SECOND SUPPLEMENTAL INDENTURE
Exhibit 10.1
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of June 6, 2008 (this “Supplemental Indenture”)
is entered into by and between Desert Capital REIT, Inc., a Maryland corporation (the
“Company”), and The Bank of New York Trust Company, National Association, a national
banking association (as successor to JPMorgan Chase Bank, National Association), as
Trustee (the “Trustee”).
Reference is made to the Junior Subordinated Indenture dated as of June 16, 2006 as amended by
that certain First Supplemental Indenture dated as of November 21, 2007 (the “Indenture”) by and
between the Company and the Trustee. Capitalized terms used herein and not defined herein shall
have the meanings given to such terms under the Indenture.
WHEREAS, the Company desires to, among other things, (i) amend Section 1.01 of the Indenture,
(ii) delete Section 10.6(d) of the Indenture in its entirety, (iii) amend Section 10.9(a) of the
Indenture in its entirety and (iii) amend Article X of the Indenture to provide for additional
covenants of the Company; and
WHEREAS, execution and delivery by the Company of this Supplemental Indenture has been duly
authorized by all requisite corporate action and all other action required to make this
Supplemental Indenture a valid and binding instrument has been duly taken and performed.
NOW, THEREFORE, in consideration of the foregoing, the Trustee and the Company are entering
into this Supplemental Indenture pursuant to Section 9.2 of the Indenture as follows:
ARTICLE I
AMENDMENTS TO INDENTURE
AMENDMENTS TO INDENTURE
Section 1.01 Section 1.1 of the Indenture is amended by adding the following
defined terms:
“Account Control Agreement” has the meaning specified in Section 10.10(b).
“Additional Reserve Deposit” has the meaning specified in Section 10.13.
“Eligible Account” means a separate and identifiable account held by the holding
institution that is either (i) an account or accounts maintained with a federal or
state-chartered depository institution or trust company which complies with the
definition of Eligible Institution, or (ii) a segregated trust account or accounts
maintained with a federal or state chartered depository institution or trust company
acting in its fiduciary capacity which, in the case of a state chartered depository
institution or trust company, is subject to regulations substantially similar to 12
C.F.R. §9.10(b), having in either case a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal and state
authority. An Eligible Account will not be evidenced by a certificate of deposit,
passbook or other instrument.
“Eligible Institution” mean a depository institution insured by the Federal Deposit
Insurance Corporation the short term unsecured debt obligations or commercial paper
of which are rated at least “A-1” by Standard & Poor’s Ratings Group, “P-1” by
Xxxxx’x Investors Service, Inc. and “F-1+” by Fitch IBCA, Inc. in the case of
accounts in which funds are held for thirty (30) days or less (or, in the case of
letters of credit or accounts in which funds are held for more than thirty (30)
days, the long term unsecured debt obligations of which are rated at least “AA” by
Fitch IBCA, Inc. and Standard & Poor’s Ratings Group and “Aa2” by Xxxxx’x Investors
Service, Inc.). The Bank of Nevada shall be deemed an Eligible Institution so long
as either (a) it has net assets equal to or greater than One Billion and 00/100
Dollars ($1,000,000,000) or (b) its parent company, Western Alliance Bankcorporation
(which is traded on the New York Stock Exchange under the symbol “WAL”) maintains a
Xxxxx’x Investors Service, Inc. rating of at least “Ba2”; provided, however, that
The Bank of Nevada must be a wholly-owned subsidiary of Western Alliance
Bankcorporation.
“Existing Revolver” has the meaning specified in Section 10.14.
“Extended Reduced Covenant Period” has the meaning specified in Section
10.9(a).
“Initial Reduced Covenant Period” has the meaning specified in Section
10.9(a).
“Letter of Credit” means an evergreen, irrevocable, unconditional, transferable,
clean sight draft letter of credit in form and substance acceptable to Taberna in
favor of the Trustee and entitling the Trustee to draw thereon in either New York,
New York or Houston, Texas (whether in person or by facsimile), issued in U.S.
Dollars by a domestic Eligible Institution or the U.S. agency or branch of a foreign
Eligible Institution.
“Loan Principal Payment” has the meaning specified in Section 10.13.
“Minimum Balance” has the meaning specified in Section 10.10(b).
“Reduced Covenant Period” has the meaning specified in Section 10.9(a).
“Regular Reserve Deposit” has the meaning set forth in Section 10.10(b).
“Reserve Account” has the meaning specified in Section 10.10(a).
“Short-fall” has the meaning specified in Section 10.13.
Section 1.02 The definition of “Corporate Trust Office” under Section 1.1 of
the Indenture is deleted in its entirety and replaced with the following:
“Corporate Trust Office” means the principal office of the Trustee at which at any particular
time its corporate trust business shall be administered, which office at the date of this Indenture
is located at 000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxx, Xxxxx 00000 Attn: Global
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Corporate Trust – Desert Capital TRS Statutory Trust I. All notices and correspondence to the
Trustee hereunder shall be addressed to Xxxxxxxx Xxxxxxx, telephone number (000) 000-0000.
Section 1.03 Section 5.1 of the Indenture is amended to add an additional Event of
Default by (a) deleting the “or” at the end of Section 5.1(e), (b) replacing the “.” at the end of
Section 5.1(f) with “; or” and (c) adding the following thereafter:
“(g) the Company shall have failed in the performance of, or breached, any covenant, warrant
or obligation set forth in Sections 10.10 (a), (b) or (d), 10.11(b),
10.12(a), (b) or (d), 10.13 or 10.14 hereof or any violation of the
conditions set forth in Sections 10.12(c) shall have otherwise occurred.”
Section 1.04 Section 7.3(b)(iii) of the Indenture is hereby deleted and replaced
with the following:
(iii) Taberna Capital Management LLC, 000 Xxxx Xxxxxx, Xxxxx 00, Xxx Xxxx, Xxx Xxxx
00000, Attn: Xxxxxxx Xxxxx
Section 1.05 Section 10.6(d) of the Indenture is deleted in its entirety.
Section 1.06 Section 10.9(a) of the Indenture is deleted in its entirety and replaced
with the following:
(a) (i) From December 31, 2007 and for a period of four (4) consecutive calendar
quarters ending on December 31, 2008 (the “Initial Reduced Covenant Period”), the Company
shall not permit Tangible Net Worth, at any time, to be less than $100,000,000; provided,
however, that the Company may request that the period ending December 31, 2008 be extended
for up to two extension periods of one (1) calendar quarter each, with the first extension
period ending on March 31, 2009 and the second extension period ending on June 30, 2009
(each such extension period, an “Extended Reduced Covenant Period”), by written request to
the Trustee and the holders of a majority in aggregate principal amount of the outstanding
Preferred Securities given no later than thirty (30) days prior to December 31, 2008 and, if
applicable, March 31, 2009 (the Initial Reduced Covenant Period, including any Extended
Reduced Covenant Periods, the “Reduced Covenant Period”), and each such Extended Reduced
Covenant Period shall become effective as of the expiration date of the prior period,
provided, that (x) no Event of Default has occurred and is continuing either at the
time of any such request or on the applicable extension date and (y) the Letter of Credit in
the amount of the Minimum Balance has been delivered to the Trustee prior to December 31,
2008 and no draw has been made thereon by the Trustee.
(ii) From and after the end of the Reduced Covenant Period, the Company shall not
permit Tangible Net Worth, at any time, to be less than the sum of (i) $100,000,000 plus
(ii) 75% of all proceeds of Equity Interests issued by the Company after June 16, 2006.
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Section 1.07 Article X of the Indenture is amended by adding the following Sections
10.10, 10.11, 10.12, 10.13, 10.14 and 10.15:
SECTION 10.10. Reserve Fund and Additional Monthly Payment.
(a) The Company shall establish and maintain a segregated Eligible Account with an Eligible
Institution in trust for the benefit of the Trustee (the “Reserve Account”). The Reserve Account
shall be entitled “The Bank of New York Trust Company, National Association, as trustee pursuant to
a Junior Subordinated Indenture, dated as of June 16, 2006, on behalf of the holders of the
Preferred Securities.” The Company shall notify the Trustee in writing of the account number of
the Reserve Account. The Trustee, on behalf of, and at the direction of, the holders of the
Preferred Securities, shall have the sole right to make withdrawals from the Reserve Account in
accordance with the terms hereof. All costs and expenses for establishing and maintaining the
Reserve Account shall be paid by the Company.
(b) Subject to Section 10.12, the Company shall deposit within ten (10) Business Days
after the end of each calendar month, commencing with respect to the calendar month ending on May
31, 2008, twenty-five percent (25%) of all Net Income for such calendar month (each such deposit, a
“Regular Reserve Deposit”) until such time as an amount equal to $2,100,000 (the “Minimum Balance”)
has been deposited into the Reserve Account. The Company shall, within five (5) calendar days of
each deposit into the Reserve Account, notify the Trustee and Taberna Capital Management, LLC in
writing of the amount of such deposit; provided, however, the Company’s failure to provide such
notice shall not constitute an Event of Default under Section 5.1(g). The Reserve Account shall at
all times be subject to an account control agreement (the “Account Control Agreement”) among the
Company, the applicable Eligible Institution holding the Reserve Account and the Trustee, in form
and substance reasonably satisfactory to the holders of the Preferred Securities. The Trustee
shall have no liability for losses on any investments made with respect to the Reserve Account.
Any amounts earned on funds on deposit in the Reserve Account shall be added to amounts on deposit
in the Reserve Account; provided, however, that any amounts in excess of the Minimum Balance shall,
so long as no Event of Default has occurred, be released to the Company. Upon the occurrence and
during the continuance of an Event of Default, amounts deposited in the Reserve Account may, at the
option and at the direction of the holders of a majority in aggregate principal amount of the
outstanding Preferred Securities, be applied by the Trustee to amounts then due and owing and/or to
become due and owing with respect to the Preferred Securities, as directed by the holders of a
majority in aggregate principal amount of the outstanding Preferred Securities. The Trustee shall
give the Company written notice of any such application of funds. The Trustee shall have no
liability for monitoring or otherwise verifying compliance by the Company with its obligations
hereunder.
(c) The Company agrees and acknowledges that neither the insufficiency or sufficiency of the
amount of, nor the unavailability or availability of, funds in the Reserve Account is intended to,
and shall therefore not, constitute a limitation on (i) the obligation the Company to pay when due
all amounts of principal, premium, if any, and interest due under this Indenture or (ii) the
holders of the Preferred Securities to be paid all amounts due and to become due with respect to
the Preferred Securities. Upon the earlier to occur of (A) the first date after the expiration of
the Reduced Covenant Period on which the Company is in compliance with all
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of the terms, covenants, conditions and requirements set forth in this Indenture and no Event
of Default exists or (B) satisfaction of the conditions set forth in Section 4.1 of this
Indenture, each as certified in writing by the Company to the Trustee and the holders of the
outstanding Preferred Securities and confirmed by the holders of a majority in aggregate principal
amount of the outstanding Preferred Securities, any remaining funds in the Reserve Account then in
the Trustee’s possession shall be paid over to the Company. The Trustee shall have no liability
for any action taken in reliance on the direction of the holders of a majority in aggregate
principal amount of the outstanding Preferred Securities.
(d) The Reserve Account shall be security for all payments due and to become due with respect
to the Preferred Securities. Notwithstanding anything to the contrary contained in this Indenture
or any documents executed in connection herewith, the Reserve Account is collateral solely for the
benefit of the holders of the Preferred Securities, and no other Person shall have any right, title
or interest in the Reserve Account, any funds on deposit therein or any amounts withdrawn
therefrom, other than the Company’s rights set forth herein or under applicable law. The Trustee
shall, notwithstanding any contrary requirement or direction arising or given hereunder (including
pursuant to Article XII) or under any documents executed in connection herewith, follow the written
direction of the holders of a majority in aggregate principal amount of the outstanding Preferred
Securities, as set forth herein, with respect to any disposition of funds in the Reserve Account
and disbursement of any amounts withdrawn therefrom and acknowledges that the Trustee shall not
have any duty, obligation or right to determine when and if a withdrawal is to be made from the
Reserve Account or how the proceeds of such withdrawal will be applied. Upon notice from the
holders of a majority in aggregate principal amount of the outstanding Preferred Securities of the
occurrence and the continuance of an Event of Default, the Trustee shall have the right to withdraw
funds on deposit in the Reserve Account in full or in part, as directed by the holders of a
majority in aggregate principal amount of the outstanding Preferred Securities, and shall apply
such funds to amounts then due and owing and/or to become due and owing with respect to the
Preferred Securities, as directed by such holders of a majority in the aggregate principal amount
of the outstanding Preferred Securities.
(e) Notwithstanding anything to the contrary contained herein, including Article XII,
the Company covenants and agrees that (i) the Company has no right, title, or interest in the
Reserve Account whatsoever, other than the Company’s rights set forth herein and under applicable
law, and (ii) the Trustee shall have the right to withdraw funds from the Reserve Account as set
forth in this Section 10.10 and to apply such amounts to any amounts then due and owing
and/or to become due and owing with respect to the Preferred Securities, as directed by the holders
of a majority in aggregate principal amount of the outstanding Preferred Securities and any such
withdrawal and/or application by the Trustee and the holders of the Preferred Securities as set
forth in this Section 10.10 shall (A) not be subordinate or subject in right of payment to
the prior payment in full of any Senior Debt, (B) be permitted to be made prior to the payment of
any Senior Debt even if (x) a default has occurred and is continuing (whether at maturity, by
acceleration or otherwise) with respect to any Senior Debt, (y) any Proceeding has been commenced
or (z) any other condition exists pursuant to Article XII or otherwise in this Indenture or
any other document executed in connection with this Indenture that would, but for this Section
10.10(e), prohibit such withdrawal or application. The Company hereby represents and warrants
that it has reviewed the terms and provisions of its Senior Debt documents, if any,
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and that nothing contained in Sections 10.10, 10.11 or 10.12 of the Indenture
violates, or is prohibited by, the terms of such Senior Debt documents.
SECTION 10.11 Security Interest in Interest Reserve Fund.
(a) The Company hereby pledges, assigns and grants a security interest to the Trustee, as
security for payment of the principal, premium, if any, and interest due on the Preferred
Securities and the performance of all other terms, conditions and covenants of this Indenture on
the Company’s part to be paid and performed, in all of the Company’s right, title and interest in
and to the Reserve Account and all deposits at any time contained therein and the proceeds thereof.
The Reserve Account shall be under the sole dominion and control of the Trustee. The Company
shall take all actions necessary to maintain in favor of the Trustee a perfected security interest
in the Reserve Account.
(b) The Company shall not, without the prior written consent of the holders of a majority in
aggregate principal amount of the outstanding Preferred Securities (i) in any way alter or modify
the Reserve Account or (ii) further pledge, assign or grant any security interest in the Reserve
Account or permit any other lien or encumbrance to attach thereto (other than liens for taxes,
assessments or other governmental charges that are not yet due or payable, or that are being
diligently contested in good faith) or any levy to be made thereon, or any UCC-1 financing
statements, except those naming the Trustee as the secured party, to be filed with respect thereto.
SECTION 10.12. Provisions Regarding Letters of Credit.
(a) Delivery of Letters of Credit.
(i) Within ten (10) calendar days after the Minimum Balance has been deposited into the
Reserve Account pursuant to Section 10.10(a), the Company shall deliver to the
Trustee a Letter of Credit in the amount of the Minimum Balance. The Trustee shall have the
right to draw down such Letter of Credit as set forth herein. Upon the Trustee’s receipt of
the Letter of Credit, the Trustee shall, and the holders of a majority in aggregate
principal amount of the outstanding Preferred Securities shall direct the Trustee to,
promptly terminate and release its security interest in the Reserve Account and the Account
Control Agreement. The Trustee shall have no further interest in, or control over, the
Reserve Account following the delivery of the Letter of Credit by the Company to the
Trustee.
(ii) The Company shall pay to the Trustee and the holders of the Preferred Securities
(including Taberna Capital Management, LLC) all of their reasonable out-of-pocket costs and
expenses in connection with the delivery of the Letter of Credit. In no event shall (i) the
Company be entitled to draw from the Letter of Credit delivered pursuant to this Indenture
or (ii) any Person (including, without limitation, any implied or other third-party
beneficiary) other than the Trustee, on behalf of the holders of the Preferred Securities,
have any title, right or interest in any proceeds drawn upon the Letter of Credit; provided,
however, that the Company shall have the right to make a claim under this Indenture if such
proceeds are not applied in accordance with the terms of this Indenture. Upon no less than
fifteen (15) days written notice to the Trustee, the
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Company may replace the Letter of Credit delivered pursuant to this Section
10.12 with a substitute Letter of Credit of an equal notional amount from another
Eligible Institution.
(iii) Under no circumstances shall the Trustee as beneficiary under the Letter of
Credit for the benefit of the holders of the Preferred Securities be required to transfer
the Letter of Credit to a second beneficiary. In the event that the holders of not less
than a majority in aggregate principal amount of the outstanding Preferred Securities
determine that (i) the Letter of Credit should be transferred to a second beneficiary or
(ii) the Trustee should no longer hold the Letter of Credit, either the holders of not less
than a majority in aggregate principal amount of the outstanding Preferred Securities or the
Trustee may require that the existing Letter of Credit be cancelled and that, upon such
cancellation or return of the existing Letter of Credit to the Company, a new Letter of
Credit be issued to the second beneficiary by giving to each of the other parties hereto no
less than fifteen (15) days written notice of such requirement, at which time the parties
hereto, shall, if necessary and requested by any party hereto, endeavor to enter into a
supplemental indenture (and other documents which may be reasonably necessary) to address
any circumstances arising as a result of such transfer.
(b) Any Letter of Credit delivered under this Indenture shall be security for all payments due
and to become due with respect to the Preferred Securities. Notwithstanding anything to the
contrary contained in this Indenture or any documents executed in connection herewith, the Letter
of Credit is collateral solely for the benefit of the holders of the Preferred Securities, and no
other Person shall have any right, title or interest in the Letter of Credit or any proceeds drawn
thereon; provided, however, that the Company shall have the right to make a claim under this
Indenture if such proceeds are not applied in accordance with the terms of this Indenture. The
Trustee shall, notwithstanding any contrary requirement or direction arising or given hereunder
(including pursuant to Article XII) or under any documents executed in connection herewith, follow
the written direction of the holders of a majority in aggregate principal amount of the outstanding
Preferred Securities as set forth herein with respect to any draw on the Letter of Credit and
application of any proceeds of such draw and the Trustee shall not have any duty, obligation or
right to determine when and if a draw is to be made on the Letter of Credit or how the proceeds of
the Letter of Credit will be applied. Upon notice from the holders of a majority in aggregate
principal amount of the outstanding Preferred Securities of the occurrence and continuance of an
Event of Default, the Trustee shall have the right to draw on the Letter of Credit in full or in
part, as directed by the holders of a majority in aggregate principal amount of the outstanding
Preferred Securities, and to apply all or any part thereof to any amounts then due and owing and/or
to become due and owing with respect to the Preferred Securities, as directed solely by the holders
of a majority in the aggregate principal amount of the outstanding Preferred Securities. The
Trustee shall give the Company written notice of any such application of funds.
(c) In addition, the Trustee shall, as directed by the holders of a majority in aggregate
principal amount of the outstanding Preferred Securities, draw in full any Letter of Credit: (a)
if the Trustee has received a notice from the issuing bank or the Company that the Letter of Credit
will not be renewed and a substitute Letter of Credit is not provided at least five (5) Business
Days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (b) upon
receipt of notice from the issuing bank or the Company that the Letter of Credit will be
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terminated (except if the termination of such Letter of Credit is permitted pursuant to the
terms and conditions of this Indenture or a substitute Letter of Credit is provided no later than
five (5) Business Days prior to such termination); or (c) if the Trustee has received notice from
either the issuing bank or the Company that the bank issuing the Letter of Credit shall cease to be
an Eligible Institution and the Company has not replaced the outstanding Letter of Credit with a
substitute Letter of Credit from an Eligible Institution within five (5) Business Days of notice to
the Company by the holders of a majority in aggregate principal amount of the Preferred Securities.
The Company agrees that it will promptly notify, in writing, the Trustee and the holders of a
majority in aggregate principal amount of the Preferred Securities of the occurrence of any event
set forth in clause (a), (b) or (c) of the preceding sentence, which occurrence shall be deemed to
be an Event of Default hereunder. The Trustee shall apply all or any part of the proceeds drawn on
any Letter of Credit pursuant to Section 10.12(b). Notwithstanding anything to the
contrary contained in the above, the Trustee shall not be liable for any losses sustained by any
Person due to the insolvency of the bank issuing the Letter of Credit.
(d) Notwithstanding anything to the contrary contained herein, including Article XII,
the Company covenants and agrees that (i) the Letter of Credit shall be the independent obligation
of the Eligible Institution issuing the Letter of Credit and that the Company has no right, title,
or interest in the Letter of Credit whatsoever; provided, however, that the Company shall have the
right to make a claim under this Indenture if such proceeds are not applied in accordance with the
terms of this Indenture, and (ii) the Trustee shall have the right to draw upon the Letter of
Credit as set forth in this Section 10.12 and may apply such proceeds to any amounts then
due and owing and/or to become due and owing with respect to the Preferred Securities, as directed
by the holders of a majority in aggregate principal amount of the outstanding Preferred Securities
and any such draw and application by the Trustee and/or the holders of the Preferred Securities as
set forth in this Section 10.12 hereof shall (i) not be subordinate or subject in right of
payment to the prior payment in full of any Senior Debt, (ii) be permitted to be made prior to the
payment of any Senior Debt even if (A) a default has occurred and is continuing (whether at
maturity, by acceleration or otherwise) with respect to any Senior Debt, (B) any Proceeding has
been commenced or (C) any other condition exists pursuant to Article XII or otherwise in
this Indenture or any other document executed in connection with this Indenture that would, but for
this Section 10.12(d), prohibit such draw or application.
(e) Upon the the expiration of the Reduced Covenant Period and provided that there is no Event
of Default and the Company is in compliance with all of the terms, covenants, conditions and
requirements set forth in this Indenture, as certified in writing by the Company to the Trustee and
the holders of the outstanding Preferred Securities and as confirmed by the holders of a majority
in aggregate principal amount of the outstanding Preferred Securities, the Letter of Credit shall
be cancelled and the Trustee shall make a good faith effort to return the original Letter of Credit
to the Company.
SECTION 10.13 Limitation on Dividends. During the Reduced Covenant Period, the Company shall
not, without the prior written consent of the holders of a majority in aggregate principal amount
of the outstanding Preferred Securities, declare or pay dividends or make any other distributions
on the Company’s Equity Interests; provided, however, notwithstanding anything to the contrary
contained in this Section 10.13, the Company shall have the right to declare and pay dividends to
the holders of its Equity Interests in an amount equal to the greater
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of (i) the amount required to maintain the Company’s status as a REIT under the Code, or (ii)
$.025 per share of common stock per month. In the event that the aggregate amount of the dividends
paid during any calendar month pursuant to clause (ii) of this Section 10.13 exceeds the
aggregate amount of the Regular Reserve Deposits made during such calendar month, as and to the
extent required pursuant to Section 10.10(b) above (a “Short-fall”), the Company shall
deposit into the Reserve Account (each such deposit, an “Additional Reserve Deposit”) within two
(2) Business Days after its receipt thereof, twenty-five percent (25%) of each principal payment it
receives in respect of any loans in which the Company has any right, title or interest, or in which
the Company has any other rights to receive payment (each, a “Loan Principal Payment”), until such
time as the Short-fall has been deposited into the Reserve Account. The Company shall, within five
(5) calendar days of (A) each Regular Reserve Deposit, (B) each Loan Principal Payment it receives
and (C) each Additional Reserve Deposit into the Reserve Account, notify the Trustee and Taberna
Capital Management, LLC in writing of the amount of such deposit or Loan Principal Payment, as
applicable; provided, however, the Company’s failure to provide such notice as provided in
Subsections (A) and (C) shall not constitute an Event of Default under Section 5.1(g). For the
purposes of this Section 10.13 only, the calendar quarter ending June 30, 2008 shall be
treated as if it contains only the months of May and June.
SECTION 10.14 Limitation on Incurrence of Debt. Until such time as the Letter of Credit has
been delivered to Trustee pursuant to Section 10.12, the Company shall not, without the
prior written consent of the holders of a majority in aggregate principal amount of the outstanding
Preferred Securities, incur any additional Debt; provided that so long as no Event of Default
exists (i) the Company may incur additional Debt under the Company’s revolving credit facility with
The Bank of Nevada, pursuant to that certain Revolving Loan Agreement, dated November 26, 2007, as
modified by that certain Modification Agreement dated March ___, 2008 (collectively, the “Existing
Revolver”), provided, that the total outstanding Debt under such Existing Revolver does not exceed
$7,500,000.00 and (ii) the Company shall be permitted to foreclose upon liens and security
interests in real property and personalty associated therewith and, in connection with such
foreclosure proceedings, assume any then-existing senior indebtedness secured by such real property
upon the existing terms thereof so long as such foreclosure is conducted in the ordinary course of
the Company’s business, the assumption of any such senior indebtedness will not adversely affect
the Company’s business, and such foreclosure and/or assumption will not adversely affect the
satisfaction of any obligations to the holders of the Preferred Securities. The Company represents
and warrants that, as of May 30, 2008, the amount outstanding under the Existing Revolver is
$4,170,000.00. The Company shall give five (5) Business Days prior written notice of any proposed
amendment, supplement or other modification to the terms of the Existing Revolver to the holders of
a majority in aggregate amount of the outstanding principal amount of the outstanding Preferred
Securities.
SECTION 10.15. Inspection of Books and Records. Upon the request of the holders of the
Preferred Securities and/or Taberna Capital Management, LLC on the behalf of such holders, the
Company shall (a) permit the holders of the Preferred Securities and/or Taberna Capital Management,
LLC to examine the books and records of the Company and its Subsidiaries (and to make copies
thereof and extracts therefrom) during normal business hours, (b) make management representatives
of the Company and its Subsidiaries available to the holders of the Preferred Securities and/or
Taberna Capital Management, LLC during normal business hours to discuss such books and records and
any other business affairs of the Company
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and its Subsidiaries as the holders of the Preferred Securities and/or Taberna Capital
Management, LLC may reasonably request, and (c) deliver such other instruments and documents with
respect to the Company and its Subsidiaries as the holders of the Preferred Securities and/or
Taberna Capital Management, LLC may reasonably request. All requests made by the holders of the
Preferred Securities and Taberna Capital Management, LLC pursuant to this Section 10.15
shall provide for at least one (1) business day notice. All costs and expenses of the Company and
the holders of the Preferred Securities and Taberna Capital Management, LLC incurred pursuant to
this Section 10.15 shall be paid by the Company.
ARTICLE II
MISCELLANEOUS
MISCELLANEOUS
Section 2.01 By execution of this Supplemental Indenture, each of the Administrative
Trustees, on behalf of Desert Capital TRS Statutory Trust I, as Holder of 100% in aggregate
principal amount of the Outstanding Securities and each of Taberna Preferred Funding VI, Ltd., as
Holder of approximately 83.33% in aggregate principal amount of the outstanding Preferred
Securities (“TPF VI”) and Taberna Preferred Funding VIII, Ltd., as Holder of approximately 16.67%
in aggregate principal amount of the outstanding Preferred Securities (“TPF VIII”), in accordance
with Section 9.2 of the Indenture, hereby (i) consents to the Trustee and the Company executing and
delivering this Supplemental Indenture, (ii) directs the Trustee to execute and deliver this
Supplemental Indenture and (iii) agrees to and does hereby release the Trustee for any action taken
or to be taken by the Trustee in connection with its execution and delivery of this Supplemental
Indenture and for any liability or responsibility arising in connection herewith.
Section 2.02 The Trustee accepts the trust in this Supplemental Indenture declared and
provided upon the terms and conditions set forth in the Indenture. The Trustee shall not be
responsible in any manner whatsoever for the validity or sufficiency of this Supplemental Indenture
or the due execution hereof by the Company or for or in respect of the recitals and statements
contained herein, all of which recitals and statements are made solely by the Company.
Section 2.03 Except as hereby expressly modified, the Indenture and the Securities
issued thereunder are ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect.
Section 2.04 This Supplemental Indenture shall become effective only upon the
satisfaction of the following conditions: (i) the Trustee shall have received a counterpart of
this Supplemental Indenture duly executed by the Company, (ii) the execution and delivery of the
Account Control Agreement, (iii) the delivery of an Opinion of Counsel relating to this
Supplemental Indenture in accordance with Sections 1.2 and 9.3 of the Indenture,
(iv) the delivery of an Officer’s Certificate relating to this Supplemental Indenture in accordance
with Sections 1.2 and 9.3 of the Indenture, and (v) the Company shall have paid all
legal expenses of the holders of the Preferred Securities and the Trustee in connection with this
Supplemental Indenture.
Second Supplemental Indenture
10
Section 2.05 This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be deemed to be an original for all purposes; but such
counterparts shall together be deemed to constitute but one and the same instrument. The executed
counterparts may be delivered by facsimile or other electronic transmission, which facsimile or
other electronic copies shall be deemed original copies.
Section 2.06 The laws of the State of New York shall govern this Supplemental
Indenture without regard to the conflict of law principles thereof.
Section 2.07 In the event of any inconsistency between the terms and conditions of
this Second Supplemental Indenture and the terms and conditions of the Indenture, the terms and
conditions of this Second Supplemental Indenture shall prevail.
Section 2.08 The Company agrees that this Second Supplemental Indenture contains the
entire agreement between the Company and TPF VI and TPF VIII with respect to all of the matters set
forth in that certain Letter Agreement, dated March 24, 2008, and such Letter Agreement is hereby
superseded by the terms and conditions of this Second Supplemental Indenture.
[Remainder of Page Intentionally Left Blank]
Second Supplemental Indenture
11
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be
duly executed as of the day and year first above written.
| DESERT CAPITAL REIT, INC. as Company |
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| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Second Supplemental Indenture
| THE BANK OF NEW YORK TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee |
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| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Second Supplemental Indenture
| DESERT CAPITAL TRS STATUTORY TRUST I (as to Section 2.01 only) |
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| By: | ||||
| Name: | ||||
| Title: | Administrative Trustee | |||
| By: | ||||
| Name: | ||||
| Title: | Administrative Trustee | |||
Signature Page to Second Supplemental Indenture
| TABERNA PREFERRED FUNDING VI, LTD. (as to Section 1.07 (adding Sections 10.10(c) and 10.12(a) and(e) to the Indenture) and Section 2.01 only) |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| TABERNA PREFERRED FUNDING VIII, LTD. (as to Section 1.07 (adding Sections 10.10(c) and 10.12(a) and(e) to the Indenture) and Section 2.01 only) |
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| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Second Supplemental Indenture
