Note 19. Commitments and Contingencies:

Loan Commitments

Commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met. Our outstanding loan commitments and approvals to fund new loans were approximately $13.6 million at December 31, 2013, the majority of which were for prime-based loans to be originated under the SBA 7(a) Program, the government guaranteed portion of which is intended to be sold. Commitments generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.

Operating Lease

We lease office space in Dallas, Texas under a lease which expires in February 2015. Future minimum lease payments under this lease are as follows:


Years Ending December 31,	Total
	(In thousands)
2014	$	217
2015		36

	$	253

Rent expense amounted to $185,000, $187,000 and $179,000 during 2013, 2012 and 2011, respectively.

Employment Agreements

We have employment agreements with our two executive officers. Effective with the closing of the merger, our two executive officers will become parties to amended and restated employment agreements which will amend and restate their existing employment agreements. Under certain circumstances, as defined within the agreements, the agreements provide for (1) severance compensation or change in control payments to the executive officer in an amount equal to 2.99 times the average of the last three years annual compensation paid to the executive officer and (2) death and disability payments in an amount equal to two times and one time, respectively, the annual compensation paid to the executive officer.

Pursuant to the amended and restated employment agreements (effective with the closing of the merger), to the extent the executive is employed by the Company on January 1, 2016 and such executive is not entitled to any disability, death or severance payments, the executive would receive restricted share awards as a retention bonus which would vest immediately upon grant. In aggregate, our two executive officers would receive 525,000 share awards.

Litigation

REIT Redux, L.P. et al v. PMC Commercial Trust, et al. On October 9, 2013, a putative class action and derivative lawsuit was filed in the Dallas County Court at Law No. 5 in Dallas County, Texas against and purportedly on behalf of PMC Commercial. The complaint named as defendants PMC Commercial, members of the Board of Trust Managers and executive officers of PMC Commercial and CIM Urban REIT. The plaintiffs asserted the action as a direct action, as well as a derivative action and alleged, among other things, that the Board of Trust Managers breached the PMC Commercial Declaration of Trust and conspired to deprive the plaintiffs and the class of their right to vote to approve or decline the merger, to approve or decline of the sale of PMC Commercial and to approve or decline the authorization of the PMC Commercial common shares necessary to support the conversion rights of the PMC Commercial preferred shares to be issued pursuant to the merger agreement. The plaintiffs alleged, among other things, that the Board of Trust Managers breached its fiduciary duties by approving and recommending the transactions to the shareholders without due regard for the fairness of the transaction, failing to maximize value for the shareholders, engaging in bad faith and self-dealing by preferring transactions that further enriched the trust managers at the expense of the shareholders, and conspiring to deprive the shareholders of their voting power and prerogatives. The complaint alleged that CIM Urban REIT aided, abetted and induced those breaches of fiduciary duty. The complaint further alleged that the causes of action were aggravated by gross negligence and intentional and malicious wrongdoing. The complaint sought an order enjoining a vote on the transactions contemplated by the merger agreement, an order certifying the matter as a class action for damages, damages for lost shareholder value, exemplary damages, attorney’s fees and costs, appointment of a receiver, if justice so demands, in order to preserve and maximize shareholder value, and all other such relief as the court may find reasonable and necessary to which plaintiffs may be entitled. We denied all of the allegations in the complaint.

As of January 28, 2014, we entered into settlement agreements with the plaintiffs subject to court approval. Under the terms of a class and derivative settlement agreement, CIM Service Provider, LLC (“Manager”), a subsidiary of CIM Group, LLC controlled by CIM Group, LLC’s three founders, Richard Ressler, Avi Shemesh and Shaul Kuba, agreed to purchase up to 2.75 million Common Shares of PMC Commercial at market prices of up to $5.00 per share under a 10b5-1 trading plan. The trading plan will generally expire on the date that 2.75 million PMC Commercial Common Shares have been purchased or August 10, 2014, whichever is earlier. Also, pursuant to a separate settlement agreement, Manager agreed to purchase up to 500,000 PMC Commercial Common Shares owned by REIT Redux, L.P. at a price of $5.00 per share, if requested by REIT Redux, L.P. and its other “reporting persons” to do so at any time between July 10, 2014 and August 10, 2014. In addition, PMC Commercial has agreed to pay reasonable attorney’s fees and expenses of plaintiffs’ counsel, as may be awarded by the court, of $772,000.

We are self-insured for the deductible amounts under our director and officers’ liability insurance policy. The deductible under the litigation described above is $250,000; thus, a portion of the costs related to this litigation may be reimbursed by insurance.

In the normal course of business we are periodically party to certain legal actions and proceedings involving matters that are generally incidental to our business (i.e., collection of loans receivable). In management’s opinion, the resolution of these legal actions and proceedings will not have a material adverse effect on our consolidated financial statements.

Merger Related

Up to approximately $3.8 million of transaction fees related to the potential merger are contingent upon consummation of the merger.

SBA Related

If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by our SBLC, the SBA may seek recovery of the principal loss related to the deficiency from us. With respect to the guaranteed portion of SBA loans that have been sold, the SBA will first honor its guarantee and then seek compensation from us in the event that a loss is deemed to be attributable to technical deficiencies. Based on historical experience, we do not expect that this contingency is probable to be asserted. However, if asserted, it could be material to the financial statements.

In certain instances, including liquidation or charge-off of an SBA guaranteed loan, we may have a receivable for the SBA’s guaranteed portion of legal fees, operating expenses, property taxes paid, etc. related to the loan or the collateral (upon foreclosure). While we believe expenses incurred were justified and necessary for the care and preservation of the collateral and within the established rules of the SBA, there can be no assurance that the SBA will reimburse us. In addition, reimbursement from the SBA is a time consuming and lengthy process and the SBA may seek compensation from us related to reimbursement of expenses which it does not believe were necessary for the care and preservation of the loan or its collateral. Although the SBA has never declined to reimburse us for its portion of material expenses, no assurance can be given that the SBA would not do so in the future. We have evaluated our SBA receivables and believe that our financial statements fairly reflect these receivables at their appropriate net realizable value.

Pursuant to SBA rules and regulations, distributions from our SBLC and SBICs are limited. In order to operate as a small business lending company, a licensee is required to maintain a minimum net worth (as defined by SBA regulations) of the greater of (1) 10% of the outstanding loans receivable of our SBLC or (2) $1.0 million, as well as certain other regulatory restrictions such as change in control provisions. At December 31, 2013, approximately $2.1 million was available for payment of dividends from our SBLC.