Document:

exv10w1w2

 

EXHIBIT 10.1.2

SECOND

AMENDED AND RESTATED MANAGEMENT AGREEMENT

     SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT, dated as of January 1,
2004, by and among SPECIALTY TRUST, INC. (formerly Specialty Mortgage Trust,
Inc.), a Maryland corporation (the “Company”), and SPECIALTY FINANCIAL, a
Nevada corporation (the “Manager”), with respect to the following:

W I T N E S S E T H:

     WHEREAS, the Company has retained the Manager to manage the investments of
the Company and to perform certain other services for the Company pursuant to
the Amended and Restated Management Agreement, dated as of May 19, 2000, as
amended by the First Amendment thereto, dated as of May 22, 2001; and

     WHEREAS, the Company intends to continue to invest in mortgage loans and
expects to continue to qualify for the tax benefits accorded by Sections 856
through 860 of the Internal Revenue Code of 1986, as amended; and

     WHEREAS, the Company desires to continue to retain the Manager to manage
the investments of the Company and to perform certain administrative services
for the Company in the manner and on the terms set forth herein;

     NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:

     SECTION 1. Definitions. Terms used but not defined herein shall have the
respective meanings assigned them below:

     (a) “Affiliate” means, with respect to any person, another person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with such person.

     (b) “Code” means the Internal Revenue Code of 1986, as amended.

     (c) “Governing Instruments” means the articles or certificate of
incorporation or other charter, as the case may be, and bylaws of the Company
and its subsidiaries.

     (d) “Mortgage loans” means loans secured by mortgages or deeds of trust on
real estate properties.

     (e) “REIT” means Real Estate Investment Trust as defined under Section 856
of the Code.

     (f) “REIT Provisions of the Code” means Sections 856 through 860 of the
Code.

     (g) “Unaffiliated Directors” shall mean those members of the Board of
Directors of the Company who are not officers or employees of the Company nor
officers, directors or Affiliates of the Manager.

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     SECTION 2. General Duties of the Manager.

     (a) Administrative Services Provided by the Manager. The Manager will be
responsible for the day-to-day operations of the Company and will perform such
services and activities relating to the assets and operations of the Company as
may be appropriate, including:

          (i) representing the Company in connection with the origination or
purchase of mortgage loans;

          (ii) in accordance with the directions of the Board of Directors,
investing or reinvesting any money of the Company;

          (iii) furnishing reports and statistical and economic research to the
Company regarding the Company’s estate lending activities and the
performance of its portfolio of mortgage loans;

          (iv) administering the day-to-day operations of the Company and
performing administrative functions necessary in the management of the
Company, including the collection of revenues, the payment of the
Company’s expenses, debts and obligations and the maintenance of
appropriate computer services to perform such administrative functions;

          (v) counseling the Company in connection with policy decisions to be
made by the Board of Directors;

          (vi) assisting the Company in its use of leverage to finance mortgage
loan acquisitions;

          (vii) overseeing the servicing of the Company’s mortgage loans;

          (viii) establishing underwriting, appraisal and quality control
procedures for the mortgage loans of the Company;

          (ix) conducting a legal document review of each mortgage loan
acquired to verify the accuracy and completeness of the information
contained in the mortgage loans, security instruments and other pertinent
documents in the mortgage file;

          (x) providing the Company with data processing, legal and
administrative services to the extent required to implement the business
strategy of the Company;

          (xi) providing all actions necessary for compliance by the Company
with all federal, 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;

          (xii) providing all actions necessary to enable the Company to make
required federal, state and local tax filings and reports and generally
enable the Company to maintain its status as a REIT, including soliciting
stockholders for required information to the extent required by the REIT
Provisions of the Code;

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          (xiii) communicating on behalf of the Company with the stockholders
of the Company as required to satisfy any reporting requirements and to
maintain effective relations with such stockholders; and

          (xiv) 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 Manager
shall deem appropriate under the particular circumstances.

     (b) Administrative Services Provided by Subcontractors. The Manager may
enter into subcontracts with other parties to provide any such services to the
Company.

     (c) Cooperation of the Company. The Company agrees to take all actions
reasonably required to permit the Manager to carry out its duties and
obligations hereunder. The Company further agrees to make available all
materials reasonably required to enable the Manager to satisfy its obligations
to deliver financial statements and any other information or reports with
respect to the Company pursuant to the Securities Purchase Agreement.

     (d) Sale of Mortgage Loans. The Manager agrees that it will not cause the
Company to sell any of its Mortgage Loans, whether such loans were acquired
from the Manager or another source, without obtaining the prior consent of a
majority of the Unaffiliated Directors of the Company.

     SECTION 3. Additional Activities of Manager. Nothing herein shall
prevent the Manager or any of its officers, directors, employees or Affiliates
from engaging in other businesses or from rendering services of any kind to any
other person or entity, including the purchase of, or advisory service to
others investing in, any type of real estate investment, including investments
which meet the principal investment objectives of the Company, except that the
Manager and its officers, directors and employees shall not provide any such
services to any mortgage REIT other than the Company or another REIT sponsored
by the Manager or its Affiliates which has operating policies and strategies
different in one or more material respects from those of the Company, as
confirmed by a majority of the Unaffiliated Directors. Compensation to the
Manager for any such services shall be on an arm’s-length basis and at a rate
no higher than the rate at which such services would be available from a third
party. Directors, officers, employees and agents of the Manager or Affiliates
of the Manager 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 their Governing Instruments, as from time to time
amended, or by any resolutions duly adopted by the Board of Directors pursuant
to the Company’s Governing Instruments. It is expressly contemplated that the
Company’s Mortgage Loans will be serviced by the Manager acting as servicer
pursuant to the Master Loan Participation and Servicing Agreement, dated as of
February 6, 2001, as amended from time to time.

     SECTION 4. Bank Accounts. At the direction of the Board of Directors,
the Manager 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, under such terms and conditions as the Board of Directors may
approve; and the Manager 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.

     SECTION 5. Records. The Manager shall maintain appropriate books of
account and records relating to services performed hereunder, and such books of
account and records shall be accessible for

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inspection by representatives of the Company or any subsidiary of the
Company at any time during normal business hours.

     SECTION 6. Compensation of the Manager.

     (a) Base Management Fee. The Manager will receive a monthly asset
management fee (the “base management fee”) at a per annum rate equal to
one-half of one percent applied to the total Mortgage Asset Portfolio held by
the Company at the end of the preceding calendar quarter. “Mortgage Asset
Portfolio” means assets included on the balance sheet as Mortgage Loans Held
for Investment, net; Land Held for Residential Development; and Real Estate
Owned, all as set forth in the Company’s Form 10-Q or 10-K Reports, as
applicable.

     (b) Incentive Compensation. The Company will also pay to the Manager an
incentive compensation fee (the “incentive fee”) for each fiscal quarter, an
amount equal to 50% of the amount by which Taxable Income of the Company for
such quarter, before deduction of such incentive compensation, exceeds the
Threshold Return times the Net Worth for such quarter. The incentive fee
calculation and payment will be made quarterly in arrears and will be subject
to an annual adjustment as set forth in (c) below. For such calculations, the
“Taxable Income” of the Company means the taxable income of the Company before
the Manager’s incentive fee, the deduction for dividends paid and net operating
loss deductions arising from losses in prior periods. A deduction for the
Company’s interest expenses for borrowed money is taken when calculating
Taxable Income. The “Threshold Return” will be a per annum target percentage
rate of return set by mutual agreement between the Manager and the Unaffiliated
Directors of the Company for each calendar year beginning with the year 2004.
“Net Worth” for any period means the sum of the gross proceeds from all prior
offerings of its equity securities by the Company, after deducting expenses and
costs relating to such offerings (or for any period in which new equity
securities are issued, the arithmetic weighted average for the period of the
prior offering proceeds and the new proceeds), plus the Company’s beginning
retained earnings (without taking into account any losses incurred in prior
periods and excluding amounts reflecting taxable income to be distributed as
dividends and amounts reflecting valuation allowance adjustments such as
accumulated other comprehensive gain (loss)). The incentive fee payments to
the Manager are made before any income distributions are made to stockholders
of the Company.

     (c) Payment.

          (i) Base Management Fee. The Manager’s base management fee shall be
calculated by the Manager within 15 days after the end of each month, and
such fee shall be promptly delivered to the Company following the delivery
to the Company of the Manager’s written statement setting forth the
calculation. For each month in which such calculation is made prior to
the filing of the applicable Form 10-Q or 10-K Report containing the
balance sheet as of the end of the preceding calendar quarter, such
monthly calculation and payment shall be based on the Manager’s estimate
of the Mortgage Asset Portfolio. For the remaining months of the quarter,
such monthly calculation shall be based on the balance sheet items
comprising the Mortgage Asset Portfolio as shown in the applicable Form
10-Q or 10-K. Any required adjustments to prior months’ fees resulting
from a difference between the Manager’s estimate of the Mortgage Asset
Portfolio and the amount thereof as reflected in the related Form 10-Q or
10-K shall be paid by the Company or the Manager within 15 days after the
Form 10-Q or 10-K Report is filed.

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          (ii) Incentive Fee. The Manager’s incentive fee shall be calculated
by the Manager within 15 days after the filing of the related Form 10-Q or
10-K, and such fee shall be delivered to the Manager promptly following
the delivery to the Company of the Manager’s written statement setting
forth the calculation.

     Within 45 days after the filing of the related Form 10-K containing the
audited financial statements for the applicable fiscal year, the Manager shall
calculate an amount equal to 50% of the amount by which Taxable Income for the
fiscal year exceeds the Threshold Return times the Net Worth for the fiscal
year (the “Annual Amount”). To the extent the Annual Amount exceeds the sum of
the incentive fees paid for four fiscal quarters of the related fiscal year,
such excess shall be promptly paid by the Company to the Manager. Any excess
of the incentive fees so paid over the Annual Amount shall be promptly paid by
the Manager to the Company.

     SECTION 7. Expenses of the Company.

     (a) Expenses Borne by the Manager. Without regard to the compensation
received hereunder by the Manager, the Manager shall bear the following
expenses:

          (i) Employment expenses of the personnel employed by the Manager,
including, but not limited to, salaries, wages, payroll taxes, and the
cost of employee benefit plans;

          (ii) Rent, telephone, utilities, office furniture, equipment and
machinery (including computers, to the extent utilized) and other office
expenses (such as asset/liability software, modeling software and other
software and hardware) of the Manager needed in order to perform its
duties as set forth herein;

          (iii) Bookkeeping fees and expenses including any costs of computer
services, other than in connection with communications to security holders
of the Company;

          (iv) Miscellaneous administrative expenses incurred in supervising
and monitoring the Company’s investments or any subsidiary’s investments
or relating to performance by the Manager of its functions hereunder;

          (v) Fees and expenses paid to advisors and independent contractors,
consultants, managers, and other agents engaged by the Manager for the
account of the Company or any subsidiary of the Company;

          (vi) Expenses connected with the acquisition of the Company’s assets
and mortgage loans;

          (vii) Expenses related to the servicing and subservicing of mortgage
loans; and

          (viii) Travel and related expenses of personnel of the Manager when
attending meetings or performing other business activities which relate to
the Company or any subsidiary of the Company.

     (b) Expenses Borne by the Company. The Company or any subsidiary of the
Company shall pay all of its expenses except those which are the specific
responsibility of the Manager pursuant to this Agreement; and, without limiting
the generality of the foregoing, it is specifically agreed that the following
expenses of the Company or any subsidiary of the Company shall not be paid by
the Manager:

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          (i) The cost of the borrowed money;

          (ii) All taxes applicable to the Company or any subsidiary of the
Company including interest and penalties thereon;

          (iii) Legal, accounting and auditing fees and expenses relating to
the Company’s or any subsidiary’s operations;

          (iv) Expenses relating to any office or office facilities maintained
by the Company or any subsidiary of the Company exclusive of the office of
the Manager;

     (v) Expenses connected with the ownership and disposition of the Company’s
or any subsidiary’s assets, including, but not limited to, 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;

          (vi) Legal, audit, accounting, underwriting, brokerage, listing,
rating agency, registration and other fees, printing, engraving 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;

          (vii) The expenses of organizing, modifying or dissolving the Company
or any subsidiary of the Company;

          (viii) All insurance costs incurred in connection with the Company or
any subsidiary of the Company;

          (ix) Expenses connected with payments of dividends or interest or
distributions in any other form made or caused to be made by the Board of
Directors to holders of the securities of the Company or any subsidiary of
the Company;

          (x) Expenses connected with the structuring of the issuance of
mortgage securities by the Company or any subsidiary of the Company,
including but not limited to trustee’s fees, insurance premiums, and costs
of required credit enhancements;

          (xi) Travel and related expenses of the directors of the Company when
attending meetings or performing other business activities which relate to
the Company;

          (xii) All expenses of third parties connected with communications to
holders of equity securities or debt securities of 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;

          (xiii) Transfer agent’s and registrar’s fees and charges;

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          (xiv) Fees and expenses paid to trustees or directors of the Company
or any subsidiary of the Company, the cost of director and officer
liability insurance and premiums for fidelity and errors and omissions
insurance;

          (xv) Any judgment rendered against the Company or any subsidiary of
the Company, or against any trustee or director 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 or
director, or any court or governmental agency; and

          (xvi) Other miscellaneous expenses of the Company or any subsidiary
of the Company which are not specified expenses of the Manager under this
Agreement.

     SECTION 8. Limits of Manager Responsibility; Indemnification.

     The Manager assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith 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 Manager. The Manager, its
directors, officers, stockholders and employees will not be liable to the
Company, any subsidiary of the Company, its subsidiary’s stockholders or the
Unaffiliated Directors for any acts or omissions by the Manager, its directors,
officers, stockholders or employees under or in connection with this Agreement,
except by reason of acts or omissions constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties under this
Agreement. The Company and its subsidiaries shall reimburse, indemnify and
hold harmless the Manager, its directors, officers, stockholders and employees
of and from any and all expenses, losses, damages, liabilities, demands,
charges and claims of any nature whatsoever (including, without limitation,
attorneys’ fees) in respect of or arising from any acts or omissions of the
Manager, its stockholders, directors, officers and employees made in good faith
in the performance of the Manager’s duties under this Agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of its duties.

     SECTION 9. Term; Termination Fee.

     (a) This Agreement shall commence on the date of the first closing of the
Company’s private placement and shall continue in force until the third
anniversary of such date, and thereafter it shall be renewed automatically for
successive one-year periods unless a notice of non-renewal is timely delivered
as described below.

     (b) In addition to such further liability or obligation of either party to
the other due upon termination of this Agreement, if this Agreement is
terminated without cause (as “cause” is defined below), the Company shall pay
the Manager a termination fee in an amount equal to the greater of (i) the fair
market value of this Agreement determined by an independent appraisal or (ii)
four percent (4%) of the mortgage loan portfolio of the Company. Such
appraisal shall be conducted by a nationally recognized appraisal firm mutually
agreed upon by the parties and the costs of such appraisal shall be borne
equally by the parties. If the parties are unable to agree upon such appraisal
firm within 30 days following delivery of the notice of non-renewal, then each
party shall, as soon as reasonably practicable, but in no event more than 45
days following delivery of the notice of non-renewal, choose a
nationally-recognized independent appraisal firm to conduct an appraisal. In
such event, (i) the fair market value amount shall be deemed to be the average
of the appraisals as conducted by each party’s chosen appraiser and (ii) each
party shall pay the costs of its appraiser so chosen. Any appraisal conducted
hereunder shall be performed no later than 45 days following selection of the
appraiser or appraisers. The termination fee payable by the Company shall be
paid within 30 days following receipt of the final appraisal to be obtained
hereunder.

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     SECTION 10. Termination by Company for Cause. At the option of the
Company, this Agreement shall be and become terminated upon written notice of
termination to the Manager if any of the following events shall occur
(termination for any of such events shall constitute termination for “cause”):

     (a) if a majority of the Unaffiliated Directors determines that the
Manager has violated this Agreement in any material respect and, after notice
of such violation, the Manager has failed to cure such violation within 60
days; or

     (b) there is entered an order for relief or similar decree or order with
respect to the Manager by a court having competent jurisdiction in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or the Manager (i) ceases, or admits in writing its
inability, to pay its debts as they become due and payable, or makes a general
assignment for the benefit of, or enters into any composition or arrangement
with, creditors; (ii) applies for, or consents (by admission of material
allegations of a petition or otherwise) to the appointment of a receiver,
trustee, assignee, custodian, liquidator or sequestrator (or other similar
official) of the Manager or of any substantial part of its properties or
assets, or authorizes such an application or consent, or proceedings seeking
such appointment are commenced without such authorization, consent or
application against the Manager and continue undismissed for 60 days; (iii)
authorizes or files a voluntary petition in bankruptcy, or applies for or
consents (by admission of material allegations of a petition or otherwise) to
the application of any bankruptcy, reorganization, arrangement, readjustment of
debt, insolvency, dissolution, liquidation or other similar law of any
jurisdiction, or authorizes such application or consent, or proceedings to such
end are instituted against the Manager without such authorization, application
or consent and are approved as properly instituted and remain undismissed for
60 days or result in adjudication of bankruptcy or insolvency; or (iv) permits
or suffers all or any substantial part of its properties or assets to be
sequestered or attached by court order and the order remains undismissed for 60
days. If any of the events specified above shall occur, the Manager shall give
prompt written notice thereof to the Board of Directors upon the happening of
such event.

     SECTION 11. Action Upon Termination. From and after the effective date
of termination of this Agreement, except as otherwise specified in of this
Agreement, the Manager shall not be entitled to compensation for further
services hereunder, but shall be paid all compensation accruing to the date of
termination, including accrued and unpaid incentive compensation. Upon such
termination, the Manager shall forthwith:

     (a) after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled, 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;

     (b) deliver to the Board of Directors a full 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

     (c) 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 Manager.

     SECTION 12. Release of Money or Other Property Upon Written Request. The
Manager agrees that any money or other property of the Company or any
subsidiary of the Company held by the Manager under this Agreement shall be
held by the Manager as custodian for the Company or such

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subsidiary, and the Manager’s records shall be appropriately marked
clearly to reflect the ownership of such money or other property by the Company
or such subsidiary. Upon the receipt by the Manager of a written request
signed by a duly authorized officer of the Company requesting the Manager to
release to the Company or any subsidiary of the Company any money or other
property then held by the Manager for the account of the Company or any
subsidiary of the Company under this Agreement, the Manager 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 the later to occur of
(i) 30 days following such request and (ii) the earliest time following such
request that remittance will not cause the Manager to violate any law or breach
any agreement to which it or the Company is a party. The Manager 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 and not constituting bad faith, willful misconduct,
gross negligence or reckless disregard of its duties. The Company and any
subsidiary of the Company shall indemnify the Manager, its directors, officers,
stockholders and employees against any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever, which arise
in connection with the Manager’s release of such money or other property to the
Company or any subsidiary of the Company unless such expenses, losses, damages,
liabilities, demands, charges and claims arise in connection with acts or
omissions which constitute bad faith, willful misconduct, gross negligence or
reckless disregard of its duties. Indemnification pursuant to this provision
shall be in addition to any right of the Manager to indemnification under this
Agreement.

     SECTION 13. Representations and Warranties.

     (a) The Company hereby represents and warrants to the Manager as follows:

          (i) 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
and 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.

          (ii) The Company has the power and authority to execute, deliver and
perform this Agreement and all obligations required hereunder 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 hereunder. 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 hereunder. This Agreement has
been, and each instrument or document required hereunder will be, executed
and delivered by a duly authorized officer of the Company, and this
Agreement constitutes, and each instrument or document required hereunder
when executed and delivered hereunder will constitute, the legally valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.

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     (iii) The execution, delivery and performance of this Agreement and the
documents or instruments required hereunder 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 Manager hereunder to secure the
Manager’s obligations to its lenders).

     (b) The Manager hereby represents and warrants to the Company as follows:

          (i) The Manager is duly organized, validly existing and in good
standing under the laws of Nevada, has the corporate 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 Manager and its subsidiaries, taken as a whole. The
Manager does not do business under any fictitious business name.

          (ii) The Manager has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder
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 hereunder.
Except as shall have been obtained, no consent of any other person
including, without limitation, stockholders and creditors of the Manager,
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 Manager in connection with this
Agreement or the execution, delivery, performance, validity or
enforceability of this Agreement and all obligations required hereunder.
This Agreement has been and each instrument or document required hereunder
will be executed and delivered by a duly authorized officer of the
Manager, and this Agreement constitutes, and each instrument or document
required hereunder when executed and delivered hereunder will constitute,
the legally valid and binding obligation of the Manager enforceable
against the Manager in accordance with its terms.

          (iii) The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder, will not violate any
provision of any existing law or regulation binding on the Manager, or any
order, judgment, award or decree of any court, arbitrator or governmental
authority binding on the Manager, or the governing instruments of, or any
securities issued by, the Manager or of any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which the
Manager is a party or by which the Manager 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 Manager 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.

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     SECTION 14. Notices. Unless expressly provided otherwise herein, 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 therefore or (3) upon actual receipt of registered or certified mail,
postage prepaid. The parties may deliver to each other notice by
electronically transmitted facsimile copies (“FAX”) provided that such FAX
notice is followed within twenty-four (24) hours by any type of notice
otherwise provided for in this paragraph. Any notice shall be duly addressed
to the parties as follows:

	 	 	 	 	 
	

	 	(a)
	 	If to the Company:
	 
	 	 	 	 
	

	 	 	 	6160 Plumas Street
	

	 	 	 	Reno, Nevada 89509
	

	 	 	 	Attn: Board of Directors
	

	 	 	 	Fax: (775) 826-0166
	 
	 	 	 	 
	

	 	(b)
	 	If to the Manager:
	 
	 	 	 	 
	

	 	 	 	6160 Plumas Street
	

	 	 	 	Reno, Nevada 89509
	

	 	 	 	Attn: Nello Gonfiantini
	

	 	 	 	Fax: (775) 826-0166

Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address.

     SECTION 15. Assignments. Except as set forth in this section, this
Agreement shall terminate automatically in the event of its assignment, in
whole or in part, by the Manager (other than the pledge of amounts payable to
the Manager hereunder to secure the Manager’s obligations to its lenders),
unless such assignment is consented to in writing by the Company with the
consent of a majority of the Unaffiliated Directors. Any such assignment shall
bind the assignee hereunder in the same manner as the Manager is bound. In
addition, the assignee shall execute and deliver to the Company a counterpart
of this Agreement naming such assignee as Manager. This Agreement shall not be
assigned by the Company without the prior written consent of the Manager,
except in the case of assignment by the Company to a REIT or other organization
which is a successor (by merger, consolidation or purchase of assets) to the
Company, in which case such successor organization shall be bound hereunder and
by the terms of such assignment in the same manner as the Company is bound
hereunder.

     SECTION 16. 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 and/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.

     SECTION 17. 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 Nevada.

 99

 

     SECTION 18. 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.

     SECTION 19. Execution in Counterparts. This Agreement may be executed in
any number of counterparts.

     SECTION 20. Provisions Separable. The provisions of this Agreement are
independent of and separable 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.

 100

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

	 	 	 	 	 
	 	 	SPECIALTY TRUST, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

	

	 	Its:	 	 
	

	 	 	 	

	 
	 	 	 	 
	 	 	SPECIALTY FINANCIAL
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

	

	 	Its:	 	 
	

	 	 	 	

 101exv10w2w1

 

EXHIBIT 10.2.1

AMENDMENT NO. 1

to

MASTER LOAN PARTICIPATION AGREEMENT

between

SPECIALTY FINANCIAL

Servicer

and

SPECIALTY TRUST, INC.,

(formerly SPECIALTY MORTGAGE TRUST, INC.)

Beneficiary

(dated as of January 1, 2004)

     Section 7 of the Master Loan Participation Agreement between Specialty
Financial, as servicer (“Specialty Financial”), and Specialty Mortgage Trust,
Inc., as beneficiary (the “Beneficiary”), dated as of February 6, 2001, is
hereby amended and restated as follows:

          7. Servicer and Loan Origination Fees. Specialty Financial
shall be entitled to an annual ordinary fee as set forth in the
Participation Certificate for each respective Loan, and in the
absence thereof, to an annual ordinary fee equal to one-half of one
percent (1/2%) of the outstanding principal amount of the Loans from
time to time, for the servicing of the Loans. The amount of such fee
shall be the responsibility of Beneficiary in proportion with its
relative Participation Percentage in each Loan. Such fees will be
proportionately deducted by Specialty Financial from each remittance
to Beneficiary. Any and all late and default charges, returned check
charges, loan cancellation charges, and prepayment charges paid in
connection with the Loans shall be retained by Specialty Financial
as further compensation and Specialty Financial shall be reimbursed
by Beneficiary for any and all expenses incurred by Specialty
Financial in connection with servicing the Loans as set forth below.
It is further agreed that any necessary transitory services which
may be proper under this Agreement, including, but not limited to,
the foreclosure of mortgages, property maintenance and improvement,
property management, the sale

 102

 

of any foreclosed real estate and other extraordinary expenses,
shall be contracted for or done by Specialty Financial at its
customary cost for such services, provided such costs are reasonable
and customary in the jurisdiction where the Collateral is located,
and that Specialty Financial shall bill Beneficiary for its prorata
share of such expense, and Beneficiary shall be required to pay
promptly its prorata share of such extraordinary expenses incurred
and billed under this Agreement. For each Loan or the portion
thereof purchased by Beneficiary, Beneficiary agrees that Specialty
Financial shall be entitled to loan origination fees or points,
usually charged to a borrower for and upon the origination,
extension or financing of a mortgage loan, up to 2.5% of the loan
balance (i.e. 2.5 points) with additional fees or points paid to
Beneficiary. The amount of this fee is determined by competitive
conditions, may vary and may have a direct effect on the interest
rate a borrower is willing to pay the Beneficiary.

[Remainder of Page Intentionally Left Blank]

 103

 

	 	 	 	 	 	 	 
	 	 	SPECIALTY FINANCIAL
	 
	 	 	 	 	 	 
	

	 	By:	 	

	 	 	Name:	 	

	 	 	Title:	 	

	 
	 	 	 	 	 	 
	

	 	Dated:	 	 	 	 
	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	Address:	Post Office Box 838
	

	 	 	 	 	6160 Plumas Street
	

	 	 	 	 	Reno, NV 89509
	

	 	 	 	 	Telephone : (775) 826-0809
	

	 	 	 	 	Telefax: (775) 826-0166
	 
	 	 	 	 	 	 
	 	 	SPECIALTY TRUST, INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	

	 	 	Name:	 	

	 	 	Title:	 	

	 
	 	 	 	 	 	 
	

	 	Date:	 	 	 	 
	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	By:	 	

	 	 	Name:	 	

	 	 	 	 
	 	 	Title: Trustee
	 
	 	 	 	 	 	 
	

	 	Date:	 	 	 	 
	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	Address:
	 	6160 Plumas Street
	

	 	 	 	 	Reno, NV 89509
	

	 	 	 	 	Telephone: (775) 826-0809

 104

 

Independent Auditors’ Report on Schedule

The Board of Directors

Specialty Trust, Inc. and Subsidiaries:

Under
date of March 12, 2004, we reported on the consolidated balance sheets of
Specialty Trust, Inc. and Subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated statements of earnings, stockholders’ equity and
comprehensive income, and cash flows for each of the years in the two-year
period ended December 31, 2003, which are
included in the Company’s 2003 Annual Report on Form 10-K. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the 2003 and 2002 information in the related consolidated financial statement schedule included in such
Form 10-K. This financial statement schedule is the responsibility of the
Company’s management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit.

In
our opinion, the 2003 and 2002 information in such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole,
presents
fairly, in all material respects, the information set forth therein.

     /s/ KPMG LLP

Sacramento, California

March 12, 2004

 105

 

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

Specialty Trust, Inc.

In connection with our audits of the financial statements of Specialty
Trust, Inc. referred to in our report dated January 25, 2002, which is
included in the annual report to security holders, we have also audited
Schedule IV for the year ended December 31, 2001. In our opinion,
this schedule when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be set forth therein.

/s/ GRANT THORNTON LLP

Reno, Nevada

January 25, 2002

 106

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