Exhibit 99.2
10,000,000 Shares(1)
SUNSET FINANCIAL RESOURCES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
XXXXX 00, 0000
X.X. Xxxxxxxxx + Co., LLC
X.X. Xxxxxx Securities Inc.
Xxxxxx, Xxxxxxxx & Company, Incorporated
As Representatives of several Underwriters
x/x X.X. Xxxxxxxxx + Co., LLC
000 Xxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
and
X.X. Xxxxxx Securities Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
Sunset Financial Resources, Inc., a Maryland corporation (the
"Company"), proposes to issue and sell up to an aggregate of 10,000,000 shares
of its authorized but unissued common stock, $0.001 par value per share (the
"Common Stock"), to the Underwriters (as hereinafter defined), for whom you (the
"Representatives") are acting as representatives (said 10,000,000 shares of
Common Stock to be issued and sold by the Company being herein called the
"Underwritten Stock"). The Company has also granted the Underwriters an option
to purchase up to an aggregate of 1,500,000 additional shares of Common Stock
(the "Option Stock," and the Option Stock together with the Underwritten Stock
being hereinafter referred to as the "Shares"). The Common Stock is more fully
described in the Registration Statement and the Prospectus hereinafter
mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Shares by the Underwriters, named in Schedule 1 hereto (herein
collectively called the "Underwriters").
------------
(1) Plus an option to purchase from the Company up to an aggregate of
1,500,000 additional shares to cover over-allotments.
1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-11
(No. 333-111018), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of the Shares. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you
and the Company has consented to the use of such copies for the purposes
permitted by the Securities Act.
(a) The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including all exhibits and financial
statements, all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, in the form in which it became
effective, and any registration statement filed pursuant to Rule 462(b) of the
rules and regulations of the Commission with respect to the Shares (herein
called a "Rule 462(b) registration statement"), and, in the event of any
amendment thereto after the effective date of such registration statement (the
"Effective Date"), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule 462(b)
registration statement). The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from and
after the filing with the Commission of such supplement or the effectiveness of
such amendment) such prospectus as so supplemented or amended. The term
"Preliminary Prospectus" as used in this Agreement shall mean each preliminary
prospectus included in such registration statement prior to the time it becomes
effective.
(b) The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Underwriter as follows:
(a) Neither the Commission nor any state securities commission has
issued any order preventing or suspending the use of any Preliminary Prospectus
or has instituted or threatened to institute any proceedings with respect to
such an order. The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which the Option
Stock is to be purchased, the Prospectus will comply, in all material respects,
with the provisions of the Securities Act and the rules and regulations of the
Commission thereunder (the "Securities Act and Rules"). On the Effective Date,
the Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, and on the
Effective Date the Prospectus did not, and on the Closing Date and any later
date on which the Option Stock is to be purchased, will not, contain any untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein, or necessary in order to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties in this subparagraph 2(a) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters expressly for use in the
Registration Statement or Prospectus.
(b) The only subsidiary of the Company is SFR Subsidiary, Inc. ("SFR"),
and the Company does not hold any equity interest in any corporation, limited
liability company, partnership, joint venture or entity other than SFR. SFR has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Maryland, having full power and corporate
authority to own or lease its properties and to conduct its business as
described in the Registration Statement and the Prospectus; and (ii) is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and SFR, taken as a whole a "Material Adverse Effect"); all of the
issued and outstanding shares of capital stock of SFR have been duly authorized
and validly issued and are fully paid and are non-assessable and are owned by
the Company directly, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of capital
stock of SFR were issued in violation of preemptive or other similar rights
arising by operation of law, under the charter or bylaws of SFR or under any
agreement or instrument to which the Company or any SFR is a party. As of the
Closing Date, SFR will be organized, will operate and together with Company will
make, in a timely manner, the joint election necessary so as to qualify as a
taxable REIT subsidiary ("TRS") under Section 856(l) of the Code, and will use
its best efforts to and intends to remain qualified as a TRS. Neither SFR nor
the Company know of any event or condition which would cause or is likely to
cause SFR to fail to qualify as a TRS.
(c) The Company (i) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
having full power and corporate authority to own or lease its properties and to
conduct its business as described in the Registration Statement and the
Prospectus; and (ii) is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would not
have a Material Adverse Effect. The Company has employees located solely in
Florida, and in no other jurisdiction in the United States, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of the State of Florida which are the only jurisdictions where the
Company is required to be so qualified.
(d) The Company has the duly authorized and validly issued outstanding
capitalization as of December 31, 2003 set forth under the caption
"Capitalization" in the Prospectus and will have the adjusted capitalization as
of December 31, 2003 (giving effect to the closing of the offering contemplated
by this Agreement) set forth therein on the Closing Date and any later date on
which the Option Stock is to be purchased, based on the assumptions set
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forth therein. The securities of the Company conform to the descriptions thereof
contained in the Registration Statement and the Prospectus. The form of
certificates for the Shares conforms to the requirements of the Maryland General
Corporation Law. The outstanding shares of the Company's capital stock have been
duly authorized and validly issued by the Company and are fully paid and
nonassessable and, except as otherwise described in the Preliminary Prospectus,
the Prospectus and the Registration Statement, were issued in transactions that
were exempt from the registration requirements of the Securities Act, without
violation of any preemptive rights, rights of first refusal or similar rights.
Except as created hereby or otherwise described in the Registration Statement
and the Prospectus, there are no outstanding options, warrants, rights or other
arrangements requiring the Company at any time to issue any capital stock. No
holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares to be
sold by the Company, and neither the filing of the Registration Statement nor
the offering or sale of the Shares to be sold by the Company as contemplated by
this Agreement gives rise to any rights, other than those that have lapsed or
have been waived or satisfied, for or relating to, the registration of any
securities of the Company. The Shares to be sold by the Company hereunder are
duly authorized, and will be, when sold to the Underwriters as provided herein,
validly issued, fully paid and nonassessable and conform to the description
thereof contained in the Section of the Registration Statement and the
Prospectus entitled "Description of Capital Stock." No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein.
(e) The Company has full legal right, corporate power and authority to
enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming it is a binding agreement of the Underwriters, constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles relating to the
availability of remedies and except as rights to indemnity or contribution may
be limited by federal or state securities laws and the public policy underlying
such laws), and none of the Company's execution or delivery of this Agreement,
its performance hereunder, its consummation of the transactions contemplated
herein, its application of the net proceeds of the offering in the manner set
forth under the caption "Use of Proceeds" or the conduct of its business as
described in the Registration Statement and the Prospectus, conflicts or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under,
causes or will cause (or permits or will permit) the maturation or acceleration
of any liability or obligation or the termination of any right under, or result
in the creation or imposition of any lien, charge or encumbrance upon, any
property or assets of the Company or SFR pursuant to the terms of (i) the
articles of incorporation or bylaws of the Company or SFR; (ii) any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement, note
agreement or other agreement or instrument to which the Company or SFR is a
party or by which either the Company or SFR is bound or to which their
respective property is subject; or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or SFR of any government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or SFR or their
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respective activities or properties, which, in the case of clause (ii) and (iii)
above, would reasonably be expected to have a Material Adverse Effect.
(f) The Common Stock has been approved for listing on the New York
Stock Exchange and, prior to the Closing Date, (i) the Common Stock shall be
listed and duly admitted to trading on the New York Stock Exchange and (ii) the
Shares will be authorized for inclusion in the New York Stock Exchange.
(g) The financial statements of the Company and the related notes and
schedules thereto included in the Registration Statement and the Prospectus
fairly present the financial position, results of operations, stockholders'
equity and cash flows of the Company at the dates and for the periods specified
therein. Such financial statements and the related notes and schedules thereto
have been prepared in accordance with United States generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise noted therein) and all adjustments necessary for a fair
presentation of results for such periods have been made. The statistical data
included in the Registration Statement and the Prospectus are true and accurate
in all material respects and present fairly the information shown therein and
such data has been prepared on a basis consistent with the books and records of
the Company.
(h) Ernst & Young LLP who have certified our balance sheets, related
statements of operations, stockholders' equity, and cash flows as of December
31, 2003, and our results of operations and cash flows for the period beginning
October 6, 2003 and ended December 31, 2003, filed with the Commission as part
of the Registration Statement and the Prospectus, have represented to the
Company that they are independent public accountants as required by the
Securities Act and the rules and regulations promulgated thereunder. All
auditing services and non-audit services, other than de minimus services,
provided to the Company by Ernst & Young LLP since July 30, 2002, have been
preapproved by the audit committee of the Company's board of directors in
accordance with Section 10A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(i) Each of the Company and SFR maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure
that material information relating to the Company and SFR is made known to the
Company's principal executive officer and the Company's principal financial
officer or persons performing similar functions.
(j) The Company has filed all necessary federal, state and local
income, franchise and other material tax returns and has paid all taxes shown as
due thereunder, and the Company has no tax deficiency that has been or, to their
knowledge, that might be assessed against the
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Company that, if so assessed, would have a Material Adverse Effect. All tax
liabilities accrued through the date hereof have been adequately provided for on
the books of the Company.
(k) The Company maintains insurance underwritten by insurers of
recognized financial responsibility of the types and in amounts and with such
deductibles as are customary for companies in the same or similar business, all
of which insurance is in full force and effect.
(l) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit, claim, proceeding or investigation pending
or, to the Company's knowledge, threatened against the Company or SFR before or
by any court, regulatory body or administrative agency or any other governmental
agency or body, domestic or foreign, that (i) questions the validity of the
capital stock of the Company or this Agreement or any action taken or to be
taken by the Company pursuant to or in connection with this Agreement; (ii) is
required to be disclosed in the Registration Statement and the Prospectus, which
is not so disclosed (and such proceedings, if any, as are summarized in the
Registration Statement and the Prospectus are accurately summarized in all
material respects); or (iii) may have a Material Adverse Effect.
(m) All executed agreements or copies of executed agreements filed or
incorporated by reference as exhibits to the Registration Statement have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable by
and against it in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally, and general equitable principles relating to the availability
of remedies, and except as rights to indemnity or contribution may be limited by
federal or state securities laws and the public policy underlying such laws).
The descriptions in the Registration Statement and the Prospectus of contracts
and other documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Securities Act and
Rules. There are no contracts or other documents that are required by the
Securities Act or Rules to be described in the Registration Statement and the
Prospectus or filed as exhibits to the Registration Statement that are not
described or filed as required. The exhibits that have been filed are complete
and correct copies of the documents of which they purport to be copies. No party
has any right to require the Company to register any securities for sale under
the Securities Act.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as expressly contemplated
therein, the Company has not incurred, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent,
purchased any of its outstanding capital stock, paid or declared any dividends
or other distributions on its capital stock or entered into any material
transactions, and there has been no material change in capital stock or debt or
any material adverse change, or any development involving a prospective material
adverse change, in the business, properties, assets, net worth, condition
(financial or otherwise) or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business.
(o) Neither the Company nor SFR is, nor with the giving of notice or
lapse of time or both will the Company or SFR be, in violation of or in default
under, any term or provision of
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(i) their respective articles of incorporation or bylaws; (ii) any indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement, note
agreement or other agreement or instrument to which the Company or SFR is a
party or by which either of them is bound or to which any of their respective
property is subject, or any indebtedness, the effect of which breach or default
singly or in the aggregate may have a Material Adverse Effect; or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
or of any arbitrator, court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or SFR or their respective activities or properties and the effect of
which violation or default singly or in the aggregate may have a Material
Adverse Effect.
(p) The Company has not incurred any liability for a fee, commission,
or other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than as
contemplated hereby.
(q) No labor disturbance by the employees of the Company or principal
suppliers or customers of the Company exists or, to the Company's knowledge, is
imminent.
(r) Except as disclosed in the Registration Statement and the
Prospectus, each of the Company and SFR owns, is licensed or otherwise possesses
all rights to use, all patents, patent rights, inventions, know-how (including
trade secrets and other unpatented or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade names,
copyrights and other intellectual property rights (collectively, the "Rights")
necessary for the conduct of their respective businesses as described in the
Registration Statement and the Prospectus. Except as disclosed in the
Registration Statement and the Prospectus, to the Company's knowledge, no claims
have been asserted against the Company or SFR by any person with respect to the
use of any such Rights or challenging or questioning the validity or
effectiveness of any such Rights. The continued use of the Rights in connection
with the business and operations of the Company and SFR does not, to the
knowledge of the Company, infringe on the rights of any person, which, if the
subject of an unfavorable decision, ruling or filing, would have a Material
Adverse Effect.
(s) Each of the Company and SFR is conducting their respective
businesses in compliance with all applicable laws, ordinances or governmental
rules or regulations of the jurisdictions in which it is conducting business,
except (i) where the failure to be so in compliance would not have a Material
Adverse Effect or (ii) as otherwise disclosed in the Registration Statement or
Prospectus. Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") to qualify or exempt the
Shares for public offering by the Underwriters under state securities or Blue
Sky laws) has been obtained or made and is in full force and effect.
(t) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors or affiliates (within the meaning of the rules and
regulations promulgated under the Securities Act), has taken or may take,
directly or indirectly, any action designed to cause or
7
result in, or that has constituted or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock of the Company, to facilitate the sale or resale of the Shares or
otherwise.
(u) The Company is not, nor after giving effect to the issuance and
sale of the Shares by the Company and the application of the net proceeds
therefrom as described under the caption "Use of Proceeds" in the Prospectus,
will it be, an "investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations of the Commission promulgated thereunder.
(v) There are no transfer taxes or similar fees or charges under
federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance and sale by the Company of the Shares to be sold by
the Company.
(w) The Company has good and marketable title to all properties and
assets described in the Registration Statement and the Prospectus as owned by
it, free and clear of all liens, encumbrances, security interests, equities,
claims and defects, except such as are described in the Registration Statement
and Prospectus, or such as are not materially important in relation to the
business of the Company. The Company has valid and enforceable leases for the
properties described in the Registration Statement and the Prospectus as leased
by it, free and clear of all liens, encumbrances, security interests, equities,
claims and defects, except such as are not material and do not interfere with
the use made by the Company thereof and except as disclosed in the Registration
Statement and the Prospectus. The Company owns or leases all such properties as
are necessary to its operations as now conducted, as set forth in the
Registration Statement and the Prospectus, and the properties and businesses of
the Company conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(x) The Company holds all franchises, licenses, permits, approvals,
certificates and other authorizations from federal, state and other governmental
or regulatory authorities necessary for the ownership, leasing and operation of
its properties or required for the present and proposed conduct of its business,
and such franchises, licenses, permits, approvals, certificates and other
governmental authorizations are in full force and effect and the Company is in
compliance therewith in all material respects, except where the failure so to
hold, obtain, maintain or comply with would not be reasonably expected to have a
Materially Adverse Effect.
(y) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder (herein called "ERISA"); no "reportable event" (as defined in ERISA)
has occurred with respect to any "pension plan" (as defined in ERISA) for which
the Company would have any liability; the Company has not incurred and does not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan"; or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "Pension Plan"
for which the Company would have liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in
8
all material respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
(z) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the current or prior directors, officers,
stockholders, customers or suppliers of the Company, on the other hand, which is
required to be described in the Registration Statement and the Prospectus that
is not so described.
(aa) Neither the Company nor SFR nor any director or officer of the
Company or SFR nor, to the knowledge of the Company, any agent, employee or
other person associated with or acting on behalf of the Company or SFR or has
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provisions of
the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence, payment, kickback or other unlawful payment.
(bb) Since its inception, the Company has not, directly or indirectly,
including through any subsidiary, extended or maintained credit, arranged for
the extension of credit or renewed an extension of credit in the form of a
personal loan to or for any director or executive officer in violation of
Section 13(k) of the Exchange Act.
(cc) The business and operations of the Company have been and are being
conducted or operated in compliance with all applicable laws, ordinances, rules,
regulations, licenses, permits, approvals, plans, authorizations or requirements
relating to occupational safety and health, pollution, protection of health or
the environment (including, without limitation, those relating to emissions,
discharges, release or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) or otherwise
relating to remediating real property in which the Company has or has had any
interest, whether owned or leased, of any governmental department, commission,
board, bureau, agency or instrumentality of the United States, any state or
political subdivision thereof and all applicable judicial or administrative
agency or regulatory decrees, awards, judgments and orders relating thereto,
except for such failures to so comply as would not, individually or in the
aggregate, have a Material Adverse Effect and the Company has not received any
notice from a governmental instrumentality or any third party alleging any
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances or damage to natural resources).
(dd) Neither the Company nor any officer of the Company nor, to the
Company's knowledge, any employee of the Company is a party to any contract or
commitment that restricts in any material respect the ability of the Company or
such individual to engage in the business of the Company or SFR as described in
the Registration Statement and the Prospectus.
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(ee) As of the Closing Date, the Company will be organized and will
operate so as to qualify as a "real estate investment trust" ("REIT") under
Sections 856 through 860 of the Code, and will use its best efforts to and
intends to remain qualified to, be taxed as a REIT under the Code and pursuant
to any applicable state tax laws. The Company does not know of any event or
condition which would cause or is likely to cause the Company to fail to qualify
as a REIT.
(ff) Neither the Company nor SFR owns any real property; and, except as
described in the Prospectus, neither the Company nor SFR has conducted any
business.
(gg) SFR is not currently prohibited, directly or indirectly, under any
agreement or other instrument to which it is a party or is subject, from paying
any dividends to the Company, from making any other distribution on its capital
stock, from repaying to the Company any loans or advances to SFR from the
Company or from transferring any of SFR's properties or assets to the Company.
(hh) Nothing has come to the attention of the Company that has caused
the Company to believe that the statistical and market-related data included in
the Registration Statement and the Prospectus is not based on or derived from
sources that are reliable and accurate in all material respects.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company shall sell the
Underwritten Stock to the Underwriters, and the Underwriters agree to purchase
from the Company, the Underwritten Stock. The price at which such shares of
Underwritten Stock shall be sold by the Company and purchased by the
Underwriters shall be $12.09 per share (the "Purchase Price"). In making this
Agreement, each Underwriter is contracting severally and not jointly; and except
as provided in paragraphs (b) and (c) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule 1.
(b) If for any reason one of the Underwriters shall fail or refuse
(other than for a reason sufficient to justify the termination of this Agreement
under the provisions of Section 7 or 12 hereof) to purchase and pay for the
number of Shares agreed to be purchased by such Underwriter, the non-defaulting
Underwriters shall have the right within 24 hours after the receipt by you of
notice of such failure or refusal to so purchase, to purchase or procure one or
more other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter and upon the terms herein set forth,
all or any part of the Shares that such defaulting Underwriter agreed to
purchase. If a non-defaulting Underwriter fails so to make such arrangements
with respect to all such Shares and portion, the number of Shares that such
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining Shares and portion that the defaulting Underwriter agreed to purchase;
provided, however, that such non-defaulting Underwriter shall not be obligated
to purchase the Shares and portion that such defaulting Underwriter agreed to
purchase if the aggregate number of such Shares exceeds 10% of the total number
of Shares that the Underwriters agreed to purchase under this Agreement. If the
total number of Shares that the defaulting Underwriter agreed to purchase shall
not be purchased or
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absorbed in accordance with the two preceding sentences, the Company shall have
the right, within 24 hours next succeeding the 24-hour period referred to above,
to make arrangements with other underwriters or purchasers reasonably
satisfactory to you for purchase of such Shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If such non-defaulting Underwriter or the Company does not make
arrangements (such arrangements being subject to the Underwriters' approval,
which shall not be unreasonably withheld) within the 24-hour periods stated
above for the purchase of all the Shares that such defaulting Underwriter agreed
to purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to the non-defaulting
Underwriters or on the part of the non-defaulting Underwriters to the Company
except that the Company shall continue to be obligated as set forth in Section
6(g), Section 8 and Section 9. Nothing in this paragraph 3(b), and no action
taken hereunder, shall relieve a defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the Underwriters to purchase, severally and not
jointly the Option Stock at the Purchase Price. Said option may be exercised
only to cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not more
than twice) on or before the 30th day after the date of this Agreement upon
written or electronic notice by the Representatives to the Company setting forth
the aggregate number of shares of Option Stock as to which the Underwriters are
exercising the option. Delivery of the certificates for the shares of Option
Stock, and payment therefor shall be made as provided in Section 5 hereof. The
number of shares of Option Stock to be purchased by each Underwriter shall be in
such amounts as the Underwriters shall agree upon prior to the exercise of the
option set forth hereunder.
4. OFFERING BY THE UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth under the first paragraph under the
caption "Underwriting-Commissions and Discounts," the last sentence under the
caption "Underwriting-Listing on the New York Stock Exchange," and the second
and third paragraphs under the caption "Underwriting-Price Stabilization, Short
Positions and Penalty Bids", in each case, in any Preliminary Prospectus and the
Prospectus relating to the Shares filed by the Company (insofar as such
information relates to the Underwriters or related persons) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus and the Prospectus.
11
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(b) hereof shall have
been exercised not later than 8:00 A.M., Pacific Standard Time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Sidley Xxxxxx Xxxxx & Xxxx LLP, 000 Xxxxxxxxxx Xxxxxx, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000 on the third (fourth, if the pricing occurs after
4:30 p.m. (Eastern Time) on any given day) business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such third business day, as shall be agreed upon in writing by the
Company and you. The date and hour of such delivery and payment are herein
called the Closing Date.
(b) If the option granted by Section 3(b) hereof shall be exercised
after 8:00 A.M., Pacific Standard Time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Sidley Xxxxxx Xxxxx & Xxxx LLP,
000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 at 7:00 A.M., Pacific
Standard Time, on the third business day after the exercise of such Option, or
at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company and
you.
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order by wire transfer or one or more certified or official
bank check or checks in same day funds. Such payment shall be made upon delivery
of certificates for the Shares to you against receipt therefor signed by you.
Certificates for the Shares to be delivered to you shall be registered in the
name or names and shall be in such denominations as you may request at least two
business days before the Closing Date, in the case of Underwritten Stock, and at
least one business day prior to the purchase thereof, in the case of Option
Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging on the business day preceding the Closing
Date or, in the case of Option Stock, by 12:00 P.M., Pacific Standard Time, on
the business day preceding the date of purchase.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A;
and (ii) not file with the Commission any amendment to the Registration
Statement or supplement to the Prospectus (a) of which the Underwriters shall
not previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent or (b) of which is not in compliance with the
Securities Act or the rules and regulations of the Commission thereunder.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriters (i) of any request made by the Commission
for amendment of the Registration Statement, for supplement to the Prospectus or
for additional information; (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, or the
institution or threat of any action, investigation or proceeding for that
purpose;
12
or (iii) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction, or
the receipt by it of notice of the initiation or threatening of any proceeding
for that purpose. The Company will use its reasonable best efforts to prevent
the issuance of any such order and, if issued, to obtain the lifting or
withdrawal thereof as soon as possible.
(c) The Company will (i) on or before the Closing Date, deliver to each
of the Representatives a signed copy, and to each of the other Underwriters a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy for each of the
Representatives and conformed copy for each of the other Underwriters of each
post-effective amendment, if any to the Registration Statement (together with,
in each case, all exhibits thereto unless previously delivered to the
Underwriters); (ii) as promptly as possible deliver to the Underwriters, at such
office as the Underwriters may designate, as many copies of the Prospectus as
the Underwriters may reasonably request; and (iii) thereafter from time to time
during the period in which a prospectus is required by law to be delivered by an
Underwriter or a dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as the
Underwriters may reasonably request for the purposes contemplated by the
Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event shall occur or
condition exist as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in light of the
circumstances existing at the time it is delivered to a purchaser of the Shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. The Company authorizes the
Underwriters and all dealers to whom any of the Shares may be sold by the
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or a dealer,
in keeping such qualifications in good standing under said securities or blue
sky laws; provided, however, that the Company shall not be required to qualify
as a foreign corporation or file any general consent to service of process in
any jurisdiction in which it is not so qualified. The Company will from time to
time, prepare and file such statements,
13
reports and other documents as are or may be required to continue such
qualifications in effect for so long a period as you may reasonably request for
distribution of the Shares.
(g) The Company agrees to pay the costs and expenses relating to the
following matters: (A) the preparation, printing or reproduction and filing with
the Commission of the Registration Statement (including financial statements and
exhibits thereto), each Preliminary Prospectus, the Prospectus, and each
amendment or supplement to any of them; (B) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and all amendments or supplements to any of them, as
may, in each case, be reasonably requested for use in connection with the
offering and sale of the Shares; (C) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp or
transfer taxes in connection with the original issuance and sale of the Shares
to be sold by the Company; (D) the printing (or reproduction) and delivery of
this Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Shares; (E) the registration of the Shares under the Exchange Act and the
listing of the Shares on the New York Stock Exchange; (F) any registration or
qualification of the Shares for offer and sale under the securities or blue sky
laws of the several states and any other jurisdictions (including filing fees
and the reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification); (G) any filings required to be made with
the National Association of Securities Dealers, Inc. (including filing fees and
the reasonable fees and expenses of counsel for the Underwriters relating to
such filings); (H) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Shares; (I) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company; and (J) all other costs and expenses incident to the
performance by the Company of its obligations hereunder.
(h) As soon as practicable, but in any event not later than 45 days
after the end of the first fiscal quarter first occurring after the first
anniversary of the Effective Date, the Company will make generally available to
its security holders, in the manner specified in Rule 158(b) of the rules and
regulations promulgated under the Securities Act, an earnings statement that
will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Securities Act and Rule 158(a) of the rules
and regulations promulgated thereunder.
(i) During a period of three years after the date hereof, the Company
will furnish or make available to the Underwriter copies of all periodic and
special reports furnished to the shareholders of the Company including but not
limited to (i) as soon as reasonably practicable after the end of each fiscal
year, copies of the Company's Annual Report and (ii) as soon as reasonably
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
information, documents or reports filed with the Commission.
(j) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
14
(k) The Company will not, directly or indirectly, without the prior
written consent of X.X. Xxxxxxxxx + Co., LLC and X.X. Xxxxxx Securities Inc., on
behalf of the Underwriters, issue, offer, sell, grant any option to purchase or
otherwise dispose (or announce any issuance, offer, sale, grant of any option to
purchase or other disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days from the effective date of the Registration Statement,
except (i) pursuant to this Agreement, (ii) pursuant to the exercise of warrants
outstanding on the date hereof and as described in the Prospectus or (iii)
pursuant to the exercise of stock options outstanding on the date hereof, or
granted subsequent to the date hereof, pursuant to a stock option or other
employee benefit plan in existence on the date hereof and as described in the
Prospectus.
(l) The Company will cause the Shares to be duly listed, and admitted
and authorized for trading, on the New York Stock Exchange prior to the Closing
Date.
(m) The Company will not take, directly or indirectly, and will use its
best efforts to cause its officers, directors or affiliates not to take,
directly or indirectly, any action designed to, or that might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company.
(n) The Company will apply the net proceeds of the offering received by
it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(o) The Company will use its best efforts to timely file all such
reports, forms or other documents as may be required from time to time, under
the Securities Act, the rules and regulations promulgated thereunder, the
Exchange Act and the rules and regulations promulgated thereunder, and all such
reports, forms and documents filed will comply as to form and material substance
with the applicable requirements under the Securities Act, the rules and
regulations promulgated thereunder, the Exchange Act and the rules and
regulations promulgated thereunder.
(p) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a "company" controlled by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(q) The Company either has caused to be delivered to you or will cause
to be delivered to you prior to the effective date of the Registration Statement
a letter (the "Lock-Up Agreement") from each of the Company's directors,
executive officers and five percent (5%) or greater stockholders and Sapphire
Advisors LLC and each of its members stating that such person or entity agrees
that he, she or it will not, without the prior written consent of X.X. Xxxxxxxxx
+ Co., LLC and X.X. Xxxxxx Securities Inc. directly or indirectly, (i) sell,
offer, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option right or warrant to purchase,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of capital stock of the Company or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or
15
acquire any shares of capital stock of the Company, or (ii) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any shares of capital stock of the
Company, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of shares of capital stock of the Company or such
other securities, in cash or otherwise, in each case, that such person or entity
directly or beneficially owns or acquires, for a period of 180 days after the
from the effective date of the Registration Statement.
(r) Until March 17, 2006, the Company will retain Ernst & Young LLP or
a comparable qualified independent account, as its qualified accountants and
such qualified tax experts as the Company may identify to assist the Company in
developing appropriate accounting systems and testing procedures and to conduct
quarterly compliance reviews designed to determine compliance with the REIT
provisions of the Code and the Company's exempt status under the 1940 Act.
(s) The Company will not invest in futures contracts, options on
futures contracts or options on commodities unless the Company is exempt from
the registration requirements of the Commodity Exchange Act, as amended, or
otherwise complies with the Commodity Exchange Act, as amended. In addition, the
Company will not engage in any activities which might be subject to the
Commodity Exchange Act, as amended, unless such activities are exempt from the
Commodity Exchange Act or otherwise comply with that Commodity Exchange Act or
with an applicable no-action letter to the Company from the Commodities Futures
Trading Commission.
(t) Provided that the closing of the offering contemplated by this
Agreement has occurred, the Company will make an election to qualify as a REIT
under Section 856 through 860 of the Code with its 2004 U.S. Federal income tax
return (and will as necessary during 2004 make a joint election with one or more
corporate subsidiaries, including SFR, to treat such subsidiaries as taxable
REIT subsidiaries).
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters under this Agreement are subject to the performance by the
Company on and as of the Closing Date or any later date on which Option Stock is
to be purchased, as the case may be, of its respective covenants and agreements
hereunder, and the following additional conditions:
(a) The Registration Statement shall have become effective, and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission.
(b) The Underwriters shall be satisfied that (i) as of the Effective
Date, the statements made in the Registration Statement and the Prospectus were
true and correct and neither the Registration Statement nor the Prospectus
omitted to state a fact required to be stated therein or that is necessary to
make the statements therein not misleading; (ii) since the Effective Date, no
event has occurred that should have been set forth in a supplement or amendment
to the Prospectus that has not been set forth in an effective supplement or
amendment; (iii) since the respective dates as of which information is given in
the Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in the
business, properties, financial condition or results of operations of the
Company, whether or not arising from transactions in the ordinary course of
business, and since such dates, except in the ordinary course of business, the
Company has not entered into any
16
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein;
(iv) the Company does not have any material contingent obligations that are not
disclosed in the Registration Statement and the Prospectus; (v) there are no
pending or, to the Company's knowledge, threatened legal proceedings to which
the Company is a party or of which property of the Company is subject that are
material and that are not disclosed in the Registration Statement and the
Prospectus; (vi) there are not any franchises, contracts, leases or other
documents that are required to be filed as exhibits to the Registration
Statement that have not been filed as required; and (vii) the representations
and warranties of the Company herein are true and correct as of the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be.
(c) On or prior to the Closing Date, the legality and sufficiency of
the sale of the Shares hereunder and the validity and form of the certificates
representing the Shares, all corporate proceedings and other legal matters
incident to the foregoing, and the form of the Registration Statement and of the
Prospectus (except as to the financial statements and financial information
contained therein), shall have been approved at or prior to the Closing Date by
Sidley Xxxxxx Xxxxx & Xxxx LLP, counsel for the Underwriters. The Underwriters
shall have received from counsel to the Underwriters, such opinion or opinions
with respect to the issuance and sale of the Shares, the Registration Statement
and the Prospectus and such other related matters as the Underwriters reasonably
may request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) On the Closing Date, and if Option Stock is purchased at any date
after the Closing Date, on such later date, the Underwriters shall have received
an opinion addressed to the Underwriters, dated the Closing Date or, if related
to the later sale of Option Stock, such later date, of Xxxxx Liddell & Xxxx LLP,
counsel to the Company, to the effect set forth in Exhibit A hereto. In
rendering any such opinion, such counsel may rely, as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company and public officials.
(e) You shall have received from Ernst & Young LLP a letter addressed
to the Underwriters dated the Closing Date and any later date on which Option
Stock is purchased, confirming that Ernst & Young LLP are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and based upon the
procedures described in their letter delivered to the Underwriters concurrently
with the execution of this Agreement (the "Original Letter"), but carried out to
a date not more than three business days prior to the Closing Date or such later
date on which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are accurate as
of the Closing Date or such later date, as the case may be; and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter that are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any
17
change, or any development involving a prospective change, in or affecting the
business or properties of the Company which in your sole judgment makes it
impractical or inadvisable to proceed with the public offering of the Shares or
the purchase of the Option Stock as contemplated by the Prospectus.
(f) The Company shall deliver to you a copy of a letter from Ernst &
Young LLP, addressed to the Company, stating that their review of the Company's
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 2003, did not disclose any weakness in internal
controls that they considered to be material weaknesses.
(g) On the Closing Date, and on any later date on which Option Stock is
purchased, you shall have received a certificate, dated the Closing Date or such
later date, as the case may be, signed by the Chief Executive Officer and Chief
Financial Officer of the Company stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any amendments or supplements thereto and this Agreement, and that statements
(i) through (vii) included in paragraph (b) of this Section 7 are true and
correct.
(h) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
(i) You shall have been furnished evidence in the usual written or
electronic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(j) Prior to the Closing Date, the Shares shall have been duly
authorized for inclusion on the New York Stock Exchange, subject only to
official notice of issuance.
(k) On or prior to the Closing Date, X.X. Xxxxxxxxx + Co., LLC and X.X.
Xxxxxx Securities Inc. shall have received from at least ninety-five percent
(95%) of the stockholders of the Company (calculated on a fully-diluted basis),
including but not limited to all directors, executive officers and five percent
(5%) stockholders, and Sapphire Advisors LLC and each of its principals,
agreements, reasonably satisfactory to X.X. Xxxxxxxxx + Co., LLC, and X.X.
Xxxxxx Securities Inc. stating that such person or entity will not, without the
prior written consent of X.X. Xxxxxxxxx + Co., LLC, directly or indirectly, (i)
sell, offer, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option right or warrant to purchase,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of capital stock of the Company or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire any shares of capital stock of the Company, or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any shares of
capital stock of the Company, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of shares of capital stock of the
Company or such other securities, in cash or otherwise, in each case, that such
person or entity directly or beneficially owns or acquires, for a period of 180
days from the effective date of the Registration Statement.
18
In case any of the conditions specified in this Section 7 shall not be
fulfilled, this Agreement may be terminated by you giving notice to the Company.
Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraph (g) of Section 6
hereof; and (ii) if this Agreement is terminated by you because of any refusal
or failure on the part of the Company to perform any of its obligations or
agreement contained herein, to fulfill any of the conditions herein, or to
comply with any provision hereof other than by reason of a default by the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all actual, accountable out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the transactions contemplated hereby.
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
(a) The obligations of the Company to deliver the Shares shall be
subject to the conditions that (i) the Registration Statement shall have become
effective and (ii) no stop order suspending the effectiveness thereof shall be
in effect and no proceedings therefor shall be pending or threatened by the
Commission.
(b) In case either of the conditions specified in paragraph (a) of this
Section 8 shall not be fulfilled, this Agreement may be terminated by the
Company by giving notice to you. Any such termination shall be without liability
of the Company to the Underwriters and without liability of the Underwriters to
the Company; provided, however, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraph (g) of
Section 6 hereof.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (d) of this Section 9, the
Company agrees to indemnify and hold harmless each Underwriter (and any person
participating in the distribution who is deemed to be an underwriter (as defined
in Section 2(11) of the Securities Act) and each person (including each member
or officer thereof), if any, who controls any Underwriter or such person
participating in the distribution who is deemed to be an underwriter (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages or liabilities, joint or
several (and actions in respect thereof), to which such indemnified parties or
any of them may become subject, under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
and the Company agrees to reimburse each such Underwriter or any other such
indemnified party and each such officer, director and controlling person for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) as incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities, or in connection with any investigation or
inquiry of, or other proceeding that may be brought against, the respective
indemnified parties, in each case arising out of or that are based upon (i) any
untrue statement or
19
alleged untrue statement of any material fact contained in the Registration
Statement (including the Prospectus as part thereof and any Rule 462(b)
registration statement) or any post-effective amendment thereto (including any
Rule 462(b) registration statement) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstance under which they were made, not misleading, and (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
audio or visual materials provided by the Company or based upon written
information furnished by or on behalf of the Company including, without
limitation, slides, videos, films or tape recordings, used in connection with
the marketing of the Shares, including without limitation, any untrue or alleged
untrue statements communicated to securities analysts employed by the
Underwriter; provided, however, that (i) the indemnity agreement of the Company
contained in this paragraph (a) shall not apply to any such loss, claim, damage,
liability or action if such statement or omission was made in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of any Underwriter expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto and (ii) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter (or such persons) if the person asserting any such loss, claim,
damage, liability or action purchased Shares that are the subject thereof to the
extent that any such loss, claim, damage, liability or action (a) results from
the fact that such Underwriter (or such persons) failed to send or give a copy
of the Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the Securities Act and (b) arises out of or is based
upon an untrue statement or omission of a material fact contained in such
Preliminary Prospectus that was corrected in the Prospectus (as amended and
supplemented), unless such failure resulted from non-compliance by the Company
with paragraph (c) of Section 6 hereof. The indemnity agreements of the Company
contained in this paragraph (a) and the representations and warranties of the
Company contained in Section 2 hereof shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery and payment for the Shares.
(b) Subject to the provisions of paragraph (d) of this Section 9, each
Underwriter severally agrees to indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the Registration Statement,
each person, if any, who controls the Company (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) (each, a "controlling
person") and the other Underwriters against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding that may be brought
against, the respective indemnified parties, in each
20
case arising out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; or (ii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstance under which they were made, not misleading, in each case to the
extent, but only to the extent, that such statement or omission was made in
reliance upon and in conformity with information relating to such Underwriter
furnished in writing by or on behalf of such indemnifying Underwriter to the
Company expressly for use in the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto, and will reimburse, as incurred,
any reasonable legal or other expenses incurred (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) by the
Company or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery and payment for the Shares.
(c) Each party indemnified under the provisions of paragraph (a) or (b)
of this Section 9 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against it, in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, such
indemnified party will promptly notify any party or parties from whom
indemnification may be sought hereunder of the commencement thereof in writing.
No indemnification provided for in such paragraphs shall be available to any
party who shall fail to give such notice if the party to whom such notice was
not given was unaware of the action, suit, investigation, inquiry or proceeding
to which such notice would have related and was materially prejudiced by the
failure to give the notice, but the omission to notify such indemnifying party
or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability that it or they may have to the
indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party or parties against which a claim is
to be made will be entitled, at its own expense, to participate in the defense
of such action, suit, investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of notice from the indemnified party or parties of an action,
suit, investigation or inquiry to which indemnity may be sought, to assume the
entire defense thereof (alone or in conjunction with any other indemnifying
party or parties), at its own expense, in which case such defense shall be
conducted by counsel reasonably satisfactory to the indemnified party or
parties; provided, however, that (i) if the indemnified party or parties has
reasonably concluded after consultation with legal counsel that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
21
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct such defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties; and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen and paid
for by such indemnified party or parties participate in, but not conduct, the
defense. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 9 for any legal or other expenses
(other than the reasonable costs of investigation) subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party has employed such counsel in connection with the assumption of
different or additional legal defenses in accordance with the proviso to the
immediately preceding sentence; or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. If no such notice to assume the defense of such action
has been given within a reasonable time of the indemnified party's or parties'
notice to such indemnifying party or parties, the indemnifying party or parties
shall be responsible for any and all legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
referred to in paragraphs (a) and (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties from the offering of the Shares; or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified, on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other, shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares (after deducting the
underwriting discount but before deducting expenses) and the total underwriting
discount received by the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus, bear to the aggregate public offering price of
the Shares. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable consideration referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any
22
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriter hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which a claim for contribution may be made against another
party or parties under this paragraph (d), it will promptly notify such party or
parties from whom contribution may be sought, but the omission to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any other obligation it may have hereunder or otherwise
(except as specifically provided in paragraph (c) of this Section 9). The
contribution agreement set forth above shall be in addition to any liabilities
that any indemnifying party may have at common law or otherwise.
(e) No indemnifying party will, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any person who controls such Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a party
to such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such indemnified party and each
such controlling person from all liability arising out of such claim, action,
suit or proceeding.
10. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 9 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 9 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 10 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent that any such payment
is ultimately held to be improper, the Underwriters shall promptly refund it;
and (ii) the Underwriters shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
11. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers and the Underwriters,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, and will survive delivery of and payment for the Shares. Any
successors to the Underwriters shall be entitled to the indemnity, contribution
and reimbursement agreements contained in this Agreement.
23
12. TERMINATION.
(a) In addition to the termination described in Section 7 hereof, this
Agreement (except for the provisions of Section 9 hereof) may be terminated by
you by notice to the Company at any time prior to the Closing Date if: (i) the
Company shall have sustained a loss by strike, fire, flood, accident or other
calamity of such a character as to interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
was insured; (ii) trading in the Common Stock shall have been suspended or
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
limitations on such trading shall have been imposed or limitations on prices
shall have been established on any such exchange or market system; (iii) an
escalation of major hostilities or international conflict involving the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof shall have occurred; (iv) any outbreak of hostilities,
act of terrorism or other national or international calamity or crisis or
material adverse change in economic or political conditions shall have occurred
if the effect of such outbreak, terrorist act, calamity, crisis or change in
economic or political conditions in the financial markets of the United States
would, in your judgment, make the offering or delivery of the Shares
impracticable; (v) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of, or commencement of
any proceeding or investigation by, any court, legislative body, agency or other
governmental authority shall have occurred that in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company; (vi) a banking moratorium shall have
been declared by New York or United States authorities; or (vii) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs shall have occurred that in your judgment has a
material adverse effect on the securities markets in the United States.
(b) If this Agreement is terminated pursuant to this Section 12, there
shall be no liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination, or if the Underwriters decline to purchase the Shares for any
reason permitted under this Agreement, the Company agrees to indemnify and hold
harmless the Underwriters from all accountable, reasonable, out-of-pocket costs
or expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraph (g) of
Section 6. Notwithstanding any termination of this Agreement, the provisions of
Section 9 hereof shall survive and remain in full force and effect.
13. NOTICES. All communications hereunder shall be in writing and if
sent to the Underwriters shall be mailed or delivered or emailed and confirmed
by letter or telecopied and confirmed by letter to X.X. Xxxxxxxxx + Co., LLC at
000 Xxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000, Attn: Xxxx Xxxxxxxx and to
X.X. Xxxxxx Securities Inc., 000 Xxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000
Attn: Syndicate Desk with copies to Sidley Xxxxxx Xxxxx & Xxxx LLP, 000
Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000, Attn: Xxxxxxx X. Xxxxxx,
Esq., or, if sent to the Company, shall be mailed or delivered or emailed and
confirmed to the Company at 0000 Xxxxxx Xxxx, Xxxxx 0-X, Xxxxxxxxxxxx, Xxxxxxx
00000, Attn: Xxxx Xxxxxx with copies to Lock Liddell & Xxxx LLP, 0000 Xxxx
Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, Attn: Xxxxx Xxxxxxx, Esq.
24
14. SUCCESSORS. This Agreement shall be to the benefit of and be
binding upon the Company and the Underwriters and, with respect to the
provisions of Section 9 hereof, the several parties (in addition to the Company
and the Underwriters) indemnified under the provisions of said Section 9, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this Agreement,
or any provisions herein contained. The term "successors and assigns" as herein
used shall not include any purchaser, as such purchaser, of any of the Shares
from the Underwriters.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby may be instituted in the federal courts of the United States
of America located in the City of New York in the County of Manhattan or the
courts of the State of New York in each case located in the City of New York in
the County of Manhattan (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court, as to
which such jurisdiction is non-exclusive) of such courts in any such suit,
action or proceeding. Service of any process, summons, notice or document by
mail to such party's address set forth above shall be effective service of
process for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the laying of
venue of any suit, action or other proceeding in the Specified Courts and
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
[INTENTIONALLY LEFT BLANK]
25
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
SUNSET FINANCIAL RESOURCES, INC.
By: /s/ Xxxx Xxxx Xxxxxx
--------------------------------------------
Name: Xxxx Xxxx Xxxxxx
Title: President and Chief Executive Officer
Accepted as of the date first above written:
X.X. XXXXXXXXX + CO., LLC
X.X. XXXXXX SECURITIES INC.
XXXXXX, XXXXXXXX & COMPANY,
INCORPORATED
AS REPRESENTATIVES OF THE UNDERWRITERS
By: X.X. Xxxxxxxxx + Co., LLC
By: /s/ Xxxxxx Xxxxxx
---------------------------------
Name: Xxxxxx Xxxxxx
Title: Managing Director
By: X.X. Xxxxxx Securities Inc.
By: /s/ Xxxx Xxxxxxx
---------------------------------
Name: Xxxxxxx, Xxxx
Title: Managing Director
26
SCHEDULE 1
UNDERWRITERS
NUMBER OF SHARES TO BE
UNDERWRITER PURCHASED FROM THE COMPANY
----------- ---------------------------
X.X. Xxxxxxxxx + Co., LLC................................................ 3,920,000
X.X. Xxxxxx Securities Inc............................................... 3,920,000
Xxxxxx, Xxxxxxxx & Company, Incorporated................................. 1,960,000
Fidelity Capital Markets, a division of National Financial Services LLC.. 100,000
Xxxxx Xxxxxxxx & Xxxxx Inc............................................... 100,000
----------
Total 10,000,000
==========
S-1
EXHIBIT A
Form of Opinion of Xxxxx Liddell & Xxxx LLP on Behalf of the Company
(a) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
with full power and authority (corporate and other) to own or lease its
properties and to conduct its business as described in the Registration
Statement and the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction set forth on Exhibit A
hereto.
(b) The authorized capital stock of the Company consists of 50,000,000
shares of Preferred Stock, $0.001 par value, of which there are no outstanding
shares, and 100,000,000 shares of Common Stock, $0.001 par value, of which there
are outstanding ________ shares (including the Underwritten Stock and any shares
of Option Stock issued on the date hereof, when issued and delivered to and paid
for by the Underwriters as provided in the Underwriting Agreement). The
securities of the Company conform in all material respects to the description
thereof contained in the Prospectus. Proper corporate proceedings have been
validly taken to authorize the Company's authorized capital stock and all
outstanding shares of such capital stock (including the Underwritten Stock and
the shares of Option Stock issued, if any) have been duly authorized and validly
issued by the Company, are fully paid and nonassessable and have been issued in
compliance with all Federal and state securities laws. Any Option Stock
purchased after the Closing Date, when issued and delivered to and paid for by
the Underwriters as provided in the Underwriting Agreement, will have been duly
and validly issued and be fully paid and nonassessable. No preemptive rights,
rights of first refusal or other rights exist with respect to the Shares, or the
issue and sale thereof, pursuant to the Company's articles of incorporation or
bylaws, and there are no contractual preemptive rights that have not been
waived, right of first refusal or rights of co-sale that exist with respect to
the Shares.
(c) SFR is duly incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation with full
power and authority (corporate and other) to own or lease its properties and to
conduct its business as described in the Registration Statement and the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all jurisdictions set forth on Exhibit A hereto; all of the
issued and outstanding shares of capital stock of SFR have been duly authorized
and validly issued and are fully paid and are non-assessable and are owned by
the Company directly, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity.
(d) There are no rights of any holders of the Company's securities, not
effectively satisfied or waived, to require registration under the Securities
Act of any of the Company's securities or other securities of the Company in
connection with the filing of the Registration Statement or with the offer or
sale of the Shares.
(e) There are no rights of any holders of the Company's securities to
require the Company to register any securities under the Securities Act that are
not described in the Registration Statement and the Prospectus.
A-1
(f) The Company has full legal right, corporate power and authority to
enter into the Underwriting Agreement and to consummate the transactions
provided for therein. The Underwriting Agreement has been duly authorized,
executed and delivered by the Company and constitutes the legal, valid and
binding agreement of the Company, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to or affecting
creditors' rights generally or by general principles of equity relating to the
availability of remedies and except as rights to indemnity and contribution may
be limited by Federal or state securities laws or the public policy underlying
such laws.
(g) None of the Company's execution or delivery of the Underwriting
Agreement, its performance thereof, its consummation of the transactions
contemplated therein or its application of the net proceeds of the offering in
the manner set forth under the caption "Use of Proceeds," conflicts or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon, any property or assets of
the Company or SFR pursuant to the terms of the articles of incorporation or
bylaws of the Company or SFR; the terms of any indenture, mortgage, deed of
trust, voting trust agreement, stockholder's agreement, note agreement or other
agreement or instrument known to such counsel to which the Company or SFR is a
party or by which either the Company or SFR is or may be bound or to which their
respective properties may be subject; any statute, rule or regulation of any
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign known to such counsel, having jurisdiction over the Company
or SFR or any of their respective activities or properties; or any judgment,
decree or order, known to such counsel, of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign, having such jurisdiction.
(h) No consent, approval, authorization or order of any court,
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign, has been or is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act or may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Shares
by the Underwriters.
(i) To the knowledge of such counsel, (i) the conduct of the business
of the Company and SFR is not in violation of any federal, state or local
statute, administrative regulation or other law, which violation is likely to
have a material adverse effect on the Company and its subsidiary, taken as a
whole, and (ii) the Company and SFR has obtained all licenses, permits,
franchises, certificates and other authorizations from state, Federal and other
regulatory authorities as are necessary or required for the ownership, leasing
and operation of its properties and the conduct of their respective businesses
as presently conducted and as contemplated in the Prospectus.
(j) The Registration Statement is effective under the Securities Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that
A-2
purpose have been instituted or are pending or, to the knowledge of such
counsel, are threatened or contemplated by the Commission.
(k) The Registration Statement and the Prospectus (except for the
financial statements, schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion), comply
as to form in all material respects with the requirements of the Securities Act
and Rules.
(l) The descriptions contained and summarized in the Registration
Statement and the Prospectus of franchises, contracts, leases, documents, or any
threatened legal or governmental actions, suits or proceedings, are accurate and
fairly represent in all material respects the information required to be shown
by the Securities Act and the rules and regulations of the Commission
thereunder. To such counsel's knowledge, there are no franchises, contracts,
leases, documents, statues, regulations or any pending or threatened legal or
governmental actions, suits or proceedings, which are required by the Securities
Act and Rules to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described or
filed as required.
(m) The statements (1) in the Prospectus under the captions "Certain
Relationships"; "Description of Capital Stock"; "Management of Our
Company--Limitation of Liability and Indemnification"; "ERISA Considerations";
and "Material Provisions of Maryland Law and Our Articles of Incorporation and
Bylaws" and (2) in the Registration Statement in Items 33 and 34, in all cases
insofar as such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information required
under the Securities Act and Rules with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein to the
extent required by the Securities Act and Rules at the time the Registration
Statement became effective, and did not contain any untrue statement of material
fact or omit to state a material fact to be stated therein or necessary to make
the statements therein not misleading.
(n) The Company is not and will not be, after giving effect to the
issuance and sale of the Shares and the application of the net proceeds
therefrom as described under the caption "Use of Proceeds" in the Prospectus, an
"investment company" or a "company" controlled by an "investment company" within
the meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the Commission promulgated thereunder.
(o) Good and marketable title to the Shares sold under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities, security
interests and claims, has been transferred to the Underwriters, assuming for the
purpose of this opinion that the Underwriters purchased the same in good faith
without notice of any liens, encumbrances, equities, security interests or
adverse claims.
(p) The Shares have been duly authorized for listing on the New York
Stock Exchange upon official notice of issuance.
(q) The Company is organized in conformity with the requirements for
qualification as a real estate investment trust ("REIT") under the Code and,
provided the Company makes a
A-3
timely election to be a REIT with its U.S. federal income tax return for 2004,
the Company's proposed method of operations as described in the Registration
Statement and the Prospectus will enable it to satisfy the requirements for
qualification and taxation as a REIT under the Code commencing with its taxable
year ended December 31, 2004.
(r) As of the Closing Date, SFR and the Company have made, in a timely
manner, the joint election necessary for SFR to qualify as a taxable REIT
subsidiary ("TRS") under Section 856(l) of the Code.
(s) The section of the Prospectus entitled "Federal Income Tax
Consequences" identified and fairly summarizes the material federal income tax
consequences that are likely yo be material to a holder of Common Stock.
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in certain conferences with officers and representatives of the
Company and with representatives of the Company's independent public accountants
and the Underwriters, at which conferences such counsel made inquiries of such
officers, representatives and accountants and discussed the contents of the
Registration Statement and the Prospectus and (without taking any further action
to verify independently the statements made in the Registration Statement and
the Prospectus) and although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus, other than as
specified in paragraphs (m) and (s) above, on the basis of the foregoing,
nothing has come to such counsel's attention that causes such counsel to believe
that either the Registration Statement as of the date it is declared effective
or the Prospectus as of the date thereof and as of the Closing Date (or if
related to the later sale of the Option Stock, such later date) contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading (it being understood that such counsel need
not express any opinion with respect to the financial statements, related notes
and schedules and other financial and statistical data included in the
Registration Statement or the Prospectus).
A-4
