Document:

ex10-14.htm

    
Exhibit
10.14

       

       

      LOAN
ORIGINATION AGREEMENT

       

      This Loan
Origination Agreement (this “Agreement”) is
entered into as of the 21st day of
November, 2007 (the “Effective Date”), by
and between Desert Capital REIT, Inc., a Maryland corporation (“Desert Capital”),
Consolidated Mortgage, LLC, a Nevada limited liability company (“Consolidated
Mortgage”) and for the purposes of Paragraph I of Article I hereof,
Sandstone Equity Investors, LLC, a Delaware limited liability company (“Parent”).

       

      RECITALS:

       

      WHEREAS,
Consolidated Mortgage is regularly and actively engaged in the business of
arranging for the financing of and servicing mortgage loans for the acquisition
of, development of, and construction on real estate (collectively, “Mortgage
Loans”);

       

      WHEREAS,
Desert Capital is a real estate investment trust that originates and invests in,
among other things, Mortgage Loans; and

       

      WHEREAS,
Consolidated Mortgage and Desert Capital desire to enter into this agreement to
set forth certain rights and obligations between the parties regarding the
origination and servicing of Mortgage Loans by Consolidated Mortgage and the
funding of Mortgage Loans by Desert Capital.

       

      NOW,
THEREFORE, in consideration of the foregoing and of the mutual premises
hereinafter expressed, the parties hereto do mutually agree as
follows:

       

       

      ARTICLE
I.  RIGHT OF
FIRST REFUSAL.

       

      A. Consolidated
Mortgage hereby agrees to continue arranging for the financing of Mortgage Loans
in accordance with its historical practices.  Commencing as of
November  19, 2007, on a weekly basis, Consolidated Mortgage shall
send a written report (a “Mortgage Loan
Report”) to Desert Capital setting forth in reasonable detail all
Mortgage Loans identified by Consolidated Mortgage for funding (including loan
to value ratio, credit scores, interest rates and other criteria applicable to
the Mortgage Loans).  Desert Capital shall have a right of first
refusal in its sole discretion to fund all or any portion of such Mortgage Loans
as set forth herein.  No later than two (2) Business Days (hereinafter
defined) following its receipt of a Mortgage Loan Report (the “Initial Election
Period”), Desert Capital shall send written notice to Consolidated
Mortgage specifying each Mortgage Loan or specified portion thereof that Desert
Capital desires to fund (a “Preliminary Funding
Notice”).  The Preliminary Funding Notice shall constitute an
offer by Desert Capital to fund all or the specified portion of each Mortgage
Loan listed in the Preliminary Funding Notice upon the terms and conditions set
forth in the Mortgage Loan Report, with such changes thereto as Desert Capital
shall deem appropriate for its funding thereof and upon the terms set forth
herein.  If Desert Capital fails to deliver a Preliminary Funding
Notice to Consolidated Mortgage prior to the expiration of the Initial Election
Period, or if the Preliminary Funding Notice delivered by Desert Capital does
not include all of the Mortgage Loans listed on the Mortgage Loan Report, then
Consolidated Mortgage may arrange for the funding of all or any such portion, as
the case may be, of the remaining Mortgage Loans set forth in the applicable
Mortgage Loan Report that were not selected by Desert Capital through one or
more third parties without regard to this Agreement.

       

      B. No later
than two (2) Business Days after its receipt of a Preliminary Funding Notice
(the “Election
Period”), Consolidated Mortgage may elect to accept any changes set forth
in the applicable Preliminary Funding Notice that Desert Capital requests be
made to the terms of any Mortgage Loan listed in such Preliminary Funding
Notice.  If Consolidated Mortgage rejects any of the modified terms
requested by Desert Capital, it may withdraw each related Mortgage Loan from the
Preliminary Funding Notice and shall permit Desert Capital to fund all or the
specified portion of the remaining Mortgage Loans listed on the Preliminary
Funding Notice.  If Consolidated Mortgage agrees to all modified terms
requested by Desert Capital in the Preliminary Funding Notice, then Consolidated
Mortgage shall permit Desert Capital to fund all or the specified portion of the
Mortgage Loans listed in the Preliminary Funding Notice upon the modified terms
requested by Desert Capital.  For purposes hereof “Business Day” means
any day other than Saturday or Sunday or other day on which national banks in
Las Vegas, Nevada are required or permitted by applicable law to
close.

       

      C. Consolidated
Mortgage may freely arrange for the funding of any Mortgage Loans that were set
forth in a Mortgage Loan Report or portions thereof that Desert Capital did not
elect to fund or as to which any modified terms set forth in the Preliminary
Funding Notice were not accepted by Consolidated Mortgage.

       

      D. No later
than the Business Day immediately following the delivery of a Preliminary
Funding Notice, Consolidated Mortgage shall deliver to Desert Capital the due
diligence materials, reports and documents described in Attachment “C” hereto
(the “Specified
Materials”) relating to the Mortgage Loans to be participated in or
purchased by Desert Capital then in the possession of Consolidated
Mortgage.  Desert Capital shall have three (3) Business Days to review
and approve or object in writing to the Specified Materials
received.  In addition, Consolidated Mortgage shall provide Desert
Capital with any additional documents and other information that Desert Capital
may reasonably request with respect to any Mortgage Loans to be purchased by
Desert Capital hereunder.  It shall be a condition to the obligation
of Desert Capital to fund any Mortgage Loan at a Closing (hereinafter defined)
that Consolidated Mortgage shall have timely provided to Desert Capital all of
the Specified Materials (and any other documents and other information
reasonably requested by Desert Capital).  In the event that with
respect to any Mortgage Loan, (i) Desert Capital does not approve the Specified
Materials initially delivered to Desert Capital within such three (3) day
period, or (ii) the Specified Materials received by Desert Capital thereafter do
not support or conform to the representations and description of the Mortgage
Loan provided by Consolidated Mortgage to Desert Capital in the Mortgage Loan
Report, including, without limitation, the borrower, loan amount, collateral
type, ownership, appraised value, lien priority and environmental condition,
Desert Capital shall have no obligation to fund such Mortgage Loan at a
Closing.

       

      E. Each
closing of a funding of a Mortgage Loan by Desert Capital hereunder (each a
“Closing”)
shall take place at the principal offices of Desert Capital, at the address
specified in Article IX hereof, on the Business Day specified as the
closing date for the applicable Mortgage Loan in the applicable Mortgage Loan
Report.  At the Closing, Consolidated Mortgage shall arrange for the
execution and delivery to Desert Capital of a standard set of investment
documents, in form and substance reasonably acceptable to Desert Capital (and
shall provide Desert Capital with customary representations and warranties as
well as adequate assurances that such Mortgage Loans are valid and enforceable
obligations of the respective borrowers and that no default, event of default,
or similar event has occurred of which Consolidate Mortgage could reasonably be
expected to be aware with respect to such Mortgage Loans).  At the
Closing, unless otherwise agreed upon by the parties, Desert Capital shall fund
all or the specified portion of each Mortgage Loan in the applicable amount
payable in immediately available funds.

       

      F. Desert
Capital may, at its election, request periodic accounting and other financial
records from Consolidated Mortgage that demonstrate its compliance with this
Agreement.  Any proprietary information and associated products,
copyrights, trademarks and logos developed by parties to this Agreement shall
remain the property of the party which developed them.

       

      G. Each
party hereto shall, in a professional manner, take all steps reasonably
necessary to perform its duties hereunder.

       

      H. In
addition to the other matters set forth in this Article I, the parties
agree to the covenants and other matters set forth in Attachment “A” hereto,
which are incorporated by reference as if fully set forth herein.

       

      I.           As
promptly as possible but in any event within thirty (30) days (or such later
date as the parties may agree) after (i) any person or entity engaged in the
business of originating or brokering commercial loans becomes an Affiliate (as
defined in Rule 12b-2 of the regulations promulgated under the Securities
Exchange Act of 1934, as amended) of Parent and/or Consolidated Mortgage, or
(ii) any Affiliate of Parent and/or Consolidated Mortgage becomes engaged in the
business of originating or brokering commercial loans, Parent shall provide
Desert Capital with written notice thereof setting forth information in
reasonable detail describing the business of such person or entity and shall, if
requested by Desert Capital, within thirty (30) days after the date of such
notice, cause each such person or entity to deliver to Desert Capital a joinder
agreement in form and substance reasonably acceptable to Desert Capital pursuant
to which such person or entity becomes a party to and agrees to be bound by the
terms and provisions of this Agreement.

       

      ARTICLE
II.  PERIOD OF
PERFORMANCE.

       

      This
Agreement shall be effective as of the Effective Date and shall expire on the
later of (i) one month after the last day of the month in which the
obligations of Consolidated Mortgage and Parent pursuant to Section 2.2(b) of
that certain Purchase Agreement dated as of November 21, 2007, among Desert
Capital, Desert Capital TRS, Inc. and Parent have been paid in full, or (ii)
with respect to any projects, commercial loans or open contracts and/or related
residual income such date that all business has been
completed.  Thereafter, this Agreement shall be automatically renewed
for successive one year periods unless any party gives written notice of
termination to the other party at least 30 days prior to the scheduled date of
expiration.  Notwithstanding the foregoing, this Agreement shall be
earlier terminated (x) at any time by mutual agreement of the parties, or
(y) at any time by Desert Capital or Consolidated Mortgage upon 60 days’ advance
written notice after an event constituting “cause” has occurred with respect to
the other party.  For purposes of this Agreement “cause” means a
judgment by a court of competent jurisdiction that the subject party has
committed fraud either against third parties or against the other party to this
Agreement; the bankruptcy, insolvency or dissolution of the subject party; or
the material breach of this Agreement by the subject party (that is not cured by
the subject party within 30 days after receipt of written
notice).  Time is of the essence in the performance of the obligations
under this Agreement.

       

       

      ARTICLE
III.  MANAGEMENT.

       

      Each
party shall designate a partner, officer or other senior person to be
responsible for the overall administration of such party’s responsibilities
under this Agreement.  Neither party shall have management authority
over the other outside the scope and performance of this Agreement.

       

       

      ARTICLE
IV.  CONFIDENTIAL
INFORMATION.

       

      Consolidated
Mortgage acknowledges and agrees that in the course of the performance of this
Agreement or additional services pursuant to this Agreement, it may be given
access to, or come into possession of, confidential information of Desert
Capital, which information may contain trade secrets, proprietary data or other
confidential material of Desert Capital.  Therefore, the parties have
executed a Non-Disclosure Agreement which is attached hereto as
“Attachment B”, and incorporated by reference as if fully set forth herein.
Materials used in any engagement undertaken pursuant to this Agreement shall not
be altered or changed without the consent of both parties.

       

       

      ARTICLE
V.  NO
PARTNERSHIP.

       

      Nothing
herein contained shall be construed to imply a joint venture, partnership or
principal-agent relationship between Desert Capital and Consolidated Mortgage,
and neither party shall have the right, power or authority to obligate or bind
the other in any manner whatsoever, except as otherwise agreed to in
writing.  The parties do not contemplate a sharing of profits relating
to the business of Desert Capital or Consolidated Mortgage so as to create a
separate taxable entity under Section 761 of the Internal Revenue Code of 1986,
as amended, nor co-ownership of a business or property so as to create a
separate partnership under the law of any jurisdiction, including, without
limitation, the state of Nevada or Maryland.  Revenues and expenses
relating to the Mortgage Loans hereunder and any activities relating thereto
shall be reported separately by the parties for tax purposes.  This
provision does not eliminate the possibility that the parties may enter into
various revenue or equity sharing agreements with regard to any Mortgage Loans
that the parties may consider on a case by case basis.  During the
performance of the any of the contemplated business activities set forth herein,
Desert Capital’s employees will not be considered employees of Consolidated
Mortgage, and vice versa, within the meaning or the applications of any federal,
state or local laws or regulations including, but not limited to, laws or
regulations covering unemployment insurance, retirement or medical benefits,
worker’s compensation, industrial accident, labor or taxes of any
kind.

       

       

      ARTICLE
VI.  TRADEMARK,
TRADE NAME AND COPYRIGHTS.

       

      This
Agreement does not give any party any ownership rights or interest in another
party’s trade name, trademarks or copyrights.

       

       

      ARTICLE
VII.  INDEMNIFICATION.

       

      Each of
Desert Capital and Consolidated Mortgage, at its own expense, shall indemnify,
defend and hold the other, its partners, members, shareholders, directors,
officers, employees and agents harmless from and against any and all third-party
suits, actions, investigations and proceedings, and related costs and expenses
(including, reasonable attorney’s fees), resulting solely and directly from the
indemnifying party’s gross negligence, willful misconduct or material breach of
this Agreement.  Neither Desert Capital nor Consolidated Mortgage
shall be required hereunder to defend, indemnify or hold harmless the other or
its partners, shareholders, directors, officers, employees and agents, or any of
them, from any liability resulting from the negligence, willful misconduct or
material breach of this Agreement by the party seeking indemnification or by any
third party.  Each of Desert Capital and Consolidated Mortgage agrees
to give the other prompt written notice of any claim or other matter as to which
it believes this indemnification provision is applicable.

       

       

      ARTICLE
VIII.  INTELLECTUAL
PROPERTY.

       

      Work
performed pursuant to this Agreement by either Desert Capital or Consolidated
Mortgage and information, materials, products and deliverables developed in
connection with business endeavors pursuant to this Agreement shall be the
property of the respective parties performing the work or creating the
information.  All underlying methodology utilized by Consolidated
Mortgage and Desert Capital, which was created or developed prior to the date of
this Agreement and utilized in the course of performing their duties pursuant to
this Agreement, shall not become the property of the other.

       

       

      ARTICLE
IX.  GENERAL
PROVISIONS.

       

      A. Entire
Agreement.  This Agreement, together with the attachments
hereto and all documents executed in connection herewith or incorporated by
reference herein, constitutes the entire and sole agreement between the parties
hereto with respect to the subject matter hereof and supersedes any prior
agreements, negotiations, understandings or other matters, whether oral or
written, with respect to the subject matter hereof.  This Agreement
cannot be modified, changed or amended, except in writing signed by a duly
authorized representative of each of the parties hereto.

       

      B. Conflict.  In
the event of any conflict, ambiguity or inconsistency between this Agreement and
any other document which may be annexed hereto, the terms of this Agreement
shall govern.  Any conflicts or disputes that are not amicably settled
in the due course of this business relationship shall be settled through binding
arbitration, in accordance with the latest edition of rules as set forth by the
American Arbitration Association, such arbitration to be held in Las Vegas,
Nevada.  Said rulings in arbitration shall be considered final and
binding on the parties hereto and shall be enforceable in any competent United
States court.

       

      C. Assignment and
Delegation.  No party shall voluntarily assign or delegate this
Agreement or any rights, duties or obligations hereunder to any other person or
entity without prior express written approval of the other party, provided that,
notwithstanding the foregoing, a party may assign this Agreement by operation of
law to any successor to such party by merger or consolidation (without the prior
consent of the other parties).

       

      D. Notices.  Any
notice required or permitted to be given under this Agreement shall be in
writing, by hand delivery, commercial overnight courier or registered or
certified U.S. Mail, to the address stated below across from such party’s name,
and shall be deemed duly given upon receipt, or if by registered or certified
mail three Business Days following deposit in the U.S. Mail.  The
parties hereto may from time to time designate in writing other addresses
expressly for the purpose of receipt of notice hereunder.

       

      
        	
                 
      

              	
                If
      to Desert Capital:

              	
                Desert
      Capital REIT, Inc.

              

      

      
        	
                 
      

              	
                1291
      Galleria Drive, Suite 200

              

      

      
        	
                 
      

              	
                Henderson,
      Nevada  89014

              

      

       

      
        	
                If
      to Consolidated Mortgage:

              	
                Consolidated
      Mortgage, Inc.

              
	 	

                1291
      Galleria Drive, Suite 220 

              
	 	

                Henderson,
      Nevada  89014

              

      

       

       

      
      

      E. Severability.  If
any provision of this Agreement is declared invalid or unenforceable, such
provision shall be deemed modified to the extent necessary and possible to
render it valid and enforceable.  In any event, the unenforceability
or invalidity of any provision shall not affect any other provision of this
Agreement, and this Agreement shall continue in full force and effect, and be
construed and enforced, as if such provision had not been included, or had been
modified as above provided, as the case may be.

       

      F. Governing
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada without giving effect to its
choice of law principles.

       

      G. Headings.  The
article and paragraph headings set forth in this Agreement are for the
convenience of the parties, and in no way define, limit, or describe the scope
or intent of this Agreement and are to be given no legal effect.

       

      H. Counterparts.  This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

       

      I. Attachments.  The
Attachments attached hereto are made a part of this Agreement as if fully set
forth herein.

       

      

      

      

      [Signature page immediately
follows.]

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the parties, by their duly authorized representatives, have
caused this Agreement to be executed as of the date first written
above.

       

      DESERT
CAPITAL REIT, INC.

      By: /s/ Todd B.
Parriott                                                                           

             Todd
B. Parriott

         
   President

      

       

      CONSOLIDATED
MORTGAGE, LLC

      By: /s/ Todd B.
Parriott                                                                           

            
Todd B. Parriott

        
    President

      

      

      SANDSTONE CAPITAL,
LLC

      By: /s/ G. Steven
Dawson                                                                           

          
  G. Steven Dawson

          
  Managing Director

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

      ATTACHMENT
“A”

       

      Additional
Provisions

       

      In
accordance with the provisions set forth in the foregoing Strategic Alliance
Agreement of which this Attachment forms an integral part, it is agreed and
understood between the parties as follows:

       

      
        	
                 
      

              	
                          
      1)

              	
                Consolidated
      Mortgage is entitled to retain origination fees with respect to any
      Mortgage Loans funded by Desert Capital hereunder, as well as any agreed
      to shared equity if either an acquisition or participatory
      loan.

              

      

       

      
        	
                2)  

              	
                Consolidated
      Mortgage can identify, and present for purchase by Desert Capital,
      qualified commercial and/or residential loan portfolios on a case by case
      basis.  Fees and potential participations will be agreed to on a
      case by case basis, and said additional agreements, if so applicable,
      shall be added to this schedule and agreement as further
      attachments.

              

      

       

      
        	
                3)  

              	
                Consolidated
      Mortgage is entitled to service any Mortgage Loans sold to Desert Capital
      hereunder, and to receive servicing fees for doing so, provided that, in
      the event Desert Capital, in its reasonable good faith judgment (as
      communicated to Consolidated Mortgage in writing), determines that the
      servicing of any Mortgage Loan, in which it owns or in which it is an
      investor, by Consolidated Mortgage is being administered in such a manner
      so as to jeopardize the value of such Mortgage Loan, including, without
      limitation, the collection of principal and interest on such Mortgage Loan
      or realization on the collateral therefor, Consolidated Mortgage shall,
      upon receipt of such written request, transfer the servicing right to sell
      the Mortgage Loan to Desert
Capital.

              

      

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

      ATTACHMENT
“B”

       

      Non-Circumvention/Non-Disclosure
Agreement

       

      The
undersigned, Consolidated Mortgage, LLC (“Consolidated Mortgage”), intending to
be legally bound, hereby irrevocably agrees not to circumvent, avoid, bypass or
obviate Desert Capital REIT, Inc. (“Desert Capital”), directly or indirectly, in
connection with the origination and sale of mortgage loans or any other
transaction involving any sale, disposition or funding of any mortgage
loans.

       

      Nor shall
Consolidated Mortgage disclose or otherwise reveal to any third party any
confidential information provided by Desert Capital, particularly that
concerning Desert Capital’s lenders, business, securities, borrowers, sellers,
buyers, affiliates, agent’s names, addresses, telex, telephone, email, fax
numbers or other means of access thereto, bank accounts, codes or references, or
any such information that Desert Capital so indicates or advises Consolidated
Mortgage of as being confidential or privileged, without the specific written
consent of Desert Capital.

       

      In the
event of circumvention, either directly or indirectly, Desert Capital shall be
entitled to a monetary penalty equal to the maximum financial benefits it should
have realized from such transactions, including all legal expenses in the
recovery of funds.

       

      This
agreement shall be binding on the parties, hereunder signed, their successors,
heirs, and assigns.

       

      This
agreement may be executed in one or more counterparts each of which shall be an
original and all of which taken together shall constitute one and the same
agreement.  Delivery of an executed signature page of this agreement
by facsimile or electronic transmission shall be effective as delivery of a
manually executed counterpart hereof.

       

      [Remainder
of page intentionally left blank.]

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

      

       

      DESERT
CAPITAL REIT, INC.

       

      By:                                                                           

      Name:                                                                      

      Title:                                                                      

       

      CONSOLIDATED
MORTGAGE, LLC

       

      By:                                                                           

      Name:                                                                      

      Title:                                                                      

      

       

      

       

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      ATTACHMENT
“C”

       

      Specified
Materials

       

      
        	
                1.

              	
                All
      customary due diligence reports, documents, and analyses including,
      without limitation, all appraisals, title commitments and related
      exception documents, surveys, engineering reports, environmental reports,
      UCC, tax and judgment lien searches, organizational documents,
      construction contracts, architect’s plans and specifications, rent rolls,
      leases, management agreements and other material agreements, reports and
      analyses.

              

      

       

      
        	
                2.

              	
                All
      other materials, documents and information reasonably requested by Desert
      Capital.ex10-15.htm

    

      Exhibit 10.15

       

       

       

      ADVISORY
AGREEMENT

       

      THIS ADVISORY AGREEMENT (this
“Agreement”) is made as of November 21, 2007 (the “Effective Date”), by and
between DESERT CAPITAL REIT,
INC., a Maryland corporation (the “Company”), and SANDSTONE EQUITY INVESTORS,
LLC, a Delaware limited liability company (the “Advisor”).

       

      RECITALS:

       

      A.           The
Company intends to use the net proceeds of borrowings and security offerings and
the net returns on its investments which are not otherwise distributed to
stockholders in Mortgage Assets (defined herein) in a manner which allows the
Company to qualify as a “real estate investment trust” under the Internal
Revenue Code of 1986, as amended (the “Code”) and to qualify for an exemption
from being an “investment company” under the Investment Company Act of 1940, as
amended (the “Investment Company Act”).

       

      B.           The
Company desires that the Advisor undertake, on the Company’s behalf, the duties
and responsibilities set forth in this Agreement, subject to the direction and
oversight of the Board of Directors of the Company (the “Board of Directors”),
on the terms and conditions set forth in this Agreement.

       

      C.           The
Advisor desires to undertake, on the Company’s behalf, the duties and
responsibilities set forth in this Agreement, subject to the direction and
oversight of the Board of Directors, on the terms and conditions set forth in
this Agreement.

       

      NOW,
THEREFORE, in consideration of the premises and the mutual covenants of the
parties hereto, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

       

      AGREEMENTS:

       

      1. Definitions.  Capitalized
terms used in this Agreement shall have the respective meanings assigned to them
below:

       

      1.1 “Advisor”
has the meaning set forth in the Preamble to this Agreement, and shall include
any successor thereto.

       

      1.2 “Advisor
Obligations” has the meaning set forth in Section 2.4.2 of this
Agreement.

       

      1.3 “Advisor
Refund” has the meaning set forth in Section 6.2.1(2) of this
Agreement.

       

      1.4 “Affiliate”
means, when used with reference to a specified person, any person that directly,
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, the specified person.  For purposes
of this definition, the term “person” means and includes individuals,
corporations, general and limited partnerships, stock companies, land trusts,
business trusts and other entities and governments and agencies and political
subdivisions thereof.  For purposes of this definition, “control”
(including the correlative meanings of the terms “controlled by” and “under
common control with”), as used with respect to any person, shall mean the
possession, directly, or indirectly through one or more intermediaries, of the
power to direct or cause the direction of the management and policies of such
person, whether by contract, through the ownership of voting securities,
partnership interests or other equity interests or otherwise.

       

      1.5 “Annual
Second-Tier Amount” shall have the meaning set forth in Section 6.2.1(2) of this
Agreement.

       

      1.6 “Agreement”
means this Advisory Agreement dated as of the Effective Date, by and between the
Company and the Advisor, as it is amended from time to time in accordance with
the terms of this Agreement.

       

      1.7 “Average
Invested Assets” means for any period the average of the aggregate book value of
the Company’s assets invested, directly or indirectly, in equity interests in
and loans secured by real estate, before reserves for depreciation or bad debts
or other similar non-cash reserves computed by taking the average of such values
at the end of each month during any given period.

       

      1.8 “Average
Net Worth” means for any period the average of the net worth of the Company at
the end of each week during the period.  For purposes of determining
the Average Net Worth, the “net worth” means the difference between (i) the
aggregate book value of the consolidated assets of the Company and its
subsidiaries, before reserves for depreciation, bad debts or other similar
non-cash items, and (ii) the aggregate book value of debt of the Company and its
subsidiaries.

       

      1.9 “Board of
Directors” has the meaning set forth in Recital B of this
Agreement.

       

      1.10 “Cause”
means a reasonable good faith determination of the Board of Directors based on
findings of fact which are disclosed to the Advisor that the Advisor was grossly
negligent, acted with reckless disregard or engaged in willful misconduct or
active fraud while discharging its material duties under this
Agreement.

       

      1.11 “Change
of Control” means in any transaction or series of transactions (i) any sale,
lease, assignment, transfer or other conveyance of all or substantially all of
the Company’s assets, or (ii) any consolidation or merger involving the Company
in which all of the stockholders of the Company immediately prior to the
consummation of such transaction, considered collectively, do not immediately
following the transaction own shares of the surviving entity constituting at
least a majority of the voting power of the surviving entity, (iii) any
reclassification or other exchange of capital stock, or any other
recapitalization of the Company in which any person or group, as those terms are
used in Rule 13d-1 promulgated under the Securities Exchange Act of 1934, as
amended, that owned 30% of the voting power of the Company immediately prior to
the consummation of such transaction do not immediately following the
transaction own at least 30% of the voting power of the Company or in which any
person or group that owned less than 30% of the voting power of the Company
immediately prior to the consummation of the transaction do not immediately
following the transaction own more than 30% of the voting power of the Company,
(iv) any liquidation, dissolution or winding up of the Company, or (v) any time
fewer than two members of the Board of Directors are individuals which were
selected by the Advisor.  In instances where a natural person selected
by the Advisor and immediately thereafter appointed to the Board of Directors
either resigns or dies, then a Change of Control under clause (v) of the
preceding sentence shall not be triggered if (i) the Board of Directors does not
elect to terminate the Advisor within 30 days after the first director resigns
or dies, or (ii) the qualified individual next selected by the Advisor is
appointed as soon as possible after such selection and the Board of Directors
does not take any action from the time the Advisor selects the next individual
until the time the next Advisor-selected director is appointed.

       

      1.12 “Code”
has the meaning set forth in Recital A of this Agreement.

       

      1.13 “Company”
has the meaning set forth in the Introductory Paragraph of this Agreement, and
shall include any successor thereto.

       

      1.14 “Effective
Date” has the meaning set forth in the Preamble of this Agreement.

       

      1.15 “Federal
Reserve Board” means the Board of Governors of the Federal Reserve
System.

       

      1.16 “First-Tier
Management Compensation” has the meaning set forth in Section 6.1 of this
Agreement.

       

      1.17 “GAAP”
means generally accepted accounting principles, as applied in the United
States.

       

      1.18 “Governing
Instruments” means the articles of incorporation or charter, as the case may be,
and the bylaws of the Company and its subsidiaries, as those documents may be
amended from time to time.

       

      1.19 “Independent
Directors” are those who are not associated and have not been associated within
the last two years, directly or indirectly, with the Company or the
Advisor.

       

      1.20 “Investment
Company Act” has the meaning set forth in Recital A of this
Agreement.

       

      1.21 “Last
Auditor” has the meaning set forth in Section 6.3 of this
Agreement.

       

      1.22 “Management
Compensation” means the First-Tier Management Compensation and Second-Tier
Management Compensation.

       

      1.23 “Mortgage
Assets” means the following:

       

      
        	
                (i)  

              	
                mortgage
      securities (or interests therein), including (a) pass-through certificates
      (including GNMA certificates, FNMA certificates and FHLMC certificates),
      (b) collateralized mortgage obligations, (c) securities representing
      interests in, or secured by, mortgages on real property other than
      pass-through certificates and CMOs, (d) certificates and other securities
      collateralized by loans, mortgage derivative securities, subordinated
      interests and other mortgage-backed and mortgage-collateralized
      obligations, (e) mortgage derivative securities and (f) subordinated
      interests;

              

      

       

      
        	
                (ii)  

              	
                mortgage
      loans, including (a) conforming mortgage loans (i.e., mortgage loans which
      comply with requirements for inclusion in credit support programs
      sponsored by FHLMC, FNMA or GNMA or are FHA or VA Loans, all of which are
      secured by first mortgages or deeds of trust on single-family (one to four
      units) residences, multifamily residences or commercial properties) and
      (b) non-conforming mortgage loans;
and

              

      

       

      
        	
                (iii)  

              	
                short-term
      investments, including short-term bank certificates of deposit, short-term
      U.S. Treasury securities, short-term U.S. government agency securities,
      commercial paper, repurchase agreements, short-term CMOs, short-term
      asset-backed securities and other similar types of short-term investment
      instruments, all of which will have maturities or average lives of less
      than one year.

              

      

       

      1.24 “Net
Income” means for any period the taxable income of the Company and its
subsidiaries (including net capital gains, if any, but excluding net capital
losses, if any) before deducting (i) the Second-Tier Management Compensation,
(ii) any net operating loss deductions arising from losses in prior periods and
(iii) any items which the Code permits to be deducted when calculating taxable
income for a REIT.

       

      1.25 “Quarterly
Second-Tier Amount” has the meaning set forth in Section 6.2.1(1) of this
Agreement.

       

      1.26 “Reconciliation
Notice” has the meaning set forth in Section 6.3 of this Agreement.

       

      1.27 “REIT”
means a “real estate investment trust” as defined under the Code.

       

      1.28 “REIT
Provisions of the Code” means Sections 856 through 860 of the Code.

       

      1.29 “Remaining
Amount” has the meaning set forth in Section 6.2.1(2) of this
Agreement.

       

      1.30 “Second-Tier
Management Compensation” has the meaning set forth in Section 6.2 of this
Agreement.

       

      1.31 “Short-Term
Investments” means short-term bank certificates of deposit, short-term U.S.
Treasury securities, short-term U.S. government agency securities, commercial
paper, repurchase agreements, short-term CMOs, short-term asset-backed
securities and other similar types of short-term investment instruments, all of
which will have maturities or average lives of less than one year.

       

      1.32 “Sub-Advisor”
means any third party (other than the Advisor) which has been selected by the
Advisor and approved by the Board of Directors to manage all or a portion of the
day-to-day operations of the Company and perform the services and other
activities described in Section 2.1 of this Agreement.  Any approval
of a Sub-Advisor by the Board of Directors may be conditioned or limited in any
manner determined by the Board of Directors, including, without limitation, the
terms and conditions of any such agreement with a Sub-Advisor.

       

      1.33 “Ten-Year
U.S. Treasury Rate” means for any period the average of the weekly average
yields to maturity for actively traded current coupon U.S.  Treasury
fixed interest rate securities (adjusted to a constant maturity of ten years)
published by the Federal Reserve Board for each week during such period, or, if
such rate is not published by the Federal Reserve Board, any Federal Reserve
Bank or agency or department of the federal government selected by the
Company.  If the Company determines in good faith that the Ten-Year
U.S.  Treasury Rate cannot be calculated as provided above, then the
rate shall be the arithmetic average of the per annum average yields to
maturities, based upon closing asked prices on each business day during such
period, for each actively traded marketable U.S. Treasury fixed interest rate
security with a final maturity date not less than eight nor more than 12 years
from the date of the closing asked prices as chosen and quoted for each business
day in each such period in New York City by at least three recognized dealers in
U.S. government securities selected by the Company.

       

      1.34 “Threshold
Return” has the meaning set forth in Section 6.2.3 of this
Agreement.

       

      1.35 “Tiered
Percentage” has the meaning set forth in Section 6.2.2 of this
Agreement.

       

      1.36 “Total
Operating Expenses” means the aggregate expenses of every character paid or
incurred by the Company as determined under GAAP, including the Management
Compensation, but excluding (i) the expenses or raising capital such as
organization and offering expenses, legal audit, accounting underwriting,
brokerage, listing registration and other fees, printing and other such
expenses, and tax incurred in connection with the issuance, distribution,
transfer, registration, and stock exchange listing of the Company’s shares;
(ii) interest payments; (iii) taxes; (iv) non-cash expenditures
such as depreciation, amortization and bad debt reserves; (v) incentive
fees, if any, paid to the Advisor in connection with the gain from the sale of
the Company’s assets; and (vi) acquisition fees, acquisition expenses, real
estate commissions on resale of property and other expenses connected with the
acquisition, disposition, and ownership of real estate interests, mortgage
loans, or other property, (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair and improvement of property).

       

      1.37 “Unaffiliated
Director” means a natural person serving as a director of the Company who is not
affiliated, directly or indirectly, with the Advisor or any of its Affiliates in
any material respect, whether by ownership of, ownership interest in, employment
by, any material business or professional relationship with, or serving as an
officer or director of the Advisor or any of its Affiliates.

       

      2. General Duties of the
Advisor.

       

      2.1 Services. Subject at
all times to the direction and oversight of the Board of Directors, the Advisor
shall (i) generally manage the day-to-day operations of the Company and perform
the services and other activities described below, and (ii) to the extent
directed by the Board of Directors, perform similar management and services for
any subsidiary of the Company. The Advisor, in its sole discretion with the
approval of the Board of Directors, may elect to cause the duties of the Advisor
under this Agreement to be provided by a Sub-Advisor. The Advisor shall perform
the following services from time to time as may be required for the management
of the Company and its assets:

       

      2.1.1 serving
as the Company’s consultant with respect to the formulation of investment
criteria and the preparation of policy guidelines by the Board of
Directors;

       

      2.1.2 assisting
the Company in developing criteria for Mortgage Asset purchase commitments that
are consistent with the Company’s long-term investment objectives and making
available to the Company its knowledge and experience with respect to Mortgage
Assets;

       

      2.1.3 representing
the Company in connection with the purchase, sale and commitment to purchase or
sell Mortgage Assets that meet in all material respects the Company’s investment
criteria;

       

      2.1.4 managing
the Company’s portfolio of Mortgage Assets;

       

      2.1.5 advising
the Company and negotiating the Company’s agreements with third-party lenders
for borrowings by the Company;

       

      2.1.6 making
available to the Company statistical and economic research and analysis
regarding the Company’s activities and the services performed for the Company by
the Advisor;

       

      2.1.7 monitoring
and providing to the Board of Directors from time to time price information and
other data obtained from certain nationally-recognized dealers that maintain
markets in Mortgage Assets identified by the Board of Directors from time to
time, and providing data and advice to the Board of Directors in connection with
the identification of such dealers;

       

      2.1.8 investing
or reinvesting any money of the Company in accordance with the Company’s
policies and procedures;

       

      2.1.9 providing
the executive and administrative personnel, office space and services required
in rendering services to the Company, in accordance with and subject to the
terms of this Agreement;

       

      2.1.10 administering
the day-to-day operations of the Company and performing and supervising the
performance of such other administrative functions necessary to the management
of the Company as may be agreed upon by the Advisor and the Board of Directors,
including the collection of revenues and the payment of the Company’s debts and
obligations from the Company’s accounts, and the maintenance of appropriate
computer systems to perform such administrative functions;

       

      2.1.11 advising
the Board of Directors in connection with policy decisions;

       

      2.1.12 evaluating
and recommending hedging strategies to the Board of Directors and, upon approval
by the Board of Directors, engaging in hedging activities on behalf of the
Company consistent with the Company’s status as a REIT;

       

      2.1.13 supervising
compliance by the Company with the REIT Provisions of the Code and maintenance
of its status as a REIT;

       

      2.1.14 qualifying
and causing the Company to qualify to do business in all applicable
jurisdictions and obtaining and maintaining all appropriate
licenses;

       

      2.1.15 assisting
the Company in any executive search for executive officers;

       

      2.1.16 assisting
the Company to retain qualified accountants and tax experts to assist in
developing and monitoring appropriate accounting procedures and testing systems
and to conduct quarterly compliance reviews as the Board of Directors may deem
necessary or advisable;

       

      2.1.17 assisting
the Company in its compliance with all federal (including the Sarbanes-Oxley Act
of 2002), state and local regulatory requirements applicable to the Company in
respect of its business activities, including preparing or causing to be
prepared all financial statements required under applicable regulations and
contractual undertakings and all reports, documents and filings, if any,
required under the Securities Exchange Act of 1934, as amended, or other federal
or state laws;

       

      2.1.18 assisting
the Company in its compliance with federal, state and local tax filings and
reports and generally enabling the Company to maintain its status as a REIT,
including soliciting stockholders, as defined below, for required information to
the extent provided in the REIT Provisions of the Code;

       

      2.1.19 assisting
the Company in its maintenance of an exemption from the Investment Company Act
and monitoring compliance with the requirements for maintaining an exemption
from the Investment Company Act;

       

      2.1.20 coordinating
and managing the operations of any joint venture or co-investment interests held
by the Company and conducting all matters with the joint venture or
co-investment collaborators;

       

      2.1.21 advising
the Company as to its capital structure and capital raising
activities;

       

      2.1.22 handling
and resolving all claims, disputes or controversies (including all litigation,
arbitration, settlement or other proceedings or negotiations) in which the
Company may be involved or to which the Company may be subject arising out of
the Company’s day-to-day operations, subject to the approval of the Board of
Directors;

       

      2.1.23 engaging
and supervising, on behalf of the Company and at the Company’s expense, the
following, without limitation: independent contractors to provide investment
banking services, leasing services, mortgage brokerage services, securities
brokerage services, other financial services and such other services as may be
deemed by the Advisor and the Board of Directors to be necessary or advisable
from time to time; and

       

      2.1.24 so long
as the Advisor does not incur additional costs or expenses, performing such
other services as may be required from time to time for management and other
activities relating to the assets of the Company as the Board of Directors shall
reasonably request or the Advisor shall deem appropriate under the particular
circumstances.

       

      2.2 Obligations of the
Advisor.

       

      2.2.1 Verify Conformity with
Investment Criteria.  Subject to the direction of the Board of
Directors, the Advisor shall use commercially reasonable efforts to provide that
each Mortgage Asset acquired by the Company conforms in all material respects to
the investment criteria of the Company and shall seek to cause each seller or
transferor of Mortgage Assets to the Company to make such representations and
warranties regarding such Mortgage Assets as may, in the reasonable judgment of
the Advisor, be necessary and appropriate, subject to market custom. In
addition, the Advisor shall take such other action as it deems reasonably
necessary or appropriate in seeking to protect the Company’s investments to the
extent consistent with its duties under this Agreement.

       

      2.2.2 Conduct Activities in
Conformity with REIT Status and All Applicable
Restrictions.  Subject to the direction of the Board of
Directors, the Advisor shall refrain from any action which, in its sole judgment
made in good faith, would adversely affect the status of the Company or, if
applicable, any subsidiary of the Company as a REIT or (i) which, in its sole
judgment made in good faith, would violate any material law, rule or regulation
of any governmental body or agency having jurisdiction over the Company or any
such subsidiary or (ii) which would otherwise not be permitted by the Company’s
or such subsidiary’s Governing Instruments, any material operating policies
adopted by the Company, or any agreements actually known by the Advisor, except
in each of clauses (i) and (ii) as could not reasonably be expected to have a
material adverse effect on the Company.  If the Advisor is directed to
take any such action by the Board of Directors, the Advisor shall promptly
notify the Board of Directors of the Advisor’s judgment that such action would
adversely affect such status or cause such violation or not be permitted as
aforesaid.

       

      2.2.3 Reports.  Upon
the request of the Board of Directors and at the sole cost and expense of the
Company, the Advisor shall cause an annual compliance report of the Company to
be prepared by a firm independent of the Advisor and its Affiliates and having
the proper expertise to determine compliance with the REIT Provisions of the
Code and related matters.  In addition, the Advisor shall prepare
regular reports for the Board of Directors that will review the Company’s
investments in Mortgage Assets, portfolio composition and characteristics,
credit quality (if applicable), performance and compliance with the Company’s
investment policies and policies that enable the Company to maintain its
qualification as a REIT and to maintain its exemption from being deemed an
“investment company” under the Investment Company Act.

       

      2.2.4 Portfolio
Transactions.  In placing portfolio transactions and selecting
brokers or dealers, the Advisor shall seek to obtain on behalf of the Company
commercially reasonable terms.  In assessing commercially reasonable
terms for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market for the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis.

       

      2.3 Cooperation of the
Company.  The Company (including the Board of Directors) agrees
to take all actions reasonably required to permit and enable the Advisor to
carry out its duties and obligations under this Agreement, including, without
limitation, all steps reasonably necessary to allow the Advisor to file any
registration statement on behalf of the Company in a timely
manner.  The Company further agrees to use commercially reasonable
efforts to make available to the Advisor all resources, information and
materials reasonably requested by the Advisor to enable the Advisor to satisfy
its obligations hereunder, including its obligations to deliver financial
statements and any other information or reports with respect to the
Company.  If the Advisor is not able to provide a service, or in the
reasonable judgment of the Advisor it is not prudent to provide a service,
without the approval of the Board of Directors or the Unaffiliated Directors, as
applicable, then the Advisor shall be excused from providing such service (and
shall not be in breach of this Agreement) until the applicable approval has been
obtained.

       

      2.4 Engagement of Third
Parties.

       

      2.4.1 Securities
Dealers.  The Advisor is authorized, for and on behalf, and at
the sole cost and expense of the Company, to employ such securities dealers
(including Affiliates of the Advisor) for the purchase and sale of Mortgage
Assets as may, in the judgment of the Advisor, be necessary to obtain the best
commercially available net results taking into account such factors as the
policies of the Company, price, dealer spread, the size, type and difficulty of
the transaction involved, the firm’s general execution and operational
facilities and the firm’s risk in positioning the securities
involved.  Consistent with this policy, the Advisor is authorized to
direct the execution of the Company’s portfolio transactions to dealers and
brokers furnishing statistical information or research deemed by the Advisor to
be useful or valuable to the performance of its investment advisory functions
for the Company.

       

      2.4.2 Other Third
Parties.  The Advisor is authorized to retain, for and on
behalf of the Company, the services of third parties (including Affiliates of
the Advisor), including, without limitation, accountants, legal counsel,
appraisers, insurers, brokers, dealers, transfer agents, registrars, developers,
investment banks, financial advisors, banks and other lenders and others as the
Advisor deems reasonably necessary or advisable in connection with the
management and operations of the Company.  The costs and expenses
related to the retention of third parties shall be the sole cost and expense of
the Company except to the extent the third party is retained to make decisions
to invest in and dispose of Mortgage Assets, provide administrative, data
processing or clerical services, prepare the financial records of the Company or
prepare a report summarizing the Company’s acquisitions of Mortgage Assets,
portfolio compensation and characteristics, credit quality (if applicable) or
performance of the portfolio, in which case it shall be at the sole cost and
expense of the Advisor unless otherwise approved by the Board of Directors
(collectively, “Advisor Obligations”).

       

      2.4.3 Affiliates.  Notwithstanding
anything contained in this Agreement to the contrary, the Advisor shall have the
right to cause any services under this Agreement to be rendered by the Advisor’s
employees or Affiliates of the Advisor.  The Company shall pay or
reimburse the Advisor or its Affiliates for the cost and expense of performing
services by the Affiliate if (i) the costs and expenses of such Affiliate would
have been reimbursable under this Agreement if such Affiliate were an
unaffiliated third party, and (ii) the costs and expenses of such Affiliate have
been approved by a majority of the Unaffiliated Directors or incurred in
accordance with a policy adopted by a majority of the Unaffiliated
Directors.

       

      3. Additional Activities of the
Advisor and its Affiliates.

       

      3.1 Other Activities of the
Advisor.  Except as provided in the last sentence of this
Section 3.1, nothing in this Agreement shall (i) prevent the Advisor, any
Sub-Advisor or any of their respective Affiliates, officers, directors or
employees, from engaging in other businesses or from rendering services of any
kind to any other person or entity, including, without limitation, investing in,
or rendering advisory service to others investing in, any type of Mortgage
Assets or other real estate investments (including, without limitation,
investments that meet the principal investment objectives of the Company),
whether or not the investment objectives or policies of any such other person or
entity are similar to those of the Company, or (ii) in any way bind or restrict
the Advisor, any Sub-Advisor or any of their respective Affiliates, officers,
directors or employees from buying, selling or trading any securities or
commodities for their own accounts or for the account of others for whom the
Advisor, the Sub-Advisor or any of their respective Affiliates, officers,
directors or employees may be acting.  The Company acknowledges that
the Advisor will base allocation decisions on the procedures the Advisor
reasonably and in good faith considers fair and equitable, including, without
limitation, such considerations as investment objectives, restrictions and time
horizon, availability of cash and the amount of existing
holdings.  While information and recommendations supplied to the
Company shall, in the Advisor’s reasonable and good faith judgment, be
appropriate under the circumstances and in light of the investment objectives
and policies of the Company, they may be different from the information and
recommendations supplied by the Advisor, any Sub-Advisor, any Affiliate of the
Advisor or any Sub-Advisor to other investment companies, funds and advisory
accounts.  The Company shall be entitled to equitable treatment under
the circumstances in receiving information, recommendations and any other
services, but the Company recognizes that it is not entitled to receive
preferential treatment as compared with the treatment given by the Advisor, any
Sub-Advisor, any Affiliate of the Advisor or any Sub-Advisor to any investment
company, fund or advisory account other than any fund or advisory account which
contains only funds invested by the Advisor (and not of any of its clients or
customers) or its officers and directors.  Notwithstanding anything to
the contrary in this Section 3.1, for so long as the Advisor is the exclusive
advisor of the Company (unless the Advisor is not the exclusive advisor of the
Company because the Company has engaged a Sub-Advisor) pursuant to this
Agreement, neither the Advisor nor any of its Affiliates shall sponsor any other
residential mortgage REIT that invests primarily in mortgages for the
acquisition of, development of and construction on real estate in the Las Vegas,
Nevada area unless otherwise approved by a majority of the Unaffiliated
Directors.

       

      3.2 Service to the Company;
Execution of Documents.  Directors, officers, employees and
agents of the Advisor and its Affiliates may serve as trustees, directors,
officers, employees, agents, nominees or signatories for the Company or any
subsidiary of the Company, to the extent permitted by the Governing Instruments,
as from time to time amended, or by any resolutions duly adopted by the Board of
Directors pursuant to the Governing Instruments.  When executing
documents or otherwise acting in such capacities for the Company, such persons
shall use their respective titles in the Company.

       

      4. Bank
Accounts.  At the direction of the Board of Directors, the
Advisor may establish and maintain one or more bank accounts in the name of the
Company or any subsidiary of the Company, and may collect and deposit into any
such account or accounts, and disburse funds from any such account or accounts
in a manner consistent with this Agreement, including, without limitation, the
following:  (a) the payment of the Management Compensation, (b) the
payment (or advance) of reimbursable costs and expenses, and (c) such other
amounts authorized by the Board of Directors.  The Advisor shall from
time to time render appropriate accountings of such collections and payments to
the Board of Directors and, upon request, to the auditors of the Company or any
subsidiary of the Company.

       

      5. Records;
Confidentiality.  The Advisor shall maintain appropriate and
accurate books of account and records relating to services performed under this
Agreement, and such books of account and records shall be accessible for
inspection by representatives (including the auditors) of the Company or any
subsidiary of the Company at any time during normal business
hours.  Except in the ordinary course of business of the Company, the
Advisor shall, and shall use commercially reasonable efforts to cause each of
its Affiliates to, keep confidential any and all information they (or such
Affiliates) may obtain from time to time in connection with the services they
(or such Affiliates) render under this Agreement.

       

      6. Compensation of the
Advisor.

       

      6.1 First-Tier Management
Compensation.  For services rendered under this Agreement, the
Company shall pay to the Advisor quarterly in arrears commencing on the
Effective Date annual first-tier management compensation equal to 1% of the
first $200,000,000 of Average Invested Assets during each fiscal year, plus 0.8%
of the Average Invested Assets during such year in excess of $200,000,000 (the
“First-Tier Management Compensation”).  The portion of the First-Tier
Management Compensation payable each fiscal quarter shall be calculated by the
Advisor within 15 days after the end of such quarter, and a written statement
documenting such calculation in reasonable detail shall be promptly delivered to
the Company thereafter.  The Company shall pay any amount payable
pursuant to this Section 6.1 for such quarter within 15 days after the receipt
of the written statement setting forth the computation of the First-Tier
Management Compensation, or, at the Advisor’s election, the Advisor may deduct
such amount from the Company’s account or accounts, in any case without demand,
deduction, offset or delay (other than any deduction or offset for the
liquidated sum of any Advisor Refund).

       

      6.2 Calculation of Second-Tier
Management Compensation.  In addition to the First-Tier
Management Compensation, the Advisor shall receive second-tier management
compensation for each fiscal quarter (the “Second-Tier Management
Compensation”).

       

      6.2.1 The
Second-Tier Management Compensation shall be calculated by the Advisor and paid
or refunded (as applicable) as follows:

       

      (1) At the
end of each of the first three fiscal quarters during each fiscal year, the
Advisor shall calculate the Tiered Percentage of the difference of (i) the Net
Income for such quarter (or lesser portion thereof), minus (ii) the Threshold
Return for such quarter (or lesser portion thereof) (the “Quarterly Second-Tier
Amount”).  If the Quarterly Second-Tier Amount is a positive number,
then at the end of each such quarter the Company shall pay the Advisor the
Quarterly Second-Tier Amount.

       

      (2) At the
end of each fiscal year and upon any termination of this Agreement, the Advisor
shall calculate the Tiered Percentage of the difference of (i) the Net Income
for such year (or lesser portion thereof), minus (ii) the Threshold Return for
such year (or lesser portion thereof) (the “Annual Second-Tier
Amount”).  If the aggregate of the Quarterly Second-Tier Amounts
received by the Advisor for such year (but not taking into account any prior
years) is less than the Annual Second-Tier Amount, then the Company shall pay
the Advisor such shortfall (the “Remaining Amount”).  On the other
hand, if the aggregate of the Quarterly Second-Tier Amounts received by the
Advisor during such year (but not taking into account any prior years) exceeds
the Annual Second-Tier Amount, then the Advisor shall pay the Company such
excess (the “Advisor Refund”).  The Advisor Refund for any particular
year shall not exceed the aggregate of the Quarterly Second-Tier Amounts
received by the Advisor during such year.

       

      6.2.2 The
“Tiered Percentage” shall mean for any period the weighted average of the
following percentage rates (weighting to be based on Average Invested Assets
attributable to each percentage rate):  (i) 20% for the first
$200,000,000 of Average Invested Assets; and (ii) 10% for the Average Invested
Assets in excess of $200,000,000.

       

      6.2.3 The
“Threshold Return” shall mean for any period the amount of Net Income for such
period that would produce an annualized return on the Company’s average invested
assets equal to the sum of (i) the Ten-Year U.S. Treasury Rate for such period
plus (ii) 1.0%.

       

      6.2.4 Payment
Procedure.  The Advisor shall calculate the Second-Tier
Management Compensation, the Quarterly Second-Tier Amount, any Remaining Amount
and any Advisor Refund and deliver to the Company a written statement setting
forth such computation in reasonable detail within 15 days after the end of each
fiscal quarter, fiscal year and after the date of any termination of this
Agreement, as applicable.  The Company shall pay to the Advisor all
Quarterly Second-Tier Amounts and all Remaining Amounts (or, at the Advisor’s
election, the Advisor may deduct such amount from the Company’s account or
accounts) with respect to each fiscal quarter or year (or lesser portion
thereof) within 15 days following the delivery to the Company of the written
statement setting forth the computation of the Second-Tier Management
Compensation for such quarter or year (or lesser portion thereof), as
applicable, without demand, deduction, offset or delay (other than any deduction
or offset for the liquidated sum of any Advisor Refund).  The Advisor
shall pay the Advisor Refund, if any, with respect to a particular fiscal year
within 15 days following the delivery to the Company of the written statement
setting forth the computation of the Second-Tier Management Compensation for
such year (or lesser portion thereof), without demand or delay.  In
connection with the Company’s annual audit (or any audit upon termination of
this Agreement), the Advisor shall determine any year-end adjustments to the
Second-Tier Management Compensation and Advisor Refund payable under this
Section 6.2 and deliver to the Company a written statement setting forth such
computation within 45 days after the end of each fiscal year. Any required
adjustments to the Second-Tier Management Compensation or the Advisor Refund
shall be paid by the Company to the Advisor or by the Advisor to the Company,
respectively, within 15 days after delivery of such computation to the Company
by the Advisor, without demand, deduction, offset or delay (other than any
deduction or offset for the liquidated sum of any Advisor Refund).

       

      6.2.5 Compensation
Limitation.  Notwithstanding any other provision of this
Section 6, the Total Operating Expenses of the Company shall (in the absence of
a satisfactory showing to the contrary) be deemed to be excessive if they exceed
in any fiscal year the greater of 2% of its Average Invested Assets or 25% of
its Net Income for such year.  In the event the Independent Directors
do not determine such excess expenses are justified, the Advisor agrees to
reimburse the Company at the end of the twelve month period the amount by which
the aggregate annual expenses paid or incurred by the Company exceed the
limitations herein provided.

       

      6.2.6 Payment in
Cash.  All Management Compensation shall be paid by the Company
in cash.  Any Advisor Refund shall also be paid in cash.

       

      6.3 Annual
Reconciliation.  The calculation of the Management Compensation
shall be subject to audit and reconciliation at the end of each fiscal year and
upon any termination of this Agreement.  If at any time the Advisor
disagrees with such audit and reconciliation and the dispute cannot be resolved
between the Unaffiliated Directors and the Advisor within 10 business days after
the Advisor’s receipt of such audit and reconciliation and provides written
notice to the Company of the dispute (the “Reconciliation Notice”), then the
matter shall be resolved by an independent auditor of recognized standing
selected jointly by the Unaffiliated Directors and the Advisor within not more
than 20 days after the Reconciliation Notice.  In the event the
Unaffiliated Directors and the Advisor cannot agree with respect to such
selection within the aforesaid 20 day time-frame, the Unaffiliated Directors
shall select one such independent auditor and the Advisor shall each select one
independent auditor within five business days after the expiration of the 20 day
period, with one additional such auditor (the “Last Auditor”) to be selected by
the auditors so designated within five business days after their
selection.  Any decision made by the auditors shall be deemed final
and binding upon the Board of Directors and the Advisor and shall be delivered
to the Advisor and the Company within not more than 15 days after the selection
of the Last Auditor.  The expenses of the auditors shall be paid by
the party with the estimate which deviated the furthest from the final valuation
decision made by the auditors.

       

      7. Expenses of the Advisor and
the Company.

       

      7.1 Expenses of the
Advisor.  The Advisor shall be responsible for the following
expenses:

       

      7.1.1 employment
expenses of the personnel employed by the Advisor (including the officers of the
Company which are also employed by the Advisor), including, without limitation,
salaries, wages, payroll taxes and the cost of employee benefit plans of such
personnel;

       

      7.1.2 rent,
telephone, utilities, office furniture, equipment, machinery and other office,
internal and overhead expenses of the Advisor required for the Company’s
day-to-day operations, including bookkeeping, clerical and back-office services
provided by the Advisor, provided, however, that the Company shall reimburse the
Advisor for the Company’s pro rata portion of such rent, telephone, utilities,
office furniture, equipment, machinery and other office, internal and overhead
expenses to the extent that the Company’s employees, officers, representatives
and/or agents (who are not also employed by the Advisor) use such facilities or
incur such expenses; and

       

      7.1.3 unless
otherwise approved by the Board of Directors, the cost and expense of the
Sub-Advisor, if any.

       

      7.2 Expenses of the
Company.  The Company shall pay all of the costs and expenses
of the Company and the Advisor incurred on behalf of the Company or any
subsidiary or in connection with this Agreement, excepting only those expenses
that are specifically the responsibility of the Advisor pursuant to Section 7.1
of this Agreement.  Without limiting the generality of the foregoing,
it is specifically agreed that the following costs and expenses of the Company
or any subsidiary of the Company shall be paid by the Company and shall not be
paid by the Advisor or the Affiliates of the Advisor:

       

      7.2.1 all costs
and expenses associated with the formation and capital raising activities of the
Company and its subsidiaries, including, without limitation, the costs and
expenses of the preparation of the Company’s registration statements, and any
and all costs and expenses of an initial public offering of the Company, any
subsequent offerings and any filing fees and costs of being a public company,
including, without limitation, filings with the Securities and Exchange
Commission, the National Association of Securities Dealers, and any exchange or
over-the-counter market, among other such entities;

       

      7.2.2 all costs
and expenses in connection with the acquisition, disposition, financing,
hedging, administration and ownership of the Company’s or any subsidiary’s
investment assets (including, without limitation, the Mortgage Assets) and,
including, without limitation, costs and expenses incurred in contracting with
third parties, including Affiliates of the Advisor, to provide such services,
such as legal fees, accounting fees, consulting fees, trustee fees, appraisal
fees, insurance premiums, commitment fees, brokerage fees, guaranty fees, ad
valorem taxes, costs of foreclosure, maintenance, repair and improvement of
property and premiums for insurance on property owned by the Company or any
subsidiary of the Company;

       

      7.2.3 all costs
and expenses relating to the acquisition of, and maintenance and upgrades to,
the Company’s portfolio accounting systems;

       

      7.2.4 all costs
and expenses of money borrowed by the Company or its subsidiaries, including,
without limitation, principal, interest and the costs associated with the
establishment and maintenance of any credit facilities, warehouse loans and
other indebtedness of the Company and its subsidiaries (including commitment
fees, legal fees, closing and other costs);

       

      7.2.5 all taxes
and license fees applicable to the Company or any subsidiary of the Company,
including interest and penalties thereon;

       

      7.2.6 all
legal, audit, accounting, underwriting, brokerage, listing, filing, rating
agency, registration and other fees, printing, engraving, clerical, personnel
and other expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the Company’s
or any subsidiary’s equity securities or debt securities;

       

      7.2.7 other
than for the Advisor Obligations, all fees paid to and expenses of third-party
advisors and independent contractors, consultants, advisors and other agents
(other than the Advisor or any Sub-Advisor) engaged by the Company or any
subsidiary of the Company or by the Advisor for the account of the Company or
any subsidiary of the Company (other than the Advisor or Sub-Advisor) and all
employment expenses of the personnel employed by the Company or any subsidiary
of the Company (including, without limitation, a chief financial officer of the
Company, but excluding any personnel which are also employed by the Advisor or
Sub-Advisor), including, without limitation, the salaries, wages, equity based
compensation of such personnel, payroll taxes and the incremental cost for
administering employee benefit plans of the Advisor which are used by such
personnel;

       

      7.2.8 all
insurance costs incurred by the Company or any subsidiary of the Company,
including, without limitation, any costs to obtain liability or other insurance
to indemnify the Advisor and underwriters of any securities of the
Company;

       

      7.2.9 all
custodian, transfer agent and registrar fees and charges;

       

      7.2.10 all
compensation and fees paid to directors of the Company or any subsidiary of the
Company (excluding those directors who are also employees of the Advisor), all
expenses of directors of the Company or any subsidiary of the Company (including
those directors who are also employees of the Advisor), the cost of directors
and officers liability insurance and premiums for errors and omissions
insurance, and any other insurance deemed necessary or advisable by the Board of
Directors for the benefit of the Company and its directors and officers
(including those directors who are also employees of the Advisor);

       

      7.2.11 all
third-party legal, accounting and auditing fees and expenses and other similar
services relating to the Company’s or any subsidiary’s operations (including,
without limitation, all quarterly and annual audit or tax fees and
expenses);

       

      7.2.12 all
legal, expert and other fees and expenses relating to any actions, proceedings,
lawsuits, demands, causes of action and claims, whether actual or threatened,
made by or against the Company, or which the Company is authorized or obligated
to pay under applicable law or its Governing Instruments or by the Board of
Directors;

       

      7.2.13 any
judgment or settlement of pending or threatened proceedings (whether civil,
criminal or otherwise) against the Company or any subsidiary of the Company, or
against any trustee, director or officer of the Company or any subsidiary of the
Company in his capacity as such for which the Company or any subsidiary of the
Company is required to indemnify such trustee, director or officer by any court
or governmental agency, or settlement of pending or threatened
proceedings;

       

      7.2.14 all
travel and related expenses of directors, officers and employees of the Company
and the Advisor, incurred in connection with attending meetings of the Board of
Directors or holders of securities of the Company or any subsidiary of the
Company or performing other business activities that relate to the Company or
any subsidiary of the Company, including, without limitations, travel and
expenses incurred in connection with the purchase, financing, refinancing, sale
or other disposition of Mortgage Assets or other investments of the Company;
provided, however, that the Company shall only be responsible for a
proportionate share of such expenses, as determined by the Advisor in good
faith, where such expenses were not incurred solely for the benefit of the
Company;

       

      7.2.15 all
expenses of organizing, modifying or dissolving the Company or any subsidiary of
the Company and costs preparatory to entering into a business or activity, costs
of winding up or disposing of a business of activity of the Company or its
subsidiaries;

       

      7.2.16 all
expenses relating to payments of dividends or interest or distributions in cash
or any other form made or caused to be made by the Board of Directors to or on
account of holders of the securities of the Company or any subsidiary of the
Company, including, without limitation, in connection with and dividend
reinvestment plan;

       

      7.2.17 all
expenses of third parties relating to communications to holders of equity
securities or debt securities issued by the Company or any subsidiary of the
Company and the other bookkeeping and clerical work necessary in maintaining
relations with holders of such securities and in complying with the continuous
reporting and other requirements of governmental bodies or agencies, including
any costs of computer services in connection with this function, the cost of
printing and mailing certificates for such securities and proxy solicitation
materials and reports to holders of the Company’s or any subsidiary’s securities
and reports to third parties required under any indenture to which the Company
or any subsidiary of the Company is a party;

       

      7.2.18 subject
to Section 7.1, all expenses relating to any office or office facilities
maintained by the Company or any subsidiary of the Company exclusive of the
office of the Advisor and/or Affiliates of the Advisor, including, without
limitation, rent, telephone, utilities, office furniture, equipment, machinery
and other office expenses for the Company’s chief financial officer and any
other persons the Board of Directors authorizes the Company to
hire;

       

      7.2.19 all costs
and expenses related to the design and maintenance of the Company’s web site or
sites and associated with any computer software or hardware that is used solely
for the Company;

       

      7.2.20 other
than for the Advisor Obligations, all other costs and expenses relating to the
Company’s business and investment operations, including, without limitation, the
costs and expenses of acquiring, owning, protecting, maintaining, developing and
disposing of Mortgage Assets, including, without limitation, appraisal,
reporting, audit and legal fees;

       

      7.2.21 other
than for the Advisor Obligations, all other expenses actually incurred by the
Advisor, its Affiliates or any Sub-Advisor or their respective officers,
employees, representatives or agents, or any Affiliates thereof, which are
reasonably necessary for the performance by the Advisor of its duties and
functions under this Agreement (including, without limitation, any fees or
expenses relating to the Company’s compliance with all governmental and
regulatory matters); and

       

      7.2.22 all other
expenses of the Company or any subsidiary of the Company that are not the
responsibility of the Advisor under Section 7.1 of this Agreement.

       

      7.3 Expense Reimbursement to the
Advisor.  Any individual cost or expense exceeding $100,000 (or
such other limit as may be approved by the Board of Directors from time to time)
shall be approved by the Board of Directors, unless such item was previously
reflected in the Company’s budget approved by the Board of
Directors.  Costs and expenses incurred by the Advisor on behalf of
the Company shall be reimbursed monthly to the Advisor or, at the Advisor’s
election, offset against any funds of the Company in the Company’s account or
accounts held by the Advisor or otherwise.  The Advisor shall prepare
a written statement in reasonable detail documenting the costs and expenses of
the Company and those incurred by the Advisor on behalf of the Company during
each month, and shall deliver such written statement to the Company within 15
days after the end of each month.  Unless deducted directly by the
Advisor as aforesaid, the Company shall pay all amounts payable to the Advisor
pursuant to this Section 7.3 within three days after the receipt of the written
statement without demand, deduction, offset or delay. Cost and expense
reimbursement to the Advisor shall be subject to adjustment at the end of each
calendar year in connection with the annual audit of the Company.

       

      8. Limits of Advisor
Responsibility; Indemnity.

       

      8.1 Limits of Advisor
Responsibility.  The Advisor shall have no responsibility under
this Agreement other than to render the services specifically called for under
this Agreement and shall not be responsible for any action of the Board of
Directors in following or declining to follow any advice or recommendations of
the Advisor, including, without limitation, as set forth in Section 2.2.2 of
this Agreement.  The Advisor, any Sub-Advisor and their respective
Affiliates, directors, officers, stockholders, equity holders, employees,
representatives and agents, and any Affiliates thereof, shall not be liable to
the Company (including, without limitation, any stockholder thereof), any issuer
of mortgage securities, any subsidiary of the Company, its subsidiary’s
stockholders, the Unaffiliated Directors, any credit-party, any counter-party
under any agreement or any other person whatsoever for any acts or omissions,
errors of judgment or mistakes of law by the Advisor, any Sub-Advisor, or their
respective Affiliates, directors, officers, employees, representatives or
agents, or any Affiliates thereof, under or in connection with this Agreement,
except to the extent that the Unaffiliated Directors shall have made a
reasonable good faith determination based upon findings of fact which are
disclosed to the Advisor that the Advisor was grossly negligent, acted with
reckless disregard or engaged in willful misconduct or active fraud while
discharging its material duties under this Agreement.

       

      8.2 Indemnification.  The
Company and its subsidiaries shall reimburse, indemnify and hold harmless the
Advisor, any Sub-Advisor, and their respective Affiliates, directors, officers,
stockholders, equity holders, employees, representatives and agents, and any
Affiliates thereof (each, an “indemnitee”) from and against any and all
expenses, losses, costs, damages, liabilities, demands, charges and claims of
any nature whatsoever, actual or threatened (including, without limitation,
reasonable attorneys’ fees), arising from or in respect of any acts or
omissions, errors of judgment or mistakes of law (or any alleged acts or
omissions, errors of judgment or mistakes of law) performed or made while acting
in any capacity contemplated under this Agreement or pursuant to any
underwriting agreement or similar agreement to which Advisor is a party that is
related to the Company’s activities; provided, however, that such
indemnification shall be available only if all of the following conditions are
met:

       

      8.2.1 The
indemnitee has determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the
Company.

       

      8.2.2 The
indemnitee was acting on behalf of or performing services for the
Company.

       

      8.2.3 Such
liability or loss was not the result of negligence or misconduct by the
indemnitee.

       

      8.2.4 Such
indemnification is recoverable only out of the Company’s net assets and not from
its stockholders.

       

      9. No Joint
Venture.  The Company and the Advisor are not partners or joint
venturers with each other, and nothing in this Agreement shall be construed to
make them such partners or joint venturers or impose any liability as such on
any of them.  The Advisor is an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no authority to
act for or represent the Company.

       

      10. Term;
Termination.

       

      10.1 Term.  This
Agreement shall commence on the Effective Date and shall have an initial term of
one year.  Thereafter, this Agreement shall automatically renew for an
additional year, unless terminated in accordance with the terms and conditions
of this Agreement.

       

      10.2 Termination Without
Cause.  Notwithstanding any other provision of this Agreement
to the contrary, after the first anniversary of the Effective Date, (i) the
Company shall have the right to terminate this Agreement without cause at any
time after 60-days prior written notice to the Advisor and the affirmative vote
of a majority of the Unaffiliated Directors to do so and (ii) the Advisor shall
have the right to terminate this Agreement without cause at any time after
60-days prior written notice to the Board of Directors.  If the
Company terminates this Agreement without cause, the Company shall pay to the
Advisor within 15 days after the effective date of termination without demand,
deduction, offset or delay or, at the Advisor’s election, the Advisor may deduct
such payments from any account or accounts of the Company all unpaid
reimbursable costs and expenses permitted under the Agreement and all earned and
unpaid Management Compensation.

       

      10.3 Termination by Company for
Cause.  In the event that the Unaffiliated Directors shall have
made a reasonable good faith determination based on findings of fact which are
disclosed to the Advisor that cause exists, then a majority of the Unaffiliated
Directors shall have the right to terminate this Agreement for cause at the
following time:  (i) immediately, if the Unaffiliated Directors
determined in good faith that its claims are based primarily on criminal
activity or active fraud or (ii) after not less than 60 days after written
notice to the Advisor, if the Unaffiliated Directors determined in good faith
that its claims are based other than as described in clause (i) above and the
Unaffiliated Directors shall have determined that cause still exists after
written notice to the Advisor disclosing the findings of the Unaffiliated
Directors and a reasonable opportunity to cure. In the event that the Agreement
is terminated for “cause” in accordance with the provisions of this Section
10.3, the Company shall pay the Advisor all unpaid reimbursable costs and
expenses and all earned and unpaid Management Compensation.

       

      10.4 Change of
Control.  In the event of a Change of Control of the Company,
the Advisor shall have the right to terminate this Agreement upon 60 days prior
written notice, provided that the Advisor delivers such notice within 90 days
after such Change of Control has occurred.  In the event of a
termination of this Agreement in connection with a Change in Control, the
Company shall pay the Advisor all unpaid reimbursable costs and expenses
permitted under the Agreement and all earned and unpaid Management
Compensation.

       

      11. Action Upon
Termination.  From and after the effective date of termination
of this Agreement, except as specified in Section 10.2, 10.3 or 10.4 of this
Agreement, the Advisor shall not be entitled to any payment or compensation as
of the date of termination shall terminate and be cancelled without
consideration.  Upon such termination, the Advisor shall
promptly:

       

      11.1.1 pay over
to the Company or any subsidiary of the Company all money collected and held for
the account of the Company or any subsidiary of the Company pursuant to this
Agreement;

       

      11.1.2 pay over
to the Company any unpaid Advisor Refund and any amounts payable to the Company
pursuant to Section 6.2.5 hereof;

       

      11.1.3 deliver
to the Board of Directors an accounting, including a statement showing all
payments collected by it and a statement of all money held by it, covering the
period following the date of the last accounting furnished to the Board of
Directors with respect to the Company or any subsidiary of the Company;
and

       

      11.1.4 deliver
to the Board of Directors all property and documents of the Company or any
subsidiary of the Company then in the custody of the Advisor.

       

      12. Limited Right to Offset;
Survival of Payments.  Notwithstanding anything to the
contrary, the Company shall not have any right to offset any amount whatsoever
from any payments in Sections 6, 7, 10, 11 or otherwise and the Company’s
obligation to make such payments shall survive the termination of this
Agreement, except that the Company shall have the right to offset against the
liquidated sum of any Advisor Refund.

       

      13. Assignments.

       

      13.1 Assignment by the
Advisor.  Other than transfers and assignments by operation of
law (including transfers in connection with a change of control of the Advisor),
this Agreement shall terminate automatically in the event that the Advisor
assigns this Agreement, unless such assignment is consented to in advance in
writing by the Company with the consent of a majority of the Unaffiliated
Directors.  In the event an assignment by the Advisor is consented to
by the Company in accordance with this Section 13.1, such assignment shall
bind the assignee under this Agreement in the same manner as the Advisor is
bound, and the Advisor shall be released from all of its obligations, duties and
responsibilities under this Agreement and all liability therefore and in respect
hereof.  In addition, the assignee shall execute and deliver to the
Company a counterpart of this Agreement naming such assignee as
Advisor.

       

      13.2 Assignment by the
Company.  This Agreement shall not be assigned by the Company
without the prior written consent of the Advisor.

       

      14. Release of Money or Other
Property Upon Written Request.  The Advisor agrees that any
money or other property of the Company or any subsidiary of the Company held by
the Advisor under this Agreement shall be held by the Advisor as custodian for
the Company or such subsidiary, and the Advisor’s records shall be appropriately
marked clearly to reflect the ownership of such money or other property by the
Company or such subsidiary.

       

      14.1 Procedures.  Upon
the receipt by the Advisor of a written request signed by a duly authorized
officer of the Company or an authorized member of the Board of Directors
requesting the Advisor to release to the Company or any subsidiary of the
Company any money or other property then held by the Advisor for the account of
the Company or any subsidiary of the Company under this Agreement, the Advisor
shall release such money or other property to the Company or such subsidiary of
the Company within a reasonable period of time, but in no event later than 90
days following such request; provided, however, that the Advisor shall have the
right to offset any First-Tier Management Compensation, Second-Tier Management
Compensation reimbursable costs or any other sums due and owning to the Advisor
under this Agreement against payment of any money or property held by the
Advisor for the account of the Company or any subsidiary of the Company under
this Agreement.

       

      14.2 Limitations.  The
Advisor, any Sub-Advisor and their respective Affiliates, directors, officers,
stockholders, equity holders, employees, representatives and agents, and any
Affiliates thereof, shall not be liable to the Company, any subsidiaries of the
Company, the Unaffiliated Directors or the Company’s or its subsidiaries’
stockholders for any acts performed or omissions to act by the Company or any
subsidiary of the Company in connection with the money or other property
released to the Company or any subsidiary of the Company in accordance with this
Section 14, except to the extent that the Board of Directors shall have made a
reasonable good faith determination based upon findings of fact which are
disclosed to the Advisor that the Advisor was grossly negligent, acted with
reckless disregard or engaged in willful misconduct or active fraud while
discharging its material duties under this Agreement.

       

      14.3 Indemnification.  The
Company and any subsidiary of the Company shall indemnify the Advisor, any
Sub-Advisor and their respective Affiliates, directors, officers, stockholders,
equity holders, employees, representatives and agents, and any Affiliates
thereof, against any and all expenses, costs, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever, which arise in connection
with the Advisor’s (or a Sub-Advisor’s) release of such money or other property
to the Company or any subsidiary of the Company in accordance with the terms of
this Section 14, if all of the following conditions are met:

       

      14.3.1 The
indemnitee has determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the
Company.

       

      14.3.2 The
indemnitee was acting on behalf of or performing services for the
Company.

       

      14.3.3 Such
liability or loss was not the result of negligence or misconduct by the
indemnitee.

       

      14.3.4 Such
indemnification is recoverable only out of the Company’s net assets and not from
its stockholders.

       

       Indemnification
pursuant to this provision shall be in addition to any right of the Advisor, any
Sub-Advisor and their respective Affiliates, directors, officers, stockholders,
equity holders, employees, representatives and agents, and any Affiliates
thereof, to indemnification under Section 8 of this Agreement.

       

      15. Representations, Warranties
and Covenants.

       

      15.1 Company in Favor of the
Advisor.  The Company hereby represents and warrants to the
Advisor as follows:

       

      15.1.1 Due
Formation.  The Company is duly organized, validly existing and
in good standing under the laws of Maryland, has the power to own its assets and
to transact the business in which it is now engaged and is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Company and its subsidiaries,
taken as a whole.  The Company does not do business under any
fictitious business name.

       

      15.1.2 Power and
Authority.  The Company has the power and authority to execute,
deliver and perform this Agreement and all obligations required under this
Agreement and has taken all necessary action to authorize this Agreement on the
terms and conditions hereof and the execution, delivery and performance of this
Agreement and all obligations required under this Agreement.  Except
as shall have been obtained, no consent of any other person, including, without
limitation, stockholders and creditors of the Company, and no license, permit,
approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is required
by the Company in connection with this Agreement or the execution, delivery,
performance, validity or enforceability of this Agreement and all obligations
required under this Agreement.  This Agreement has been, and each
instrument or document required under this Agreement will be, executed and
delivered by a duly authorized officer of the Company, and this Agreement
constitutes, and each instrument or document required under this Agreement when
executed and delivered under this Agreement will constitute, the legally valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.

       

      15.1.3 Execution, Delivery and
Performance.  The execution, delivery and performance of this
Agreement and the documents or instruments required under this Agreement will
not violate any provision of any existing law or regulation binding on the
Company, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on the Company, or the Governing Instruments of,
or any securities issued by, the Company or of any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which the Company is a
party or by which the Company or any of its assets may be bound, the violation
of which would have a material adverse effect on the business operations, assets
or financial condition of the Company and its subsidiaries, taken as a whole,
and will not result in, or require, the creation or imposition of any lien on
any of its property, assets or revenues pursuant to the provisions of any such
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking (other than the pledge of amounts payable to the Advisor under this
Agreement to secure the Advisor’s obligations to its lenders).

       

      15.2 Advisor in Favor of the
Company.  The Advisor hereby represents and warrants to the
Company as follows:

       

      15.2.1 Due
Formation.  The Advisor is duly organized, validly existing and
in good standing under the laws of Delaware, has the power to own its assets and
to transact the business in which it is now engaged and is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Advisor and its subsidiaries,
taken as a whole.  The Advisor does not do business under any
fictitious business name.

       

      15.2.2 Power and
Authority.  The Advisor has the power and authority to execute,
deliver and perform this Agreement and all obligations required under this
Agreement and has taken all necessary corporate action to authorize this
Agreement on the terms and conditions hereof and the execution, delivery and
performance of this Agreement and all obligations required under this
Agreement.  Except as shall have been obtained, no consent of any
other person including, without limitation, stockholders and creditors of the
Advisor, and no license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required by the Advisor in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required under this
Agreement.  This Agreement has been and each instrument or document
required under this Agreement will be executed and delivered by a duly
authorized officer of the Advisor, and this Agreement constitutes, and each
instrument or document required under this Agreement when executed and delivered
under this Agreement will constitute, the legally valid and binding obligation
of the Advisor enforceable against the Advisor in accordance with its
terms.

       

      15.2.3 Execution, Delivery and
Performance.  The execution, delivery and performance of this
Agreement and the documents or instruments required under this Agreement will
not violate any provision of any existing law or regulation binding on the
Advisor, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on the Advisor, or the governing instruments of,
or any securities issued by, the Advisor or of any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which the Advisor is a
party or by which the Advisor or any of its assets may be bound, the violation
of which would have a material adverse effect on the business operations, assets
or financial condition of the Advisor and its subsidiaries, taken as a whole,
and will not result in, or require, the creation or imposition of any lien on
any of its property, assets or revenues pursuant to the provisions of any such
mortgage indenture, lease, contract or other agreement, instrument or
undertaking.

       

      16. Notices.  Unless
expressly provided otherwise in this Agreement, all notices, requests, demands
and other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made and received when (1)
delivered by hand, (2) otherwise delivered against receipt therefor, or (3) upon
actual receipt of registered or certified mail, postage prepaid, return receipt
requested.  The parties may deliver to each other notice by
electronically transmitted facsimile copies, provided that such facsimile notice
is followed within 24 hours by any type of notice otherwise provided for in this
Section 16.  Any notice shall be duly addressed to the parties as
follows:

       

      if to the
Company:

       

      Desert
Capital REIT, Inc.

      1291
Galleria Drive, Suite 200

      Henderson,
Nevada  89014

       

      with a
copy given in the manner prescribed above (which shall not constitute notice),
to:

       

      Locke
Lord Bissell & Liddell LLP

      2200 Ross
Avenue

      Suite
2200

      Dallas,
Texas 75201

      Attn:  X.
Lane Folsom, Esq.

       

      if to the
Advisor:

       

      Sandstone
Equity Investors, LLC

      1291
Galleria Drive

      Henderson,
Nevada  89014

       

      Any party
may alter the address to which communications or copies are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section 16 for the giving of notice.

       

      17. Binding Nature of Agreement;
Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns as provided in this
Agreement.

       

      18. Entire
Agreement.  This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof.  The express
terms hereof control and supersede any course of performance or usage of the
trade inconsistent with any of the terms hereof.  This Agreement may
not be modified or amended other than by an agreement in writing.

       

      19. Controlling
Law.  This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Maryland, notwithstanding any Maryland or other conflict of law provisions to
the contrary.

       

      20. No
Waivers.  Neither the failure nor any delay on the part of a
party to exercise any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence.  No waiver shall be effective unless it is in
writing and is signed by the party asserted to have granted such
waiver.

       

      21. Titles Not to Affect
Interpretation.  The titles of paragraphs and subparagraphs
contained in this Agreement are for convenience only, and they neither form a
part of this Agreement nor are they to be used in the construction or
interpretation hereof.

       

      22. Execution in
Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.  This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.

       

      23. Provisions
Severable.  The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.

       

      24. Gender.  Words
used herein regardless of the number and gender specifically used shall be
deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context
requires.

       

      25. Attorneys’
Fees.  Should any action or other proceeding be necessary to
enforce any of the provisions of this Agreement or the various transactions
contemplated hereby, the prevailing party will be entitled to recover its actual
reasonable attorneys’ fees and expenses from the non-prevailing
party.

       

      26. Amendments.  This
Agreement may not be amended, modified or changed (in whole or in part), except
by a formal, definitive written agreement expressly referring to this Agreement,
which agreement is executed by all of the parties hereto and, in the case of the
Company, approved by a majority of the Unaffiliated Directors.  The
parties hereto expressly acknowledge that no consent or approval of the
Company’s stockholders is required in connection with any amendment,
modification or change to this Agreement.

       

      27. Authority.  Each
signatory to this Agreement warrants and represents that he is authorized to
sign on behalf of and to bind the party on whose behalf he, she or it is
signing.

       

      [Signature
page follows]

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.

       

      THE
COMPANY:

      

      DESERT CAPITAL REIT,
INC.,

      a
Maryland corporation

      By:   /s/ Todd B.
Parriott 

                 Todd B.
Parriott

               President

      

      

      

      THE
ADVISOR:

      

      SANDSTONE EQUITY INVESTORS,
LLC,

      a
Delaware limited liability company

      

      By:    /s/ G. Steven
Dawson      

                  G. Steven
Dawson

                Managing
Director

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