowing Availability. 
 (d) Loan Remargining Due to Conversion of Homes. 

(i) In the event any Home ceases to constitute a Presold Home for any reason, then such Home shall automatically
become a Spec Home for purposes of the limitation upon the number of Spec Homes set forth herein and for purposes of calculating the Maximum Allowed Advance and/or the Home Maturity Date for such Home. After the conversion of any Presold Home to a
Spec Home, (A) if the Spec Home limitations set forth in Section 4.5 below have been violated, then Lender shall have no obligation to make any Advances for any new Spec Homes to be included in the Borrowing Base and Borrower shall remove
Spec Homes from the Borrowing Base so as to be in compliance with said Spec Home limitations, and (B) if the aggregate sum of the Advances and the Reserved Allocation for the Spec Homes in the Borrowing Base exceeds the Maximum Allowed Advances
for said Spec Homes, then the Borrowing Availability shall be reduced by such excess amount or, if the Borrowing Availability has a negative balance, Borrower shall make any payment required under Section 2.4.5 below. 

(ii) In the event a Spec Home or Model Home satisfies the requirements to become a Presold Home, then such Home
shall automatically become a Presold Home for purposes of the limitation upon the number of Spec Homes set forth herein and for purposes of calculating the Maximum Allowed Advance and/or the Home Maturity Date for such Home. 

(e) Failure to Deliver Borrowing Base Certificate. If Borrower fails to deliver a Borrowing Base Certificate
as and when required, then in addition to Lender’s other rights and remedies, Lender may determine the amount of the Borrowing Base based upon information available to Lender and such determination by Lender shall be final and conclusive,
absent manifest error. 
 2.3 Letter of Credit Advances. Borrower shall be entitled to receive Letter of Credit
Advances upon Borrower’s compliance with the terms, conditions and procedures set forth in this Section 2.3. 

2.3.1 Issuance of Letter of Credit. Subject to the terms and conditions of this Agreement and the Letter of Credit Request,
and subject to the policies, procedures, and requirements of Lender in effect from time to time for the issuance of any letter of credit (including without limitation payment of the Letter of Credit Fee), Lender agrees to issue on or before the
Maturity Date a Letter of Credit upon request by and for the account of the Borrower, provided that Borrower has delivered to Lender: 
 (a) A completed and executed Letter of Credit Request, together with the required application and/or amendment documents in the forms attached hereto as Exhibit “B”, and

 (b) Payment of the required Letter of Credit Fee; 
 and provided further that (i) the Letter of Credit shall not be required to be issued for a term of more than twelve (12) Calendar Months (but in no event later than the applicable Maturity
Date), (ii) the Letter of Credit shall not be required to be issued for an amount in excess of the LOC Maximum Commitment Amount, (iii) the amount of the Letter of Credit, together with any and all existing Letters of Credit previously
issued hereunder, shall not in the aggregate exceed the LOC Total Commitment Amount, and (iv) in any event, the date that is the last date for payment of a draft drawn or drawn and accepted under the Letter of Credit shall be before the
Maturity Date. 
 2.3.2 Issuance Procedure. To obtain a Letter of Credit, Borrower shall complete, execute and
deliver to Lender a Letter of Credit Request, along with the required application and/or amendment documents in 

  
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the forms attached hereto as Exhibit “B”. Upon receipt of a completed and executed Letter of Credit Request and such other documents as required herein, Lender will process the
application in accordance with the policies, procedures, and requirements of Lender then in effect (including without limitation the policies, procedures and requirements applicable to the form of the Letter of Credit). If the application meets the
requirements of Lender and is within the policies of Lender then in effect, Lender will issue the requested Letter of Credit. 

2.3.3 Purpose of Letter of Credit; General Letter of Credit Terms and Conditions. 

2.3.3.1 The Letter of Credit shall be issued to provide a good faith deposit in connection with any Project,
support for unfunded Project costs or any other purpose approved by Lender in connection with the development and marketing of a Project. Upon occurrence of an Event of Default and so long such Event of Default continues, Lender, in its sole and
absolute discretion and without notice, may refuse to renew or extend the commitment to issue the Letter of Credit, and shall exercise any and all remedies provided for in the Loan Documents. 

2.3.3.2 The Letter of Credit shall be drawn under the conditions as set forth in the forms of Letter of Credit
application and/or amendment attached hereto as Exhibit “B”. 
 2.3.4 Reimbursement of Lender for
Payment of Drafts Drawn or Drawn and Accepted Under the Letter of Credit. The obligation of Borrower to reimburse Lender for payment by Lender of Letter of Credit Advances under the Letter of Credit shall be as provided in the Letter of
Credit Request and in this Agreement. Lender will notify Borrower of payment by Lender of a Letter of Credit Advance under the Letter of Credit and of the respective Reimbursement Obligations and will give Borrower two (2) Business Days notice
that the Reimbursement Obligations pursuant to the Letter of Credit Request shall be due on or before the applicable Maturity Date. Borrower shall also pay to Lender interest at the Interest Rate on the Reimbursement Obligations from and including
the date Lender pays the Letter of Credit Advance at the Interest Rate until the Reimbursement Obligations and such interest are paid in full; provided, however, that if Borrower fails to immediately pay the Reimbursement Obligations and accrued
interest thereon after notification by Lender to Borrower of payment of the Letter of Credit Advance, interest thereafter will accrue at the Default Interest Rate. Such interest shall be computed on the basis of a 360-day year and accrue on a daily
basis for the actual number of days elapsed. A Letter of Credit Advance shall be made to re-pay Lender for any funds disbursed in connection with a draft drawn under any Letter of Credit, at which time said advance shall be used to calculate the
Borrowing Availability or, if said advance shall result in the Borrowing Availability having a negative balance, then Borrower shall make any payment required under Section 2.4.5 below. 

2.3.5 Reimbursement Obligations. Borrower’s obligations under Section 2.3 to reimburse Lender with respect to a
drawing under a Letter of Credit (such obligations are collectively referred to as the “Reimbursement Obligations”) are absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or
defense to payment which Borrower may have or have had against Lender or any beneficiary of the Letter of Credit, including any defense based upon the occurrence of any Event of Default, any draft, demand, certificate or other document presented
under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient, the failure of any payment by Lender to conform to the terms of said Letter of Credit (if, in Lender’s good faith opinion, such payment is determined to be
appropriate) or any non-application or misapplication of the Letter of Credit or the proceeds of such payment, or the legality, validity, form, regularity or enforceability of the Letter of Credit; provided, however, that nothing herein will
adversely affect the right of Borrower to commence a proceeding against Lender for any wrongful payment under the Letter of Credit made by Lender as the result of acts or omissions constituting gross negligence or willful misconduct on the part of
Lender. 
 2.3.6 Nature of Reimbursement Obligations. Borrower assumes all risks of the acts, omissions, or misuse
of any Letter of Credit by any Person to whom a Letter of Credit is issued. Lender (except to the extent of its own gross negligence or willful misconduct) will not be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness
or legal effect of the Letter of Credit or any document submitted by any party in connection with the issuance of any Letter of Credit, even if such document should in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof in whole or in part, which may prove to be invalid 

  
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or ineffective for any reason; (c) failure of any Person to comply fully with the conditions required in order to demand payment under the Letter of Credit; (d) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required by or from any Person in order to
make a disbursement under the Letter of Credit or the proceeds thereof. None of the foregoing will affect, impair or prevent the vesting of any of the rights or powers granted to Lender. In furtherance and extension and not in limitation or
derogation of any of the foregoing, any act taken or omitted to be taken by Lender in good faith will be binding on Borrower and will not put Lender under any resulting liability to Borrower. 

2.4 Loan Advances; Project Monitoring. 
 2.4.1 Method for Advances. Subject to the limitations set forth in Section 4.6 below, Advances in a sum not in excess at any time of the Borrowing Availability shall be made by Lender
to the Funding Disbursement Account for the payment or reimbursement of Permitted Expenses at the written request within three (3) Business Days following Lender’s receipt of a completed Draw Request from Borrower (which may be delivered
by telecopy or facsimile) by the Person or Persons designated from time to time on Lender’s form of Authorization Form; provided, however, that Lender shall have acknowledged receipt of any changes in the Person or Persons designated by
Borrower, and such Person or Persons shall have executed a new Authorization Form. Such Person or Persons are hereby authorized by Borrower to request Advances and to direct the transfer of the proceeds of Advances to the Funding Disbursement
Account until written notice of the revocation of such authority is received from Borrower by Lender and Lender has had a reasonable time to act upon such notice. Lender shall have no duty to monitor for Borrower or any other Person or to report to
Borrower or such other Person the use of proceeds of Advances. 
 2.4.2 Use of Advances. All Advances shall be used
to pay or reimburse the Permitted Expenses incurred by Borrower in connection with the development, marketing and operation of the Project and the other normal business activities of Borrower. 

2.4.3 Draw Requests. Concurrently with a Draw Request for any Advance of Loan proceeds (other than Advances that, pursuant
to this Agreement, may be made without a Draw Request), Borrower shall furnish to Lender a Draw Request together with such other forms and Schedules Of values as may from time to time be approved or required by Lender, duly signed and sworn to
by Borrower, with all blanks appropriately filled in. 
 (a) Right of Inspection. Throughout the
course of construction of any Improvements under each Qualified Project on at least a monthly basis during the Loan Term (subject to the qualifications below), Lender shall have the right to employ, at Borrower’s sole cost and expense, an
inspector or inspectors who shall review as agent for Lender all construction activities undertaken in regard to the Project; provided, however, that Lender shall require at least one (1) inspection report satisfactory to Lender and in
compliance with the requirements of this subsection for each two (2) Draw Requests submitted by Borrower, but in no event not less than one (1) such report on a monthly basis. If required by Lender in its discretion, a certificate or
indication from such inspector or inspectors that construction substantially complies with the Plans and Specifications shall be a further condition precedent to Lender’s approval of a Project, or any Lots or Homes included within a Project,
for inclusion within the calculation of the Borrowing Base and the Borrowing Availability. 
 (b) Method of
Advances. The proceeds of each Advance disbursed under this Agreement shall be evidenced by the Note and shall be secured by a Deed of Trust, and all such proceeds shall be disbursed into the Funding Disbursement Account. 

2.4.4 Limitations on Borrower’s Rights to Advances. Borrower shall be entitled to disbursements of Loan proceeds only
in accordance with the terms and conditions of this Agreement (unless waived or modified by Lender); and, in addition, Borrower certifies in connection with any Advances requested hereunder that Loan: 

(a) The representations and warranties of Borrower contained in all of the Loan Documents shall be correct in all
respects on and as of the date of the disbursement as though made on and 

  
 27 

 
as of that date, and no Event of Default shall have occurred and be continuing as of the date of the disbursement; 

(b) The requested Loan proceeds shall be applied by Borrower only to defray costs actually incurred by Borrower in
connection with the payment or reimbursement of Permitted Expenses; and 
 (c) Notwithstanding any
limitations on Advances set forth in this Agreement or otherwise, Borrower shall pay all costs and expenses arising in connection with each Qualified Project. 
 2.4.5 Excess Loan Balance Repayment. In the event the Borrowing Availability has a negative balance, there shall be due and payable from Borrower to Lender, and Borrower shall repay to
Lender an amount equal to said negative balance within the earlier of (a) one (1) Business Day after notice from Lender, or (b) five (5) days after delivery of a Borrowing Base Certificate and/or other financial reports of
Borrower reflecting that such a payment is due. 
 2.4.6 Appraisals and Evaluations. If reasonably required by
Lender, or if required by law, Lender shall have the right to order Appraisals, appraisal reviews and/or evaluations of the Land and/or Improvements for any Qualified Project included in the Borrowing Base, from an appraiser selected by Lender,
which Appraisal(s) shall comply with all federal and state standards for appraisals and otherwise shall be satisfactory to Lender in all respects. Notwithstanding the foregoing, Lender shall not order appraisals of any Project more than one
(1) time per year unless (i) Lender believes that a Material Adverse Change has occurred with respect to the Project or any portion thereof, or (ii) Borrower requests in writing that Lender order an appraisal of the Project, or
(iii) Lender is required to reappraise the Project in connection with regulatory requirements. Borrower agrees to pay the cost and expense for all appraisals, appraisal reviews and/or evaluations thereof ordered by Lender pursuant to this
Section. 
 2.4.7 Borrower’s Accounts. Borrower has established (or, as required herein, shall establish) and
shall maintain during the term of this Loan the Funding Disbursement Account for the purposes set forth below: 

(a) Use of Funding Disbursement Account. As provided herein, Advances shall be made directly by Lender to
the Funding Disbursement Account. Borrower shall pay or be reimbursed only Permitted Expenses with the Advances deposited into the Funding Disbursement Account. Borrower shall have authority to sign documents and checks in connection with the
transfer of funds out of the Funding Disbursement Account for all of Borrower’s business purposes. Although Lender shall have no security interest in the Funding Disbursement Account or the funds deposited therein, Borrower warrants and
represents that during the Loan Term, all Advances deposited into the Funding Disbursement Account shall be applied only for the payment or reimbursement of Permitted Expenses for Qualified Projects. 

2.4.8 Project Cost Savings and Excess Costs. Each Draw Request submitted by Borrower shall be deemed a certification by
Borrower of the following matters: 
 2.4.8.1 Excess Project Costs. In the event the actual cost
(“Actual Line Item Cost”) of any matter covered by any given line item in any Budget exceeds the amount allocated to such line item in said Budget (“Approved Line Item Cost”), Borrower either has (a) paid or
incurred the amount of the Actual Line Item Cost in excess of the Approved Line Item Cost (“Excess Cost”), or (b) the financial ability to pay such Excess Costs with its own funds, including without limitation the transfer of a
portion of any Contingency line item amount provided for in the Budget and/or any “Cost Savings” (as defined in Section 2.4.8.3 below) to such line item in an amount equal to such Excess Cost. 

2.4.8.2 Offsite Materials. In connection with any Project materials that are stored or housed at a location
other than the Property for the applicable Project (“Offsite Materials”): 
 (a)
Borrower has paid for the Offsite Materials or will cause payment to be made promptly upon receipt of the next Advance; 

  
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 (b) If the Offsite Materials are stored at the facilities of the
supplier of the Offsite Materials (“Offsite Supplier”), the Offsite Materials have been segregated from other materials in the Offsite Supplier’s storage facility and have been marked with the name of Borrower. If reasonably
requested by Lender, Borrower shall provide Lender with a written statement from the Offsite Supplier, which statement shall include the Offsite Supplier’s acknowledgment of (i) the right of Lender to enter the Offsite Supplier’s
storage facility at reasonable times for the purpose of inspecting or removing the Offsite Materials and (ii) Lender’s security interest in the Offsite Materials. If the Offsite Materials are stored in a place other than the facilities of
the Offsite Supplier, if reasonably requested by Lender, Borrower shall provide Lender with a written statement from the bailee or other custodian acknowledging (i) the right of Lender to enter the site where the Offsite Materials are stored at
reasonable times for the purpose of inspecting or removing the Offsite Materials and (ii) Lender’s security interest in the Offsite Materials; 
 (c) Borrower has obtained certificates of insurance showing the Offsite Materials to be insured as required by the Agreement and showing Lender as loss payee; and 

(d) Borrower has paid all personal property taxes applicable to the Offsite Materials. Lender shall have the right
to inspect and approve the Offsite Materials. 
 2.4.8.3 Cost Savings. For purposes of
Section 2.4.8.1 above, “Cost Savings” shall mean any remaining undisbursed amounts shown in any Budget as allocated to any line item, or any funds allocated to said line item that exceed the amount of the subcontract for said
line item either upon completion of and disbursement for all matters covered by said line item in such Budget, or upon the execution by Borrower and an approved subcontractor of a subcontract for the performance of work or furnishing of materials
for said line item in an amount that is less than the Approved Line Item Cost for said item. 
 2.5 Fees. As
additional consideration for the Commitment, Borrower agrees to pay to Lender the following fees, which shall be earned by Lender on the date due under the Loan Documents and shall be non-refundable to Borrower: 

2.5.1 Commitment Fee. Until the Loan is paid in full, the Commitment Fee shall be payable annually in advance, as provided
herein. 
 2.5.2 Borrowing Base Fees. The Borrowing Base Fees shall be due and payable by Borrower in connection
with the inclusion of each Qualified Project into the Loan. The Borrowing Base Fees shall be payable as a condition to the inclusion of each Qualified Project into the Loan. 
 2.5.3 Letter of Credit Fee. A Letter of Credit Fee shall be due and payable by Borrower in connection with the issuance of each Letter of Credit hereunder. The Letter of Credit Fee shall be
payable as a condition to the issuance of each Letter of Credit and on each twelve-month anniversary of the issuance date of said Letter of Credit, if said Letter of Credit is to be extended beyond a twelve-month term. 

2.5.4 Unused Fee. Until the Loan is paid in full, the Unused Fee shall be payable quarterly in arrears, as provided herein.

 2.5.5 Other Fees. Costs, expenses, and reasonable fees for Lender’s counsel as provided in the Loan
Documents, payable on or before the date hereof, together with all title insurance premiums, appraisal costs, documentation fees, environmental study costs and other costs and expenses to which Lender is entitled to reimbursement pursuant to the
Loan Documents. 

  
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	3.	THE COLLATERAL. 

3.1 Security. Payment of the Note, all indebtedness and liabilities of Borrower to Lender, and performance of all
Obligations, due or to become due, under this Agreement and the other Loan Documents, shall be secured by the following (collectively “Security Documents”): 

(a) Deeds of Trust; 
 (b) Construction Assignments; 
 (c) Financing
Statements; and 
 (d) Such other assignments and security interests as may be required or granted
pursuant to the terms of the Loan Documents, including, without limitation, assignments of construction contracts, assignments of plans and specifications, assignments of permits, licenses and approvals, assignments of declarant’s rights under
covenants, conditions and restrictions, assignments of purchase and sale agreements, and any assignments concerning any environmental indemnities in favor of Borrower. 
 3.2 Releases of Collateral. In addition to releases in connection with boundary line adjustments and the granting of easements and licenses as more particularly described in
Section 6.3.3(c), Lender agrees to release portions of the Project from the lien of any Deed of Trust in connection with sales of portions of the Project secured by said Deed of Trust pursuant to a Purchase Contract for cash, upon the
satisfaction of the following conditions prior to the release: 
 3.2.1 General Requirements for
Releases. In connection with any release: 
 (a) Unless otherwise approved by Lender in its
absolute and sole discretion, at the time of such release no Event of Default shall have occurred and be continuing. 
 (b) Such release shall be in connection with a sale of a Lot or Home in the Project (or in the case of a Dedication, a transfer or donation of a portion of the Project) to a Non-Related Party.

 (c) Unless the portion of the Land to be released is an entire parcel with respect to which Lender has
previously approved the parcel map or plat or is a lot or lots within a subdivision with respect to which Lender has previously approved a final map or plat, Borrower or Title Company shall have delivered to Lender (i) a legal description of
the portion of the Land to be released, (ii) a map or plat of the portion of the Land to be released, and (iii) copies of all easements for ingress, egress or otherwise to be granted or retained in connection with such release. 

(d) Unless the portion of the Land to be released is an entire parcel with respect to which Lender has previously
approved the parcel map or plat or is a lot or lots within a subdivision with respect to which Lender has previously approved a final map or plat, prior to such release, (i) Lender shall have approved such release, which approval will not be
unreasonably withheld, (ii) the remaining unreleased portion of the Land will, after giving effect to such release, have adequate access, in the reasonable opinion of Lender, and (iii) the value of the unreleased portion of the Land will,
after giving effect to such release, not otherwise be materially impaired in the reasonable opinion of Lender. 

(e) Borrower shall provide Lender with such endorsements to the Title Policy as Lender may reasonably request in
connection with each release. 
 (f) Borrower shall pay all of Lender’s reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees, arising in connection with each release. 
 (g) Each release shall be made by Lender by delivery of the release documents to a title company or other escrow agent satisfactory to Lender upon such conditions as shall assure Lender that

  
 30 

 all conditions precedent to such release have been satisfied and that the applicable
transaction will be completed. 
 3.2.2 Sales of Lots or Homes Pursuant to a Purchase Contract. In connection with
sales pursuant to a Purchase Contract for cash: 
 (a) Borrower shall satisfy each of the conditions set
forth in Section 3.2.1. 
 (b) If requested by Lender, Borrower shall deliver to Lender a true and
correct copy of any Purchase Contract, which shall (i) be substantially on Borrower’s standard forms as previously submitted to and approved by Lender or (ii) otherwise be in form and content reasonably satisfactory to Lender.

 (c) Borrower shall not have made any material changes in the Purchase Contract delivered to Lender
pursuant to this Section 3.2.2, unless such changes have been approved by Lender, and, with respect to any Bulk Lot Sale, the Non-Related Party under said Purchase Contract shall be acceptable to Lender in its sole discretion. 

(d) The sale shall be made in the ordinary course of the development and marketing of the Project, and shall be
accompanied by such rights of first refusal, development covenants, conditions and restrictions, deeds of trust, and other documents, consistent with Borrower’s past practices, as shall be necessary to assure that development of the Project
occurs in accordance with Borrower’s development plans and existing Approvals and Permits. 
 (e) For
any Bulk Lot Sale, Lender shall have received and approved in its reasonable discretion financial statements and other information reasonably required by Lender showing the Non-Related Party’s ability to complete the purchase under the Purchase
Contract. 
 (f) Borrower shall have paid the applicable Release Price and all other fees and costs in
connection with the release, which Release Price shall be applied to repay sums due and owing under the Note. 
 3.2.3
Dedications. In connection with any Dedication: 
 (a) Borrower shall satisfy each of the
conditions set forth in Section 3.2.1. 
 (b) At least ten (10) days prior to a release,
Borrower shall have delivered to Lender all the terms, conditions and details of such release, including, without limitation, the purpose of such release, evidence of the conformity of such release to the overall development plan for the Project and
all Approvals and Permits required in connection therewith, all of which shall be in form and content reasonably satisfactory to Lender. 
  

	4.	CONDITIONS PRECEDENT. 

 4.1 Conditions Precedent to Effectiveness of this Agreement and to the Effectiveness of the Commitment. This Agreement and the Commitment became effective upon satisfaction by Borrower of
the following conditions precedent on or before the Initial Closing Date: 
 4.1.1 Representations and Warranties
Accurate. The representations and warranties by Borrower in the Loan Documents are correct on and as of the date hereof and as of the recordation of the Deeds of Trust for the each Future Project to be included in the Borrowing Base in all
material respects. 
 4.1.2 Defaults. No Event of Default or Unmatured Event of Default shall have occurred and be
continuing. 

  
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 4.1.3 Documents. Lender shall have received the following agreements,
documents, and instruments, each duly executed by the parties thereto: 
 (a) Loan Documents. The
Loan Documents, which shall include all agreements documents, and instruments specified by Lender in form and content acceptable to Lender in its discretion. 
 (b) Limited Liability Company. Certified copies of (i) authorizations of Borrower’s members authorizing Borrower to execute, deliver, and perform the Loan Documents and to grant to
Lender the Liens and Encumbrances on the Collateral in the Loan Documents and certifying the names and signatures of the managing member(s) of Borrower authorized to execute the Loan Documents and, in the case of Borrower, to request Advances on
behalf of each Borrower, (ii) the articles of organization and operating agreement of Borrower and all amendments thereto, and (iii) a certificate of good standing as a limited liability company from the jurisdiction of formation or
organization and for each jurisdiction in which the nature of Borrower’s business and operations require qualification as a foreign limited liability company. 

(c) Insurance Policies. A certificate of insurance for all insurance required under the Loan Documents, and
certificates of insurance with respect to professional liability coverage to the extent maintained by engineers, architects, and environmental contractors. 
 (d) Opinion Letter. A favorable opinion from a law firm representing Borrower covering such matters as Lender may require. 

(e) Financial Statements. Borrower’s most recent financial statements reviewed by independent,
certified public accountants acceptable to Lender, including without limitation a balance sheet, cash flow statement, reconciliation of net worth, and profit and loss statement for Borrower. 

4.1.4 Plat and/or Survey. Borrower shall have delivered to Lender, and Lender shall have approved, all surveys, maps and
plats in existence with respect to the Existing Projects and individual parcels thereof. Each such map, plat or survey must contain a legal description of the subject Existing Project (or applicable portion thereof), must describe and show all
boundaries of and lot lines within said Existing Project (or applicable portion thereof) and all streets and other dedications and contain such other information and certifications as Lender may request. 

4.1.5 Restrictive Covenants. Borrower shall have provided Lender with, and Lender shall have approved, all covenants,
conditions, restrictions, easements and other rights that exist or are contemplated with respect to the Existing Projects. 

4.1.6 Soils Test. Borrower shall have provided to Lender, and Lender shall have approved, a soils/hydrology test reports of
the Existing Projects prepared by licensed engineers satisfactory to Lender showing the location of, and containing boring logs from, all borings, together with recommendations for the design of foundations. 

4.1.7 Environmental Assessment. Borrower shall have delivered to Lender and Lender shall have approved a report of an
environmental assessments of the Existing Projects, by environmental engineers acceptable to Lender containing such information, results, and certifications as Lender may require. If Lender determines, in its sole discretion, based on such reports
or other information available to Lender that any further review should be obtained, Borrower shall also provide such follow up testing, reports, and other actions as may be required by Lender. The contents of the environmental assessment report and
any follow up must be satisfactory to Lender. If such reports are addressed to Borrower, Borrower shall cause a reliance letter, in form and substance satisfactory to Lender, to be provided to Lender. 

4.1.8 Environmental Indemnity. Borrower shall have delivered to Lender, Lender’s form of Environmental Indemnity for
each Existing Project, fully completed and duly executed by Borrower. 

  
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 4.1.9 Preliminary Title Report. Borrower shall have provided Lender and Lender
shall have approved, a preliminary title report for each Existing Project, prepared by the Title Company, together with a legible copy of each “Schedule B” item. 

4.1.10 Flood Report. Borrower shall have provided to Lender evidence satisfactory to Lender as to whether (a) each
Existing Project, or any portion thereof, is located in an area designated by the Department of Housing and Urban Development as having special flood or mudslide hazards, and (b) the community in which said Existing Project is located is
participating in the National Flood Insurance Program. 
 4.1.11 Deed of Trust/Title Policy. For each Existing
Project, Borrower shall have provided to Lender (a) an amendment to the Deed of Trust, subject only to Permitted Exceptions, duly executed by Borrower, acknowledged, delivered and recorded; and (b) American Land Title Association loan
policies of title insurance (with such endorsements as Lender may require) for each Deed of Trust (collectively “Title Policy”). The Title Policy shall provide coverage (including without limitations mechanics’ lien coverage)
satisfactory to Lender and insure the Deed of Trust as a first lien on the Project, subject only to Permitted Exceptions. 

4.1.12 Completion of Filings and Recordings. For each Existing Project, Lender shall have received evidence of the
completion of all recordings and filings to establish or maintain the perfection and priority of the Liens and Encumbrances on the Collateral granted in the Loan Documents and required by Lender to be in effect prior to the effectiveness of this
Agreement and the Commitment. 
 4.1.13 Payment of Costs, Expenses, and Fees. For each Existing Project, all
costs, expenses, and fees to be paid by Borrower under the Loan Documents on or before the effectiveness of this Agreement, the effectiveness of the Commitment, or the making of Advances shall have been paid in full (or shall be paid in full
concurrently with the making of the initial Project Advance), including without limitation applicable fees set forth herein. 

4.1.14 Appraisal. For each Existing Project, Lender shall have received and approved an Appraisal for the subject Land.
Lender shall have no obligation to make any Advance against any parcels unless and until Lender shall have received and approved said Appraisals for said parcels against which Advances are requested. 

4.1.15 Other Items or Actions by Borrower. Lender shall have received such other agreements, documents, and instruments,
and Borrower shall have performed such other actions as Lender may reasonably require. 
 4.2 Amendment Closing
Date. As noted in Sections 1.2(j)2.1.4(d) above, this Agreement is executed in connection with an amendment and restatement of the Loan to increase the maximum Commitment Amount from the original sum of Ten Million Dollars
($10,000,000.00) to the increased sum of Twenty Million Dollars ($20,000,000.00). In addition, to the requirements set forth above in Section 2.1.4(d), Borrower shall also deliver to Lender the new Note and shall comply with all other
requirements set forth in the Loan Documents required by Lender to increase the Commitment Amount as set forth herein. In addition, and not by way of limitation, Borrower shall have provided Lender with any updated, amended and/or additional
documents as may be reasonably required by Lender pursuant Section 4.1 above in connection with the increase in the Commitment Amount on or before the Amendment Closing Date. In connection with the closing of this increase in the Commitment
Amount, Borrower hereby reaffirms all of the representations and warranties, as applicable, as of the Amendment Closing Date. 

4.3 Conditions Precedent to Admission of Land as Lots Under Development. Borrower may, from time to time, request Lender to
include a portion of the Land as Lots Under Development (including without limitation, any custom lots) for purposes of the Borrowing Base. In connection with each such request, the following conditions precedent shall have been satisfied at the
sole cost and expense of Borrower. Upon the satisfaction of such conditions precedent, as determined by Lender, such Land shall be included in the Borrowing Base as Lots Under Development. 

  
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 4.3.1 Request. Borrower shall have submitted to Lender a written request to
include portion of the Land in the Borrowing Base as Lots Under Development. Such request and all other documents and instruments described in this Section 4.3 shall be submitted with the Borrowing Base Certificate in which Borrower intends to
include such portion of the Land in the Borrowing Base as Lots Under Development. Each such request shall be deemed a renewal of all representations and warranties of Borrower set forth in the Loan Documents. 

4.3.2 Defaults. No Event of Default or Unmatured Event of Default shall have occurred and be continuing on and as of the
date that each portion of the Land is included as Lots Under Development. 
 4.3.3 Documents and Information.
Borrower shall have provided to Lender, and Lender shall have approved, all documents and information required pursuant to Section 4.2 with respect to the applicable portion of the Land. 

4.3.4 Inspection. Development of the applicable portion of the Land shall have commenced. Development will be deemed to
have commenced when (i) construction of one or more of the following scopes of work has begun on the applicable portion of the Land — grading, paving, water, sewer or concrete, and (ii) Borrower has expended material amounts for Hard
Costs with respect to such work. 
 4.3.5 Map. Borrower shall have delivered to Lender and Lender shall have
approved a Final Map or Tentative Map, as applicable, together with evidence reasonably satisfactory to Lender that any such Tentative Map has not expired and is not due to expire during the development of such portion of the Land. Each such map
must contain a legal description of the Land, must describe and show all boundaries of and lot lines within such Land and all streets and other dedications, and must contain such other information and certifications as Lender may request.

 4.3.6 Utilities. If requested by Lender, Borrower shall have delivered to Lender, evidence, which may be in the
form of “will serve” letters from local utility companies or local authorities, that: (a) telephone service, electric power, storm sewer, sanitary sewer (if applicable) and water facilities will be available to the Lots Under
Development; (b) such utilities will be adequate to serve the Lots Under Development; and (c) upon completion of the Improvements, no conditions will exist to affect Borrower’s right to connect into and have adequate use of such
utilities except for the payment of a normal connection charges or tap charges and except for the payment of subsequent charges for such services to the utility supplier. 
 4.3.7 Lot Limitations. The total number of Lots Under Development and Developed Lots to be included in the Borrowing Base as of the date of any request made hereunder shall not be in excess
of the Lot Concentration Limitation. 
 4.3.8 Other. Borrower shall have provided such other documents and
information reasonably requested by Lender. 
 4.4 Conditions Precedent to Admission of Land as Developed Lots.
Borrower may, from time to time, request Lender to include a portion of the Land as Developed Lots for purposes of the Borrowing Base. In connection with each such request, the following conditions precedent shall have been satisfied at the sole
cost and expense of Borrower. Upon the satisfaction of such conditions precedent, as determined by Lender, such Land shall be included in the Borrowing Base as Developed Lots. 
 4.4.1 Request. Borrower shall have submitted to Lender a written request that a portion of the Land be included in the Borrowing Base as Developed Lots. Such request and all other documents
and instruments described in this Section 4.4 shall be submitted with the Borrowing Base Certificate in which Borrower intends to include such portion of the Land in the Borrowing Base as Developed Lots. Each such request shall be deemed a
renewal of all representations and warranties of Borrower set forth in the Loan Documents. 
 4.4.2 Defaults. No
Event of Default or Unmatured Event of Default shall have occurred and be continuing on and as of the date that each portion of the Land is included as Developed Lots. 

  
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 4.4.3 Documents and Information. Borrower shall have provided to Lender, and
Lender shall have approved, all documents and Information required pursuant to Sections 4.2 and 4.3, with respect to the applicable portion of the Land. 
 4.4.4 Lot Limitations. The total number of Lots Under Development and Developed Lots to be included in the Borrowing Base as of the date of any request made hereunder shall not be in excess
of the Lot Concentration Limitation. 
 4.4.5 Other . Borrower shall have provided such other documents and
information reasonably requested by Lender. 
 4.5 Conditions Precedent to Admission of Land as Presold, Spec and/or Model
Homes. Borrower may, from time to time, request Lender to include a portion of the Land as Presold, Spec and/or Model Homes for purposes of the Borrowing Base. In connection with each such request, the following conditions precedent shall
have been satisfied at the sole cost and expense of Borrower. Upon the satisfaction of such conditions precedent, as determined by Lender, such Land shall be included in the Borrowing Base as Presold, Spec and/or Model Homes. 

4.5.1 Request. Borrower shall have submitted to Lender a written request that a portion of the Land be included in the
Borrowing Base as Presold, Spec and/or Model Homes. Such request and all other documents and instruments described in this Section 4.5 shall be submitted with the Borrowing Base Certificate in which Borrower intends to include such portion of
the Land in the Borrowing Base as Presold, Spec and/or Model Homes. Each such request shall be deemed a renewal of all representations and warranties of Borrower set forth in the Loan Documents. 

4.5.2 Defaults. No Event of Default or Unmatured Event of Default shall have occurred and be continuing on and as of the
date that each portion of the Land is included as Developed Lots. 
 4.5.3 Documents and Information. Borrower
shall have provided to Lender, and Lender shall have approved, all documents and Information required pursuant to Sections 4.2, 4.3 and 4.4, with respect to the applicable portion of the Land. 

4.5.4 Home Construction Information. Borrower shall not be entitled to include any portion of the Land in a Borrowing Base
Certificate as Presold, Spec and/or Model Homes unless and until each of the following conditions precedent have been satisfied (or waived or modified by Lender in its discretion): 

(a) Borrower shall have submitted to Lender, and Lender shall have approved, Plans and Specifications for each type
of Home for each Project, which Plans and Specifications shall be (i) prepared by Architect and/or Engineer acceptable to Lender, and (ii) otherwise satisfactory to Lender; 

(b) Homes may be entered into the Borrowing Base upon confirmation of trenching by Lender; 

(c) At Borrower’s sole cost and expense, Lender shall have obtained Base Appraisals with respect to each type
of Home, which Base Appraisals shall be (i) prepared by an appraiser acceptable to Lender, and (ii) otherwise satisfactory to Lender. Each Base Appraisal for each Home in a Project shall be updated or evaluated once annually at
Lender’s discretion (or more frequently if required by regulatory guidelines), at the sole cost and expense of Borrower, and all FNMA appraisals or other appraisals for said Homes accepted by Lender that do not have a specific expiration date
shall be updated once annually at Lender’s request; provided, however, that Lender may require that any such appraisal be updated more frequently than annually if (i) Lender believes that a material adverse change has occurred with
‘respect to the Project or any portion thereof, or (ii) Borrower requests in writing that Lender order an appraisal of the Project, or (iii) Lender is required to reappraise the Project in connection with regulatory requirements.
Based on such revised appraisals and/or evaluations and any other information provided to Lender, Lender shall be entitled to revise the Home Construction Budget and Maximum Allowed Advances applicable to any Home in said Project; 

  
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 (d) Borrower shall have submitted to Lender all other information
requested by Lender to formulate a Home Construction Budget for each type of Home (which may include without limitation construction contracts and other verifications of costs), and Lender shall have formulated such Home Construction Budget;

 (e) If requested by Lender, Borrower shall have submitted or made available to Lender evidence of
(i) building permits for the construction of the Homes, (ii) all necessary permits, licenses and approvals for the construction of said Homes, including without limitation the requisite consumer disclosure reports and approvals required in
connection with the sale of said Homes, and (iii) architectural control committee homeowners’ association and other approvals required under the CC&Rs; 

(f) Prior to entering into any Purchase Contracts for the sale of any Homes, Borrower shall have delivered to
Lender the requisite consumer disclosure reports and approvals prior to the sale of any Homes, in form and substance satisfactory to Lender; 
 (g) For all Presold Homes, Lender shall have received evidence in the form of Borrower’s most recent project reports (in such form as reasonably requested by Lender) of the following:

 (i) A duly executed Purchase Contract, escrow instructions or deposit receipt without contingencies
(other than the sale of an existing residency contingency); 
 (ii) A prequalification letter or mortgage
commitment from an institutional mortgage lender or such other information or verification as Lender may require concerning the ability of the prospective buyer to obtain financing or otherwise acquire the Home; and 

(iii) A cash earnest money deposit or down payment of at least Five Thousand Dollars ($5,000.00) (which deposit
requirement shall be increased to twenty percent (20%) of the purchase price for said Home if the prospective buyer failed to satisfy the requirement in subsection (ii) above, unless said buyer demonstrates availability of funds for an
all-cash purchase offer, in which case the deposit shall not be required to be increased to twenty percent (20%) of the purchase price). 
 (h) For all Spec Homes, Borrower shall not be entitled to include in the Borrowing Base at any one time in violation of the Spec Home Concentration Limitation. 

(i) For all Presold Homes, Borrower shall not be entitled to include in the Borrowing Base at any one time in
violation of the Home Concentration Limitation. 
 (j) For all Model Homes, the Lots to be used for the
construction of any Model Homes, the Model Homes and any parking areas used for model complex parking shall remain as Collateral for the Loan and shall not be eligible for release from the applicable Deed of Trust until all production Homes of each
Model Home’s respective plan type have been sold for each applicable Project; provided, however, that Lender in its sole discretion may permit Borrower to sell a Model Home, as long as (1) said Model Home is leased back to Borrower under
terms and conditions acceptable to Lender, and (2) said lease of the Model Home is assigned or otherwise encumbered as collateral for the applicable Loan, and (3) said lease and said assignment or encumbrance shall be in full force and
effect until all production Units of said Model Home’s respective plan type have been sold for the applicable Project. 

4.5.5 Other. Borrower shall have provided such other documents and information reasonably requested by Lender. 

4.6 Additional Conditions Precedent to All Advances. Lender shall be obligated to make an Advance only if Borrower shall
have delivered to Lender a Draw Request for such Advance. Borrower may not submit more than two (2) Draw Requests per each Calendar Month. Lender shall not be required to make the 

  
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 requested Advance before three (3) Business Days after receipt of the completed Draw Request (together
with any required inspection report as provided in Section 2.4.3(a) above). Notwithstanding the foregoing, Lender may make Advances, without further authorization or Draw Requests from Borrower, to pay interest prior to delinquency to the
extent of the Available Commitment; provided, however, that from and after the occurrence and during the continuation of an Unmatured Event of Default or an Event of Default, such Advances to pay interest may be made in the sole and absolute
discretion of Lender. 
 4.7 Waiver of Conditions Precedent. Borrower hereby authorizes Lender, and Lender
reserves the right in its absolute and sole discretion, to verify any documents and information submitted to Lender in connection with this Agreement. Lender may elect, in its absolute and sole discretion, to waive any of the foregoing conditions
precedent. Any such waiver shall be limited to the conditions precedent therein and the requirements therein. Delay or failure by Lender to insist on satisfaction of any condition precedent shall not be a waiver of such condition precedent or any
other condition precedent. The making of an Advance by Lender shall not be deemed a waiver by Lender of the occurrence of an Event of Default or an Unmatured Event of Default. 

 

	5.	BORROWER’S REPRESENTATIONS AND WARRANTIES. 

 5.1 Closing Representations and Warranties. Borrower represents and warrants to Lender as of the date of this Agreement: 

5.1.1 Limited Liability Company Existence and Authorization. Borrower is a limited liability company, validly existing
under the laws of Delaware and duly qualified to transact business in California and has the requisite power and authority to execute, deliver, and perform the Loan Documents. The execution, delivery, and performance by Borrower of the Loan
Documents have been duly authorized by all requisite corporate action by or on behalf of Borrower and will not conflict with, or result in a violation of or a default under, the Organizational Documents of Borrower. 

5.1.2 No Approvals, etc. No approval, authorization, bond, consent, certificate, franchise, license, permit, registration,
qualification, or other action or grant by or filing with any Person is required in connection with the execution, delivery, or performance by Borrower of the Loan Documents. 
 5.1.3 No Conflicts. The execution, delivery, and performance by Borrower of the Loan Documents will not conflict with, or result in a violation of or a default under: (i) any applicable
law, ordinance, regulation, or rule (federal, state, or local); (ii) any judgment, order, or decree of any arbitrator, other private adjudicator, or Governmental Authority to which Borrower is a party or by which Borrower or any of the assets
or property of Borrower is bound; (iii) any of the Approvals and Permits; and/or (iv) any agreement, document, or instrument to which Borrower is a party or by which Borrower or any of the assets or property of Borrower is bound.

 5.1.4 Execution and Delivery and Binding Nature of Loan Documents. The Loan Documents have been duly executed
and delivered by or on behalf of Borrower. The Loan Documents are legal, valid, and binding obligations of Borrower, enforceable in all material respects in accordance with their terms against Borrower, except as such enforceability may be limited
by bankruptcy, insolvency, moratorium, reorganization, or similar laws and by equitable principles of general application. 

5.1.5 Legal Proceedings; Hearings, Inquiries, and Investigations. Except as previously disclosed to and approved by Lender,
(i) no legal proceeding is pending or, to best knowledge of Borrower, threatened before any arbitrator, other private adjudicator, or Governmental Authority to which Borrower is a party or by which Borrower or any assets or property of Borrower
may be bound or affected that if resolved adversely to Borrower could result in a Material Adverse Change, and (ii) no hearing, inquiry, or investigation relating to Borrower or any assets or property of Borrower is pending or, to the best
knowledge of Borrower, threatened by any Governmental Authority that if resolved adversely to Borrower could result in a Material Adverse Change. 
 5.1.6 No Event of Default. No Event of Default or Unmatured Event of Default has occurred and is continuing. 

  
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 5.1.7 Approvals and Permits; Assets and Property. Except as disclosed to
Lender in writing prior to the date hereof, to the best knowledge of Borrower, (i) Borrower has all Approvals and Permits necessary for the development currently taking place at each Qualified Project and (ii) there are no facts or
circumstances known to Borrower that would materially impair the ability of Borrower to obtain Approvals and Permits necessary for the future development of each Qualified Project or to otherwise continue the contemplated development of said
Qualified Project. In the event that the foregoing representation and warranty shall cease to be true in all material respects with respect to a Qualified Project or portion thereof, such Qualified Project (or portion thereof, as the case may be)
shall cease to be part of the Borrowing Base until such time as such representation and warranty shall become true in all material respects. 
 5.1.8 ERISA. Borrower is in compliance with ERISA. No Reportable Event or Prohibited Transaction (as defined in ERISA) or termination of any plan has occurred and no notice of termination
has been filed with respect to any plan established or maintained by Borrower and subject to ERISA. Borrower has not incurred any material funding deficiency within the meaning of ERISA or any material liability to the Pension Benefit Guaranty
Corporation in connection with any such plan established or maintained by Borrower. 
 5.1.9 Compliance with Law.
Borrower has not received any notice of any material violations of any applicable laws, rules, or regulations of any Governmental Authority with respect to any Qualified Project or the development of said Qualified Project and Borrower is not aware
of any facts or circumstances which would constitute or cause any such violation. If the foregoing representation and warranty shall cease to be true with respect to a Qualified Project (or portion thereof), such Qualified Project (or such portion
thereof, as the case may be) shall cease to be a part of the Borrowing Base until such time as such violation or facts or circumstances shall no longer exist. 
 5.1.10 Full Disclosure. All information in the loan application, financial statement, certificate, or other document and all information prepared and delivered by Borrower to Lender in
obtaining the Commitment is correct and complete in all material respects, and there are no omissions therefrom that result in such information being incomplete, incorrect, or misleading in any material adverse respect as of the date thereof. To the
best knowledge of Borrower, all information in any loan application, financial statement, certificate or other document prepared and delivered to Lender on behalf of Borrower by Persons other than Borrower or its Affiliates, and all other
information prepared and delivered to Lender on behalf of Borrower or by Persons other than Borrower or its Affiliates in obtaining the Commitment is correct and complete in all material respects, and there are no omissions therefrom that result in
any such information being incomplete, incorrect, or misleading in any material adverse respect as of the date thereof. There has been no Material Adverse Change as to Borrower or any Project since the date of such information. All financial
statements heretofore delivered to Lender by Borrower were prepared in accordance with GAAP and accurately represent the financial conditions and results of operation of the subjects thereof as of the dates thereof and for the period covered
thereby. 
 5.1.11 Use of Proceeds; Margin Stock. The proceeds of the Advances will be used by Borrower solely for
the purposes specified in this Agreement. None of such proceeds will be used for the purpose of purchasing or carrying any “margin stock” as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.
F. R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a “purpose credit”
within the meaning of such Regulation U or G. Borrower is not engaged in the business of extending credit for the purpose of purchasing, or carrying margin stock. Neither Borrower nor any Person acting on behalf of Borrower has taken or will
take any action which might cause any Loan Documents to violate Regulation U or G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934, or any rule
or regulation thereunder, in each case as now in effect or as the same may hereafter be in effect. Borrower and Borrower’s subsidiaries own no “margin stock”. 
 5.1.12 Governmental Regulation. Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the
Interstate Commerce Act (as any of the preceding have been amended), or any other law which regulates the incurring by Borrower of indebtedness, including but not limited to laws relating to common or contract carriers or the sale of electricity,
gas, steam, water, or other public utility services. 

  
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 5.1.13 Material Agreements; No Material Defaults. Borrower shall execute an
assignment or assignments in favor of Lender of all of Borrower’s rights, title and interests in and to any and all material contracts, leases, permits, development agreements, covenants, restrictions, option agreements, purchase and sale
agreements, instruments and other agreements requested by Lender for review relating to each of the Projects to be included as Qualified Projects under the Borrower Base (collectively “Material Agreements”) as required by Lender in
its discretion. No event has occurred which, immediately or upon the expiration of applicable cure or grace periods, would constitute a default which in Lender’s reasonable opinion would have a Material Adverse Change in Borrower or any Project
with respect to (i) the terms of any instrument evidencing or relating to any debt of Borrower related to any Qualified Project, (ii) any such contract, lease, permit, development agreement, covenant, restriction, option agreement,
purchase and sale agreement, instruments and other agreement relating to the Qualified Projects, (iii) any statute, ordinance, law, judgment, order, writ, injunction, decree, or rule or regulation of any Governmental Authority or any
determination or award of any arbitrator to which any Qualified Project may be bound, or (iv) any other instrument, agreement or document by which any Qualified Project is bound. If the foregoing representation and warranty shall cease to be
true with respect to a Qualified Project or a portion thereof, such Qualified Project (or such portion thereof, as the case may be) shall cease to be part of the Borrowing Base until such time as such representation and warranty is once again true.

 5.1.14 Title to Property. Borrower has good, sufficient and legal title to all properties and assets reflected
in its most recent balance sheet delivered to Lender, except for assets disposed of in the ordinary course of business since the date of such balance sheet. The Property is free and clear of Liens and Encumbrances, except for Permitted Exceptions.
Borrower is the sole owner of, and has good and marketable title to, the fee interest in each Qualified Project and all other real property described in the Deed of Trust encumbering the property included in said Qualified Project, free from any
Liens and Encumbrances, excepting only Permitted Exceptions. If the foregoing representation and warranty shall cease to be true in all material respects with respect to a Qualified Project or a portion thereof, such Qualified Project (or such
portion thereof, as the case may be) shall cease to be part of the Borrowing Base until such time as such representation and warranty is once again true in all material respects. 

5.1.15 Payment of Taxes. All tax returns and reports of Borrower required to be filed by Borrower have been timely filed,
and all taxes, assessments, fees and other governmental charges upon Borrower and upon its Projects which are due and payable have been paid prior to delinquency. Borrower knows of no proposed tax assessment against Borrower or any Qualified Project
that would be material to the condition (financial or otherwise) of Borrower or said Qualified Project, and Borrower has not contracted with any Governmental Authority in connection with any such taxes. If the foregoing representation and warranty
shall cease to be true with respect to a Qualified Project or a portion thereof, such Qualified Project (or such portion thereof, as the case may be) shall cease to be part of the Borrowing Base until such time as such representation and warranty is
once again true. 
 5.1.16 No Condemnation. No condemnation proceedings or moratorium is pending, or to the best
of Borrower’s knowledge, threatened against any Qualified Project or any portion thereof which would impair the use, occupancy, or full operation of said Qualified Project in any manner whatsoever. If the foregoing representation and warranty
shall cease to be true with respect to a Qualified Project or a portion thereof, such Qualified Project (or such portion thereof, as the case may be) shall cease to be part of the Borrowing Base until such time as such representation and warranty is
once again true in all material respects. 
 5.1.17 Borrowing Base. The classification of each item of property
included in the Borrowing Base is true and correct. Notwithstanding anything contained in this Agreement, no portion of any Land may be included in the Borrowing Base other than as Lots Under Development or Developed Lots pursuant to the provisions
of this Agreement. 
 Notwithstanding the foregoing, Lender agrees that before a Qualified Project or a portion thereof shall
cease to be part of the Borrowing Base as a result of Borrower failing to comply with any of the representations and warranties set forth in this Article 5, Borrower shall have an opportunity to cure such matter within the applicable notice and
cure periods set forth in Section 8.1.2 below. 

  
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 5.2 Representations and Warranties Upon Requests for Advances. Each Draw
Request shall be a representation and warranty by Borrower to Lender that the representations and warranties in Section 5 are correct and complete in all material respects as of the date the requested Advance except as otherwise disclosed by
Borrower to Lender in writing prior to the date of such Draw Request. 
 5.3 Representations and Warranties Upon Delivery
of Financial Statements, Documents, and Other Information. Each delivery by Borrower to Lender of financial statements, other documents, or information after the date of this Agreement (including, without limitation, documents and
information delivered in obtaining an Advance) shall be a representation and warranty that such financial statements, other documents, and information are correct and complete (in accordance with GAAP) in all material respects, that there are no
material omissions therefrom that result in such financial statements, other documents, or information being materially incomplete, incorrect, or misleading in any material respect as of the date thereof, and that such financial statements
accurately present the financial condition and results of operations of Borrower as at the dates thereof in all material respects and for the periods covered thereby. 
 5.4 USA Patriot Act Notification. Borrower agrees to provide evidence of the identity of Borrower that Lender may request from time to time to permit Lender to verify the identity of
Borrower or to otherwise comply with applicable governmental laws and regulations, including without limitation Section 326 of the USA Patriot Act of 2001, 31 U.S.C. 5318. 
 6. BORROWER AFFIRMATIVE COVENANTS. Until the Commitment terminates in full and the Obligations are paid and performed in full, Borrower agrees that, unless Lender otherwise agrees in writing
in Lender’s absolute and sole discretion: 
 6.1 Limited Liability Company Existence. Borrower shall continue
to be a limited liability company, validly existing under the laws of the State of Delaware and duly qualified to transact business in the State of California. 
 6.2 Books and Records; Access By Lender. Borrower shall maintain a standard, modern system of accounting (including without limitation a single, complete, and accurate set of books and
records of its assets, business, financial condition, operations, property, prospects, and results of operations) in accordance with GAAP. Borrower shall also maintain complete and accurate records regarding the acquisition, development and
construction of the Project, including, without limitation, all construction contracts, architectural contracts, engineering contracts, field and inspection reports, applications for payment, estimates and analyses regarding construction costs,
names and addresses of all contractors and subcontractors performing work or providing materials or supplies with respect to the development and construction of the Project, invoices and bills of sale for all costs and expenses incurred by
contractors and subcontractors in connection with the development and construction of the Project, payment, performance and other surety bonds (if applicable), releases and waivers of lien for all such work performed and materials supplied, evidence
of completion of all inspections required by any Governmental Authority, certificates of substantial completion, notices of completion, surveys, as-built plans, Approvals and Permits, Purchase Contracts, escrow instructions, records regarding all
sales of all or portions of the Project, and all other documents and instruments relating to the acquisition, development, construction and/or sale of the Project or portions thereof. During business hours Borrower shall give representatives of
Lender access to all assets, property, books, records, and documents of Borrower and will permit such representatives to inspect such assets and property and to audit, copy, examine, and make excerpts from such books, records, and documents. Upon
request by Lender, Borrower shall also provide Lender with copies of the reports, documents, agreements, and other instruments described in this Section 6.2. 
 6.3 Special Covenants Relating to Collateral. 
 6.3.1 Defense
of Title. Borrower shall defend the Collateral, the title and interest therein of Borrower represented and warranted in the Deed of Trust, and the legality, validity, binding nature, and enforceability of each Lien and Encumbrance contained
in the Deed of Trust and the first priority of the Deed of Trust against all matters, including, without limitation: (a) any attachment, levy, or other seizure by legal process or otherwise of any or all Collateral; (b) except for
Permitted Exceptions, any Lien or Encumbrance or claim thereof on any or all Collateral; (c) any attempt to foreclose, conduct a trustee’s sale, or otherwise realize upon any or all 

  
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 Collateral under any Lien or Encumbrance, regardless of whether a Permitted Exception and regardless of
whether junior or senior to the Deed of Trust; and (d) any claim questioning the legality, validity, binding nature, enforceability, or priority of the Deed of Trust. Borrower shall notify Lender promptly in writing of any of the foregoing and
will provide such information with respect thereto as Lender may from time to time request. During the period of time that Borrower is not able to comply with the covenants set forth herein for a Qualified Project or portion thereof for a period of
thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period shall be extended for a reasonable period not
in excess of ninety (90) days from the date of Lender’s notice to cure such non-compliance provided that Borrower shall have commenced such cure within such thirty (30) day period and shall diligently thereafter proceed to effect such
cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 
 6.3.2 Further Assurances. Borrower shall promptly execute, acknowledge, and deliver such additional agreements, documents, and instruments and do or cause to be done such other acts as
Lender may reasonably request from time to time to better assure, preserve, protect, and perfect the interest of Lender in the Collateral and the rights and remedies of Lender under the Loan Documents. Without limiting the foregoing, to the extent
that Lender determines from time to time that additional deeds of trust, amendments to deeds of trust, financing statements, subordinations, and other documents are required in order to perfect all Liens and Encumbrances in favor of Lender, and
cause all Collateral encumbered by any of the deeds of trust to be subject only to Permitted Exceptions, Borrower shall execute and deliver such documents, instruments and other agreements as Lender may reasonably request. 

6.3.3 Plats, Annexations and Approvals. For each Qualified Project to be included in the Borrowing Base: 

(a) Each plat or map (whether tentative or final) with respect to any portion of any Qualified Project shall comply
with all Requirements and shall be satisfactory in form and substance to Lender. Prior to evaluation by Lender of the plat or map for approval, Borrower shall deliver to Lender such certifications, maps, surveys, and other documents and information
as Lender requires. Prior to the recordation of any plat or map by Borrower, Borrower shall deliver to Lender such title insurance endorsements insuring the continued priority of the Deed of Trust after recording of the plat or map as Lender may
require. Borrower agrees to take such steps as Lender may require in (i) either re-recording the Deed of Trust or amending the Deed of Trust to reflect the new plat legal description, and (ii) obtaining an endorsement to the Title Policy
to amend the legal description therein. 
 (b) Borrower shall obtain and, upon request, provide Lender
with, evidence of: (i) appropriate zoning for the use and occupancy of each Qualified Project; (ii) all necessary Approvals and Permits of Governmental Authorities and other third parties necessary to permit the development and sale of
each Qualified Project, including without limitation all applicable public reports, architectural committee approvals and other approvals required pursuant to any applicable restrictive covenants; (iii) all Approvals and Permits necessary to
commence, carry out and complete construction; and (iv) evidence of payment of all fees and other required amounts for such Approvals and Permits. 
 (c) At Lender’s request, Borrower shall provide Lender with true and correct copies of all documents and instruments relating to proposed easements, boundary line adjustments, covenants,
conditions and restrictions and other similar matters affecting title to each Qualified Project in connection with the development thereof, together with all surveys, plats, contracts, and other information requested by Lender in connection
therewith. Such easements, boundary line adjustments, covenants, conditions and restrictions and other matters shall not be entered into by Borrower unless consented to in writing by Lender, which consent shall not be unreasonably withheld by Lender
so long as they are entered into in the ordinary course of developing each Qualified Project. If such consent is granted by Lender, Lender will also enter into such subordinations and releases as may be appropriate in connection with such easements,
boundary line adjustments, and covenants, conditions and restrictions, provided that such subordinations are in form reasonably satisfactory to Lender and, in connection with any such releases, Borrower has satisfied the conditions precedent set
forth in Section 3.2.1 above. 

  
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 In the event that Borrower is not able to comply with the covenants set forth herein for a
Qualified Project or portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day
period shall be extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such noncompliance provided that Borrower shall have commenced such cure within such thirty (30) day period
and shall diligently thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.4 Utilities. Borrower shall provide or cause to be provided all telephone service, electric power, storm sewer,
sanitary sewer and water facilities for each Qualified Project, and such utilities will be adequate to serve said Project. No condition will exist to affect Borrower’s right to connect into and have adequate use of such utilities, except for
the payment of normal connection charges or tap charges and except for the payment of subsequent charges for such services to the utility supplier. In the event that Borrower is not able to comply with the covenants set forth herein for a Qualified
Project or portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period
shall be extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such non-compliance provided that Borrower shall have commenced such cure within such thirty (30) day period and
shall diligently thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.5 Plans and Specifications. Borrower shall be the sole owner of all Plans and Specifications for the Improvements for
each Qualified Project or, to the extent that Borrower is not the sole owner of such Plans and Specifications, Borrower shall have the unconditional right to use such Plans and Specifications in connection with the construction of the Improvements
for said Qualified Project. Lender will not be restricted in any way in use of such Plans and Specifications from and after an Event of Default in connection with the construction of the Improvements and the exercise of Lender’s other rights
and remedies, and Borrower shall obtain all consents and authorizations necessary for the use of such Plans and Specifications to Lender. In the event that Borrower is not able to comply with the covenants set forth herein for a Qualified Project or
portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period shall be
extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such non-compliance provided that Borrower shall have commenced such cure within such thirty (30) day period and shall
diligently thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.6 Compliance with Permitted Exceptions . Borrower shall keep and maintain in full force and effect all restrictive
covenants, development agreements, easements and other agreements with Governmental Authorities and other Persons that are necessary or desirable for the use, occupancy, and sale of each Qualified Project. Borrower shall not default in any material
respect under any such covenants, development agreements, easements and other agreements and will diligently enforce its rights thereunder. In the event that Borrower is not able to comply with the covenants set forth herein for a Qualified Project
or portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period shall be
extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such noncompliance provided that Borrower shall have commenced such cure within such thirty (30) day period and shall
diligently thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.7 Project Development. For each Qualified Project: 

(a) Borrower shall at all times maintain and operate the Project and use its best efforts to market each Qualified
Project. Regardless of whether Advances are available, Borrower shall pay all costs and expenses arising in connection with the management, operation, development and sale of said Qualified Project. The Improvements for each Qualified Project shall
be constructed and developed in 

  
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substantial conformity with the Plans and Specifications therefor, and in strict conformity with all applicable laws, rules and regulations of all Governmental Authorities with jurisdiction over
said Qualified Project and shall be contained wholly within the lot lines of the Land included within the Qualified Project and will not encroach on any other real estate, easements, building lines or setback requirements. Within fifteen
(15) days after Borrower receives notice or knowledge thereof, Borrower shall proceed with diligence to correct any material departure from applicable plans and specifications and any departure from applicable laws, rules and regulations of any
Governmental Authority with jurisdiction over said Qualified Project. The making of Advances shall not constitute a waiver of Lender’s right to require compliance with this covenant with respect to any such defect or departure from plans and
specifications or applicable laws, rules and regulations. 
 (b) With respect to those portions of each
Qualified Project which are to be open space” or otherwise constitute streets and other common areas to be dedicated and transferred to homeowners’ associations or other Governmental Authorities with jurisdiction over said Qualified
Project, and are not otherwise included within the portions of the Land to be developed by Borrower, Borrower shall take such actions as may be necessary to cause such dedications to be made promptly and in accordance with applicable covenants,
conditions and restrictions and laws, rules and regulations. Lender may, at its sole option, notify Borrower that such transfers and dedications are required by Lender, in which case Borrower shall cause such transfers and dedications to occur
within thirty (30) days. 
 In the event that Borrower is not able to comply with the covenants set forth herein for a
Qualified Project or portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day
period shall be extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such noncompliance provided that Borrower shall have commenced such cure within such thirty (30) day period
and shall diligently thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.8 Title Policy Endorsements. If required by Lender from time to time in connection with the approvals to be granted by
Lender pursuant to the Loan Documents, Borrower shall provide such continuation endorsements, date down endorsements, survey endorsements and other endorsements to each Title Policy for each Qualified Project, in form and substance satisfactory to
Lender, as Lender determines necessary to insure the priority of each said Deed of Trust as a valid first lien on the applicable Collateral, subject only to Permitted Exceptions. Borrower agrees to furnish to the Title Company such surveys and other
documents and information as Lender or the Title Company may require for the Title Company to issue such endorsements. In the event that Borrower is not able to comply with the covenants set forth herein for a Qualified Project or portion thereof
for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period shall be extended for a
reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure such non-compliance provided that Borrower shall have commenced such cure within such thirty (30) day period and shall diligently thereafter
proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply., then said Project shall cease to be a Qualified Project hereunder.

 6.3.9 Improvement Districts. For any Qualified Project, without obtaining the prior written consent of Lender,
Borrower shall not consent to, or vote in favor of, the inclusion of all or any part of the Collateral in any improvement district, any “Mello Roos” district (for Qualified Projects in California), special assessment district or
similar district. Borrower shall give immediate notice to Lender of any notification or advice that Borrower may receive from any municipality or other third party of any intent or proposal to include all or any part of the Collateral in an
improvement, assessment or other district. Upon prior written notice to Borrower, Lender shall have the right to file a written objection to the inclusion of all or any part of the Collateral in an improvement, assessment or other district, either
in its own name or in the name of Borrower, and to appear at, and participate in, any hearing with respect to the formation of any such district. In the event that Borrower is not able to comply with the covenants set forth herein for a Qualified
Project or portion thereof for a period of thirty (30) days following written notice from Lender (provided that if Borrower cannot reasonably cure such non-compliance within such thirty (30) day period, such thirty (30) day period
shall be extended for a reasonable period not in excess of ninety 

  
 43 

 
(90) days from the date of Lender’s notice to cure such non-compliance provided that Borrower shall have commenced such cure within such thirty (30) day period and shall diligently
thereafter proceed to effect such cure), then said Qualified Project (or portion thereof, as the case may be) shall cease to be a part of the Borrowing Base until Borrower shall so comply. 

6.3.10 Appraisals. Lender shall have the right to order Appraisals of each Qualified Project and all other Collateral from
time to time in Lender’s discretion. Each Appraisal is subject to review and approval by Lender. With respect to each Appraisal that Lender orders, whether as a result of applicable laws, rules, and regulations of any Governmental Authority or
as a result of Lender’s general policies and procedures applicable to loans secured by real estate or for any other reason, Borrower agrees upon demand by Lender to pay to Lender the cost and expense incurred by Lender for such Appraisals and a
fee prescribed by Lender for review of each Appraisal by Lender, subject to the limitations set forth in Section 2.4.6 above. 
 6.4 Information and Statements. Borrower shall furnish or cause to be furnished to Lender in connection with each and every Loan made hereunder: 

 

					
	 Reporting Party
	  	 Required Statement
	  	 To be Received by:

			
	1. Borrower	  	 Annual Financial Statement (audited by an
 independent certified public accountant and
 certified by the party submitting the
statement)
	  	Within 90 days of each fiscal year end
			
	2. Borrower	  	 Quarterly Financial Statement (certified by
 the party submitting the statement)
	  	Within 60 days of the end of each quarterly period
			
	3. Borrower	  	Annual Business Plan	  	Within 60 days of the end of each fiscal year end
			
	4. Borrower	  	 Monthly Borrowing Base Certificate and
 Monthly Sales Report
	  	Within 25 days of each Calendar Month end (for the Borrowing Base Certificate); and within 20 days of each Calendar Month end (for the Monthly Sales
Report)
			
	5. Borrower	  	Annual and Quarterly Compliance Certificates	  	To be provided with the annual and quarterly financial statements within the time periods described above

 6.4.1 Monthly Sales Reports. As soon as available and in any event within the time period
set forth in the chart above, Borrower shall deliver to Lender a report of all Home and Lots sales and closings during the previous Calendar Month and on a cumulative basis since inception for each Project financed hereunder, which report shall be
prepared and delivered by Borrower, shall be in form and substance satisfactory to Lender, shall be certified as true and correct on behalf of Borrower by the chief financial officer of Borrower and, upon request of Lender, shall be supported by
settlement statements relating to each Lot or Home sale. 
 6.4.2 Quarterly Financial Statements. As soon as
available and in any event within the time period set forth in the chart above, copies of the balance sheet of Borrower as of the end of such quarter (including full detail of all assets and Borrowing Base availability computations), statements of
income and retained earnings and a statement of cash flow of Borrower for such month, prepared in accordance with GAAP, and signed and certified as true and correct on behalf of Borrower by the chief financial officer of Borrower. 

6.4.3 Annual Financial Statements. As soon as available and in any event within the time period set forth in the chart
above, annual consolidated, unqualified financial statements of Borrower, including copies of the balance sheet of Borrower, internally-generated consolidating financial statements, and statements of income and retained earnings and a statement of
cash flow of Borrower for such fiscal year, in each case setting 

  
 44 

 forth in comparative form the figures for the preceding fiscal year of Borrower, all in reasonable detail
and prepared in accordance with GAAP, audited by independent certified public accountants satisfactory to Lender and accompanied by an unqualified opinion of such auditors. Such audit shall also cover and include the information contained in the
Borrowing Base Certificates delivered pursuant to Section 6.4.6. In the event that the annual financial statements provided to Lender hereunder are not accompanied by an unqualified opinion of such auditors, then Borrower shall provide such
management letters as required by Lender in its discretion. 
 6.4.4 Annual Business Plan. As soon as available
and in any event within the time period set forth in the chart above, Borrower shall provide Lender with a projection for the next twenty-four (24) Calendar Months of cash flow and Project Revenues for Borrower and all Projects financed
hereunder. 
 6.4.5 Compliance Certificates. Together with each of the financial statements required pursuant to
Sections 6.4.1-6.4.4, a statement in form and substance satisfactory to Lender, certified by the chief financial officer of Borrower that Borrower is in compliance with all covenants, terms, and conditions applicable to Borrower under or
pursuant to the Loan Documents and any other Debt owing by Borrower to any Person, and disclosing any noncompliance therewith and describing the status of Borrower’s actions to correct such noncompliance, if applicable. 

6.4.6 Monthly Borrowing Base Certificate. By the twenty-fifth (25th) day of each Calendar Month, a current Borrowing
Base Certificate reflecting the Property included the Borrowing Base as of the last day of the immediately preceding Calendar Month. 
 6.4.7 Other Items and Information. Such other information concerning Borrower, the Project, and the assets, business, financial condition, operations, property, prospects, and results of
operations of Borrower, as well as the financial statements and other information for prospective purchasers for a Bulk Lot Sale, as Lender reasonably requests from time to time. In this regard, promptly upon request of Lender, Borrower shall
deliver to Lender counterparts and/or conditional assignments as security of any and all construction contracts, receipted invoices, bills of sale, statements, conveyances, and other agreements, documents, and instruments of any nature relating to
the Project or under which Borrower claims title to any materials or supplies used or to be used in the Project. Also, in this regard, promptly upon request of Lender, Borrower shall deliver to Lender a complete list of all contractors,
subcontractors, material suppliers, other vendors, artisans, and laborers performing work or services or providing materials or supplies for the Project. 
 6.5 Law; Judgments; Material Agreements; Approvals and Permits. Borrower shall comply with all laws, ordinances, regulations, and rules (federal, state, and local) and all judgments, orders,
and decrees of any arbitrator, other private adjudicator, or Governmental Authority relating to Borrower, the Projects, or the other assets, business, operations, or property of Borrower (but only if such non-compliance in connection with
Borrower’s other assets, business, operations or property results in a Material Adverse Change). Borrower shall comply with all material agreements, documents, and instruments to which Borrower is a party and which concern the Projects.
Borrower shall not cancel or terminate any such agreements, documents or instruments if to do so could result in a Material Adverse Change. Borrower shall comply with all Requirements for the Projects (including, without limitation, as applicable,
requirements of the Federal Housing Administration and the Veterans Administration) and all conditions and requirements of all Approvals and Permits for the Projects. Borrower shall obtain and maintain in effect from time to time all Approvals and
Permits required for the development and marketing of the Project and the business activities and operations then being conducted by Borrower. Borrower shall immediately provide Lender with written notice and explanation of any litigation involving
Borrower in which the amount in dispute exceeds One Million Dollars ($1,000,000.00). In the event of any dispute that, in the good faith opinion of Lender, could result in a Material Adverse Change or the fulfillment of any condition precedent or
covenant herein, Lender may agree to make Advances for the account of Borrower without prejudice to Borrower’s rights, if any, to recover such funds from the party to whom paid. Such agreement or agreements may take any form that Lender in its
reasonable discretion deems proper, including, without limitation, agreements to indemnify a title insurer against possible assertion of lien claims and agreements to pay disputed amounts to contractors in the event Borrower is unable or unwilling
to pay the same. All sums paid or agreed to be paid pursuant to such agreement shall be for the account of Borrower and shall be charged as an Advance. 

  
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 6.6 Taxes and Other Debt. Borrower shall pay and discharge (a) before
delinquency all taxes, assessments, and governmental charges or levies imposed upon it, upon its income or profits, or upon any Projects, and (b) when due all lawful claims (including, without limitation, claims for labor, materials, and
supplies), which, if unpaid, might become a Lien or Encumbrance upon any Project. 
 6.7 Assets and Property.
Borrower shall maintain, keep, and preserve all of its assets and property (tangible and intangible) for the Projects necessary or useful in the proper conduct of its business and operations in good working order and condition, ordinary wear and
tear excepted. Borrower shall promptly obtain and maintain, from time to time at its own expense, all Approvals and Permits as may be required to enable it to comply with its obligations hereunder and under the other Loan Documents. 

6.8 Insurance. Borrower shall obtain and maintain the following insurance and pay all premiums related thereto as and when
they become due in connection with each and every Project financed hereunder: 
 6.8.1 Property. Insurance of all
Collateral against damage or loss by fire, lightning, and other perils, on an all risks basis, such coverage to be in an amount not less than the full insurable value of such Collateral on a replacement cost basis. Such policy will be written on an
all risks basis,’ with no coinsurance requirement, and will contain a provision granting the insured permission to complete and/or occupy the Project. 
 6.8.2 Liability. Commercial general liability insurance protecting Borrower and Lender against loss or losses from liability imposed by law or assumed in any agreement, document, or
instrument and arising from bodily injury, death, or property damage with a limit of liability of not less than One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) general aggregate. Also, “umbrella”
excess liability insurance in an amount not less than Ten Million Dollars ($10,000,000.00) or such greater amount as Lender may reasonably require. Such policies must be written on an occurrence basis so as to provide blanket contractual liability,
broad form property damage coverage, and coverage for products and completed operations. If required by Lender, Borrower shall also obtain and maintain business motor vehicle liability insurance protecting Borrower and Lender against loss or losses
from liability relating to motor vehicles owned, non-owned, or hired and used by Borrower or its agents and employees, with a limit of liability of not less than One Million Dollars ($1,000,000.00) (combined single limit for personal injury
(including bodily injury and death) and property damage). Borrower acknowledges that Borrower has been advised by Lender of, and agrees that the requirements of this Section 6.8.2 are in compliance with, the following legal limitation regarding
hazard insurance coverage for the Project pursuant to Civil Code Section 2955.5: 
 “No lender shall
require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the
improvements on the property.” 
 6.8.3 Flood. A policy or policies of flood insurance in the maximum amount
of flood insurance available with respect to the Project under the Flood Disaster Protection Act of 1973, as amended. This requirement will be waived with respect to portions of the Project upon presentation of evidence satisfactory to Lender that
no such portion of the Project in question is or will be located within an area identified by the U.S. Department of Housing and Urban Development as having special flood hazards. 

6.8.4 Worker’s Compensation. Worker’s compensation insurance disability benefits insurance and such other forms
of insurance as required by law covering loss resulting from injury, sickness, disability, or death of employees of Borrower. 

6.8.5 Contractors. During the construction of the Improvements, any and all contractors and subcontractors will be required
to carry liability insurance of the type and providing the minimum limits set forth below: 
 (a)
Worker’s Compensation. Worker’s compensation insurance, disability benefits insurance and each other form of insurance which such contractor is required by law to provide,

  
 46 

 
covering loss resulting from injury, sickness, disability or death of employees of the contractor who are located on or assigned to the construction of the Improvements. 

(b) Liability. Comprehensive general liability insurance coverage for: 

Property and Operations 
 Products and Completed Operations 
 Contractual Liability

 Personal Injury Liability 

Broad Form Property Damage (including completed operations) 

Explosion Hazard 
 Collapse Hazard 
 Underground Property Damage Hazard 

Such policy will have a limit of liability of not less than One Million Dollars ($1,000,000.00) (combined single limit for personal injury, including
bodily injury or death, and property damage). 
 6.8.6 Additional Insurance. Such other policies of insurance as
Lender may reasonably request in writing, provided, Lender agrees that it will not require earthquake insurance. All policies for required insurance will be in form and substance satisfactory to Lender in its absolute and sole discretion. All
required insurance will be procured and maintained in financially sound and generally recognized responsible insurance companies selected by Borrower and approved by Lender. Deductibles under insurance policies required pursuant to Section 6.8
will not exceed the amounts approved from time to time by Lender. Such companies must be authorized to write such insurance in the states in which the Collateral is located. Each company issuing the policies shall be rated “A-” (or A
minus) or better by A.M. Best Co., in Best’s Key Guide, or such other rating as may be acceptable to Lender. All property policies evidencing required insurance will name Lender, as first mortgagee and loss payee. All liability policies
evidencing required insurance will name Lender as additional insured. The policies will not be cancelable as to the interests of Lender due to the acts of Borrower. The policies will provide for at least thirty (30) days prior written notice of
the cancellation or modification thereof to be given to Lender. A certified copy of each insurance policy or, if acceptable to Lender-in its absolute and sole discretion, certificates of insurance evidencing that such insurance is in full force and
effect, will be delivered to Lender, together with proof of the payment of the premiums thereof. Prior to the expiration of each such policy, Borrower shall furnish Lender evidence that such policy has been renewed or replaced in the form of the
original or a certified copy of the renewal or replacement policy or, if acceptable to Lender in its absolute and sole discretion, a certificate reciting that there is in full force and effect, with a term covering at least the next succeeding
calendar year, insurance of the types and in the amounts required in Section 6.8. 
 6.9 Commencement and
Completion. Borrower shall cause construction of the Improvements to be prosecuted and completed in good faith, with due diligence, and without delay, subject to any Force Majeure Events; provided, however, that in all events all
Improvements shall be constructed and completed prior to the applicable Lot Advance Maturity Date or applicable Home Advance Maturity Date for the subject Lot or Home for which said Improvements are being constructed. Upon demand by Lender, Borrower
shall correct any defect in the Improvements or any material departure from any applicable Requirements or, to the extent not theretofore approved in writing by Lender, the applicable plans and specifications. Borrower understands and agrees that
the inspection of the Improvements on behalf of Lender, the review by Lender or others acting on behalf of Lender of Draw Requests and related documents and information, the making of Advances by Lender, and any other actions by Lender will be for
the sole benefit of Lender and will not be a waiver of the right to require compliance with this Section 6.9. In the event that construction of any Improvements for any Qualified Project is abandoned or halted prior to completion for any period
of fifteen (15) consecutive days for any cause not a Force Majeure Event (or for any period up to, in the aggregate, ninety (90) consecutive days as a result of one or more Force Majeure Events) or otherwise beyond the reasonable control
of Borrower, Contractor or any subcontractor, or not completed by the applicable maturity date, then said Qualified Project shall cease to be part of the Borrowing Base until a cure thereof shall have occurred. 

  
 47 

 6.10 Rights of Inspection; Agency. 

6.10.1 Generally. Lender and its respective agents, employees, and representatives will have the right, at the sole cost
and expense of Borrower, at any time and from time to time to enter upon the Collateral in order to inspect the Collateral and all aspects thereof, including, without limitation, in order to determine if Collateral is property classified for
Borrowing Base purposes. All inspections by Lender are for the sole purpose of protecting the security of Lender and are not to be construed as a representation by Lender that there has been compliance with applicable plans and specifications, the
applicable Requirements, or that the Project is free of defects in materials or workmanship. Borrower may make or cause to be made such other independent inspections as Borrower may desire for its own protection. Based on such inspections, Lender
may adjust the Borrowing Base and other calculations pursuant to this Agreement. 
 6.10.2 Inspector(s). Without
limiting the rights of Lender pursuant to Section 6.10, Lender may employ outside inspectors to perform some or all of the inspections described in Section 6.10 and may also elect to have Lender’s own employees perform some or all of
such inspection duties and review the reports of outside inspectors. 
 6.11 Verification of Costs. Lender will
have the right at any time and from time to time to review and verify all Hard Costs and Soft Costs incurred by Borrower. 

6.12 Use of Proceeds. Borrower shall use proceeds of Advances only for the purposes described herein. 

6.13 Costs and Expenses of Borrower’s Performance of Covenants and Satisfaction of Conditions. Borrower shall perform
all of its obligations and satisfy all conditions under the Loan Documents at its sole cost and expense. 
 6.14
Notification. Borrower shall promptly disclose to Lender the occurrence of: (a) any Material Adverse Change; (b) any change in the Requirements of any Governmental Authority that would materially and adversely affect
Borrower’s ability to develop any Project; (c) any action or proceeding which is instituted by or against Borrower or any Project in any Federal or state court or before any Governmental Authority, federal, state or local, foreign or
domestic, or any such actions or proceedings are threatened against Borrower or any Project which, in any such case, if adversely determined, would cause a Material Adverse Change; and (d) the occurrence of any Event of Default or Unmatured
Event of Default. 
 6.15 Financial Covenants. Financial covenants described in this Section 6.15, together
with all other financial covenants and restrictions set forth in this Agreement shall be monitored quarterly by Lender upon receipt of the financial statements to be provided hereunder. 

 

					
	 Covenant Party
	 	 Covenant Type
	 	 Covenant Requirement

	Borrower	 	Maximum Total Liabilities-to-Tangible Net Worth Ratio	 	Not in excess of 1.5:1.0
			
	Borrower	 	Minimum Tangible Net Worth	 	Not less than the sum of $15,000,000.00 plus 50% of all annual Net Income hereafter realized plus 50% of
additional future Capital Contributions
			
	Borrower	 	Minimum Liquidity	 	Not less than the greater of (i) $5,000,000.00 or (ii) 10% of Total Liabilities

  
 48 

 6.15.1 No Other Debt. Except as approved by Lender, there shall be no third
party Debt on the Property or in any Qualified Project, other than trade debt. Lender shall have the right, but not the obligation, to declare a default under the Loan if there are any material uncured monetary or non-monetary defaults on any and
all trade debt obligations (including without limitation any other loans by Lender) of Borrower, which in Lender’s reasonable judgment will materially impair the ability of Borrower to perform under the terms of this Agreement, the Note or the
Security Documents. 
 6.15.2 No Other Loan Defaults. Borrower shall not be in default under any “Other
Loan.” For purposes of this Section 6.15.2, an “Other Loan” shall mean any loan by Lender, or any affiliate or subsidiary of Lender, that is made to Borrower. It is the expressed intent of Borrower to cross-default
this Loan with any Other Loan, such that (a) any Event of Default under this Loan shall constitute a default under each and every Other Loan, and (b) any default under each and every Other Loan shall constitute an Event of Default under
this Loan. 
 6.16 Books and Records; Names; Place of Business and Chief Executive Office. Borrower shall give
Lender thirty (30) days prior written notice of any change in the location of its books and records or its sole place of business or chief executive office. 
 6.17 Proceeds of Purchase Contracts. 
 6.17.1 After Event of
Default or Unmatured Event of Default. From and after the occurrence and during the continuation of an Event of Default or Unmatured Event of Default, all payments of Net Sales Proceeds under Purchase Contracts shall be paid directly to
Lender to be applied by Lender to the payment of the Obligations in such order as Lender may determine in its sole and absolute discretion. Absent the occurrence and continuation of an Event of Default or Unmatured Event of Default, such amounts
required to be paid to Lender shall be applied (i) first to pay amounts due pursuant to Section 3.2.2, and (ii) then the balance shall be deposited with Lender. 
 6.17.2 Payments to Lender. If Borrower collects or receives any amounts payable to Lender pursuant to this Section 6.17, Borrower shall forthwith, upon receipt, transmit and deliver to
Lender in the form received all cash, checks, drafts, chattel paper, and other instruments or writings for the payment of money (endorsed, where required, so that such items may be collected by Lender). Any such proceeds which may be so received by
Borrower will not be commingled with any other of Borrower’s funds or property, but will be held separate and apart from Borrower’s own funds or property and upon express trust for Lender until delivery is made to Lender. 

7. BORROWER NEGATIVE COVENANTS. Until the Commitment terminates in full and the Obligations are paid and performed in full, Borrower agrees
that, unless Lender otherwise agrees in writing in Lender’s absolute and sole discretion: 
 7.1 Corporate
Restrictions. Borrower will not issue any capital stock in Borrower or grant any option, right of first refusal, warrant, or other right to purchase any capital stock in Borrower. Borrower will not be dissolved or liquidated. Borrower will
not amend, modify, restate, supplement, or terminate any of its Organizational Documents, Borrower will not consolidate or merge with any corporation, any other limited partnership, any limited liability company, or any other Person. 

7.2 Name, Fiscal Year, Accounting Method, and Lines of Business. Borrower will not change its name, fiscal year, or method
of accounting. Borrower will not directly engage in any business other than the lines of business in which Borrower is engaged on the date of this Agreement, discontinue any existing lines of business that are material to the business or operations
of Borrower, or substantially alter its method of doing business. 
 7.3 Change in Ownership. Borrower will not
suffer to occur or exist, whether occurring voluntarily or involuntarily, any change in, or Lien or Encumbrance with respect to any membership interests in Borrower, as long as the foregoing shall in no way restrict (i) any transfer of
membership interests between the current members of Borrower or their affiliates (provided that no such transfer shall result in any change in the management of Borrower), or (ii) any transfer of any membership interests in Borrower resulting
from the death or disability of an 

  
 49 

 
individual member; provided, however, that any change that would result in less than two of the following persons acting as executive officers of Borrower – Douglas F. Bauer, Thomas J.
Mitchell and/or Michael D. Grubbs – shall not be permitted without the prior consent of Lender at its sole discretion). 

7.4 Loans. Borrower will not directly or indirectly in relation to any Qualified Projects (i) make any loan or advance
to any other Person other than purchase money loans made in the ordinary course of business and advances made in the ordinary course of constructing the infrastructure for said Project to Persons engaged in such construction, purchase or otherwise
acquire any capital stock or any securities of any other Person, any limited liability company interest or partnership interest in any other person, or any warrants or other options or rights to acquire any capital stock or securities of any other
person or any limited liability company interest or partnership interest in any other Person, (ii) make any Capital Contribution to any other Person, (iii) otherwise invest in or acquire any interest in any other Person or establish any
subsidiaries, (iv) guarantee or otherwise become obligated in respect of any indebtedness of any other Person, or (v) subordinate any claim against or obligation of any other Person to Borrower to any other indebtedness of such Person. The
restrictions set forth in this Section 7.4 apply only to Qualified Projects, and shall not apply to any other projects in which Borrower may be directly or indirectly involved. 

7.5 Liens and Encumbrances. Except for (i) Permitted Exceptions, (ii) Liens and Encumbrances securing this Loan,
and (iii) involuntary Liens and Encumbrances being contested in good faith and through appropriate proceedings, and otherwise in accordance with the applicable conditions of the Loan Documents, Borrower shall not grant or suffer to exist any
Lien or Encumbrance upon any Property. 
 7.6 Indebtedness. Borrower shall not assume, create, incur, or permit to
exist any Debt for any Property, except (i) the Obligations, and (ii) trade obligations and normal accruals in the ordinary course of business not yet due and payable. Borrower shall not assume, create, incur, or permit to exist any
contingent liabilities, including, without limitation, contingent reimbursement obligations under letters of credit other than the Letters of Credit; provided, however, that Borrower may incur and permit to exist contingent liabilities resulting
from the issuance of payment and performance bonds related to construction of the Improvements. 
 7.7 Acquisition of
Assets. Borrower shall not acquire by purchase, lease or otherwise all or substantially all the assets of any other person, if to do so would materially affect its business or operations. 

8. EVENTS OF DEFAULT AND REMEDIES. 
 8.1 Events of Default. The occurrence of any one (1) or more of the following shall constitute an Event of Default under this Agreement: 

8.1.1 Failure by Borrower to pay any monetary amount when due under any Loan Document and the expiration of ten (10) days
after written notice of such failure by Lender to Borrower. 
 8.1.2 Failure by Borrower to perform obligation not
involving the payment of money, or to comply with any other term or condition applicable to Borrower under any Loan Document, and the expiration of thirty (30) days after written notice of such failure by Lender to Borrower, provided that if
Borrower cannot reasonably cure such failure within such thirty (30) day period, such thirty (30) day period shall be extended for a reasonable period not in excess of ninety (90) days from the date of Lender’s notice to cure
such failure provided that Borrower shall have commenced such cure within such thirty (30) day period and shall diligently thereafter proceed to effect such cure. 
 8.1.3 Any representation or warranty by Borrower in any Loan Document is materially false, incorrect, or misleading as of the date made, provided, if Borrower did not knowingly make such
misrepresentation, Borrower shall have the opportunity to cure such matter within the applicable notice and cure periods set forth in Section 8.1.2 above. 
 8.1.4 Borrower (i) is unable or admits in writing its inability to pay its monetary obligations as they become due, (ii) makes a general assignment for the benefit of creditors, or
(iii) applies for, consents to or 

  
 50 

 acquiesces in the appointment of a trustee, receiver or other custodian for itself or its property or any
part thereof, or in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Borrower, or the property of Borrower or any part thereof, and such appointment is not discharged within
sixty (60) days. 
 8.1.5 Commencement of any case under the Bankruptcy Code, Title 11 of the United States
Code or commencement of any other bankruptcy arrangement, reorganization, receivership, custodianship or similar proceeding under any federal, state or foreign law by or against Borrower, and such case in not discharged within sixty (60) days
of filing. 
 8.1.6 Borrower fails to pay when due (after the expiration of any applicable notice and cure period) any
monetary obligation (other than the Loan) for the Property or the Project, whether such obligation be direct or contingent, to any person in excess of Five Hundred Thousand Dollars ($500,000.00), provided that Borrower may in good faith contest any
such monetary obligation by appropriate administrative or judicial proceedings as long as (i) said contesting party has, in Lender’s judgment, a reasonable basis for such contest, (ii) said contesting party pays when due any portion
of such monetary obligation that said party does not contest, (iii) said contesting party’s contest will not result in or pose any risk of the seizure, sale or imposition of a lien upon the Property or the Project or any portion thereof,
or said contesting party has posted appropriate lien release bonds as permitted by applicable law in order to cause any such lien to be released from the Property or the Project, (iv) said contesting party delivers to Lender such bond or other
security as Lender may require in connection with such contest, (v) said contesting party at all times prosecutes such contest with due diligence, and (vi) said contesting party pays, promptly following a determination of the amount of
such monetary obligation due and owing by Borrower. In the event that said contesting party does not make, promptly following a determination of the amount of such monetary obligation due and owing by said contesting party, any payment required to
be made pursuant to clause (vi) of the preceding sentence, an Event of Default shall have occurred and Lender may draw or realize upon any bond or other security delivered to Lender in connection with the contest by Borrower, in order to make
such payments. 
 8.1.7 Any litigation or proceeding that, in Lender’s reasonable judgment if determined adversely
to Borrower, would constitute a Material Adverse Change on Borrower or any Project, is commenced before any Governmental Authority against or affecting Borrower, or the Project, and such litigation or proceeding is not defended diligently and in
good faith by Borrower or is not discharged within sixty (60) days of filing. 
 8.1.8 A final judgment or decree
for monetary damages or a monetary fine or penalty (not subject to appeal or as to which the time for appeal has expired) for any Project is entered against Borrower by any Governmental Authority, which together with the aggregate amount of all
other such judgments, decrees, fines and penalties against Borrower that remain unpaid or that have not been discharged or stayed, exceeds One Million Dollars ($1,000,000.00) or would otherwise in Lender’s reasonable judgment constitute a
Material Adverse Change on Borrower or any Project, and such judgment, decree, fine or penalty is not paid, discharged or stayed within thirty (30) days after the entry thereof. 

8.1.9 Commencement of any action or proceeding which seeks as one of its remedies the dissolution of Borrower, and such action is
not discharged within sixty (60) days of filing. 
 8.1.10 All or any part of Borrower’s interest in any
Project is attached, levied upon or otherwise seized by legal process, and such attachment, levy or seizure is not quashed, stayed or released within thirty (30) days of the date thereof. 

8.1.11 The occurrence of any prohibited transfer under Section 2.9 of any Deed of Trust, unless prior to such transfer the
holder of the Note has delivered to Borrower the written consent of such holder to such transfer. 
 8.1.12 The
occurrence of any Event of Default, as such term is defined in any other Loan Document. 

  
 51 

 8.1.13 If Borrower, at any time, ceases to manage the Projects financed hereunder.

 8.1.14 Any Governmental Authority with jurisdiction over the Property or any Project orders or requires that
construction of any Improvements be stopped, in whole or in part, or any required approval, license or permit is withdrawn or suspended, and the order, requirement, withdrawal or suspension remains in effect for a period of thirty (30) days,
then the Qualified Project or Property to which the order, requirement, withdrawal or suspension relates shall not be a part of the Borrowing Base until such order, requirement, withdrawal or suspension is no longer in effect. 

8.1.15 Failure to deposit with Lender in cash or cash equivalents, as required herein, the amount necessary to put the Loan
“in balance” (as required pursuant to Sections 2.1.6(c), 2.2.3(d), 2.3.4 and 2.4.5 above) within ten (10) days after Lender’s notice to Borrower that the Loan is not “in balance,” or any other failure
to deposit the amount(s) necessary and required herein within ten (10) days after the date such amounts are required to be deposited. 
 8.2 Rights and Remedies of Lender. 
 8.2.1 Notwithstanding
any provision to the contrary herein or any of the other Loan Documents, during the continuance of any Event of Default under this Agreement, or during the continuance of an Event of Default under any of the other Loan Documents:
(i) Lender’s obligation to make further disbursements of the Loan shall abate; and (ii) if the Event of Default shall not be cured within the applicable notice and cure periods, then Lender shall, at its option, have the remedies
provided in -the Loan Document breached by Borrower, including, without limitation, the option to declare all outstanding indebtedness to be immediately due and payable without presentment, demand, protest or notice of any kind, and the following
remedies: Lender’s obligation to make further disbursements to Borrower shall terminate; Lender may, at its option, apply any of Borrower’s funds in its possession to the outstanding indebtedness under the Note whether or not such
indebtedness is then due; Lender may exercise all rights and remedies available to it under any or all of the Loan Documents; and Lender shall have the right to cause an independent contractor selected by Lender to enter into possession of the
Property and to perform any and all work and labor necessary for the completion of the Project substantially in accordance with the Plans and Specifications and to perform Borrower’s obligations under this Agreement. All sums expended by Lender
for such purposes shall be deemed to have been disbursed to and borrowed by Borrower and shall be secured by the Deed of Trust on the Property. 
 (a) Subject to the provisions of Sections 8.2.1(b) and 8.2.1(c) below, Lender and Borrower acknowledge and agree that in each instance in which a Project ceases to be a Qualified Project so as
to be included in the Borrowing Base, either due to (i) the failure of or non-compliance with any representations and warranties under Sections 5.1.7, 5.1.9, 5.1.13-5.1.16, or (ii) the failure of or non-compliance with any affirmative
covenants under Sections 6.3.1, 6.3.3-6.3.9, 6.9 or (iii) the failure to cure a default under Section 8.1.14, then such removal of said Project from the Borrowing Base shall not in and of itself constitute an Event of Default under
this Agreement. 
 (b) Notwithstanding any other provision of this Agreement to the contrary, if any
adjustment in the Borrowing Base shall arise from a Project ceasing to be a Qualified Project for the purpose of inclusion in the Borrowing Base and Borrower shall fail or refuse to timely make any principal payment required as a result of said
adjustment, then such failure and/or refusal to timely make said payment shall constitute an Event of Default under this Agreement. 
 (c) Notwithstanding any other provision of this Agreement to the contrary, any failure or non-compliance by Borrower with any representation, warranty, covenant (including without limitation the
financial covenants set forth in Section 6.15 above), duty, obligation, promise or agreement set forth herein shall constitute an Event of Default under this Agreement unless such failure or non-compliance is (i) cured as provided herein,
or (ii) expressly waived in writing by Lender, or (iii) subject to the express provisions of Section 8.2.1(a) above. 
 8.2.2 Borrower hereby constitutes and appoints Lender, or an independent contractor selected by Lender, as its true and lawful attorney-in-fact with full power of substitution, for the purposes of
completion of 

  
 52 

 each and every Project and performance of Borrower’s obligations under this Agreement in the name of
Borrower, and hereby empowers said attorney-in-fact to do any or all of the following upon the occurrence and during the continuance of an Event of Default (it being understood and agreed that said power of attorney shall be deemed to be a power
coupled with an interest which cannot be revoked until repayment of the Loan): 
 (a) To use any of the
funds of Borrower, including any Borrowing Availability under the Loan, as applicable, and any funds which may be held by Lender for Borrower, for the purpose of effecting completion of the Improvements in the manner called for by the Plans and
Specifications; 
 (b) To make such additions, changes and corrections in the Plans and Specifications as
shall be necessary or desirable to complete the Improvements in substantially the manner contemplated by the Plans and Specifications; 
  

	 	                   (c)	To employ any contractors, subcontractors, agents, architects and inspectors required for said purposes; 

 

	 	                   (d)	To employ attorneys to defend against attempts to interfere with the exercise of power granted hereby; 

(e) To pay, settle or compromise all existing bills and claims which are or may be liens against the Property, the
Improvements or the Project or may be necessary or desirable for the completion of the Improvements or clearance of objections to or encumbrances on title; 
 (f) To execute all applications and certificates in the name of Borrower which may be required by any other construction contract; 

(g) To prosecute and defend all actions or proceedings in connection with the Project, and to take such action,
require such performance and do any and every other act as is deemed necessary with respect to the completion of the Improvements which Borrower might do on its own behalf; and 

(h) To let new or additional contracts (to the extent not prohibited by existing contracts) to employ watchmen and
erect security fences to protect the Project from injury, and to take such action and require such performance as Lender deems necessary under any of the bonds or insurance policies to be furnished hereunder, to make settlements and compromises with
the sureties or insurers thereunder, and in connection therewith to execute instruments of release and satisfaction. 
 9. BANK’S
OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK. No Person, other than Borrower and Lender, shall have any rights hereunder or be a third-party beneficiary hereof. Lender is not a joint venturer or a partner with Borrower. Prior to an
Event of Default and thereafter until Lender elects in writing to assume specific obligations of Borrower, Lender shall not be obligated to any Person providing labor, materials, or other services for the Project and payment of funds from Advances
directly to any such Persons shall not give or be a recognition of any third-party beneficiary status. 
 10. NO BROKERS. Except
as disclosed by Borrower to Lender in writing prior to the date of this Agreement, Borrower and Lender represent and warrant to the other that it knows of no broker’s or finder’s fee due in respect of the transaction described in this
Agreement and that it has not used the services of a broker or a finder in connection with this transaction. 
 11. PROVISIONS IN THE NOTE
GOVERN THIS AGREEMENT. This Agreement is subject to certain terms and provisions in the Note, to which reference is made for a statement of such terms and provisions. 
 12. COUNTERPART EXECUTION. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same
document. Signature 

  
 53 

 pages may be detached from the counterparts and attached to a single copy of this Agreement to physically
form one document. 
 13. MISCELLANEOUS. 
 13.1 Assignment. 
 (a) Borrower shall not
assign this Agreement or any interest it may have in the monies due hereunder, without the prior written consent of Lender, which consent may be granted or withheld in Lender’s sole and absolute discretion. Notwithstanding the foregoing, in the
event of any such assignment, Lender may nevertheless at its option continue to make disbursements under this Agreement to Borrower or to those who succeed to Borrower’s title, and all sums shall be deemed to be disbursements under this
Agreement, and not to be modifications hereof, and shall be secured by the Deed of Trust. 
 (b) Subject
to the provisions of Section 13.18 below, Lender may at any time assign this Agreement, the Note, the Deed of Trust and other Loan Documents, and upon such assignment Lender shall have no further obligation or liability of any nature in
connection herewith. Upon such assignment, the provisions of this Agreement shall continue to apply to the Loan and such assignee shall be substituted in the place and stead of Lender hereunder with all rights, obligations and remedies of Lender
herein provided, including without limitation the right to so further assign this Agreement, the Note, the Deed of Trust and other Loan Documents. 
 13.2 Notices. All notices, requests, demands and consents to be made hereunder to the parties hereto shall be in writing and shall be delivered by hand or sent by registered mail or
certified mail, postage prepaid, return receipt requested, through the United States Postal Service to the addresses shown below or such other address which the parties may provide to one another in accordance herewith. Such notices, requests,
demands and consents, if sent by mail, shall be deemed given two (2) Business Days after deposit in the United States mail, and if delivered by hand, shall be deemed given when delivered. 

 

							
		 	 If to Borrower:
	  	TRI POINTE HOMES, LLC	  	
		 		  	19520 Jamboree Road, Suite 200	  	
		 		  	Irvine, California 92612	  	
		 		  	Attn: Douglas F. Bauer	  	
				
		 	 With a copy to:
	  	Allen Matkins Leck Gamble Mallory & Natsis LLP	  	
		 		  	1900 Main Street, 5th Floor	  	
		 		  	Irvine, California 92614	  	
		 		  	Attn: Richard E. Stinehart, Esq.	  	
				
		 	 If to Lender:
	  	CALIFORNIA BANK & TRUST	  	
		 		  	1900 Main Street, Suite 200	  	
		 		  	Irvine, California 92614	  	
		 		  	Attn: Jake Lehmkuhl	  	
				
		 	 And a copy to:
	  	BRYAN CAVE LLP	  	
		 		  	3161 Michelson Drive, Suite 1500	  	
		 		  	Irvine, California 92612	  	
		 		  	Attn: Ren R Hayhurst, Esq.	  	

 13.3 Authority to File Notices. Upon the occurrence of any Event of Default, Borrower
irrevocably appoints Lender as its attorney-in-fact, with full power of substitution, to file or record, at the Borrower’s cost and expense and in Borrower’s name, any notices of completion, notices of cessation of labor, or any other
notices that Lender considers necessary or desirable to protect its security. 

  
 54 

 13.4 Inconsistencies with the Loan Documents. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the Loan Documents, the terms of this Agreement shall govern and prevail. 
 13.5 No Waiver. No disbursement of proceeds of the Loan shall constitute a waiver of any conditions to Lender’s obligation to make further disbursements nor, in the event Borrower is
unable to satisfy any such conditions, shall any such waiver have the effect of precluding Lender from thereafter declaring such inability to constitute an Event of Default under this Agreement. 

13.6 Lender Approval of Instruments and Parties. All proceedings taken in accordance with transactions provided for herein,
and all surveys, appraisals and documents required or contemplated by this Agreement and the persons responsible for the execution and preparation thereof, shall be satisfactory to and subject to approval by Lender. Lender’s counsel shall be
provided with copies of all documents which they may reasonably request in connection with the Agreement. 
 13.7 Lender
Determination of Facts. Lender shall at all times be free to establish independently, to its satisfaction, the existence or nonexistence of any fact or facts, the existence or nonexistence of which is a condition of this Agreement.

 13.8 Incorporation of Preamble: Recitals and Exhibits. The preamble, recitals and exhibits hereto are hereby
incorporated into this Agreement. 
 13.9 Third-Party Consultants. Lender may hire such third-party consultants as
it deems necessary, the costs of which shall be paid by Borrower, to provide the following services: (a) review final Plans and Specifications and final construction cost breakdown and the construction schedule; (b) conduct compliance
inspections with respect to the progress of construction of the Project and approve each element of a request for disbursement relating to construction costs, and (c) perform such other services as may, from time to time, be required by Lender.
This obligation on the part of Borrower shall survive the closing of the Loan and the repayment thereof. Borrower hereby authorizes Lender, in its discretion, to pay such expenses, charges, costs and fees at any time by a disbursement of the Loan,
and to the extent the applicable Loan Budget category is insufficient, such expenses, charges, costs and fees shall be paid by Borrower from its own funds. 
 13.10 Payment of Expenses. Borrower shall pay all taxes and assessments and all expenses, charges, costs and fees provided for in this Agreement or relating to the Loan or construction of
the Improvements, including, without limitation, any fees incurred for recording or filing any of the Loan Documents, title insurance premiums and charges, tax service contract fees, fees of any consultants, Lender’s processing and closing
fees, reasonable fees and expenses of Lender’s counsel, printing, photostatting and duplicating expenses, air freight charges, escrow fees, costs of surveys, premiums of hazard insurance policies and surety bonds and fees for any appraisal,
appraisal review, market or feasibility study required by Lender. Borrower hereby authorizes Lender to disburse the proceeds of the Loan to pay such expenses, charges, costs and fees notwithstanding that Borrower may not have requested a
disbursement of such amount, provided that Borrower acknowledges that Lender has no obligation to disburse amounts listed under “Borrower’s Equity” on the A&D Budget or the Home Construction Budget. Such disbursement shall
be added to the outstanding Loan Balance. The authorization hereby granted shall be irrevocable, and no further direction or authorization from Borrower shall be necessary for Lender to make such disbursements. However, the provision of this
Section 13.10 shall not prevent Borrower from paying such expense, charges, costs and fees from its own funds. All such expenses, charges, costs and fees shall be Borrower’s obligation regardless of whether or not Borrower has requested
and met the conditions for a disbursement of the Loan. The obligations on the part of Borrower under this Section 13.10 shall survive the closing of the Loan and the repayment thereof. 

13.11 Disclaimer by Lender. Lender shall not be liable to any contractor, subcontractor, supplier, laborer, architect,
engineer or any other party for services performed or materials supplied in connection with the Project. Lender shall not be liable for any debts or claims accruing in favor of any such parties against Borrower or others or against the Property or
the Project. Borrower is not and shall not be an agent of Lender for any purpose. Lender is not a joint venture partner with Borrower in any manner whatsoever. Prior to default by Borrower under this Agreement and the exercise of remedies granted
herein, Lender shall not be deemed to be in privity of contract 

  
 55 

 with any contractor or provider of services to the Project, nor shall any payment of funds directly to a
contractor, subcontractor or provider of services be deemed to create any third party beneficiary status or recognition of same by Lender. Approvals granted by Lender for any matters covered under this Agreement shall be narrowly construed to cover
only the parties and facts identified in any written approval or, if not in writing, such approvals shall be solely for the benefit of Borrower. 
 13.12 Indemnification. To the fullest extent permitted by law, Borrower agrees to protect, indemnify, defend and hold harmless Lender, and its directors, officers, agents and employees, from
and against any and all liability, expense or damage of any kind or nature and from any suits, claims or demands, including reasonable legal fees and expenses on account of any matter or thing or action or failure to act by Lender, whether in suit
or not, arising out of this Agreement or in connection herewith, other than such claims and liabilities as arise solely from the gross negligence or intentional misconduct of Lender. Upon receiving knowledge of any suit, claim or demand asserted by
a third party that Lender believes is covered by this indemnity, Lender shall give Borrower notice of the matter and an opportunity to defend it, at Borrower’s sole cost and expense, with legal counsel satisfactory to Lender. Lender may also
require Borrower to so defend the matter. The obligations on the part of Borrower under this Section 13.12 shall survive the closing of the Loan and the repayment thereof. 

13.13 Titles and Headings. The titles and headings of sections of this Agreement are intended for convenience only and
shall not in any way affect the meaning or construction of any provision of this Agreement. 
 13.14 Brokers.
Borrower and Lender represent to each other that neither of them knows of any brokerage commissions or finders’ fee due or claimed with respect to the transaction contemplated hereby. Borrower and Lender shall indemnify and hold harmless the
other party from and against any and all loss, damage, liability and expense, including costs and reasonable attorneys’ fees, which such other party may incur or sustain by reason of or in connection with any misrepresentation by the
indemnifying party with respect to the foregoing. 
 13.15 Change, Discharge, Termination or Waiver. No provision
of this Agreement may be changed, discharged, terminated or waived except in writing signed by the party against whom enforcement of the chance, discharge, termination or waiver is sought. No failure on the part of Lender to exercise and no delay by
Lender in exercising any right or remedy under the Loan Documents or under the law shall operate as a waiver thereof. 

13.16 Choice of Law. This Agreement and the transaction contemplated hereunder shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to conflict of laws principles. 
 13.17
Disbursements in Excess of Loan Amount. In the event the total disbursements by Lender exceed the amount of the Loan, the total of all disbursements shall be secured by the Deed of Trust. All other sums expended by Lender pursuant to this
Agreement or any other Loan Documents shall be deemed to have been paid to Borrower and shall be secured by, among other things, the Deed of Trust. 
 13.18 Participations. Lender may at any time sell, assign, grant participations in, or otherwise transfer to any other person, firm or corporation (each a “Participant”) all
or part of the indebtedness of Borrower outstanding under this Agreement or the Note. Borrower hereby acknowledges and agrees that any such disposition will give rise to each Participant becoming a co-lender and an equitable owner of an undivided
fractional interest in the Loan and the Loan Documents, with California Bank & Trust, a California banking corporation (“CB&T”), acting as the sole administrative agent for all said Participants as co-lenders; provided,
however, that after any such disposition, as between Borrower and Lender under the Loan Documents, CB&T has the sole authority to bind the co-lenders under said Loan Documents, and Borrower shall have the right and the duty to continue to deal
solely with CB&T concerning any part of the Loan in the same manner as if CB&T were the sole owner thereof and as if no sale of any participation interest had occurred. Subject to the foregoing, Borrower agrees and consents CB&T’s
sale or transfer, whether now or later, of one (1) or more participation interests in the Loan to one (1) or more Participants, whether related or unrelated to Lender, with all references in the Loan Documents to Lender (together with all
participants, successors and assigns) to include all said Participants as co-lenders hereunder. Lender may provide, without any limitation whatsoever, to any one (1) or more 

  
 56 

 Participants, or potential Participant, any information or knowledge Lender may have about Borrower or about
any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters as may be disclosed to said Participants or potential Participants. Borrower additionally waives any and all notices of
sale of participation interests, as well as all notice of any repurchase of a participation interest. Borrower also agrees that any Participant will be considered as the absolute owner of such participation interest in the Loan and will have all the
rights granted under the intercreditor agreement and/or other agreements between Lender and Participant governing the sale of such participation interest. Subject to the foregoing, Borrower further waives all rights of offset or counterclaim
(excluding any rights or counterclaims arising from the gross negligence or willful misconduct of or breach of this Agreement by CB&T) that it may have now or later against Lender or against any Participant and unconditionally agrees that either
Lender or such Participant, as provided in said intercreditor agreement, may enforce Borrower’s obligations under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. In no event shall any sale,
assignment or participation in the Loan result in any delay or change in the requirements for the disbursement of Loan funds to Borrower or alter any of Borrower’s or Lender’s obligations under the Loan. 

13.19 Time Is of the Essence. Time is of the essence of this Agreement. 

13.20 Attorneys’ Fees. Borrower shall promptly pay to Lender from Borrower’s own funds or from the proceeds of
the Loan, upon demand, with interest thereon from the date of demand at the Default Interest Rate, reasonable attorneys’ fees, expert witness fees and all costs and other expenses paid or reasonably incurred by Lender in enforcing or exercising
its rights or remedies created by, connected with or provided for in this Agreement or any of the other Loan Documents, and payment thereof shall be secured by the Deed of Trust. If at any time Borrower fails, refuses or neglects to do any of the
things herein provided to be done by Borrower, Lender shall have the right, but not the obligation, to do the same but at the expense and for the account of Borrower. The amount of any moneys so expended or obligations so incurred by Lender,
together with interest thereon at the Default Interest Rate, shall be repaid to Lender forthwith upon written demand therefor and payment thereof shall be secured by the Deed of Trust. 

13.21 Signs. Throughout the term of the Loan, Lender shall have the right to erect one or more signs on the Project
indicating its provision of financing for the Project, and Lender shall also have the right to publicize its financing of the Project as Lender may deem appropriate. 
 13.22 Subordination to Certain Easements, Dedications and Restrictions. Lender agrees to subordinate the lien and charge of the Deed of Trust to any easements for any public utility
purposes, drainage purposes or roadway purposes, or to any roadway park or common area dedication, as specifically approved by Lender and as required by the applicable governmental authorities as a condition to its approval of the Final Map. In
addition, Lender agrees to subordinate the lien and charge of the Deed of Trust to any CC&Rs which Borrower determines to be necessary or desirable in connection with the Project and which CC&Rs are approved by Lender. In addition, Lender
shall cause the lien of the Deed of Trust to be partially reconveyed for any portion of the Property approved by Lender which is required to be dedicated for roadway, park and common area purposes. Lender agrees, without receipt of further
consideration but at the sole cost and expense of Borrower, to execute and acknowledge any and all documents which are reasonably acceptable to Lender and which are reasonably necessary for the processing and recording of the Final Map or are
reasonably necessary to effectuate the purposes of this Section 13.22. 
 13.23 Waiver of Right to Trial by
Jury. BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN
OR AMONG BORROWER AND LENDER ARISING OUT OF OR IN ANY RELATED TO THE LOAN OR THE LOAN DOCUMENTS. THIS PROVISION AND THE WAIVER SET FORTH HEREIN ARE MATERIAL INDUCEMENTS TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE LOAN DOCUMENTS.

 14. EXHIBITS. The following Exhibits are attached to this Agreement and incorporated herein by this reference: 

 

	 	Exhibit “A”	Form of Borrowing Base Certificate 

	 	Exhibit “B”	Form of Letter of Credit Application and Amendment 

  
 57 

	 	Exhibit “C”	Required Project Information 

	 	Exhibit “D”	Home Construction Draw Reference Chart 

	 	Exhibit “E”	List of Existing Projects 

 15.
ADDITIONAL ADVANCES. Borrower agrees that any and all amounts advanced by Lender to protect the Collateral or for any other purpose under the Loan Documents shall be considered Advances pursuant to this Agreement, and Borrower
acknowledges that such advances may be made by Lender in its sole and absolute discretion and without any request or authorization of Borrower. Any such advances shall be immediately due and payable and shall bear interest at the Default Interest
Rate until paid. Borrower acknowledges and agrees that such Advances may exceed the amount of Advances otherwise available, and Borrower nonetheless agrees to pay such Advances as provided herein and agrees that such Advances shall be secured by all
Collateral. 
 [The balance of this page is intentionally left blank] 

[Signature page follows.] 

  
 58 

 DATED as of the date first above stated. 

 

			
	BORROWER:
	
	TRI POINTE HOMES, LLC, a Delaware limited liability company
		
	By:	 	/s/ Douglas F. Bauer
	Name:	 	Douglas F. Bauer
	Title:	 	Chief Executive Officer and Secretary
		
	By:	 	/s/ Thomas J. Mitchell
	Name:	 	Thomas. J. Mitchell
	Title:	 	President and Chief Operating Officer
		
	By:	 	/s/ Michael D. Grubbs
	Name:	 	Michael D. Grubbs
	Title:	 	Chief Financial Officer
	
	LENDER:
	
	CALIFORNIA BANK & TRUST, a California banking corporation
		
	By:	 	/s/ Frank W. Henry
	Name:	 	Frank W. Henry
	Title:	 	Executive Vice President

  
 59 

 EXHIBIT “A” 

BORROWING CASE CERTIFICATE FORMAT 
 Submission Date:              
  

											
	 Category:
	  	 Project

Name/Date of

Entry into

Base
	  	Appraised
Value
Multiplied by
Advance Rate	  	Budgeted
Project Costs
Multiplied 
by
Advance Rate	  	Maximum
Allowed
Advance
(Lesser of
Value or 
Cost
Amount)	  	Amount
Permitted in
Borrowing
Base (Draw
Percentage
Amount
Multiplied 
by
Maximum
Allowed
Advance)
	 I. Lots Under Development
	  		  	50% X Value	  	50% X Costs	  		  	
	 II. Developed Lots
	  		  	50% X Value	  	50% X Costs	  		  	
	 X. Total Lot Inventory
	  		  		  		  		  	
	 I. Spec Homes
	  		  	65% X Value	  	70% X Costs	  		  	
	 II. Model Homes
	  		  	75% X Value	  	75% X Costs	  		  	
	 III. Presold Homes
	  		  	70% X Value	  	75% X Costs	  		  	
	 Y. Total Home Inventory
	  		  		  		  		  	
	 A. Total Borrowing Base (Items X + Y)
	  		  		  		  		  	
	 B. Less Outstanding Advances
	  		  		  		  		  	
	 C. Less Outstanding Letters of Credit
	  		  		  		  		  	
	 D. Less Adjustments
under
Section 2.1.3(d)
	  		  		  		  		  	
	BORROWING AVAILABILITY (deficiency)
(A-B-C-D)	  		  		  		  		  	

  
 EXHIBIT
“A” – Page 1 

 CERTIFICATION OF BORROWER 
 Borrower hereby certifies as follows with respect to the information contained in this Borrowing Base Certificate: 
 1. All Lot and Home inventory is located in Qualified Projects. 
 2.
All Lot and Home inventory is owned by Borrower free of any liens or encumbrances, other than liens and encumbrances in favor of Lender as security for the Loan, or outstanding liens that have been bonded over, or outstanding liens that are
subject to signed released delivered to Borrower. 
 3. Borrower has received lien waivers for all major scopes of
construction work in process with respect to the subject Property. 
 4. As to any Lots Under Development, construction of
the A&D Improvements has begun or is scheduled to begin within ninety (90) days of inclusion in the Borrowing Base as Lots Under Development. 
 5. As to any Developed Lots, construction of the A&D Improvements has been completed as of the date of inclusion in the Borrowing Base as Developed Lots. 

6. As to any Homes, construction of the Home Improvements has begun or is scheduled to begin within ninety (90) days of
inclusion in the Borrowing Base as Homes. 
 7. As to any Presold Homes, said Homes were in compliance with all
requirements for a Presold Home as of the date of inclusion in the Borrowing Base as Presold Homes and remain in compliance as of the date hereof. 
 8. Attached hereto are the following request(s) for entry into the Borrowing Base of new [    ] Lots Under Development, [    ] Developed Lots,
[    ] Model Homes, [    ] Spec Homes and/or [    ] Presold Homes. 
 The
undersigned hereby certifies to Lender that the foregoing information on this Borrowing Base Certificate as of the Calendar Month ending
                    , 20    , is true and correct and was provided from financial information prepared according to GAAP. All
capitalized terms not defined herein shall have the meanings given to such terms in that certain Amended and Restated Revolving Line of Credit Loan Agreement dated as of May 29, 2012 (“Loan Agreement”) by and between CALIFORNIA
BANK & TRUST, a California banking corporation (“Lender”) and TRI POINTE HOMES, LLC, a Delaware limited liability company (“Borrower”). 

[The balance of this page is intentionally left blank.] 
 [Signature page follows.] 

  
 EXHIBIT
“A” – Page 2 

 
			
	TRI POINTE HOMES, LLC, a Delaware limited liability company
		
	By:	 	 
	Name:	 	Douglas F. Bauer
	Title:	 	Chief Executive Officer and Secretary
		
	By:	 	 
	Name:	 	Thomas J. Mitchell
	Title:	 	President and Chief Operating Officer
		
	By:	 	 
	Name:	 	Michael D. Grubbs
	Title:	 	Chief Financial Officer

  
 EXHIBIT
“A” – Page 3 

 EXHIBIT “B” 

Forms of Letter of Credit Application and Amendment 
 Please see attached. 

  
 EXHIBIT
“B” – Page 1 

					
	 CALIFORNIA BANK & TRUST

International Banking Group

 550 South Hope Street, 3rd Floor

 Los Angeles, CA 90071

213-593-2131 Fax: 213-593-2144 - IBGops@calbt.com
	  	 APPLICATION AND AGREEMENT FOR

 STANDBY LETTER OF CREDIT 
	  	DATE:
	  	ADVISING/BENEFICIARY’S BANK and Address (If unknown leave blank)
			
	 APPLICANT Name and Address
	  	BENEFICIARY Name and Address	  	
		
	 Tel
                                     Fax
                                
	  	Tel                          
                           Fax
                                
			
	 Email
	  	Email	  	
			
	 AMOUNT & CURRENCY:
	  	EXPIRATION DATE:	  	
		
	 PLEASE ISSUE CREDIT BY:  ̈ SWIFT  ̈
Airmail  ̈ Courier
	  	PARTIAL DRAWINGS  ̈ ALLOWED  ̈ NOT ALLOWED
	
	REQUESTED WORDING: (Any attachments hereto must indicate attachment and each attachment must be signed and dated by
applicant.)                                       
                                         
                                         
                                       Reset &
Clear Form
	
	 BANKING CHARGES, OTHER THAN ISSUING BANK’S ARE FOR THE ACCOUNT OF:  ̈
APPLICANT  ̈ BENEFICIARY
  

You are hereby authorized to debit our account #
                        for all transactions related to this Letter of Credit.

The actual wording of any Letter of Credit issued by California Bank & Trust must be agreed to by California Bank & Trust in its sole
discretion.
  
 The opening of this Standby Letter of Credit is subject to
the terms and conditions set forth in the California Bank & Trust Standby Letter of Credit Agreement appearing on pages 2, 3, and 4 of this application to which we
agree.

  

							
	
                  
                                 
	 	  
	 	  
	  	  

	 Company Name
	 	Customer Signature	 	Name & Title	  	Date

  

													
		
	BANK USE ONLY BELOW THIS LINE	  	
							
	Date: 	 	Office Name:	 	Office Number:	 	Customer Signature Verified By:	 	Manager’s Signature	  	 APPROVAL UNDER
 [ ] Manager
Authority
 [ ] CP Approval
	  	

  
 Page 1 of 7

 STANDBY LETTER OF CREDIT AGREEMENT 

To: California Bank & Trust 
 In
consideration of your opening at our request a Stand-by Letter of Credit (“Credit”), the requested terms of which appear on page 1 hereof, we hereby agree (the “Agreement”) with you as follows: 

 

	1.	We shall pay you upon demand in immediately available funds and in United States currency all moneys paid by you or your correspondents or for which you or your
correspondents become liable under or pursuant to said Credit, including under drafts paid by you or your correspondents, together with interest, conclusion and all customary charges thereon; and we agree to provide such funds at least one business
day before same is due provided, however, that if any amounts paid or payable under or in respect of said Credit are in any currency other than United States currency, the amount payable or provided by us to you or chargeable by you hereunder may
be, at your election, either in such other currency or the equivalent in United States currency computed at the rate you would at the time sell such other currency for United States currency. Past due amounts of any kind shall be payable with
interest at the rate of three (3%) percent above your prime rate. The “prime rate” shall mean the rate of interest established by you from time to time as your prime rate, which may not necessarily be the lowest rate charged by
you to your borrowers. You are authorized to charge any or all of our deposit accounts for all required payments and reimbursements under this Agreement. 

  

	2.	We understand that the commissions, fees and charges payable by us to you in connection with said Credit are established by you with regard in part to your costs in
issuing and maintaining the Credit. If, prior to the expiry date of said Credit, any applicable law, rule or regulation is adopted or amended, or there is a change in the interpretation or administration of any existing applicable law, rule or
regulation, which has the effect of increasing the taxes, duties, charges or other costs paid or incurred by you in connection with said Credit (including without limitation, deposit insurance assessments, reserve requirement costs, and the implied
costs of additional capital), we shall pay you upon demand in United States currency the amount of any such increase or increases. We will comply with all foreign laws, rules and regulations now or hereafter applicable to the transaction underlying
the Credit or relevant to the execution, delivery and performance by us of this Agreement. 

  

	3.	[Intentionally omitted.] 

  

	4.	In the event of default in respect of any payment due under this Agreement, or in the event of the death, insolvency, dissolution or termination of the existence of any
of us, or should any bankruptcy or similar proceeding be filed by or against any of us, the amount of said Credit, as well as any and all other amounts then or to become payable to you hereunder (“Other Amounts”), together with interest
thereon, shall, to the extent not theretofore paid to you, become immediately due and payable; and if at the time of any such event said Credit is still in effect and not completely drawn against or Other Amounts are not paid, we shall, upon demand,
pay to you, for application to drawings under said Credit or payment of such Other Amounts, the entire amount which has not been drawn or paid. Any amount so paid shall be repaid to us without interest when it is finally determined by you that we
have fully discharged our obligations hereunder. 

  

	5.	 You and your correspondents shall be entitled to make payments under said Credit if the documents presented thereunder appear on their face to be in
accordance with the terms and conditions of said Credit; and neither you nor your correspondents shall be liable or responsible for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the authority of
any persons signing the documents, or for the good faith or acts or omissions, solvency, performance or standing of the beneficiary or any other person whomsoever, including performance of the underlying contract or other transaction between us and
the beneficiary. Furthermore, you and your correspondents shall not have any liability or responsibility for the consequences arising out of delay or loss in transit of any messages, drafts or documents, or for any delay, interruption, mutilation or
other error arising in the transmission of any telecommunication, or for errors in translation or interpretation of any message or documents relating to said Credit. You and your correspondents shall not be liable for any failure to pay or accept
any draft under the Credit resulting from any law or restriction exercised by any domestic or foreign government, any court order, or any other cause beyond your control. Any and all claims by us for improper payment, dishonor or other actions or
inaction by you shall be made by written notice within sixty (60) days of the contested action or inaction or such claim is waived. Any and all proceedings to recover from you or your

  
 Page 2 of 7

	 	
correspondents must be made within one (1) year from the date of said notice or said claim shall be deemed waived. 

 

	6.	We shall pay upon demand in United States currency all expenses, including reasonable attorney’s fees (including any such fees incurred in bankruptcy or similar
proceedings), incurred by you or your correspondents in connection with or related to the Credit, or the preservation or enforcement of any right granted hereunder. In addition, we shall indemnify you and your correspondents against any and all
liabilities, losses, damages, settlements and expenses, including reasonable attorneys’ fees (including any such fees incurred in bankruptcy or similar proceeding), which you or your correspondents may incur in connection with any claim or
controversy with the beneficiary or any other third party relating to said Credit except for such matters constituting your own gross negligence or willful misconduct; and, in the event any suit or other proceeding is brought against you or your
correspondents regarding such dispute, you or your correspondent named in such suit or proceeding may elect either to defend such suit or proceeding at our expense or to require that we assume the defense thereof employing counsel acceptable to you
or such correspondent. Attorney’s fees shall include the reasonable cost of in-house counsel. 

  

	7.	In the event of any extension of the maturity or time for presentation of drafts, acceptance of documents, or any other modification of the terms of said Credit, at the
request of any of us with or without notification to the others, or in the event of any increase in the amount of said Credit at our request, this Agreement shall be binding upon us with regard to said Credit so increased or otherwise modified, to
drafts, documents and property covered thereby, and to any action by you or any of your correspondents in accordance with such extension, increase or other modification. 

 

	8.	You may, in your discretion, arrange for the direct or indirect participation by other financial institutions in the issuance of said Credit or provide for the
assignment or transfer to and assumption by other financial institutions of all or some portion of your liability under said Credit; and you may assign or transfer this Agreement or all or any portion of your rights hereunder, and any instruments(s)
evidencing all or any portion of your liability under said Credit, [Intentionally omitted] and you shall thereafter be forever relieved and fully discharged from all liability or responsibility with respect thereto, but you shall retain all rights
and powers hereby given with respect to any and all instrument(s), rights or property not so assigned or transferred. 

  

	9.	If the Application and Agreement for Stand-by Letter of Credit is signed by one party, terms in the plural shall be read in the singular, as appropriate. If signed by
two or more parties, this Agreement shall be the joint and several agreement of such parties. 

  

	10.	You shall not be liable for any failure by your correspondents to pay or accept any draft under the Credit resulting from any law or restriction exercised by any
domestic or foreign government or from any other cause beyond your control or your correspondents’, and we agree to indemnify and hold you harmless from any claim, loss, liability or expense arising by reason of any such failure to pay.

  

	11.	This Agreement is to continue in force and be applicable to all transactions, notwithstanding any change in the individuals composing any firm, parties to, or concerned
in this contract, whether such change shall arise from the acquisition of one or more new partners or from the death or secession of any partner or partners. 

 

	12.	If any other person signs this Agreement as Applicant’s Bank (including any bank which procures issuance of the Letter of Credit on our behalf as Applicant’s
Bank), that person shall be jointly and severally liable for all obligations and shall otherwise be treated as the Applicant under this Agreement, including with respect to all warranties hereunder. Without limiting the foregoing, each Applicant
shall be bound by any notice from you to any other Applicant. Each Applicant shall be bound by any authorization or waiver from any Applicant to you that supports the extension, increase or other amendment of the Letter of Credit, your amendment of
this Agreement or your settlement or release of any obligations or your release of any Collateral. Each Applicant shall be bound by any Applicant’s settlement or release of any claims against you arising under this Agreement. Each Applicant
shall be bound by any event of default attributable to any Applicant or to any guarantor of any Applicant’s obligations hereunder. Each Applicant signing this Agreement accepts that its obligations are primary. [Intentionally omitted.]

  

	13.	 If this application is directed through Applicant’s Bank, the Applicant’s Bank, by its execution of this Agreement: (a) requests and
appoints you as its agent to establish in your name or through a correspondent the Credit; (b) authorizes you and/or your correspondent(s) to pay drafts drawn against the Credit as specified in this Agreement and to exercise all rights, powers
and privileges conferred by this Agreement without reference to Applicant’s Bank, (c) agrees to make payments to you in amount, time and manner as required of us under this Agreement whether or not Applicant’s Bank has received
payment from us; 

  
 Page 3 of 7

	 	
[Intentionally omitted] and (e) agrees that if it fails to make any payment or provide any security as requested, all its obligations and liabilities to you shall immediately, without
notice, become due and payable at your sole option. 

  

	14.	Except as otherwise provided herein, any notice from you to us, if mailed, shall be deemed given when mailed postage paid, addressed to us at our address set forth
herein or such other address of which you are notified in writing at your designated office. All notices to you shall be sent as indicated below and shall be deemed given when received. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 

  

	15.	If the Credit provides for automatic renewal without amendment we shall notify you of our desire not to renew such Credit in writing at least thirty (30) days
prior to the last day specified in the Credit by which you must give notice of your intent not to renew the Credit. If we fail to provide timely notice to you as provided for in the preceding sentence, you may renew the Credit in your sole and
absolute discretion, and all of our liabilities and obligations as to the Credit and under this Agreement will continue in full force and effect. Any decision whether to renew a Credit will be in your sole and absolute discretion, and
notwithstanding any notice from us to you requesting the renewal of the Credit, you may elect not to renew the Credit. If you notify the beneficiary or transferee, if any, that you have elected not to renew the Credit, the Credit may be drawn on, if
permitted under the terms of the Credit. In such case, we will reimburse you for all amounts paid or payable by you in respect of the Credit. We will have no claim against you and no defense against payment of your obligations under this Agreement
as a result of your renewal or non-renewal of this Credit. 

  

	16.	We understand and agree that you shall rely, and are entitled to rely on information from us with respect to the terms and wording of the Credit. We agree that our
approval of the Credit format binds us irrevocably, and we hereby waive any and all claims or liabilities we may have with respect to such terms and wording. We further understand and agree that the acceptance of this Agreement and application does
not constitute a commitment by you to issue a Credit. This Agreement together with the application and any other loan document provided in connection herewith, constitutes the entire agreement of the parties hereto, and supersedes all prior
discussions, negotiations and agreements with respect thereto. 

  

	17.	To the extent not inconsistent with this Agreement, this Agreement shall be subject to the UCP or ISP98, as provided in the Credit, and subject to such limitation,
shall be governed by the laws of the State of California, United States of America, in all respects, including (without limitations) matters of title, construction, validity, performance and discharge, and shall be binding upon us and our
successors, assigns, and legal representatives and shall not be waived, altered, modified or amended as to any of its terms or provisions, except as you may consent thereto in writing. No assignment or other transfer of all or any of our rights
hereunder or under said Credit, whether with regard to any property or otherwise, may be made without your prior consent in writing. We agree to submit to the jurisdiction of the state or federal courts located in San Diego, Los Angeles or San
Francisco, California, and waive our right to contest the jurisdiction or venue of such courts. We agree to waive our right to assert forum non-convenience against the institution of an action in or removal of an action to any such court.

 WE AND YOU WAIVE OUR RIGHTS TO TRIAL BY JURY, AND AGREE THAT ANY COURT PROCEEDING SHALL TAKE PLACE BEFORE A
JUDGE OR MAGISTRATE. 
  

	18.	In these provisions: 

  

	 	1.	“We”, “Us” means the undersigned party or parties identified and signing this Agreement as Applicant. 

 

	 	2.	“Applicant” means all of the undersigned party or parties. 

  

	 	3.	“You”, “Your” means California Bank & Trust. 

  

	 	4.	“Applicant’s Bank” means the undersigned party or parties identified and signing as such. 

 

	 	5.	“Credit” means the irrevocable standby letter of credit issued by California Bank & Trust at its option pursuant to this Application, as such letter
of credit may be modified or amended from time to time. 

  
 Page 4 of 7

	6.	“UCP” means the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and any
subsequent revisions thereof approved by the International Chamber of Commerce. 

  

	7.	“ISP98” means the International Standby Practices, International Chamber of Commerce Publication No. 590, and any subsequent revisions thereof approved
by the International Chamber of Commerce, 

 *see below 
 In consideration of your issuing the Credit and for other consideration, the receipt and adequacy of which is hereby acknowledged, we agree to be bound by this Agreement, including but not limited to the
payment obligations therein set forth, and including being jointly and severally liable for all indebtedness and obligations of any other Applicant, if any, arising under or pursuant to this Agreement. 

  
 Page 5 of 7

									
	APPLICANT	  		  	 APPLICANT’S BANK
(This section must be completed by Applicant’s Bank if application is being submitted through another bank)

	 	  	  
	  		  
	NAME	  	DATE            	  		  		  	 
	 		 	 
	 	  		  		  	 
	AUTHORIZED SIGNATURE, TITLE	  		  		  	 
	 		 	 
	 	  		  	  
	  	  

	AUTHORIZED SIGNATURE, TITLE	  		  	NAME	  	DATE            
	 		 
	 	  		  	
 

	CONTACT NAME	  		  	AUTHORIZED SIGNATURE, TITLE
	 		 
	 	  		  	  

	TELEPHONE NUMBER	  		  	AUTHORIZED SIGNATURE, TITLE
					
		  		  		  		  	
		  		  		  	
	 	  	 	  		  	All notices to California Bank & Trust shall be sent to:
	Co-Applicant Agrees to be bound by the terms and conditions of this Agreement (as
Applicant) and Applicant and Co-Applicant agree that each shall be jointly and severally liable for all indebtedness and obligations arising under or pursuant to this Agreement.	  		  	 International Banking Operations
  

550 South Hope Street,
3rd Floor

Los Angeles, CA 90071

	 	 		
	CO-APPLICANT	  	 	  		  	and confirmed by fax (213) 593-2144
addressed to Operations Manager
	 	 			
	 	  	  
	  		  		  	
	 	 		
	 NAME
	  	DATE	  		  	
	 		
	 	  		  	
	 AUTHORIZED SIGNATURE, TITLE
	  	 	  		  	
	 		
	
ADDRESS:                      
                                         
                    
	  		  	
	 		
	
                        
                                         
                                      
	  		  	
	 		
	 TELEPHONE:
                                         
                                    
	  		  	

 * 19. All amounts due from us to you under this agreement shall be deemed advances under that certain Revolving Letter of
Credit Loan Agreement dated as of April 19, 2011 (“Loan Agreement”), as amended, and shall be repaid and collateralized while outstanding as set forth in the Loan Agreement. 

  
 Page 6 of 7

																					
	 CALIFORNIA
BANK & TRUST

 International Banking
Group

 550 South Hope Street, 3rd Floor

Los Angeles, CA 90071

213-593-2124 Fax: 213-593-2144 - IBGops@calbt.com
	  	AMENDMENT APPLICATION FOR 
STANDBY LETTER OF
CREDIT
	  	DATE:
		
	 APPLICANT Name and Address
	  	BENEFICIARY Name and Address
				
	
Tel                    
	  	Fax                    	  	Tel                     	  	Fax                    
		
	 Email
	  	Email
		
	 Letter of Credit Number
	  	Date of Letter of Credit
		
	 Please amend this Letter of Credit as follows:

 

1) ̈ INCREASE  ̈
DECREASE AMOUNT OF LETTER OF CREDIT BY: USD

                   
                     TO AN AGGREGATE AMOUNT OF: USD
  

2) LATEST SHIPMENT DATE CHANGED
TO:                    
  

3) EXPIRATION DATE CHANGED
TO:                    
  

OTHER:
	  	Reset & Clear Form
	
	 AMENDMENT CHARGES FOR ACCOUNT OF  ̈
APPLICANT  ̈ BENEFICIARY
  
 We
understand that this amendment is subject to acceptance by beneficiary. All other terms and conditions of the Letter of Credit remain unchanged.

 

							
	 Applicant Name
	 	 	 	     Applicant’s Bank Name	 	 

  

											
	 Applicant Signature
	 	 	 	Date                    	 	Authorized Signature	 	 	 	Date                    

  

							
	 Name & Title
	 	 	 	Name & Title	 	 

																					
	
	BANK USE ONLY BELOW THIS LINE
	 Date:
	  	Office Name:	  	Office Number:	  	Customer Signature Verified By:	  	Manager’s Signature	  	 APPROVAL UNDER
 [ ]
Manager Authority
 [ ] CP Approval

  
 Page 1 of 1

 EXHIBIT “C”  

Required Project Information 
 Borrower shall not be entitled to any Advances for any Qualified Project hereunder unless and until each of the following conditions precedent have been satisfied to the extent said information is
available for the A&D Improvements and/or Home Improvements to be constructed as part of the Qualified Project: 
 (a)
Final Plans. Borrower shall have submitted to Lender, and Lender shall have reviewed and approved, Plans and Specifications for the applicable Project, which Plans and Specifications shall (i) be prepared by Architect and/or
Engineer, and (ii) be otherwise satisfactory to Lender. 
 (b) Appraisals. At Borrower’s sole cost and
expense, Lender shall have obtained an Appraisal and/or Base Appraisals with respect to the Property and each type of Improvements for the applicable Project, which Appraisal and/or Base Appraisals shall be (i) prepared by an appraiser
acceptable to Lender, and (ii) otherwise satisfactory to Lender. For each Project, Lender shall have received and approved an Appraisal for the applicable Project. Lender shall have no obligation to make any Advance against any parcels unless
and until Lender shall have received and approved said Appraisals for said parcels against which Advances are requested. 

(c) Independent Cost Analysis. If required by Lender, at Borrower’s sole cost and expense, Lender shall have obtained
a report in form and content acceptable to Lender in its discretion from an independent cost engineer validating the cost adequacy of the applicable Project. 
 (d) Additional Assignments. Borrower shall have executed and delivered to Lender the Deed of Trust, Financing Statement and Construction Assignments securing the Collateral to be included in
the subject Project, and Architect, Contractor and/or Engineer for the applicable Project shall have consented to such assignments. 
 (e) Environmental Reports. Borrower shall have submitted to Lender, for Lender’s approval, for each Project an environmental, toxics and/or soils report(s) satisfactory to Lender,
including drainage, boring (if applicable) and compacting data, together with such hydrology and other engineering reports that Lender may reasonably require, all of which shall be by engineers acceptable to Lender and shall indicate that the
condition of the Property is suitable for construction of the A&D Improvements and Homes thereon (without extraordinary land preparation) and for the operation and maintenance of the Project. Any recommendations in the approved soils, hydrology
and other engineering reports must be complied with and incorporated into the Plans and Specifications. Each environmental assessment (Phase I assessment) of the Property and adjacent property shall be dated no earlier than one hundred eighty
(180) days prior to the date hereof, and Borrower shall deliver to Lender any sampling and analysis (Phase II assessment) or special limited assessment that Lender may require after review of the Phase I assessment, together with any other
environmental investigations and reports that Lender may reasonably require, all of which shall be by a Lender-approved environmental consulting firm, and none of which shall reveal any existing or potential environmental condition adversely
affecting the use or value of the Property. Borrower shall have delivered to Lender and Lender shall have approved a report of an environmental assessments of the applicable Project, by environmental engineers acceptable to Lender containing such
information, results, and certifications as Lender may require. If Lender determines, in its sole discretion, based on such reports or other information available to Lender that any further review should be obtained, Borrower shall also provide such
follow up testing, reports, and other actions as may be required by Lender. The contents of the environmental assessment report and any follow up must be satisfactory to Lender. If such reports are addressed to Borrower, Borrower shall cause a
reliance letter, in form and substance satisfactory to Lender, to be provided to Lender. 
 (f) Building Permits,
Licenses, Etc. If required by Lender, Borrower shall have submitted to Lender evidence for the applicable Project of (i) building permits for the construction of the Homes (ii) all necessary permits, licenses and approvals
(including without limitation any required consumer disclosure reports and approvals prior to the sale of any Homes) in connection with the sale of said Homes, and/or (iii) Architectural Control Committee and other approvals, if any, required
under any CC&Rs affecting the Property. 

  
 EXHIBIT
“C” – Page 1 

 (g) Truth-In-Lending Disclosures. Prior to entering into any Purchase Contract
for the sale of any Unit for the applicable Project, Borrower shall have delivered to the purchaser all truth-in-lending and other required consumer disclosures, in compliance with law and in form and substance satisfactory to Lender. 

(h) Approved Budgets. The final approved Budget for the applicable Project itemizing the Hard Costs and Soft Costs,
including direct and indirect costs, certified to be correct to the best knowledge and belief of Borrower for each type of Improvement to be constructed as part of the Project. Said Budget shall be subject to formal review and approval by Lender at
Lender’s sole discretion, and if Lender reasonably determines that the Loan funds allocated for Hard Costs are inadequate to pay for all Hard Costs, then Lender may require Borrower to deposit cash into an account pledged as additional
collateral for the Loan the amount of the shortfall. In no event shall the costs of the Project as set forth in any A&D Budget or any Home Construction Budget violate the applicable Maximum Allowed Advance(s). 

(i) Environmental Indemnity. Borrower shall have delivered to Lender, a environmental indemnity agreement in form and
content required by Lender in its sole discretion for the applicable Project, fully completed and duly executed by Borrower. 

(j) Payment of Costs, Expenses, and Fees. For each applicable Project, all costs, expenses, and fees to be paid by Borrower
shall have been paid in full, including without limitation applicable fees set forth in the Loan Documents. 
 (k) Other
Items or Actions by Borrower. Lender shall have received such other agreements, documents, and instruments, and Borrower shall have performed such other actions as Lender may reasonably require. 

(l) Miscellaneous Conditions. The following additional conditions must be satisfied prior to the Closing Date for each Loan
made hereunder: 
 (1) Financial Statements. Financial statements for Borrower in conformity with
the requirements of the Loan Agreement covering the two-year period immediately preceding the Closing Date and showing a financial condition which satisfies the financial covenants set forth in Section 6.15 of the Loan Agreement; 

(2) Survey. If required by Lender, particularly if a Qualified Project is to be entered into the Borrowing
Base prior to the recording of a Final Map for said Qualified Project, a current survey of the Property by a licensed surveyor acceptable to Lender describing the boundaries of said property and showing all means of ingress and egress,
rights-of-way, easements (each of which shall be identified by docket and page or recording number where recorded) and all other customary and relevant information pursuant to ALTA standards and any Title Company requirements. All surveys shall be
certified to Lender and the Title Company issuing the Title Policy required by the Loan Agreement; 
 (3)
Title Insurance. The Title Insurance Policy, with such endorsements as Lender may require, issued by the Title Company satisfactory to Lender in the amount of the Loan (with direct access reinsurance in amounts and by companies
and in form acceptable to Lender as Lender may require) insuring the lien of the Deed of Trust to be a first and prior lien upon the Property, as security for all Advances pursuant to the terms of this Agreement, subject only to such exceptions as
Lender may expressly approve in writing, and insuring against any lien claims that could arise out of the construction of the Homes on the Property. During the course of construction of the Homes, Borrower shall provide Lender with such title
insurance endorsements as Lender may require, including CLTA Form 122 Endorsements (or equivalent endorsements acceptable to Lender) for each disbursement, and any other endorsements Lender may require to insure that the Homes shall have been
constructed within the boundaries of the Property and in accordance with all applicable laws, covenants, restrictions and/or CC&Rs. Upon completion of the Homes, Borrower shall deliver to Lender such further endorsements to the title insurance
policy as Lender may require; 

  
 EXHIBIT
“C” – Page 2 

 (4) Zoning. Evidence that the Property is properly zoned for
the construction of the A&D Improvements and/or Homes to be constructed as part of the applicable Project; 

(5) Construction Materials. Copies of all agreements between Borrower and any architects, engineers,
consultants, managers or supervisors, and, if required by Lender, copies of construction subcontracts related to the construction, maintenance, repair, leasing, management and operation of the Project, together with written agreements by such
persons or entities that they will perform for Lender the services contracted to Borrower, notwithstanding the occurrence of any Event of Default and any trustee’s sale or foreclosure of the Deed of Trust (provided that such persons or entities
continue to receive payments under their respective contracts), and the consent of such persons or entities to the collateral assignment by Borrower to Lender of their respective contracts; 

(6) CC&Rs. Copies of any CC&Rs and related documents pertaining to the Property and the Project.
Borrower shall have provided Lender with, and Lender shall have approved, all covenants, conditions, restrictions, easements and other rights that exist or are contemplated with respect to each applicable Project; 

(7) Taxes. Evidence that all taxes and assessments levied against or affecting the Property have been paid
current, together with a tax service contract for the Project in form and content acceptable to Lender in its sole discretion; 
 (8) Organizational Documents. Copies of Borrower’s Organizational Documents, together with proper authorizations and certificates and such other documents as Lender may require,
relating to the existence and good standing of such Persons and the authority of any officer, partner or member, as applicable, executing documents on behalf of such Persons; 

(9) Equity. Evidence satisfactory to Lender that Borrower has equity in the Project in an amount sufficient
to satisfy the applicable Maximum Allowed Advances for the Project; 
 (10) Other Insurance. In
addition to evidence of all insurance coverages as set forth in Section 6.8 of the Loan Agreement, evidence of such other insurance as Lender may reasonably require herein, including without limitation (i) insurance covering vandalism and
malicious mischief, and sprinkler leakage, and (ii) errors and omissions insurance for the contractors, architects, engineers, environmental engineers and the provider of the soils report with limits of liability in amounts reasonably
acceptable to Lender, provided, Lender will not require earthquake insurance; 
 (11) Flood.
Evidence whether the Property, or any part thereof, lies within a “special flood hazard area” as designated on maps prepared by the U.S. Department of Housing and Urban Development pursuant to the Flood Disaster Protection Act of
1973, as amended, and, if so designated, a National Flood Insurance Association standard flood insurance policy, plus insurance from a private insurance carrier if required by Lender, for the duration of the Loan in the amount of the full insurable
value of the completed Improvements, naming Lender as an additional loss payee; 
 (12) Utilities.
Evidence that all utilities and services to the Property and Improvements, including without limitation water, sewer, gas, electric and telephone, are available, or will be available as required, and will be provided in amounts that are sufficient
to service the Improvements for their intended use; 
 (13) Ingress/Egress. Evidence that there
exists adequate legal ingress and egress to the Project; 
 (14) Job Schedule. A job progress
Schedule Showing the planned timing, progress of construction and completion date for the Improvements of the Project; 

  
 EXHIBIT
“C” – Page 3 

 (15) Off-Site Improvements. Evidence that each type of
off-site improvement for the Property that has been completed shall have been certified and/or accepted by any municipality, utility, county or other governmental entity whose certification or acceptance thereof is required; 

(16) List of Contractors. If required by Lender, a list of all subcontractors, suppliers and materialmen
employed or retained, or to be employed or retained, in connection with the construction of the Improvements. Such list shall show the name, address and telephone number of each such person, a general statement of the nature of the work to be done,
the labor and materials to be supplied, the names of materialmen (if known) and the approximate dollar value of such labor or work with respect to the labor and materials to be supplied; 

(17) Soils Test. Borrower shall have provided to Lender, and Lender shall have approved, a soils/hydrology
test reports of the applicable Project prepared by licensed engineers satisfactory to Lender showing the location of, and containing boring logs from, all borings, together with recommendations for the design of foundations. 

(18) Legal Opinion. If required by Lender, a legal opinion in form and content acceptable to Lender
addressing such issues as required by Lender; and 
 (19) Other Information. Such other
information and documents that Lender may reasonably require. 

  
 EXHIBIT
“C” – Page 4 

 EXHIBIT “D”  

Home Construction Draw Reference Chart 

 

									
	 

	  				 			
	Residential Unit Completion Inspection Report	 
			
		  	 	Draw 	#: 	 	  	                           
      	   
	
Borrower:                     
             
	  	 	PIR Rpt 	#: 	 	  	                           
      	   
	
Project:                     
                 
                            (This Report To Be Attached to PIR)
	  	 	Page 	#: 	 	 	                        of 
   	  
		  				 			

 
  

																																			
	 Completion Standards
	  	 	 	  	LOT #	  	%
Request	  	%
Actual	  	Vari-
ance	 	  	LOT
#	  	%
Request	  	%
Actual	  	Vari-
ance	 	  	LOT
#	  	%
Request	  	%
Actual	  	Vari-
ance	 
	 Description
	  	%	 	  	 	  	 	  	 	  	0	 	  	 	  	 	  	 	  	0	 	  	 	  	 	  	 	  	0	 
	 Permits / Layout Trenching / Rebar /

Footings
	  	 	5	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Stem Walls
	  	 	10	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Undergrounds Set /

Soil Backfill
	  	 	15	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 ABC Grade /

Copper Set / Slab
	  	 	20	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Deliver Lumber & Trusses
	  	 	25	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Framing Thru 2nd

Floor Sheathing
	  	 	30	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Framing Thru Roof Sheathing
	  	 	35	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Plumbing / HVAC / Electric Rough-In
	  	 	40	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Rough-In

Inspections / Roof

Dry In / Windows, Sliders Set
	  	 	45	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Stucco Lath or

Siding
	  	 	50	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Roofing Loaded / Insulation / Stock Drywall
	  	 	55	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Hang Drywall / Tape Wall
	  	 	60	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Stucco Finish /

Texture Drywall
	  	 	65	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Deliver Doors &

Trim / Exterior Paint
	  	 	70	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Trim Carpentry /

Interior Paint
	  	 	75	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Deliver Cabinets / Roofing Set
	  	 	80	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Install Cabinets / Set Tops
	  	 	85	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Install Finish

Hardware /
 Plumbing, Electric, HVAC Finish
	  	 	90	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Pre-Clean /

Appliances / Sheet

Goods
	  	 	95	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
	 Floor Covering /

Clean & City Final
	  	 	100	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  
		  				  		  		  		  	 	0	  	  		  		  		  	 	0	  	  		  		  		  	 	0	  

  

					
	 Construction Risk Doc. – Edition 2/14/11
	 	 	Residential Unit Inspection Report - Revolver	  

  
 EXHIBIT
“D” – Page 1 

 EXHIBIT “E”  

List of Existing Projects 
 Tamarind Lane 
 Candera 
 Los Arboles 
 Riverwalk 

  
 EXHIBIT
“E” – Page 1eh1201308_ex1001.htm

EXHIBIT 10.1

 

 

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of December 20, 2012, is by and among GeoGlobal Resources Inc., a Delaware corporation with offices located at 200, 625 – 4th Avenue SW, Calgary, Alberta, Canada T2P 0K2 (the “Company”), and each of the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”) (provided that if only one Buyer is listed on the Schedule of Buyers, then all references to “Buyers” hereunder shall be treated as if a reference to a single “Buyer” hereunder).

RECITALS

 

A.           The Company and each Buyer desire to enter into this transaction to purchase the Common Shares and Warrants (as defined below) set forth herein pursuant to a currently effective shelf registration statement on Form S-3, which has at least 27,654,774 unallocated shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”) registered thereunder (Registration Number 333-168031) (the “Registration Statement”), which Registration Statement has been declared effective in accordance with the Securities Act of 1933, as amended (the “1933 Act”), by the United States Securities and Exchange Commission (the “SEC”).

B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms stated in this Agreement, units (the “Units”) consisting of (i) the aggregate number of shares of Common Stock set forth for such Buyer on the Schedule of Buyers (the aggregate amount for all Buyers shall be collectively referred to herein as the “Common Shares”) and (ii) warrants (the “Warrants”) to initially acquire up to the aggregate number of shares of Common Stock set forth for such Buyer on the Schedule of Buyers (all shares of Common Stock acquirable upon exercise or exchange of the Warrants, collectively, the “Warrant Shares”), as evidenced by the warrant certificate in the form attached hereto as Exhibit A.  Notwithstanding that the Units being purchased hereunder consist of Common Shares and Warrants, the Common Shares and Warrants shall be immediately separable and independent from one another.

C.           The Common Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.”

 

D.           The parties hereto each understand that this Securities Purchase Agreement and the purchase and sale contemplated hereby is unconditional and binding on all parties hereto.

 

 

 

  

  

  

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:

 

	
1.

	
PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.

 

(a)   Common Shares and Warrants. The Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on the Closing Date (as defined below), Units consisting of (i) the number of Common Shares, as is set forth for such Buyer on the Schedule of Buyers and (ii) Warrants, to initially acquire up to that number of Warrant Shares as is set forth for such Buyer on the Schedule of Buyers.  Notwithstanding that the Units being purchased hereunder consist of Common Shares and Warrants, the Common Shares and Warrants shall be immediately separable and shall be independent from one another.

 

(b)   Closing. The closing and settlement (the “Closing”) of the purchase of the Units by the Buyers shall occur by exchange of documents via telefacsimile or electronic delivery on the Trading Day immediately following the NYSE MKT Approval (as defined below) as set forth in Section 7(b) hereof (the “Closing Date”) and shall occur at 10:00 a.m., New York time (or such earlier date and time as is mutually agreed to by the Company and each Buyer).  As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

 

(c)           Purchase Price. The aggregate purchase price for the Units to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth for such Buyer on the Schedule of Buyers.

 

(d)           Form of Payment; Deliveries. On the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company for the Units to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions, (less for Crede (as defined below), the amounts, if any, withheld pursuant to Section 4(g)) and (ii) the Company shall (A) cause Computershare Trust Company N.A. (together with any subsequent transfer agent, the “Transfer Agent”) through the Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program to credit, without restriction, to such Buyer’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian (“DWAC”) system such aggregate number of Common Shares that such Buyer is purchasing as is set forth for such Buyer on the Schedule of Buyers, (B) deliver to each Buyer a warrant certificate, in the form attached hereto as Exhibit A, pursuant to which such Buyer shall have the right to initially acquire up to the number of Warrant Shares as is set forth for such Buyer on the Schedule of Buyers and (C) deliver to such Buyer the other documents, instruments and certificates set forth in Section 6.  Notwithstanding anything to the contrary contained in the Warrants, all Warrant Shares shall be delivered via DWAC.

 

	
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BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that:

 

  

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(a)           Organization; Authority. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

 

(b)           Validity; Enforcement. The execution and delivery of the Transaction Documents to which Buyer is a party and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary company action on the part of Buyer and no further consent or authorization of Buyer or its members is required.  Each Transaction Document to which Buyer is a party has been (or will be) duly executed by Buyer, and when delivered by Buyer in accordance with the terms hereof or thereof, will constitute the valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies.

 

(c)           No Conflicts.  The execution, delivery and performance by such Buyer of this Agreement and the consummation by such Buyer of the transactions contemplated hereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

(d)           Certain Trading Activities.  Such Buyer has not directly or indirectly, nor has any Person (as defined below) acting on behalf of or pursuant to any understanding with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined below) involving the Company’s securities) during the period commencing as of the time that such Buyer and the Company (or the Placement Agent (as defined below) if any) first began discussions regarding the specific investment in the Company contemplated by this Agreement and ending immediately prior to the execution of this Agreement by such Buyer (it being understood and agreed that for all purposes of this Agreement, and, without implication that the contrary would otherwise be true, that neither transactions nor purchases nor sales shall include the location and/or reservation of borrowable shares of Common Stock). “Short Sales” means all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act (as defined below).  Such Buyer will not engage in Short Sales as further specified in Section 4(p)(ii) below.

 

(e)           Not an Affiliate.  The Buyer is not an officer, director or Affiliate of the Company and immediately prior to the execution of this Agreement, did not beneficially own any Common Stock.

 

(f)           No Governmental Review. Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any 

 

  

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recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(g)           Manipulation of Price.  Neither the Buyer nor any of its Affiliates has, and, to the knowledge of the Buyer, no Person acting on their behalf has, directly or indirectly, taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities.

 

(h)           Acknowledgment of Company NYSE MKT Non-Compliance.  Such Buyer is aware of and acknowledges that: (i) on November 30, 2012, the Company received notice from the NYSE MKT that the Company was not in compliance with two of the continued listing standards as set forth in Part 10 of the NYSE MKT's Company Guide (the “Company Guide”) and therefore, the Company has become subject to the procedures and requirements of Section 1009 of the Company Guide; (ii) the Company was notified that it is not in compliance with Section 1003(a)(iv) of the Company Guide in that it has sustained losses that are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the NYSE MKT, as to whether the Company will be able to continue operations and/or meet its obligations as they mature; and (iii) the Company was also notified that, pursuant to Section 1003(f)(v) of the Company Guide, the Company’s continued listing is predicated either on an increase in the price per share of the Company's common stock or on the Company effecting a reverse stock split of its common stock within a reasonable period of time and no later than June 28, 2013 (the events and information contained in the foregoing clauses (i), (ii) and (iii), the “NYSE MKT Non-Compliance”).

 

	
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification. Each of the Company and each of its Subsidiaries are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction Documents; other than, in the case of each of the foregoing: (1) the effects of changes that are generally applicable to the industries and markets in which the Company and its Subsidiaries operate, (2) any change in general economic or political conditions, or in the financial, banking or securities markets in the United States or Canada, (3) effects arising from any changes in the law or generally accepted accounting principles, and (4) 

 

  

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failure of the Company or its Subsidiaries to meet any financial projections or forecasts.  “Subsidiaries” means any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or any part of the business, operations or administration of such Person.  Each of the foregoing is individually referred to herein as a “Subsidiary.”

(b)           Authorization; Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of directors and (other than the filing with the SEC of the prospectus supplement required by the Registration Statement pursuant to Rule 424(b) under the 1933 Act (the “Prospectus Supplement”) supplementing the base prospectus forming part of the Registration Statement (the “Prospectus”) and any other filings as may be required by any state securities agencies, all of which shall be made prior to the Closing) no further filing, consent or authorization is required by the Company, its board of directors or its stockholders or other governing body. This Agreement has been, and the other Transaction Documents will be prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “Transaction Documents” means, collectively, this Agreement, the Warrants, the Irrevocable Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

(c)           Issuance of Securities; Registration Statement. The issuance of the Common Shares and the Warrants are duly authorized and, upon issuance in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. As of the Closing, the Company shall have reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein). The issuance of the Warrant Shares is duly authorized, and upon exercise in accordance with the Warrants, the Warrant Shares, when issued, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The issuance by the Company of the Securities has been registered under the 1933 Act, the Securities are being issued pursuant to the Registration Statement and all of the Securities are freely transferable and freely tradable by each of the Buyers without restriction. The Registration Statement is effective and available for the issuance of the Securities thereunder and the Company has not received any notice that the SEC has 

 

  

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issued or intends to issue a stop-order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so. The “Plan of Distribution” section under the Registration Statement permits the issuance and sale of the Securities hereunder and as contemplated by the other Transaction Documents. Upon receipt of the Securities, each of the Buyers will have good and marketable title to the Securities. The Registration Statement and any prospectus included therein, including the Prospectus and the Prospectus Supplement, comply and complied in all material respects with the requirements of the 1933 Act and the 1934 Act and the rules and regulations of the SEC promulgated thereunder and all other applicable laws and regulations. At the time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at each deemed effective date thereof pursuant to Rule 430B(f)(2) of the 1933 Act, the Registration Statement and any amendments thereto complied and will comply in all material respects with the requirements of the 1933 Act and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendments or supplements thereto (including, without limitation the Prospectus Supplement), at the time the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, complied and will comply in all material respects with the requirements of the 1933 Act and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The Company meets all of the requirements for the use of Form S-3 under the 1933 Act for the offering and sale of the Securities contemplated by this Agreement and the other Transaction Documents, and the SEC has not notified the Company of any objection to the use of the form of the Registration Statement pursuant to Rule 401(g)(1) under the 1933 Act. The Registration Statement meets the requirements set forth in Rule 415(a)(1)(x) under the 1933 Act. At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the 1933 Act) relating to any of the Securities, the Company was not and is not an “Ineligible Issuer” (as defined in Rule 405 under the 1933 Act). The Company (i) has not distributed any offering material in connection with the offering and sale of any of the Securities and (ii) until no Buyer holds any of the Securities, shall not distribute any offering material in connection with the offering and sale of any of the Securities to, or by, any of the Buyers, in each case, other than the Registration Statement, the Prospectus or the Prospectus Supplement.

 

(d)           No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Shares, the Warrants and Warrant Shares and the reservation for issuance of the Warrant Shares) will not (i) result in a violation of the Articles of Incorporation (as defined below) (including, without limitation, any certificates of designation contained therein) or other organizational documents of the Company or any of its Subsidiaries, any capital stock of the Company, or Bylaws (as defined below), (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, federal and state and foreign securities laws and regulations and the rules and regulations of the NYSE MKT) 

 

  

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applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) above, to the extent such violations that could not reasonably be expected to be material.

 

(e)           Consents.  Except for the NYSE MKT Approval (as defined below), the Company is not required to obtain any consent from, authorization or order of, or make any filing which has not already been obtained or made (including, without limitation as to the listing on the NYSE MKT of the Common Shares and the Warrant Shares upon issuance) or registration with (other than the filing with the SEC of the Prospectus Supplement and any other filings as may be required by any state securities agencies), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case, in accordance with the terms hereof or thereof. Except for the NYSE MKT Approval, all consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Closing will have been obtained or effected on or prior to the Closing Date, and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. Except for the NYSE MKT Non-Compliance, the Company is not in violation of the requirements of the NYSE MKT or foreign, federal, state or local securities laws, and has no knowledge of any facts or circumstances which are material and could reasonably lead to such delisting or suspension of the Common Stock in the foreseeable future. No statute, rule, regulation, executive order, decree, ruling or injunction has been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of any of the transactions contemplated by the Transaction Documents, and no actions, suits or proceedings are pending or threatened by any Person that seeks to enjoin, prohibit or otherwise adversely affect any of the transactions contemplated by the Transaction Documents.

 

(f)           Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”)) of the Company (an “Affiliate”) or any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.  The Company has never been a “shell” company under applicable rules of the SEC.

 

(g)           Placement Agent’s Fees. Neither the Company nor any of its Subsidiaries has engaged any placement agent or other agent in connection with the sale of the Securities.  The 

 

  

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Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby.

 

(h)           No Integrated Offering. None of the Company, its Subsidiaries or any of their Affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to require approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.  None of the Company, its Subsidiaries, their Affiliates nor any Person acting on their behalf will take any action or steps that would cause the offering of any of the Securities to be integrated with other offerings except for registration contemplated hereby pursuant to the Registration Statement.

 

(i)   Dilutive Effect. The Company understands and acknowledges that the number of Warrant Shares may increase in certain circumstances. The Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j)           Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Articles of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise that can be waived by approval of the board of directors and which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.

 

(k)           SEC Documents; Financial Statements. During the two (2) years prior to the date hereof, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has delivered to each Buyer (or such Buyer’s representatives) true, correct and complete copies of each of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company 

 

  

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included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.

 

(l)           Absence of Certain Changes. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, except as disclosed in the SEC Documents filed subsequent thereto, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, except as disclosed in the SEC Documents filed subsequent thereto, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any material capital expenditures, individually or in the aggregate. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. Except as disclosed in the SEC Documents, the Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing will not be, Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent” means, (I) with respect to the Company and its Subsidiaries, on a consolidated basis, (i) the present fair saleable value of the Company’s and its Subsidiaries’ assets is less than the amount required to pay the Company’s and its Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company and its Subsidiaries intend to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature; and (II) with respect to the Company and each Subsidiary, individually, (i) the present fair saleable value of the Company’s or such Subsidiary’s (as the case may be) assets is less than the amount required to pay its respective total Indebtedness, (ii) the Company or such Subsidiary (as the case may be) is unable to pay its respective debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company or such Subsidiary (as the case may be) intends to incur or believes that it will incur debts that would be beyond its respective ability to pay as such debts mature. Neither the Company nor any of its Subsidiaries has engaged in any business or in any 

 

  

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transaction, and is not about to engage in any business or in any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital.

 

(m)           No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or their respective business, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise) that (i) would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced, (ii) could have a material adverse effect on any Buyer’s investment hereunder or (iii) could have a Material Adverse Effect.

 

(n)           Conduct of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter, certificate of formation or certificate of incorporation or bylaws, respectively. Except for the NYSE MKT Non-Compliance, neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. Except for the NYSE MKT Non-Compliance, since January 1, 2010, (i) the Common Stock has been listed or designated for quotation on the NYSE MKT and (ii) trading in the Common Stock has not been suspended by the SEC or the NYSE MKT. Except for the NYSE MKT Non-Compliance, the Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o)           Foreign Corrupt Practices; Certain Other Unlawful Matters.  Neither the Company nor any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended (or rules or regulations or interpretations thereunder); or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee or otherwise.  The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, 

 

  

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“Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

(p)           Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.

 

(q)           Transactions With Affiliates. Except as disclosed in the SEC Documents, none of the officers, directors or employees or affiliates of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other Person in which any such officer, director or employee or affiliate has a substantial interest or is an employee, officer, director, trustee or partner.

 

(r)           Equity Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 250,000,000 shares of Common Stock, of which 138,343,051 are issued and outstanding and 35,440,032 shares are reserved for issuance pursuant to securities (other than the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 1,000,000 shares of preferred stock, of which none are issued and outstanding. Zero shares of Common Stock are held in treasury.  All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and non-assessable. 71,161,533 shares of the Company’s issued and outstanding Common Stock on the date hereof are owned by Persons who are “Affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common Stock are “Affiliates” without conceding that any such Persons are “Affiliates” for purposes of federal securities laws) of the Company or any of its Subsidiaries. To the Company’s knowledge, except as set forth in the SEC Documents, no Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Convertible Securities (as defined below), whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified Person is a 10% stockholder for purposes of federal securities laws). (i) None of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) except pursuant to the Stock Incentive Plans of the Company disclosed in the SEC Documents (collectively, the “Company Stock Plans”) or as disclosed in the SEC Documents, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the 

 

 

 

  

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Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, and the participation right held by The Israel Land Development Company – Energy Ltd. has been waived; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to this Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) except as disclosed in the SEC Documents, there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement other than pursuant to the Company Stock Plans; and (ix) neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect. The SEC Documents contain true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto.

 

(s)           Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries (i) except as disclosed in the SEC Documents, has any outstanding Indebtedness, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party or parties to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title 

 

  

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retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(t)           Absence of Litigation. Except as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by (other than, as to the NYSE MKT, the NYSE MKT Non-Compliance) any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company or any of its Subsidiaries. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current of former director or officer of the Company or any of its Subsidiaries. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the 1933 Act or the 1934 Act, including, without limitation, the Registration Statement.

 

(u)           Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(v)           Employee Relations.  Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company 

 

  

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believes that its and its Subsidiaries’ relations with their respective employees are good.  Except for Sunil Karkera, to the extent any of the following is material, no executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. No executive officer or other key employee of the Company or any of its Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(w)           Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property, and have good and marketable title to all personal property, owned by them which is material to the business of the Company and its Subsidiaries, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries.  Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its Subsidiaries.

 

(x)           Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted.  None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement, except where the expiration, termination or abandonment, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  The Company has no knowledge of any infringement by the Company or any of its Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding their Intellectual Property Rights.  The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings.  The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

  

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(y)           Environmental Laws.  The Company and its Subsidiaries (i) are in compliance with all Environmental Laws (as defined below), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means all federal, state, local or foreign laws of the applicable jurisdictions to which the Company is subject relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(z)           Subsidiary Rights.  The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

 

(aa)           Tax Status.  The Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim.  The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(bb)           Internal Accounting and Disclosure Controls. The Company and each of its Subsidiaries maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.  The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under 

 

  

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the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.  Neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant or other Person relating to any potential material weakness or significant deficiency in any part of the internal controls over financial reporting of the Company or any of its Subsidiaries.

 

(cc)           Off Balance Sheet Arrangements.  There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

(dd)           Investment Company Status.  The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

(ee)           Acknowledgement Regarding Buyers’ Trading Activity.  It is understood and acknowledged by the Company that following the public disclosure of the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, except as set forth in Section 4(p)(ii) hereof, (i) none of the Buyers have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its Subsidiaries, to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counterparties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock which was established prior to such Buyer’s knowledge of the transactions contemplated by the Transaction Documents; and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents pursuant to the Press Release (as defined below) one or more Buyers may engage, to the extent not prohibited by Section 4(p)(ii) hereof, trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value and/or number of the Warrant Shares deliverable with respect to the Securities are being determined or that such Warrants may be measured for various provision related to exercisability and that trading activities, if any, can have the effect of reducing the price of the Common Stock and the applicability of certain rights of the Company under the Warrants and/or the value of the existing stockholders’ equity interest in the Company both at and after the time the trading activities are being conducted. The Company acknowledges that such aforementioned trading activities, to the extent not prohibited by Section 4(p)(ii) hereof, do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith.

 

  

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(ff)           Manipulation of Price.  Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries.

 

(gg)           U.S. Real Property Holding Corporation.  Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon any Buyer’s request.

 

(hh)           Registration Eligibility.  The Company is eligible to register the issuance and sale of the Securities to the Buyers using Form S-3 promulgated under the 1933 Act.

 

(ii)           Transfer Taxes.  On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance and sale of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

(jj)           Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) or to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA or to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA or to regulation by the Federal Reserve.

 

(kk)           Registration Rights.  No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement or the issuance of the Securities hereunder that could expose the Company to material liability or any Buyer to any liability or that could impair the Company’s ability to consummate the issuance and sale of the Securities in the manner, and at the times, contemplated hereby, which rights have not been waived by the holder thereof as of the date hereof.

 

(ll)           Public Utility Holding Act.  None of the Company nor any of its Subsidiaries is a “holding company,” or an “Affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

(mm)        Federal Power Act.  None of the Company nor any of its Subsidiaries is subject to regulation as a “public utility” under the Federal Power Act, as amended.

 

  

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(nn)           Disclosure.  The Company confirms that neither it nor, to its knowledge, any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  All disclosure provided to the Buyers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  Each material press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed.  The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

	
4.

	
COVENANTS.

 

(a)           Maintenance of Registration Statement  For so long as any of the Warrants remain outstanding, the Company shall use its reasonable best efforts to maintain the effectiveness of the Registration Statement for the issuance thereunder of the Warrant Shares, provided that, if at any time while the Warrants are outstanding the Company shall be ineligible to utilize Form S-3 (or any successor form) for the purpose of issuance of the Warrant Shares, the Company shall promptly amend the Registration Statement on such other form as may be necessary to maintain the effectiveness of the Registration Statement for this purpose.  If at any time following the date hereof the Registration Statement is not effective or is not otherwise available for the issuance of the Securities or any prospectus contained therein is not available for use, the Company shall immediately notify the holders of the Securities in writing that the Registration Statement is not then effective or a prospectus contained therein is not available for use and thereafter shall promptly notify such holders when the Registration Statement is effective again and available for the issuance of the Securities or such prospectus is again available for use.

 

(b)           Prospectus Supplement and Blue Sky.  Immediately prior to execution of this Agreement, the Company shall have delivered, and as soon as practicable after execution of this Agreement the Company shall file, the Prospectus Supplement with respect to the Securities as required under, and in conformity with, the 1933 Act, including Rule 424(b) thereunder.  The Company shall have taken immediately upon execution of this Agreement such action, if any, as required in order to obtain an exemption for, or to, qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the 

 

  

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states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Buyers.  The Company shall take all necessary action to ensure the compliance with all applicable securities laws (including without limitation “Blue Sky” laws) of the issuance of any Warrant Shares from time to time upon exercise of the Warrants.

 

(c)           Reporting Status.  Until the date on which no Warrants are outstanding (the “Reporting Period”), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination.

 

(d)           [Intentionally Omitted].

 

(e)           Financial Information.  The Company agrees to send the following to each Buyer during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.

 

(f)           Listing.  The Company has secured the listing of all of the Common Shares and Warrant Shares (subject to notice of issuance) on the NYSE MKT in connection with the transactions contemplated hereby and by the Warrants.  In addition, the Company shall secure the listing or designation for quotation (as the case may be) of all of the Common Shares and Warrant Shares upon each other national securities exchange and automated quotation system, if any, upon which the Common Stock is from time to time listed or designated for quotation (as the case may be) (subject to official notice of issuance). The Company shall maintain the Common Stock’s listing or designation for quotation (as the case may be) on the OTC Bulletin Board, the NYSE MKT, The New York Stock Exchange, the Nasdaq Capital Market or the Nasdaq Global Select Market (each, an “Eligible Market”). The Company and its Subsidiaries shall use reasonable efforts to resolve the NYSE MKT Non-Compliance. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f).

 

(g)           Fees.  Prior to the date hereof, the Company has paid, for the benefit of Crede CG II, Ltd.  (“Crede”), a non-refundable, non-accountable document preparation fee in the amount of $30,000 (the “Document Preparation Fee”).  In addition, by virtue of the execution of this Agreement by Crede, the Company shall be obligated pay to Crede an additional amount equal to 

 

  

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$101,631.30 as an investment fee (the “Investment Fee”) hereunder, which shall be paid by the Company to Crede at the Closing by Crede withholding such amount from the Purchase Price to be paid by it at the Closing.  In the event of the termination of this Agreement, so long as such termination did not occur as a result of a material breach by Crede of any of its obligations hereunder or pursuant to Section 7(b), then the foregoing amounts shall be payable in cash by the Company to Crede immediately following such termination.  Except as set forth above, or as may otherwise be set forth in this Agreement or the other Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(h)           Pledge of Securities.  Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document.  The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.

 

(i)           Disclosure of Transactions and Other Material Information. The Company shall, on or before 9:30 a.m. (but in no event prior to 9:15 a.m.), New York time, on the first (1st) Trading Day after the date hereof, issue a press release (the “Press Release”) reasonably acceptable to the Buyers disclosing all the material terms of the transactions contemplated by the Transaction Documents.  On or before 9:30 a.m. (but in no event prior to 9:15 a.m.), New York time, on the first (1st) Trading Day after the date hereof, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement) and the form of Warrants) (including all attachments, the “8-K Filing”).  From and after the issuance of the Press Release, the Company shall have disclosed all material, non-public information (if any) delivered to any of the Buyers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents.  The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents, not to, provide any Buyer with any material, non-public information regarding the Company or any of its Subsidiaries from and after the issuance of the Press Release without the express prior written consent of such Buyer.  In the event of a breach of any of the foregoing covenants or any of the covenants contained in Section 4(n) by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Buyer), in addition to any other remedy provided herein or in the Transaction Documents, such Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information without the prior approval by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees or agents.  No Buyer shall have any liability to the Company, any of its Subsidiaries, or any of its or their 

 

 

 

 

  

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respective officers, directors, employees, stockholders or agents, for any such disclosure.  Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Unless required by regulatory authority or in response to any subpoena, court order or similar legal demand of any governmental entity to whose authority it is subject, including, but not limited to, the filing of documents with the SEC as required by the rules and regulations of the SEC, without the prior written consent of the applicable Buyer, the Company shall not (and shall cause each of its Subsidiaries and Affiliates to not) disclose the name of such Buyer in any announcement, release or otherwise.

 

(j)           Additional Issuance of Securities.  The Company agrees that for the period commencing on the date hereof and ending on the date immediately following the ninetieth (90th) day anniversary of the date hereof (provided that such period shall be extended by the number of days during such period and any extension thereof contemplated by this proviso on which the Registration Statement is not effective or any prospectus contained therein is not available for use) (the “Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or indirectly issue, offer, sell, grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant of any option or right to purchase or other disposition of) any Common Stock or any security or any debt or other instrument convertible or exchangeable or exercisable into Common Stock or which constitutes (or would constitute but for lack of a fixed exercise or conversion or similar price or if it were not solely cash settled) a “derivative security” (as defined under the rules and regulations under Section 16 of the 1934 Act) or otherwise an equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act) or which does or would otherwise constitute any Option or Convertible Security (as defined in the Warrants) (any such issuance, offer, sale, grant, disposition or announcement (whether occurring during the Restricted Period or at any time thereafter) is referred to as a “Subsequent Placement”). Notwithstanding the foregoing, the immediately preceding sentence in this Section 4(j) shall not apply in respect of the issuance of (A) shares of Common Stock or standard options to purchase Common Stock or other standard equity linked securities (e.g., stock appreciation rights) to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Share Plan (as defined below), provided that (1) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (A) do not, in the aggregate, exceed more than 2% of the shares of Common Stock and (2) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Buyers; (B) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) is not lowered beyond the price determined by the anti-dilution provision in 

 

  

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such outstanding Convertible Security and none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Share Plan that are covered by clause (A) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (C) the Warrants; (D) the Warrant Shares; (E) issuances of equity to a seller, or in the case of a merger, the shareholders of the target company in such merger, or the officers or employees thereof, in each case in connection with a bona fide merger, business combination transaction or acquisition of stock or assets outside of the ordinary course; or (F) a stock split or other subdivision or combination, or a stock dividend made to all holders of any Company equity on a pro rata basis (each of the foregoing in clauses (A) through (F), collectively the “Excluded Securities”). “Approved Share Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such.

 

(k)           Reservation of Shares.  So long as any of the Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, the maximum number of shares of Common Stock issuable upon exercise of all the Warrants (without regard to any limitations on the exercise of the Warrants set forth therein).

 

(l)           Conduct of Business.  The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity in any jurisdiction to which the Company is subject, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

 

(m)           Variable Rate Transaction.  Until none of the Warrants are outstanding, the Company and each Subsidiary shall be prohibited from effecting, or entering into an agreement to effect, any Subsequent Placement involving a Variable Rate Transaction.  “Variable Rate Transaction” means a transaction in which the Company or any Subsidiary (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an equity line of credit) whereby the Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights).  Each Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(n)           Participation Right.  From the date hereof until the six-month anniversary of the Closing Date, neither the Company nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4(n).  The Company acknowledges and agrees that the right set forth in this Section 4(n) is a right 

 

  

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granted by the Company, separately, to each Buyer.  The restrictions contained in this Section 4(n) shall not apply in connection with the issuance of any Excluded Securities.

 

(i)           The Company shall deliver to such Buyer, via facsimile or via e-mail to the e-mail address provided in writing by such Buyer to the Company, a written notice of its proposal or intention to effect a Subsequent Placement (each such notice, a “Pre-Notice”), which Pre-Notice shall not contain any information (including, without limitation, material, non-public information) other than: (i) a statement that the Company proposes or intends to effect a Subsequent Placement, (ii) a statement that the statement in clause (i) above does not constitute material, non-public information and (iii) a statement informing such Buyer that it is entitled to receive an Offer Notice (as defined below) with respect to such Subsequent Placement upon its written request.  Upon the written request of a Buyer within two (2) Business Days after the Company’s delivery to such Buyer of such Pre-Notice, and only upon a written request by such Buyer, the Company shall promptly, but no later than one (1) Business Day after such request, deliver to such Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyer in accordance with the terms of the Offer 100% of the Offered Securities, provided that the number of Offered Securities which such Buyer shall have the right to subscribe for under this Section 4(n) shall be (a) based on such Buyer’s pro rata portion of the aggregate number of Common Shares purchased hereunder by all Buyers (the “Basic Amount”), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

(ii)           To accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company on or prior to the second (2nd) Business Day following the receipt of such Offer Notice by Buyer (the “Offer Period”), setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”).  If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then such Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), such Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to 

 

  

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rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company shall deliver to each Buyer a new Offer Notice subject hereto.

(iii)           The Company shall have three (3) days from the expiration of the Offer Period above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Buyer (the “Refused Securities”) pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.

(iv)           In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(n)(iii) above), then such Buyer may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(n)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to this Section 4(n) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities.  In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Buyers in accordance with Section 4(n)(i) above.

(v)           Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Buyer shall acquire from the Company, and the Company shall issue to such Buyer, the number or amount of Offered Securities specified in its Notice of Acceptance.  The purchase by such Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Buyer of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to such Buyer and its counsel.

(vi)           Any Offered Securities not acquired by a Buyer or other Persons in accordance with this Section 4(n) may not be issued, sold or exchanged until they are again offered to such Buyer under the procedures specified in this Agreement.

 

  

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(vii)           The Company and each Buyer agree that if any Buyer elects to participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision whereby such Buyer shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company.

(viii)           Notwithstanding anything to the contrary in this Section 4(n) and unless otherwise agreed to by such Buyer, the Company shall either confirm in writing to such Buyer that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose its intention to issue the Offered Securities, in either case in such a manner such that such Buyer will not be in possession of any material, non-public information, by the third (3rd) day following delivery of the Offer Notice.  If by such third (3rd) day, no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Buyer, such transaction shall be deemed to have been abandoned and such Buyer shall not be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.  Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Buyer with another Offer Notice in accordance with, and subject to, the terms of this Section 4(n) and such Buyer will again have the right of participation set forth in this Section 4(n).  The Company shall not be permitted to deliver more than two Offer Notices to such Buyer in any sixty (60) day period, except as expressly contemplated by the last sentence of Section 4(n)(ii).

 

(ix)           The Company shall not circumvent the provisions of this Section 4(n) by providing terms or conditions to one Buyer that are not provided to all.  Notwithstanding anything to the contrary contained herein, no Buyer shall have the right to participate in an Offer Notice or acquire any securities subject thereto to the extent that to do so would result in such Buyer beneficially owning (as defined in Section 13(d) under the 1934 Act and the rules and regulations thereunder) more than 9.9% of the Common Stock.

 

(o)           Passive Foreign Investment Company.  The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(p)           Certain Restrictions as to Buyer.

 

(i)           For so long as the Buyer or any of its Affiliates holds any Securities, neither the Buyer nor any Affiliate will:  (i) vote any shares of Common Stock beneficially owned by it, solicit any proxies, or seek to advise or influence any Person with respect to any voting securities of the Company; (ii) engage or participate in any actions, plans or proposals which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in Buyer or its Affiliates beneficially owning (within the meaning of Section 13(d) under the 1934 Act) more than 9.9% of the Common Stock, 

 

  

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(b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company or any of its Subsidiaries, (c) a sale or transfer of a material amount of assets of the Company or any of its Subsidiaries, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant  to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those enumerated above; or (iii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this paragraph.  The restrictions contained in this paragraph (i) shall not limit Buyer’s rights to enforce its rights or exercise its rights as to the Securities or under the Transaction Documents.

 

(ii)           Provided that the Company is in compliance with its obligations under this Agreement and the other Transaction Documents, each Buyer covenants and agrees that during the period beginning on the date hereof and ending on the Trading Day immediately following the date on which Buyer no longer owns any Common Stock, neither Buyer nor any of its Affiliates nor any entity managed or controlled by each such Buyer will, directly or indirectly, or cause or assist any Person to (x) enter into or execute any “short sale” (as such term is defined in Rule 200 of Regulation SHO, or any successor regulation, promulgated by the SEC under the Exchange Act) of the Common Stock or (y)  trade in derivative securities to the same effect; provided, however, that this Section 4(p)(ii) shall not restrict or limit Buyer or such Affiliate or entity from effectuating “short sale” transactions of a number of shares of Common Stock in anticipation of the exercise and/or exchange of the Warrant for an equivalent number of Warrant Shares (it being understood and agreed that effectuating “short sales” during a Trading Day of shares of Common Stock shall be deemed to be made in anticipation of the exercise and/or exchange of the Warrant for an equivalent number of Warrant Shares so long as exercises and/or exchanges for such aggregate number of Warrant Shares are made within three Trading Days after such “short sale”).

 

	
5.

	
REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)           Register.  The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Common Shares and the Warrants in which the Company shall record the name and address of the Person in whose name the Common Shares and the Warrants have been issued (including the name and address of each transferee), the number of Common Shares held by such Person and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

 

  

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(b)           Transfer Agent Instructions.  The Company shall issue irrevocable instructions to the Transfer Agent in the form previously provided to the Company (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at DTC, without restriction and registered in the name of each Buyer or its respective nominee(s), for the Common Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon delivery of the Common Shares or the exercise of the Warrants (as the case may be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b) will be given by the Company to the Transfer Agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company. If a Buyer effects a sale, assignment or transfer of the Securities, the Company shall permit the transfer and shall promptly instruct the Transfer Agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

(c)           Certificates and any other instruments evidencing the Securities shall not bear any restrictive or other legend.

 

	
6.

	
ADDITIONAL CLOSING DELIVERIES OF THE COMPANY.

 

At the Closing, in addition to its other deliveries required under this Agreement, the Company shall deliver the following:

 

(i)           The opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, the Company’s counsel, dated as of the Closing Date, in the form substantially similar to that provided in Exhibit B hereto;

 

(ii)           A copy of the Irrevocable Transfer Agent Instructions, in the form provided in Exhibit C hereto, and which have been delivered to and acknowledged in writing by the Transfer Agent;

 

(iii)           A certificate evidencing the formation and good standing of the Company in the Company’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten (10) days of the Closing Date;

 

(iv)           A certified copy of the Articles of Incorporation within ten (10) days of the Closing Date;

 

(v)           A certificate executed by the Secretary of the Company on behalf of the company, and not in his or her personal capacity, and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of 

 

  

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directors and as necessary or appropriate with respect to the issuance of the Securities and the approval of this Agreement and the other Transaction Documents and the terms and conditions hereof and thereof and otherwise in order to give effect hereto and thereto, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect at the Closing.

 

(vi)           A letter from the Transfer Agent certifying the number of shares of Common Stock outstanding on the Closing Date immediately prior to the Closing.

 

(vii)          A certificate executed by the Chief Executive Officer of the Company, dated as of the Closing Date, stating on behalf of the company, and not in his or her personal capacity, that as of the Closing (i) each and every representation and warranty of the Company herein is true and correct in all material respects as of the date when made and as of the Closing as though originally made at that time, and (ii) that the Company has performed, satisfied and complied in all respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior  Closing.

 

(viii)         Such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as necessary or appropriate to accomplish the purposes or intents of the issuance of the Securities, and the consummation of the transactions contemplated by this Agreement and the other Transaction Documents.

 

	
7.

	
DAMAGES IN CERTAIN CIRCUMSTANCE AND CERTAIN RELATED MATTERS; CONDITION TO CLOSING.

 

(a)           In the event that the Company shall fail to consummate the Closing as called for by Section 1(b) hereof, for any reason (other than material breach by Buyer hereunder or failure to obtain NYSE MKT Approval (as defined below), as per Section 7(b)), the Company shall indemnify and hold harmless such Buyer from any and all costs, expenses, damages, losses and otherwise, with respect to the failure of the Company to effectuate the Closing and the transactions contemplated hereby.  Without limiting the foregoing, in such event, such Buyer shall have the right to terminate its obligations under this Agreement with respect to itself at any time on or after such failure by the Company, without liability of such Buyer to the Company or any other Person.  No such failure or termination of obligations of Buyer shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses otherwise called for by this Agreement.  Nothing contained in this Section shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

(b)           Notwithstanding Section 7(a) or any other provisions of this Agreement, the obligation of the Company to consummate the Closing as called for by Section 1(b), is subject to approval of the Transaction Documents and the transactions contemplated thereby by the Listing and Compliance Committee of the NYSE MKT by close of business on Friday, December 21, 2012 (“NYSE MKT Approval”). The Company shall use its reasonable best efforts to obtain such NYSE MKT Approval. Failure to obtain NYSE MKT Approval by such time shall result in the immediate termination of this Agreement and each other Transaction Document and shall 

 

  

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release the Company and each Buyer of their respective obligations thereunder without liability to the other party or any other Person; provided, however, that the Company shall, notwithstanding the foregoing, remain obligated to pay the Document Preparation Fee.

	
8.

	
MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall (i) limit or be deemed to limit in any way any right to serve process in any manner permitted by law, or (ii) operate, or be deemed to operate, to preclude any Buyer or the Company from bringing suit or taking other legal action against the Company or any Buyer in any other jurisdiction to collect on the Company’s obligations to such Buyer or a Buyer’s obligations to the Company or to enforce a judgment or other court ruling in favor of such Buyer or the Company, or (iii) limit, or be deemed to limit, any provision of the Warrants which is contrary to the above. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)           Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

 

(c)           Headings; Gender; Certain Meanings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.  Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof.  The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.”  The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are 

 

  

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found.  When used herein, the words “law,” “rule,” “regulation” and the like means all applicable laws, rules and regulations, domestic or foreign, state, provincial, local or self-regulatory, including without limitation as to all applicable laws, rules and regulations of or related to the United States, applicable states, the SEC, and the NYSE MKT.

 

(d)           Severability.  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

(e)           Entire Agreement; Amendments.  This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, their Affiliates and Persons acting on their behalf solely with respect to the matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to), (i) have any effect on any agreements any Buyer has entered into with the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among the Company and/or any of its Subsidiaries and any Buyer and all such agreements shall continue in full force and effect.  Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  For clarification purposes, the Recitals are part of this Agreement.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each of the Buyers.  No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, all holders of Common Shares or all holders of the Warrants (as the case may be).  The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents.  Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise.  As a material inducement for each 

 

  

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Buyer to enter into this Agreement, the Company expressly acknowledges and agrees that (i) no due diligence investigation conducted by a Buyer or its advisors, if any, or its representatives shall affect such Buyer’s right to rely on, or modify or qualify any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document, (ii) nothing contained in the Registration Statement, the Prospectus or the Prospectus Supplement shall affect such Buyer’s right to rely on, or modify or qualify any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document and (iii) unless a provision of this Agreement or any other Transaction Document is expressly preceded by “except as disclosed in the SEC Documents,” nothing contained in any of the SEC Documents shall affect such Buyer’s right to rely on, or modify or qualify any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document.

 

(f)           Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient); and (iv) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same.  The addresses and facsimile numbers and email addresses for such communications shall be:

 

If to the Company:

 

GeoGlobal Resources, Inc.

Suite 200, 625 - 4th Ave. S.W.

Calgary, Alberta

T2P 0K2

Facsimile:    (403) 777-9199

Email:           paul.miller@geoglobal.com

Attention:     Paul Miller

With a copy (for informational purposes only) to:

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019

Telephone:    212-373-3078

Facsimile:     212-492-0078

Email:            afoley@paulweiss.com

Attention:      Andrew J. Foley, Esq.

  

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If to the Transfer Agent:

 

Computershare Trust Company, N.A.

350 Indiana Street, Suite 750

Golden, CO 80401

Telephone: 303-262-0702

Facsimile:    303-262-0609

Email:           Jennifer.Harla@computershare.com

Attention:   Jennifer Harla

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

77 W. Wacker Drive, Suite 3100

Chicago, Illinois 60601

Telephone:   (312) 456-8400

Facsimile:    (312) 456-8435

Email:           liebermanp@gtlaw.com

mazure@gtlaw.com

Attention:     Peter H. Lieberman, Esq.

Eric Mazur, Esq.

 

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change, provided that Greenberg Traurig, LLP shall only be provided copies of notices sent to Crede.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.  A copy of the e-mail transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

(g)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including, as contemplated below, any assignee of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of the Buyers, including, without limitation, by way of a Fundamental Transaction (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants).  A Buyer may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)           No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Buyer Indemnitees referred to in Section 8(k).

 

  

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(i)           Survival.  The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j)           Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(k)           Indemnification.

 

(i)           In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law, or (d) any legal fees and expenses incurred by an Indemnitee after the date hereof in connection with the Transaction Documents (or any of the transactions or matters contemplated thereby) and/or any the transactions contemplated by this Agreement.

 

(ii)           Promptly after receipt by an Indemnitee under this Section 8(k) of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Section 8(k), deliver to the Company a written notice of the commencement thereof, and the Company shall have the 

 

  

33

  

 

right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and expenses of such counsel to be paid by the Company if: (i) the Company has agreed in writing to pay such fees and expenses; (ii) the Company shall have failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such Indemnified Liability; or (iii) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, then the Company shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Company), provided further, that in the case of clause (iii) above the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnitee.  The Indemnitee shall reasonably cooperate with the Company in connection with any negotiation or defense of any such action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Indemnified Liability.  The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  The Company shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the Company shall not unreasonably withhold, delay or condition its consent.  The Company shall not, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee.  Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 8(k), except to the extent that the Company is materially and adversely prejudiced in its ability to defend such action.

 

(iii)           The indemnification required by this Section 8(k) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Liabilities are incurred.

 

(iv)           The indemnity agreement contained herein shall be in addition to (A) any cause of action or similar right of the Indemnitee against the Company or others, and (B) any liabilities the Company may be subject to pursuant to the law.

 

(l)           Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction 

 

  

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will be applied against any party.  No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty.

 

(m)           Remedies.  Each Buyer and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n)           Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o)           Payment Set Aside; Currency.  To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.  Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars.  All amounts denominated in other currencies (if any) shall be converted in the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation.  “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation.

 

 [signature pages follow]

 

  

  

35

  

 

 

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

 

	 	
COMPANY:

	 
	 	 	 
	 	
GEOGLOBAL RESOURCES INC.

 

	 
	 	/s/ Paul B. Miller	 
	
 

	
By: 

	Paul B. Miller	 
	 	Its:	President and Chief Executive Officer 	 
	 	 	 	 
	 	 	 	 

 

 

 

 

  

  

  

 

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

 

	 	

BUYER:

	 
	 	 	 
	 	

CREDE CG II, LTD.

 

	 
	 	/s/ Terren Peizer	 
	
 

	
By: 

	Terren Peizer	 
	 	Its:	Managing Director	 
	 	 	 	 
	 	 	 	 

 

  

  

  

 

SCHEDULE OF BUYERS (include page for each Buyer)

 

Name of Buyer: Crede CG II, Ltd., an entity organized under the laws of Bermuda

 

UNITS EQUAL TO ONE SHARE OF COMMON STOCK AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK:

 

PURCHASE PRICE PER UNIT EQUAL TO $0.067.

 

AGGREGATE NUMBER OF UNITS TO BE PURCHASED: 13,827,387 UNITS FOR AN AGGREGATE PURCHASE PRICE EQUAL TO $926,434.93.

 

As a result: 13,827,387 shares of Common Stock will be issued and warrants to initially purchase 13,827,387 shares of Common Stock will be purchased.  Initial warrant exercise price per share will be equal to $0.0804. Each Warrant shall contain a 9.9% beneficial ownership blocker provision.

 

The Company represents and warrants to the above Buyer that based upon the above and the number of outstanding shares of Common Stock as set forth in Section 3(r) hereof, upon execution of this Agreement Buyer will beneficially own (within the meaning of Section 13(d) of the 1934 Act and the rules and regulations thereunder) no more than 9.9% of the Company’s Common Stock.

 

The address and facsimile number for communications shall be:

 

Crede CG II, Ltd.

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025

Telephone: (310) 444-4300

Facsimile: (310) 444-5300

Attention: Administrator

 

 

 

 

  

  

  

 

EXHIBIT A TO 

EXHIBIT 10.1

 

 

[FORM OF WARRANT]

 

GEOGLOBAL RESOURCES INC.

 

Warrant To Purchase Common Stock

 

Warrant No.:                                           

Date of Issuance: December [__], 2012 (“Issuance Date”)

 

GeoGlobal Resources Inc., a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Crede CG II, Ltd., the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), 13,827,387 (subject to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 17. This Warrant is one of the Warrants to Purchase Common Stock (the “SPA Warrants”) issued pursuant to that certain Securities Purchase Agreement, dated as of December 20, 2012, by and among the Company and the investor(s) thereunder (the “Buyer” or “Buyers” as applicable) referred to therein (the “Securities Purchase Agreement”).

 

	
1.

	
EXERCISE OF WARRANT.

 

(a)           Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant was so exercised (in respect of such specific exercise, the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant certificate and issuance of a new Warrant certificate evidencing the right to purchase the 

 

 

 

 

  

  

  

 

remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant certificate after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1st) Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit C, to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading Day following the date on which the Company has received such Exercise Notice, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program (which the Company shall cause the Transfer Agent to do at Holder’s request), upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Holder and upon surrender hereof by the Holder at the principal office of the Company, the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 8(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes and fees in the nature of taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  

2

  

 

(b)           Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.0804, subject to adjustment as provided herein.

 

(c)           Company’s Failure to Timely Deliver Securities. If the Company shall fail, for any reason or for no reason, to issue to the Holder within three (3) Trading Days after receipt of the applicable Exercise Notice or Exchange Notice, as applicable, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant (as the case may be), then, in addition to all other remedies available to the Holder, the Company shall pay in cash to the Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 2% of the product of (A) the aggregate number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Company could have issued such shares of Common Stock to the Holder without violating Section 1(a).  In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of the applicable Exercise Notice or Exchange Notice, as applicable, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise or exchange hereunder (as the case may be), and if on or after such third (3rd) Trading Day the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder to a third party that is not an Affiliate of the Holder of all or any portion of the number of shares of Common Stock, or a sale by the Holder to a third party that is not an Affiliate of the Holder of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such exercise or exchange that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and reasonable out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise or exchange hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise or exchange hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing 

 

 

 

 

  

3

  

 

Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Exercise Notice or Exchange Notice, as the case may be, and ending on the date of such issuance and payment under this clause (ii).

 

(d)           Cashless Exercise.  Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at the time of an exercise hereof any Equity Conditions Failure shall then exist, then the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to make a cashless exercise (each a “Cashless Exercise”) under this paragraph (d). A Cashless Exercise under this paragraph (d) may be made, at the election of the Holder from time to time and irrespective of any other election to make a Cashless Exercise, so that upon such exercise Holder shall receive the “Net Number” of shares of Common Stock determined according to the following formula:

 

Net Number = (A x B) - (A x C)

 

            B

 

For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is then being exercised.

 

B= as applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder’s execution of the applicable Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 1(a) hereof or (iii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on such Trading Day.

 

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

Notwithstanding anything to the contrary contained herein, exercise of this Warrant on a cashless basis may also be made from time to time at the election of the Holder (and irrespective of any election to make a Cashless Exercise under this paragraph (d)), pursuant to the exchange provisions of Section 5 of this Warrant.

 

(e)           Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms 

 

  

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hereof (including, without limitation, the Net Number), the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed, provided that following such issuance to Holder such dispute shall be resolved in accordance with Section 14.

 

(f)           Limitations on Exercises and Exchanges.

 

(i)           Beneficial Ownership. Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable or exchangeable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 9.9% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable or exchangeable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable or exchangeable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise or exchange this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability or exchangeability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise or exchange of convertible or exercisable or exchangeable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement.

 

(ii)           Principal Market Regulation. In order to comply with the rules and regulations of the NYSE MKT (the Principal Market), the Company shall not issue any shares of Common Stock upon exercise or exchange of this Warrant if the issuance of such shares of Common Stock would, when added to the number of Common Shares (as defined in the Securities Purchase Agreement) issued pursuant to the Securities Purchase Agreement, exceed 27,654,775 shares in the aggregate (the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for 

 

  

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issuances of shares of Common Stock in excess of such amount, (B) is no longer traded on the Principal Market, or (C) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holder. In the event that the Company shall seek to issue Warrant Shares under this Warrant which, when added to the number of Common Shares (as defined in the Securities Purchase Agreement) issued pursuant to the Securities Purchase Agreement, exceeds the Exchange Cap, and such limitation applies as aforesaid, then the Company shall provide each shareholder entitled to vote at a meeting of shareholders of the Company (a “Shareholder Meeting”) a proxy statement, substantially in a form which has been previously reviewed by the Holder and its counsel at the expense of the Company, soliciting each such shareholder’s affirmative vote at the Shareholder Meeting for approval of a resolution (the “Resolution”) making the Exchange Cap inapplicable with respect to issuances of Common Stock in excess of the Exchange Cap in accordance with applicable law and the rules and regulations of Principal Market (such affirmative approval is referred to herein as the “Shareholder Approval”), and in such event the Company shall use its best efforts to solicit its shareholders’ approval of the Resolution and the Shareholder Approval (which efforts shall include, without limitation, the requirement to hire a reputable proxy solicitor) and to cause the board of directors of the Company to recommend to the shareholders that they approve the Resolution and the Shareholder Approval.  Notwithstanding anything to the contrary contained herein, until such time as Shareholder Approval has been obtained or the Exchange Cap no longer applies as aforesaid, the Company shall not issue (or take any action whereby it would be deemed hereunder to issue) shares of Common Stock in a Dilutive Issuance which would result in the Exchange Cap being triggered if the adjustments under Section 2 hereof were made in respect of such Dilutive Issuance (without regard to any limitations hereunder, including without limitation the Exchange Cap) and this Warrant were exercised in full thereafter (without regard to any limitations on exercise hereunder, including without limitation the Exchange Cap and the Maximum Percentage).

 

(g)           Insufficient Authorized Shares. The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise or exchange of this Warrant). If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise or exchange of the SPA Warrants at least a number of shares of Common Stock equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise or exchange of all of the SPA Warrants then outstanding (the “Required Reserve Amount”) (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common 

 

  

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Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its reasonable efforts to solicit its shareholders’ approval of such increase in authorized shares of Common Stock.

 

(h)           Activity Restrictions.  (i) For so long as Holder or any of its Affiliates holds any Warrants or any Warrant Shares, neither Holder nor any Affiliate will:  (i) vote any shares of Common Stock beneficially owned by it, solicit any proxies, or seek to advise or influence any Person with respect to any voting securities of the Company; (ii) engage or participate in any actions, plans or proposals which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in Buyer or its Affiliates beneficially owning (within the meaning of Section 13(d) under the 1934 Act) more than 9.9% of the Common Stock, (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company or any of its Subsidiaries, (c) a sale or transfer of a material amount of assets of the Company or any of its Subsidiaries, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those enumerated above; or (iii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this paragraph.  The restrictions contained in this paragraph (i) shall not limit Holder’s rights to enforce its rights or exercise its rights as to the Securities or under this Warrant or the Transaction Documents.

 

(ii)           Provided that the Company is in compliance with its obligations under this Warrant and the other Transaction Documents and no Equity Condition Failure shall have occurred, if the trading price on the Principal Market at the time of an exercise of this Warrant is greater than the then applicable Exercise Price then in effect, then in respect of such particular exercise Holder may only exercise this Warrant for a cash exercise price (and not by means of a Cashless Exercise under Section 1(d) above or on a cashless basis under Section 5 below).

 

2.           ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

 

(a)           Stock Dividends and Splits. Without limiting any provision of Section 4, if the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) 

 

  

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subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

(b)           Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or after the date of the Securities Purchase Agreement, the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities (as defined in the Securities Purchase Agreement) issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Exercise Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to “EP1” below:

 

      OB + (AC / EP)

EP1 =    EP   x    _________________

                OA

EP = the Exercise Price in effect immediately prior to such Dilutive Issuance

OB = the number of shares of Common Stock Deemed Outstanding (as defined below) immediately prior to such Dilutive Issuance

AC = the consideration, if any, received by the Company upon such Dilutive Issuance

OA = the number of shares of Common Stock Deemed Outstanding immediately after such Dilutive Issuance.

For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and consideration per share under this Section 2(b)), the following shall be applicable:

 

  

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(i)           Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person).  Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

(ii)           Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person)..  Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made 

 

  

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upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.

 

(iii)           Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.

 

(iv)           Calculation of Consideration Received. If any Option or Convertible Security is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) will be deemed to have been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received by the Company minus (II) the Black Scholes Consideration Value of each such Option or Convertible Security (as applicable).  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder.  If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation 

 

  

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Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

(v)             Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

 

(c)           Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) or (b) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).  In addition, and notwithstanding anything to the contrary contained herein, upon an Exchange as set forth in Section 5 hereof, the number of Warrant Shares for which this Warrant is exercisable immediately following such Exchange shall be equal to (i) the number of Warrant Shares for which this Warrant was exercisable immediately prior to such Exchange less (ii) the number of Warrant Shares under the portion of the Warrant exchanged in Exchange (e.g., if this Warrant is exercisable (without regard to limitations hereunder) for 100 shares immediately prior to an Exchange and 30% of the Warrant is submitted for Exchange (i.e., the Warrant to acquire 30 Warrant Shares is submitted for Exchange), then this Warrant will be exercisable for 70 Warrant Shares immediately following the completion of such Exchange), and the number of such Warrant Shares issuable hereunder shall automatically be adjusted, as necessary, to enable to the Company to comply with its obligations to issue the full Exchange Number under Section 5 hereof upon any Exchange hereunder.

 

(d)           Calculations. All calculations under this Section 2 shall be made by rounding to the nearest 1/10000th of cent and the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(e)           Other Events. In the event that the Company (or any Subsidiary (as defined in the Securities Purchase Agreement)) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Exercise 

 

  

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Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 2(e) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

 

3.           RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, indebtedness, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction, other than a distribution of Common Stock covered by Section 2(a)) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

	
4.

	
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a)           Purchase Rights.  In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be 

 

  

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held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

(b)           Fundamental Transactions.  The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents related to this Warrant in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements confirming the obligations of the Successor Entity as set forth in this paragraph (b) and (c) and elsewhere in this Warrant and an obligation to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction).  Notwithstanding the foregoing, at the election of the Holder upon exercise of this Warrant following a Fundamental Transaction, the Successor Entity shall deliver to the Holder, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of common stock (or its equivalent) of the Successor Entity (including its Parent Entity), or other securities, cash, assets or other property, which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant).

 

(c)           Black Scholes Value -- FT. Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time commencing on the earliest to occur of (x) the public disclosure of any Fundamental Transaction, (y) the consummation of any Fundamental Transaction and (z) the Holder first becoming aware of any Fundamental Transaction through the date that is thirty (30) days after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on Form 8-K filed with the SEC, the Company or the Successor Entity, at the election of the Holder, shall purchase this Warrant from the Holder on the date of the consummation of such Fundamental Transaction by paying to the Holder cash in an amount equal to the Black Scholes Value -- FT.

 

(d)           Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and shall be applied as if this Warrant (and any such subsequent warrants issued hereunder) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled 

 

  

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to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).

 

5.           EXCHANGE RIGHTS.  In addition to the rights of the Holder under Section 1 hereof, this Warrant shall be exchangeable by the Holder on a cashless basis as further set forth below (and subject to the limitations set forth in Section 1(h)(ii) hereof).

 

(a)           Exchange Right.  Subject to the provisions of Section 1(h)(ii), the Holder shall be entitled at any time and from time to time from and after the date of Issuance and prior to the Expiration Date, by written notice to the Company in the form of Exhibit B attached hereto (an “Exchange Notice”) to exchange (an “Exchange”) all or any portion of this Warrant for cash or, if elected by the Company in compliance with Section 1(f)(ii), fully paid and non-assessable shares of Common Stock, all as further set forth in this Section 5.  If the Company does not elect to honor such Exchange in shares of Common Stock (or is not permitted to elect to honor such Exchange in shares of Common Stock due to Section 1(f)(i) or Section 1(f)(ii)), then the Company shall pay to the holder, within two (2) Business Days after receipt of the applicable Exchange Notice, the Exchange Amount (as defined below) in cash in respect of such Exchange.  Notwithstanding anything to the contrary above, Holder shall be limited (the “Warrant Exchange Limitation”) in the exercise of its exchange right under this Section 5(a) at such time and to such extent (but only at such time and to such extent) that such exercise by Holder would, if the Company were permitted to and did elect to issue shares of Common Stock in response thereto, be limited by Section 1(f)(i) hereof.  No Warrant Exchange Limitation under the immediately preceding sentence shall apply to or limit any prior or subsequent exercise under this Section 5(a) and the application of the Warrant Exchange Limitation shall be evaluated and applied independent to each exercise under this Section 5(a).  Notwithstanding the foregoing, the Warrant Exchange Limitation shall not apply to any exercise under this Section 5(a) if the limitation under Section 1(f)(ii) is in effect at the time of such exercise or if there is an Equity Conditions Failure at such time.

 

(b)           Exchange Number.  If the Company is permitted to honor an Exchange by issuing shares of Common Stock in respect thereof, then the number of shares of Common Stock issuable in respect of such Exchange shall be determined by dividing (x) the Exchange Amount (as defined below) in respect of such Exchange by (y) the Exchange Price (as defined below) in respect of such Exchange (such number of shares of Common Stock so issuable being the “Exchange Number”).

 

(c)           Definitions.

 

(i)           “Exchange Amount” means the Black-Scholes Exchange Value of the portion of the Warrant being exchanged pursuant to Section 5(a), determined as of the applicable Exchange Date (as defined below).

 

(ii)           “Exchange Price” means the Closing Bid Price as of two (2) Trading Days prior to the Exchange Date.

 

  

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(d)           Mechanics of Exchange.

 

(i)           Optional Exchange.  To exchange any Exchange Amount on any date (an “Exchange Date”), the Holder shall transmit by facsimile (or otherwise deliver), for receipt on such date, a copy of an executed Exchange Notice.  The Holder shall not be required to deliver the original of this Warrant in order to effect an exchange hereunder. Execution and delivery of an Exchange Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exchange Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof.

 

(ii)           Exchange for Shares of Common Stock.  If the Company is permitted to elect, and has elected, to pay the Exchange Amount in shares of Common Stock in respect of a specific Exchange Notice, which election shall be made on or before the first (1st) Trading Day following the date on which the Company has received such Exchange Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exchange Notice, in the form attached hereto as Exhibit C, to the Holder and the Transfer Agent and stating that such Exchange Notice shall be honored in shares of Common Stock. In such event, then on or before the third (3rd) Trading Day following the date on which the Company has received such Exchange Notice, the Exchange Number of shares of Common Stock shall be issued to Holder, or at Holder’s instruction, as if such shares of Common Stock were issuable upon an exercise under Section 1 hereof.

 

(iii)           Equity Condition Failure.  Notwithstanding the above, if at the time on an Exchange Date, an Equity Condition Failure is reasonably likely to occur or has occurred and is still then continuing, then the Company shall not be permitted to elect to honor such Exchange in shares of Common Stock and shall instead honor such Exchange in cash.

 

(iv)           Disputes.  Dispute as to the determination of the Exchange Amount, the Exchange Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, and shares subject to such dispute, shall be handled in the same manner as for disputes under Section 1(e) hereof.

 

6.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA 

 

  

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Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).

 

7.           WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 7, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 

8.           REISSUANCE OF WARRANTS.

 

(a)           Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company at the principal office of the Company together with a written assignment of this Warrant substantially in the form attached hereto as Exhibit D duly executed by the Holder or its agent or attorney, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 8(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 8(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(b)           Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 8(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c)           Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or 

 

  

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Warrants (in accordance with Section 8(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.

 

(d)           Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a) or Section 8(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

(e)           Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.

 

9.           NOTICES.  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) as soon as practicable upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities, indebtedness, or other property pro rata to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information (to the extent it constitutes, or contains, material, non-public information regarding the Company or any of its Subsidiaries) shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.  To the extent that any notice provided hereunder (whether under this Section 9 or otherwise) constitutes, or contains, material, non-public information regarding the Company or any of its Subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K.

 

10.           AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

  

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11.           SEVERABILITY.  If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

12.           GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each of the Holder and the Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude either the Holder or the Company from bringing suit or taking other legal action against the Holder or the Company in any other jurisdiction to enforce a judgment or other court ruling in favor of such Holder or the Company. EACH OF THE HOLDER AND THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

13.           CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

14.           DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price, the Exchange Amount, the Exchange Price, the Closing Sale Price, the Closing Bid Price, the Bid Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case 

 

  

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may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder or the Company (as the case may be) learned of the circumstances giving rise to such dispute.  If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price, the Exchange Amount, the Exchange Price, the Closing Sale Price, the Closing Bid Price, the Bid Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed arithmetic calculation of the Warrant Shares, the disputed determination of the Exercise Price, the Exchange Amount, the Exchange Price, the Closing Sale Price, the Closing Bid Price, the Bid Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Holder or (b) if acceptable to the Holder, the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

 

15.           REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue its actual damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2 hereof). The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 

  

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16.           TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company; provided such transfer complies with applicable law.

 

17.           CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)           “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of all of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) (the “Pink Sheets”) as of such time of determination. If the Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 14. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(b)           “Black Scholes Exchange Value” means the value of an option for the number of shares equal to the portion of the Warrant being exchanged at the applicable Exchange Date as set forth in the applicable Exchange Notice as such value is determined calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock as of the Issuance Date (adjusted upward to the same extent that the Exercise Price hereunder has been adjusted upward pursuant to Section 2(a) hereof), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the Warrant as of such Exchange Date, (iii) a strike price equal to the Exercise Price in effect at the time of the applicable Exchange, (iv) an expected volatility equal to 135% and (v) a deemed remaining term of the Warrant of five (5) years (regardless of the actual remaining term of the Warrant).

 

(c)            “Black Scholes Value -- FT” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c), which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the earliest to occur of (x) the public disclosure of the applicable Fundamental Transaction, (y) the consummation of the applicable Fundamental Transaction and (z) the date on which the Holder first became aware of the applicable Fundamental Transaction and ending on the Trading Day of the Holder’s request pursuant to Section 4(c) and (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) 

 

  

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plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c) and (2) the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c) if such request is prior to the date of the consummation of the applicable Fundamental Transaction and (iv) an expected volatility equal to the greater of 135% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the earliest to occur of (x) the public disclosure of the applicable Fundamental Transaction, (y) the consummation of the applicable Fundamental Transaction and (z) the date on which the Holder first became aware of the applicable Fundamental Transaction.

 

(d)           “Bloomberg” means Bloomberg, L.P.

 

(e)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(f)           “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and the last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of all of the market makers for such security as reported in the Pink Sheets. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 14. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

(g)           “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

  

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(h)           “Common Stock Deemed Outstanding” means, as of the particular time of determination, the number of shares of Common Stock actually issued and outstanding at such time (but excluding any issued and outstanding shares of Common Stock owned or held by or for the account of the Company).

 

(i)           “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(j)           “Eligible Market” means the OTC Bulletin Board, the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Principal Market.

 

(k)   “Equity Conditions” means: (i) the Company shall have complied in all respects with all applicable securities laws and regulations and all rules and regulations of the Eligible Markets in respect of the offer, sale and issuance of the Securities under the Transaction Documents, (ii) (A) the Common Stock (including all shares of Common Stock to be received by Holder) shall be listed or designated for quotation (as applicable) on an Eligible Market and (B) no Trading Market Event (or event which with notice or passage of time would be a Trading Market Event) has occurred, nor shall there be any material deterioration in the Company’s NYSE MKT Non-Compliance (as defined in the Securities Purchase Agreement) that would reasonably be expected to make delisting or suspension by the NYSE MKT materially more likely (it being understood that a decrease in the share price of Common Stock would not be deemed a material deterioration) or there shall be pending or threatened any other delisting or suspension or Trading Market Event, (iii) the Company shall be in compliance in all material respects with all of its obligations under all of the Transaction Documents, (iv) the Holder shall not be in possession of any material, non-public information provided to it by the Company, any of its affiliates or any of their respective officers, employees, directors, representatives, agents or the like for more than one (1) Business Day or for three (3) Business Days if provided to it pursuant to and in accordance with Section 4(m) of the Securities Purchase Agreement, (v) each of the Registration Statement and the Prospectus contained therein (each as defined in the Securities Purchase Agreement) shall continue to be effective and fully available for use with respect to issuance of all of the Securities, including, without limitation, any issuance of Warrant Shares pursuant to a cash exercise hereof, including without limitation a Mandatory Exercise under Section 18, (vi) all Common Shares and Warrant Shares (including any Warrant Shares to be received upon exercise or exchange of this Warrant and including any Warrant Shares to be issued in a cash exercise) shall be then (or upon such issuance (as the case may be)) freely tradeable by Holder without restriction of any kind or nature (and the Company shall have no knowledge of any fact which would reasonably be expected to negate the foregoing in the foreseeable future), (vii) no limitation shall be applicable with respect to the issuance of any Warrant Shares hereunder (other than under Section 1(f)(i) and Section 1(f)(ii)), (viii) the Company is fully reporting under the 1934 and Rule 144 and has been such on a timely basis for the 15 months immediately preceding the date of determination, and (viii) all Common Shares and all Warrant Shares shall have been properly and timely delivered under the Securities Purchase Agreement and this Warrant, including without limitation, all Warrant Shares issuable under Section 5 hereof and all Common Shares and Warrant Shares have been, and will be, delivered via DWAC.  For purposes hereof a “Trading Market Event” shall mean if the Company or the Common Stock or any shares of Common Stock issued or issuable hereunder or under any other Transaction Document shall cease or fail to be listed for trading or quoted on an Eligible Market or shall fall below any dollar 

 

 

  

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threshold for listing or qualification; provided, that such Trading Market Event shall only apply for so long as the Common Stock fails to be listed for trading or quoted on an Eligible Market or is below any dollar threshold for listing or qualification.

 

(l)           “Equity Conditions Failure” means that on any applicable date of determination, any of the Equity Conditions have not been satisfied then or within the past three months or is then reasonably expected to occur; provided, however, that if, as of the applicable date of determination, the Common Stock had ceased or failed to be listed for trading or quoted on an Eligible Market within the past three months, but as of such date of determination has since been listed or designated for quotation (as applicable) on an Eligible Market and is then trading on such Eligible Market (including all Common Shares and all Warrant Shares (whether previously issued or issuable in the future), then the prior failure to be so listed for trading shall no longer be deemed an Equity Conditions Failure in respect of such applicable date of determination.

 

(m)           “Expiration Date” means the date that is the fifth (5th) anniversary of the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(n)           “Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) any other Person unless the shareholders of the Company immediately prior to such consolidation or merger continue to hold more than 50% of the outstanding shares of Voting Stock after such consolidation or merger, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company; provided that a sale of any or all of the properties or assets held by the Company in India shall not be deemed a Fundamental Transaction for the purposes of this Warrant.

 

(o)           “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(p)           “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

  

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(q)           “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(r)           “Principal Market” means the NYSE MKT.

 

(s)           “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(t)           “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.

 

(u)           “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

(v)           “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the three highest closing bid prices and the three lowest closing ask prices of all of the market makers for such security as reported in the Pink Sheets. If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 14. All such determinations shall be 

 

  

24

  

 

appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

18.           MANDATORY EXERCISE. If at any time after the date of issuance of this Warrant, for twenty (20) consecutive Trading Days the Closing Bid Price of the Common Stock for each Trading Day during such period is at a price greater than or equal to 25% above the Exercise Price as in effect at the end of such Trading Day, and the average daily dollar volume during such twenty (20) consecutive Trading Days is equal to or exceeds $150,000 (such period being the “Trigger Period”), then (provided no Equity Conditions Failure shall have occurred or be continuing at any time during such period), the Company shall have the right to require the Holder to exercise for cash all, but not less than all, of this Warrant for all of the then-remaining Warrant Shares as further set forth below. The Company may exercise its right to require exercise under this Section 18 (the “Mandatory Exercise Right”) on one occasion (or, if the Holder delivers to the Company a Blocker Notice (as defined below), such number of additional occasions as necessary to permit a Mandatory Exercise with respect to the entire amount of Warrant Shares issuable hereunder). The Company shall exercise its Mandatory Exercise Right (to the extent permitted hereby) by delivering, within ten (10) Trading Days following the end of the Trigger Period, a written notice thereof by facsimile and overnight courier to the Holder (the “Mandatory Exercise Notice” and the date such notice by facsimile is deemed to be delivered in accordance with Section 9(f) of the Securities Purchase Agreement is referred to as the “Mandatory Exercise Notice Date”). The Mandatory Exercise Notice shall be irrevocable. The Mandatory Exercise Notice shall (1) state the Trading Day selected for the Mandatory Exercise in accordance with this Section 18, which Trading Day shall be at least five (5) Trading Days but not more than fifteen (15) Trading Days following the Mandatory Exercise Notice Date (the “Mandatory Exercise Date”), (2) state the number of shares of Common Stock to be issued to the Holder on the Mandatory Exercise Date and (3) contain a certification from the Chief Executive Officer of the Company that there has been no Equity Conditions Failure as of the Mandatory Exercise Notice Date. Any portion of this Warrant exercised by the Holder after the Mandatory Exercise Notice Date shall reduce the number of Warrant Shares for which this Warrant is required to be exercised on the Mandatory Exercise Date. If the Company has elected a Mandatory Exercise, the mechanics of exercise set forth in Section 1 shall apply, to the extent applicable, as if the Company had received from the Holder on the Mandatory Exercise Date an Exercise Notice with respect to all of the then-remaining Warrant Shares (or the Permitted Exercise Amount (as defined below) of Warrant Shares, as applicable). Notwithstanding anything contained in this Section 18 to the contrary (but subject to the last sentence of this Section 18), if (I) the Closing Bid Price of the Common Stock on any Trading Day during the period commencing on the Mandatory Exercise Notice Date and ending on the Trading Day immediately preceding the Mandatory Exercise Date is less than the Exercise Price then in effect at the end of trading on such day; (II) the daily dollar trading volume (as reported on Bloomberg) of the Common Stock on the applicable Eligible Market on any Trading Day during the period commencing on the Mandatory Exercise Notice Date and ending on the Trading Day immediately preceding the Mandatory Exercise Date is less than $150,000; or (III) an Equity Conditions Failure occurs on any day since the occurrence of the Trigger Period and prior to the Mandatory Exercise Date, then the Mandatory Exercise Notice delivered to the Holder shall be null and void ab initio and the Mandatory Exercise shall not occur and the Mandatory Exercise Right shall expire and no longer be exercisable. If the Company elects to cause a mandatory exercise of this Warrant pursuant to this Section 18, then it must simultaneously take the same 

 

  

25

  

 

action with respect to all of the other SPA Warrants, if any, held by any person other than Holder. Notwithstanding anything contained in this Section 18 to the contrary, an effort by the Company to exercise its right under this Section 18 shall be stayed to the extent the Holder delivers a written notice to the Company stating that such exercise would result in a violation of Section 1(f) (a “Blocker Notice”), which Blocker Notice may be delivered at any time prior to the Mandatory Exercise Date, in which case the Company shall have the right to require the Holder to exercise this Warrant for such number of Warrant Shares that may be exercise hereunder without violating Section 1(f) (the “Permitted Exercise Amount”) and from time to time thereafter the Holder shall exercise this Warrant (so long as no Equity Conditions Failure has occurred from and after the Mandatory Exercise Notice Date) in such amounts and from time to time until fully exercised, subject to ongoing compliance with Section 1(f) hereof and subject to Holder’s rights hereunder and the other terms and conditions hereof following the Mandatory Exercise Date.  For clarification, if an Equity Condition Failure shall occur, this Section 18 shall thereafter no longer be effective and Holder shall thereafter have no obligations under this Section 18.

 

[signature page follows]

 

  

 

 

 

  

26

  

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

 

	 	
GEOGLOBAL RESOURCES INC.

 

	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

EXHIBIT A TO EXHIBIT A 

TO EXHIBIT 10.1

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

GEOGLOBAL RESOURCES INC.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of GeoGlobal Resources Inc., a Delaware corporation (the “Company”), evidenced by Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.           Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

 

	
  

	
____________

	
a “Cash Exercise” with respect to _________________ Warrant Shares; and/or

 

	
  

	
____________

	
a “Cashless Exercise” with respect to _______________ Warrant Shares.

 

In the event that the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder hereby represents and warrants that (i) this Exercise Notice was executed by the Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if applicable, the Bid Price as of such time of execution of this Exercise Notice was $________.

 

2.           Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3.           Delivery of Warrant Shares and Net Number of shares of Common Stock.  The Company shall deliver to Holder, or its designee or agent as specified below, __________ shares of Common Stock in respect of the exercise contemplated hereby.  Delivery shall be made to Holder, or for its benefit, to the following address:

 

_______________________

_______________________

_______________________

_______________________

 

Date: _______________ __, ______

 

 

  

  

  

 

Name of Registered Holder

 

By:         ___________________________  

Name:

Title:

 

Account Number:_________________________________________________________________________________                                      

          (if electronic book entry transfer)

 

Transaction Code Number:__________________________________________________________________________

          (if electronic book entry transfer)

 

 

  

  

  

 

EXHIBIT B TO EXHIBIT A 

TO EXHIBIT 10.1

 

EXCHANGE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXCHANGE THIS

WARRANT TO PURCHASE COMMON STOCK

 

GEOGLOBAL RESOURCES INC.

 

The undersigned holder hereby exercises the right to exchange the Warrant to Purchase Common Stock No. _______ (the “Warrant”) of GeoGlobal Resources Inc., a Delaware corporation (the “Company”) as described. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

Date of Exchange:   ___________________

 

	
1.

	
The total number of shares with respect to which this Warrant is being exchanged: _________________

 

	
2.

	
Black Scholes Exchange Value (as defined in Section 17) for an option to purchase _________________________ [SAME # AS FROM 1 ABOVE] shares of Common Stock: $ ______________.

 

Resulting Exchange Amount: $______________ [insert from item 2 above]

 

	
3.

	
Exchange Price: Closing Bid Price of the Common Stock as of two (2) Trading Days prior to the date of Exchange (as such Closing Bid Price is defined in Section 17 herein): $______________.

 

Resulting Exchange Number [Exchange Amount/Exchange Price as set forth in 3 above] (if issuer is permitted to elect to issue shares of Common Stock):_____________ shares of Common Stock

 

 

Account for Wire Transfer:__________________________________________________

 

Account for Share issuance (if Company is permitted to elect and so elects):___________

 

________________________________________________________________________

 

Date: _______________ __, ______

 

Name of Registered Holder

 

By:         ___________________________  

Name:

Title:

 

 

 

 

 

 

  

EXHIBIT C TO EXHIBIT A 

TO EXHIBIT 10.1

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this [Exercise Notice][Exchange Notice] and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 20__, from the Company and acknowledged and agreed to by _______________.

 

 

	 	
GEOGLOBAL RESOURCES INC.

 

	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 

 

 

 

 

 

 

 

 

  

  

  

 

  

EXHIBIT D TO EXHIBIT A 

TO EXHIBIT 10.1

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:  ______________, _______

 

Holder’s Signature:            _____________________________

Holder’s Address:              _____________________________

_____________________________

 

 

  

  

  

 

EXHIBIT B TO

EXHIBIT 10.1

 

 

 

 

[FORM OF OPINION OF PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP]

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

EXHIBIT C TO 

EXHIBIT 10.1

 

 

 

 

 

[TRANSFER AGENT INSTRUCTIONS]

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