UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

_________________
FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of Earliest Event Reported):  August 4, 2014   


NetREIT, INC.
(Exact Name of Registrant as Specified in Charter)


Maryland
000‑53673
33-0841255
(State or Other Jurisdiction
of Incorporation)
(Commission
File No.)
(IRS Employer
Identification No.)

1282 Pacific Oaks Place, Escondido, California 92029
(Address of Principal Executive Office) (Zip Code)



Registrant's Telephone Number, Including Area Code:  (760) 471-8536   



                                Not Applicable                            
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))  

8368888-v1
ITEM 1.01  Entry into a Material Definitive Agreement.

On August 4, 2014, NetREIT, Inc. (the "Company"), entered into a Preferred Stock Purchase Agreement (the "Purchase Agreement") with PFP III Sub II, LLC, an affiliate of Prime Finance Partners III, Inc. (collectively, "Prime"), with respect to the sale by the Company to Prime of up to 40,000 shares of the Company's Series B Preferred Stock, $0.01 par value per share (the "Series B Preferred Stock"), at a purchase price of $1,000 per share.  On August 4, 2014, Prime made an initial investment of $ 15,000,000 in cash and was issued 15,000 shares of Series B Preferred Stock by the Company.  Prime has the option to invest up to an additional $ 25,000,000 in shares of Series B Preferred Stock on or before August 4, 2015.  Any obligation of Prime to purchase additional shares of Series B Preferred Stock is subject to certain conditions and the accuracy of certain representations and warranties by the Company contained in the Purchase Agreement. 

On August 4, 2014, the Company also entered into an Investor Agreement with Prime, pursuant to which Prime was granted, among other rights, certain board designation and observer rights, negative control rights, information rights and rights to indemnification for certain types of liabilities.  The Investor Agreement provides that Prime will have the right to consent to certain material actions by the Company, its affiliates and its subsidiaries, including, among others, the decision to:
·
Settle any proceeding for which monetary damages exceed $250,000;
·
Approve the annual budget for any properties and the Company;
·
Commence an insolvency proceeding or adopt a plan of liquidation or other reorganization with respect to the Company or any of its subsidiaries;
·
Enter into a transaction for the purchase of any additional property or stock or assets of any corporation or other business organization;
·
Enter into any transaction involving the sale or mortgage of any property that is not on arms'-length terms or provides for non-market terms or conditions;
·
Enter into certain financing or refinancing transactions or material amendments to the Company's senior loans;
·
Select or replace a property manager;
·
Enter into or modify a major contract or material lease;
·
Authorize for issuance any shares of stock or other equity interests of the Company other than common stock of the Company;
·
Amend the charter or Bylaws of the Company;
·
Enter into any merger, consolidation, recapitalization or other business combination to which the Company or any of its subsidiaries is a party, or effectuate a sale of all or substantially all of its assets;
·
Take any action that would constitute a default under the Company's senior loans or related loan documents;
·
Change the size of the Board of Directors of the Company; and
·
Remove or replace any of the Company's officers or other senior management personnel.

The Investor Agreement also provides that, upon the occurrence of an Event of Default (as defined in the Investor Agreement), Prime will have the right to take the unilateral action to, or cause the Company to, among other things:
·
Replace property managers and leasing agents;
·
Following 180 days after the mandatory redemption date of August 1, 2017 for the Series B Preferred Stock (as may be extended), sell any property of the Company, except as otherwise required under applicable law;
·
Implement all major decisions listed above and in the Investor Agreement, except as otherwise required under applicable law;
·
Refinance, repay or prepay any senior loans of the Company;
·
Cure any default under any senior loans of the Company; and
·
Elect six individuals to serve as members of the Board of Directors of the Company.

In addition, under the Investor Agreement, the Company has agreed to maintain a ratio of debt and Series B Preferred Stock equity to the fair market value of all of its properties of less than 0.75.  Starting on the earlier of January 31, 2016 or an Event of Default, the Company has also agreed to generally apply any excess cash flow held by the Company and its subsidiaries at the end of each month to the payment of any accrued but unpaid dividends on the Series B Preferred Stock.

The foregoing descriptions of the Purchase Agreement and the Investor Agreement are only summaries and are qualified in their entirety by reference to the Purchase Agreement and the Investor Agreement (including any exhibits thereto), copies of which are filed as Exhibits 1.1 and 1.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

ITEM 3.02  Unregistered Sales of Equity Securities.

The information contained in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.  The issuance of the Series B Preferred Stock described above was effected in reliance upon an exemption from registration provided by Rule 506 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act").

ITEM 3.03  Material Modifications to Rights of Security Holders.

On August 4, 2014, the Company filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland reclassifying and designating 40,000 shares of the Company's authorized preferred stock, par value $0.01 per share, as shares of Series B Preferred Stock with the preferences, powers, rights and other terms as set forth therein.  As set forth in the Articles Supplementary, the Series B Preferred Stock ranks, with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, senior to the Company's common stock, par value $0.01 per share, or the Common Stock, and any future class or series of the Company's stock and on parity with the Company's Series 6.3% Preferred Stock (until redeemed).   Holders of Series B Preferred Stock, when and as authorized by the Company's Board of Directors and declared by the Company, are entitled to cumulative cash dividends at the rate of 14% per annum of the $1,000.00 liquidation preference per share, equivalent to $140.00 per annum per share.  A minimum dividend at a rate of 10% per annum of the $1,000.00 liquidation preference per share, equivalent to $100.00 per annum per share, is to be declared under the terms of the Series B Preferred Stock, and any amounts payable in respect of dividends which have accrued but not been paid will compound on a monthly basis at the rate of 14% per annum (or, after the Trigger Date (as defined in the Articles Supplementary), at a rate of 24% per annum).  On the Trigger Date and continuing thereafter, the rate of annual cash dividends will increase from 14% to 24% of the $1,000 liquidation preference per share.  Dividends are payable monthly in arrears on the 9 th day of each month to holders of record of the Series B Preferred Stock on the 25 th day of the preceding month.  The Trigger Date is defined as the earlier of the mandatory redemption date of August 1, 2017 (unless extended) or the date on which an Event of Default occurs.  Dividends will accrue and be cumulative for each share of the Series B Preferred Stock from the date of its first issuance.

If the Company were liquidated, dissolved or wound up, holders of shares of the Series B Preferred Stock will be entitled to receive a liquidation preference of $1,000.00 per share, plus any accrued and unpaid dividends, before any payments are made to the holders of the Company's Common Stock or other shares ranking junior to the Series B Preferred Stock as to liquidation rights, none of which exist on the date hereof.

The Company may, at its option, redeem the Series B Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of 100.75% of the $1,000.00 liquidation preference per share, plus any accrued and unpaid dividends up to but excluding the redemption date.  If the Company redeems shares of the Series B Preferred Stock prior to the second anniversary of the issuance date, the redemption price shall include amounts that would have been payable in respect of dividends for the period ending on the second anniversary date from the date of issuance, calculated based on the applicable rate and compounded monthly.

The Series B Preferred Stock must be redeemed on or before August 1, 2017, unless extended at the Company's option for up to two consecutive twelve month periods if no Event of Default exists.

There are restrictions on ownership of the Series B Preferred Stock intended to preserve the Company's qualification as a REIT.  The Company intends to grant a limited waiver to Prime from the 9.8% aggregate stock ownership limit under the Company's charter to permit Prime to purchase up to 40,000 shares of Series B Preferred Stock, subject to the accuracy of certain representations by Prime designed to ensure the Company's qualification as a REIT.

Under the Articles Supplementary, holders of the Series B Preferred Stock have certain consent rights, including the right to vote as a separate class to approve (a) any plan of liquidation, dissolution, merger, consolidation or other business combination with respect to the Company or any of its subsidiaries, (b) except for the issuance of Common Stock, the issuance of stock or other equity interests of the Company, including the issuance of any stock with rights to the payment of dividends or upon the liquidation of the Company which are senior to or on parity with the Series B Preferred Stock, (c) any reclassification of the Series B Preferred Stock, (d) an insolvency proceeding involving the Company or any of its subsidiaries and (e) an amendment to the charter or Bylaws of the Company to change the size of the Board of Directors.  In addition, commencing on the Trigger Date, the holders of the Series B Preferred Stock may direct the Company to take certain actions, including (a) replacing property managers and leasing agents, (b) terminating certain contracts, (c) replacing managing members or general partners under joint ventures, (d) selling property of the Company, (e) refinancing indebtedness of the Company, (f) curing any default under any indebtedness of the Company and (g) repaying amounts payable in respect of the Company's indebtedness.  Commencing on the Trigger Date, the holders of the Series B Preferred Stock are entitled to vote as a separate class to elect six individuals to serve as members of the Board of Directors, and to remove or replace any such director, with or without cause.

The Company intends to use the proceeds from the issuance of the Series B Preferred Stock to acquire additional properties, to redeem all of the outstanding shares of Series 6.3% Preferred Stock and to pay certain fees, expenses and costs approved by Prime.

The foregoing description of the Articles Supplementary is a summary and does not purport to be complete and is qualified in its entirety by reference to the Articles Supplementary filed as Exhibit 3.1 to this Current Report on Form 8-K, which is incorporated herein by reference.  A specimen certificate for the Series B Preferred Stock is filed as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference.

ITEM 5.02  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b)  On August 4, 2014, in connection with the Series B Preferred Stock offering and Section 7(b) of the Investor Agreement, each of William H. Allen, David T. Bruen, Shirley Y. Bullard, Thomas E. Schwartz and Sumner J. Rollings, submitted a contingent resignation letter to the Company, in which each of the independent directors of the Company offered to resign from the Board of Directors of the Company, effective only following the occurrence and during the continuation of an Event of Default (as defined in the Investor Agreement) and only if requested by Prime, in which case such resignation would be effective as of the date of such request.

ITEM 5.03  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On August 4, 2014, the Company filed the Articles Supplementary with the State Department of Assessments and Taxation of Maryland designating the preferences, powers, rights and other terms of the Series B Preferred Stock.  The Articles Supplementary were effective upon filing.  The information about the Articles Supplementary under Item 3.03 of this Current Report on Form 8-K is incorporated herein by reference.

Effective as of August 4, 2014, the Board of Directors of the Company amended the Company's Amended and Restated Bylaws to increase the size of the Board of Directors from eight to eleven directors.  The foregoing summary of the amendment is qualified in its entirety by reference to the Amendment No. 1 to Amended and Restated Bylaws filed as Exhibit 3.2 to this Current Report on Form 8-K.

ITEM 5.07  Submission of Matters to a Vote of Security Holders.

As previously disclosed in the Company's proxy statement filed with the Securities and Exchange Commission on July 3, 2014, the Company's 2014 Annual Meeting of Stockholders, which was originally scheduled for Monday, June 30, 2014 at 9:00 a.m., Pacific time, was subsequently adjourned to August 8, 2014 at 9:00 a.m., Pacific time,  in order to solicit additional proxies in an attempt to achieve a quorum.  However, due to the lack of a quorum, the Company's 2014 Annual Meeting of Stockholders was not convened on August 8, 2014 and efforts to obtain a quorum were concluded.  In accordance with the Maryland General Corporation Law and the Company's charter and Bylaws, the current members of the Board of Directors of the Company will hold over and continue to serve until their successors are duly elected and qualify.

Forward-Looking Statements
The Company's statements contained in this Current Report on Form 8-K that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, intentions and expectations, are generally identifiable by use of the words "expect," "project," "may," "will," "should," "could," "would," "intend," "plan," "propose," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology.  The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  For more information regarding risks and uncertainties that may affect the Company's future results, review the Company's filings with the Securities and Exchange Commission.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
 (d)              Exhibits.
The following exhibits are filed herewith:
EXHIBIT NO.                                                        DESCRIPTION OF EXHIBITS
1.1 Preferred Stock Purchase Agreement, dated as of August 4, 2014, by and between NetREIT, Inc. and PFP III Sub II, LLC.
1.2 Investor Agreement, dated as of August 4, 2014, by and between NetREIT, Inc. and PFP III Sub II, LLC.
3.1 Articles Supplementary filed on August 4, 2014.
3.2 Amendment No. 1 to Amended and Restated Bylaws of NetREIT, Inc., effective as of August 4, 2014.
4.1 Specimen Certificate for NetREIT, Inc.'s Series B Preferred Stock.



8368888-v1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

NETREIT, INC.


By: /s/ Kenneth W. Elsberry
Name: Kenneth W. Elsberry
Title: Chief Financial Officer


Date: August 8, 2014

8368888-v1
EXHIBIT INDEX
EXHIBIT NO.                                                        DESCRIPTION OF EXHIBITS
1.1 Preferred Stock Purchase Agreement, dated as of August 4, 2014, by and between NetREIT, Inc. and PFP III Sub II, LLC.
1.2 Investor Agreement, dated as of August 4, 2014, by and between NetREIT, Inc. and PFP III Sub II, LLC.
3.1 Articles Supplementary filed on August 4, 2014.
3.2 Amendment No. 1 to Amended and Restated Bylaws of NetREIT, Inc., effective as of August 4, 2014.
4.1 Specimen Certificate for NetREIT, Inc.'s Series B Preferred Stock.




8368888-v1
Execution Version





 

PREFERRED STOCK PURCHASE AGREEMENT

BY AND BETWEEN

NETREIT, INC.

AND

PFP III SUB II, LLC





DATED AS OF AUGUST 4, 2014

 


TABLE OF CONTENTS
Page
1. Purchase and Sale of the Preferred Stock
1.1 Sale of Preferred Stock
1.2 Initial Investment
1.3 Additional Investments
1.4 Closing; Payment and Delivery
1.5 Use of Funds
2. Conditions to Closing
2.1 Conditions Precedent to Obligations of the Investor at each Closing
2.2 Additional Conditions Precedent to Subsequent Closings and Investment Reserve Disbursements
2.3 Conditions Precedent to Obligations of the Company at each Closing
3. Representations and Warranties of the Company
3.1 Organization and Qualification
3.2 Authorization; Enforcement
3.3 No Conflicts
3.4 The Preferred Stock
3.5 Capitalization
3.6 SEC Reports; Financial Statements
3.7 Material Changes; Undisclosed Events, Liabilities or Developments; Solvency
3.8 No General Solicitation; Placement Agent's Fees
3.9 Private Placement; Investment Company
3.10 Absence of Litigation
3.11 Compliance
3.12 REIT Tax Status
3.13 Internal Accounting Controls
3.14 Senior Loan Documents
3.15 Patriot Act Compliance; Embargoed Person Law Compliance
3.16 Document Deliveries
3.17 Other Representations and Warranties
4. Representations and Warranties of the Investor
4.1 Organization; Authority
4.2 No Public Sale or Distribution
4.3 Investor Status
4.4 General Solicitation
4.5 Experience of the Investor
4.6 Access to Information
4.7 No Governmental Review
4.8 No Conflicts
4.9 Restricted Securities
4.10 Legends
4.11 No Legal, Tax or Investment Advice
4.12 Availability of Funds
5. Restrictions on Transfer; Other Agreements of the Parties
5.1 Restrictive Legends
5.2 Restrictions on Transfer; Notice of Transfer, Opinions of Counsel
5.3 Further Assurances
5.4 Best Efforts
5.5 Ownership Limits
5.6 No Issuances of Preferred Stock
5.7 No Additional Representations or Warranties
6. Definitions
7. Exclusive Remedy; Miscellaneous
7.1 Exclusive Remedy
7.2 Fees and Expenses
7.3 Entire Agreement
7.4 Notices
7.5 Amendments; Waivers
7.6 Construction
7.7 Successors and Assigns
7.8 No Third-Party Beneficiaries
7.9 Governing Law; Venue; Waiver of Jury Trial
7.10 Survival
7.11 Execution
7.12 Severability
7.13 Replacement of Stock Certificates
7.14 Specific Performance
7.15 Adjustments in Share Numbers and Prices

LIST OF EXHIBITS

EXHIBIT A                            Articles Supplementary
EXHIBIT B                            Company Certificate
EXHIBIT C Intentionally Omitted
EXHIBIT D Opinions of Counsel
EXHIBIT E Fee Letter
EXHIBIT F Investor Agreement
EXHIBIT G                            Additional Representations and Warranties in Respect of Additional Properties
- -

PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT , is made as of August 4, 2014 (this " Agreement "), by and between NetREIT, Inc., a Maryland corporation (the " Company "), and PFP III Sub II, LLC, a Delaware limited liability company (the " Investor ").  Unless otherwise defined, capitalized terms used in this Agreement are defined in Section 6 .
In consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor respectively agree, as follows:
1.              Purchase and Sale of the Preferred Stock .
1.1              Sale of Preferred Stock .  Subject to the terms and conditions of this Agreement, the Investor agrees to make an aggregate preferred equity investment in the Company (the " Aggregate Investment ") of up to $40,000,000 in a series of capital contributions pursuant to Section 1.2 and Section 1.3 of this Agreement.  Commensurate with the size of the Aggregate Investment, the Company agrees to issue to the Investor a number of the Company's Series B Preferred Stock (the " Preferred Stock ") based on the Preferred Stock's per share purchase price of $1,000.00, with the Preferred Stock having the rights, restrictions, privileges and preferences set forth in the Articles Supplementary attached as Exhibit A hereto (the " Articles Supplementary ").
1.2              Initial Investment .  The Investor shall pay to the Company an initial investment of $15,000,000 (the " Initial Investment ")   on the Initial Closing Date (as defined herein).
1.3              Additional Investments .
(a)
Subject to the terms and conditions of this Agreement , on or before the one-year anniversary of the Initial Closing Date (the " Outside Investment Date ") and after any amounts on deposit in the Investment Reserve (as defined herein) from the Initial Investment have been disbursed for Approved Costs (as defined herein), the Company shall have the right to request that the Investor fund one or more additional investments (each, an " Additional Investment ", and together with the Initial Investment , each an " Investment ") from the Investor in an aggregate amount not to exceed $25,000,000.
(b)
If, on the Outside Investment Date , the Aggregate Investment funded by the Investor to the Company up to and including such date is less than $30,000,000, the Investor shall have the option, but not the obligation, to fund the difference between such Aggregate Investment previously funded and $30,000,000 into the Investment Reserve on the Outside Investment Date .  Contemporaneously with the funding of such difference, the Company shall be obligated to deliver or cause to be delivered to the Investor certificates representing shares of Preferred Stock purchased by the funding of such difference, based on the Preferred Stock 's per share purchase price of $1,000.00, such certificates to be free and clear of any Liens .  For the avoidance of doubt, such funding shall constitute an Investment for purposes of this Agreement .
(c)
If, on the Outside Investment Date , the Aggregate Investment funded by the Investor to the Company up to and including such date is greater than $30,000,000 but less than $40,000,000, the Company shall have the option, but not the obligation, to request that the Investor fund the difference between such Aggregate Investment and $40,000,000 into the Investment Reserve on the Outside Investment Date and the Investor shall have the option, but not the obligation to fund such difference into the Investment Reserve on the Outside Investment Date .  Contemporaneously with the funding of such difference, the Company shall be obligated to deliver or cause to be delivered to the Investor certificates representing shares of Preferred Stock purchased by the funding of such difference, based on the Preferred Stock 's per share purchase price of $1,000.00, such certificates to be free and clear of any Liens .  For the avoidance of doubt, such funding shall constitute an Investment for purposes of this Agreement .
(d)
Following the Outside Investment Date , the Investor shall have no further obligation to fund any Additional Investment .
(e)
For the avoidance of doubt, to the extent that the Investor makes any Additional Investments pursuant to this Agreement , the Company shall be obligated contemporaneously with such funding to deliver shares of Preferred Stock in accordance with the provisions of Section 1.4 .
(f)
Notwithstanding anything in this Agreement to the contrary, the funding of any Aggregate Investment amount that is in excess of $30,000,000 shall be in the sole and absolute discretion of the Investor , irrespective of whether the conditions to Closing set forth in Sections 2.1   and 2.2 have been satisfied.
1.4              Closing ; Payment and Delivery .  The closing of the Initial Investment (the " Initial Closing ") and each closing of an Additional Investment (each a " Subsequent Closing " and together with the Initial Closing, each a " Closing ") shall take place via electronic exchange of documents.  Payment of each Investment shall be, (i) in the case of Approved Costs agreed upon by the Company and the Investor as of the Closing, by wire transfer of immediately available funds to such account(s) designated by the Company to the Investor in writing at least ten Business Days prior to the Closing, (ii) in the case of any amounts not applied by the Company to Approved Costs as of the Closing, by deposit into the Investment Reserve in accordance with Section 1.5 of the Agreement, or (iii) in such manner as may otherwise be agreed to by the Company and the Investor.  At each Closing (or at the time of any funding of any Additional Investments, if earlier), the Company will deliver or cause to be delivered to the Investor certificates representing the Preferred Stock purchased by payment of the Investment made at such Closing, based on the Preferred Stock's per share purchase price of $1,000.00, such certificates to be free and clear of any Liens.
1.5              Use of Funds .  The Investments shall be used only to pay (i) acquisition costs relating to the acquisition of additional Properties (as defined herein) approved by the Investor, (ii) fees and expenses relating to the Aggregate Investment approved by the Investor, (iii) any costs incurred by the Company in respect of the 6.3% Redemption (as defined herein) under Section 2.1(i) and (iv) other costs and expenses of the Company approved by the Investor (clauses (i), (ii), (iii) and (iv) of this Section 1.5, collectively, " Approved Costs ").  For each Investment, any amounts not applied by the Company to Approved Costs at the time of the Closing shall be deposited by the Investor into a reserve account owned by the Company (the " Investment Reserve "), subject to control of Investor for long as the Investor holds Preferred Stock.  Funds held in such account shall be funds of the Company but shall be disbursed only with consent of the Investor, for so long as the Investor holds Preferred Shares, to pay for future Approved Costs.  In addition, and for the avoidance of doubt, any disbursements from the Investment Reserve with respect to any Approved Costs relating to an additional Property shall also be subject to the satisfaction (or waiver by the Investor in its sole and absolute discretion) of the conditions to Closing set forth in Section 2.2 with respect to such Property.
2.              Conditions to Closing .
2.1              Conditions Precedent to Obligations of the Investor at each Closing .  The obligation of the Investor to purchase and pay for the Preferred Stock to be sold to it at each Closing is subject to the fulfillment prior to or at each Closing of the following conditions, any or all of which may be waived in writing at the option of the Investor:
(a)
Representations and Warranties .  The representations and warranties of the Company contained in Section 3   hereof and, in the case of a Subsequent Closing , in Exhibit G hereof (other than those that relate to a particular date or period earlier than the Closing ), shall be true, complete and correct in all material respects when made and at the time of the Closing (except for any representations and warranties that are already qualified by materiality, Material Adverse Effect or similar qualifiers, in which case such representations and warranties shall be true, complete and correct as stated in all respects) , after giving effect to the sale of the Preferred Stock and the other transactions contemplated to be consummated at the Closing by this Agreement and the other Transaction Documents , except that any representation or warranty that relates to a particular date or period earlier than the Closing shall have been true, complete and correct in all material respects as of such date or period (except for any such representations and warranties that are already qualified by materiality, Material Adverse Effect or similar qualifiers, in which case such representations and warranties shall be true, complete and correct as stated in all respects) .
(b)
Performance .  The Company and its Subsidiaries shall have performed and complied with, in all material respects, all agreements and conditions contained in this Agreement and the other Transaction Documents that are required to be performed or complied with by it prior to or at the Closing .
(c)
Closing Certificates .  The Company shall have delivered to the Investor an Officer's Certificate , substantially in the form of Exhibit B and dated as of the Closing , certifying that the conditions specified in Section 2.1(a)   and (b)   have been fulfilled .
(d)
Related Matters .  As of the Closing, except with prior written consent of the Investor, none of the Company's Articles or other organizational documents shall have been modified or amended since the date such documents were delivered to the Investor by the Company except, in the case of the Initial Closing, for the amendment or supplement to the Articles in the form of Exhibit A .
(e)
Governmental and Third Party Permits, Consents, Etc .  The Company shall have duly applied for and obtained all material approvals, orders, licenses, consents and other authorizations (collectively, the " Approvals ") from each federal, state and local government and governmental agency, department or body, or pursuant to any agreement to which the Company is a party or to which it or any of its assets is subject (including, without limitation, the Senior Loan Documents and any JV Agreement), which may be required in connection with this Agreement and the other Transaction Documents .
(f)
No Adverse U.S. Legislation, Action or Decision .  No legislation, order, rule, ruling or regulation shall have been enacted or made by or on behalf of any governmental body, department or agency of the United States , nor shall any decision of any court of competent jurisdiction within the United States have been rendered which, in the Investor 's reasonable judgment, could reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.  There shall be no action, suit, investigation or proceeding pending or, to the knowledge of the Company , threatened, against or affecting the Company , any of its Properties or rights, or any of its Affiliates, associates , officers or directors, before any court, arbitrator or administrative or governmental body which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise affect the transactions contemplated by this Agreement and the other Transaction Documents , or (ii) questions the validity or legality of any such transactions or seeks to recover damages or to obtain other relief in connection with any such transactions.
(g)
Articles Supplementary .  The Company shall have filed the Articles Supplementary with the Maryland State Department of Assessments and Taxation .
(h)
Legal Opinions .  The Investor shall have received one or more executed legal opinions of the Company's in-house and outside counsel in the form of Exhibit D hereto.
(i)
Notice of Redemption to Holders of Series 6.3% Stock .  Prior to the Initial Closing, the Company shall have provided written notice to the holder of the Company's Series 6.3% Stock regarding the Company's intention to exercise its right to mandatory redemption of all Series 6.3% Stock (the " 6.3% Redemption ") within thirty (30) days of the Initial Closing.  For the avoidance of doubt, any costs incurred by the Company in respect of the 6.3% Redemption shall constitute Approved Costs.
(j)
Protective TRS Election .  The Company shall have cooperated with the Investor with respect to making an initial, and subsequent annual, protective TRS elections  and other filings that it is required to make in connection with such protective TRS election.  New protective elections are anticipated to be filed by the Investor in January of each year beginning in 2015.
(k)
No Material Adverse Effect .  In the case of the Initial Closing, since July 28, 2014, there shall not have occurred a Material Adverse Effect with respect to the Company and its Subsidiaries, taken as a whole.  In the case of any Subsequent Closing, since the date of the immediately prior Closing pursuant to this Agreement, there shall not have occurred a Material Adverse Effect with respect to the Company and its Subsidiaries, taken as a whole.
2.2              Additional Conditions Precedent to Subsequent Closings and Investment Reserve Disbursements .  In addition to the conditions to Closing set forth in Section 2.1, the obligation of Investor to make any Additional Investment and to pay for the Preferred Stock at each such Subsequent Closing is subject to the fulfillment prior to or at each such Subsequent Closing, and with respect to the disbursement of any funds for Approved Costs from the Investment Reserve, of the following conditions with respect to any additional Property that is the subject of such Additional Investment, any or all of which may be waived in writing at the option of the Investor:
(a)
The Company shall provide Notice to the Investor (x) within two (2) Business Days after the date the Company or any Subsidiary enters into a letter of intent, term sheet and/or commitment letter with respect to the acquisition and/or financing of the proposed Property (which Notice shall include a copy of such letter of intent, term sheet and/or commitment letter), and (y) within two (2) Business Days after the date the Company or any Subsidiary enters into a binding contract of sale or purchase agreement with respect to such proposed Property, which Notice under this clause (y)   shall identify the then anticipated date of the Subsequent Closing and shall include a copy of such contract of sale.
(b)
The Company shall keep the Investor reasonably apprised of the status of the Company 's due diligence activities in connection with such Property (including any anticipated changes to any closing date) and promptly submit to the Investor , and provide the Investor and its counsel a reasonable period of time during which to review, all due diligence materials received by the Company or any of its Subsidiaries in connection with the acquisition and all other matters required for the satisfaction of the conditions set forth in this Section 2.2 .
(c)
All of the representations and warranties set forth on Exhibit G hereto shall be true, correct and complete in all material respects on and as of the date of such Subsequent Closing .
(d)
The subject Property shall be owned by the Company or a Subsidiary that is wholly owned by the Company in fee simple title and/or leasehold title pursuant to a ground lease that has been approved by the Investor .
(e)
If the owner of the Property is a wholly owned Subsidiary of the Company , such Subsidiary shall be a newly formed Delaware limited liability company , subject to an Operating Agreement on the form attached hereto as Schedule 2.2 of the disclosure letter.
(f)
All documents, agreements and instruments evidencing, securing or delivered in connection with any loan secured in whole or in part by the subject Property (the " Loan Documents ") shall have been approved by the Investor in its reasonable discretion.
(g)
The Company shall have delivered to the Investor a copy of the commitment, policy or policies of title insurance (a " Title Insurance Policy ") issued by one or more nationally-recognized title insurance companies reasonably satisfactory to Investor (together with title endorsements as may be reasonably requested by the Investor ) showing fee simple title and/or ground leasehold interest, as applicable, vested in the Company or the applicable Subsidiary of the Company , subject only to (i) the Liens created by the Loan Documents , (ii)  Liens , if any, for real estate taxes not yet due and payable and not delinquent, (iii) such other title and survey exceptions as the Investor approves in writing in its reasonable discretion (collectively, the " Permitted Encumbrances ").
(h)
The Investor shall have received a survey of such proposed Property satisfying Investor 's standard requirements for land surveys, and otherwise satisfactory to Investor in its reasonable discretion (the " Survey ").
(i)
Investor shall have received a Phase I environmental study and, if the Phase I study shall so recommend, a Phase II environmental study, in each case satisfactory in form and substance to Investor in its reasonable discretion, conducted and certified by a qualified, independent environmental consultant, which Phase I environmental study and, if applicable, Phase II environmental study shall disclose no adverse environmental conditions.
(j)
The Investor shall have received evidence of the existence of all insurance required to be maintained by the Company and/or any of its Subsidiaries with respect to such Property pursuant to the applicable Loan Documents (or as otherwise requested by Investor ).
(k)
The Investor shall have received operating statements for such Property, and an itemized financial forecast and budget for the operation of such proposed Property.
(l)
The Investor shall have received copies of UCC filing searches, tax lien searches, judgment, litigation and bankruptcy searches, real estate tax searches, in each county where such proposed Property is located (and in the case of UCC filing searches, in the office of the Secretary of State or other applicable state office of the State where such proposed Property is located) demonstrating as of a recent date the existence of no other financing statements, tax liens, judgments or delinquent real estate taxes with respect to such Property (other than any of the foregoing which will be released, terminated or cured at or prior to the date such property becomes a Property hereunder, in each case as evidenced to the satisfaction of Investor in its reasonable discretion and the applicable title insurance companies), together with evidence that all fees payable in connection with any such searches have been paid.
(m)
The property manager and property management agreement for the proposed Property shall have been approved by Investor in its reasonable discretion, but only if such management agreement cannot be terminated with no more than thirty (30) days notice by the Company .
(n)
The Investor shall have received and approved (in its reasonable discretion) copies of all Leases and material contracts and agreements (including all covenants, restrictions, easement and declarations) relating to the proposed Property.
(o)
The Investor shall have received a report assessing the physical and structural condition of the proposed Property (a " Property Condition Report ") in scope, form and substance, and prepared by a qualified independent engineer selected by the Company (it being understood that Partners Engineering and Science, Inc. shall be deemed an acceptable independent engineer for purposes of this Agreement) and reasonably acceptable to the Investor and dated no more than ninety (90) days prior to the date of the related Subsequent Closing , which shall (i) identify deferred maintenance and the cost thereof and include a 10-year schedule of annual cost to perform deferred maintenance and of capital expenditures, and (ii) for any Property located in an area in which the Investor has determined in its reasonable discretion that there has been a history of earthquakes, assess the probable maximum loss in the event of earthquake.
(p)
The Investor shall have received an Appraisal of the proposed Property in scope, form and substance, and prepared by a qualified appraiser selected by the Company , dated not more than ninety (90) days prior to the date of the related Subsequent Closing .
(q)
The Investor shall have received evidence reasonably satisfactory to Investor in its reasonable discretion (which may include a letter from the applicable municipality, a title zoning endorsement and/or a so-called "PZR" or similar report, as the Investor shall require after taking into account the availability of such items in the jurisdiction in question) that all structures, fixtures and other improvements located on the Property (" Improvements ") on the subject Property have been constructed and are being used and operated in compliance in all material respects with (A) all applicable zoning, subdivision, building and other laws, orders, rules, regulations and requirements of all governmental or quasi-governmental authorities having jurisdiction with respect to the proposed Property (or are considered legal non-conforming or otherwise " grandfathered "), and (B) all building permits issued in respect of the proposed Property and all certificates of occupancy (or equivalents) for such Property (and the Investor shall have received a copy of all such certificates of occupancy (or equivalents)) or, where the same is not available, other evidence of compliance reasonably acceptable to Investor .
(r)
If the proposed Property is a ground lease , such ground lease shall have been approved by the Investor , and the ground lessor shall have executed and delivered to Investor an estoppel certificate acceptable in form and substance to the Investor in its reasonable discretion.
(s)
The Company shall have delivered to the Investor:  (A) estoppel certificates disclosing no defaults by landlord or tenant (other than defaults which in the Investor determines in its reasonable discretion are not material) and otherwise in form and substance acceptable to the Investor from tenants under all material Leases (as agreed to by Investor and the Company) and Leases covering eighty percent (80%) of the leased rentable area of the subject Property.
2.3              Conditions Precedent to Obligations of the Company at each Closing .  The Company's obligation to issue the Preferred Stock at each Closing is subject to the fulfillment prior to or at each Closing of the following conditions, any or all of which may be waived in writing at the option of the Company:
(a)
Representations and Warranties .  The representations and warranties of the Investor in Section 4 hereof (other than those that relate to a particular date or period earlier than the Closing) shall be correct in all material respects when made and as of the Closing and any representations or warranty that relates to a particular date or period earlier than the Closing shall have been true in all material respects as of such earlier date or period.
(b)
Performance .  The Investor shall have performed and complied with, in all material respect, all agreements and conditions contained in this Agreement required to be performed or complied with prior to or at the Closing.
(c)
Closing Certificate .  The Investor shall have delivered to the Company an Officer's Certificate, substantially in the form of Exhibit C and dated as of the Closing, certifying that the conditions specified in Section 2.2(a) and (b) have been fulfilled.
(d)
Payment .  At the Closing , the Company shall have received evidence of payment in full in the specified accounts or the Investment Reserve , as applicable, for the Preferred Stock to be issued pursuant to this Agreement at such Closing .
(e)
No Adverse U.S. Legislation, Action or Decision .  No legislation, order, rule, ruling or regulation shall have been enacted or made by or on behalf of any governmental body, department or agency of the United States, nor shall any decision of any court of competent jurisdiction within the United States have been rendered which, in the Company's reasonable judgment, could reasonably be expected to have a Material Adverse Effect on the Investor and its subsidiaries on a consolidated basis.  There shall be no action, suit, investigation or proceeding pending or, to the knowledge of the Investor, threatened against or affecting the Investor, any of its properties or rights, or any of its Affiliates, associates, officers or directors, before any court, arbitrator or administrative or governmental body which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise affect the transactions contemplated by this Agreement and the other Transaction Documents, or (ii) questions the validity or legality of any such transactions or seeks to recover damages or to obtain other relief in connection with any such transactions.
(f)
Governmental and Third Party Permits, Consents, Etc .  The Investor shall have duly applied for and obtained all Approvals from each federal, state and local government and governmental agency, department or body, or pursuant to any agreement to which the Investor is a party or to which it or any of its assets is subject, which are required in connection with this Agreement and the other Transaction Documents.
3.              Representations and Warranties of the Company .  Except as set forth in the Disclosure Materials (defined below), the Company hereby represents and warrants to the Investor as follows:
3.1              Organization and Qualification .  The Company and each of its Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and legal authority to own and use its properties and assets and to carry on its business as currently conducted.  The Company and each of its Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.2              Authorization; Enforcement .  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents to which it is a party by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and no further consent or action is required by the Company, its Board of Directors or its stockholders.  Each of the Transaction Documents to which it is a party has been (or upon delivery will be) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
3.3              No Conflicts .  The execution, delivery and performance of the Transaction Documents to which it is a party by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any provision of the Articles, the Company's bylaws or other organizational documents of the Company or any organizational documents of any of the Company's Subsidiaries, (ii) conflict with, or constitute a default or violation (or an event that with notice or lapse of time or both would become a default or violation) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, or result in the creation of any Lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under the terms or conditions of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company or any of its Subsidiaries is a party or by which any property or asset of the Company is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right would not reasonably be expected to have a Material Adverse Effect, (including, without limitation, the Senior Loans and the related Senior Loan Documents or any JV Agreement), (iii) result in a violation of any permit, license, authorization or similar governmental approval which is applicable to or binding upon the Company or any of its Subsidiaries or any of their respective properties or assets, or (iv) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction (including federal and state securities laws) of any court or Governmental Authority to which the Company or any of its Subsidiaries is subject, or by which any property or asset of the Company or any of its Subsidiaries is bound or affected.
3.4              The Preferred Stock .  At each Closing, the Preferred Stock is or will be duly authorized and, when issued and paid for in accordance with this Agreement and the other Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens and will not be subject to preemptive or similar rights of stockholders.  No vote of any class or series of capital stock of or any equity interests in the Company is necessary to approve the issuance of the Preferred Stock by the Company to the Investor.
3.5              Capitalization .
(a)              Except as contemplated by this Agreement, the authorized capital stock of the Company is as set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and filed with the SEC on May 15, 2014.  As of June 30, 2014, (i) 16,695,392  shares of the Company's Series A Common Stock are issued and outstanding, and (ii) 1,649 shares of the Company's Series 6.3% Preferred Stock are issued and outstanding, which, as of the Initial Closing Date, have been called for mandatory redemption.  As of the date hereof, and as of each Closing, all outstanding shares of capital stock are or will be duly authorized, validly issued, fully paid and nonassessable and have been or will be issued in compliance in all material respects with all applicable securities laws.  The Company does not have outstanding any Options, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any Preferred Stock, or securities or rights convertible or exchangeable into Preferred Stock.  Except as disclosed in SEC Reports filed by the Company within the last twelve (12) months prior to the date of this Agreement, and as contemplated by this Agreement and the Articles Supplementary, and except for customary adjustments as a result of stock dividends, stock splits, combinations of shares, reorganizations, recapitalizations, reclassifications or other similar events, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issuance and sale of the Preferred Stock will not obligate the Company to issue Preferred Stock or other securities to any Person (other than the Investor) and will not result in a right of any holder of securities to adjust the exercise, conversion, exchange or reset price under such securities.
(b)              Schedule 3.5 of the disclosure letter sets forth a listing of the name of each Subsidiary of the Company, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business and its capitalization (including the identity of each equityholder and the number and type of equity interests held by each such equityholder).
(c)              Except for the Company's Series 6.3% Preferred Stock (which will rank pari passu with the Preferred Stock with respect to rights in liquidation and priority of dividend until the occurrence of the 6.3% Redemption), no class of equity securities of the Company is senior to the Preferred Stock with respect to rights in liquidation or priority of dividend.
(d)              The Company has made available to the Investor, true, correct and complete copies of the Company's organizational documents, each as amended to date.
(e)              All direct and indirect subsidiaries of the Company have no assets or liabilities other than its direct or indirect ownership of the Properties, the existing mortgage loans secured by the Properties described on Exhibit C of the Investor Agreement, nonmaterial debt incurred in the ordinary course and, in the case of each Property owner only, trade payables in the ordinary course.
3.6              SEC Reports; Financial Statements .  Except as set forth in SEC Reports filed prior to the date hereof, the Company has filed all reports required to be filed by it under the applicable federal and state securities laws since that date which is the date 12 months preceding the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  Such reports required to be filed by the Company under the applicable federal and state securities laws, together with any materials filed or furnished by the Company under the applicable federal and state securities laws, whether or not any such reports were required, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the " SEC Reports " and, together with this Agreement and the disclosure letter accompanying this Agreement, which has been delivered to the Investor concurrently with the execution of this Agreement, the " Disclosure Materials ".  As of their respective dates (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing), the SEC Reports filed by the Company complied in all material respects with the requirements of the applicable federal and state securities laws, and none of the SEC Reports, when filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) by the Company, 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.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing (or, if amended or superseded by a filing prior to the Initial Closing Date, then on the date of such filing).  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (" GAAP "), except as may be otherwise specified in such financial statements, the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP or may be condensed or summary statements, and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.  All material agreements to which the Company is a party or to which the property or assets of the Company are subject are included as part of or identified in the SEC Reports, to the extent such agreements are required to be included or identified pursuant to the rules and regulations of the SEC.
3.7              Material Changes; Undisclosed Events, Liabilities or Developments ; Solvency .  Since the date of the latest audited financial statements included within the SEC Reports, except as disclosed in the Disclosure Materials (other than forward-looking statements, risk factors and others statements cautionary in nature) and except as otherwise permitted or required pursuant to the terms of the Transaction Documents, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that would reasonably be expected to result in a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, (ii) the Company and its Subsidiaries have not incurred any material liabilities other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting or changed its auditors, (iv) the Company and its Subsidiaries have not declared or made any dividend or distribution of cash or other property to its stockholders, in their capacities as such, or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) neither the Company nor any of its Subsidiaries has issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock-based plans.
3.8              No General Solicitation; Placement Agent's Fees .  Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or issuance of the Preferred Stock.  The Company shall be responsible for the payment of any placement agent's fees, financial advisory fees, brokers' commission or any similar fees, costs or expenses, relating to or arising out of the issuance of the Preferred Stock as set forth in the Fee Letter (as defined herein).  The Company shall pay, and hold the Investor harmless against, any claims, actions, damages, liabilities, losses, costs or expenses (including, without limitation, reasonable attorney's fees and out-of-pocket expenses) arising out of or in connection with any such claim for any such fees, commissions, costs or expenses arising out of the issuance of the Preferred Stock pursuant to this Agreement.
3.9              Private Placement ; Investment Company .  Neither the Company nor any of its Subsidiaries or Affiliates nor, any Person acting on the Company's or any of its Subsidiary's or Affiliate's behalf has, directly or indirectly, at any time made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and issuance by the Company of the Preferred Stock as contemplated hereby or (ii) cause the offering of the Preferred Stock pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable Legal Requirements, regulation or stockholder approval provisions.  Assuming the accuracy of the representations and warranties of the Investor set forth in Section 4, no registration under the Securities Act is required for the offer and issuance of the Preferred Stock by the Company to the Investor as contemplated hereby.  The Company is not required to be registered as, and is not an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
3.10              Absence of Litigation .  Except as set forth in Schedule 3.10 of the disclosure letter, as such schedule may be amended from time to time, there is no action, suit, claim, proceeding, inquiry or investigation, before or by any court, public board, government agency, self-regulatory organization or body pending or, to the Company's knowledge, threatened against or affecting the Company or any of its Subsidiaries that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.11              Compliance .  Except as would not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect or as otherwise set forth in Schedule 3.11 of the disclosure letter, (i) the Company and its Subsidiaries are not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default or violation by the Company or any of its Subsidiaries under), nor has the Company or any of its Subsidiaries received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party (including, without limitation, the Senior Loan Documents and any JV Agreement) or by which it or any of its respective Properties is bound (whether or not such default or violation has been waived), (ii) neither the Company nor any of its Subsidiaries is in violation of any order of any court, arbitrator or governmental body, or (iii) neither the Company nor any of its Subsidiaries is or has been in violation of any statute, rule or regulation of any Governmental Authority.
3.12              REIT Tax Status .  The Company (i) has made a valid election under Section 856(g) of the Code to be taxed as a "real estate investment trust" or "REIT" effective as of January 1, 2001, and (ii) has been organized and has operated since January 1, 2001 and will continue to operate, in conformity with the requirements for qualification and taxation as a REIT under Sections 856 through 860 of the Code.
3.13              Internal Accounting Controls .  The Company maintains, on behalf of itself and its Subsidiaries, a system of internal accounting controls sufficient to provide reasonable assurance 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 GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company and each of its Subsidiaries is in compliance in all material respects with all applicable Legal Requirements relating to the maintenance and implementation of internal accounting controls.
3.14              Senior Loan Documents .  All of the representations and warranties of the Company set forth in each of the Senior Loan Documents were true, correct and complete in all material respects when made or deemed made, and, in respect of any representations and warranties that survive for any period after being made or deemed made under the terms of the respective Senior Loan Document, each such representation and warranty shall remain true, correct and complete in all material respects for so long as each such representation and warranty survives under the terms of the respective Senior Loan Document.
3.15              Patriot Act Compliance; Embargoed Person Law Compliance .
(a)              The Company and its Subsidiaries have complied with the Patriot Act (as defined below) and all applicable requirements of Governmental Authorities having jurisdiction over the Company and its Subsidiaries and/or their respective properties and assets, including those relating to money laundering and terrorism.  For purposes hereof, the term " Patriot Act " means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws.
(b)              Neither the Company nor any of its Subsidiaries or JV Partners nor any owner of a direct or indirect interest in the Company or any of its Subsidiaries (i) is listed on any Government Lists (as defined below), (ii) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC (as defined below) or in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense (as defined below), or (iv) is currently under investigation by any Governmental Authority for alleged criminal activity.  For purposes hereof, the term " Patriot Act Offense " means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or the (E) Patriot Act.  Patriot Act Offense also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense.  For purposes hereof, the term " Government Lists " means (1) the Specially Designated Nationals and Blocked Persons Lists maintained by the Office of Foreign Assets Control (" OFAC "), (2) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC, or (3) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other government authority or pursuant to any Executive Order of the President of the United States of America.
(c)              (i) No funds, assets or property of the Company or any of its Subsidiaries constitutes property of, or is beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder, with the result that any of the transactions contemplated by this Agreement and the Investor Agreement (each, an " Embargoed Person "), or the Investment made by the Investor would be prohibited by or in violation of any Legal Requirement, (ii) no Embargoed Person has any interest of any nature whatsoever in the Company or any of its Subsidiaries with the result that any of the transactions contemplated by this Agreement and the Investor Agreement, or any investment made by the Investor would be prohibited by or in violation of any Legal Requirement, and (iii) none of the funds of the Company or any of its Subsidiaries has been derived from any unlawful activity with the result that any of the transactions contemplated by this Agreement and the Investor Agreement, or the Investment made by the Investor would be prohibited by or in violation of any Legal Requirement.
3.16              Document Deliveries .  The Company has delivered to the Investor true, correct and complete copies of the material Senior Loan Documents (including, in each case, the note, mortgage, deed of trust and any applicable guaranty or loan agreement), including all amendments, modifications and supplements thereto, and the JV Agreements.  The Properties set forth on Exhibit A of the Investor Agreement constitute all of Properties for which the Company and/or any of its Subsidiaries is the direct owner or for which the Company and/or any of its Subsidiaries is the general partner of or owner of equity interests in an entity owning such Properties, excluding model homes owned by NetREIT Dubose Model Home REIT, LP.  For each such Property, set forth on Schedule 3.16 of the disclosure letter is a listing of the address of such Property, the Senior Loan Documents in respect of such Property, the aggregate amount of the related Senior Loans in respect of such Property, the names and addresses of the lenders under the applicable Senior Loan Documents and the maturity date for final payment of the applicable Senior Loans in respect of such Property.
3.17              Other Representations and Warranties .  In the case of a Subsequent Closing, all of the representations and warranties set forth on Exhibit G hereto shall be true, correct and complete in all material respects on and as of the date of such Subsequent Closing.
4.              Representations and Warranties of the Investor .  The Investor hereby represents and warrants to the Company as follows:
4.1              Organization; Authority .  The Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate, partnership or other power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The purchase by the Investor of the Preferred Stock hereunder has been duly authorized by all necessary corporate, partnership or other action on the part of the Investor.  This Agreement has been duly executed and delivered by the Investor and constitutes the valid and binding obligation of the Investor, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
4.2              No Public Sale or Distribution .  The Investor is acquiring the Preferred Stock in the ordinary course of business for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws, and the Investor does not have a present arrangement to effect any distribution of the Preferred Stock to or through any Person.
4.3              Investor Status .  At the time the Investor was offered the Preferred Stock, it was, and at the date hereof it is, an "accredited investor" as defined in Rule 501(a) under the Securities Act.  The Investor is not a registered broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial Regulatory Authority, Inc. (" FINRA ") or an entity engaged in the business of being a broker dealer.  Except as otherwise disclosed in writing to the Company, the Investor is not affiliated with any broker dealer registered under Section 15(a) of the Exchange Act, or a member of FINRA or an entity engaged in the business of being a broker dealer.
4.4              General Solicitation .  The Investor is not acquiring the Preferred Stock as a result of any advertisement, article, notice or other communication regarding the Preferred Stock published in any newspaper, magazine or similar media, broadcast over television or radio, disseminated over the Internet or presented at any seminar or any other general solicitation or general advertisement.
4.5              Experience of the Investor .  The Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the Investments in the Preferred Stock, and has so evaluated the merits and risks of such Investments.  The Investor understands that it must bear the economic risk of the Investments in the Preferred Stock indefinitely, and is able to bear such risk and is able to afford a complete loss of such Investments.
4.6              Access to Information .  The Investor acknowledges that it has reviewed the Disclosure Materials, the information stored on the data storage site made available to the Investor by the Company, and all other materials the Investor deemed necessary for the purpose of making an investment decision with respect to the Preferred Stock, and has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the Company's business, management and financial affairs and terms and conditions of the offering of the Preferred Stock and the merits and risks of investing in the Preferred Stock; (ii) access to information about the Company and its subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its Investments; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the Investment.  The Investor has evaluated the risks of investing in the Preferred Stock, understands there are substantial risks of loss incidental to the Investments and has determined that it is a suitable investment for the Investor.
4.7              No Governmental Review .  The Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Preferred Stock or the fairness or suitability of the Investment in the Preferred Stock nor have such authorities passed upon or endorsed the merits of the offering of the Preferred Stock.
4.8              No Conflicts .  The execution, delivery and performance by the Investor of this Agreement and the consummation by the Investor of the transactions contemplated hereby will not (i) result in a violation of the organizational documents of the Investor, (ii) conflict with, or constitute a material default or violation (or an event which with notice or lapse of time or both would become a material default or violation) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Investor is a party, (iii) result in a violation of any permit, license, authorization or similar governmental approval which is applicable to or binding upon the Investor or any of its properties or assets, or (iv) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to the Investor, except in the case of clauses (ii) and (iii) above, for such that do not otherwise affect the ability of the Investor to consummate the transactions contemplated hereby.
4.9              Restricted Securities .  The Investor understands that the Preferred Stock is characterized as "restricted securities" under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances.
4.10              Legends .  It is understood that, except as provided in Section 5.1, certificates evidencing the Preferred Stock may bear any legend as required by the Blue Sky laws of any state and a restrictive legend in substantially the form set forth in Section 5.1.
4.11              No Legal, Tax or Investment Advice .  The Investor understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the acquisition of the Preferred Stock constitutes legal, tax or investment advice.  The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its acquisition of the Preferred Stock.
4.12              Availability of Funds .  The Investor will have available cash at each Closing that is sufficient to enable the Investor to consummate the transactions contemplated herein.  The Investor's obligations hereunder are not contingent upon procuring any financing.
5.              Restrictions on Transfer; Other Agreements of the Parties .
5.1              Restrictive Legends .  In addition to the legend required by Section 7.2.9 of the Articles, any certificate, statement of book entry, or other document issued in respect of any Preferred Stock shall be endorsed with a legend substantially as set forth below, as appropriate:
(a)
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE " SECURITIES ACT "), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2) ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR THE SECURITIES LAWS OF SUCH STATES OR THAT SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES, OR (3) EXCEPT IN A TRANSACTION IN COMPLIANCE WITH RULE 144 OR RULE 144A UNDER THE SECURITIES ACT"; and
(b)
any legend required by any applicable state securities law.
The Company shall maintain a copy of this Agreement and any amendments thereto on file in its principal offices, and will make such copy available during normal business hours for inspection to any party hereto or will provide such copy to the Investor or any transferee upon its or their request.  Whenever the legend requirements imposed by this Section 5.1 shall terminate, as provided in Section 5.2 , the respective holders of Preferred Stock for which such legend requirements have terminated shall be entitled to receive from the Company, at the Company's expense, certificates representing the Preferred Stock without such legend.
5.2              Restrictions on Transfer; Notice of Transfer, Opinions of Counsel .  Without in any way limiting the representations of the Investor contained in this Agreement, the Investor agrees not to make any disposition of all or any portion of the Preferred Stock unless and until the transferee has agreed in writing for the benefit of the Company to be bound by any restrictions on transfer set forth in this Agreement and any other agreement that the Investor is required to execute and deliver in connection with this Agreement, and:
(a)
there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
(b)
(i) the Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company , the Investor shall have furnished the Company with an opinion of counsel reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Securities Act .
5.3              Further Assurances .  The Investor on the one hand, and the Company on the other, each agree to promptly provide any and all information reasonably requested by the other party in connection with its compliance with the terms of this Agreement and the Transaction Documents, including with respect to any applicable ownership limitations and, in the case of the Company, its continued qualification as a "real estate investment trust" within the meaning of Section 856 of the Code.  In addition, each of the Investor and the Company agree to take any and all actions as may be reasonably requested by the other to effectuate the terms and conditions of this Agreement and the Transaction Documents and the transactions contemplated hereby and thereby.
5.4              Best Efforts .  In connection with any Closing, the Company agrees to use its best efforts to cause the conditions set forth in Section 2.1 and, in the case of a Subsequent Closing, Section 2.2 , to be satisfied, including, without limitation, causing its Subsidiaries to take any such actions as may be necessary in furtherance of the foregoing.  In connection with any Closing, the Investor agrees to use its best efforts to cause the conditions set forth in Section 2.3 to be satisfied.
5.5              Ownership Limits .  The Investor acknowledges and agrees that its ownership interests in the Company are subject to certain Ownership Limitations under Article VII of the Articles, including without limitation the "Aggregate Stock Ownership Limit" (as defined in the Articles), and the rights, obligations and remedies related thereto.
5.6              No Issuances of Preferred Stock .  Except for issuances of Preferred Stock to the Investor pursuant to the terms and conditions of this Agreement and the other Transaction Documents, for so long as (i) the Transaction Documents remain in full force and effect and (ii) the Investor is not in default with respect to any provision, condition or requirement of any of the Transactions Documents, the Company shall not issue any shares of Preferred Stock (or any securities which rank senior to the Preferred Stock in priority of dividend or rights in liquidation) or issue any Options, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or enter into any agreement giving any Person any right to subscribe for or acquire, any Preferred Stock (or any securities which rank senior to the Preferred Stock in priority of dividend or rights in liquidation), or securities or rights convertible or exchangeable into Preferred Stock (or any securities which rank senior to the Preferred Stock in priority of dividend or rights in liquidation).
5.7              No Additional Representations or Warranties .  The Company and the Investor acknowledge and agree that neither party to this Agreement has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Agreement and the other Transaction Documents (including any other representations and warranties as may be incorporated from the Senior Loan Documents and any other agreements referenced herein or in the other Transaction Documents).
6.              Definitions .  As used herein the following terms have the following respective meanings:
" 6.3% Redemption " has the meaning thereto in Section 2.1(i) hereof
" Additional Investment " has the meaning ascribed thereto in Section 1.3 hereof.
" Affiliate ," means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.
" Agreement " means this Agreement, as amended, modified or supplemented from time to time, together with any disclosure letter, exhibits, schedules, appendices or other attachments thereto.
" Appraisal " means an appraisal of a Property (or proposed Property) (i) dated not more than ninety (90) days prior to the date on which such Appraisal is to be used to implement the applicable provision of this Agreement, (ii) prepared by an MAI appraiser from a nationally recognized appraisal firm engaged by the Company, (iii) made in compliance with the requirements of Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder, as then in effect, and (iv) otherwise reasonably satisfactory to the Investor in all respects.
" Approvals " has the meaning ascribed thereto in Section 2.1(e) hereof.
" Approved Costs " has the meaning ascribed thereto in Section 1.5 hereof.
" Articles " means the articles of incorporation of the Company, as amended, supplemented or restated, including any articles supplementary thereto.
" Articles Supplementary " has the meaning ascribed thereto in Section 1.1 hereof.
" Business Day " means any day other than Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California, the State of Maryland or the State of New York are authorized or required by any Legal Requirement or other governmental action to close.
" Code " means the Internal Revenue Code of 1986, as amended.
" Common Stock " means the common stock of the Company, par value $0.01 per share.
" Convertible Securities " means any stock or securities (other than Options) convertible into or exercisable or exchangeable for Common Stock.
" Disclosure Materials " has the meaning ascribed thereto in Section 3.6 hereof.
" Environmental Law " means the common law and any federal, state, or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any Governmental Authority relating to (a) the protection of the environment and natural resources or (b) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances in each case as amended and as in effect on or before the date hereof.
" Exchange Act " means the Securities Exchange Act of 1934, as amended.
" Expense Deposit " has the meaning ascribed thereto in Section 7.2 hereof.
" Expenses " has the meaning ascribed thereto in Section 7.2 hereof.
" Fee Letter " means a fee letter substantially in the form set forth on Exhibit E .
" FINRA " has the meaning ascribed thereto in Section 4.3 hereof.
" GAAP " has the meaning ascribed thereto in Section 3.6 hereof.
" Governmental Authority " means any governmental or quasi-governmental authority including, without limitation, any federal, state, territorial, county, district, municipal, city or other governmental or quasi-governmental agency, board, branch, bureau, commission, court, department or other instrumentality or political unit or subdivision, whether domestic or foreign.
" Hazardous Substance " means any substance, material or waste listed, defined, designated, classified, regulated or otherwise characterized as hazardous, toxic, radioactive, dangerous, a pollutant or a contaminant, or words of similar meaning and effect by any Governmental Authority with jurisdiction over the environment, health or safety.  Hazardous Substance includes mold, fungus, spores and other microbial matter in the indoor environment, petroleum and any byproduct or fraction thereof, polychlorinated biphenyls and asbestos.
" Initial Closing " has the meaning ascribed thereto in Section 1.4 hereof.
" Initial Closing Date " means the date of this Agreement.
" Initial Investment " has the meaning ascribed thereto in Section 1.2 .
" Investment Reserve " has the meaning ascribed thereto in Section 1.5 hereof.
" Investor " has the meaning ascribed thereto in the recitals hereof.
" Investor Agreement " means an investor agreement substantially in the form set forth on Exhibit F .
" JV Agreement " has the meaning ascribed thereto in the Investor Agreement.
" Lease " means any leases heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Property or the improvements thereto, including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder.
" Legal Requirements " means all   statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities (including those regarding fire, health, handicapped access, sanitation, ecological, historic, zoning, environmental protection, wetlands and building laws and the Americans with Disabilities Act of 1990, Pub. L. No. 89-670, 104 Stat. 327 (1990), as amended, and all regulations promulgated pursuant thereto) affecting a party, any of its Subsidiaries or all or part of any Property or the construction, ownership, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to the Company or any of its Subsidiaries, at any time in force affecting all or part of any Property.
" Lien " means any mortgage, deed of trust, lien (statutory or otherwise), charge, pledge, hypothecation, easement, restrictive covenant, conditional sales agreement, adverse claim, title retention agreement, preference, assignment or other security interest, encumbrance, charge or other title defect in or on any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale, trust receipt or other title retention agreement, including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances, in each case with respect to or affecting all or any part of any Property or asset of such Person.
" Material Adverse Effect " means, with respect to any party, any adverse change, event, circumstance, occurrence or effect that, individually or in the aggregate with all other adverse changes, events, circumstances, occurrences and effects, is or could reasonably be expected to (i) be materially adverse to the condition (financial or otherwise), results of operations, assets, liabilities, business or prospects of such party and/or any of its Subsidiaries, taken as a whole, or (ii) otherwise impair the ability of such party to timely consummate the transactions contemplated by this Agreement and the Transaction Documents; provided , however , that a Material Adverse Effect shall not be deemed to include changes, events, circumstances, occurrences or effects to the extent arising out of, relating to or resulting from (A) changes after the date hereof in applicable GAAP or regulatory accounting requirements, (B) changes after the date hereof in general global, national or regional political conditions or general economic or market conditions (including such changes in prevailing interest rates, credit availability and liquidity, currency exchange rates, and price levels or trading volumes in the United States or foreign securities markets) affecting other companies in the industries in which such party and its subsidiaries operate, (C) failure, in and of itself, to meet earnings projections, but not including any underlying causes thereof, (D) any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, or (E) actions or omissions taken with the prior written consent of the other party or expressly required by this Agreement; except, with respect to clauses (A), (B) and (D), to the extent that such changes, events, circumstances, occurrences or effects are disproportionately adverse to the condition (financial or otherwise), results of operations, assets, liabilities, business or prospects of such party and its Subsidiaries taken as a whole, as compared to other companies in the industries in which such party and its Subsidiaries operate.
" Officer's Certificate " means a certificate executed on behalf of the Company by the Chief Financial Officer of the Company.
" Options " means any outstanding rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.
" Outside Investment Date " has the meaning ascribed thereto in Section 1.3 hereof.
" Person " means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a government or any department or agency thereof and any other legal entity.
" Preferred Stock " has the meaning ascribed thereto in Section 1.1 hereof.
" Properties " means each of the properties currently owned by the Company, its Affiliates or its Subsidiaries, and each of the properties eventually acquired by the Company, its Affiliates or its Subsidiaries, including but not limited to the office property known as "Union Terrace" located in Lakewood, Colorado.
" Rule 144, " " Rule 144A " and " Rule 501 " means Rule 144, 144A and Rule 501, respectively, promulgated by the SEC pursuant to the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule.
" SEC " means the United States Securities and Exchange Commission.
" SEC Reports " has the meaning ascribed thereto in Section 3.6 hereof.
" Securities Act " means the Securities Act of 1933, and the rules and regulations of the SEC promulgated thereunder, as from time to time amended.
" Senior Loan Documents " has the meaning ascribed thereto in the Investor Agreement.
" Senior Loans " has the meaning ascribed thereto in the Investor Agreement.
" Subsequent Closing " has the meaning thereto in Section 1.4 hereof.
" Subsidiary " has the meaning ascribed thereto in the Investor Agreement.
" Transaction Documents " means, collectively, this Agreement, the Investor Agreement, the Fee Letter, the Articles Supplementary, the disclosure letter, any schedules and exhibits attached hereto and any and all agreements, certificates, instruments and other documents of the Company required thereby or executed and delivered pursuant hereto.
7.              Exclusive Remedy; Miscellaneous .
7.1              Exclusive Remedy .  Subject to Section 7.14, the parties acknowledge and agree that the Investor's sole and exclusive remedy with respect to any and all claims for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or in any other Transaction Document, or otherwise relating to the transactions contemplated hereby or thereby, shall be pursuant to the provisions set forth in Section 7 and Section 8 of the Investor Agreement.
7.2              Fees and Expenses .  The Company shall pay all of the Investor's reasonable and customary expenses, including reasonable attorneys' fees and disbursements and the reasonable fees and disbursements of other third party consultants and advisors related to the transaction (collectively, " Expenses ").  Concurrently with its execution and delivery of the term sheet between the Company and the Investor relating to this Agreement, the Company paid to the Investor an expense deposit (the " Expense Deposit ") in the amount of $300,000, which will be applied by the Investor to the payment of the Expenses.  At the Initial Closing, the balance of the Expense Deposit, after payment of the Expenses, if any, will be refunded to the Company, and if the balance of the Expense Deposit is insufficient to cover all such Expenses pursuant to this Section 7.2, the Company shall pay the amount of any such insufficiency.
7.3              Entire Agreement .  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.  At or after the Initial Closing, and without further consideration, the Company will execute and deliver to the Investor such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.
7.4              Notices .  All notices, consents, approvals, waivers or other communications (each, a " Notice ") required or permitted hereunder, except as herein otherwise specifically provided, shall be made in accordance with the provisions of Section 11 of the Investor Agreement.
Any party may change its address specified above by giving each party Notice of such change in accordance with Section 11 of the Investor Agreement.

7.5              Amendments; Waivers .  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Investor or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
7.6              Construction .  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  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 will be applied against any party.
7.7              Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor.  The Investor may assign its rights under this Agreement to any of its Affiliates or to any Person to whom the Investor assigns or transfers any Preferred Stock in accordance with the terms of this Agreement, provided (i) such transferor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written Notice of the name and address of such transferee or assignee, (iii) such transferee agrees in writing to be bound, with respect to the transferred Preferred Stock, by the provisions hereof that apply to the "Investor" and to comply with the Securities Act and applicable state securities laws with respect to the Preferred Stock and (iv) such transfer shall have been made in accordance with the applicable requirements of this Agreement and with all laws applicable thereto.
7.8              No Third-Party Beneficiaries .  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
7.9              Governing Law; Venue; Waiver of Jury Trial .  THE CORPORATE LAWS OF THE STATE OF MARYLAND SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. THE COMPANY AND INVESTOR HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT 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 VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR 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 BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND INVESTOR HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
7.10              Survival .  All representations, warranties, covenants and agreements contained in or made pursuant to this Agreement shall survive each Closing.  The Company will have no liability (for indemnification or otherwise) with respect to any representation or warranty, other than those representations and warranties contained in Sections 3.1, the first two sentences of 3.2, 3.3(i), 3.4, 3.5, 3.9 and 3.12   of this Agreement, unless on or before that date which is the twelve (12) month anniversary of the Outside Investment Date, the Investor delivers a notification of claim to the Company; a claim with respect to any of the representations and warranties contained in Sections 3.1, the first two sentences of 3.2, 3.3(i), 3.4, 3.5, 3.9 and 3.12 of this Agreement may be made at any time.
7.11              Execution .  This Agreement may be executed in two or more counterparts, all of which when taken together 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, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or email attachment, such signature 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 facsimile or email-attached signature page were an original thereof.
7.12              Severability .  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
7.13              Replacement of Stock Certificates .  If any certificate or instrument evidencing any Preferred Stock is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company for any losses in connection therewith.
7.14              Specific Performance .
(a)              The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement or any of the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached and that any breach of this Agreement or any of the other Transaction Documents would not be adequately compensated by monetary damages.  Except as otherwise set forth in this Section 7.14 , including the limitations set forth herein, the parties hereto acknowledge and agree that in the event of any breach or threatened breach by the Company or the Investor of any of their respective covenants or obligations set forth in this Agreement or any of the other Transaction Documents, the Company and the Investor shall, subject to Section 7.14(b) , be entitled to an injunction or injunctions to prevent or restrain breaches or threatened breaches of this Agreement or any of the other Transaction Documents by the other and to specifically enforce the terms and provisions of this Agreement and the other Transaction Documents.
(b)              Each party hereto hereby agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement or any of the other Transaction Documents by such party, and to specifically enforce the terms and provisions of this Agreement and the other Transaction Documents to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under this Agreement and the other Transaction Documents, all in accordance with the terms of this Section 7.14.  Any party hereto seeking an injunction or injunctions to prevent breaches of this Agreement or any of the other Transaction Documents and to enforce specifically the terms and provisions of this Agreement and the other Transaction Documents shall not be required to provide any bond or other security in connection with such order or injunction all in accordance with the terms of this Section 7.14.  Each party hereto further agrees that by seeking the remedies provided for in this Section 7.14, a party shall not in any respect waive its right to seek any other form of relief that may be available to such party under this Agreement or any of the other Transaction Documents in the event that the remedies provided for in this Section 7.14 are not available or otherwise are not granted, nor shall the commencement of any legal proceeding pursuant to this Section 7.14 or anything set forth in this Section 7.14 restrict or limit any party's right to pursue any other remedies under this Agreement or any of the Transaction Documents that may be available to such party.
7.15              Adjustments in Share Numbers and Prices .  In the event of any stock split, subdivision, dividend or distribution payable in Preferred Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly Preferred Stock), combination or other similar recapitalization or event occurring after the date hereof and prior to the Initial Closing, each reference in any Transaction Document to a number of shares or a price per share shall be amended to appropriately account for such event.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
Company:
NETREIT, INC.

By:              s/Jack K. Heilbron ________________________
Name: _ Jack K. Heilbron___   ____________________
Title: Chairman of the Board and Chief Executive Officer
Investor:
PFP III SUB II, LLC
By:         s/ Scott G. Douglass ______________________
Name: Scott G. Douglass _______________________
Title: _ Authorized Signatory   _______________________
Number of Shares of Preferred Stock Purchased:
            


EXHIBIT A
Articles Supplementary





EXHIBIT B
Company Certificate
NETREIT, INC.
OFFICERS' CERTIFICATE
In connection with the issuance and sale of shares of Preferred Stock of NetREIT, Inc., a Maryland corporation (the " Company ") pursuant to the Preferred Stock Purchase Agreement dated August 4, 2014 (the " Agreement "), between the Company and the Investor named therein, the undersigned, Kenneth W. Elsberry, in his capacity as Chief Financial Officer of the Company hereby certifies to the Investor on behalf of the Company that:
1. The representations and warranties of the Company contained in Section 3 and Exhibit A hereof (other than those that relate to a particular date or period earlier than the Closing) are true, complete and correct in all material respects when made and at the time of the Closing (except for any representations and warranties that are already qualified by materiality, Material Adverse Effect or similar qualifiers, in which case such representations and warranties shall be true, complete and correct as stated in all respects), after giving effect to the sale of the Preferred Stock and the other transactions contemplated to be consummated at the Closing by this Agreement and the other Transaction Documents, except that any representation or warranty that relates to a particular date or period earlier than the Closing are true, complete and correct in all material respects as of such date or period (except for any such representations and warranties that are already qualified by materiality, Material Adverse Effect or similar qualifiers, in which case such representations and warranties shall be true, complete and correct as stated in all respects).
2. The Company has performed and complied with, in all material respects, all agreements and conditions contained in the Agreement required to be performed or complied with by it prior to or at the Closing.
3. In connection with the Investment by the Investor on the Closing Date, all such funds provided by the Investor will be used only to pay Approved Costs (such Approved Costs in respect of the Investment as initially described and detailed on Exhibit A attached hereto (including a listing of each Person that is to receive any portion of such Approved Costs in respect of the Investment), as well as such additional Approved Costs that may subsequently be approved by the Investor in accordance with the terms and conditions of the Agreement), and all such Approved Costs have not been the subject of a previous Investment or disbursement from the Investment Reserve.
4. All Investment amounts provided by the Investor which have been expended, and all previous disbursements from the Investment Reserve, have been used only to pay Approved Costs.
5. Any amounts remaining in the Investment Reserve will be used only to pay Approved Costs.
6. All capital improvements performed on or prior to the date hereof that were paid for, in whole or in part, from a prior Investment have been completed in a good and workmanlike manner in accordance with all applicable Legal Requirements.
Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Agreement.
[Signature page follows.]

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IN WITNESS WHEREOF, the undersigned has affixed his signature hereto this 4 day of August, 2014.

NETREIT, INC.

By:
Name: s/Kenneth W. Elsberry
Title: Chief Financial Officer



EXHIBIT C

[Intentionally Omitted]



EXHIBIT D
Opinions of Counsel


EXHIBIT E
Fee Letter


EXHIBIT F
Investor Agreement


EXHIBIT G
Additional Representations and Warranties with respect to Additional Properties
The following representations and warranties apply to any additional Property for which an additional Investment is made:
(1)      Title .  The Company and/or its Subsidiaries have received a title policy insuring good, marketable and indefeasible title in fee to the real property and good title to the balance of the Property, free and clear of all Liens except the Permitted Encumbrances .
(2)      Physical Condition .  Except as may be expressly set forth in the Property Condition Report , and to the Company 's knowledge, the Property, including all buildings, Improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages to the Property, whether latent or otherwise.  Neither the Company nor any of its Subsidiaries has received notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or any termination or threatened termination of any policy of insurance or bond.  To the Company 's knowledge, no portion of the Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards, or, if so located, flood insurance with respect thereto is in full force and effect with respect to that portion of the Property.  To the Company 's knowledge, the buildings and Improvements located on the Property have suffered no material casualty or damage which has not been fully repaired and the cost thereof fully paid.
(3)      Survey /Boundaries .  To the Company 's knowledge, the Survey does not fail to reflect any material matter affecting the Property or the title thereto.  To the Company 's knowledge, all of the Improvements which were included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvements on adjoining properties encroach upon the Property, and no Easements (as defined herein) or other encumbrances affecting the Property encroach upon any of the Improvements , so as to affect the value or marketability of the Property, except those which are set forth on the Survey and insured against by the Title Insurance Policy .
(4)      Separate Lots .  Each parcel comprising the Property is not a portion of any other tax lot that is not a part of the Property.
(5)      Easements ; Utilities and Public Access .  To the Company 's knowledge, all easements , cross easements , licenses, air rights and rights-of-way or other similar property interests (collectively, " Easements "), if any, necessary for the full utilization of the Improvements for their intended purposes have been obtained, are described in the Title Insurance Policy and are in full force and effect without default thereunder.  To the Company 's knowledge, the Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service it for its intended uses.  To the Company 's knowledge, all public utilities necessary or convenient to the full use and enjoyment of the Property are located in the public right-of-way abutting the Property, and all such utilities are connected so as to serve the Property without passing over other property absent a valid easement.  To the Company 's knowledge, all roads necessary for the use of the Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities .
(6)      Assessments .  To the Company 's knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments which are not referenced in the title policy or otherwise disclosed by the Company .
(7)      Purchase Options . To the Company 's knowledge, neither the Property nor any part thereof is subject to any purchase options, rights of first refusal, rights of first offer or other similar rights in favor of third parties.
(8)      Condemnation .  No condemnation or other proceeding has been commenced or, to the Company 's best knowledge, is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property.
(9)      Compliance .  To the Company 's knowledge, the Property (including the Improvements ) and the use thereof comply in all material respects with all applicable Legal Requirements (including with respect to parking, building and applicable zoning and land use laws, codes, regulations and ordinances).  No legal proceedings are pending or, to the knowledge of Company , threatened with respect to the zoning of the Property.  To the Company 's knowledge, neither the zoning nor any other right to construct, use or operate the Property is in any way dependent upon or related to any property other than the Property. All certifications, permits, licenses and approvals, including certificates of completion and occupancy permits required of Company and/or its Subsidiaries for the legal use, occupancy and operation of the Property for its current use, have been obtained and are in full force and effect.  The use being made of the Property is in conformity with the certificate of occupancy issued for the Property and all other material restrictions, covenants and conditions affecting the Property.
(10)              Taxes .  All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements in connection with the transfer of the Property to the Company and/or any of its Subsidiaries have been paid or are being paid simultaneously herewith.  All taxes and governmental assessments due and owing in respect of the Property have been paid, or an escrow of funds in an amount sufficient to cover such payments has been established hereunder or are insured against by the Title Insurance Policy .
(11)              Litigation .  To the Company 's knowledge, there are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending or threatened against or affecting the Property, which, if adversely determined, might materially adversely affect the condition (financial or otherwise) the use, value, condition or ownership of the Property.
(12)              Leases .  The rent roll attached hereto as Schedule A12 to the disclosure letter (the " Rent Roll ") is true, complete and correct and the Property is not subject to any Leases other than the Leases described in the Rent Roll .  Except as set forth on the Rent Roll and other due diligence information provided to Investor, and to Company's knowledge :  (i) each Lease is in full force and effect and all conditions precedent to each tenant's obligations under the related Lease have been satisfied; (ii) the tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises, have commenced the payment of rent under the Leases , and there are no offsets, claims or defenses to the enforcement thereof; (iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than thirty (30) days in advance; (iv) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll , and there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent; (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, there are no defaults on the part of the landlord under any Lease , and no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default; (vi)  to the knowledge of the Company , there is no present material default by the tenant under any Lease ; (vii) all security deposits under Leases are as set forth on the Rent Roll ; (viii) the Company or any of its Subsidiaries is the sole owner of the entire lessor's interest in each Lease ; (ix) each Lease is the valid, binding and enforceable obligation of the Company and/or the applicable Subsidiaries and the applicable tenant thereunder; (x) no Person has any possessory interest in, or right to occupy, the Property except under the terms of the Leases ; (xi)  all work to be performed by the landlord under each Lease has been performed as required and has been accepted by the tenant under such Lease ; (xii) any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by the landlord to any tenant under any Lease has already been received by such tenant; (xiii) no tenant under any Lease (or any sublease) is an Affiliate of Company ; (xiv) all tenants under the Leases are open for business and paying full, unabated rent; (xv) there are no brokerage fees or commissions due and payable in connection with the leasing of space at the Property; and (xvi) no tenant under any Lease has assigned its Lease or sublet all or any portion of the premises demised thereby.  The copies of the Leases delivered to Investor are true, correct and complete, and there are no oral agreements with respect thereto.  None of the Leases contains any option to purchase or right of first refusal to purchase the Property or any part thereof.  Neither the Leases nor the rents payable thereunder have been assigned or pledged, except to the Investor , and no other Person has any interest therein except the tenants thereunder.  To the knowledge of the Company , no tenant has made an assignment for the benefit of creditors, or is subject to any federal or state bankruptcy or reorganization arrangement pursuant to federal bankruptcy law or any similar federal or state law, or any proceeding for the dissolution or liquidation of such tenant.
(13)              Contracts .  There are no service, maintenance or repair contracts affecting the Property that are not terminable on one month's notice or less without cause and without penalty or premium.  All service, maintenance or repair contracts affecting the Property have been entered into at arms-length in the ordinary course of Company 's (or any applicable Subsidiary's) business and provide for the payment of fees in amounts and upon terms comparable to existing market rates.  Each of such agreements is in full force and effect, there are no monetary or other material defaults by the Company or any of its Subsidiaries thereunder and, to the best knowledge of Company , there are no monetary or other material defaults thereunder by any other party thereto.
(14)              Hazardous Substances .  (i) To the Company 's knowledge, unless otherwise disclosed to the Investor , the Property is not in violation of any Legal Requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including any Environmental Laws ; (ii) the Property is not subject to any private or governmental Lien or judicial or administrative notice or action or inquiry, investigation or claim relating to Hazardous Substances ; (iii) to the best of Company 's knowledge, after due inquiry, no Hazardous Substances are or have been (including the period prior to Company 's (or any applicable Subsidiary's) acquisition of the Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Property other than in compliance with all Environmental Laws ; (iv) to the best of Company 's knowledge, after due inquiry, no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect the Property; (v) no underground storage tanks exist on the Property and the Property has never been used as a landfill; and (vi) there have been no environmental investigations, studies, audits, reviews or other analyses conducted by or on behalf of Company or any of its Subsidiaries which have not been provided to Investor .
(15)              Other Debt .  There is no indebtedness with respect to the Property or any indebtedness secured by excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and indebtedness or other financing arrangements which shall have been approved by the Investor in its reasonable discretion.
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Execution Version


















INVESTOR AGREEMENT




Dated as of August 4, 2014




By and Between






PFP III SUB II, LLC


and


NETREIT, INC.









Table of Contents
(continued)
Page

Table of Contents
Page

Section 1. Definitions
Section 2. Investor Consent Rights
Section 3. Transfer Restrictions
Section 4. Board of Directors Observer Right
Section 5. Indemnification for Transfer Taxes
Section 6. Information and Inspection Rights
Section 7. Remedies; Indemnity
Section 8. Recourse Guaranty
Section 9. Covenants
Section 10. Right to Conduct Activities
Section 11. Notices
Section 12. Termination
Section 13. Governing Law, Jurisdiction; Waiver of Jury Trial; Severability; Equitable Remedies
Section 14. Entire Agreement; Amendment and Waiver
Section 15. Successors and Assigns; No Third Party Beneficiaries.
Section 16. Confidentiality
Section 17. Headings
Section 18. Counterparts

24084005v04
24084005v06
24084005v08
24084005v12
24084005v15

INVESTOR AGREEMENT
INVESTOR AGREEMENT, dated as of August 4, 2014 (this " Agreement ") , by and between NetREIT, Inc. , a Maryland corporation (the " Company "), and PFP III Sub II, LLC, a Delaware limited liability company (the " Investor ").
W   I   T   N   E   S   S   E   T   H :
WHEREAS, the Company has filed Articles Supplementary (the " Certificate of Designations "), which sets forth the rights and preferences of the Company's Series B Preferred Stock, par value $0.01 per share (the " Preferred Stock ");
WHEREAS, in connection with the transactions contemplated by the Preferred Stock Purchase Agreement, dated as of the date hereof (the " Purchase Agreement "), by and among the Company and the Investor, the Investor is purchasing 15,000 shares of the Company's Preferred Stock for an aggregate purchase price of $15,000,000 (the " Original Investor Preferred Stock ");
WHEREAS, pursuant to the terms of the Purchase Agreement, under certain circumstances as are set forth in the Purchase Agreement, the Investor may from time to time make additional purchases of shares of Preferred Stock from the Company (all such shares of Preferred Stock so purchased by the Investor, together with the Original Investor Preferred Stock and any additional shares of Preferred Stock that may be issued to the Investor, collectively, the " Investor Preferred Stock ");
WHEREAS, the Company is either the direct owner of 100% of the properties described on Exhibit A attached hereto (together with any additional properties to be acquired pursuant to the terms and conditions of the Purchase Agreement, each, a " Property " and collectively, the " Properties "), or the general partner or owner of 100% of the equity interests of each of the entities more particularly set forth on Exhibit B attached hereto, which such Subsidiaries own all or, via a joint venture with unaffiliated third parties (" JVs "; and any agreements with such JVs with respect to the applicable property or properties, " JV Agreements "), a portion of each of the properties described on Exhibit A attached hereto; and
WHEREAS, all direct and indirect Subsidiaries of the Company have no assets or liabilities other than its direct or indirect ownership of the Properties, the existing mortgage loans secured by the Properties (each, a " Senior Loan " and collectively, the " Senior Loans ") described on Exhibit C attached hereto, nonmaterial debt incurred in the ordinary course and, in the case of each Property owner only, trade payables in the ordinary course.
NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement, the parties hereto agree as follows:
Section 1.                            Definitions .  For purposes of this Agreement, the following terms have the indicated meanings:

" Affiliate " means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
" Bankruptcy Code " means title 11 of the United States Code, as in effect from time to time.
" Board of Directors " means the board of directors of the Company.
" Code " means the United States Internal Revenue Code of 1986, as amended.
" Common Stock " means the common stock of the Company, par value $0.01 per share.
" Company " is defined in the preamble to this Agreement.
" Confidential Information " means any confidential or non-public information with regard to the Company disclosed or communicated by the Company, its equityholders or any of their respective Affiliates on or after the date hereof, whether oral or written, and regardless of the manner or form in which it is furnished and, including, for the avoidance of doubt, the existence and the terms of this Agreement, in each case for so long as such information remains confidential and non-public.
" Environmental Indemnity Agreement " means the Environmental Indemnity Agreement, dated as of the date hereof, made by the Company and each of its Subsidiaries in favor of the Investor.
" Event of Default " means the occurrence of any of the following events:
(i)              The Company fails to make and pay when due and payable, or when declared due and payable (or which payments are required to have been declared due and payable by the Company pursuant to the Certificate of Designations or otherwise), any amounts owing to the Investor (whether pursuant to any of the Investment Documents or otherwise), whether such amounts consist of  ordinary dividends or extraordinary dividends described in the Certificate of Designations, Call Price, as defined in the Certificate of Designations, distributions, fees or any other amounts (including any such amounts which accrue following the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding);
(ii)              Any representation, warranty or certification made in any of the Investment Documents or in any certificate delivered pursuant to the terms of any Investment Document, proves to be untrue in any material respect (except that such materiality qualifier shall not be applicable to any representations, warranties and certifications that already are qualified or modified by materiality in the text thereof) as of the date of issuance or making or-remaking or deemed making or re-making thereof;
(iii)              The Company or any of its Subsidiaries fails to comply in any respects with its obligations under Section 2(b) of this Agreement with respect to Major Decisions;
(iv)              The Company or any of its Subsidiaries fails to comply with or satisfy the covenants set forth in Section 9 of this Agreement;
(v)              The Company or any of its Subsidiaries fails to comply in all respects with its obligations under Section 3(b) of this Agreement or under Section 2(i) of the Certificate of Designations;
(vi)              The Company or any of its Subsidiaries fails to perform any other covenant or other agreement contained in any of the Investment Documents, and, if such failure is curable, such failure continues for a period of fifteen (15) days after the earlier of (A) the date on which such failure shall first become known to or should have been known by any officer of the Company or any of its Subsidiaries or (B) the date on which written notice thereof is given to the Company by the Investor; for the avoidance of doubt, any failure of the Company to comply with its obligations under Section 2(b) , Section 3(b) or Section 9 of this Agreement or Section 2(i) of the Certificate of Designations shall be deemed to be failures which are not curable;
(vii)              Other than with respect to the default specified in the letter dated December 6, 2013 from Wells Fargo Bank, N.A. to the Company with respect to Parker Place Office Building, and as otherwise set forth on Schedule 1 , a default or an event of default under and as defined in any Senior Loan Document, or any other similar occurrence which, in any such case, results in the acceleration of all principal and interest due on the applicable Senior Loan;
(viii)              Subject to the provisions of Section 7(g) , the Company or any of its Subsidiaries shall fail to retain its status as a REIT, or shall fail to reasonably cooperate with the Investor with respect to the annual and other filings that it is required to make in connection with the protective TRS Election described in Section 9(c) , including, without limitation, new protective elections to be filed by the Investor in January of each year beginning in 2015;
(ix)              The Company or any of its Subsidiaries shall use any capital contributions made by the Investor for any payments, costs or expenses other than Approved Costs (as such term is defined in the Purchase Agreement);
(x)              An Insolvency Proceeding is commenced by the Company or any of its Subsidiaries;
(xi)              An Insolvency Proceeding is commenced against the Company or any of its Subsidiaries and any of the following events occur:  (A) the Company or such Subsidiary consents to the institution of such Insolvency Proceeding against it, (B) the petition commencing the Insolvency Proceeding is not timely controverted, (C) the petition commencing the Insolvency Proceeding is not dismissed within sixty (60) calendar days of the date of the filing thereof, (D) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Company or any of its Subsidiaries or (E) an order for relief shall have been issued or entered therein;
(xii)              The Company or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of the business affairs of the Company and its Subsidiaries, taken as a whole; or
(xiii)              The validity or enforceability of any of the Investment Documents shall at any time for any reason be declared to be null and void by a court of competent jurisdiction, or a proceeding shall be commenced by the Company or any of its Subsidiaries or by any governmental authority having jurisdiction over the Company or any of its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or the Company or any of its Subsidiaries shall deny that it has any liability or obligation purported to be created under any such Investment Document.
" Fair Market Value " means, as of any particular date with respect to any particular Property, the fair market value of such Property as determined jointly by the Company and the Investor; provided however, that if the Company and the Investor are unable to agree on the fair market value of such Property in a reasonable period of time, such fair market value shall be determined by a nationally recognized valuation firm jointly selected by the Company and the Investor, provided, further, however, that for purposes of determining compliance with Section 9(a) hereof, such nationally recognized valuation firm shall be selected solely by the Investor in its reasonable discretion.  The determination of such firm shall be final and conclusive, and the reasonable fees and expenses of such valuation firm shall be borne by the Company.
" GAAP " means United States generally accepted accounting principles consistently applied.
" Insolvency Proceeding " means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, receiverships, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
" Investment Documents " means, collectively, this Agreement, the Purchase Agreement, the Certificate of Designations, the Fee Letter Agreement and the Environmental Indemnity Agreement.
" Investor " is defined in the preamble to this Agreement.
" Investor Preferred Stock " is defined in the recitals to this Agreement.
" ITV Ratio " shall mean a fraction, (i) the numerator of which is the sum of (x) the aggregate amount of capital contributions made by the Investor in respect of Investor Preferred Stock (inclusive of amounts distributed by the Company for Approved Costs (as such term is defined in the Purchase Agreement) but exclusive of any amounts on deposit in the Investment Reserve (as such term is defined in the Preferred Stock Purchase Agreement)), plus (y) the aggregate amount of outstanding principal due and payable under the Senior Loans for all of the Properties (in the case of Senior Loans in respect of JVs, the pro rata portion of such aggregate amount based upon the portion of such JV owned by the Company and/or any of its Subsidiaries), and (ii) the denominator of which is the aggregate Fair Market Value of all of the Properties (in the case of Properties in respect of JVs, the pro rata portion of such Fair Market Value of such Property based upon the portion of such JV owned by the Company and/or any of its Subsidiaries).
" Lease " means any leases heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, any Property.
" Major Contract " means (i) any management, brokerage or leasing agreement (other than a Property Management Agreement) or (ii) any cleaning, maintenance, service or other contract or agreement of any kind (other than Leases) of a material nature (materiality for these purposes to include, without limitation, contracts which extend beyond one year (unless cancelable on thirty (30) days or less notice without requiring the payment of termination fees or payments of any kind)), in either case relating to the ownership, leasing, management, use, operation, maintenance, repair or restoration of a Property, whether written or oral; provided , however , that contracts and agreements that require payments or include obligations of less than $100,000 per year shall be excluded from the definition of Material Contract.
" Material Lease " means all Leases which (A) individually or in the aggregate with respect to the same tenant and its Affiliates (i) cover more than five percent (5%) of the rentable square footage of any Property, (B) provide the tenant thereunder with an option or other preferential right to purchase all or any portion of a Property, or (C) are entered into with a tenant who is an Affiliate of the Company or any of its Subsidiaries.
" Permitted Short Term Borrowings " shall mean borrowings under a debt or similar facility in an amount not to exceed $15,000,000 in the aggregate and otherwise subject to market terms and conditions, such debt or similar facility to be used solely for the acquisition of additional properties in accordance with the provisions of the Investment Documents and the Senior Loans, such debt or similar facility to be replaced within ninety (90) days of the closing of the acquisition transaction with respect to the applicable property or properties, subject to compliance with the ITV Ratio covenant set forth in Section 9(a) .
" Person " means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever.
" Preferred Stock " is defined in the recitals to this Agreement.
" Property Management Agreement " means a property management agreement between Company or any of its Subsidiaries and a Property Manager, pursuant to which such Property Manager is to manage any Property.
" Property Manager "   means the property manager under the Property Management Agreement and any successor thereto acceptable to the Investor, in its reasonable discretion, under and pursuant to the applicable Property Management Agreement.

" REIT " means a "real estate investment trust" within the meaning of Section 856 of the Code.
" Subsidiary " means, with respect to any Person, any other Person of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of board of directors or comparable managers of such other Person is at the time owned by or the management is otherwise controlled by such Person (irrespective of whether, at such time, capital stock or other ownership interests of any other class of such other Person shall have or might have voting power by reason of the happening of any contingency).  In addition, in the case of the Company, Subsidiary shall also include each JV.  Unless otherwise qualified, references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the Company.
" Transfer " means a transfer, sale, assignment, pledge, hypothecation or other disposition (including, without limitation, by operation of law), whether directly or indirectly pursuant to the creation of a derivative security, the grant of an option or other right.
Section 2.                            Investor Consent Rights .

(a)              General .  Except as set forth in Section 2(b) below, and subject to Investor's rights and remedies set forth under any of the Investment Documents and the requirements of any other organizational documents of the Company, the management of the Company will be responsible for the day-to-day operations of the Company and the Properties.
(b)              Major Decisions .  Subject to any limitations on the rights of the Company under any JV Agreements and, with respect to clauses (x) and (xi) below, the Senior Loan Documents, the Company hereby covenants and agrees that for so long as the Investor holds shares of Investor Preferred Stock, the Company shall not take, and shall cause its Affiliates and Subsidiaries not to take, any of the following actions (any such action, a " Major Decision ") without obtaining the prior written consent from the Investor, such consent not to be unreasonably withheld, conditioned or delayed (except that, with respect to clauses (vi) and (vii) below, in the event that the Investor reasonably determines that the taking of any such actions set forth in such clauses could cause the ITV Ratio covenant set forth in Section 9(a) to fail to be satisfied, the Investor may, in its sole and absolute discretion, withhold its consent to the taking of such actions):
(i)              waive, release, assign, settle or compromise any claim, action or proceeding (including any suit, action, claim, proceeding or investigation relating to this Agreement or the transactions contemplated hereby), for which the monetary damages being sought is in excess of $250,000 individually or in the aggregate;
(ii)              approve the Annual Budget (as defined in Section 6(b)(iii) hereof) for any Property or Properties and the Company;
(iii)              (x) commence an Insolvency Proceeding involving the Company or any of its Subsidiaries; (y) propose a written agreement of composition or extension of the debts of the Company or any of its Subsidiaries; or (z) make a general assignment for the benefit of the creditors of the Company and/or any of its Subsidiaries, or the filing or any other action in furtherance of an Insolvency Proceeding of the Company or any of its Subsidiaries;
(iv)              except with respect to NetREIT Dubose Model Home REIT, Inc. and NetREIT Dubose Model Home REIT, L.P., adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization with respect to the Company or any of its Subsidiaries;
(v)              enter into any transaction for the purchase or acquisition of any additional Property or Properties, or acquire, including by merger, consolidation, acquisition of stock or assets, or any other form of business combination, any corporation, partnership, limited liability company, other business organization or any division thereof;
(vi)              enter into any transaction involving the sale, conveyance, alienation, encumbrance, mortgage, pledge or other disposition of all or any portion  of (x) any commercial Property (or any portion thereof or interest therein) or (y) any model home pursuant to an agreement that is not on arms'-length terms or which provides for non-market terms or conditions (e.g., the payment of a purchase price that is below the Fair Market Value of the applicable Property or bulk sales of any Property or Properties);
(vii)              enter into any financing or refinancing transaction involving any Property or Properties and the terms of any such financing or refinancing (including any mezzanine financing secured by a direct or indirect interest in the owner of a Property) that (x) would violate the aggregate ITV Ratio covenant set forth in Section 9(a) of this Agreement with respect to either the individual Property or the Company and its Subsidiaries, taken as a whole, (y) would violate the provisions of any of the Senior Loans or any agreements, instruments or similar documents in respect of such Senior Loans (collectively, the " Senior Loan Documents ") or (z) that contains any non-market terms and conditions;
(viii)              make or incur any capital expenditures or other discretionary expenditures that are not included in the Annual Budget or are in excess of ten percent (10%) of the budgeted amount in the Annual Budget for such expenditures, provided that the deviation from the budgeted amount is in excess of $100,000 for such expenditures, other than expenditures which are made by the Company or any of its Subsidiaries in respect of matters involving safety concerns or emergency maintenance or repairs with respect to a Property;
(ix)              enter into any material amendment, modification, waiver or termination of any of the Senior Loans or the terms thereof that could reasonably be expected to have an adverse effect (economic or otherwise) on any of the Properties, the Investor, the Investor Preferred Stock or the Company's (or any applicable Subsidiary's or Subsidiaries') investment in any of the Properties;
(x)              enter into, modify or terminate, or waive any material rights or release any material claims or grant any consents or approvals under, a Property Management Agreement;
(xi)              the selection or replacement of a Property Manager;
(xii)              enter into, modify or terminate, or waive any material rights or release any material claims or grant any consents or approvals under, a Major Contract;
(xiii)              enter into any transaction with any Subsidiary of the Company or any Affiliate of the Company or an Affiliate any of its Subsidiaries or the payment by the Company of any fee to any Affiliate of the Company or any of its Subsidiaries except pursuant to a written property management, asset management or leasing agreement or other contract approved in writing by Investor;
(xiv)              enter into any new, or amend or modify any Material Lease (except to the extent in accordance with leasing parameters which have been previously approved by Investor with respect to the applicable Property or Properties);
(xv)              except for issuances of Common Stock or securities convertible into or exchangeable for Common Stock, authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any of shares of its capital stock or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of its capital stock or other securities or equity interests, including any securities convertible into or exchangeable for any of its capital stock;
(xvi)              except with respect to issuances of equity that is fully subordinated to the equity interests held by the Company and its Subsidiaries, admit any new member or substitute any new member into any JV Agreement or redeem or repurchase any member's interest in any JV, except for any mandatory redemptions as may be required pursuant to an applicable JV Agreement;
(xvii)              enter into any merger, consolidation, recapitalization or other business combination to which the Company or any of its Subsidiaries is a party, or effectuate a sale of all or substantially all of its assets;
(xviii)              amend, waive or otherwise modify, in any respect, any of its organizational documents;
(xix)              except as described on Schedule 2.1(xix) , take any action that would constitute a default under, or which would involve a breach or violation of the terms under, any Senior Loans or any Senior Loan Documents;
(xx)              except to the extent permitted pursuant to Section 9(b) hereof, the Certificate of Designations and any applicable Senior Loan Documents, incur, create, assume, prepay or otherwise become liable for any indebtedness (directly, contingently or otherwise);
(xxi)              take any action in respect of the enforcement of the Company's or any Subsidiary's rights under any of the Senior Loans or any of the Senior Loan Documents (other than requesting and receiving loan advances or disbursements in accordance with the terms of the Senior Loan Documents);
(xxii)              settle, adjust or compromise any insurance claim or condemnation action relating to any Property with respect to any amount that is in excess of four percent (4%) of the Fair Market Value of such Property or which settlement, adjustment or compromise would require the consent of any lender under the applicable Senior Loan;
(xxiii)              change the size of the Board of Directors;
(xxiv)              remove or replace any of the Company's officers or other senior management personnel;
(xxv)              directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its capital equity or other securities or equity interests, or declare or pay any dividend or other distribution to equityholders of the Company or any of its Subsidiaries except to the extent required pursuant to any of the Investment Documents, any applicable organizational documents of the Company and its Subsidiaries, or the Code as a condition to REIT status; provided , however , that the Company and/or its Subsidiaries may (x) make redemptions of equity interests held by third parties (i.e., excluding redemptions from Affiliates, officers, managers or directors) in its reasonable discretion which involve an aggregate amount that is less than $100,000 per annum, (y) declare and pay dividends to equityholders of the Company and its Subsidiaries which are consistent with the Company's past practice (i.e., the Company may not increase the amounts of its dividend distributions), including as to the portion of such dividends that constitute cash (i.e., the Company may not increase the cash portion of its dividend distributions) and (z) redeem the Series 6.3% Preferred (as defined in the Certificate of Designations);
(xxvi)              amend or modify any provision of any of the Investment Documents;
(xxvii)                            make or rescind any material election relating to income taxes, settle any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to income taxes, file any amended tax return or claim for refund, or make any material change in its accounting or tax policies or procedures, in each case except as required by applicable law or in compliance with GAAP;
(xxviii)                             make any change in accounting methods, principles or practices, except as required by applicable law or in compliance with GAAP;
(xxix)              engage any accountants to work on behalf of the Company, other than Squar, Milner, Peterson, Miranda & Williamson, LLP; or
(xxx)               authorize or agree to take any of the foregoing actions.

(c)              For clarity, in the event that the consent right of the Investor with respect to Major Decisions under Section 2(b) above is limited as a result of any provision set forth in a JV Agreement or, with respect to clauses 2(b)(x) and (xi) above, a Senior Loan Document, the rights of the Investor under such section shall be interpreted and enforced so as to give the greatest effect to the Investor's rights, and such rights shall be limited only to the extent necessary to give effect to the rights of the applicable JV partner.
Section 3.                            Transfer Restrictions .

(a)              Investor shall have the right, at any time, to Transfer its shares of Investor Preferred Stock to any other Person, without any requirement of obtaining the consent of the Company or any other Person, subject to (a) any restrictions on Transfer of such shares of Investor Preferred Stock as may be set forth in the Senior Loans or the Company's charter, or as may be imposed by any federal or state securities laws and (b) the Company's receipt of an "Ownership Limit Waiver", substantially in the form to be executed and delivered by the Investor.
(b)              Except with respect to NetREIT Dubose Model Home REIT, Inc. and NetREIT Dubose Model Home REIT, L.P., n either the Company nor any of its Subsidiaries shall Transfer, directly or indirectly, any equity interests that it owns in any Person that holds any interests in Properties, including any JV.  In furtherance of the foregoing, neither the Company nor any of its Subsidiaries shall, without the prior written consent of the Investor, (i)  except for issuances of Common Stock or securities convertible into or exchangeable for Common Stock, authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any of shares of its capital stock or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of its capital stock or other securities or equity interests, including any securities convertible into or exchangeable for any of its capital stock (other than Common Stock); (ii) declare or pay any dividend or other distribution to equityholders of the Company or any of its Subsidiaries except to the extent permitted pursuant to any of the Investment Documents, or required by any applicable organizational documents of the Company and its Subsidiaries, or the Code as a condition to REIT status; or (iii) enter into any agreement or arrangement with, or grant rights to (whether pursuant to any agreement or otherwise), any Person which would provide such Person with the right to exercise control over, approve of or consent to, any action which would constitute a Major Decision pursuant to the provisions of this Agreement; provided , however , that the Company and/or its Subsidiaries may (x) make redemptions of equity interests held by third parties (i.e., excluding redemptions from Affiliates, officers, managers or directors) in its reasonable discretion which involve an aggregate amount that is less than $100,000 per annum, and (y) declare and pay dividends to equityholders of the Company and its Subsidiaries which are consistent with the Company's past practice (i.e., the Company may not increase the amounts of its dividend distributions), including as to the portion of such dividends that constitute cash (i.e., the Company may not increase the cash portion of its dividend distributions) .

Section 4.                            Board of Directors Observer Right .  For so long as the Investor holds any shares of Investor Preferred Stock, the Company shall invite a representative of the Investor, who may be any individual identified by the Investor from time-to-time, to attend all meetings of the Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided , however , that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided.
Section 5.                            Indemnification for Transfer Taxes .

(a)              All transfer, documentary, sales, use, stamp, registration, value added and other such taxes and fees (including any penalties and interest) incurred in connection with any of the Investment Documents or in connection with the issuance of any shares of Preferred Stock to the Investor (or any redemption thereof or any default thereunder) shall be borne by and paid by the Company when due, and the Company shall, at its own expense, file all necessary tax returns and other documentation with respect to all such taxes and fees.
(b)              The Company will indemnify and hold Investor harmless against any claims for taxes and fees (including any penalties and interest) the payment of which is the responsibility of the Company pursuant to Section 5(a) above (but not for any other taxes unless indemnified pursuant to Section 7(g) below).

Section 6.                            Information and Inspection Rights .

(a)              For so long as the Investor is the holder of any shares of Investor Preferred Stock, the Company, at the Company's sole cost and expense, shall furnish or cause to be promptly (but in any event within ten (10) business days of filing) furnished t o Investor all documents which it publicly files, together with such documents and information as it provides to the lenders under the Senior Loans, such documents and information to be provided in such manner and in accordance with the delivery times as are set forth in the Senior Loan Documents.
(b)              For so long as the Investor is the holder of any shares of Investor Preferred Stock, t he Company, at the Company's sole cost and expense, shall furnish or cause to be furnished to Investor such financial information regarding the Company and its Subsidiaries as Investor may reasonably request from time to time, including, without limitation:

(i)                    as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company (A) an audited balance sheet as of the end of such year, (B) audited statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Annual Budget for such year, an explanation of any variances from the Annual Budget of more than five percent (5%) in the aggregate from the amount set forth therein, together with a schedule as to the sources and applications of funds for such year, (C) an audited statement of stockholders' equity as of the end of such year, all such audited financial statements prepared and certified by independent public accountants of regionally recognized standing selected by the Board of Directors, (D) a survey of services rendered by the Company and its Subsidiaries in respect of each Property, such survey being in the form of Schedule 6.1(b)(i) attached hereto, and (E) all information necessary for the preparation of Investor's federal, state and other income tax returns, including the federal, state and other income tax returns of the Company and its Subsidiaries;
(ii)              as soon as practicable, but in any event within fifteen (15) days after the end of each quarter of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders' equity as of the end of such fiscal quarter , all prepared in accordance with GAAP (except that such financial statements may (A) be subject to normal year-end audit adjustments; and (B) not contain all notes thereto that may be required in accordance with GAAP ) ;
(iii)              as soon as practicable, but in any event not later than thirty (30) days before the end of each fiscal year, a proposed budget for the next fiscal year, prepared both on a Property-by-Property basis and for the Company as a whole (collectively, the " Annual Budget "), such proposed Annual Budget having been approved by the Board of Directors and subject to the approval of the Investor as a Major Decision pursuant to the provisions of Section 2.2 ;
(iv)              with respect to the financial statements called for in Section 6(b)(i) and Section 6(b)(ii) , a certificate executed by the chief financial officer and chief executive officer of the Company certifying that such financial statements were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (except as otherwise set forth in Section 6(b)(ii) ) and fairly present in all material respects the financial condition of the Company and its results of operation for the periods specified therein; and
(c)              a completed REIT checklist form, containing the items set forth on Schedule 6.1(c) attached hereto, and including:

(i)              a quarterly representation from the Company to the effect that it affirmatively meets all REIT requirements specified in Sections 856 through 859 of the Code;
(ii)              a detailed quarterly asset test to be provided within twenty-five (25) days after the end of each calendar quarter, such test to be documented using tab "Sch 3 - Asset Test" of Schedule 6.1(c) as a template; for any partnership interest owned, the Company shall include its proportionate share of each asset held by the lower-tier partnership;
(iii)              (x)  a representation from the Company to the effect that it does not own more than ten percent (10%) of the voting interest or value of stock or securities of any one issuer, unless the issuer is wholly-owned by the Company or has made a TRS election; and (y) a representation from the Company that it does not have more than five percent (5%) of its assets invested in stock or securities of any single issuer, unless the stock or securities is wholly-owned by the Company or has made a TRS election;
(iv)              a detailed income test to be provided within twenty-five (25) days of the end of each of the third and fourth calendar quarters, such test to be documented using tabs "Sch 1 - Income Tests" and "Sch 1A - Rent" of Schedule 6.1(c) as a template; for any partnership interest owned, the Company shall include its proportionate share of each asset held by the lower-tier partnership; 
(v)              the DT REIT checklist questions, to be completed by February 15th of each calendar year;
(vi)              any information and details in respect of any transactions that would reasonably be expected to adversely the Company's qualification as a REIT; and
(vii)              any information and details with respect to any arrangements whereby tenants at Properties are provided anything other than the use/occupancy of real property.

(d)              All financial statements delivered by the Company pursuant to Section 6(a) and 6(b) above shall be consolidated and consolidating financial statements of the Company and all of its Subsidiaries.
(e)              In addition, for so long as the Investor holds any shares of Investor Preferred Stock, the Company shall promptly (but in any event within ten (10) business days of filing in the case of clause (i) below, or delivery in the case of clause (ii) below) furnish to the Investor copies of (i) all amendments to the Company's or any Subsidiary's certificate or articles of incorporation or other organizational document and (ii) all notices or correspondence sent or received by the Company or any of its Subsidiaries relating to any material matter or adverse claim affecting the Company or any of its Subsidiaries, including, without limitation, notices or correspondence relating to any defaults or events of default with respect to any Senior Loan, any claims, acts or proceedings brought by or against the Company or any of its Subsidiaries, any claims, acts or proceedings with respect to any Property, or any pending or threatened audits, hearings, investigations, litigations or other similar inquiries involving the Company, any Subsidiary or any Property.
(f)              The Company shall permit the Investor, at the Investor's expense and upon reasonable advance written request during normal business hours, to visit and inspect the Company's properties, examine its books of account and records, and discuss the Company's affairs, finances, and accounts with its officers.

Section 7.                            Remedies; Indemnity .

(a)              Upon the occurrence of an Event of Default, subject to the rights of the Company's partners under any JV Agreement or, in the case of clauses (i), (ii) and (iv) below, with lenders under the Senior Loan Documents or Property Managers, the Investor may, unilaterally take any of the following actions or cause the Company and/or its Subsidiaries to do so (and the Company will fully cooperate with same):
(i)              replace any Property Managers and/or leasing agents with Persons as may be designated by the Investor;
(ii)              terminate any contracts by and between the Company and/or any of its Subsidiaries on the one hand, and any Affiliate of the Company on the other, to the extent that any such contracts relate to the ownership, leasing, management, use, operation, maintenance, repair or restoration of a Property;
(iii)              replace, or cause the replacement of, any managing member or general partner under any JV Agreement with Persons as may be designated by the Investor;
(iv)              following the PR Adjustment Date (as such term is defined in the Certificate of Designations), sell and dispose of any Property on such terms and conditions as the Investor shall approve in the exercise of its sole and absolute discretion, provided that if the consent or vote of any other class or series of Common Stock or preferred stock or specific action by the Board of Directors is required under the Maryland General Corporation Law, then such consent, vote or action shall be required;
(v)              implement all Major Decisions without the consent of the Company, provided that if any shareholder consent or specific action by the Board of Directors to such Major Decision is required under the Maryland General Corporation Law, then such consent or action shall be required;
(vi)              refinance any of the Senior Loans on such terms and conditions as the Investor may determine in its sole discretion, including by entering into any amendments, supplements or modifications to the Senior Loan Documents as the Investor may determine in its sole discretion;
(vii)              cure any default under any of the Senior Loans or any of the Senior Loan Documents; and
(viii)              repay or prepay any amounts payable in respect of the Senior Loans or pursuant to the Senior Loan Documents (and the making of additional purchases of Investor Preferred Stock to effect any of the foregoing in accordance with the terms of the Purchase Agreement).

(b)              Additionally, immediately following the occurrence and during the continuation of an Event of Default, and without any further action on the part of the Company or the Board of Directors, the Investor, as holder of Preferred Stock shall be entitled to vote as a separate class to elect six (6) individuals to serve as members of the Board of Directors.  The Investor, as holders of Preferred Stock shall be entitled to elect such members at any time following the occurrence of an Event of Default, and shall also be entitled to remove and/or replace any of such six (6) designated members of the Board of Directors at any time, with or without cause; provided , that any such directors appointed or replaced by the Investor, as holder of Preferred Stock, shall meet the qualifications of a member of the Board of Directors as set forth in the Company's organizational documents and committee charters, as well as federal law and administrative agency requirements.
(c)              The Company shall be obligated to provide any such Investor designated members of the Board of Directors with the benefit of any insurance policies (including any director and officer liability insurance policies), indemnification arrangements, rights to reimbursement of expenses and other similar arrangements that it makes available to any other member of the Board of Directors, shall maintain such arrangements for so long as the Investor is entitled to designate members of the Board of Directors, and shall not amend, modify, cancel or terminate any such policies or arrangements without the prior written consent of the Investor.
(d)              For clarity, in the event that the rights of the Investor under Section 7(a) above are limited as a result of any provision set forth in a JV Agreement, or, in the case of clauses (i), (ii) and (iv) of Section 7(a) , with lenders under the Senior Loan Documents or Property Managers, the rights of the Investor under such section shall be interpreted and enforced so as to give the greatest effect to the Investor's rights, and such rights shall be limited only to the extent necessary to give effect to the rights of the applicable JV partner, lender or Property Manager.
(e)              The Company shall take, or cause to be taken, all reasonable actions, and do, or cause to be done, all things reasonably necessary, proper or advisable to provide the Investor with all power and authority as the Investor shall reasonably require in order to effectuate its rights and remedies as are set forth in this Section 7 , including the execution and delivery to the Investor, and causing of its Subsidiaries to execute and deliver to the Investor, of all agreements, instruments and other documents, as the Investor may reasonably require in order to effectuate such rights and remedies, all such agreements, instruments and other documents to be in form and substance satisfactory to the Investor.  In furtherance of the foregoing, the Company shall make any and all such filings, endorsements and deliveries (including, without limitation, any deeds of trust, mortgages or other documents necessary for the conveyance or Transfer of any Properties), and cause its Subsidiaries to make such filings, endorsements and deliveries, as the Investor may reasonably require in order to effectuate its rights and remedies under this Section 7 with respect to Properties, such filings, endorsements and deliveries to be in form and substance satisfactory to the Investor.  In addition, the Company shall cooperate with, and cause its Subsidiaries to cooperate with, the Investor, in connection with any requests that the Investor may make of the Company and its Subsidiaries in furtherance of effectuating the rights and remedies set forth in this Section 7 .
(f)              In addition, in order to enable the Investor to effectuate its remedies under this Section 7 , the Company, on behalf of itself and each of its Subsidiaries, hereby appoints the Investor as their lawful proxies and attorney-in-fact, with full power of substitution, to take those actions set forth in this Section 7 on behalf of the Company and its Subsidiaries.  The Investor may, subject to any limitations set forth in this Agreement, exercise the irrevocable proxy granted to it hereunder at any time there is an occurrence of an Event of Default.  The proxies and powers granted by the Company and its Subsidiaries pursuant to this Section 7(f) are coupled with an interest and are given to secure the performance of their obligations under this Agreement.  Such proxies and powers will be irrevocable for the term of this Agreement.
(g)              The Company and its Subsidiaries shall indemnify, defend and hold harmless the Investor, its Subsidiaries and Affiliates, and their respective successors and assigns and their respective directors, managers, officers and employees (collectively, " Investor Indemnified Parties " and each individually, an " Investor Indemnified Party ") from and against any and all liabilities, claims, obligations, damages, losses, costs and expenses (including reasonable attorneys' fees and costs reasonably incurred) sustained or incurred by any such Person in connection with, resulting from or relating to any demands, claims, suits, causes of action, assessments, proceedings, investigations or other similar actions of any kind or nature that may be brought against any Investor Indemnified Party in respect of any of the Properties (including, without limitation, any actions in respect of environmental matters) or the conduct of the business of the Company and the Subsidiaries.
In addition, in the event that the Company or any of its Subsidiaries shall fail to maintain its status as a REIT, the Investor may, in its sole discretion, elect to Transfer its Investor Preferred Stock into a "taxable REIT subsidiary" as defined in Section 856(1) of the Code (a " TRS "), in which case an Event of Default shall not be deemed to occur, provided that the Company pays Investor, within ten (10) business days of when due, (1)  any tax liability of the Investor in connection with such Transfer, and (2) all U.S. federal, state and local income tax liability of the TRS with respect to income delivered by the TRS from its ownership of Investor Preferred Stock, including, without limitation, in respect of dividends or other distributions and any gain on a sale or other disposition by the TRS of Investor Preferred Stock, plus any interest or penalties attributable to any late payment of such tax by the Company to the Investor.
Section 8.                            Recourse Guaranty .

(a)              Notwithstanding anything to the contrary contained in any Investment Document, for so long as the Investor is the holder of any shares of Investor Preferred Stock, the Company hereby agrees to indemnify, defend and hold harmless the Investor Indemnified Parties from and against, any and all liabilities, claims, obligations, damages, losses, costs and expenses suffered or incurred by Investor Indemnified Party (including reasonable attorneys' fees and costs reasonably incurred) to the extent arising out of or resulting directly or indirectly from any of the following (the " Company Recourse Indemnity Obligations "):

(i)              fraud, willful misconduct, misrepresentation or failure to disclose a material fact by or on behalf of the Company, any of its Subsidiaries, or any of their respective agents or representatives in connection with obtaining any capital contributions from the Investor to the Company;
(ii)              the forfeiture by the Company or any of its Subsidiaries of any Property, or any portion thereof, because of the conduct or purported conduct of criminal activity by the Company, any of its Subsidiaries, or any of their respective agents or representatives in connection therewith;
(iii)              physical waste of any Property or any portion thereof, or after an event of default under any of the Investment Documents or any Senior Loan Documents the removal or disposal of any portion of any applicable Property;
(iv)              any proceeds of any casualty or condemnation paid to the Company or any of its Subsidiaries or any other sums or payments attributable to any Property and paid to the Company or any of its Subsidiaries and not applied in accordance with the provisions of the Senior Loan Documents or the Certificate of Designations (except to the extent that the Company and/or any applicable Subsidiaries did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct disbursement of such sums or payments);
(v)              all revenue of any Property received or collected by or on behalf of the Company or any of its Subsidiaries and not applied to payment of obligations under the applicable Senior Loan Documents, to the payment of operating expenses and capital expenses of such Property in accordance with the provisions of the Investment Documents, or to make distributions in accordance with the provisions of the Certificate of Designations (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which the Company and/or any applicable Subsidiaries is legally prevented from directing the disbursement of such sums);
(vi)              misappropriation of tenant security deposits and rents collected in advance, or of funds held by the Company or any of its Subsidiaries for the benefit of another party, or misappropriation of any funds of the Company or any of its Subsidiaries;
(vii)              the failure to pay real estate taxes and assessments relating to any Property, except to the extent funds to pay such amounts are available in any tax subaccount under the applicable Senior Loan Documents, if any, and the applicable lender thereunder failed to pay same;
(viii)              failure to pay charges for labor or materials or other charges that result in a lien or liens on any portion of any Property;
(ix)              the breach of any environmental representation, warranty, covenant or indemnification in any Investment Document or Senior Loan Document;
(x)              any cost or expense incurred by the Investor in connection with the enforcement of its rights and remedies hereunder; or
(xi)              any breach by the Company of Section 2(b) of this Agreement with respect to a Major Decision.

(b)              Notwithstanding anything to the contrary contained in any Investment Document, in the event that an Event of Default shall have occurred and the Company shall have failed to cooperate with the Investor in accordance with the provisions of Section 7(a) , which failure to cooperate remains uncured for a period of (5) days following delivery of notice by the Investor to the Company advising the Company of such failure, all amounts payable pursuant to the Investment Documents (including any amounts payable pursuant to the Certificate of Designations following a "Trigger Event" as such term is defined therein) shall become immediately due and payable.

Section 9.                            Covenants .  For so long as the Investor is the holder of any shares of Investor Preferred Stock, the Company shall:

(a)              Maintain an aggregate ITV Ratio as determined by Investor in its reasonable discretion of less than 0.75.

(b)              Not incur, create, assume, prepay or otherwise become liable for any indebtedness (directly, contingently or otherwise), other than (i) indebtedness in respect of the Senior Loans, (ii) mortgage loans secured by to be acquired Properties which shall not contain any non-market terms or conditions, (iii) non material debt incurred in the ordinary course of business, consistent with past practice, (iv) in the case of each Property owner only, trade payables in the ordinary course, (v) debt incurred to refinance the Senior Loans as otherwise permitted under this Agreement and (vi) Permitted Short Term Borrowings.
(c)              Take any and all actions as may be necessary to operate the Company and its Subsidiaries in such a manner so as to ensure that they will (i) avoid the receipt on an annual basis by the Company of gross income that would cause the Investor to fail to satisfy either of the gross income tests applicable to REITs set forth in Sections 856(c)(2) and 856(c)(3) of the Code (determined as if the gross income of the Company and its Subsidiaries were the Investor's only gross income), (ii) avoid engaging in any transaction that would give rise to "net income derived from prohibited transactions" for the Investor (within the meaning of Section 857(b)(6) of the Code), and (iii) avoid any investment that at any quarter end would cause the Investor to be deemed to own assets that would cause the Investor to fail to satisfy the quarterly asset test applicable to REITs set forth in Section 856(c)(4) of the Code (determined as if the assets of the Company were the Investor's only assets); provided , that the Company shall be deemed to have satisfied its obligations under this Section 9(c) if it obtains the Investor's advance written approval of any action or transaction that could cause a violation of any of the foregoing requirements.  In furtherance of the foregoing, the Company agrees that it will join with Investor in making an annual protective "taxable REIT subsidiary" election (a " TRS Election ") whereby the Company would be treated as a "taxable REIT subsidiary," within the meaning of Section 856(1) of the Code, of the Investor should the Company ever fail to qualify as a REIT, the initial election to be made as soon as practicable, but in no event later than October 30, 2014.  New TRS Elections would be filed in January of each year beginning in 2015.
(d)              Commencing on the earlier of (i) January 31, 2016 or (ii) the occurrence of an Event of Default, the Company shall apply any excess cash flow held by the Company and any of its Subsidiaries (after allowing for normal and customary operations of their respective businesses in accordance with the Annual Budget and dividends required to be paid to equity holders) at the end of each month to the payment of dividends in respect of the Investor Preferred Stock which have accrued but not otherwise been paid.

Section 10.                            Right to Conduct Activities .  The Company acknowledges that the Investor (together with its Affiliates) is a professional investment fund, and as such invests in numerous portfolio companies, some of which may be deemed competitive with the Company's and its Subsidiaries' respective businesses (as currently conducted or as currently proposed to be conducted).  As such, the Company hereby agrees that, to the extent permitted under applicable law, the Investor and its Affiliates:  (i) may engage or invest in, independently or with others, any business activity of any type or description, including those that might be the same as or similar to the business of the Company and its Subsidiaries, and which from time to time compete, directly or indirectly, with the Company and its Subsidiaries and (ii) may in their sole discretion pursue such competing business without disclosure of such competition to the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries shall have any right in or to any such activities as the Investor or any of its Affiliates may take or to receive or share in any income or proceeds derived therefrom, and the Investor and its Affiliates shall not be liable to the Company or any of its Subsidiaries in respect of any such activities.  Notwithstanding the foregoing, the Company and its Subsidiaries do not renounce any right to be offered to participate in any business opportunity offered or presented to a director nominated by the Investor as a direct result of his or her capacity as a director, officer or employee of the Company or any of its Subsidiaries.   Investor shall maintain reasonable policies and processes to mitigate the risk of the Company's Confidential Information being used to the Company's detriment in connection with any such activities.

Section 11.                            Notices .  All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and mailed (by first class registered or certified mail, postage prepaid, return receipt requested), sent by hand delivery, express overnight courier service or facsimile or email transmission, or delivered to the applicable party hereto at the address indicated on the signature pages hereof, or at such other address or to the attention of such other person as such party has specified in writing to the other parties hereto.  All such notices, requests, demands and other communications shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and two business days after deposit in the United States mail, registered or certified mail, return receipt requested, with proper postage paid, (b) upon receipt of transmission, when sent by telecopy, facsimile or email transmission and followed by overnight courier, (c) one business day after deposit with a reputable overnight courier with all charges prepaid, or (d) when delivered, if hand delivered by messenger.

Section 12.                            Termination .  This Agreement shall be effective as of the date hereof and shall terminate on the date on which Investor owns no shares of Preferred Stock.
Section 13.                            Governing Law, Jurisdiction; Waiver of Jury Trial; Severability; Equitable Remedies .

(a)              Governing Law .  This Agreement and the rights and obligations of the parties hereunder and the persons subject hereto shall be governed by and construed and interpreted in accordance with the laws of the State of Maryland , without giving effect to its conflict of laws principles or rules that would require the application of the laws of another jurisdiction (other than to the extent such principles or rules are mandatorily applicable).
(b)              Submission to Jurisdiction .  EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN NEW YORK, NEW YORK SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.  EACH PARTY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, OR WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING, SHALL BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURTS, AND THAT SUCH JURISDICTION OF SUCH COURTS WITH RESPECT THERETO SHALL BE EXCLUSIVE, EXCEPT SOLELY TO THE EXTENT THAT ALL SUCH COURTS SHALL LAWFULLY DECLINE TO EXERCISE SUCH JURISDICTION.  EACH PARTY HEREBY WAIVES, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT OR IN RESPECT OF ANY SUCH TRANSACTION, THAT IT IS NOT SUBJECT TO SUCH JURISDICTION.  EACH PARTY HEREBY WAIVES, AND AGREES NOT TO ASSERT, TO THE MAXIMUM EXTENT PERMITTED BY LAW, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT OR IN RESPECT OF ANY SUCH TRANSACTION, THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SUCH COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS.  EACH PARTY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES IN CONNECTION WITH, AND OVER THE SUBJECT MATTER OF, ANY SUCH DISPUTE AND AGREES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 11 OF THIS AGREEMENT OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.
(c)              Waiver of Jury Trial .  EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH SUCH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.
(d)              Severability .  If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction, such holding shall not affect the validity or enforceability of the remainder of this Agreement in such jurisdiction or the validity or enforceability of this Agreement, including such provision, in any other jurisdiction, and such provision shall be interpreted, revised or applied in a manner that renders it valid and enforceable to the fullest extent possible.
(e)              Equitable Remedies .  The parties hereto agree that money damages or other remedies at law would not be a sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including without limitation specific performance, without bond or other security being required.
Section 14.                            Entire Agreement; Amendment and Waiver .

(a)              Entire Agreement .  This Agreement (together with the other Investment Documents) constitutes the entire agreement and understanding of the parties hereto with respect to the matters referred to herein and supersede all prior agreements, understandings or representations, written or oral, among the parties with respect to such matters.
(b)              Amendment and Waiver .  Except as otherwise provided herein, no amendment, alteration or modification of this Agreement or waiver of any provision of this Agreement shall be effective against the Company or the Investor unless such amendment, alteration, modification or waiver is approved in writing by the Company and the Investor.
(c)              Delays or Omissions .  No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such non-breaching or non-defaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
Section 15.                            Successors and Assigns; No Third Party Beneficiaries .

(a)              Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the successors, permitted assigns and transferees of the parties hereto.  This Agreement may not be assigned by the Company without the express prior written consent of the Investor, and any attempted assignment, without such consent, will be null and void.  Except as otherwise provided herein, the Investor may assign this Agreement or its rights and obligations hereunder to any transferee of the Investor Preferred Stock held by such Investor.
(b)              No Third-Party Beneficiaries .  Except as expressly set forth herein, nothing in this Agreement is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, benefits, remedies, obligations or liabilities under or by reason of this Agreement.
Section 16.                            Confidentiality .  The Investor agrees that it will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any Confidential Information obtained from the Company pursuant to the terms of this Agreement unless such Confidential Information:  (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 16 by the Investor), (ii) is or has been independently developed or conceived by the Investor without use of the Company's Confidential Information, or (iii) is or has been made known or disclosed to the Investor by a third party who, to the best knowledge of the Investor, is not in breach of any obligation of confidentiality such third party may have to the Company; provided , however , that the Investor may disclose Confidential Information (A) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with its investment in the Company; (B) to any prospective purchaser of any shares of Preferred Stock from the Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 16 ; (C) to any existing or prospective Affiliate, partner, member, stockholder, or wholly owned Subsidiary of the Investor in the ordinary course of business, provided that the Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (D) as may otherwise be required by applicable law, legal requirement, regulation or regulatory request, provided that, to the extent permitted by law, the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
Section 17.                            Headings .  The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
Section 18.                            Counterparts .  This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. , www.docusign.com ) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
             IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

PFP III SUB II, LLC


By:                                                                          
       Name:
       Title:
Address for notices:
 
c/o Prime Finance Partners
233 North Michigan, Suite 2318
Chicago, IL 60601
Attention: Steve Gerstung
Telecopier: (312) 276-9649
 
with a copy to:
 
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Aaron Lehrfield, Esq.
Telecopier: (212) 836-6705
 
 
 
NETREIT, INC.

By:                                                                          
       Name:
       Title:
 
Address for notices:
NetREIT, Inc.
1282 Pacific Oaks Place
Escondido, CA 92029
Attention: Kathryn Richman
Facsimile: (760) 471-0399
 
with a copy to:
 
Reed Smith LLP
Three Logan Square
Suite 3100
1717 Arch Street
Philadelphia, PA  19103
Attention: Paul J. Jaskot, Esq.
Facsimile: (215) 851-1420
 
 


EXHIBIT A
See attached.





EXHIBIT B
See attached.




EXHIBIT C
See attached.














ARTICLES SUPPLEMENTARY DESIGNATING THE RIGHTS AND PREFERENCES
OF
SERIES B PREFERRED STOCK OF
NETREIT, INC.

NetREIT, Inc., a corporation organized and existing under the laws of the state of Maryland (the " Corporation "), does hereby certify to the State Department of Assessments and Taxation of Maryland that:
FIRST:  Under a power contained in Article VI of the charter of the Corporation (the " Charter "), the Board of Directors of the Corporation (the " Board of Directors "), by duly adopted resolutions, reclassified and designated 40,000 authorized but unissued shares of preferred stock, $0.01 par value per share, of the Corporation (the " Preferred Stock "), as shares of Series B Preferred Stock, $0.01 par value per share, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, which, upon any restatement of the Charter, shall be incorporated into Article VI thereof by reference or added to the text thereof with any necessary or appropriate renumbering or relettering of the sections or subsections hereof:
SECTION 1.   DESIGNATION AND NUMBER OF SHARES .  There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the "Series B Preferred Stock" (the " Series B Preferred Stock "). The authorized number of shares to be classified as Series B Preferred Stock shall be forty thousand (40,000).
SECTION 2.  RIGHTS PREFERENCE AND PRIVILEGES .  The Series B Preferred Stock shall have the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption:
(a)              Liquidation Preference .  The Liquidation Preference of the Series B Preferred Stock is one thousand dollars ($1,000.00) per share (" Liquidation Preference ").

(b)              Ordinary Dividends .  Up to but excluding the Trigger Date, as defined below, each share of the Series B Preferred Stock shall be entitled to receive, when, as and if authorized by the Board of Directors and declared by the Corporation, out of funds at the time legally available therefor, an annual cash dividend equal to fourteen percent (14%) of the Liquidation Preference.  Dividends of not less than ten percent per annum (10%) of the Liquidation Preference shall be declared in arrears on the 25 th day of each month out of funds legally available therefor.  For clarity, a holder of 100 shares of Series B Preferred Stock (each such share having a $1,000 Liquidation Preference) would be entitled to aggregate per annum dividends of 14% of $100,000, or $14,000, with a minimum aggregate per annum amount of $10,000 (10% of $100,000), or $833.33 per month to be declared in arrears on the 25 th day of each month.  Dividends so duly declared shall be paid on the 9 th day of the subsequent month, provided that if any such day shall be a Saturday, Sunday or a legal holiday (any of the foregoing a " Non-Business Day "), then such dividend shall be payable on the immediately preceding day which is not a Non-Business Day. Dividends shall be cumulative and accrue for each share of the Series B Preferred Stock from the date of its first issuance and shall be payable to holders of record as they appear on the stock books of the Corporation on such record dates as they are fixed by the Board of Directors.  Amounts payable in respect of dividends which have accrued but not been paid shall compound on a monthly basis at the applicable rate provided for in these Articles Supplementary ( i.e. , fourteen percent (14%) per annum or, on and after the Trigger Date, twenty-four percent (24%) per annum).  All dividend amounts shall be calculated based on the number of days elapsed for which dividends have accrued, and assuming a calendar year consisting of 360 days.

(c)              Extraordinary Dividends .  Commencing on the Trigger Date and continuing thereafter, each share of Series B Preferred Stock, in lieu of the ordinary dividends described in clause (b) above, shall be entitled to receive an annual cash dividend out of funds legally available therefor equal to twenty-four percent (24%) of the Liquidation Preference, which shall be declared in arrears on the 25 th day of each month.  Such dividends shall be paid on the 9 th day of the subsequent month, provided that if any such day shall be a Non-Business Day, then such dividend shall be payable on the immediately preceding day which is not a Non-Business Day. Such dividends for each such share of the Series B Preferred Stock shall be payable to holders of record as they appear on the stock books of the Corporation on such record dates as they are fixed by the Board of Directors.

(d)  Trigger Date .  The "Trigger Date" for the Series B Preferred Stock shall be the earlier to occur of (i) the Mandatory Redemption Date described in clause (h) below (as extended, if applicable), or (ii) the date on which an Event of Default occurs under and as defined in the Investor Agreement dated as of August 1 , 2014 between the Corporation and the original purchaser of the Series B Preferred Stock (the " Investor Agreement ").

(e)              Preference to Dividends .  The Series B Preferred Stock shall rank pari passu with the Series 6.3% Preferred Stock issued by the Corporation in the Articles Supplementary of the Corporation dated January 12, 2012 (the " Series 6.3% Preferred "), until the shares of Series 6.3% Preferred are redeemed; the Corporation has elected to redeem all outstanding shares of the Series 6.3% Preferred, such redemption to occur on August 15, 2014.  The Series B Preferred Stock shall be senior to and shall have priority as to dividends over the Corporation's common stock, par value $0.01 per share (the " Common Stock "), any other shares of capital stock of the Corporation that are currently outstanding (other than shares of the Series 6.3% Preferred) and any other series or class of the Corporation's capital stock that may be hereafter issued (referred to as " junior dividend stock ").  No dividend (other than dividends payable solely in Common Stock or any series or class of junior dividend stock) shall be declared, paid or set apart for payment on, and no purchase or other acquisition shall be made by the Corporation of any Common Stock or junior dividend stock, unless accrued and unpaid dividends (based on dividend rates of (i) prior to the Trigger Date, ten percent (10%) per annum or (ii) on and after the Trigger Date, twenty four percent (24%) per annum (in each case, compounded monthly)), shall have been contemporaneously declared and paid or set apart for payment for all prior dividend periods for each share of the Series B Preferred Stock.

(f)              Preference Upon Liquidation .  The Series B Preferred Stock shall rank senior to all other securities of the Corporation (other than any shares of the Series 6.3% Preferred then outstanding) as to the distribution of the Corporation's assets upon any liquidation, dissolution or winding up of the Corporation.  In the event of any liquidation, dissolution or winding up of the Corporation, each share of the Series B Preferred Stock shall be entitled to receive, out of legally available assets, an amount equal to the Liquidation Preference, plus an amount equal to any accrued and unpaid dividends (based on dividend rates of (i) prior to the Trigger Date, fourteen percent (14%) per annum or (ii) on and after the Trigger Date, twenty four percent (24%) per annum (in each case, compounded monthly)) on such share to the date such liquidation payment is made (in addition to such additional amounts as may be due and owing pursuant to the terms of the Investor Agreement to the Investor (as such term is defined under the Investor Agreement ) ), and all amounts payable to the holders of shares of Series B Preferred Stock shall be made on the date of such liquidation, dissolution or winding up, as the case may be, and before payment or distribution is made to the holders of the Corporation's Common Stock, any other shares of capital stock of the Corporation that are currently outstanding (except such Series 6.3% Preferred) and any other series or class of the Corporation's stock that may be hereafter issued.  After payment in full of the Liquidation Preference of the shares of Series B Preferred Stock (and the payment in full of any dividends and other amounts thereon as provided above), the holders of the Series B Preferred Stock shall not receive any further participation in any distribution of the Corporation's assets.  If the assets and funds legally available for distribution among the holders of shares of Series B Preferred Stock shall be insufficient to permit the payment in full to such holders as described above, then the assets and funds shall be distributed ratably among the holders of shares of Series B Preferred Stock in proportion to the number of shares of Series B Preferred Stock owned by each holder.

(g)              Corporation's Optional Redemption Rights .  The Series B Preferred Stock shall be redeemable at the election of the Corporation in whole, or in part, at any time or from time to time, by giving written notice to each of the holders of the Series B Preferred Stock not less than thirty (30) days nor more than sixty (60) days prior to the date set for such redemption (the " Redemption Date ").  Each such notice shall state: (i) the Redemption Date; (ii) the number of shares of Series B Preferred Stock to be redeemed; (iii) the amount of cash constituting the redemption price, along with a description of the calculation, based on the items included in such calculation; (iv) the place or places where certificates for such shares of Series B Preferred Stock are to be surrendered for payment of the redemption price; and (v) that dividends on the shares of Series B Preferred Stock to be redeemed will cease to accrue on the Redemption Date (assuming the payment in full of the redemption price in respect of such shares) (such notice, a " Redemption Notice ").  Each share of Series B Preferred Stock shall be redeemable for the sum equal to 100.75% of the Liquidation Preference per share, plus a cash payment equal to all accrued but unpaid dividends (based on dividend rates of (i) prior to the Trigger Date, fourteen percent (14%) per annum or (ii) on and after the Trigger Date, twenty four percent (24%) per annum (in each case, compounded monthly)), to, but not including, the Redemption Date, plus any such other amounts which are due and owing to the Investor pursuant to the terms of the Investor Agreement (collectively, the " Call Price "), provided , however , that for purposes of calculating the amount of the Call Price, with respect to any redemption that is made prior to the second annual anniversary of the issuance date of any applicable share of Series B Preferred Stock, the redemption of such share of Series B Preferred Stock shall be deemed to have occurred on such second anniversary date and the Call Price with respect to such share of Series B Preferred Stock shall include accruals of amounts that would have been payable in respect of dividends during such period ending on the second anniversary date of the issuance date of such share (calculated at fourteen percent (14%) if the Trigger Date has not occurred on or prior to the date of the Redemption Notice, and at twenty four percent (24%) if the Trigger Date has occurred on or prior to the date of the Redemption Notice), all such amounts being deemed to have compound monthly in accordance with the terms of these Articles Supplementary.  Following redemption of any such shares of Series B Preferred Stock, dividends shall cease to accrue on such shares of Series B Preferred Stock so redeemed (assuming the payment in full of the redemption price in respect of such shares).  If fewer than all outstanding shares of Series B Preferred Stock shall be called for redemption, the Series B Preferred Stock redeemed shall be selected by the Corporation by lot or pro rata (as nearly as may be possible) or by another method determined by the Board of Directors in its sole discretion, to be equitable.

(h)              Mandatory Redemption .  The Corporation shall redeem all outstanding Series B Preferred Stock for a per share amount equal to the Call Price on or before August 1, 2017 (the " Mandatory Redemption Date "), provided , however , that if no Event of Default exists under the provisions of the Investment Agreement, the Mandatory Redemption Date may be extended at the election of the Corporation for up to two consecutive periods of twelve (12) months each upon payment of all accrued and unpaid dividends, plus payment to the holders of Series B Preferred Stock of an extension amount equal to one half of one percent (.50%) of the Liquidation Preference of the outstanding Series B Preferred Stock (paid pro rata to such holders) for any such extension.  The Corporation may exercise its right to extend the Mandatory Redemption Date by providing written notice to the holders of Series B Preferred Stock not later than thirty (30) days prior to the then current Mandatory Redemption Date, along with payment of the full amount of the accrued dividends and extension fee together with such notice.  The Corporation shall effectuate the mandatory redemption obligation set forth in this clause (h) by delivering a Redemption Notice to each of the holders of the Series B Preferred Stock not less than thirty (30) days nor more than sixty (60) days prior to the date set for such redemption.  Commencing the 180 th day following the Mandatory Redemption Date (as extended, if applicable) (the "PR Adjustment Date"), if any share of Series B Preferred Stock remains outstanding, the Corporation shall use all funds at any time legally available therefor to continue to pay extraordinary dividends on the Series B Preferred Stock as described in clause (c) above and to effect redemption of the remaining shares of Series B Preferred Stock on the earliest date upon which funds sufficient to pay the Call Price are legally available therefor, and prior to any payment to holders of the Corporation's Common Stock or any other shares of junior dividend stock of the Corporation that may be outstanding.

(i)              Voting Rights .  So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the prior approval of the holders of Series B Preferred Stock through the affirmative vote of the holders of a majority of the outstanding shares of the Series B Preferred Stock then outstanding, voting separately as a class (a " Majority Vote "):

(1) except with respect to NetREIT Dubose Model Home REIT, Inc. and NetREIT Dubose Model Home REIT, L.P., adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, reorganization or other business combination with respect to the Corporation or any of its subsidiaries;

(2) except for issuances of the Corporation's Common Stock or securities convertible into or exchangeable for Common Stock, authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any of shares of its capital stock or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of its capital stock or other securities or equity interests, including any securities convertible into or exchangeable for any of its capital stock;

(3) effect any reclassification of the Series B Preferred Stock;

(4) issue any class of capital stock that has rights to the payment of dividends or the Corporation's assets upon liquidation of the Corporation which are senior to or on parity with such rights of the Series B Preferred Stock;

(5) commence an Insolvency Proceeding (as such term is defined in the Investor Agreement) involving the Corporation or any of its subsidiaries; or

(6) amend the Corporation's Charter or bylaws to change the size of the Board of Directors.

In addition, commencing on the Trigger Date, in addition to having such rights as are provided for in the Investor Agreement, the holders of record of the Series B Preferred Stock, by Majority Vote, without the consent or vote of any other class or series of Common Stock or Preferred Stock of the Corporation, may direct the Corporation to take any of the following actions, except to the extent such actions would violate any agreements of the Corporation with joint venture partners, or in the case of clauses (1), (2) and (4) below, with lenders or property managers, or any laws, orders or decrees binding on the Corporation, or compromise the Corporation's legal or tax status as a REIT:

(1) replace any property managers and/or leasing agents;

(2) terminate any contracts by and between the Corporation and/or any of its subsidiaries on the one hand, and any affiliate of the Corporation on the other, to the extent that any such contracts relate to the ownership, leasing, management, use, operation, maintenance, repair or restoration of a real property owned directly or indirectly by the Corporation;

(3) replace, or cause the replacement of, any managing member or general partner under any joint venture;

(4) sell and dispose of any property on such terms and conditions as the holders of record of the Series B Preferred Stock by Majority Vote shall approve, together with any other consent or vote of any other class or series of Common Stock or Preferred Stock as may be required by the Maryland General Corporation Law and the Charter;

(5) refinance any indebtedness of the Corporation on such terms and conditions as the holders of record of the Series B Preferred Stock, by Majority Vote, shall approve,  including entering into any amendments, supplements or modifications to the Senior Loan Documents as the Investor (as such term is defined in the Investor Agreement) may determine in its sole discretion;

(6) cure any default under any indebtedness of the Corporation; and

(7) repay or prepay any amounts payable in respect of indebtedness of the Corporation.
In addition, immediately following the occurrence of the Trigger Date, and without any further action on the part of the Corporation or the Board of Directors, the holders of Series B Preferred Stock shall be entitled to vote as a separate class, by a Majority Vote, to elect six (6) individuals meeting the qualifications set forth in the Corporation's Charter and bylaws to serve as members of the Board of Directors (the " Series B Preferred Directors ").  The holders of Series B Preferred Stock shall be entitled to elect the Series B Preferred Directors, by a Majority Vote as a separate class, at any time following the occurrence of the Trigger Date, and the holders of Series B Preferred Stock shall also be entitled, through a Majority Vote as a separate class, to remove and/or replace any Series B Preferred Director at any time, with or without cause.  Any Series B Preferred Director elected or replaced by the holder of Series B Preferred Stock shall meet the qualifications of a member of the Board of Directors as set forth in the Corporation's organizational documents and committee charters, as well as federal law and administrative agency requirements.

The Corporation shall be obligated to provide any such Series B Preferred Director with the benefit of any insurance policies (including any director and officer liability insurance policies), indemnification arrangements, rights to reimbursement of expenses and other similar arrangements that it makes available to any other member of the Board of Directors, shall maintain such arrangements for so long as the holders of Series B Preferred Stock are entitled to elect such Series B Preferred Directors, and shall not amend, modify, cancel or terminate any such policies or arrangements without the prior written consent of the holders of Series B Preferred Stock.

The Series B Preferred Stock shall have only the voting rights expressly set forth in this Section 2(i) .

(j)              Application of Article VII .  The Series B Preferred Stock is subject to the provisions of Article VII of the Charter.

SECOND:  The Series B Preferred Stock has been classified and designated by the Board of Directors under the authority contained in the Charter.

THIRD:  These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.

FOURTH:  The undersigned acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.


[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Chief Executive Officer and attested to by its Chief Financial Officer as of the 1st day of August, 2014.

ATTEST:                                                                                            NETREIT, INC.


/s/ Kenneth W. Elsberry                                                                                                                               By: /s/ Jack K. Heilbron                             (SEAL)
Kenneth W. Elsberry                                                                                                          Jack K. Heilbron
Chief Financial Officer                                                                                                          Chief Executive Officer


Exhibit 3.2
AMENDMENT NO. 1 TO AMENDED AND RESTATED BYLAWS
OF
NETREIT, INC.
Pursuant to ARTICLE XIII of the Amended and Restated Bylaws (the "Bylaws") of NetREIT, Inc., a Maryland corporation (the "Company"), the Bylaws of the Company have been amended as follows:
The first sentence of ARTICLE III, Section 2 of the Bylaws is deleted in its entirety and replaced with the following:
"The Corporation shall have eleven (11) directors, which number may be decreased (and subsequently increased or decreased) from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors, but the number of directors shall never be less than six (6) nor more than eleven (11), unless otherwise approved by the majority vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the matter."


8368119-v1
SEE REVERSE SIDE FOR RESTRICTIONS


INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

June 1, 2010

 
*[      ]*

NetREIT, INC.



 
[          ] Shares
Series B Preferred Stock
$0.01 Par Value Each
This Certifies that
**Specimen**
 
is the registered
holder of
**Zero**
shares of the
Series B Preferred Stock of NetREIT, INC.








Kathryn Richman, Secretary
 
Jack Heilbron, President



THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2) ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR THE SECURITIES LAWS OF SUCH STATES OR THAT SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES, OR (3) EXCEPT IN A TRANSACTION IN COMPLIANCE WITH RULE 144 OR RULE 144A UNDER THE SECURITIES ACT

NETREIT, INC. WILL FURNISH A FULL STATEMENT REGARDING THE RIGHTS AND PREFERENCES OF THE SERIES B PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE.

THE -SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED {THE "CODE").  SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (I) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF NINE AND 8/10THS PERCENT (9.8%) (IN VALUE OR NUMBER OF SHARES) OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE CORPORATION UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (II) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK OF THE CORPORATION IN EXCESS OF NINE AND 8/10THS PERCENT (9.8%) OF THE VALUE OF THE TOTAL OUTSTANDING SHARES OF CAPITAL STOCK OF THE CORPORATION, UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN CAPITAL STOCK THAT WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (IV) NO PERSON MAY TRANSFER SHARES OF CAPITAL STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF CAPITAL STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A CHARITABLE TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH. INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF CAPITAL STOCK OF THE CORPORATION ON REQUEST AND WITHOUT CHARGE.