UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 001-34436
Starwood Property Trust, Inc.
(Exact name of registrant as specified in its charter)
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Maryland
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27-0247747
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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591 West Putnam Avenue
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Greenwich, Connecticut
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06830
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(203) 422-7700
Indicate by check mark whether the registrant (1) has filed all reports to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter earlier period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
þ
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
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No
þ
The number of shares of the issuers common stock, $0.01 par value, outstanding as of November
16, 2009, was 47,583,800.
TABLE OF CONTENTS
PART I Financial Information
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Item 1.
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Financial Statements
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Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(Unaudited, amounts in thousands, except per share data)
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As of
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September 30, 2009
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Assets:
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Cash and cash equivalents
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$
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892,714
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Investments in mortgage backed securities held to maturity, net
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202,635
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Contractual deposits
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5,000
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Accrued interest receivable
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1,025
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Deferred financing costs, net of accumulated amortization of $3
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340
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Other assets
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1,072
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Total assets
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$
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1,102,786
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Liabilities and Stockholders Equity
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Liabilities:
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Accounts payable and accrued expenses
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$
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697
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Related-party payable
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2,210
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Dividends payable
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5,349
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Secured financing agreements
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171,507
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Deferred offering costs
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27,195
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Other liabilities
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281
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Total liabilities
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207,239
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Commitments and contingencies (Note 9)
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Equity:
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Starwood Property Trust, Inc. Stockholders Equity:
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Preferred stock, $0.01 per share 100,000,000 shares authorized, no shares issued and outstanding
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Common stock, $0.01 per share, 500,000,000 shares authorized, 47,583,800 issued and outstanding
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476
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Additional paid-in capital
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894,254
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Accumulated deficit
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(7,268
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)
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Total Starwood Property Trust, Inc. Stockholders Equity
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887,462
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Noncontrolling interests in consolidated entity
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8,085
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Total Equity
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895,547
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Total liabilities and stockholders equity
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$
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1,102,786
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See notes to condensed consolidated financial statements
1
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(Unaudited, amounts in thousands, except per share data)
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For the Period from
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August 17, 2009
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(Commencement of
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Operations) Through
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September 30, 2009
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Net interest margin:
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Interest income from mortgage backed securities
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$
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865
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Interest expense
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(253
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Net interest margin
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612
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Expenses:
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Management fees (including $811 of non-cash stock-based compensation)
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2,465
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General and administrative (including $11 of non-cash stock-based
compensation)
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501
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Total operating expenses
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2,966
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Interest income from cash balances
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583
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Net loss
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$
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(1,771
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)
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Net income attributable to noncontrolling interests
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148
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Net loss attributable to Starwood Property Trust, Inc.
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$
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(1,919
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)
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Net loss per common share:
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Basic
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$
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(0.04
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)
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Diluted
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$
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(0.04
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Weighted average number of shares of common stock outstanding:
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Basic
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47,575,000
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Diluted
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47,575,000
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See notes to condensed consolidated financial statements
2
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders Equity
(Unaudited, amounts in thousands, except per share data)
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Total
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Starwood
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Property
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Additional
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Trust, Inc.
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Non-
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Common Stock
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Paid-
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Accumulated
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Stockholders
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controlling
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Total
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Shares
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Par Value
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In Capital
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Deficit
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Equity
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interests
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Equity
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Balance at August 17, 2009
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(Commencement of Operations)
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100
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$
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$
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1
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$
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$
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1
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$
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$
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1
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Proceeds from public offering of
common stock
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46,575,000
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466
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931,034
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931,500
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931,500
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Underwriting and offering costs
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(57,592
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(57,592
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(57,592
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Proceeds from private placement
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1,000,000
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10
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19,990
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20,000
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20,000
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Cancelation of shares
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(100
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(1
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(1
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(1
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Stock-based compensation
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822
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822
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822
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Net loss
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(1,919
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(1,919
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148
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(1,771
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Dividends declared, $0.11 per share
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(5,349
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(5,349
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(5,349
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Contribution from noncontrolling
interests
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50,855
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50,855
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Distribution to noncontrolling interests
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(42,918
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(42,918
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Balance at September 30, 2009
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47,575,000
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$
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476
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$
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894,254
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$
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(7,268
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$
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887,462
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$
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8,085
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$
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895,547
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See notes to condensed consolidated financial statements
3
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited, amounts in thousands, except per share data)
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For the Period from
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August 17, 2009
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(Commencement of
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Operations) Through
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September 30, 2009
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Cash Flows from Operating Activities:
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Net loss
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$
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(1,771
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Adjustments to reconcile net loss to net cash provided from
operating activities:
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Amortization of deferred financing costs
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3
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Amortization of net discount
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(2
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Stock-based compensation
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822
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Changes in operating assets and liabilities:
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Related-party payable
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1,685
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Interest income receivable, less purchased interest
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(772
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Other assets
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(1,072
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Accounts payable and accrued expenses
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447
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Other liabilities
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281
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Net cash used in operating activities
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(379
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)
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Cash Flows from Investing Activities:
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Investment in commercial mortgage-backed securities held to maturity
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(202,633
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Purchased interest on commercial mortgage-backed securities, net
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(253
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Contractual deposits
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(5,000
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Net cash used in investing activities
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(207,886
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)
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Cash Flows from Financing Activities:
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Borrowings of secured financing arrangements
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171,579
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Principal repayments on borrowings
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(72
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Payment of deferred financing costs
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(343
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Repurchase and retirement of shares
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(1
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Proceeds from common stock offerings
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951,500
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Payments of underwriting and offering costs
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(29,622
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Contribution from noncontrolling interest owners
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50,855
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Distribution to noncontrolling interest owners
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(42,918
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Net cash provided by financing activities
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1,100,978
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Net increase in cash and cash equivalents
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892,713
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Cash and cash equivalents, beginning of period
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1
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Cash and cash equivalents, end of period
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$
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892,714
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Supplemental disclosure of cash flow information:
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Cash paid for interest
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$
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86
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Supplemental disclosure of non-cash financing activity:
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Dividends declared
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$
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5,349
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Deferred offering costs
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$
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27,195
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See notes to condensed consolidated financial statements
4
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
1. Business and Organization
Starwood Property Trust, Inc. and subsidiaries (the Company) is a Maryland corporation
that commenced operations on August 17, 2009, upon the completion of its initial public
offering. The Company is focused primarily on originating, investing in, financing and managing
commercial mortgage loans and other commercial real estate debt investments. The Company may also
invest in residential mortgage-backed securities and residential mortgage loans. The Company is
externally managed and advised by SPT Management, LLC (the Manager).
The Company is organized and conducts its operations to qualify as a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). As such, the
Company will generally not be subject to U.S. federal corporate income tax on that portion of its
net income that is distributed to stockholders if it distributes at least 90% of its taxable income
to its stockholders by prescribed dates and complies with various other requirements.
The Company is organized as a holding company that conducts its business primarily through two
wholly-owned subsidiaries, SPT Real Estate Sub I, LLC and SPT TALF
Sub I, LLC. The Company has
formed joint ventures (the Joint Ventures) with Starwood Hospitality Fund II (Hotel II) and
Starwood Opportunity Fund VIII (SOF VIII), collectively the Starwood Private Real Estate Funds,
in accordance with the co-investment and allocation agreement with our Manager. These Joint
Ventures are owned 75% by the Company and are consolidated into the Companys consolidated
financial statements.
2. Summary of Significant Accounting Policies
Recent Accounting Pronouncements
Accounting Standards Codification (ASC)
In June 2009, the Financial Accounting Standards
Board (FASB) issued a pronouncement establishing the FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with GAAP. The standard
explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as
authoritative GAAP for Securities and Exchange Commission (SEC) registrants. This standard is
effective for financial statements issued for fiscal years and interim periods ending after
September 15, 2009. The Company has adopted this standard in the third quarter of 2009.
Disclosures about Fair Value of Financial Instruments
In April 2009, the FASB issued a
statement requiring an entity to provide qualitative and quantitative information on a quarterly
basis about fair value estimates for any financial instruments not measured on the balance sheet at
fair value. The Company adopted this pronouncement in the third quarter of 2009.
Subsequent Events
In May 2009, the FASB issued a statement which introduces the concept of
financial statements being available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available to be issued. The
pronouncement is effective for interim periods ending after June 15, 2009. The Company adopted this
pronouncement in the 2009 third quarter. The Company evaluates subsequent events as of the date of
issuance of its financial statements and considers the impact of all events that have taken place
to that date in its disclosures and financial statements when reporting on the Companys financial
position and results of operations. The Company has evaluated
subsequent events through November 16,
2009 and has determined that no other events need to be disclosed.
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued a statement which
eliminates the concept of a qualifying special-purpose entity (QSPE) and requires more
information about transfers of
financial assets, including securitization transactions as well as a companys continuing
exposure to the risks related to transferred financial assets. This statement has not yet been
codified but remains authoritative guidance until such time that it is integrated in the FASB ASC.
This statement is effective for financial asset transfers made on or after January 1, 2010 and
early adoption is prohibited. Management is currently evaluating the impact of adopting this
statement on our consolidated financial statements.
5
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
Amendments to Variable Interest Entity Accounting
In June 2009, the FASB issued a statement
which amends the consolidation guidance applicable to variable interest entities (VIEs). The
amendments will significantly affect the overall consolidation analysis. It changes the way a
primary beneficiary is determined in a VIE and how entities account for securitizations and special
purpose entities as a result of the elimination of the QSPE concept. This statement has not yet
been codified but remains authoritative guidance until such time that it is integrated in the FASB
ASC. This statement will be effective on January 1, 2010 and early adoption is prohibited. Management
is currently evaluating the impact on our consolidated financial statements of adopting this
statement.
Fair Value Measurements and Disclosures
In August 2009, the FASB issued a statement which
provides guidance on measuring the fair value of liabilities. It clarifies that the unadjusted
quoted price for an identical liability, when traded as an asset in an active market is a Level 1
measurement for the liability and provides guidance on the valuation techniques to estimate fair
value of a liability in the absence of a Level 1 measurement. This statement is effective for the
first interim or annual reporting period after its issuance. The adoption of this statement did
not have a material effect on our consolidated financial statements.
Basis of Accounting and Principles of Consolidation
The accompanying condensed consolidated financial statements and related footnotes are
unaudited. In our opinion, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and cash flows have been
made. Results for interim periods are not necessarily indicative of the results to be expected for
the remainder of 2009.
The accompanying condensed consolidated financial statements include our accounts and those of
our consolidated subsidiaries. All significant intercompany amounts have been eliminated. The
preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America (GAAP) requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
The Company uses plain English when describing or referencing accounting standards in the
notes to the financial statements. As a result, there may be no reference to particular accounting
standards by name, standard number, or Codification reference number.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and short-term investments. Short-term
investments are comprised of highly liquid instruments with original maturities of three months or
less. The Company maintains its cash and cash equivalents in multiple financial institutions and
at times these balances exceed federally insurable limits.
Debt Securities
GAAP requires that at the time of purchase, the Company designate debt securities as
held-to-maturity, available-for-sale, or trading depending on ability and intent to hold such
security to maturity. Held-to-maturity investments are stated at cost plus any premiums or
discounts, which are amortized through the consolidated statements of income using the effective
interest method. Securities that the Company does not hold for the purpose of selling in the
near-term, but may dispose of prior to maturity, are designated as available-for-sale and are
carried at estimated fair value with the net unrealized gains or losses recorded as a component of
accumulated other comprehensive income (loss) in stockholders equity. As of September 30, 2009,
all of the Companys debt securities were designated as held-to-maturity.
The Company evaluates securities for other-than-temporary impairment (OTTI) at least
quarterly. Securities are considered to be other-than-temporarily impaired when it is probable
that we will be unable to recover our investment. The evaluation of a securitys estimated cash
flows includes the following, as applicable: (i) review of the credit of the issuer or the
borrower; (ii) review of the credit rating of the security, (iii) review of the key terms of the
security, (iv) review of the performance of the loan or underlying loans, including debt service
coverage and loan-to-value ratios; (v) analysis of the value of the collateral for the loan or
underlying loans, (vi) analysis of the
effect of local, industry, and broader economic factors, and (vii) analysis of historical and
anticipated trends in defaults and loss severities for similar securities. Unrealized losses on
securities that are other than temporary are charged against earnings as a loss on the consolidated
statements of operations.
6
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
Revenue Recognition
Interest income is accrued based on the outstanding principal amount of the investment
security or loan and the contractual terms. Discounts or premiums associated with the purchase of
an investment security are amortized into interest income on an effective yield or interest
method, based on expected cash flows through the expected maturity date of the security. Depending
on the nature of the investment, changes to expected cash flows may result in a prospective change
to yield or a retrospective change, which would include a catch up adjustment. Upon settlement of
securities, the excess (or deficiency) of net proceeds over the net carrying value of such security
or loan is recognized as a gain (or loss) in the period of settlement. Investment security
transactions are recorded on the trade date.
Deferred Financing Costs
Costs incurred in connection with securitized financing are capitalized and amortized over the
respective loan terms and are reflected on the accompanying statement of operations as a component
of interest expense. As of September 30, 2009, the Company had approximately $340,000 of
capitalized financing costs, net of amortization.
Earnings per share
The Company calculates basic earnings per share by dividing net income for the period by the
weighted average of common shares outstanding for that period. Diluted earnings per share takes
into effect the dilutive instruments, such as restricted stock and restricted stock units, except
when doing so would be antidilutive. As of September 30, 2009, there were 1,051,300 dilutive
securities outstanding.
Share-based payments
The Company recognizes the cost of share-based compensation and payment transactions in the
consolidated financial statements using the same expense category as would be charged for payments
in cash. The fair value of the restricted stock or restricted stock-units granted is recorded to
expense on a straight-line basis over the vesting period for the entire award, with an offsetting
increase in stockholders equity. For grants to employees and directors, the fair value is
determined based upon the stock price on the grant date. For nonemployee grants, the fair value is
based on the stock price when the shares vest, which requires the amount to be adjusted in each
subsequent reporting period based on the fair value of the award at the end of the reporting period
until such time as the award has vested.
Income Taxes
The Company has elected to be taxed as a REIT and intends to comply with the Code, as amended,
with respect thereto. Accordingly, the Company will not be subject to federal income tax to the
extent of its distributions to shareholders as long as certain asset, income and stock ownership
test are met. Many of these requirements are technical and complex and if we fail to meet these
requirements we may be subject to federal, state, and local income tax and penalties.
Underwriting Commissions and Offering Costs
Underwriting commissions and costs incurred in connection with our initial public offering
totaled approximately $57.6 million and are reflected as a reduction of additional paid-in capital.
7
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
3. Commercial Mortgage-Backed Securities (CMBS)
For the quarter ended September 30, 2009, the Company invested in CMBS through a joint venture
with SOF VIII in which the Company owns a 75% controlling interest and is required to consolidate
under GAAP. The table below represents 100% of the joint venture activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Book
|
|
|
Premium
|
|
|
Net Book
|
|
|
|
Value
|
|
|
(Discount)
|
|
|
Value
|
|
Balance as of August 11, 2009
(commencement of operations)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Acquisitions
|
|
|
202,699
|
|
|
|
(66
|
)
|
|
|
202,633
|
|
Discount/premium amortization
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
$
|
202,699
|
|
|
$
|
(64
|
)
|
|
$
|
202,635
|
|
|
|
|
|
|
|
|
|
|
|
The overall statistics for our CMBS investments calculated on a weighted average basis
assuming no early prepayments or defaults as of September 30, 2009 are as follows:
|
|
|
|
|
Credit Ratings (A)
|
|
AAA
|
|
Coupon
|
|
|
5.62
|
%
|
Yield
|
|
|
5.69
|
%
|
Weighted Average Life
|
|
2.20 years
|
|
|
|
|
(A)
|
|
Ratings per Fitch, Moodys or S&P.
|
The rating, vintage, property type, and location of the collateral securing our CMBS
investments calculated on a weighted average basis as of September 30, 2009 are as
follows:
|
|
|
|
|
Vintage
|
|
Percentage
|
|
2006
|
|
|
49.7
|
%
|
2007
|
|
|
50.3
|
%
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Percentage
|
|
Office
|
|
|
37.2
|
%
|
Retail
|
|
|
31.0
|
%
|
Multifamily
|
|
|
14.4
|
%
|
Hotel
|
|
|
8.2
|
%
|
Industrial
|
|
|
3.5
|
%
|
Other
|
|
|
5.7
|
%
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Location
|
|
Percentage
|
|
Northeast
|
|
|
27.6
|
%
|
South
|
|
|
28.6
|
%
|
Midwest
|
|
|
11.6
|
%
|
West
|
|
|
23.9
|
%
|
Other
|
|
|
8.3
|
%
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
8
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
4. Secured Financing Facilities
On August 28, 2009 and September 25, 2009, the Company entered into multiple Federal Reserve
Bank of New York Term Asset-backed securities Loan Facilities (TALF) through its joint venture
with SOF VIII. The TALF loans are non-recourse, bear a fixed interest rate and mature
five years from the loan closing dates. The loans are collateralized by the Companys CMBS
investments, which are held in a Master TALF Collateral Account and are under the control of the
lender until the loan is satisfied. As of September 30, 2009, the amounts outstanding under the
TALF facility were approximately $171.5 million.
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
Collateral
|
|
|
|
Book Value
|
|
|
Book Value
|
|
August 28, 2009, TALF loans, fixed rate 3.872%,
mature August 2014
|
|
$
|
55,030
|
|
|
$
|
64,907
|
|
|
|
|
|
|
|
|
|
|
September 25, 2009, TALF loans, fixed rate
3.796%, mature September 2014
|
|
|
116,477
|
|
|
|
137,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171,507
|
|
|
$
|
202,635
|
|
|
|
|
|
|
|
|
Principal repayments are due on the TALF financing when principal is collected on the
underlying CMBS securities, which can be paid off earlier or later than expected based on certain
market factors including asset sales or loan defaults. As of September 30, 2009, the Manager has
no anticipation of early principal repayments loan defaults of the underlying CMBS. The following
table represents our five-year principal repayments schedule for the TALF secured financing
assuming no early prepayments or defaults of the underlying CMBS assets.
|
|
|
|
|
|
|
Debt
|
|
|
|
Book
|
|
|
|
Value
|
|
2009
|
|
$
|
|
|
2010
|
|
|
|
|
2011
|
|
|
85,945
|
|
2012
|
|
|
85,562
|
|
2013 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171,507
|
|
|
|
|
|
5. Related-Party Transactions
Management Agreement
The Company entered into a management agreement with our Manager upon closing of our initial
public offering, which provides for an initial term of three years with automatic one-year
extensions thereafter unless terminated as described below. Under the management agreement, our
Manager, subject to the oversight of our Board of Directors, is required to manage the day-to-day
activities of the Company, for which the Manager receives a base management fee and is eligible for
an incentive fee and stock awards. The Manager is also entitled to charge the Company for certain
expenses incurred on behalf of the Company.
In accordance with the management agreement, the Company pays the Manager an annual base
management fee calculated as 1.5% per annum of stockholders equity less adjustments for unrealized
gains (losses) and other non-cash items affecting stockholders equity and less any common stock
repurchased since inception. These fees are payable quarterly in arrears and adjustments shall be
made at the end of each calendar year to reflect the actual
management fees payable for the year. For the period ended September 30, 2009, approximately
$1.7 million was incurred and payable to the Manager for base management fees.
9
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
The Manager will be entitled to an incentive fee with respect to each calendar quarter based
on annualized Core Earnings as defined below. The incentive fee is calculated as 20% of the excess
of Core Earnings over 8% of the weighted average shares outstanding times the weighted average
public offering issue price. Core Earnings is a non-GAAP measure defined as GAAP net income (loss)
excluding non-cash equity compensation expense, the incentive fee, unrealized gains, losses, or
other non-cash items. The incentive fee shall be payable one-half in common stock so long as the
ownership of shares by the Manager does not exceed the 9.8% stock ownership limit set forth in the
Company charter. As of September 30, 2009, no incentive fee was earned by the Manager.
The Company will be required to reimburse the Manager for operating expenses incurred by the
Manager on behalf of the REIT, including legal, accounting, due diligence, executive compensation
and other services. The expense reimbursement is not subject to any dollar limitations but will be
subject to review by the Companys Board of Directors. For the period ended September 30, 2009,
approximately $30,000 was incurred and payable to the Manager for executive compensation and other
reimbursable expenses.
Prior to commencement of operations, the Manager advanced approximately $148,000 to the
Company for the initial capitalization and cash for payment of SEC and other required filing fees
in connection with the initial public offering. The Company repaid the cash advances in full after
receipt of the proceeds from the initial public offering.
In connection with the initial public offering, the Company incurred an estimated $525,000 for
services provided by parties related to affiliates of our Manager. As of September 30, 2009, these
costs had been recorded as related-party payable and a reduction in additional paid-in capital.
After the initial three-year term, the Company can terminate the management agreement without
cause with an affirmative two thirds vote by the independent directors and 180 days written notice
to the Manager. Upon termination without cause, the Manager is due a termination fee equal to
three times the sum of the average annual base management fee and incentive fee earned by the
Manager over the preceding eight calendar quarters. No termination fee is payable if the Manager
is terminated for cause, as defined in the management agreement, which can be done at anytime with
30 days written notice from the Companys board of directors.
6. Stockholders Equity
Our authorized capital stock consists of 100,000,000 shares of preferred stock, $0.01 par
value and 500,000,000 shares of common stock, $0.01 par value.
On August 17, 2009, the Company completed its initial public offering, in which it sold
46,575,000 shares of common stock for $20 per share, and a concurrent private placement to an
entity controlled by Starwood Capital Group of an additional 1,000,000 shares of common stock for
$20 per share. The Companys total net proceeds from these offerings was approximately $921.1
million, excluding $27.2 million contingent underwriter fee (see Note 9).
The Company declared a dividend of $0.01 and $0.10 per share for the third and fourth quarters
of 2009, respectively, on September 18, 2009. The dividends will be paid on January 29, 2010, to
shareholders of record on October 31, 2009 and December 30, 2009, respectively.
Equity Incentive Plans
The Company has reserved 3,112,500 shares of common stock for issuance under the Equity Plan
and Manager Equity Plan and an additional 100,000 shares of common stock for issuance under the
Director Stock Plan. These plans provide for the issuance of restricted stock or restricted stock
units. The holders of awards of restricted stock or restricted stock units will be entitled to
receive dividends or distribution equivalents, which in either case will be payable at such time
dividends are paid on outstanding shares.
10
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
The Company granted each of its four directors 2,200 restricted shares in August 2009, with a
total fair value of $176,000. The awards will vest ratably in three annual installments on each of
the first second and third anniversaries of the grant, subject to the directors continued service.
As of September 30, 2009, approximately $7,000 was included in general and administrative expense
related to the grants.
In August 2009, the Company granted 1,037,500 restricted stock units with a fair value of
approximately $20.8 million at the grant date to the Manager under the Manager Equity Plan. The
award will vest ratably in quarterly installments over three years beginning on October 1, 2009.
As of September 30, 2009, approximately $811,000 was included in Manager stock-based payment
expense related to this grant.
The
Company granted 5,000 restricted stock units with a fair value of
$100,000 to employees under the
Equity Plan in August 2009. The award will vest ratably in quarterly installments over three years
beginning on October 1, 2009. As of September 30, 2009, approximately $4,000 was included in
general and administrative expense related to this grant.
7. Net Loss per Share
Net loss per share for the period since commencement of operations through September 30, 2009,
is computed as follows (amounts in thousands except share and per share):
|
|
|
|
|
Basic:
|
|
|
|
|
Net loss attributable to Starwood Property Trust, Inc.
|
|
$
|
(1,919
|
)
|
Weighted average number of common shares outstanding
|
|
|
47,575,000
|
|
Basic net loss per common share
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
Diluted:
|
|
|
|
|
Net loss attributable to Starwood Property Trust, Inc.
|
|
$
|
(1,919
|
)
|
Weighted average number of common shares outstanding
|
|
|
47,575,000
|
|
Additional shares due to assumed conversion of dilutive
instruments
|
|
|
|
|
Adjusted weighted average number of common shares outstanding
|
|
|
47,575,000
|
|
Diluted net loss per common share
|
|
$
|
(0.04
|
)
|
Potentially dilutive shares relating to 1,051,300 shares of restricted stock and restricted
stock units are not included in the calculation of diluted net loss per share because the effect
was antidilutive for the period ended September 30, 2009.
8. Fair Value of Financial Instruments
In cases where quoted market prices are not available, fair values are based upon the
estimation of discount rates to estimated future cash flows using market yields or other valuation
methodologies. Considerable judgment is necessary to interpret market data and develop estimated
fair value. Accordingly, fair values are not necessarily indicative of the amount the Company
could realize on disposition of the financial instruments. The use of different market assumptions
or estimation methodologies could have a material effect on the estimated fair value amounts.
11
STARWOOD PROPERTY TRUST, INC. and Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009
Due to the short maturities of cash and cash equivalents, accrued interest, and accounts
payable, the carrying value was deemed to be an approximation of the fair value. The fair value of
investment securities were based upon valuations obtained from dealers of those securities. The
fair value of the secured financing facilities was based on a discounted cash flow analysis using
the TALF rates on September 25, 2009.
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
CMBS
|
|
$
|
202,635
|
|
|
$
|
203,203
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
Secured financing
|
|
$
|
171,507
|
|
|
$
|
171,507
|
|
9. Commitments and Contingencies
In connection with the Companys initial public offering, the Company is required to pay $27.2
million of underwriters fee if the Companys Core Earnings exceeds an 8% performance hurdle rate
over four consecutive quarters as defined in the underwriters agreement. Based on our original
business plan, the Company expects to achieve this level of earnings. Therefore, the Company
recorded a deferred liability and an offsetting reduction in additional paid-in capital for the
full $27.2 million.
The Company has made a $5 million non-refundable deposit related to an agreement to acquire a
portfolio of loans with $147.5 million principal value secured by seven properties located in the
Southeast and leased a single tenant for approximately $110 million.
Management is not aware of any other contractual obligations, legal proceedings, or any other
contingent obligations incurred in the normal course of business that would have a material adverse
effect on the Companys financial statements.
10. Subsequent Events
The Company has evaluated subsequent events through November 16, 2009, the date these
financial statements were issued, and determined that there have not been any events that have
occurred that would require adjustments to or disclosures in the unaudited consolidated financial
statements except for the following:
In October 2009, the Company acquired approximately $13 million face value of bonds secured by
a mortgage on a New York City hotel for approximately $11 million.
In November 2009, the Company acquired a portfolio of loans with $147.5 million principal
value secured by seven properties located in the Southeast and leased to a single tenant for
approximately $110 million.
12
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
In this quarterly report on
Form 10-Q
, or this report, we refer to Starwood Property Trust,
Inc. and our subsidiaries as we, us, the Company, or our unless we specifically state
otherwise.
The following should be read in conjunction with the consolidated financial statements and
notes included herein. This Managements Discussion and Analysis of Financial Condition and
Results of Operations contains certain Non-GAAP financial measures. See Non-GAAP Financial
Measures and supporting schedules for reconciliation of our Non-GAAP financial measures to the
comparable GAAP financial measures.
Overview
Starwood Property Trust, Inc. is a newly organized Maryland corporation focused primarily
on originating, investing in, and financing commercial mortgage loans and other commercial real
estate debt investments, commercial mortgage-backed securities (CMBS), and other commercial real
estate-related debt investments. We may also invest in residential mortgage loans, residential
mortgage-backed securities (RMBS) for which a U.S. Government agency or a federally chartered
corporation guarantees payments of principal and interest on the securities, or Agency RMBS, and
RMBS that are not guaranteed by any U.S. Government agency or federally chartered corporation, or
Non-Agency RMBS. We collectively refer to commercial mortgage loans, other commercial real estate
debt investments, CMBS, other commercial real estate-related debt investments, residential mortgage
loans, and RMBS as our target assets.
Initially, we expect to focus on opportunities that exist in the U.S. commercial mortgage
loan, commercial real estate debt, and CMBS markets. As market conditions change over time, we may
adjust our strategy to take advantage of changes in interest rates and credit spreads as well as
economic and credit conditions. We believe that the diversification of our portfolio of assets,
our expertise among the target asset classes, and the flexibility of our strategy will position us
to generate attractive risk-adjusted returns for our stockholders in a variety of assets and market
conditions.
We intend to construct a diversified investment portfolio by focusing on asset
selection and the relative value of various sectors within the debt market. Initially, we expect
to finance our investments with financing under the Federal Reserves Term Asset-Backed Securities
Loan Facility (TALF) or U.S. Treasurys Public-Private Investment Program (PPIP), to the extent
available to us, as well as through securitizations and other sources of financing that may be
available to us, including warehouse and bank credit facilities.
The Company is organized as a holding company that conducts its business primarily through
two wholly-owned subsidiaries, SPT Real Estate Sub I, LLC and SPT
TALF Sub I, LLC. The Company has formed joint ventures (the Joint Ventures) with
Starwood Hospitality Fund II (Hotel II) and Starwood Opportunity Fund VIII (SOF VIII),
collectively the Starwood Private Real Estate Funds, in accordance with the co-investment and
allocation agreement with our Manager. These Joint Ventures are owned 75% by the Company and are
consolidated into the Companys consolidated financial statements.
We are externally managed and advised by SPT Management, LLC (our Manager). Our Manager is
controlled by Barry Sternlicht, our chairman and chief executive officer. SPT Management, LLC is an
affiliate of Starwood Capital Group, a privately-held private equity firm founded and controlled by
Mr. Sternlicht. Pursuant to a management agreement, dated August 17, 2009, between our Manager and
us, our Manager provides for the day-to-day management of our operations in exchange for the fees
and other payments described below.
We intend to elect and qualify to be taxed as a real estate investment trust (REIT) for
U.S. federal income tax purposes commencing with our taxable year ending December 31, 2009. We
also intend to operate our business in a manner that will permit us to maintain our exemption from
registration under the Investment Company Act of 1940, as amended, or the 1940 Act.
13
Factors Impacting Our Operating Results
Our results of our operations are affected by a number of factors and primarily depend
on, among other things, the level of our net interest income, and the supply of, and demand for,
commercial mortgage loans, commercial real
estate debt, CMBS and other financial assets in the marketplace. Our net interest income,
which reflects the amortization of purchase premiums and accretion of purchase discounts, varies
primarily as a result of changes in interest rates, prepayment rates on our mortgage loans and
prepayment speeds on our MBS. Interest rates and prepayment rates vary according to the type of
investment, conditions in the financial markets, credit worthiness of our borrowers, competition
and other factors, none of which can be predicted with any certainty. Our operating results may
also be impacted by credit losses in excess of initial anticipations or unanticipated credit events
experienced by borrowers whose mortgage loans are held directly by us or are included in our CMBS
and/or RMBS.
Changes in Fair Value of Our Assets.
It is our business strategy to hold our target
assets as long-term investments. As such, we expect that the majority of our MBS (including CMBS
and RMBS) will be carried at amortized cost as held-to-maturity securities. As a result, we do not
expect changes in the fair value of the assets to normally impact our operating results. However,
at least on a quarterly basis, we assess both our ability and intent to continue to hold such
assets to maturity. As part of this process, we monitor our target assets for other-than-temporary
impairment. A change in our ability and/or intent to continue to hold any of our investment
securities could result in our recognizing an impairment charge or realizing losses upon the sale
of such securities.
Changes in Market Interest Rates.
With respect to our business operations,
increases in interest rates, in general, may over time cause:
|
|
|
the interest expense associated with our borrowings to increase;
|
|
|
|
|
the value of our mortgage loan and MBS portfolio to decline;
|
|
|
|
|
coupons on our adjustable-rate mortgage loans to reset, although on a delayed basis,
to higher interest rates;
|
|
|
|
|
to the extent applicable under the terms of our investments, prepayments on our
mortgage loan portfolio and MBS to slow, thereby slowing the amortization of our
purchase premiums and the accretion of our purchase discounts; and
|
|
|
|
|
to the extent we enter into interest rate swap agreements as part of our hedging
strategy, the value of these agreements to increase.
|
Conversely, decreases in interest rates, in general, may over time cause:
|
|
|
the interest expense associated with our borrowings to decrease;
|
|
|
|
|
the value of our mortgage loan and MBS portfolio to increase;
|
|
|
|
|
coupons on our adjustable-rate mortgage loans and MBS to reset, although on a
delayed basis, to lower interest rates.
|
|
|
|
|
to the extent applicable under the terms of our investments, prepayments on our
mortgage loan and MBS portfolio to increase, thereby accelerating the amortization of
our purchase premiums and the accretion of our purchase discounts;
|
|
|
|
|
to the extent we enter into interest rate swap agreements as part of our hedging
strategy, the value of these agreements to decrease, and
|
Credit Risk.
One of our strategic focuses is acquiring assets which we believe to be of high
credit quality in the context of the returns we are seeking. We believe this strategy will
generally keep our credit losses and financing costs low. We are subject to varying degrees of
credit risk in connection with our target assets. Our Manager will seek to mitigate this risk by
seeking to acquire high quality assets at appropriate prices given anticipated and unanticipated
losses, deploying a comprehensive review and asset selection process, and careful
ongoing monitoring of acquired assets. Nevertheless, unanticipated credit losses could occur
which could adversely impact our operating results.
14
Size of Portfolio.
The size of our portfolio of assets, as measured by the
aggregate principal balance of our mortgage-related securities and the other assets we own is also
a key revenue driver. Generally, as the size of our portfolio grows, the amount of interest income
we receive increases. A larger portfolio, however, may result in increased expenses as we may
incur additional interest expense to finance the purchase of our assets.
Market Conditions.
We believe that our target assets currently present highly
attractive risk-adjusted return profiles. Beginning in the summer of 2007, adverse changes in the
financial markets have resulted in a deleveraging of the entire global financial system and the
forced sale of large quantities of mortgage-related and other financial assets. As a result of
these conditions, many traditional mortgage investors have suffered severe losses in their loan and
securities portfolios and several major market participants have failed or been impaired, resulting
in a contraction in market liquidity for mortgage-related assets. This illiquidity has negatively
affected both the terms and availability of financing for all mortgage-related assets, and has
generally resulted in mortgage-related assets trading at significantly lower prices compared to
prior periods. The recent period has also been characterized by an almost across the board
downward movement in loan and securities valuations, even though different mortgage pools have
exhibited widely different default rate and performance characteristics.
In an effort to stem the fallout from current market conditions, the United States and other
nations have begun to inject unprecedented levels of liquidity into the financial system and take
other actions designed to create a floor in financial asset valuations, restore stability to the
financial sector and support the flow of credit and other capital into the broader economy.
Significant government intervention has mitigated weakness in financial markets as evidenced by a
tightening of credit spreads in the broader markets, but commercial real estate property
transaction volume and financing activity remain constrained. There has been a significant lack of
new issuance in the CMBS market, although the secondary CMBS prices are generally higher since our
initial offering in light of government programs such as TALF. Various public companies and
private funds have formed or been announced since our initial offering, which we expect will
increase competition for investment opportunities in our target assets.
Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP), which requires the use of estimates and assumptions that
involve the exercise of judgment and use of assumptions as to future uncertainties. In accordance
with SEC guidance, the following discussion addresses the critical accounting policies that apply
to our operations. Our most critical accounting policies involve decisions and assessments that
could affect our reported assets and liabilities, as well as our reported revenues and expenses.
We believe that the decisions and assessments upon which our financial statements are based are
reasonable based upon information available to us at that time. Our critical accounting policies
and accounting estimates may be expanded over time as we fully implement our strategy. The
accounting policies and estimates that we initially expect to be most critical to an investors
understanding of our financial results and condition and require complex management judgment are
discussed below.
Classification of Investment Securities and Valuations of Financial Instruments
Our MBS investments are expected to initially consist primarily of commercial real
estate debt instruments and CMBS that we will classify as either available-for-sale or
held-to-maturity. To date, all investments have been classified as held-to-maturity and are
carried at amortized cost, net of deferred fees and costs, with income recognized using the
effective interest method. However, future investments in MBS may be classified as
available-for-sale, in which case they will be carried at their fair value, with changes in fair
value recorded through accumulated other comprehensive income/(loss), a component of stockholders
equity, rather than through earnings. We do not intend to hold any of our investment securities
for trading purposes; however, if our securities were classified as trading securities, there could
be substantially greater volatility in our earnings as changes in the fair value of securities
classified as trading are recorded through earnings.
15
When the estimated fair value of a security is less than amortized cost, we will
consider whether there is an other-than-temporary impairment (OTTI) in the value of the security.
Unrealized losses on securities considered to be other-than-temporary will be recognized in
earnings. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective
factors. Consideration is given to (i) the length of time and the extent to which the fair value
has been less than cost, (ii) the financial condition and near-term prospects of recovery in fair
value of the security, and (iii) our intent to retain our investment in the security, or whether it
is more likely than not we will be required to sell the security before its anticipated recovery in
fair value. Investments with unrealized losses will not be considered other-than-temporarily
impaired if we have the ability and intent to hold the investments for a period of time, to
maturity if necessary, sufficient for a forecasted market price recovery up to or beyond the cost
of the investments. Our management may be required to exercise significant judgment in evaluating
our investments for OTTI, and changes in assumptions could have a material impact on our recorded
results of operations and financial position.
Loans Held-for-Investment
Loans held-for-investment will be stated at the principal amount outstanding, net of
deferred loan fees and costs. Interest income will be recognized using the interest method or a
method that approximates a level rate of return over the loan term. Net deferred loan fees and
origination and acquisition costs will be recognized in interest income over the loan term as yield
adjustment. Loans that we have a plan to sell or liquidate in the near term will be held at the
lower of cost or fair value.
Loan Impairment
For loans classified as held-for-investment, we will evaluate the loans for possible
impairment on a quarterly basis. Impairment occurs when it is deemed probable that we will not be
able to collect all amounts due according to the contractual terms of the loan. Impairment will
then be measured based on the present value of expected future cash flows discounted at the loans
contractual effective rate or the fair value of the collateral, if the loan is collateral
dependent. Upon measurement of impairment, we record an allowance to reduce the carrying value of
the loan accordingly and record a corresponding charge to net income. Significant judgments are
required in determining impairment, including making assumptions regarding the value of the loan,
the value of the underlying collateral and other provisions such as guarantees.
Securitizations
We may periodically enter into transactions in which we sell financial assets, such
as commercial mortgage loans, CMBS, and other assets. Upon a transfer of financial assets, we will
sometimes retain or acquire senior or subordinated interests in the related assets. Gains and
losses on such transactions will be recognized based on a financial components approach that
focuses on control. Under this approach, after a transfer of financial assets that meets the
criteria for treatment as a salelegal isolation, ability of transferee to pledge or exchange the
transferred assets without constraint, and transferred controlan entity recognizes the financial
and servicing assets it acquired or retained and the liabilities it has incurred, derecognizes
financial assets it has sold, and derecognizes liabilities when extinguished. We will determine
the gain or loss on sale of mortgage loans by allocating the carrying value of the underlying
mortgage between securities or loans sold and the interests retained based on their fair values.
The gain or loss on sale is the difference between the cash proceeds from the sale and the amount
allocated to the securities or loans sold. From time to time, we may securitize mortgage loans we
hold if such financing is available. These transactions will be accounted for as either a sale
and the loans will be removed from our balance sheet or as a financing and will be classified as
securitized loans on our balance sheet, depending upon the structure of the securitization
transaction. This may require us to exercise significant judgment in determining whether a
transaction should be recorded as a sale or a financing.
Investment Consolidation
For each investment we make, we evaluate the underlying entity that issued the securities
we acquired or to which we make a loan to determine the appropriate accounting. A similar analysis
is performed for each entity with which we enter into an agreement for management, servicing or
related services. GAAP addresses the application of consolidation principles to certain entities in
which voting rights are not effective in identifying an investor with a controlling financial
interest. This determination can sometimes involve complex and subjective analyses.
16
Interest Income Recognition
We expect that interest income on our mortgage loans and AAA-rated MBS will be accrued
based on the actual coupon rate and the outstanding principal balance of such assets. Premiums and
discounts will be amortized or accreted into interest income over the lives of the assets using the
effective yield method, as adjusted for actual prepayments.
For our securities rated below AAA and unrated securities, cash flows from a
security are estimated applying assumptions used to determine the fair value of such security and
the excess of the future cash flows over the investment are recognized as interest income under the
effective yield method. We review and, if appropriate, make adjustments to our cash flow
projections at least quarterly and monitor these projections based on input and analysis received
from external sources, internal models, and our judgment about interest rates, prepayment rates,
the timing and amount of credit losses, and other factors. Changes in cash flows from those
originally projected, or from those estimated at the last evaluation, may result in a prospective
change in interest income recognized on, or the carrying value of, such securities.
For whole loans purchased at a discount, GAAP limits the yield that may be accreted
(accretable yield) to the excess of the investors estimate of undiscounted expected principal,
interest, and other cash flows (cash flows expected at acquisition to be collected) over the
investors initial investment in the loan. The excess of contractual cash flows over cash flows
expected to be collected is not allowed to be recognized as an adjustment of yield, loss accrual,
or valuation allowance. Subsequent increases in cash flows expected to be collected generally
should be recognized prospectively through adjustment of the loans yield over its remaining life.
Decreases in cash flows expected to be collected should be recognized as impairment.
Hedging Instruments and Hedging Activities
GAAP requires an entity to recognize all derivatives as either assets or liabilities in
the balance sheets and to measure those instruments at fair value. Additionally, the fair value
adjustments affect either other comprehensive income in stockholders equity until the hedged item
is recognized in earnings or net income depending on whether the derivative instrument qualifies as
a hedge for accounting purposes and, if so, the nature of the hedging activity.
Although we have not done so to date, in the normal course of business, we may use a variety
of derivative financial instruments to manage, or hedge, interest rate risk. These derivative
financial instruments must be effective in reducing our interest rate risk exposure in order to
qualify for hedge accounting. When the terms of an underlying transaction are modified, or when
the underlying hedged item ceases to exist, all changes in the fair value of the instrument
included in net income for each period until the derivative instrument matures or is settled. Any
derivative instrument used for risk management that does not meet the hedging criteria is
marked-to-market with the changes in value included in net income.
We will use derivatives for hedging purposes only and not for speculation. When we have
derivatives, we will determine the fair value in accordance with GAAP and may obtain quotations
from a third party to facilitate the process of determining these fair values. If our hedging
activities do not achieve our desired results, our reported earnings may be adversely affected.
Income Taxes
Our financial results are generally not expected to reflect provisions for current or
deferred income taxes. We believe that we operate in a manner that allows us to qualify for
taxation as a REIT. As a result of our expected REIT qualification, we do not generally expect to
pay U.S. federal corporate level taxes. Many of the REIT requirements, however, are highly
technical and complex. If we were to fail to meet the REIT requirements, we would be subject to
U.S. federal, state and local income taxes.
17
Recent Accounting Pronouncements
Accounting Standards Codification (ASC)
In June 2009, the Financial Accounting Standards
Board (FASB) issued a pronouncement establishing the FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of
financial statements in conformity with GAAP. The standard explicitly recognizes rules and
interpretive releases of the SEC under federal securities laws as authoritative GAAP for Securities
and Exchange Commission (SEC) registrants. This standard is effective for financial statements
issued for fiscal years and interim periods ending after September 15, 2009. The Company has
adopted this standard in the third quarter of 2009.
Disclosures about Fair Value of Financial Instruments
In April 2009, the FASB issued a
statement requiring an entity to provide qualitative and quantitative information on a quarterly
basis about fair value estimates for any financial instruments not measured on the balance sheet at
fair value. The Company adopted this pronouncement in the third quarter of 2009.
Subsequent Events
In May 2009, the FASB issued a statement which introduces the concept of
financial statements being available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available to be issued. The
pronouncement is effective for interim periods ending after June 15, 2009. The Company adopted this
pronouncement in the 2009 third quarter. The Company evaluates subsequent events as of the date of
issuance of its financial statements and considers the impact of all events that have taken place
to that date in its disclosures and financial statements when reporting on the Companys financial
position and results of operations. The Company has evaluated subsequent events through November 9,
2009 and has determined that no other events need to be disclosed.
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued a statement which
eliminates the concept of a qualifying special-purpose entity (QSPE) and requires more
information about transfers of financial assets, including securitization transactions as well as a
companys continuing exposure to the risks related to transferred financial assets. This statement
has not yet been codified but remains authoritative guidance until such time that it is integrated
in the FASB ASC. This statement is effective for financial asset transfers made on or after
January 1, 2010 and early adoption is prohibited. Management is currently evaluating the impact of
adopting this statement on our consolidated financial statements.
Amendments to Variable Interest Entity Accounting
In June 2009, the FASB issued a statement
which amends the consolidation guidance applicable to variable interest entities (VIEs). The
amendments will significantly affect the overall consolidation analysis. It changes the way a
primary beneficiary is determined in a VIE and how entities account for securitizations and special
purpose entities as a result of the elimination of the QSPE concept. This statement has not yet
been codified but remains authoritative guidance until such time that it is integrated in the FASB
ASC. This statement will be effective on January 1, 2010 and early adoption is prohibited. Management
is currently evaluating the impact on our consolidated financial statements of adopting this
statement.
Fair Value Measurements and Disclosures
In August 2009, the FASB issued a statement which
provides guidance on measuring the fair value of liabilities. It clarifies that the unadjusted
quoted price for an identical liability, when traded as an asset in an active market is a Level 1
measurement for the liability and provides guidance on the valuation techniques to estimate fair
value of a liability in the absence of a Level 1 measurement. This statement is effective for the
first interim or annual reporting period after its issuance. The adoption of this statement did
not have a material effect on our consolidated financial statements.
Results of Operations
We began our principal operations on August 17, 2009. We are currently in the process of
investing the proceeds of our initial public offering and private placement transactions. Results
for the initial period of our operations are not indicative of the results we expect when our
investment strategy has been fully implemented.
Our net loss attributable to common shareholders for the period August 17, 2009 (commencement
of operations) through September 30, 2009 was approximately $1.9 million or $0.04 per weighted
average common share (basic and diluted). We earned investment income on our portfolio of CMBS of
approximately $865,000 and incurred approximately $253,000, for a net interest margin of
approximately $612,000. In addition, we earned approximately $583,000 in interest income on cash
balances.
For the period August 17, 2009 through September 30, 2009, our non-investment expenses totaled
$3.0 million and consisted of base Management fees payable to our Manager ($1.7 million), non-cash
stock-based
expense related to the amortization of grants issued to our Manager upon completion of our
initial public offering ($0.8 million), and other general and administrative expenses ($0.5
million). The other general and administrative expense includes insurance, professional fees,
employee compensation costs, and general overhead costs for the Company. There was no incentive
management fee incurred for the period.
18
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain our assets and operations, make
distributions to our stockholders and other general business needs. We will use significant cash
to purchase our target assets, repay principal and interest on our borrowings, make distributions
to our stockholders and fund our operations. Our primary sources of cash currently consist of the
net proceeds from our August 2009 initial public offering and private placement, payments of
principal and interest we receive on our portfolio of assets, cash generated from our operating
results and financing arrangements such as non-recourse loans provided through the TALF.
As of September 30, 2009, we had cash and cash equivalents of $892.7 million which we believe
is sufficient to satisfy our liquidity needs for the next twelve months with respect to our current
investment portfolio, operating expenses, and REIT distribution requirements. We anticipate using
additional sources of liquidity, in addition to cash on hand, to purchase our target assets over
the next twelve months.
Additional sources of liquidity we may use in the future include (i) investments in funds that
have non-recourse term borrowing facilities and capital provided under the PPIP, (ii) non-recourse
loans provided under the TALF, (iii) securitizations, (iv) private financing such as warehouse and
bank credit facilities, and (v) public offerings of our equity or debt securities. If we are
unable to obtain financing through U.S. Government programs and unable to invest in the asset
classes expected to be financed through these programs at attractive rates of return on an
unlevered basis, then we will either utilize other financing sources or we will not invest in these
asset classes.
Leverage Policies
We intend to employ prudent leverage, to the extent available, to fund the acquisition of
our target assets and to increase potential returns to our stockholders. Although we are not
required to maintain any particular leverage ratio, the amount of leverage we will deploy for
particular investments in our target assets will depend upon our Managers assessment of a variety
of factors, which may include the anticipated liquidity and price volatility of the assets in our
investment portfolio, the potential for losses and extension risk in our portfolio, the gap between
the duration of our assets and liabilities, including hedges, the availability and cost of
financing the assets, our opinion of the creditworthiness of our financing counterparties, the
health of the U.S. economy and commercial and residential mortgage markets, our outlook for the
level, slope, and volatility of interest rates, the credit quality of our assets, the collateral
underlying our assets, and our outlook for asset spreads relative to the LIBOR curve.
We expect, initially, that we may deploy leverage on our commercial mortgage loans, on a
debt-to-equity basis, of up to 3-to-1. In addition, we have and expect to continue to deploy
leverage on a debt-to-equity basis, of up to 6-to-1 in conjunction with financings that may be
available to us under programs established by the U.S. Government. We consider these initial
leverage ratios to be prudent for these asset classes.
Contractual Obligations and Commitments
Contractual obligations as of September 30, 2009 are as follows (amounts in thousands):
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Less than 1
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1 to 3
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3 to 5
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More than 5
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Total
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year
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years
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years
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years
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|
Secured financings, including interest payable
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$
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186,064
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$
|
6,932
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|
$
|
179,132
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$
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$
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Acquisition commitments
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106,000
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|
|
|
106,000
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Total
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$
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292,064
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$
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112,932
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$
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179,132
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$
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$
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19
The table above does not does not include amounts due under our management agreement or
Underwriters Agreement as those obligations, discussed below, do not have fixed and determinable
payments.
Pursuant to the management agreement between our Manager and us, our Manager provides for the
day-to-day management of our operations in exchange for the fees and other payments described
below.
Base Management Fee
The base management fee is 1.5% of our stockholders equity per
annum and calculated and payable quarterly in arrears. For purposes of calculating the management
fee, our stockholders equity means: (a) the sum of (1) the net proceeds from all issuances of our
equity securities since inception (allocated on a pro rata daily basis for such issuances during
the fiscal quarter of any such issuance), plus (2) our retained earnings at the end of the most
recently completed calendar quarter (without taking into account any non-cash equity compensation
expense incurred in current or prior periods), less (b) any amount that we pay to repurchase our
common stock since inception. It also excludes (1) any unrealized gains and losses and other
non-cash items that have impacted stockholders equity as reported in our financial statements
prepared in accordance with GAAP, and (2) one-time events pursuant to changes in GAAP, and certain
non-cash items not otherwise described above, in each case after discussions between our Manager
and our independent directors and approval by a majority of our independent directors. As a
result, our stockholders equity, for purposes of calculating the management fee, could be greater
or less than the amount of stockholders equity shown on our financial statements. The base
management fee is payable quarterly in cash.
Incentive Fee
From August 17, 2009 (the effective date of the management agreement),
our Manager is entitled to be paid the incentive fee described below with respect to each calendar
quarter (or part thereof that the management agreement is in effect) if (1) our Core Earnings (as
defined below) for the previous 12-month period (or part thereof that the management agreement is
in effect) exceeds an 8% hurdle, and (2) our Core Earnings for the 12 most recently completed
calendar quarters (or part thereof that the management agreement is in effect) is greater than
zero.
The incentive fee will be an amount, not less than zero, equal to the difference between (1)
the product of (x) 20% and (y) the difference between (i) our Core Earnings (as defined below) for
the previous 12-month period (or part thereof that the management agreement is in effect), and (ii)
the product of (A) the weighted average of the issue price per share of our common stock of all of
our public offerings multiplied by the weighted average number of all shares of common stock
outstanding (including any restricted stock units, any restricted shares of common stock and other
shares of common stock underlying awards granted under our equity incentive plans) in such previous
12-month period (or part thereof that the management agreement is in effect), and (B) 8%, and (2)
the sum of any incentive fee paid to our Manager with respect to the first three calendar quarters
of such previous 12-month period (or part thereof that the management agreement is in effect). For
purposes of calculating the incentive fee prior to the completion of a 12-month period following
the effective date of the management agreement, Core Earnings will be calculated on an annualized
basis.
One half of each quarterly installment of the incentive fee will be payable in shares of our
common stock so long as the ownership of such additional number of shares by our Manager would not
violate the 9.8% stock ownership limit set forth in our charter, after giving effect to any waiver
from such limit that our board of directors may grant to our Manager in the future. The remainder
of the incentive fee will be payable in cash. The number of shares to be issued to our Manager will
be equal to the dollar amount of the portion of the quarterly installment of the incentive fee
payable in shares divided by the average of the closing prices of our common stock on the NYSE for
the five trading days prior to the date on which such quarterly installment is paid.
Expense Reimbursement
We are required to reimburse our Manager for operating
expenses related to us that are incurred by our Manager, including expenses relating to legal,
accounting, due diligence and other services. Our reimbursement obligation is not subject to any
dollar limitation. Expenses are reimbursed in cash on a monthly basis.
We do not reimburse our Manager for the salaries and other compensation of its personnel
except that, pursuant to a secondment agreement between Starwood Capital Group and us, we are
responsible for Starwood Capital Groups expenses incurred in employing our chief financial
officer, treasurer and chief compliance officer.
20
Termination Fee
The termination fee is equal to three times the sum of the average
annual base management fee and incentive fee earned by our Manager during the 24-month period prior
to such termination, calculated as of the end of the most recently completed fiscal quarter. The
termination fee will be payable upon
termination of the management agreement (i) by us without cause or (ii) by our Manager if we
materially breach the management agreement.
Other
Pursuant to the underwriting agreement among the underwriters of our August
2009 initial public offering, our Manager and us, our Manager agreed to pay the underwriters
$9,065,000, representing a portion of the initial underwriting discount for 46,575,000 of the
shares we sold to the public through the underwriters. Pursuant to the management agreement, we
have agreed to refund our Manager for this amount if during any full four calendar quarter period
during the 24 full calendar quarters beginning on October 1, 2009 our Core Earnings for any such
four-quarter period exceeds the product of (x) the weighted average of the issue price per share of
all public offerings of our common stock, multiplied by the weighted average number of shares
outstanding (including any restricted stock units, any restricted shares of common stock and any
other shares of common stock underlying awards granted under our equity incentive plans) in such
four-quarter period and (y) 8%. In addition, if the management agreement is terminated and we are
required to pay our Manager the termination fee described above, we would also be required to
refund our Manager for this amount irrespective of whether we have met the hurdle described above.
Deferred Underwriting Discount
Pursuant to the underwriting agreement, we must pay
the underwriters an additional $18,130,000 if during any full four calendar quarter period during
the 24 full calendar quarters beginning on October 1, 2009 our Core Earnings for any such
four-quarter period exceeds the product of (x) the weighted average of the issue price per share of
all public offerings of our common stock, multiplied by the weighted average number of shares
outstanding (including any restricted stock units, any restricted shares of common stock and any
other shares of common stock underlying awards granted under our equity incentive plans) in such
four-quarter period and (y) 8%.
Off-Balance Sheet Arrangements
As of September 30, 2009, we did not have any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured investment vehicles, or
special purpose or variable interest entities, established to facilitate off-balance sheet
arrangements or other contractually narrow or limited purposes. Further, as of September 30, 2009,
we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or
intent to provide additional funding to any such entities.
Dividends
We intend to make regular quarterly distributions to holders of our common stock. U.S.
federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT
taxable income, without regard to the deduction for dividends paid and excluding net capital gains,
and that it pay tax at regular corporate rates to the extent that it annually distributes less than
100% of its net taxable income. We intend to pay regular quarterly dividends to our stockholders
in an amount equal to our net taxable income, if and to the extent authorized by our board of
directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise,
we must first meet both our operating requirements and debt service on our debt. If our cash
available for distribution is less than our net taxable income, we could be required to sell assets
or borrow funds to make cash distributions or we may make a portion of the required distribution in
the form of a taxable stock distribution or distribution of debt securities. In addition, prior to
the time we have fully deployed the net proceeds of our August 2009 initial public offering, equal
to approximately $921.1 million, we may fund our quarterly distributions out of such net proceeds.
21
On September 18, 2009, our board of directors declared a dividend of $0.01 per share for the
period ending September 30, 2009, which dividend is payable on January 29, 2010 to common
shareholders of record as of October 31, 2009. On such date, our board of directors also declared
a dividend of $0.10 per share for the quarter ending December 31, 2009, which dividend is payable
on January 29, 2010 to common shareholders of record as of December 30, 2009.
Non-GAAP Financial Measures
Core Earning is a non-GAAP Financial measure. We calculate Core Earnings as GAAP net income
(loss) less non-cash equity compensation expense, the incentive fee, depreciation and amortization
(to the extent that we foreclose on any properties underlying our target assets), any unrealized
gains, losses or other non-cash items
recorded in net income for the period, regardless of whether such items are included in other
comprehensive income or loss, or in net income. The amount will be adjusted to exclude one-time
events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager
and approved by a majority of our independent directors.
We believe that Core Earnings provides an additional measure of our core operating performance
by eliminating the impact of certain non-cash expenses and facilitating a comparison of our
financial results to those of other comparable REITs with fewer or no non-cash charges and
comparison of our own operating results from period to period. The Company uses Core Earnings in
this way, and also uses Core Earnings to compute the incentive fee due under the management
agreement. The Company believes that its investors also use Core Earnings to evaluate and compare
the performance of the Company and its peers, and as such, the Company believes that the disclosure
of Core Earnings is useful to (and expected of) its investors.
However, the Company cautions that Core Earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP), or an indication of our cash flow from operating
activities (determined in accordance with GAAP), a measure of our liquidity, or an indication of
funds available to fund our cash needs, including our ability to make cash distributions. In
addition, our methodology for calculating Core Earnings may differ from the methodologies employed
by other REITs to calculate the same or similar supplemental performance measures, and accordingly,
our reported Core Earnings may not be comparable to the Core Earnings reported by other REITs.
Our Core Earnings for the same period was approximately ($1.1 million) or ($0.02) per weighted
average share. The table below provides a reconciliation of net income to Core Earning as for the
period August 11, 2009 through September 30, 2009:
September 30, 2009 Reconciliation of Net Income to Core Earnings
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Amounts
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Per Share
|
|
Net loss attributable to Starwood Property Trust, Inc
|
|
$
|
(1,919
|
)
|
|
$
|
(0.04
|
)
|
Add back for non-cash stock-based compensation
|
|
|
822
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
Core Earnings (Loss)
|
|
$
|
(1,097
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
Forward-Looking Statements
We make forward-looking statements in this report that are subject to risks and uncertainties.
These forward-looking statements include information about possible or assumed future results of
our business, financial condition, liquidity, results of operations, plans, and objectives. When we
use the words believe, expect, anticipate, estimate, plan, continue, intend,
should, may or similar expressions, we intend to identify forward-looking statements.
Statements regarding the following subjects, among others, may be forward-looking:
|
|
|
the use of proceeds of our August 2009 initial public offering;
|
|
|
|
|
our business and investment strategy;
|
22
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|
|
our projected operating results;
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|
|
|
actions and initiatives of the U.S. Government and changes to U.S. Government
policies;
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|
|
|
our ability to obtain financing arrangements;
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|
|
|
|
financing and advance rates for our target assets;
|
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|
our expected leverage;
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|
|
general volatility of the securities markets in which we invest;
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|
our expected investments;
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|
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|
interest rate mismatches between our target assets and our borrowings used to fund
such investments;
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|
changes in interest rates and the market value of our target assets;
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|
changes in prepayment rates on our target assets;
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|
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|
effects of hedging instruments on our target assets;
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|
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|
rates of default or decreased recovery rates on our target assets;
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|
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|
the degree to which our hedging strategies may or may not protect us from interest
rate volatility;
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changes in governmental regulations, tax law and rates, and similar matters;
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|
our ability to maintain our qualification as a REIT for U.S. federal income tax
purposes;
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|
our ability to maintain our exemption from registration under the 1940 Act;
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availability of investment opportunities in mortgage-related and real estate-related
investments and securities;
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availability of qualified personnel;
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|
|
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|
estimates relating to our ability to make distributions to our stockholders in the
future;
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|
|
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|
our understanding of our competition; and
|
|
|
|
|
market trends in our industry, interest rates, real estate values, the debt
securities markets or the general economy.
|
The forward-looking statements are based on our beliefs, assumptions and expectations of our future
performance, taking into account all information currently available to us. You should not place
undue reliance on these forward-looking statements. These beliefs, assumptions and expectations
can change as a result of many possible events or factors, not all of which are known to us. Some
of these factors are described in this report under the heading Managements Discussion and
Analysis of Financial Condition and Results of Operations and in our other SEC filings under the
heading Risk Factors. If a change occurs, our business, financial condition, liquidity and
results of operations may vary materially from those expressed in our forward-looking statements.
Any forward-looking statement speaks only as of the date on which it is made. New risks and
uncertainties arise over time, and it is not possible for us to predict those events or how they
may affect us. Except as required by law, we are not obligated to, and do not intend to, update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
23
|
|
|
Item 3.
|
|
Quantitative And Qualitative Disclosures About Market Risk
|
We seek to manage our risks related to the credit quality of our assets, interest rates,
liquidity, prepayment speeds, and market value while, at the same time, seeking to provide an
opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our
capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified
from historical experience and seek to actively manage that risk, to earn sufficient compensation
to justify taking those risks and to maintain capital levels consistent with the risks we
undertake.
Credit Risk
We expect to be subject to varying degrees of credit risk in connection with our assets.
We expect to have exposure to credit risk on the mortgage assets and underlying mortgage loans in
our non-Agency RMBS and CMBS portfolios as well as certain of our other target assets. Our Manager
will seek to manage credit risk by performing deep credit fundamental analysis of potential assets.
Credit risk will also be addressed through our Managers on-going surveillance, and investments
will be monitored for variance from expected prepayments, defaults, severities, losses, and cash
flow on a monthly basis.
Our investment guidelines do not limit the amount of our equity that may be invested in any
type of our target assets; however, not more than 25% of our equity may be invested in any
individual asset, without the consent of a majority of our independent directors. Our investment
decisions will depend on prevailing market conditions and may change over time in response to
opportunities available in different interest rate, economic and credit environments. As a result,
we cannot predict the percentage of our equity that will be invested in any of our target assets at
any given time.
At September 30, 2009, all of our CMBS investments were rated AAA by two or more rating
agencies.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary
policies and domestic and international economic and political considerations, as well as other
factors beyond our control. We will be subject to interest rate risk in connection with our assets
and our related financing obligations. In general, we expect to finance the acquisition of our
target assets through financings in the form of borrowings under programs established by the
U.S. Government, warehouse facilities, bank credit facilities (including term loans and revolving
facilities), resecuritizations, securitizations, and repurchase agreements. We may mitigate
interest rate risk through utilization of hedging instruments, primarily interest rate swap
agreements. Interest rate swap agreements are intended to serve as a hedge against future interest
rate increases on our borrowings.
At September 30, 2009, all of our CMBS investments were secured by pools of fixed-rate
loans, classified as held-to-maturity investments, and financed with non-recourse fixed-rate debt.
Therefore, a 100 bps increase or decrease in interest rates would not have a measurable impact on
our financial results.
Interest Rate Effect on Net Interest Income
Our operating results depend in large part on differences between the income earned on
our assets and our cost of borrowing and hedging activities. The cost of our borrowings will
generally be based on prevailing market interest rates. During a period of rising interest rates,
our borrowing costs generally will increase (1) while the yields earned on our leveraged fixed-rate
mortgage assets will remain static and (2) at a faster pace than the yields earned on our leveraged
floating rate mortgage assets, which could result in a decline in our net interest spread and net
interest margin. The severity of any such decline would depend on our asset/liability composition
at the time as well as the magnitude and duration of the interest rate increase. Further, an
increase in short-term interest rates could also have a negative impact on the market value of our
target assets. If any of these events happen, we could experience a decrease in net income or
incur a net loss during these periods, which could adversely affect our liquidity and results of
operations.
24
Hedging techniques are partly based on assumed levels of prepayments of our target
assets. If prepayments are slower or faster than assumed, the life of the investment will be
longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and
may cause losses on such transactions. Hedging strategies involving the use of derivative
securities are highly complex and may produce volatile returns.
Interest Rate Mismatch Risk
We may fund a portion of our acquisition of mortgage loans and MBS with borrowings that
are based on the London Interbank Offered Rate (LIBOR), while the interest rates on these assets
may be indexed to LIBOR or another index rate, such as the one-year Constant Maturity Treasury
(CMT) index, the Monthly Treasury Average (MTA) index, or the 11th District Cost of Funds Index
(COFI). Accordingly, any increase in LIBOR relative to
one-year CMT rates, MTA or COFI will generally result in an increase in our borrowing costs
that may not be matched by a corresponding increase in the interest earnings on these assets. Any
such interest rate index mismatch could adversely affect our profitability, which may negatively
impact distributions to our stockholders. To mitigate interest rate mismatches, we may utilize the
hedging strategies discussed above.
Our analysis of risks is based on our Managers experience, estimates, models, and
assumptions. These analyses rely on models which utilize estimates of fair value and interest rate
sensitivity. Actual economic conditions or implementation of decisions by our management may
produce results that differ significantly from the estimates and assumptions used in our models and
the projected results shown in this report.
Prepayment Risk
Prepayment risk is the risk that principal will be repaid at a different rate than
anticipated, causing the return on an asset to be less than expected. As we receive prepayments of
principal on our assets, premiums paid on such assets will be amortized against interest income.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums,
thereby reducing the interest income earned on the assets. Conversely, discounts on such assets
are accreted into interest income. In general, an increase in prepayment rates will accelerate the
accretion of purchase discounts, thereby increasing the interest income earned on the assets.
Extension Risk
Our Manager computes the projected weighted average life of our assets based on
assumptions regarding the rate at which the borrowers prepay the mortgages, which may be zero. If
prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate assets
could extend beyond the term of the interest swap agreement or other hedging instrument on our
related borrowings. This could have a negative impact on our results from operations, as borrowing
costs would no longer be fixed after the end of the hedging instrument while the income earned on
the fixed-rate assets would remain fixed. In extreme situations, we may be forced to sell assets
to maintain adequate liquidity, which could cause us to incur losses.
Market Risk
Market Value Risk.
Available-for-sale securities will be reflected at their estimated
fair value, with the difference between amortized cost and estimated fair value reflected in
accumulated other comprehensive income. The estimated fair value of these securities fluctuates
primarily due to changes in interest rates and other factors. Generally, in a rising interest rate
environment, the estimated fair value of these securities would be expected to decrease;
conversely, in a decreasing interest rate environment, the estimated fair value of these securities
would be expected to increase. As market volatility increases or liquidity decreases, the fair
value of our assets may be adversely impacted. If we are unable to readily obtain independent
pricing to validate our estimated fair value of the securities in our portfolio, the fair value
gains or losses recorded in other comprehensive income may be adversely affected.
Real Estate Risk.
Commercial and residential mortgage assets are subject to volatility
and may be affected adversely by a number of factors, including, but not limited to, national,
regional, and local economic conditions (which may be adversely affected by industry slowdowns and
other factors); local real estate conditions; changes or continued weakness in specific industry
segments; construction quality, age and design; demographic factors; and retroactive changes to
building or similar codes. In addition, decreases in property values reduce the value of the
collateral and the potential proceeds available to a borrower to repay the underlying loans or
loans, as the case may be, which could also cause us to suffer losses.
25
Inflation Risk
Virtually all of our assets and liabilities will be interest rate sensitive in nature.
As a result, interest rates and other factors influence our performance significantly more than
inflation does. Changes in interest rates do not necessarily correlate with inflation rates or
changes in inflation rates. Our financial statements are prepared in accordance with GAAP and our
distributions will be determined by our board of directors consistent with our obligation to
distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order
to maintain our REIT qualification; in each case, our activities and balance sheet are measured
with reference to historical cost and/or fair market value without considering inflation.
Risk Management
To the extent consistent with maintaining our REIT qualification, we seek to manage risk
exposure to protect our portfolio of financial assets against the effects of major interest rate
changes. We generally seek to manage this risk by:
|
|
|
Attempting to structure our financing agreements to have a range of different
maturities, terms, amortizations and interest rate adjustment periods;
|
|
|
|
|
Using hedging instruments, primarily interest rate swap agreements but also
financial futures, options, interest rate cap agreements, floors and forward sales to
adjust the interest rate sensitivity of our investment portfolio and our borrowings;
and
|
|
|
|
|
Using securitization financing to better match the maturity of our financing with
the duration of our assets.
|
|
|
|
Item 4.
|
|
Controls And Procedures
|
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on
the definition of disclosure controls and procedures as promulgated under the SEC Act of 1934, as
amended. We, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of September
30, 2009. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective.
26
PART II OTHER INFORMATION
|
|
|
Item 1.
|
|
Legal Proceedings
|
Currently, no legal proceedings are pending, threatened, or to our knowledge, contemplated
against us.
There have been no material changes to the risk factors previously disclosed in the prospectus
filed pursuant to Rule 424b(1) on August 13, 2009 with the Securities and Exchange Commission in
connection with our initial public offering.
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
On August 11, 2009, the SEC declared effective our Registration Statement on Form S-11 (File
No. 333-159754) relating to our initial public offering. The offering date was August 11, 2009. The
initial public offering was underwritten by Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Deutsche Bank Securities Inc., and Citigroup Global Markets Inc., acting as the representatives of
Barclays Capital Inc., Wells Fargo Securities, LLC, Calyon Securities (USA) Inc., Cantor Fitzgerald
& Co., Piper Jaffray & Co., and Scotia Capital (USA) Inc. We registered 46,575,000 shares of our
common stock, par value $0.01 per share. On August 17, 2009, we sold 46,575,000 shares of common
stock in our initial public offering, which included 6,075,000 shares of common stock covered by an
over-allotment option granted to the underwriters, at a price to the public of $20 per share for an
aggregate offering price of approximately $931.5 million. In connection with the offering, we paid
approximately $27.8 million in underwriting discounts and commissions (excluding deferred
underwriters commissions of $27.2 million) and incurred approximately $2.6 million of other offering
expenses. None of the underwriting discounts and commissions or offering expenses were incurred or
paid, directly or indirectly, to directors or officers of ours or their associates or to persons
owning 10% or more of our common stock or to any affiliates of ours. After deducting the
underwriting discounts and commissions and these other offering expenses, we estimate that the net
proceeds from the offering equaled approximately $901.1million.
In a concurrent private offering, we sold SPT Investment, LLC, which is controlled by Mr.
Sternlicht, our chairman and chief executive officer and is under common control with our Manager,
1,000,000 shares of our common stock at a price of $20 per share, for aggregate proceeds of $20.0
million. We did not pay any underwriting fees, commissions or discounts with respect to the shares
we sold to SPT Investment, LLC. We relied on the exemption from registration provided by
Section 4(2) of the Securities Act for the sale of the shares to SPT Investment, LLC.
We invested the net proceeds of these offerings in accordance with our investment objectives
and strategies as described in the prospectus comprising a part of the Registration Statement
referenced above. There has been no material change in our planned use of proceeds from our initial
public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities
|
None.
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders
|
None.
|
|
|
Item 5.
|
|
Other Information
|
None.
27
|
|
|
|
|
(a)
|
|
Exhibits:
|
|
|
|
|
|
|
3.1
|
|
|
Articles of Amendment and Restatement of Starwood Property Trust, Inc.
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws of Starwood Property Trust, Inc.
|
|
|
|
|
|
|
10.1
|
|
|
Private Placement Purchase Agreement, dated August 11, 2009, between
Starwood Property Trust, Inc. and SPT Investment, LLC
|
|
|
|
|
|
|
10.2
|
|
|
Registration Rights Agreement, dated August 17, 2009, among Starwood
Property Trust, Inc., SPT Investment, LLC and SPT Management, LLC
|
|
|
|
|
|
|
10.3
|
|
|
Management Agreement, dated August 17, 2009, among SPT Management, LLC and
Starwood Property Trust, Inc.
|
|
|
|
|
|
|
10.4
|
|
|
Co-Investment and Allocation Agreement, dated August 17, 2009, among
Starwood Property Trust, Inc., SPT Management, LLC and Starwood Capital
Group Global, L.P.
|
|
|
|
|
|
|
10.5
|
|
|
Starwood Property Trust, Inc. Non-Executive Director Stock Plan
|
|
|
|
|
|
|
10.6
|
|
|
Form of Restricted Stock Award Agreement for Independent Directors
|
|
|
|
|
|
|
10.7
|
|
|
Starwood Property Trust, Inc. Manager Equity Plan
|
|
|
|
|
|
|
10.8
|
|
|
Restricted Stock Unit Award Agreement, dated August 17, 2009, between
Starwood Property Trust, Inc. and SPT Management, LLC
|
|
|
|
|
|
|
10.9
|
|
|
Starwood Property Trust, Inc. Equity Plan
|
|
|
|
|
|
|
10.10
|
|
|
Restricted Stock Unit Award Agreement, dated August 17, 2009, between
Starwood Property Trust, Inc. and Barbara J. Anderson
|
|
|
|
|
|
|
10.11
|
|
|
Underwriting Agreement, dated as of August 11, 2009, among Starwood
Property Trust, Inc., SPT Management, LLC and the underwriters named
therein
|
|
|
|
|
|
|
31.1
|
|
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
31.2
|
|
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.1
|
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.2
|
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
Starwood Property Trust, Inc.
|
|
Date: November 16, 2009
|
By:
|
/s/ Barry S. Sternlicht
|
|
|
|
Barry S. Sternlicht
|
|
|
|
Chief Executive Officer
|
|
28
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
3.1
|
|
|
Articles of Amendment and Restatement of Starwood Property Trust, Inc.
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws of Starwood Property Trust, Inc.
|
|
|
|
|
|
|
10.1
|
|
|
Private Placement Purchase Agreement, dated August 11, 2009, between
Starwood Property Trust, Inc. and SPT Investment, LLC
|
|
|
|
|
|
|
10.2
|
|
|
Registration Rights Agreement, dated August 17, 2009, among Starwood
Property Trust, Inc., SPT Investment, LLC and SPT Management, LLC
|
|
|
|
|
|
|
10.3
|
|
|
Management Agreement, dated August 17, 2009, among SPT Management, LLC and
Starwood Property Trust, Inc.
|
|
|
|
|
|
|
10.4
|
|
|
Co-Investment and Allocation Agreement, dated August 17, 2009, among
Starwood Property Trust, Inc., SPT Management, LLC and Starwood Capital
Group Global, L.P.
|
|
|
|
|
|
|
10.5
|
|
|
Starwood Property Trust, Inc. Non-Executive Director Stock Plan
|
|
|
|
|
|
|
10.6
|
|
|
Form of Restricted Stock Award Agreement for Independent Directors
|
|
|
|
|
|
|
10.7
|
|
|
Starwood Property Trust, Inc. Manager Equity Plan
|
|
|
|
|
|
|
10.8
|
|
|
Restricted Stock Unit Award Agreement, dated August 17, 2009, between
Starwood Property Trust, Inc. and SPT Management, LLC
|
|
|
|
|
|
|
10.9
|
|
|
Starwood Property Trust, Inc. Equity Plan
|
|
|
|
|
|
|
10.10
|
|
|
Restricted Stock Unit Award Agreement, dated August 17, 2009, between
Starwood Property Trust, Inc. and Barbara J. Anderson
|
|
|
|
|
|
|
10.11
|
|
|
Underwriting Agreement, dated as of August 11, 2009, among Starwood
Property Trust, Inc., SPT Management, LLC and the underwriters named
therein
|
|
|
|
|
|
|
31.1
|
|
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
31.2
|
|
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.1
|
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.2
|
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
29
EXHIBIT 3.1
STARWOOD PROPERTY TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST
: Starwood Property Trust, Inc., a Maryland corporation (the Corporation),
desires to amend and restate its charter as currently in effect and as hereinafter amended.
SECOND
: The following provisions are all of the provisions of the charter currently in
effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, Tracy A. Bacigalupo, whose address is c/o DLA Piper LLP (US), 6225 Smith
Avenue, Baltimore, Maryland 21209, being at least 18 years of age, does hereby form a corporation
under the general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the Corporation) is:
Starwood Property Trust, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any lawful act or activity
(including, without limitation or obligation, engaging in business as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, or any successor statute (the Code))
for which corporations may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, REIT means a real estate investment trust
under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of Maryland is c/o CSC
Lawyers Incorporating Service Company, 7 St. Paul Street, Baltimore, Maryland 21202. The name
and address of the resident agent of the Corporation in the State of Maryland are CSC Lawyers
Incorporating Service Company, 7 St. Paul Street, Baltimore, Maryland 21202. The resident agent is
a citizen of and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1
Number and Classification of Directors
. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. The number of
directors of the Corporation initially shall be seven, which number may be increased or decreased
pursuant to the Bylaws, but shall never be less than the minimum number required by the Maryland
General Corporation Law (the MGCL). The names of the directors who shall serve until the first
annual meeting of stockholders and until their successors are duly elected and qualify are:
Richard D. Bronson
Jeffrey F. DiModica
Jeffrey G. Dishner
Ellis F. Rinaldi
Lynn Forester de Rothschild
Barry S. Sternlicht
Strauss Zelnick
These directors may increase the number of directors and may fill any vacancy, whether resulting
from an increase in the number of directors or otherwise, on the Board of Directors occurring
before the first annual meeting of stockholders in the manner provided in the Bylaws.
2
Section 5.2
Stockholder Actions
.
Section 5.2.1
Extraordinary Actions
. Except as specifically provided in Section 5.8
(relating to removal of directors) and in the last sentence of Article VIII (relating to amendment
of Section 5.8), notwithstanding any provision of law permitting or requiring any action to be
taken or approved by the affirmative vote of the holders of shares entitled to cast a greater
number of votes, any such action shall be effective and valid if taken or approved by the
affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be
cast on the matter.
Section 5.3
Authorization by Board of Stock Issuance
. The Board of Directors may
authorize the issuance from time to time of shares of stock of the Corporation of any class or
series, whether now or hereafter authorized, or securities or rights convertible into shares of its
stock of any class or series, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable (or without consideration in the case of a stock split or
stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the
charter or the Bylaws.
Section 5.4
Preemptive Rights
. Except as may be provided by the Board of Directors
in setting the terms of classified or reclassified shares of stock pursuant to Section 6.4 or as
may otherwise be provided by contract, no holder of shares of stock of the Corporation shall, as
such holder, have any preemptive right to purchase or subscribe for any additional shares of stock
of the Corporation or any other security of the Corporation which it may issue or sell.
Section 5.5
Indemnification
. The Corporation shall have the power, to the maximum
extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and
to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any
individual who is a present or former director or officer of the Corporation or (b) any individual
who, while a director of the Corporation and at the request of the Corporation, serves or has
served as a director, officer, partner or trustee of another
corporation, real estate investment trust, partnership, joint venture, trust, employee benefit
plan or any other enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his status as a present or former
director or officer of the Corporation. The Corporation shall have the power, with the approval of
the Board of Directors, to provide such indemnification and advancement of expenses to a person who
served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and
to any employee or agent of the Corporation or a predecessor of the Corporation.
3
Section 5.6
Determinations by Board
. The determination as to any of the following
matters, made in good faith by or pursuant to the direction of the Board of Directors consistent
with the charter and in the absence of actual receipt of an improper benefit in money, property or
services or active and deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its stock: the amount of
the net income of the Corporation for any period and the amount of assets at any time legally
available for the payment of dividends, redemption of its stock or the payment of other
distributions on its stock; the amount of paid-in surplus, net assets, other surplus, annual or
other net profit, net assets in excess of capital, undivided profits or excess of profits over
losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration
or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation
or liability for which such reserves or charges shall have been created shall have been paid or
discharged); the fair value, or any sale, bid or asked price to be applied in determining the fair
value, of any asset owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter relating to the
business and affairs of the Corporation.
Section 5.7
REIT Qualification
. If the Corporation elects to qualify for federal
income tax treatment as a REIT, the Board of Directors shall use its reasonable best efforts to
take such actions as are necessary or appropriate to preserve the status of the Corporation as a
REIT; however, if the Board of Directors determines that it is no longer in the best interests of
the Corporation to continue to be qualified as a REIT, the Board of Directors may revoke or
otherwise terminate the Corporations REIT election pursuant to Section 856(g) of the Code. The
Board of Directors also may determine that compliance with any restriction or limitation on stock
ownership and transfers set forth in Article VII is no longer required for REIT qualification.
4
Section 5.8
Removal of Directors
. Subject to the rights of holders of one or more
classes or series of Preferred Stock to elect or remove one or more directors, any director, or the
entire Board of Directors, may be removed from office at any time, but only for cause and then only
by the affirmative vote of at least two thirds of the votes entitled to be cast generally in the
election of directors. For the purpose of this paragraph, cause shall mean, with respect to any
particular director, conviction of a felony or a final judgment of a court of competent
jurisdiction holding that such director caused demonstrable, material harm to the Corporation
through bad faith or active and deliberate dishonesty.
Section 5.9
Advisor Agreements
. Subject to such approval of stockholders and other
conditions, if any, as may be required by any applicable statute, rule or regulation, the Board of
Directors may authorize the execution and performance by the Corporation of one or more agreements
with any person, corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board of Directors, any
such other person, corporation, association, company, trust, partnership (limited or general) or
other organization shall render or make available to the Corporation managerial, investment,
advisory and/or related services, office space and other services and facilities (including, if
deemed advisable by the Board of Directors, the management or supervision of the investments of the
Corporation) upon such terms and conditions as may be provided in such agreement or agreements
(including, if deemed fair and equitable by the Board of Directors, the compensation payable
thereunder by the Corporation).
5
ARTICLE VI
STOCK
Section 6.1
Authorized Shares
. The Corporation has authority to issue 600,000,000
shares of stock, consisting of 500,000,000 shares of Common Stock, $0.01 par value per share
(Common Stock), and 100,000,000 shares of Preferred Stock, $0.01 par value per share (Preferred
Stock). The aggregate par value of all authorized shares of stock having par value is $6,000,000.
If shares of one class of stock are classified or reclassified into shares of another class of
stock pursuant to this Article VI, the number of authorized shares of the former class shall be
automatically decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified, so that the
aggregate number of shares of stock of all classes that the Corporation has authority to issue
shall not be more than the total number of shares of stock set forth in the first sentence of this
paragraph. To the extent permitted by Maryland law, the Board of Directors, without any action by
the stockholders of the Corporation, may amend the charter from time to time to increase or
decrease the aggregate number of shares of stock or the number of shares of stock of any class or
series that the Corporation has authority to issue.
Section 6.2
Common Stock
. Subject to the provisions of Article VII, each share of
Common Stock shall entitle the holder thereof to one vote. The Board of Directors may reclassify
any unissued shares of Common Stock from time to time in one or more classes or series of stock.
Section 6.3
Preferred Stock
. The Board of Directors may classify any unissued shares
of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock
of any series from time to time, in one or more classes or series of stock.
6
Section 6.4
Classified or Reclassified Shares
. Prior to issuance of classified or
reclassified shares of any class or series, the Board of Directors by resolution shall: (a)
designate that class or series to distinguish it from all other classes and series of stock of the
Corporation; (b) specify the number of shares to be included in the class or series; (c) set or
change, subject to the provisions of Article VII and subject to the express terms of any class
or series of stock of the Corporation outstanding at the time, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or series; and (d) cause the
Corporation to file articles supplementary with the State Department of Assessments and Taxation of
Maryland (the SDAT). Any of the terms of any class or series of stock set or changed pursuant to
clause (c) of this Section 6.4 may be made dependent upon facts or events ascertainable outside the
charter (including determinations by the Board of Directors or other facts or events within the
control of the Corporation) and may vary among holders thereof, provided that the manner in which
such facts, events or variations shall operate upon the terms of such class or series of stock is
clearly and expressly set forth in the articles supplementary filed with the SDAT.
Section 6.5
Charter and Bylaws
. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the charter and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1
Definitions
. For the purpose of this Article VII, the following terms
shall have the following meanings:
Aggregate Stock Ownership Limit
. The term Aggregate Stock Ownership Limit shall
mean not more than 9.8 percent (in value or in number of shares , whichever is more restrictive) of
the aggregate of the outstanding shares of Capital Stock, subject to the Board of Directors power
under Section 7.2.8 hereof to increase or decrease such percentage. The value and number of the
outstanding shares of Capital Stock shall be determined by the Board of Directors in good faith,
which determination shall be conclusive for all purposes hereof. For the purposes of determining
the percentage ownership of Capital Stock by any Person, shares of Capital Stock that may be
acquired upon conversion, exchange or exercise of any securities of the Corporation directly or
constructively held by such Person, but not Capital Stock issuable
with respect to the conversion, exchange or exercise of securities for the Corporation held by
other Persons, shall be deemed to be outstanding prior to conversion, exchange or exercise.
7
Beneficial Ownership
. The term Beneficial Ownership shall mean ownership of Capital
Stock by a Person, whether the interest in the shares of Capital Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be treated as owned
through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and
856(h)(3) of the Code. The terms Beneficial Owner, Beneficially Owns and Beneficially Owned
shall have the correlative meanings.
Business Day
. The term Business Day shall mean any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City
are authorized or required by law, regulation or executive order to close.
Capital Stock
. The term Capital Stock shall mean all classes or series of stock of
the Corporation, including, without limitation, Common Stock and Preferred Stock.
Charitable Beneficiary
. The term Charitable Beneficiary shall mean one or more
beneficiaries of the Trust as determined pursuant to Section 7.3.6, provided that each such
organization must be described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of
the Code.
Charter
. The term Charter shall mean the charter of the Corporation, as that term
is defined in the MGCL.
Code
. The term Code shall mean the Internal Revenue Code of 1986, as amended from
time to time.
Common Stock Ownership Limit
. The term Common Stock Ownership Limit shall mean not
more than 9.8 percent (in value or in number of shares, whichever is more restrictive) of the
aggregate of the outstanding shares of Common Stock, subject to the Board of Directors power under
Section 7.2.8 hereof to increase or decrease such percentage. The value and number of the
outstanding shares of Common Stock shall be determined by the Board of
Directors in good faith, which determination shall be conclusive for all purposes hereof. For
the purposes of determining the percentage ownership of Common Stock by any Person, shares of
Common Stock that may be acquired upon conversion, exchange or exercise of any securities of the
Corporation directly or constructively held by such Person, but not Common Stock issuable with
respect to the conversion, exchange or exercise of securities for the Corporation held by other
Persons, shall be deemed to be outstanding prior to conversion, exchange or exercise.
8
Constructive Ownership
. The term Constructive Ownership shall mean ownership of
Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be treated as owned
actually or constructively through the application of Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code. The terms Constructive Owner, Constructively Owns and
Constructively Owned shall have the correlative meanings.
Excepted Holder
. The term Excepted Holder shall mean a stockholder of the
Corporation for whom an Excepted Holder Limit is created by these Articles or by the Board of
Directors pursuant to Section 7.2.7.
Excepted Holder Limit
. The term Excepted Holder Limit shall mean, provided that the
affected Excepted Holder agrees to comply with the requirements established by the Board of
Directors pursuant to Section 7.2.7, and subject to adjustment pursuant to Section 7.2.8, the
percentage limit established for an Excepted Holder by the Board of Directors pursuant to Section
7.2.7.
Initial Date
. The term Initial Date shall mean the date upon which the Articles of
Amendment and Restatement containing this Article VII are filed with the SDAT.
9
Market Price
. The term Market Price on any date shall mean, with respect to any
class or series of outstanding shares of Capital Stock, the Closing Price for such Capital Stock
on such date. The Closing Price on any date shall mean the last reported sale price for such
Capital Stock, regular way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, for such Capital Stock, in either case as
reported in the principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such Capital Stock is not listed or admitted to
trading on the NYSE, as reported on the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which such Capital
Stock is listed or admitted to trading or, if such Capital Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is
no longer in use, the principal other automated quotation system that may then be in use or, if
such Capital Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in such Capital Stock
selected by the Board of Directors or, in the event that no trading price is available for such
Capital Stock, the fair market value of the Capital Stock, as determined in good faith by the
Board of Directors.
MGCL
. The term MGCL shall mean the Maryland General Corporation Law, as amended
from time to time.
NYSE
. The term NYSE shall mean the New York Stock Exchange.
Person
. The term Person shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17)
of the Code), a portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a
group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, and a group to which an Excepted Holder Limit applies.
10
Prohibited Owner
. The term Prohibited Owner shall mean, with respect to any
purported Transfer (or other event), any Person who, but for the provisions of Section 7.2.1,
would Beneficially Own or Constructively Own shares of Capital Stock in violation of the
provisions of Section 7.2.1(a) and, if appropriate in the context, shall also mean any Person who
would have been the record owner of the shares of Capital Stock that the Prohibited Owner would
have so owned.
REIT
. The term REIT shall mean a real estate investment trust within the meaning of
Section 856 of the Code.
Restriction Termination Date
. The term Restriction Termination Date shall mean the
first day after the Initial Date on which the Corporation determines pursuant to Section 5.7 of the
Charter that it is no longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of shares of Capital Stock set forth herein is no
longer required in order for the Corporation to qualify as a REIT.
Transfer
. The term Transfer shall mean any issuance, sale, transfer, gift,
assignment, devise or other disposition, as well as any other event that causes any Person to
acquire Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions
or cause any such events, of Capital Stock or the right to vote or receive dividends on Capital
Stock, including (a) the granting or exercise of any option (or any disposition of any option), (b)
any disposition of any securities or rights convertible into or exchangeable for Capital Stock or
any interest in Capital Stock or any exercise of any such conversion or exchange right and (c)
Transfers of interests in other entities that result in changes in Beneficial or Constructive
Ownership of Capital Stock; in each case, whether voluntary or involuntary, whether owned of
record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise.
The terms Transferring and Transferred shall have the correlative meanings.
Trust
. The term Trust shall mean any trust provided for in Section 7.3.1.
11
Trustee
. The term Trustee shall mean the Person unaffiliated with the Corporation
and a Prohibited Owner, that is appointed by the Corporation to serve as trustee of the Trust.
Section 7.2
Capital Stock
.
Section 7.2.1
Ownership Limitations
. During the period commencing on the Initial
Date and prior to the Restriction Termination Date:
(a)
Basic Restrictions
.
(i) (1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own
either shares of Capital Stock in excess of the Aggregate Stock Ownership Limit or shares of Common
Stock in excess of the Common Stock Ownership Limit and (2) no Excepted Holder shall Beneficially
Own or Constructively Own shares of Capital Stock in excess of the Excepted Holder Limit for such
Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own shares of Capital Stock to the extent
that such Beneficial or Constructive Ownership of Capital Stock would result in the Corporation
being closely held within the meaning of Section 856(h) of the Code (without regard to whether
the ownership interest is held during the last half of a taxable year), or otherwise failing to
qualify as a REIT (including, but not limited to, Beneficial or Constructive Ownership to the
extent that such Beneficial or Constructive Ownership would result in the Corporation owning
(actually or Constructively) a 9.9% interest in a tenant that is described in Section 856(d)(2)(B)
of the Code. (For this purpose, a tenant from whom the Corporation (or an entity owned or
controlled by the Corporation) derives (and is expected to continue to derive) a sufficiently small
amount of revenue such that, in the opinion of the Board of Directors, rent from such tenant would
not adversely affect the Corporations ability to qualify as a REIT, shall not be treated as a
tenant of the Corporation).
(iii) Notwithstanding any other provisions contained herein, any Transfer of shares of
Capital Stock (whether or not such Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system) that, if effective, would result in the
Capital Stock being beneficially owned by less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void
ab
initio
, and the intended transferee
shall acquire no rights in such shares of Capital Stock.
12
(b)
Transfer in Trust
. If any Transfer of shares of Capital Stock (whether or not
such Transfer is the result of a transaction entered into through the facilities of the NYSE or any
other national securities exchange or automated inter-dealer quotation system) occurs which, if
effective, would result in any Person Beneficially Owning or Constructively Owning shares of
Capital Stock in violation of Section 7.2.1(a),
(i) then that number of shares of Capital Stock the Beneficial or Constructive Ownership of
which otherwise would cause such Person to violate Section 7.2.1(a) (rounded up to the nearest
whole share) shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7.3, effective as of the close of business on the Business Day
prior to the date of such Transfer (or other event), and such Person shall acquire no rights in
such shares of Capital Stock; or
(ii) if the transfer to the Trust described in clause (i) of this sentence would not be
effective for any reason to prevent the violation of Section 7.2.1(a), then the Transfer of that
number of shares of Capital Stock that otherwise would cause any Person to violate Section 7.2.1(a)
shall be void
ab
initio
, and the intended transferee shall acquire no rights in
such shares of Capital Stock.
(iii) In determining which shares of Capital Stock are to be transferred to a Trust in
accordance with this Section 7.2.1(b) and Section 7.3 hereof, shares shall be so transferred to a
Trust in such manner that minimizes the aggregate value of the shares that are transferred to the
Trust (except to the extent that the Board of Directors
determines that the shares transferred to the Trust shall be those directly or indirectly held
or Beneficially Owned or Constructively Owned by a Person or Persons that caused or contributed to
the application of this Section 7.2.1(b)), and to the extent not inconsistent therewith, on a pro
rata basis.
13
(iv) To the extent that, upon a transfer of shares of Capital Stock pursuant to this Section
7.2.1(b), a violation of Section 7.2.1(a) would nonetheless be continuing, (for example where the
ownership of shares of Capital Stock by a single Trust would result in the Capital Stock being
beneficially owned (determined under the principles of Section 856(a)(5) of the Code) by less than
100 persons), the shares of Capital Stock shall be transferred to that number of Trusts, each
having a distinct Trustee and a Charitable Beneficiary or Beneficiaries that are distinct from
those of each other Trust, such that there is no violation of Section 7.2.1(a).
Section 7.2.2
Remedies for Breach
. If the Board of Directors or any duly authorized
committee thereof (or other designees if permitted by the MGCL) shall at any time determine in good
faith that a Transfer or other event has taken place that results in a violation of Section 7.2.1
or that a Person intends to acquire or has attempted to acquire Beneficial or Constructive
Ownership of any shares of Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee thereof (or other designees if
permitted by the MGCL) shall take such action as it deems advisable to refuse to give effect to or
to prevent such Transfer or other event, including, without limitation, causing the Corporation to
redeem shares of Common Stock, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event;
provided
,
however
, that any Transfer or attempted Transfer or other event in
violation of Section 7.2.1 shall automatically result in the transfer to the Trust described
above, and, where applicable, such Transfer (or other event) shall be void
ab
initio
as provided above irrespective of any action (or non-action) by the Board of
Directors or a committee thereof.
14
Section 7.2.3
Notice of Restricted Transfer
. Any Person who acquires or attempts or
intends to acquire Beneficial Ownership or Constructive Ownership of shares of Capital Stock that
will or may violate Section 7.2.1(a) or any Person who would have owned shares of Capital Stock
that resulted in a transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the case of such a proposed
or attempted transaction, give at least 15 days prior written notice, and shall provide to the
Corporation such other information as the Corporation may request in order to determine the effect,
if any, of such Transfer on the Corporations status as a REIT.
Section 7.2.4
Owners Required to Provide Information
. From the Initial Date and
prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower percentage as required by the Code or
the Treasury Regulations promulgated thereunder) in value or number of the outstanding shares of
Capital Stock, within 30 days after the end of each taxable year, shall give written notice to the
Corporation stating the name and address of such owner, the number of shares of Capital Stock and
other shares of the Capital Stock Beneficially Owned and a description of the manner in which such
shares are held. Each such owner shall provide to the Corporation such additional information as
the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership
on the Corporations status as a REIT and to ensure compliance with the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit; and
15
(b) each Person who is a Beneficial or Constructive Owner of Capital Stock and each Person
(including the stockholder of record) who is holding Capital Stock for a Beneficial or Constructive
Owner shall provide to the Corporation such information as the Corporation may request, in good
faith, in order to determine the Corporations qualification as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine such compliance and
to ensure compliance with the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit.
Section 7.2.5
Remedies Not Limited
. Subject to Section 5.7 of the Charter, nothing
contained in this Section 7.2 shall limit the authority of the Board of Directors to take such
other action as it deems necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporations qualification as a REIT.
Section 7.2.6
Ambiguity
. In the case of an ambiguity in the application of any of
the provisions of this Section 7.2, Section 7.3 or any definition contained in Section 7.1, the
Board of Directors shall have the power to determine the application of the provisions of this
Section 7.2 or Section 7.3 or any such definition with respect to any situation based on the facts
known to it. In the event Section 7.2 or Section 7.3 requires an action by the Board of Directors
and the Charter fails to provide specific guidance with respect to such action, the Board of
Directors shall have the power to determine the action to be taken so long as such action is not
contrary to the provisions of Sections 7.1, 7.2 or 7.3. Absent a decision to the contrary by the
Board of Directors (which the Board of Directors may make in its sole and absolute discretion), if
a Person would have (but for the remedies set forth in Section 7.2.1) acquired Beneficial Ownership
or Constructive Ownership of Capital Stock in violation of Section 7.2.1, such remedies (as
applicable) shall apply first to the shares of Capital Stock that, but for such remedies, would
have been actually owned by such Person, and second to shares of Capital Stock which, but for such
remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by
such Person, pro rata among the Persons
who actually own such shares of Capital Stock based upon the relative number of the shares of
Capital Stock held by each such Person.
16
Section 7.2.7
Exceptions
.
(a) Subject to Section 7.2.1, the Board of Directors, in its sole discretion, may exempt
(prospectively or retroactively) a Person from the Aggregate Stock Ownership Limit, the Common
Stock Ownership Limit or both such limits and may establish or increase an Excepted Holder Limit
for such Person if:
(i) the Board of Directors obtains such representations and undertakings from such Person as
are reasonably necessary to ascertain that no individuals Beneficial or Constructive Ownership of
such shares of Capital Stock will violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not own, actually or Constructively, an
interest in a tenant of the Corporation (or a tenant of any entity owned or controlled by the
Corporation) that would cause the Corporation to own, actually or Constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board of
Directors obtains such representations and undertakings from such Person as are reasonably
necessary to ascertain this fact; and
(iii) such Person agrees that any violation or attempted violation of such representations or
undertakings (or other action which is contrary to the restrictions contained in Sections 7.2.1
through 7.2.6) will result in such shares of Capital Stock being automatically transferred to a
Trust in accordance with Sections 7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section 7.2.7(a), the Board of Directors may
require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in
form and substance satisfactory to the Board of Directors in
its sole discretion, as it may deem necessary or advisable in order to determine or ensure the
Corporations qualification as a REIT. Notwithstanding the receipt of any ruling or opinion, the
Board of Directors may impose such conditions or restrictions as it deems appropriate in connection
with granting such exception.
17
(c) Subject to Section 7.2.1(a)(ii), an underwriter or placement agent which participates in a
public offering or a private placement of Capital Stock (or securities convertible into or
exchangeable for Capital Stock) may Beneficially Own or Constructively Own shares of Capital Stock
(or securities convertible into or exchangeable for Capital Stock) in excess of the Aggregate Stock
Ownership Limit, the Common Stock Ownership Limit, or both such limits, but only to the extent
necessary to facilitate such public offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder Limit for an Excepted Holder:
(i) with the written consent of such Excepted Holder at any time, or (ii) pursuant to the terms and
conditions of the agreements and undertakings entered into with such Excepted Holder in connection
with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder
Limit shall be reduced to a percentage that is less than the Aggregate Stock Ownership Limit or the
Common Stock Ownership Limit, as the case may be.
18
Section 7.2.8
Change in Aggregate Stock Ownership Limit and Common Stock Ownership
Limit
. The Board of Directors may from time to time increase or decrease the Aggregate Stock
Ownership Limit and Common Stock Ownership Limit; provided, however, that a decreased Aggregate
Stock Ownership Limit or Common Stock Ownership Limit will not be effective for any Person whose
percentage ownership of Capital Stock or Common Stock, as the case may be, is in excess of such
decreased Aggregate Stock Ownership Limit or Common Stock Ownership Limit until such time as such
Persons percentage of Capital Stock or
Common Stock, as the case may be, equals or falls below the decreased Aggregate Stock
Ownership Limit or Common Stock Ownership, but until such time as such Persons percentage of
Capital Stock or Common Stock, as the case may be, falls below such decreased Aggregate Stock
Ownership Limit or Common Stock Ownership Limit, any further acquisition of Capital Stock or Common
Stock will be in violation of the Aggregate Stock Ownership Limit or Common Stock Ownership Limit
and, provided further, that the new Aggregate Stock Ownership Limit or Common Stock Ownership Limit
would not allow five or fewer individuals (as defined in Section 542(a)(2) of the Code and taking
into account all Excepted Holders) to Beneficially Own more than 49.9% in value of the outstanding
Capital Stock. If the Board of Directors changes the Common Stock Ownership Limit and/or Aggregate
Stock Ownership Limit, it will (i) notify each stockholder of record of any such change, and (ii)
publicly announce any such change, in each case at least 30 days prior to the effective date of
such change.
The Board of Directors may from time to time increase the Common Stock Ownership Limit and the
Aggregate Stock Ownership Limit.
19
Section 7.2.9
Legend
. Each certificate for shares of Capital Stock shall bear
substantially the following legend:
The shares of any class or series of the Corporations stock
(Capital Stock) represented by this certificate are subject to restrictions
on Beneficial Ownership, Constructive Ownership and Transfer (as each such term
is defined in the charter of the Corporation) for the purpose of the
Corporations maintenance of its status as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the Code). Subject to certain
further restrictions and except as expressly provided in the charter of the
Corporation, (i) no Person (as defined in the charter of the Corporation) may
Beneficially Own or Constructively Own shares of the Corporations common
stock, $0.01 par value per share (Common Stock), in excess of 9.8 % (in value
or number of shares, whichever is more restrictive) of the total outstanding shares of Common
Stock unless such Person is an Excepted Holder (as defined in the charter of the
Corporation), in which case the Excepted Holder Limit (as defined in the charter of
the Corporation) shall be applicable; (ii) no Person may Beneficially Own or
Constructively Own shares of Capital Stock in excess of 9.8% (in value or number of
shares, whichever is more restrictive) of the total outstanding shares of Capital
Stock, unless such Person is an Excepted Holder, in which case the Excepted Holder
Limit shall be applicable; (iii) no Person may Beneficially Own or Constructively
Own shares of Capital Stock that would result in the Corporation being closely
held under Section 856(h) of the Code or otherwise cause the Corporation to fail to
qualify as a REIT; and (iv) no Person may Transfer shares of Capital Stock if such
Transfer would result in the Capital Stock of the Corporation being owned by fewer
than 100 Persons. Any Person who Beneficially Owns or Constructively Owns, or
attempts to Beneficially Own or Constructively Own, shares of Capital Stock which
causes or will cause a Person to Beneficially Own or Constructively Own shares of
Capital Stock in excess or in violation of the above limitations must immediately
notify the Corporation. If any of the above restrictions on Beneficial Ownership,
Constructive Ownership or Transfer are violated, the shares of Capital Stock
represented hereby will be automatically transferred to a Trust (as defined in the
charter of the Corporation) for the benefit of one or more Charitable Beneficiaries
(as defined in the charter of the Corporation). In addition, the Board of Directors
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, without limitation, causing the
Corporation to redeem shares of Capital Stock; provided, however, that any Transfer
or attempted Transfer or other event in violation of the above restrictions on
Beneficial Ownership, Constructive Ownership and Transfer shall automatically result
in the above transfer to the Trust and, where applicable, such Transfer (or other
event) shall be void ab initio as provided above irrespective of any action (or
non-action) by the Board of Directors. The Board of Directors may, pursuant to
Section 7.2.8 of the charter of the Corporation, increase or decrease the percentage
of Common Stock or Capital Stock that a person may Beneficially Own or
Constructively Own.
A copy of the charter of the Corporation, including the above
restrictions on Beneficial Ownership, Constructive Ownership and Transfer, will
be furnished to each holder of Capital Stock on request and without charge.
Requests for such a copy may be directed to the Secretary of the Corporation at
its principal office.
Instead of the foregoing legend, the certificate may state that the Corporation will furnish a
full statement about certain restrictions on transferability to a stockholder on request and
without charge.
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Section 7.3
Transfer of Capital Stock in Trust
.
Section 7.3.1
Ownership in Trust
. Upon any purported Transfer or other event
described in Section 7.2.1(b) that would result in a transfer of shares of Capital Stock to a
Trust, such shares of Capital Stock shall be deemed to have been transferred to the Trustee as
trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such
transfer to the Trustee shall be deemed to be effective as of the close of business on the Business
Day prior to the purported Transfer or other event that results in the transfer to the Trust
pursuant to Section 7.2.1(b). The Trustee shall be appointed by the Corporation and shall be a
Person unaffiliated with the Corporation and any Prohibited Owner. Each Charitable Beneficiary
shall be designated by the Corporation as provided in Section 7.3.6.
Section 7.3.2
Status of Shares Held by the Trustee
. Shares of Capital Stock held by
the Trustee shall continue to be issued and outstanding shares of Capital Stock of the Corporation.
The Prohibited Owner shall have no rights in the shares of Capital Stock held by the Trustee. The
Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the
Trustee, shall have no rights to dividends or other distributions and shall not possess any rights
to vote or other rights attributable to the shares held in the Trust.
Section 7.3.3
Dividend and Voting Rights
. The Trustee shall have all voting rights
and rights to dividends or other distributions with respect to shares of Capital Stock held in the
Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary.
Any dividend or other distribution paid to a Prohibited Owner prior to the discovery by the
Corporation that the shares of Capital Stock have been transferred to the Trustee shall be paid
with respect to such shares of Capital Stock by the Prohibited Owner to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when due to the Trustee.
Any dividend or distribution so paid to the Trustee shall be held in trust for the Charitable
Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the
Trust and, subject to Maryland law, effective as of the date that the shares of Capital Stock have
been transferred to the Trustee, the Trustee shall have the authority (at the Trustees sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner
prior to the discovery by the Corporation that the shares of Capital Stock have been transferred to
the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for
the benefit of the Charitable Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action, then the Trustee shall not have the authority to rescind and
recast such vote. Notwithstanding the provisions of this Article VII, until the Corporation has
received notification that shares of Capital Stock have been transferred into a Trust, the
Corporation shall be entitled to rely on its share transfer and other stockholder records for
purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity
and authority of proxies and otherwise conducting votes of stockholders.
21
Section 7.3.4
Sale of Shares by Trustee
. Within 20 days of receiving notice from the
Corporation that shares of Capital Stock have been transferred to the Trust, the Trustee of the
Trust shall sell the shares held in the Trust to a person, designated by the Trustee, whose
ownership of the shares will not violate the ownership limitations set forth in Section 7.2.1(a).
Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and
the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as provided in this Section 7.3.4. The Prohibited Owner shall receive the
lesser of (i) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did
not give value for the shares in connection with the event causing the shares to be held in the
Trust
(e.g.,
in the case of a gift, devise or other such transaction), the Market Price of the
shares on the day of the event causing the shares to be held in the Trust and (ii) the price per
share received by the Trustee (net of any commissions and other expenses of sale) from the sale or
other disposition of the shares held in the Trust. The Trustee may reduce the amount payable to
the Prohibited Owner by the amount of dividends and distributions paid to the Prohibited Owner and
owed by the Prohibited Owner to the Trustee pursuant to Section 7.3.3 of this Article VII. Any net
sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to
the Charitable Beneficiary. If, prior to the discovery by the Corporation that shares of Capital Stock have been transferred to the
Trustee, such shares are sold by a Prohibited Owner, then (a) such shares shall be deemed to have
been sold on behalf of the Trust and (b) to the extent that the Prohibited Owner received an amount
for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant
to this Section 7.3.4, such excess shall be paid to the Trustee upon demand.
22
Section 7.3.5
Purchase Right in Stock Transferred to the Trustee
. Shares of Capital
Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation,
or its designee, at a price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation may reduce the amount payable
to the Prohibited Owner by the amount of dividends and distributions paid to the Prohibited Owner
and owed by the Prohibited Owner to the Trustee pursuant to Section 7.3.3 of this Article VII.
The Corporation may pay the amount of such reduction to the Trustee for the benefit of the
Charitable Beneficiary. The Corporation shall have the right to accept such offer until the
Trustee has sold the shares held in the Trust pursuant to Section 7.3.4. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and any dividends or
other distributions held by the Trustee shall be paid to the Charitable Beneficiary.
Section 7.3.6
Designation of Charitable Beneficiaries
. By written notice to the
Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Trust such that (i) the shares of Capital Stock held in the
Trust would not violate the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in Section 501(c)(3) of
the Code and contributions to each such organization must be eligible for deduction under each of
Sections 170(b)(1)(A), 2055 and 2522 of the Code.
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Section 7.4
NYSE Transactions
. Nothing in this Article VII shall preclude the
settlement of any transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system. The fact that the
settlement of any transaction occurs shall not negate the effect of any other provision of this
Article VII and any transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article VII.
Section 7.5
Enforcement
. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this Article VII.
Section 7.6
Non-Waiver
. No delay or failure on the part of the Corporation or the
Board of Directors in exercising any right hereunder shall operate as a waiver of any right of the
Corporation or the Board of Directors, as the case may be, except to the extent specifically waived
in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment to its charter, now
or hereafter authorized by law, including any amendment altering the terms or contract rights, as
expressly set forth in the charter, of any shares of outstanding stock. All rights and powers
conferred by the charter on stockholders, directors and officers are granted subject to this
reservation. However, any amendment to Section 5.2 or to this sentence of the charter shall be
valid only if approved by the affirmative vote of two thirds of all the votes entitled to be cast
by the stockholders on the matter.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time permits limitation of the
liability of directors and officers of a corporation, no director or officer of the Corporation
shall be liable to the Corporation or its stockholders for money damages. Neither the amendment
nor repeal of this Article IX, nor the adoption or amendment of any other
provision of the charter or Bylaws inconsistent with this Article IX, shall apply to or affect
in any respect the applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
24
THIRD
: The amendment to and restatement of the charter as hereinabove set forth have
been duly advised by the Board of Directors and approved by the stockholders of the Corporation as
required by law.
FOURTH
: The current address of the principal office of the Corporation is as set forth
in Article IV of the foregoing amendment and restatement of the charter.
FIFTH
: The name and address of the Corporations current resident agent is as set
forth in Article IV of the foregoing amendment and restatement of the charter.
SIXTH
: The number of directors of the Corporation and the names of those currently in
office are as set forth in Article V of the foregoing amendment and restatement of the charter.
SEVENTH
: The total number of shares of stock which the Corporation had authority to
issue immediately prior to this amendment and restatement was 100,000 shares, $0.01 par value per
share, all of one class. The aggregate par value of all shares of stock having par value was
$1,000.
EIGHTH
: The total number of shares of stock which the Corporation has authority to
issue pursuant to the foregoing amendment and restatement of the charter is 600,000,000 shares of
stock, consisting of 500,000,000 shares of Common Stock, $0.01 par value per share, and 100,000,000
shares of Preferred Stock, $0.01 par value per share. The aggregate par value of all authorized
shares of stock having par value is $6,000,000.
NINTH
: The undersigned President acknowledges these Articles of Amendment and
Restatement to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges that to the
best of his knowledge, information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
25
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment and Restatement to
be signed in its name and on its behalf by its President and attested to by its Secretary on this 14th day of August, 2009.
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ATTEST:
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STARWOOD PROPERTY TRUST, INC.
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/s/ Ellis F. Rinaldi
Ellis F. Rinaldi, Secretary
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By:
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/s/ Jeffrey G. Dishner (SEAL)
Jeffrey G. Dishner, President
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26
EXHIBIT 3.2
STARWOOD PROPERTY TRUST, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1.
PRINCIPAL OFFICE
. The principal office of the Corporation in the State of
Maryland shall be located at such place as the Board of Directors may designate.
Section 2.
ADDITIONAL OFFICES
. The Corporation may have additional offices, including
a principal executive office, at such places as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1.
PLACE
. All meetings of stockholders shall be held at the principal
executive office of the Corporation or at such other place as shall be set by the Board of
Directors and stated in the notice of the meeting.
Section 2.
ANNUAL MEETING
. An annual meeting of the stockholders for the election of
directors and the transaction of any business within the powers of the Corporation shall be held on
a date and at the time set by the Board of Directors during the month of May in each year.
Section 3.
SPECIAL MEETINGS
.
(a)
General
. The chairman of the board, president, chief executive officer or Board
of Directors may call a special meeting of the stockholders. Subject to subsection (b) of this
Section 3, a special meeting of stockholders shall also be called by the secretary of the
Corporation upon the written request of the stockholders entitled to cast not less than a majority
of all the votes entitled to be cast at such meeting.
(b)
Stockholder Requested Special Meetings
.
(1) Any stockholder of record seeking to have stockholders request a special meeting shall, by
sending written notice to the secretary of the Corporation (the Record Date Request Notice) by
registered mail, return receipt requested, request the Board of Directors
to fix a record date to determine the stockholders entitled to request a special meeting (the
Request Record Date). The Record Date Request Notice shall set forth the purpose of the meeting
and the matters proposed to be acted on at it, shall be signed by one or more stockholders of
record as of the date of signature (or their duly authorized agents), shall bear the date of
signature of each such stockholder (or other agent) and shall set forth all information relating to
each such stockholder that must be disclosed in solicitations of proxies for election of directors
in an election contest (even if an election contest is not involved), or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the
Exchange Act), and Rule 14a-11 thereunder. Upon receiving the Record Date Request Notice, the
Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and
shall not be more than ten days after the close of business on the date on which the resolution
fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors,
within ten days after the date on which a valid Record Date Request Notice is received, fails to
adopt a resolution fixing the Request Record Date and to make a public announcement of such Request
Record Date, the Request Record Date shall be the close of business on the tenth day after the
first date on which the Record Date Request Notice is received by the secretary.
(2) In order for any stockholder to request a special meeting, one or more written requests
for a special meeting signed by stockholders of record (or their duly authorized agents) as of the
Request Record Date entitled to cast not less than a majority (the Special Meeting Percentage) of
all of the votes entitled to be cast at such meeting (the Special Meeting Request) shall be
delivered to the secretary. In addition, the Special Meeting Request shall set forth the purpose
of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters
set forth in the Record Date Request Notice received by the secretary), shall bear the date of
signature of each such stockholder (or other agent) signing the Special Meeting Request, shall set
forth the name and address, as they appear in the Corporations books, of each stockholder signing
such request (or on whose behalf the Special Meeting Request is signed) and the class and number of
shares of stock of the Corporation which are owned of record and beneficially by each such
stockholder, shall be sent to the secretary by registered mail, return receipt requested, and shall
be received by the secretary within 60 days after the Request Record Date. Any requesting
stockholder may revoke his, her or its request for a special meeting at any time by written
revocation delivered to the secretary.
(3) The secretary shall inform the requesting stockholders of the reasonably estimated cost of
preparing and mailing the notice of meeting (including the Corporations proxy materials). The
secretary shall not be required to call a special meeting upon stockholder request and such meeting
shall not be held unless, in addition to the documents required by paragraph (2) of this Section
3(b), the secretary receives payment of such reasonably estimated cost prior to the mailing of any
notice of the meeting.
2
(4) Except as provided in the next sentence, any special meeting shall be held at such place,
date and time as may be designated by the president, chief executive officer or Board of Directors,
whoever has called the meeting. In the case of any special meeting called
by the secretary upon the request of stockholders (a Stockholder Requested Meeting), such
meeting shall be held at such place, date and time as may be designated by the Board of Directors;
provided
, however, that the date of any Stockholder Requested Meeting shall be not more
than 90 days after the record date for such meeting (the Meeting Record Date); and
provided
further
that if the Board of Directors fails to designate, within ten days
after the date that a valid Special Meeting Request is actually received by the secretary (the
Delivery Date), a date and time for a Stockholder Requested Meeting, then such meeting shall be
held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is
not a Business Day (as defined below), on the first preceding Business Day; and
provided
further
that in the event that the Board of Directors fails to designate a place for a
Stockholder Requested Meeting within ten days after the Delivery Date, then such meeting shall be
held at the principal executive offices of the Corporation. In fixing a date for any special
meeting, the president, chief executive officer or Board of Directors may consider such factors as
he, she or it deems relevant within the good faith exercise of business judgment, including,
without limitation, the nature of the matters to be considered, the facts and circumstances
surrounding any request for meeting and any plan of the Board of Directors to call an annual
meeting or a special meeting. In the case of any Stockholder Requested Meeting, if the Board of
Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date,
then the close of business on the 30th day after the Delivery Date shall be the Meeting Record
Date.
(5) If at any time as a result of written revocations of requests for the special meeting,
stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to
cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a
special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice
of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time
before ten days before the meeting if the secretary has first sent to all other requesting
stockholders written notice of such revocation and of intention to revoke the notice of the
meeting. Any request for a special meeting received after a revocation by the secretary of a
notice of a meeting shall be considered a request for a new special meeting.
(6) The chairman of the Board of Directors, the president or the Board of Directors may
appoint regionally or nationally recognized independent inspectors of elections to act as the agent
of the Corporation for the purpose of promptly performing a ministerial review of the validity of
any purported Special Meeting Request received by the secretary. For the purpose of permitting the
inspectors to perform such review, no such purported request shall be deemed to have been delivered
to the secretary until the earlier of (i) ten Business Days after receipt by the secretary of such
purported request and (ii) such date as the independent inspectors certify to the Corporation that
the valid requests received by the secretary represent at least a majority of the issued and
outstanding shares of stock that would be entitled to vote at such meeting. Nothing contained in
this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any
stockholder shall not be entitled to contest the validity of any request, whether during or after
such ten Business Day period, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto, and the seeking of
injunctive relief in such litigation).
3
(7) For purposes of these Bylaws, Business Day shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of are authorized or obligated by law or
executive order to close.
Section 4.
NOTICE
. Not less than ten nor more than 90 days before each meeting of
stockholders, the secretary shall give to each stockholder entitled to vote at such meeting and to
each stockholder not entitled to vote who is entitled to notice of the meeting notice in writing or
by electronic transmission stating the time and place of the meeting, if any, and the means of
remote communication, if any, by which stockholders and proxy holders may be deemed to be present
in person and may vote at the meeting and, in the case of a special meeting or as otherwise may be
required by any statute, the purpose for which the meeting is called, either by mail, by presenting
it to such stockholder personally, by leaving it at the stockholders residence or usual place of
business, by transmitting it to the stockholder by an electronic transmission to any address or
number of the stockholder at which the stockholder receives electronic transmissions or by any
other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder at the stockholders address as it
appears on the records of the Corporation, with postage thereon prepaid.
Any business of the Corporation may be transacted at an annual meeting of stockholders without
being specifically designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting of stockholders
except as specifically designated in the notice.
Section 5.
ORGANIZATION AND CONDUCT
. Every meeting of stockholders shall be conducted
by an individual appointed by the Board of Directors to be chairman of the meeting or, in the
absence of such appointment, by the chairman of the board or, in the case of a vacancy in the
office or absence of the chairman of the board, by one of the following officers present at the
meeting: the vice chairman of the board, if there be one, the president, the vice presidents in
their order of rank and seniority or, in the absence of such officers, a chairman chosen by the
stockholders by the vote of a majority of the votes cast by stockholders present in person or by
proxy. The secretary or, in the secretarys absence, an assistant secretary or, in the absence of
both the secretary and assistant secretaries, a person appointed by the Board of Directors or, in
the absence of such appointment, a person appointed by the chairman of the meeting shall act as
secretary. In the event that the secretary presides at a meeting of the stockholders, an assistant
secretary shall record the minutes of the meeting. The order of business and all other matters of
procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The
chairman of the meeting may prescribe such rules, regulations and procedures and take such action
as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting,
including, without limitation, (a) restricting admission to the time set for the commencement of
the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation,
their duly authorized proxies or other such persons as the chairman of the meeting may determine;
(c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter,
their duly authorized proxies or other such persons as the chairman of the meeting may determine;
(d) limiting the time allotted to questions or comments by participants; (e) maintaining order and
security at the meeting; (f) removing any stockholder who refuses to comply with meeting
procedures, rules or guidelines as set forth by the chairman of the meeting; and (g) recessing or
adjourning the meeting to a later date and time and place announced at the meeting. Unless
otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required
to be held in accordance with the rules of parliamentary procedure.
4
Section 6.
QUORUM
. At any meeting of stockholders, the presence in person or by proxy
of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting
shall constitute a quorum; but this section shall not affect any requirement under any statute or
the charter of the Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders, the chairman of the
meeting or the stockholders entitled to vote at such meeting, present in person or by proxy, shall
have the power to adjourn the meeting from time to time to a date not more than 120 days after the
original record date without notice other than announcement at the meeting. At such adjourned
meeting at which a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which has been duly called
and convened, may continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 7.
VOTING
. A plurality of all the votes cast at a meeting of stockholders
duly called and at which a quorum is present shall be sufficient to elect a director. Each share
may be voted for as many individuals as there are directors to be elected and for whose election
the share is entitled to be voted. A majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient to approve any other matter which may
properly come before the meeting, unless more than a majority of the votes cast is required by
statute or by the charter of the Corporation. Unless otherwise provided in the charter, each
outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders.
Section 8.
PROXIES
. A stockholder may cast the votes entitled to be cast by the
shares of stock owned of record by the stockholder in person or by proxy executed by the
stockholder or by the stockholders duly authorized agent in any manner permitted by law. Such
proxy or evidence of authorization of such proxy shall be filed with the secretary of the
Corporation before or at the meeting. No proxy shall be valid more than eleven months after its
date unless otherwise provided in the proxy.
Section 9.
VOTING OF STOCK BY CERTAIN HOLDERS
. Stock of the Corporation registered in
the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be
voted by the president or a vice president, a general partner or trustee thereof,
as the case may be, or a proxy appointed by any of the foregoing individuals, unless some
other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case such person may
vote such stock. Any director or other fiduciary may vote stock registered in his or her name as
such fiduciary, either in person or by proxy.
5
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at
any meeting and shall not be counted in determining the total number of outstanding shares entitled
to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case
they may be voted and shall be counted in determining the total number of outstanding shares at any
given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify
in writing to the Corporation that any shares of stock registered in the name of the stockholder
are held for the account of a specified person other than the stockholder. The resolution shall
set forth the class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books within which the certification must be
received by the Corporation; and any other provisions with respect to the procedure which the Board
of Directors considers necessary or desirable. On receipt of such certification, the person
specified in the certification shall be regarded as, for the purposes set forth in the
certification, the stockholder of record of the specified stock in place of the stockholder who
makes the certification.
Section 10.
INSPECTORS
. The Board of Directors, in advance of any meeting, may, but
need not, appoint one or more individual inspectors or one or more entities that designate
individuals as inspectors to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails to appear or act,
the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting
or at the meeting by the chairman of the meeting. The inspectors, if any, shall determine the
number of shares outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as
are proper to conduct the election or vote with fairness to all stockholders. Each such report
shall be in writing and signed by him or her or by a majority of them if there is more than one
inspector acting at such meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be
prima
facie
evidence thereof.
6
Section 11.
ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER STOCKHOLDER
PROPOSALS
.
(a)
Annual Meetings of Stockholders
.
(1) Nominations of persons for election to the Board of Directors and the proposal of business
to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant
to the Corporations notice of meeting, (ii) by or at the direction of the Board of Directors or
(iii) by any stockholder of the Corporation who was a stockholder of record both at the time of
giving of notice provided for in this Section 11(a) and at the time of the annual meeting, who is
entitled to vote at the meeting and who complied with the notice procedures set forth in this
Section 11(a).
(2) For nominations or other business to be properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 11, the stockholder must
have given timely notice thereof in writing to the secretary of the Corporation and such other
business must otherwise be a proper matter for action by the stockholders. To be timely, a
stockholders notice shall be delivered to the secretary at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the date
of mailing of the notice for the preceding years annual meeting;
provided
, however, that
in the event that the date of the mailing of the notice for the annual meeting is advanced or
delayed by more than 30 days from the first anniversary of the date of mailing of the notice for
the preceding years annual meeting, notice by the stockholder to be timely must be so delivered
not earlier than the 120th day prior to the date of mailing of the notice for such annual meeting
and not later than the close of business on the later of the 90th day prior to the date of mailing
of the notice for such annual meeting or the tenth day following the day on which disclosure of the
date of mailing of the notice for such meeting is first made. In no event shall the public
announcement of a postponement or adjournment of an annual meeting commence a new time period for
the giving of a stockholders notice as described above. Such stockholders notice shall set forth
(i) as to each person whom the stockholder proposes to nominate for election or reelection as a
director, (A) the name, age, business address and residence address of such person, (B) the class
and number of shares of stock of the Corporation that are beneficially owned by such person, and
(C) all other information relating to such person that is required to be disclosed in solicitations
of proxies for election of directors in an election contest (even if an election contest is not
involved), or is otherwise required, in each case pursuant to Regulation 14A (or any successor
provision) under the Exchange Act and the rules thereunder (including such persons written consent
to being named in the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the meeting, a description
of the business desired to be brought before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such stockholder (including any
anticipated benefit to the stockholder therefrom) and of each beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice and each beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporations stock ledger and current name and address, if different, and of such beneficial owner, and (y) the
class and number of shares of each class of stock of the Corporation which are owned beneficially
and of record by such stockholder and owned beneficially by such beneficial owner.
7
(3) Notwithstanding anything in this subsection (a) of this Section 11 to the contrary, in the
event the Board of Directors increases or decreases the maximum or minimum number of directors in
accordance with Article III, Section 2 of these Bylaws, and there is no announcement of such action
at least 100 days prior to the first anniversary of the date of mailing of the preceding years
annual meeting, a stockholders notice required by this Section 11(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such increase, if it
shall be delivered to the secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the tenth day following the day on which such
public announcement is first made by the Corporation.
(b)
Special Meetings of Stockholders
. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting pursuant to the
Corporations notice of meeting. Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to
the Corporations notice of meeting, (ii) by or at the direction of the Board of Directors or (iii)
provided that the Board of Directors has determined that directors shall be elected at such special
meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of
giving of notice provided for in this Section 11 and at the time of the special meeting, who is
entitled to vote at the meeting and who complied with the notice procedures set forth in this
Section 11. In the event the Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such stockholder may nominate a
person or persons (as the case may be) for election as a director as specified in the Corporations
notice of meeting, if the stockholders notice required by paragraph (a)(2) of this Section 11
shall be delivered to the secretary at the principal executive offices of the Corporation not
earlier than the 120th day prior to such special meeting and not later than the close of business
on the later of the 90th day prior to such special meeting or the tenth day following the day on
which public announcement is first made of the date of the special meeting and of the nominees
proposed by the Board of Directors to be elected at such meeting. In no event shall the public
announcement of a postponement or adjournment of a special meeting commence a new time period for
the giving of a stockholders notice as described above.
(c)
General
.
(1) Only such persons who are nominated in accordance with the procedures set forth in this
Section 11 of these Bylaws shall be eligible to serve as directors, and only such business shall be
conducted at a meeting of stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 11. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the procedures set forth in
this Section 11 and, if any proposed nomination or
business is not in compliance with this Section 11, to declare that such defective nomination
or proposal be disregarded.
8
(2) For purposes of this Section 11, (a) the date of mailing of the notice shall mean the
date of the proxy statement for the solicitation of proxies for election of directors and (b)
public announcement shall mean disclosure (i) in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or (ii) in a document publicly filed by the
Corporation with the United States Securities and Exchange Commission pursuant to the Exchange Act
or the Investment Company Act of 1940, as amended.
(3) Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also
comply with all applicable requirements of state law and of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this
Section 11 shall be deemed to affect any right of a stockholder to request inclusion of a proposal
in, nor the right of the Corporation to omit a proposal from, the Corporations proxy statement
pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act.
Section 12.
VOTING BY BALLOT
. Voting on any question or in any election may be
viva voce
unless the presiding officer shall order or any stockholder shall demand that
voting be by ballot.
Section 13.
CONTROL SHARE ACQUISITION ACT
. Notwithstanding any other provision of the
charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation
Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock
of the Corporation. This section may be repealed, in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any
successor bylaw, apply to any prior or subsequent control share acquisition.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under
the direction of its Board of Directors.
Section 2.
NUMBER, TENURE AND QUALIFICATIONS
. At any regular meeting or at any
special meeting called for that purpose, a majority of the entire Board of Directors may establish,
increase or decrease the number of directors, provided that the number thereof shall never be less
than the minimum number required by the Maryland General Corporation Law, nor more than 15, and
further provided that the tenure of office of a director shall not be affected by any decrease in
the number of directors.
Section 3.
ANNUAL AND REGULAR MEETINGS
. An annual meeting of the Board of Directors
shall be held immediately after and at the same place as the annual meeting of stockholders, no
notice other than this Bylaw being necessary. In the event such meeting is not so held, the
meeting may be held at such time and at any place or by means of remote communication as shall be
specified in a notice given as hereinafter provided for special meetings of the Board of Directors.
9
Section 4.
SPECIAL MEETINGS
. Special meetings of the Board of Directors may be called
by or at the request of the chairman of the board, the chief executive officer, the president or by
a majority of the directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix any place as the place for holding any special meeting
of the Board of Directors called by them or may fix remote communication as the means by which any
special meeting of the Board of Directors called by them will be held. The Board of Directors may
provide, by resolution, the time and place, if any, and the means of remote communication, if any,
for the holding of special meetings of the Board of Directors without other notice than such
resolution.
Section 5.
NOTICE
. Notice of any special meeting of the Board of Directors shall be
delivered personally or by telephone, electronic mail, facsimile transmission, United States mail
or courier to each director at his or her business or residence address. Notice by personal
delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours
prior to the meeting. Notice by United States mail shall be given at least three days prior to the
meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone
notice shall be deemed to be given when the director or his or her agent is personally given such
notice in a telephone call to which the director or his or her agent is a party. Electronic mail
notice shall be deemed to be given upon transmission of the message to the electronic mail address
given to the Corporation by the director. Facsimile transmission notice shall be deemed to be
given upon completion of the transmission of the message to the number given to the Corporation by
the director and receipt of a completed answer-back indicating receipt. Notice by United States
mail shall be deemed to be given when deposited in the United States mail properly addressed, with
postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or
delivered to a courier properly addressed. Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the
notice, unless specifically required by statute or these Bylaws.
Section 6.
QUORUM
. A majority of the directors shall constitute a quorum for
transaction of business at any meeting of the Board of Directors,
provided
that, if less
than a majority of such directors are present at said meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice, and
provided
further
that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a
majority of a particular group of directors is required for action, a quorum must also include a
majority of such group.
The directors present at a meeting which has been duly called and convened may continue to
transact business until adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum.
Section 7.
VOTING
. The action of the majority of the directors present at a meeting
at which a quorum is present shall be the action of the Board of Directors, unless the concurrence
of a greater proportion is required for such action by applicable statute or the charter. If
enough directors have withdrawn from a meeting to leave less than a quorum but the meeting is not
adjourned, the action of the majority of the directors still present at such meeting shall be the
action of the Board of Directors, unless the concurrence of a greater proportion is required for
such action by applicable statute or the charter.
10
Section 8.
ORGANIZATION
. At each meeting of the Board of Directors, the chairman of
the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as
Chairman. In the absence of both the chairman and vice chairman of the board, the chief executive
officer or, in the absence of the chief executive officer, the president or, in the absence of the
president, a director chosen by a majority of the directors present, shall act as Chairman. The
secretary or, in his or her absence, an assistant secretary of the Corporation or, in the absence
of the secretary and all assistant secretaries, a person appointed by the Chairman, shall act as
secretary of the meeting.
Section 9.
TELEPHONE MEETINGS
. Directors may participate in a meeting by means of a
conference telephone or other communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these means shall constitute
presence in person at the meeting.
Section 10.
WRITTEN CONSENT BY DIRECTORS
. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if a consent in
writing or by electronic transmission to such action is signed by each director and such written
consent is filed in paper or electronic form with the minutes of proceedings of the Board of
Directors.
Section 11.
VACANCIES
. If for any reason any or all the directors cease to be
directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of
the remaining directors hereunder (even if fewer than three directors remain). Any vacancy on the
Board of Directors for any cause other than an increase in the number of directors shall be filled
by a majority of the remaining directors, even if such majority is less than a quorum. Any vacancy
in the number of directors created by an increase in the number of directors may be filled by a
majority vote of the entire Board of Directors. Any individual so elected as director shall serve
until the next annual meeting of stockholders and until his or her successor is elected and
qualifies.
Section 12.
COMPENSATION
. Directors shall not receive any stated salary for their
services as directors but, by resolution of the Board of Directors, may receive compensation
per year and/or per meeting and/or per visit to real property or other facilities owned or
leased by the Corporation and for any service or activity they performed or engaged in as
directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular
or special meeting of the Board of Directors or of any committee thereof and for their expenses, if
any, in connection with each property visit and any other service or activity they performed or
engaged in as directors; but nothing herein contained shall be construed to preclude any directors
from serving the Corporation in any other capacity and receiving compensation therefor.
11
Section 13.
LOSS OF DEPOSITS
. No director shall be liable for any loss which may
occur by reason of the failure of the bank, trust company, savings and loan association, or other
institution with whom moneys or stock have been deposited.
Section 14.
SURETY BONDS
. Unless required by law, no director shall be obligated to
give any bond or surety or other security for the performance of any of his or her duties.
Section 15.
RELIANCE
. Each director, officer, employee and agent of the Corporation
shall, in the performance of his or her duties with respect to the Corporation, be fully justified
and protected with regard to any act or failure to act in reliance in good faith upon the books of
account or other records of the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Board of Directors or officers of the Corporation,
regardless of whether such counsel or expert may also be a director.
Section 16.
CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
. The
directors shall have no responsibility to devote their full time to the affairs of the Corporation.
Any director or officer, employee or agent of the Corporation, in his or her personal capacity or
in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in addition to or in competition
with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1.
NUMBER, TENURE AND QUALIFICATIONS
. The Board of Directors may appoint from
among its members an Executive Committee, an Audit Committee
,
a Compensation Committee and other
committees, composed of one or more directors, to serve at the pleasure of the Board of Directors.
Section 2.
POWERS
. The Board of Directors may delegate to committees appointed under
Section 1 of this Article any of the powers of the Board of Directors, except as prohibited by law.
Section 3.
MEETINGS
. Notice of committee meetings shall be given in the same manner
as notice for special meetings of the Board of Directors. A majority of the members of the
committee shall constitute a quorum for the transaction of business at any meeting of the
committee. The act of a majority of the committee members present at a meeting shall be the act of
such committee. The Board of Directors may designate a chairman of any committee, and such
chairman or, in the absence of a chairman, any two members of any committee (if there are at least
two members of the Committee) may fix the time and place, if any, and the means of remote
communication, if any, of its meeting unless the Board shall otherwise provide. In the absence of
any member of any such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another director to act in the place of such absent member. Each
committee shall keep minutes of its proceedings.
12
Section 4.
TELEPHONE MEETINGS
. Members of a committee of the Board of Directors may
participate in a meeting by means of a conference telephone or other communications equipment if
all persons participating in the meeting can hear each other at the same time. Participation in a
meeting by these means shall constitute presence in person at the meeting.
Section 5.
WRITTEN CONSENT BY COMMITTEES
. Any action required or permitted to be
taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a
consent in writing or by electronic transmission to such action is signed by each member of the
committee and such written consent is filed in paper or electronic form with the minutes of
proceedings of such committee.
Section 6.
VACANCIES
. Subject to the provisions hereof, the Board of Directors shall
have the power at any time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member or to dissolve any such
committee.
ARTICLE V
OFFICERS
Section 1.
GENERAL PROVISIONS
. The officers of the Corporation shall include a
president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of
the board, a chief executive officer, one or more vice presidents, a chief operating officer, a
chief financial officer, one or more assistant secretaries and one or more assistant treasurers.
In addition, the Board of Directors may from time to time elect such other officers with such
powers and duties as they shall deem necessary or desirable. The officers of the Corporation shall
be elected annually by the Board of Directors, except that the chief executive officer or president
may from time to time appoint one or more vice presidents, assistant secretaries and assistant
treasurers or other officers. Each officer shall hold office until his or her successor is elected
and qualifies or until his or her death, or his or her resignation or removal in the manner
hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create
contract rights between the Corporation and such officer or agent.
Section 2.
REMOVAL AND RESIGNATION
. Any officer or agent of the Corporation may be
removed, with or without cause, by the Board of Directors if in its judgment the best interests of
the Corporation would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board of Directors, the chairman
of the board, the president or the secretary. Any resignation shall take effect immediately upon
its receipt or at such later time specified in the notice of resignation. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise stated in the resignation.
Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
13
Section 3.
VACANCIES
. A vacancy in any office may be filled by the Board of Directors
for the balance of the term.
Section 4.
CHIEF EXECUTIVE OFFICER
. The Board of Directors may designate a chief
executive officer. In the absence of such designation, the chairman of the board shall be the
chief executive officer of the Corporation. The chief executive officer shall have general
responsibility for implementation of the policies of the Corporation, as determined by the Board of
Directors, and for the management of the business and affairs of the Corporation.
Section 5.
CHIEF OPERATING OFFICER
. The Board of Directors may designate a chief
operating officer. The chief operating officer shall have the responsibilities and duties as set
forth by the Board of Directors or the chief executive officer.
Section 6.
CHIEF FINANCIAL OFFICER
. The Board of Directors may designate a chief
financial officer. The chief financial officer shall have the responsibilities and duties as set
forth by the Board of Directors or the chief executive officer.
Section 7.
CHAIRMAN OF THE BOARD
. The Board of Directors shall designate a chairman
of the board. The chairman of the board shall preside over the meetings of the Board of Directors
and of the stockholders at which he shall be present. The chairman of the board shall perform such
other duties as may be assigned to him or her by the Board of Directors.
Section 8.
PRESIDENT
. In the absence of a chief executive officer, the president
shall in general supervise and control all of the business and affairs of the Corporation. In the
absence of a designation of a chief operating officer by the Board of Directors, the president
shall be the chief operating officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be
required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the
Board of Directors from time to time.
Section 9.
VICE PRESIDENTS
. In the absence of the president or in the event of a
vacancy in such office, the vice president (or in the event there be more than one vice president,
the vice presidents in the order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of the president and
when so acting shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be assigned to such vice
president by the president or by the Board of Directors. The Board of Directors may designate one
or more vice presidents as executive vice president or as vice president for particular areas of
responsibility.
14
Section 10.
SECRETARY
. The secretary shall (a) keep the minutes of the proceedings of
the stockholders, the Board of Directors and committees of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation; (d) keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder; (e) have general charge of the stock
transfer books of the Corporation; and (f) in general perform such other duties as from time to
time may be assigned to him by the chief executive officer, the president or by the Board of
Directors.
Section 11.
TREASURER
. The treasurer shall have the custody of the funds and
securities of the Corporation and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. In the absence of a designation of a chief financial officer by the
Board of Directors, the treasurer shall be the chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to the president and
Board of Directors, at the regular meetings of the Board of Directors or whenever it may so
require, an account of all his or her transactions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his or her office and for the restoration to the Corporation,
in case of his or her death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
Section 12.
ASSISTANT SECRETARIES AND ASSISTANT TREASURERS
. The assistant secretaries
and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the
secretary or treasurer, respectively, or by the president or the Board of Directors. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the faithful performance of
their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of
Directors.
Section 13.
SALARIES
. The salaries and other compensation of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be prevented from receiving
such salary or other compensation by reason of the fact that he is also a director.
15
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1.
CONTRACTS
. The Board of Directors may authorize any officer or agent to
enter into any contract or to execute and deliver any instrument in the name of and on behalf of
the Corporation and such authority may be general or confined to specific instances. Any
agreement, deed, mortgage, lease or other document shall be valid and binding upon the Board of
Directors and upon the Corporation when authorized or ratified by action of the Board of Directors
and executed by an authorized person.
Section 2.
CHECKS AND DRAFTS
. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or agent of the Corporation in such manner as shall from time to time be
determined by the Board of Directors.
Section 3.
DEPOSITS
. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may designate.
ARTICLE VII
STOCK
Section 1.
CERTIFICATES; REQUIRED INFORMATION
. In the event that the Corporation
issues shares of stock represented by certificates, such certificates shall be signed by the
officers of the Corporation in the manner permitted by the Maryland General Corporation Law (the
MGCL) and contain the statements and information required by the MGCL. In the event that the
Corporation issues shares of stock without certificates, the Corporation shall provide to holders
of such shares a written statement of the information required by the MGCL to be included on stock
certificates.
Section 2.
TRANSFERS OF CERTIFICATED SECURITIES
. Upon surrender to the Corporation or
the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and record the transaction
upon its books.
The Corporation shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.
16
Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in
all respects to the charter of the Corporation and all of the terms and conditions contained
therein.
Section 3.
REPLACEMENT CERTIFICATE
. Any officer designated by the Board of Directors
may direct a new certificate to be issued in place of any certificate previously issued by the
Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors may, in his or her
discretion and as a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or the owners legal representative to advertise the same in such
manner as he shall require and/or to give bond, with sufficient surety, to the Corporation to
indemnify it against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4.
CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
. The Board of Directors
may set, in advance, a record date for the purpose of determining stockholders entitled to notice
of or to vote at any meeting of stockholders or determining stockholders entitled to receive
payment of any dividend or the allotment of any other rights, or in order to make a determination
of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the
close of business on the day the record date is fixed and shall be not more than 90 days and, in
the case of a meeting of stockholders, not less than ten days, before the date on which the meeting
or particular action requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not longer than 20 days. If the stock transfer books
are closed for the purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days before the date of such
meeting.
If no record date is fixed and the stock transfer books are not closed for the determination
of stockholders, (a) the record date for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the day on which the
notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled to receive payment
of a dividend or an allotment of any other rights shall be the close of business on the day on
which the resolution of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of stockholders has been
made as provided in this section, such determination shall apply to any adjournment thereof, except
when (i) the determination has been made through the closing of the transfer books and the stated
period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new record date shall be
determined as set forth herein.
17
Section 5.
STOCK LEDGER
. The Corporation shall maintain at its principal office or at
the office of its counsel, accountants or transfer agent, an original or duplicate share ledger
containing the name and address of each stockholder and the number of shares of each class held by
such stockholder.
Section 6.
FRACTIONAL STOCK; ISSUANCE OF UNITS
. The Board of Directors may issue
fractional stock or provide for the issuance of scrip, all on such terms and under such conditions
as they may determine. Notwithstanding any other provision of the charter or these Bylaws, the
Board of Directors may issue units consisting of different securities of the Corporation. Any
security issued in a unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a specified period
securities of the Corporation issued in such unit may be transferred on the books of the
Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the fiscal year of the
Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1.
AUTHORIZATION
. Dividends and other distributions upon the stock of the
Corporation may be authorized by the Board of Directors, subject to the provisions of law and the charter of the Corporation. Dividends and other distributions may be paid in
cash, property or stock of the Corporation, subject to the provisions of law and the charter.
Section 2.
CONTINGENCIES
. Before payment of any dividends or other distributions,
there may be set aside out of any assets of the Corporation available for dividends or other
distributions such sum or sums as the Board of Directors may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other
distributions, for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of the Corporation,
and the Board of Directors may modify or abolish any such reserve.
18
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board of Directors may from
time to time adopt, amend, revise or terminate any policy or policies with respect to investments
by the Corporation as it shall deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1.
SEAL
. The Board of Directors may authorize the adoption of a seal by the
Corporation. The seal shall contain the name of the Corporation and the year of its incorporation
and the words Incorporated Maryland. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof
Section 2.
AFFIXING SEAL
. Whenever the Corporation is permitted or required to affix
its seal to a document, it shall be sufficient to meet the requirements of any law, rule or
regulation relating to a seal to place the word (SEAL) adjacent to the signature of the person
authorized to execute the document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to time, the Corporation
shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to
indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or officer of the Corporation
and who is made a party to the proceeding by reason of his or her service in that capacity or (b)
any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of
such corporation, real estate investment trust, partnership, joint venture, trust, employee benefit
plan or other enterprise and who is made a party to the proceeding by reason of his or her service
in that capacity. The Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of the Corporation in
any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation
or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other
provision of the Bylaws or charter of the Corporation inconsistent with this Article, shall apply
to or affect in any respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
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ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the Corporation or
these Bylaws or pursuant to applicable law, a waiver thereof in writing or by electronic
transmission, delivered by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at nor the purpose of any meeting need be set forth in the waiver of
notice, unless specifically required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision
of these Bylaws and to make new Bylaws.
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EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of August 17, 2009, is entered into by and
between Starwood Property Trust, Inc., a Maryland corporation (the Company), SPT Investment, LLC,
a Delaware limited liability company (Sponsor Investor) and SPT Management LLC, a Delaware
limited liability company (the Manager).
WHEREAS, the Company has agreed to issue and sell to the Sponsor Investor, and the Sponsor
Investor has agreed to purchase, 1,000,000 shares (the Sponsor Shares) of the Companys common
stock, par value $0.01 per share (the Common Stock) pursuant to that certain Stock Purchase
Agreement, dated as of August 11, 2009, between the Company and the Sponsor Investor;
WHEREAS, the Company has agreed to grant to the Manager 1,037,500 restricted stock units
pursuant to that certain Restricted Stock Unit Award Agreement, dated the date hereof, between the
Company and the Manager as an award under the Starwood Property Trust, Inc. Manager Equity Plan, as
adopted on August 11, 2009 (the Manager Equity Plan); and such 1,037,500 restricted stock units
will be settled in 1,037,500 shares of Common Stock (the Manager RSU Shares);
WHEREAS, the Company may, from time to time, grant to the Manager additional awards under the
Manager Equity Plan consisting of, are based upon, shares of Common Stock as awards under the
Manager Equity Incentive Plan (the Additional Plan Shares); and
WHEREAS, pursuant to the Management Agreement, dated August 11, 2009, between the Company and
Manager (the Management Agreement), the Company has agreed to pay a certain portion of the
Incentive Fee payable to the Manager pursuant to Section 6(e) of the Management Agreement in shares
of Common Stock (the Incentive Shares).
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
Section 1. Certain Definitions.
In addition to the terms defined elsewhere in this Agreement, the following terms, as used
herein, shall have the following meanings:
Affiliate of any Person means any other Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control with, such Person.
The term control (including the terms controlled by and under common control with) as used
with respect to any Person means the possession, directly or indirectly through one or more
intermediaries, of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or otherwise.
Agreement means this Registration Rights Agreement, including all amendments, modifications
and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this
Registration Rights Agreement as the same may be in effect at the time such reference becomes
operative.
Business Day means any day other than Saturday, Sunday or a day on which commercial banks in
New York, New York are directed or permitted to be closed.
Common Stock means common stock, par value $0.01 per share, of the Company.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Holder means (i) the Sponsor Investor and the Manager as holders of record of Registrable
Common Stock, and (ii) any direct or indirect transferee of such Registrable Common Stock from
Sponsor Investor or the Manager. For purposes of this Agreement, the Company may deem and treat
the registered holder of Registrable Common Stock as the Holder and absolute owner thereof, and the
Company shall not be affected by any notice to the contrary.
Person means any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, incorporated organization, association, corporation, institution, public
benefit corporation, government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or department thereof)
or any other entity.
Prospectus means the prospectus or prospectuses included in any Registration Statement
(including without limitation, any prospectus subject to completion and a prospectus that includes
any information previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed
pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus
supplement with respect to the terms of the offering of any portion of the Registrable Common Stock
covered by such Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by reference or
deemed to be incorporated by reference in such prospectus or prospectuses.
Registrable Common Stock means each of the Sponsor Shares, the Manager RSU Shares, the
Additional Plan Shares, and the Incentive Shares, upon original issuance thereof and at all times
subsequent thereto, including upon the transfer thereof by the original Holder or any subsequent
Holder and any securities issued in respect of such securities by reason of or in connection with
any exchange for or replacement of such securities or any stock dividend, stock distribution, stock
split, purchase in any rights offering or in connection with any combination of shares,
recapitalization, merger or consolidation, or any other equity securities issued pursuant to any
other pro rata distribution with respect to the Common Stock, until, in the case of any such
securities, the earliest to occur of (i) the date on which it has been registered effectively
pursuant to the Securities Act and disposed of in accordance with the Registration Statement
relating to it or (ii) the date on which either it is distributed to the public or is saleable, in
each case pursuant to Rule 144 promulgated by the SEC pursuant to the Securities Act.
2
Registration Statement means any registration statement of the Company filed with the SEC
under the Securities Act which covers any of the Registrable Common Stock pursuant to the
provisions of this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and all materials
incorporated by reference or deemed to be incorporated by reference in such Registration Statement.
Rule 415 means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar Rule or regulation hereafter adopted by the SEC as
a replacement thereto having substantially the same effect as such rule.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
underwritten registration or underwritten offering means a registration in which securities
of the Company are sold to underwriters for reoffering to the public.
Section 2. Demand Registrations.
(a)
Right to Request Registration
. From and after the date hereof, any Holder or
Holders (Initiating Holders) may request registration under the Securities Act of all or part of
the Registrable Common Stock (Demand Registration) at any time and from time to time.
Within ten (10) Business Days after receipt of any such request for Demand Registration, the
Company shall give written notice of such request to all other Holders of Registrable Common Stock,
if any, and shall, subject to the provisions of Section 2(c) hereof, include in such registration
all such Registrable Common Stock with respect to which the Company has received written requests
for inclusion therein within twenty (20) Business Days after the receipt of the Companys notice.
(b)
Priority on Demand Registrations
. If the managing underwriters of a requested
Demand Registration advise the Company in writing that in their opinion the shares of Registrable
Common Stock proposed to be included in any such registration exceeds the number of securities that
can be sold in such offering and/or that the number of shares of Registrable Common Stock proposed
to be included in any such registration would materially adversely affect the price per share of
the Companys equity securities to be sold in such offering, the Company shall include in such
registration only the number of shares of Registrable Common Stock that, in the opinion of such
managing underwriters, can be sold. If the number of shares that can be sold is less than the
number of shares of Registrable Common Stock proposed to be registered, the Company shall allocate
the amount of Registrable Common Stock to be so sold among the Holders pro rata on the basis of
Registrable Common Stock offered for such registration by each Holder electing to participate in
such registration. If the number of shares that can be sold, as determined by the managing
underwriters, exceeds the number of shares of Registrable Common Stock proposed to be sold, such
excess shall be allocated pro rata among the other holders of Common Stock, if any, desiring to
participate in such registration based on the amount of such Common Stock initially requested to be
registered by such holders or as such holders may otherwise agree.
3
(c)
Restrictions on Demand Registrations
. The Company shall not be obligated to
effect any Demand Registration within six (6) months after the effective date of a previous Demand
Registration or a previous registration under which the Initiating Holders had piggyback rights
pursuant to Section 3 hereof wherein the Initiating Holders were permitted to register, and sold,
at least 50% of the shares of Registrable Common Stock requested to be included therein. The
Company may (i) postpone for up to ninety (90) days the filing or the effectiveness of a
Registration Statement for a Demand Registration if, based on the good faith judgment of the
Companys board of directors, such postponement or withdrawal is necessary in order to avoid
premature disclosure of a matter the board has determined would not be in the best interest of the
Company to be disclosed at such time or (ii) postpone the filing of a Demand Registration in the
event the Company shall be required to prepare audited financial statements as of a date other than
its fiscal year and (unless the Holders requesting such registration agree to pay the expenses of
such an audit); provided, however, that in no event shall the Company withdraw a Registration
Statement under clause (i) after such Registration Statement has been declared effective; and
provided, further, however, that in any of the events described in clause (i) or (ii) above, the
Initiating Holders requesting such Demand Registration shall be entitled to withdraw such request.
The Company shall provide written notice to the Initiating Holders requesting such Demand
Registration of (x) any postponement or withdrawal of the filing or effectiveness of a Registration
Statement pursuant to this Section 2(c), (y) the Companys decision to file or seek effectiveness
of such Registration Statement following such withdrawal or postponement and (z) the effectiveness
of such Registration Statement.
(d)
Selection of Underwriters
. If any of the Registrable Common Stock covered by a
Demand Registration hereof is to be sold in an underwritten offering, the Initiating Holders shall
have the right to select the managing underwriter(s) to administer the offering subject to the
approval of the Company, which approval shall not be unreasonably withheld.
(e)
Effective Period of Demand Registrations
. After any Demand Registration filed
pursuant to this Agreement has become effective, the Company shall use its best efforts to keep
such Demand Registration effective for a period equal to 180 days from the date on which the SEC
declares such Demand Registration effective (or if such Demand Registration is not effective during
any period within such 180 days, such 180-day period shall be extended by the number of days during
such period when such Demand Registration is not effective), or such shorter period that shall
terminate when all of the Registrable Common Stock covered by such Demand Registration has been
sold pursuant to such Demand Registration. If the Company shall withdraw or reduce the number of
shares of Registrable Common Stock that is subject to any Demand Registration pursuant to
subsection (b) of this Section 2 (a Withdrawn Demand Registration), the Initiating Holders of the
Registrable Common Stock remaining unsold and originally covered by such Withdrawn Demand
Registration shall be entitled to a replacement Demand Registration that (subject to the provisions
of this Section 2) the Company shall use its best efforts to keep effective for a period commencing
on the effective date of such Demand Registration and ending on the earlier to occur of the date
(i) that is 180 days from the effective date of such Demand Registration and (ii) on which all of
the Registrable Common Stock covered by such Demand Registration has been sold. Such additional
Demand Registration otherwise shall be subject to all of the provisions of this Agreement.
4
(f)
Underwritten Offerings
. Notwithstanding the foregoing, in no event shall the
Company be obligated to effect more than one (1) underwritten offering hereunder in any single six
(6) month period, with the first such period measured from the date of the first Demand
Registration and ending on the same date during the six (6) months following such Demand
Registration, whether or not a Business Day.
Section 3. Piggyback Registrations.
(a)
Right to Piggyback
. From and after the date hereof, whenever the Company proposes
to register any of its common equity securities under the Securities Act (other than a registration
statement on Form S-8 or on Form S-4 or any similar successor forms thereto), whether for its own
account or for the account of one or more stockholders of the Company, and the registration form to
be used may be used for any registration of Registrable Common Stock (a Piggyback Registration),
the Company shall give prompt written notice (in any event within ten (10) business days after its
receipt of notice of any exercise of other demand registration rights) to all Holders of its
intention to effect such a registration and, subject to Sections 3(b) and 3(c), shall include in
such registration all Registrable Common Stock with respect to which the Company has received
written requests for inclusion therein within twenty (20) days after the receipt of the Companys
notice. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback
Registration at any time in its sole discretion.
(b)
Priority on Primary Registrations
. If a Piggyback Registration is an underwritten
primary registration on behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering and/or that the number of shares
of Registrable Common Stock proposed to be included in any such registration would adversely affect
the price per share of the Companys equity securities to be sold in such offering, the
underwriting shall be allocated among the Company and all Holders pro rata on the basis of the
Common Stock and Registrable Common Stock offered for such registration by the Company and each
Holder, respectively, electing to participate in such registration.
(c)
Priority on Secondary Registrations
. If a Piggyback Registration is an
underwritten secondary registration on behalf of a holder of the Companys securities other than
Registrable Common Stock (Non-Holder Securities), and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering and/or that the number of shares
of Registrable Common Stock proposed to be included in any such registration would adversely affect
the price per share of the Companys equity securities to be sold in such offering, the
underwriting shall be allocated among the holders of Non-Holder Securities and all Holders pro-rata
on the basis of the Non-Holder Securities and Registrable Common Stock offered for such
registration by the holder of Non-Holder Securities and each Holder, respectively, electing to
participate in such registration.
(d)
Selection of Underwriters
. If any Piggyback Registration is an underwritten
primary offering, the Company shall have the right to select the managing underwriter or
underwriters to administer any such offering.
5
(e)
Other Registrations
. If the Company has previously filed a Registration Statement
with respect to Registrable Common Stock pursuant to Section 2 hereof or pursuant to this Section
3, and if such previous registration has not been withdrawn or abandoned, the Company shall not be
obligated to cause to become effective any other registration of any of its securities under the
Securities Act, whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least three (3) months has elapsed from the effective date of such
previous registration.
Section 4. Holdback Agreement.
In connection with an underwritten primary or secondary offering to the public, each Holder
(other than the Manager, the Sponsor Investor and their respective Affiliates) agrees, subject to
any exceptions that may be agreed upon at the time of such offering, not to sell or otherwise
transfer or dispose of any shares of Registrable Common Stock (or other securities) of the Company
held by them (other than Registrable Common Stock included in such offering in accordance with the
terms hereof) for a period equal to the lesser of one hundred eighty (180) days following the
effective date of a Registration Statement of the Company filed under the Securities Act or such
shorter period as the managing underwriter shall agree to; provided that all other stockholders who
own more than ten percent (10%) of the outstanding Common Stock of the Company and all officers and
directors of the Company enter into similar agreements. Such agreement shall be in writing in form
reasonably satisfactory to the Company and the managing underwriter. The Company may impose
stop-transfer instructions with respect to the shares of Registrable Common Stock (or other
securities) subject to the foregoing restriction until the end of said period.
Section 5. Registration Procedures.
Whenever the Holders request that any Registrable Common Stock be registered pursuant to this
Agreement, the Company shall use its commercially reasonable efforts to effect and maintain the
registration and the sale of such Registrable Common Stock in accordance with the intended methods
of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with respect to such Registrable
Common Stock and use its best efforts to cause such Registration Statement to become effective as
soon as practicable thereafter; and before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the Holders of Registrable Common Stock covered by
such Registration Statement and the underwriter or underwriters, if any, copies of all such
documents proposed to be filed, including, if requested by such Holders, documents incorporated by
reference in the Prospectus and, if requested by such Holders, the exhibits incorporated or deemed
incorporated by reference, and such Holders shall have the opportunity to object to any information
pertaining to such Holders that is contained therein and the Company will make the corrections
reasonably requested by such Holders with respect to such information prior to filing any
Registration Statement or amendment thereto or any Prospectus or any supplement thereto;
6
(b) prepare and file with the SEC such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective, in the case of Demand Registration, for a period not less than
180 days, or such shorter period as is necessary to complete the distribution of the securities
covered by such Registration Statement and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers thereof set forth in
such Registration Statement;
(c) furnish to each seller of Registrable Common Stock (without charge) such number of copies
of such Registration Statement, each amendment and supplement thereto, the Prospectus included in
such Registration Statement (including each preliminary Prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of the Registrable Common
Stock owned by such seller, and the Company consents to the use of such Prospectus, including each
preliminary Prospectus, by Holders of Registrable Common Stock, in connection with the offering and
sale of Registrable Common Stock covered by any such Prospectus;
(d) use its commercially reasonable efforts to register or qualify such Registrable Common
Stock under such other securities or blue sky laws of such jurisdictions as any seller reasonably
requests and do any and all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the Registrable Common
Stock owned by such seller (provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Common Stock, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act, of the occurrence of any
event as a result of which the Registration Statement, including the Prospectus contained therein,
contains an untrue statement of a material fact or omits any fact required to be stated therein or
necessary to make the statements therein not misleading, and, at the request of any such seller,
the Company shall prepare a supplement or amendment to such Registration Statement so that, as
thereafter delivered to the purchasers of such Registrable Common Stock, such Prospectus shall not
contain an untrue statement of a material fact or omit to state any material fact necessary to make
the statements therein not misleading;
(f) in the case of an underwritten offering, enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as the Holders of a
majority of number of shares of the Registrable Common Stock being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of such Registrable
Common Stock, (including making executive officers of the Company available to participate in, and
cause them to cooperate with the underwriters in connection with, road-show and other customary
marketing activities (including one-on-one meetings with prospective purchasers of the Registrable
Common Stock), and cause to be delivered to the underwriters and the sellers, if any, opinions of
counsel to the Company in customary form,
covering such matters as are customarily covered by opinions for an underwritten public
offering as the underwriters may request and addressed to the underwriters and the sellers;
7
(g) subject to receipt of reasonably acceptable confidentiality agreements, make available,
for inspection by representative of a seller of Registrable Common Stock, any underwriter
participating in any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause the Companys
officers, directors and independent accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection with such Registration
Statement;
(h) to use its commercially reasonable efforts to cause all such Registrable Common Stock to
be listed on each securities exchange on which securities of the same class issued by the Company
are then listed or, if no such similar securities are then listed, on a national securities
exchange selected by the Company;
(i) provide a transfer agent and registrar for all such Registrable Common Stock not later
than the effective date of such Registration Statement;
(j) if requested, cause to be delivered, immediately prior to the effectiveness of the
Registration Statement (and, in the case of an underwritten offering, at the time of delivery of
any Registrable Common Stock sold pursuant thereto), letters from the Companys independent
certified public accountants addressed to each selling Holder (unless such selling Holder does not
provide to such accountants the appropriate representation letter required by rules governing the
accounting profession) and each underwriter, if any, stating that such accountants are independent
public accountants within the meaning of the Securities Act and the applicable rules and
regulations adopted by the SEC thereunder, and otherwise in customary form and covering such
financial and accounting matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with primary or secondary underwritten public offerings,
as the case may be;
(k) make generally available to its stockholders a consolidated earnings statement (which need
not be audited) for the 12 months (or, if applicable, such shorter period that the Company has been
in existence) beginning after the effective date of a Registration Statement as soon as reasonably
practicable after the end of such period, which earnings statement shall satisfy the requirements
of an earning statement under Section 11(a) of the Securities Act and Rule 158 thereunder;
(l) cooperate with each selling Holder of Registrable Common Stock and each underwriter
participating in the disposition of such Registrable Common Stock and their respective counsel in
connection with any filings required to be made with the National Association of Securities
Dealers, Inc. and make reasonably available its employees and personnel and otherwise provide
reasonable assistance to the underwriters (taking into account the needs of the Companys
businesses and the requirements of the marketing process) in the marketing of Registrable Common
Stock in any underwritten offering.
8
(m) use its best efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the qualification of any of the
Registrable Common Stock for sale in any jurisdiction and, if such an order or suspension is
issued, to use reasonable efforts to obtain the withdrawal of such order or suspension at the
earliest possible moment and to notify each seller of Registrable Common Stock being sold of the
issuance of such order and the resolution thereof or its receipt of actual notice of the initiation
or threat of any proceeding for such purpose.
(n) promptly notify each seller of Registrable Common Stock and the underwriter or
underwriters, if any:
(i) when the Registration Statement, pre-effective amendment, the Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement has
been filed and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective;
(ii) of any written request by the SEC for amendments or supplements to the
Registration Statement or Prospectus;
(iii) of the notification to the Company by the SEC of its initiation of any
proceeding with respect to the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement; and
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Common Stock for sale under the
applicable securities or blue sky laws of any jurisdiction.
(o) At all times after the Company has filed a registration statement with the SEC pursuant to
the requirements of either the Securities Act or the Exchange Act, the Company shall file all
reports and other documents required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder, and take such further action as
any Holders may reasonably request, all to the extent required to enable such Holders to be
eligible to sell Registrable Common Stock pursuant to Rule 144 under the Securities Act (or any
similar rule then in effect).
(p) As a condition to being included in any Registration Statement, the Company may require
each seller of Registrable Common Stock as to which any registration is being effected to furnish
to the Company any other information regarding such seller and the distribution of such securities
as the Company may from time to time reasonably request in writing.
9
(q) Each seller of Registrable Common Stock agrees by having its stock treated as Registrable
Common Stock hereunder that, upon notice of the happening of any event as a result of which the
Prospectus included in such Registration Statement contains an untrue statement of a material fact
or omits any material fact necessary to make the statements therein not misleading (a Suspension
Notice), such seller will forthwith discontinue disposition of Registrable Common Stock until such
seller is advised in writing by the Company that the use of the Prospectus may be resumed and is
furnished with a supplemented or amended Prospectus as contemplated by Section 5(e) hereof, and, if
so directed by the Company, such seller, at its
option, either will destroy or deliver to the Company (at the Companys expense) all copies,
other than permanent file copies then in such sellers possession, of the Prospectus covering such
Registrable Common Stock current at the time of receipt of such notice; provided, however, that
such postponement of sales of Registrable Common Stock by the Holders shall not exceed thirty (30)
days in the aggregate in any three-month period or ninety (90) days in the aggregate in any one
year except as a result of a refusal by the SEC to declare any post-effective amendment to the
Registration Statement effective after the Company has used all commercially reasonable efforts to
cause such post-effective amendment to be declared effective, in which case the Company shall
terminate the suspension of the use of the Registration Statement immediately following the
effective date of the post-effective amendment. If the Company shall give any notice to suspend
the disposition of Registrable Common Stock pursuant to a Prospectus, the Company shall extend the
period of time during which the Company is required to maintain the Registration Statement
effective pursuant to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date such seller either is advised by the
Company that the use of the Prospectus may be resumed or receives the copies of the supplemented or
amended Prospectus contemplated by Section 6(e). In any event, the Company shall not be entitled to
deliver more than three (3) Suspension Notices in any one year.
Section 6. Registration Expenses.
(a) All fees and expenses incident to the Companys performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, listing application fees, printing, word processing,
telephone, messenger and delivery expenses, transfer agents and registrars fees, cost of
distributing Prospectuses in preliminary and final form as well as any supplements thereto, and
fees and disbursements of counsel for the Company, one counsel retained by the Holders of
Registrable Common Stock and all independent certified public accountants and other Persons
retained by the Company (all such expenses being herein called Registration Expenses) (but not
including any underwriting discounts or commissions attributable to the sale of Registrable Common
Stock or fees and expenses of more than one counsel representing the Holders of Registrable Common
Stock, which shall be borne by the Holders), shall be borne by the Company (whether or not any
Registration Statement is declared effective or any of the transactions described herein is
consummated). In addition, the Company shall pay its internal expenses, the expense of any annual
audit or quarterly review, the expense of any liability insurance and the expenses and fees for
listing the securities to be registered on each securities exchange on which they are to be listed.
(b) In connection with each registration initiated hereunder (whether a Demand Registration or
a Piggyback Registration), the Company shall reimburse the Holders covered by such registration or
sale for the reasonable fees and disbursements of one law firm chosen by the Holders of a majority
of the number of shares of Registrable Common Stock included in such registration sale.
(c) The obligation of the Company to bear the expenses described in Section 6(a) and to
reimburse the Holders for the expenses described in Section 6(b) shall apply irrespective of
whether a registration, once properly demanded, if applicable, becomes effective, is withdrawn
or suspended, is converted to another form of registration and irrespective of when any of the
foregoing shall occur; provided, however, that Registration Expenses for any Registration Statement
withdrawn solely at the request of a Holder of Registrable Common Stock (unless withdrawn following
postponement of filing by the Company in accordance with Section 2(c) (i) or (ii)) or any
supplements or amendments to a Registration Statement or Prospectus resulting from a misstatement
furnished to the Company by a Holder shall be borne by such Holder.
10
Section 7. Indemnification.
(a) The Company shall indemnify and hold harmless, to the fullest extent permitted by law,
each Holder, its officers, directors and Affiliates, employees and agents of such Holder and each
Person, if any, who controls such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) from and against all losses, claims, damages, liabilities,
judgments and expenses (including without limitation, the reasonable fees and other expenses
incurred in connection with any suit, action, investigation or proceeding or any claim asserted)
caused by, arising out of, in connection with or based upon, any untrue or alleged untrue statement
of material fact contained in any Registration Statement, Prospectus (including any preliminary
Prospectus) or any amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements therein, in the
case of the Prospectus in the light of the circumstances under which they were made, not misleading
or any violation or alleged violation by the Company of the Securities Act, the Exchange Act or
applicable blue sky laws, except insofar as the same are made in reliance and in conformity with
information relating to such Holder furnished in writing to the Company by such Holder expressly
for use therein or caused by such Holders failure to deliver to such Holders immediate purchaser
a copy of the Prospectus or any amendments or supplements thereto (if the same was required by
applicable law to be so delivered) after the Company has furnished such Holder with a sufficient
number of copies of the same.
(b) In connection with any Registration Statement in which a Holder of Registrable Common
Stock is participating, each such Holder shall furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any such Registration
Statement or Prospectus and, shall indemnify, to the fullest extent permitted by law, the Company,
its officers, directors, Affiliates, and each Person who controls the Company within the meaning
of the Securities Act (excluding Sponsor Investor and the Manager to the extent that Sponsor
Investor or the Manager is the Holder of the Registrable Common Stock), against all losses, claims,
damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue
statement of material fact contained in the Registration Statement, Prospectus or preliminary
Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements therein, in the
case of the Prospectus in the light of the circumstances under which they were made, not
misleading, but only to the extent that the same are made in reliance and in conformity with
information relating to such Holder furnished in writing to the Company by such Holder expressly
for use therein or caused by such Holders failure to deliver to such Holders immediate purchaser
a copy of the Prospectus or any amendments or supplements thereto (if the same was required by
applicable law to be so delivered) after the Company has furnished such Holder with a sufficient
number of copies of the same; provided, however, that the obligation to indemnify shall be several,
not joint and several, among such Holders and the
liability of each such Holder shall be in proportion to and limited to the net amount received
by such Holder from the sale of Registrable Common Stock pursuant to such Registration Statement.
11
(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to
the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless
in such indemnified partys reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, such indemnifying party shall assume the
defense of such claim with counsel reasonably satisfactory to the indemnified party. If such
defense is assumed, the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be unreasonably
withheld, conditioned or delayed). An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for each party indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party there may be one or more legal or equitable
defenses available to such indemnified party which are in addition to or may conflict with those
available to another indemnified party with respect to such claim. Failure to give prompt written
notice shall not release the indemnifying party from its obligations hereunder. No indemnifying
party shall, without the prior written consent of the indemnified party, consent to entry of any
judgment or enter into any settlement or other compromise (i) which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation or (ii) which includes any
statement of admission of fault, culpability or failure to act by or on behalf of such indemnified
party.
(d) The indemnification provided for under this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified party or any
officer, director or controlling Person of such indemnified party and shall survive the transfer of
securities or the termination of this agreement.
(e) If the indemnification provided for in or pursuant to this Section 8 is unavailable,
unenforceable or insufficient to hold harmless any indemnified Person in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified Person as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection with the statements
or omissions which result in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of the indemnifying party on the one
hand and of the indemnified Person on the other 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
or by the indemnified party, and by such partys relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. In no event shall the liability
of any selling Holder be greater in amount than the amount of net proceeds received by such Holder
upon such sale or the amount for which such indemnifying party would have been obligated to pay by
way of indemnification if the indemnification provided for under Section 8(a) or 8(b) hereof had
been available under the circumstances. The indemnity and contribution
agreements contained in this Section 7 are in addition to any liability which the indemnifying
Persons may otherwise have to the indemnified Persons hereunder, under applicable law or at equity.
12
Section 8. Participation in Underwritten Registrations.
No Person may participate in any registration hereunder that is underwritten unless such
Person (a) agrees to sell such Persons securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and
(b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, opinions and other documents required under the terms of such underwriting
arrangements.
Section 9. Rule 144.
The Company covenants that it will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in
accordance with the requirements of the Securities Act and the Exchange Act, and it will take such
further action as any Holder may reasonably request to make available adequate current public
information with respect to the Company meeting the current public information requirements of Rule
144(c) under the Securities Act (to the extent such information is available), to the extent
required to enable such Holder to sell Registrable Common Stock without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver
to such Holder a written statement as to whether it has complied with such information and
requirements.
Section 10. Miscellaneous.
(a)
Notices
. All notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given,
If to the Company:
Starwood Property Trust, Inc.
c/o Starwood Capital Group
591 West Putnam Avenue
Greenwich, CT 06830
Attention: Ellis F. Rinaldi, General Counsel
Facsimile No.: (203) 422-7873
13
If to Sponsor Investor:
SPT Investment, LLC
c/o Starwood Capital Group
591 West Putnam Avenue
Greenwich, CT 06830
Attention: Ellis F. Rinaldi, General Counsel
Facsimile No.: (203) 422-7873
If to the Manager:
SPT Management, LLC
c/o Starwood Capital Group
591 West Putnam Avenue
Greenwich, CT 06830
Attention: Ellis F. Rinaldi, General Counsel
Facsimile No.: (203) 422-7873
If to a transferee Holder, to the address of such Holder set forth in the transfer
documentation provided to the Company;
or such other address or facsimile number as such party (or transferee) may hereafter specify for
the purpose by notice to the other parties. Each such notice, request or other communication shall
be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number
specified in this Section 10(a) and the appropriate facsimile confirmation is received or (b) if
given by any other means, when delivered at the address specified in this Section.
(b)
No Waivers
. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
(c)
Expenses
. Except as otherwise provided for herein or otherwise agreed to in
writing by the parties, all costs and expenses incurred in connection with the preparation of this
Agreement shall be paid by the Company.
(d)
Successors and Assigns
. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns, it
being understood that subsequent Holders of the Registrable Common Stock are intended third party
beneficiaries hereof.
(e)
Governing Law
. This Agreement and the rights and obligations of the parties under
this Agreement shall be governed by, and construed and interpreted in accordance with, the law of
the State of New York, without regard to principles of conflicts of law. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New
York and the United States District Court for any district within such state for the purpose
of any action or judgment relating to or arising out of this Agreement or any of the transactions
contemplated hereby and to the laying of venue in such court.
14
(f)
Jurisdiction
. Any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby may be brought in any federal or state court located in the County and State of
New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided in Section 10(a)
shall be deemed effective service of process on such party.
(g)
Waiver of Jury Trial
.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
(h)
Counterparts; Effectiveness
. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(i)
Entire Agreement
. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement and supersedes all prior agreements
and understandings, both oral and written, between the parties with respect to the transactions
contemplated herein. No provision of this Agreement or any other agreement contemplated hereby is
intended to confer on any Person other than the parties hereto any rights or remedies.
(j)
Captions
. The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
15
(k)
Severability
. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such a determination, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.
(l)
Amendments
. The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the prior written consent of the Holders of a
majority of the Registrable Common Stock; provided, further, that the consent or agreement of the
Company shall be required with regard to any termination, amendment, modification or supplement of,
or waivers or consents to departures from, the terms hereof, which affect the Companys obligations
hereunder.
16
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly executed by each of the
parties hereto as of the date first written above.
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STARWOOD PROPERTY TRUST, INC.
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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Secretary
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SPT INVESTMENT, LLC
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By:
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Starwood Capital Group Global, L.P.,
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its Sole Member
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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Secretary
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SPT MANAGEMENT, LLC
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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Secretary
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17
EXHIBIT 10.3
MANAGEMENT AGREEMENT
by and between
Starwood Property Trust, Inc.
and
SPT Management, LLC
Dated as of August 17, 2009
MANAGEMENT AGREEMENT, dated as of August 17, 2009, by and between Starwood Property Trust,
Inc., a Maryland corporation (the
Company
), and SPT Management, LLC, a Delaware limited liability
company (the
Manager
).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, the Company is a newly formed corporation which intends to invest in Target Assets
(as defined below) and intends to qualify as a real estate investment trust for federal income tax
purposes and will elect to receive the tax benefits accorded by Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the
Code
); and
WHEREAS, the Company desires to retain the Manager to administer the business activities and
day-to-day operations of the Company and to perform services for the Company in the manner and on
the terms set forth herein and the Manager wishes to be retained to provide such services.
NOW THEREFORE, in consideration of the premises and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
Section 1. Definitions.
(a) The following terms shall have the meanings set forth in this Section 1(a):
Additional Underwriting Discount
means (i) the Manager Conditional Payment, plus (ii) the
Conditional Payments as defined in Section 2(d) of the IPO Underwriting Agreement, in each case to
the extent paid by the Company.
Affiliate
means (i) any Person directly or indirectly controlling, controlled by, or
under common control with such other Person, (ii) any executive officer or general partner of
such other Person, (iii) any member of the board of directors or board of managers (or bodies
performing similar functions) of such Person, and (iv) any legal entity for which such Person
acts as an executive officer or general partner.
Agreement
means this Management Agreement, as amended, supplemented or otherwise
modified from time to time.
Automatic Renewal Term
has the meaning set forth in Section 10(a) hereof.
Bankruptcy
means, with respect to any Person, (a) the filing by such Person of a
voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any
form, of its debts under Title 11 of the United States Code or any other U.S. federal or
state or foreign insolvency law, or such Persons filing an answer consenting to or
acquiescing in any such petition, (b) the making by such Person of any assignment for the
benefit of its creditors, (c) the expiration of 60 days after the filing of an involuntary
petition under Title 11 of the Unites States Code, an application for the appointment of a
receiver for a material portion of the assets of such Person, or an involuntary petition
seeking liquidation, reorganization, arrangement or readjustment of its debts under any other
U.S. federal or state or foreign insolvency law,
provided
that the same shall not have been
vacated, set aside or stayed within such 60-day period or (d) the entry against such Person
of a final and non-appealable order for relief under any bankruptcy, insolvency or similar
law now or hereinafter in effect.
Base Management Fee
means the base management fee, calculated and payable quarterly in
arrears, in an amount equal to one-fourth of 1.50% of the Companys Equity.
Board
means the board of directors of the Company.
Board Investment Committee
means a committee consisting solely of members of the Board
formed for the primary purpose of (1) periodically reviewing the Companys investments and
(2) pursuant to the Investment Guidelines, approving certain investments proposed to be made
by the Company.
Business Day
means any day except a Saturday, a Sunday or a day on which banking
institutions in New York, New York are not required to be open.
Claim
has the meaning set forth in Section 8(c) hereof.
Closing Date
means the date of closing of the Initial Public Offering.
Code
has the meaning set forth in the Recitals.
Co-Investment and Allocation Agreement
refers to the co-investment and allocation
agreement, dated August 17, 2009, by and among the Company, the Manager, and Starwood Capital
Group Global, L.P.
Common Stock
means the common stock, par value $0.01, of the Company.
2
Company
has the meaning set forth in the Recitals.
Company Indemnified Party
has meaning set forth in Section 8(b) hereof.
Conditional Payment Period
has the meaning set forth in Section 6(i) hereof.
Conduct Policies
has the meaning set forth in Section 2(l) hereof.
Confidential Information
has the meaning set forth in Section 5 hereof.
Core Earnings
means the net income (loss), computed in accordance with GAAP, excluding
(i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation
and amortization, (iv) any unrealized gains or losses or other non-cash items that are
included in net income for the applicable reporting period, regardless of whether such items
are included in other comprehensive income or loss, or in net income, and (v) one-time events
pursuant to changes in GAAP and certain non-cash charges, in each case after discussions
between the Manager and the Independent Directors and approved by a majority of the
Independent Directors.
For the avoidance of doubt, the exclusion of depreciation and amortization from the
calculation of Core Earnings shall only apply to Target Assets consisting of debt investments
related to real estate to the extent that the Company forecloses upon the property or
properties underlying such debt investments.
Effective Termination Date
has the meaning set forth in Section 10(b) hereof.
Equity
means (a) the sum of (1) the net proceeds from all issuances of the Companys
equity securities since inception (allocated on a pro rata basis for such issuances during
the fiscal quarter of any such issuance), plus (2) the Companys retained earnings at the end
of the most recently completed calendar quarter (without taking into account any non-cash
equity compensation expense incurred in current or prior periods), less (b) any amount that
the Company or any of its Subsidiaries has paid to repurchase the Companys Common Stock
since inception. Equity excludes (1) any unrealized gains and losses and other non-cash items
that have impacted stockholders equity as reported in the Companys financial statements
prepared in accordance with GAAP, and (2) one-time events pursuant to changes in GAAP, and
certain non-cash items not otherwise described above, in each case after discussions between
the Manager and the Independent Directors and approval by a majority of the Independent
Directors.
3
Equity Incentive Plans
means the equity incentive plans adopted by the Company to
provide incentive compensation to attract and retain qualified directors, officers, advisors,
consultants and other personnel, including the Manager and Affiliates and personnel of the
Manager and its Affiliates, and any joint venture affiliates of the Company.
Exchange Act
means the Securities Exchange Act of 1934, as amended.
GAAP
means generally accepted accounting principles in effect in the United States on
the date such principles are applied.
Governing Instruments
means, with regard to any entity, the articles of incorporation
or certificate of incorporation and bylaws in the case of a corporation, the partnership
agreement in the case of a general or limited partnership, the certificate of formation and
operating agreement in the case of a limited liability company, the trust instrument in the
case of a trust, or similar governing documents in each case as amended.
Incentive Compensation
means the incentive management fee calculated and payable with
respect to each calendar quarter (or part thereof that this Agreement is in effect) in
arrears in an amount, not less than zero, equal to the difference between (1) the product of
(a) 20% and (b) the difference between (i) Core Earnings of the Company for the previous
12-month period, and (ii) the product of (A) the weighted average of the issue price per
share of the Common Stock of all of the Companys public offerings of Common Stock multiplied
by the weighted average number of shares of Common Stock outstanding (including, for the
avoidance of doubt, any restricted shares of Common Stock, restricted stock units or any
shares of Common Stock underlying other awards granted under one or more of the Companys
Equity Incentive Plans) in the previous 12-month period, and (B) 8%, and (2) the sum of any
Incentive Compensation paid to the Manager with respect to the first three calendar quarters
of such previous 12-month period;
provided, however
, that no Incentive Compensation shall be
payable with respect to any calendar quarter unless Core Earnings for the 12 most recently
completed calendar quarters is greater than zero.
For purposes of calculating the Incentive Compensation prior to the completion of a
12-month period during the term of this Agreement, Core Earnings shall be calculated on the
basis of the number of days that this Agreement has been in effect on an annualized basis.
For the avoidance of doubt, the Companys payment of the Additional Underwriting
Discount shall not be an expense of the Company pursuant to GAAP and therefore, shall not
affect the calculation of the Incentive Compensation (or the calculation of Core Earnings for
purposes of the Incentive Compensation).
4
If the Effective Termination Date does not correspond to the end of a calendar quarter,
the Managers Incentive Compensation shall be calculated for the period beginning on the day
after the end of the calendar quarter immediately preceding the Effective Termination Date
and ending on the Effective Termination Date, which Incentive Compensation shall be
calculated using Core Earnings for the 12-month period ending on the Effective Termination
Date.
Indemnified Party
has the meaning set forth in Section 8(b) hereof.
Independent Director
means a member of the Board who is independent in accordance
with the Companys Governing Instruments and the rules of the NYSE or such other securities
exchange on which the shares of Common Stock are listed.
Initial Public Offering
means the Companys sale of Common Stock to the public through
underwriters pursuant to the Companys Registration Statement on Form S-11 (No. 333-159754).
Initial Term
has the meaning set forth in Section 10(a) hereof.
Investment Advisory Agreement
means an agreement between the Manager and Starwood
Capital Group Management, LLC, a Connecticut limited liability company, as may be amended
from time to time, whereby the latter agrees to provide the Manager with the personnel,
services and resources necessary for the Manager to perform its obligations and
responsibilities under this Agreement in exchange for certain fees payable by the Manager.
Investment Company Act
means the Investment Company Act of 1940, as amended.
Investment Guidelines
means the investment guidelines approved by the Board, a copy of
which is attached hereto as
Exhibit A
, as the same may amended, restated, modified,
supplemented or waived pursuant to the approval of a majority of the entire Board (which must
include a majority of the Independent Directors) and the Manager Investment Committee.
IPO Underwriting Agreement
means the Underwriting Agreement, dated August 11, 2009, by
and among the Company, the Manager and the underwriters of the Initial Public Offering.
Last Appraiser
has the meaning set forth in Section 6(g) hereof.
5
Legacy Loan PPIF
means a public-private investment fund established under the PPIPs
Legacy Loan Program.
Legacy Securities PPIF
means a public-private investment fund established under the
PPIPs Legacy Securities Program.
Losses
has the meaning set forth in Section 8(a) hereof.
Manager
has the meaning set forth in the Recitals.
Manager Change of Control
means a change in the direct or indirect (i) beneficial
ownership of more than fifty percent (50%) of the combined voting power of the Managers then
outstanding equity interests, or (ii) power to direct or control the management policies of
the Manager, whether through the ownership of beneficial equity interests, common directors
or officers, by contract or otherwise. Manager Change of Control shall not include (i)
public offerings of the equity interests of the Manager, or (ii) any assignment of this
Agreement by the Manager as permitted hereby and in accordance with the terms hereof.
Manager Conditional Payment
has the meaning set forth in Section 6(i) hereof.
Manager Indemnified Party
has the meaning set forth in Section 8(a) hereof.
Manager Investment Committee
means the investment committee formed by the Manager, the
members of which shall consist of employees of the Manager and its Affiliates and may change
from time to time.
Manager Offering Payments
has the meaning set forth in Section 6(i) hereof.
Manager Permitted Disclosure Parties
has the meaning set forth in Section 5(a) hereof.
Near Term Loan-to-Own Investment
means any Target Asset which, at the time of its
origination or acquisition, the originator or acquiror had the intent and/or expectation of
foreclosing on, or otherwise acquiring, the real property securing such Target Asset within
18 months of its origination or acquisition of such Target Asset.
6
Notice of Proposal to Negotiate
has the meaning set forth in Section 10(c) hereof.
NYSE
means The New York Stock Exchange.
Performance Hurdle Rate
has the meaning set forth in Section 6(i) hereof.
Person
means any natural person, corporation, partnership, association, limited
liability company, estate, trust, joint venture, any federal, state, county or municipal
government or any bureau, department or agency thereof or any other legal entity and any
fiduciary acting in such capacity on behalf of the foregoing.
PPIP
means the U.S. Treasurys Public-Private Investment Program.
Regulation FD
means Regulation FD as promulgated by the SEC.
REIT
means a real estate investment trust as defined under the Code.
SEC
means the United States Securities and Exchange Commission.
Securities Act
means the Securities Act of 1933, as amended.
Subsidiary
means (i) any subsidiary of the Company, (ii) any partnership the general
partner of which is the Company or any subsidiary of the Company, and (iii) any limited
liability company the managing member of which is the Company or any subsidiary of the
Company.
Target Assets
means the types of assets described under Business Our Target Assets
in the Companys prospectus dated August 11, 2009, relating to the Initial Public Offering,
excluding any Near Term Loan-to-Own Investments, subject to, and including any changes to the
Companys Investment Guidelines that may be approved by the Manager and the Company from time
to time.
Termination Fee
means a termination fee equal to three (3) times the sum of (i) the
average annual Base Management Fee, and (ii) average annual Incentive Compensation, in each
case earned by the Manager during the 24-month period immediately preceding the most recently
completed calendar quarter prior to the Effective Termination Date.
7
Termination Notice
has the meaning set forth in Section 10(b) hereof.
Termination Without Cause
has the meaning set forth in Section 10(b) hereof.
Valuation Notice
has the meaning set forth in Section 6(g) hereof.
(b) As used herein, accounting terms relating to the Company and its Subsidiaries, if any, not
defined in Section 1(a) and accounting terms partly defined in Section 1(a), to the extent not
defined, shall have the respective meanings given to them under GAAP. As used herein, calendar
quarters shall mean the period from January 1 to March 31, April 1 to June 30, July 1 to September
30 and October 1 to December 31 of the applicable year.
(c) The words hereof, herein and hereunder and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms. The words include, includes and including shall be deemed
to be followed by the phrase without limitation.
Section 2. Appointment and Duties of the Manager.
(a) The Company hereby appoints the Manager to manage the investments and day-to-day
operations of the Company and its Subsidiaries, subject at all times to the further terms and
conditions set forth in this Agreement and to the supervision of, and such further limitations or
parameters as may be imposed from time to time by, the Board. The Manager hereby agrees to use its
commercially reasonable efforts to perform each of the duties set forth herein, provided that funds
are made available by the Company for such purposes as set forth in Section 7 hereof. The
appointment of the Manager shall be exclusive to the Manager, except to the extent that the Manager
elects, in its sole and absolute discretion, subject to the terms of this Agreement, to cause the
duties of the Manager as set forth herein to be provided by third parties.
(b) The Manager, in its capacity as manager of the investments and the operations of the
Company, at all times will be subject to the supervision and direction of the Board and will have
only such functions and authority as the Board may delegate to it, including, without limitation,
managing the Companys business affairs in conformity with the Investment Guidelines and other
policies that are approved and monitored by the Board. The Company and the Manager hereby
acknowledge the recommendation by the Manager and the approval by the Board, of the Investment
Guidelines, including, but not limited to the Companys investment
strategy in the Target Assets. The Company and the Manager hereby acknowledge and agree that,
during the term of this Agreement, any proposed changes to the Companys investment strategy that
would modify or expand the Target Assets may only be recommended by our Manager and shall require
the approval of the Board and the Manager. The Company also acknowledges that, until the
expiration or earlier termination of the exclusivity and/or co-investment provisions of the SOF
VIII Partnership and the Hotel II Partnership (as each such term defined in the Co-Investment and
Allocation Agreement) the Manager would not be able to, and there is no expectation by the Company
that the Manager could, recommend or agree to expand the type of the Target Assets in which the
Company may invest to include equity investments in real estate or Near Term Loan-to-Own
Investments.
8
(c) The Manager will be responsible for the day-to-day operations of the Company (which, for
purposes of the Managers responsibilities in this Agreement, includes its Subsidiaries) and will
perform (or cause to be performed) such services and activities relating to the investments and
operations of the Company as may be appropriate, which may include, without limitation:
(i) forming the Manager Investment Committee, which will have the following
responsibilities: (A) proposing modifications to the Investment Guidelines to the Board, (B)
reviewing the Companys investment portfolio for compliance with the Investment Guidelines
on a quarterly basis, (C) reviewing the diversification of the Companys investment
portfolio and the Companys hedging and financing strategies on a quarterly basis, and (D)
conducting or overseeing the provision of the services set forth in this Section 2;
(ii) serving as the Companys consultant with respect to the periodic review of the
Investment Guidelines and other parameters for the Companys investments, financing
activities and operations, any modification to which will be approved by a majority of the
Independent Directors;
(iii) investigating, analyzing and selecting possible investment opportunities and
acquiring, financing, retaining, selling, restructuring or disposing of investments
consistent with the Investment Guidelines;
(iv) with respect to prospective purchases, sales or exchanges of investments,
conducting negotiations on the Companys behalf with sellers, purchasers and brokers and, if
applicable, their respective agents and representatives;
(v) negotiating and entering into, on the Companys behalf, repurchase agreements,
interest rate swap agreements, agreements relating to borrowings under programs established
by the U.S. Government and other agreements and instruments required for the Company to
conduct the Companys business;
(vi) engaging and supervising, on the Companys behalf and at the Companys expense,
independent contractors that provide investment banking, securities brokerage, mortgage
brokerage, other financial services, due diligence services, underwriting review services,
legal and accounting services, and all other services (including transfer agent and
registrar services) as may be required relating to the Companys operations or investments
(or potential investments);
9
(vii) advising the Company on, preparing, negotiating and entering into, on the
Companys behalf, applications and agreements relating to programs established by the U.S.
Government;
(viii) coordinating and managing operations of any joint venture or co-investment
interests held by the Company and conducting all matters with the joint venture or
co-investment partners;
(ix) providing executive and administrative personnel, office space and office services
required in rendering services to the Company;
(x) administering the day-to-day operations and performing and supervising the
performance of such other administrative functions necessary to the Companys management as
may be agreed upon by the Manager and the Board, including, without limitation, the
collection of revenues and the payment of the Companys debts and obligations and
maintenance of appropriate computer services to perform such administrative functions;
(xi) communicating on the Companys behalf with the holders of any of the Companys
equity or debt securities as required to satisfy the reporting and other requirements of any
governmental bodies or agencies or trading markets and to maintain effective relations with
such holders;
(xii) counseling the Company in connection with policy decisions to be made by the
Board;
(xiii) evaluating and recommending to the Board hedging strategies and engaging in
hedging activities on the Companys behalf, consistent with the Companys qualification as a
REIT and with the Investment Guidelines;
(xiv) counseling the Company regarding the maintenance of the Companys qualification
as a REIT and monitoring compliance with the various REIT qualification tests and other
rules set out in the Code and Treasury Regulations thereunder and using commercially
reasonable efforts to cause the Company to qualify for taxation as a REIT;
10
(xv) counseling the Company regarding the maintenance of the Companys exemption from
the status of an investment company required to register under the Investment Company Act,
monitoring compliance with the requirements for maintaining such exemption and using
commercially reasonable efforts to cause the Company to maintain such exemption from such
status;
(xvi) furnishing reports and statistical and economic research to the Company regarding
the Companys activities and services performed for the Company by the Manager;
(xvii) monitoring the operating performance of the Companys investments and providing
periodic reports with respect thereto to the Board, including comparative information with
respect to such operating performance and budgeted or projected operating results;
(xviii) investing and reinvesting any moneys and securities of the Company (including
investing in short-term investments pending investment in other investments, payment of
fees, costs and expenses, or payments of dividends or distributions to the Companys
stockholders and partners) and advising the Company as to the Companys capital structure
and capital raising;
(xix) causing the Company to retain qualified accountants and legal counsel, as
applicable, to assist in developing appropriate accounting procedures and systems, internal
controls and other compliance procedures and testing systems with respect to financial
reporting obligations and compliance with the provisions of the Code applicable to REITs
and, if applicable, taxable REIT subsidiaries, and to conduct quarterly compliance reviews
with respect thereto;
(xx) assisting the Company in qualifying to do business in all applicable jurisdictions
and to obtain and maintain all appropriate licenses;
(xxi) assisting the Company in complying with all regulatory requirements applicable to
the Company in respect of the Companys business activities, including preparing or causing
to be prepared all financial statements required under applicable regulations and
contractual undertakings and all reports and documents, if any, required under the Exchange
Act or the Securities Act, or by the NYSE;
(xxii) assisting the Company in taking all necessary action to enable the Company to
make required tax filings and reports, including soliciting information from stockholders to
the extent required by the provisions of the Code applicable to REITs;
11
(xxiii) placing, or arranging for the placement of, all orders pursuant to the
Managers investment determinations for the Company either directly with the issuer or with
a broker or dealer (including any affiliated broker or dealer);
(xxiv) handling and resolving all claims, disputes or controversies (including all
litigation, arbitration, settlement or other proceedings or negotiations) in which the
Company may be involved or to which the Company may be subject arising out of the Companys
day-to-day operations (other than with the Manager or its Affiliates), subject to such
limitations or parameters as may be imposed from time to time by the Board;
(xxv) using commercially reasonable efforts to cause expenses incurred by the Company
or the Companys behalf to be commercially reasonable or commercially customary and within
any budgeted parameters or expense guidelines set by the Board from time to time;
(xxvi) advising the Company with respect to and structuring long-term financing
vehicles for the Companys portfolio of assets, and offering and selling securities publicly
or privately in connection with any such structured financing;
(xxvii) serving as the Companys consultant with respect to decisions regarding any of
the Companys financings, hedging activities or borrowings undertaken by the Company,
including (1) assisting the Company in developing criteria for debt and equity financing
that is specifically tailored to the Companys investment objectives, and (2) advising the
Company with respect to obtaining appropriate financing for the Companys investments;
(xxviii) providing the Company with portfolio management;
(xxix) arranging marketing materials, advertising, industry group activities (such as
conference participations and industry organization memberships) and other promotional
efforts designed to promote the Companys business;
(xxx) performing such other services as may be required from time to time for
management and other activities relating to the Companys assets and business as the Board
shall reasonably request or the Manager shall deem appropriate under the particular
circumstances; and
(xxxi) using commercially reasonable efforts to cause the Company to comply with all
applicable laws.
12
(d) The Manager may retain, for and on behalf, and at the sole cost and expense, of the
Company, such services of the persons and firms referred to in Section 7(b) hereof as the Manager
deems necessary or advisable in connection with the management and operations of the Company. In
performing its duties under this Section 2, the Manager shall be entitled to rely reasonably on
qualified experts and professionals (including, without limitation, accountants, legal counsel and
other professional service providers) hired by the Manager at the Companys sole cost and expense.
(e) The Manager shall refrain from any action that, in its sole judgment made in good faith,
(i) is not in compliance with the Investment Guidelines, (ii) would adversely and materially affect
the qualification of the Company as a REIT under the Code or the Companys status as an entity
excluded from investment company status under the Investment Company Act, or (iii) would violate
any law, rule or regulation of any governmental body or agency having jurisdiction over the Company
or of any exchange on which the securities of the Company may be listed or that would otherwise not
be permitted by the applicable Governing Instruments. If the Manager is ordered to take any action
by the Board, the Manager shall promptly notify the Board if it is the Managers judgment that such
action would adversely and materially affect such status or violate any such law, rule or
regulation or Governing Instruments. Notwithstanding the foregoing, neither the Manager nor any of
its Affiliates shall be liable to the Company, the Board, or the Companys stockholders for any act
or omission by the Manager or any of its Affiliates, except as provided in Section 8 of this
Agreement.
(f) The Company (including the Board) agrees to take all actions reasonably required to permit
and enable the Manager to carry out its duties and obligations under this Agreement, including,
without limitation, all steps reasonably necessary to allow the Manager to file any registration
statement or other filing required to be made under the Securities Act, Exchange Act, the NYSEs
Listed Company Manual, Code or other applicable law, rule or regulation on behalf of the Company in
a timely manner. The Company further agrees to use commercially reasonable efforts to make
available to the Manager all resources, information and materials reasonably requested by the
Manager to enable the Manager to satisfy its obligations hereunder, including its obligations to
deliver financial statements and any other information or reports with respect to the Company.
(g) As frequently as the Manager may deem reasonably necessary or advisable, or at the
direction of the Board, the Manager shall prepare, or, at the sole cost and expense of the Company,
cause to be prepared, with respect to any reports and other information relating to any proposed or
consummated investment as may be reasonably requested by the Company.
(i) The Manager shall prepare, or, at the sole cost and expense of the Company, cause
to be prepared, all reports, financial or otherwise, with respect to the Company reasonably
required by the Board in order for the Company to comply with its Governing Instruments, or
any other materials required to be filed with any governmental body or agency, and shall
prepare, or, at the sole cost and expense of the Company, cause
to be prepared, all materials and data necessary to complete such reports and other
materials, including, without limitation, an annual audit of the Companys books of account
by a nationally recognized independent accounting firm.
13
(ii) The Manager shall prepare, or, at the sole cost and expense to the Company, cause
to be prepared, regular reports for the Board to enable the Board to review the Companys
acquisitions, portfolio composition and characteristics, credit quality, performance and
compliance with the Investment Guidelines and policies approved by the Board.
(h) Officers, employees and agents of the Manager and its Affiliates may serve as directors,
officers, agents, nominees or signatories for the Company or any of its Subsidiaries, to the extent
permitted by their Governing Instruments, by any resolutions duly adopted by the Board. When
executing documents or otherwise acting in such capacities for the Company or any of its
Subsidiaries, such Persons shall indicate in what capacity they are executing on behalf of the
Company or any of its Subsidiaries. Without limiting the foregoing, while this Agreement is in
effect, the Manager will provide the Company with a management team, including a Chief Executive
Officer and President or similar positions, along with appropriate support personnel, to provide
the management services to be provided by the Manager to the Company hereunder, who shall devote
such of their time to the management of the Company as necessary and appropriate, commensurate with
the level of activity of the Company from time to time.
(i) The Manager, at its sole cost and expense, shall provide personnel for service on the
Manager Investment Committee.
(j) The Manager, at its sole cost and expense, shall maintain reasonable and customary errors
and omissions insurance coverage and other customary insurance coverage in respect to its
obligations and activities under, or pursuant to, this Agreement.
(k) The Manager, at its sole cost and expense, shall provide such internal audit, compliance
and control services as may be required for the Company to comply with applicable law (including
the Securities Act and Exchange Act), regulation (including SEC regulations) and the rules and
requirements of the NYSE and as otherwise reasonably requested by the Company or its Board from
time to time.
(l) The Manager acknowledges receipt of the Companys Code of Business Conduct and Ethics and
Policy on Insider Trading (collectively, the
Conduct Policies
) and agrees to require the persons
who provide services to the Company to comply with such Conduct Policies in the performance of such
services hereunder or such comparable policies as shall in substance hold such persons to at least
the standards of conduct set forth in the Conduct Policies.
14
Section 3. Additional Activities of the Manager; Non-Solicitation; Restrictions.
(a) Except as provided in the last sentence of this Section 3(a), the Co-Investment and
Allocation Agreement and/or the Investment Guidelines, nothing in this Agreement shall (i) prevent
the Manager or any of its Affiliates, officers, directors or employees, from engaging in other
businesses or from rendering services of any kind to any other Person or entity, whether or not the
investment objectives or policies of any such other Person or entity are similar to those of the
Company or (ii) in any way bind or restrict the Manager or any of its Affiliates, officers,
directors or employees from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom the Manager or any of its Affiliates, officers,
directors or employees may be acting. While information and recommendations supplied to the
Company shall, in the Managers reasonable and good faith judgment, be appropriate under the
circumstances and in light of the investment objectives and policies of the Company, they may be
different from the information and recommendations supplied by the Manager or any Affiliate of the
Manager to others. The Company shall be entitled to equitable treatment under the circumstances in
receiving information, recommendations and any other services, but the Company recognizes that it
is not entitled to receive preferential treatment as compared with the treatment given by the
Manager or any Affiliate of the Manager to others. The Company shall have the benefit of the
Managers best judgment and effort in rendering services hereunder and, in furtherance of the
foregoing, the Manager shall not undertake activities that, in its good faith judgment, will
adversely affect the performance of its obligations under this Agreement.
(b) In the event of a Termination Without Cause of this Agreement by the Company pursuant to
Section 10(b) hereof, for two (2) years after such termination of this Agreement, the Company shall
not, without the consent of the Manager, employ or otherwise retain any employee of the Manager or
any of its Affiliates or any person who has been employed by the Manager or any of its Affiliates
at any time within the two (2) year period immediately preceding the date on which such person
commences employment with or is otherwise retained by the Company. The Company acknowledges and
agrees that, in addition to any damages, the Manager shall be entitled to equitable relief for any
violation of this Section 3(b) by the Company, including, without limitation, injunctive relief.
Section 4. Bank Accounts.
At the direction of the Board, the Manager may establish and maintain one or more bank accounts
in the name of the Company or any Subsidiary, and may collect and deposit into any such account or
accounts, and disburse funds from any such account or accounts, under such terms and conditions as
the Board may approve; and the Manager shall from time to time render appropriate accountings of
such collections and payments to the Board and, upon request, to the auditors of the Company or any
Subsidiary.
15
Section 5. Records; Confidentiality.
The Manager shall maintain appropriate books of accounts and records relating to services
performed hereunder, and such books of account and records shall be accessible for inspection by
representatives of the Company or any Subsidiary at any time during normal
business hours. The Manager shall keep confidential any and all non-public information,
written or oral, obtained by it in connection with the services rendered hereunder (
Confidential
Information
) and shall not use Confidential Information except in furtherance of its duties under
this Agreement or disclose Confidential Information, in whole or in part, to any Person other than
(i) to its Affiliates, officers, directors, employees, agents, representatives or advisors who
need to know such Confidential Information for the purpose of rendering services hereunder, (ii) to
appraisers, financing sources and others in the ordinary course of the Companys business ((i) and
(ii) collectively,
Manager Permitted Disclosure Parties
), (iii) in connection with any
governmental or regulatory filings of the Company or disclosure or presentations to Company
investors (subject to compliance with Regulation FD), (iv) to governmental officials having
jurisdiction over the Company, (v) as requested by law or legal process to which the Manager or any
Person to whom disclosure is permitted hereunder is a party, or (vi) with the consent of the
Company. The Manager agrees to inform each of its Manager Permitted Disclosure Parties of the
non-public nature of the Confidential Information and to obtain agreement from such Persons to
treat such Confidential Information in accordance with the terms hereof. Nothing herein shall
prevent the Manager from disclosing Confidential Information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of, or pursuant to any law or regulation to,
any regulatory agency or authority, (iii) to the extent reasonably required in connection with the
exercise of any remedy hereunder, or (iv) to its legal counsel or independent auditors;
provided,
however
that with respect to clauses (i) and (ii), it is agreed that, so long as not legally
prohibited, the Manager will provide the Company with prompt written notice of such order, request
or demand so that the Company may seek, at its sole expense, an appropriate protective order and/or
waive the Managers compliance with the provisions of this Agreement. If, failing the entry of a
protective order or the receipt of a waiver hereunder, the Manager is required to disclose
Confidential Information, the Manager may disclose only that portion of such information that is
legally required without liability hereunder; provided, that the Manager agrees to exercise its
reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded
such information. Notwithstanding anything herein to the contrary, each of the following shall be
deemed to be excluded from provisions hereof: any Confidential Information that (A) is available to
the public from a source other than the Manager, (B) is released in writing by the Company to the
public (except to the extent exempt under Regulation FD) or to persons who are not under similar
obligation of confidentiality to the Company, or (C) is obtained by the Manager from a third-party
which, to the best of the Managers knowledge, does not constitute a breach by such third-party of
an obligation of confidence with respect to the Confidential Information disclosed. The provisions
of this Agreement shall survive the expiration or earlier termination of this Agreement for a
period of one year.
Section 6. Compensation.
(a) For the services rendered under this Agreement, the Company shall pay the Base Management
Fee and the Incentive Compensation to the Manager. The Manager will not receive any compensation
for the period prior to the Closing Date other than expenses incurred and reimbursed pursuant to
Section 7 hereof.
16
(b) The parties acknowledge that the Base Management Fee is intended to compensate the Manager
for the costs and expenses it will incur pursuant to the Investment Advisory Agreement, as well as
certain expenses not otherwise reimbursable under Section 7 below, in order for the Manager to
provide the Company the investment advisory services and certain general management services
rendered under this Agreement. The fee paid by the Manager under the Investment Advisory Agreement
shall not constitute an expense reimbursable by the Company under this Agreement or otherwise.
(c) The Base Management Fee shall be payable in arrears in cash, in quarterly installments
commencing with the quarter in which this Agreement is executed. If applicable, the initial and
final installments of the Base Management Fee shall be pro-rated based on the number of days during
the initial and final quarter, respectively, that this Agreement is in effect. The Manager shall
calculate each quarterly installment of the Base Management Fee, and deliver such calculation to
the Company, within thirty (30) days following the last day of each calendar quarter. The Company
shall pay the Manager each installment of the Base Management Fee within five (5) Business Days
after the date of delivery to the Company of such computations.
(d) The Incentive Compensation shall be payable in arrears, in quarterly installments
commencing with the quarter in which this Agreement is executed. The Manager shall compute each
quarterly installment of the Incentive Compensation within forty-five (45) days after the end of
the calendar quarter with respect to which such installment is payable. A copy of the computations
made by the Manager to calculate such installment shall thereafter promptly be delivered to the
Board and, upon such delivery, payment of such installment of the Incentive Compensation shown
therein shall be due and payable no later than the date which is five (5) Business Days after the
date of delivery to the Board of such computations.
(e) Each installment of the Incentive Compensation shall be payable as follows:
(i) fifty percent (50%) of the Incentive Compensation will be payable in shares of
Common Stock;
provided, however
, the percentage of the Incentive Compensation payable in
shares of Common Stock is subject to the following: (1) the ownership of such shares by the
Manager does not violate the limit on ownership of Common Stock set forth in the Companys
Governing Instruments, after giving effect to any waiver from such limit that the Board may
grant to the Manager in the future and (2) the Companys issuance of such shares to the
Manager complies with all applicable restrictions under U.S. federal securities laws and the
rules of the NYSE; and
(ii) the remainder will be payable in cash.
17
(f) The number of shares of Common Stock payable as the Incentive Compensation to be issued to
the Manager will be equal to the dollar amount of the portion of the quarterly installment of the
Incentive Compensation payable in shares of Common Stock divided by a value determined as follows:
(i) if the Common Stock is traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the Common Stock
on such exchange on the five Business Days prior to the date on which the
quarterly installment of the Incentive Compensation is paid;
(ii) if the Common Stock is not traded on a securities exchange but is
actively traded over-the-counter, the value shall be deemed to be the
average of the closing bids or sales prices, as applicable, on the five
Business Days prior to the date on which the quarterly installment of the
Incentive Compensation is paid; and
(iii) if the Common Stock is neither traded on a securities exchange
nor actively traded over-the-counter, the value shall be the fair market
value thereof, as reasonably determined in good faith by the Board
(including a majority of the Independent Directors) of the Company.
(g) If at any time the Manager shall, in connection with a determination of the value of the
Common Stock made by the Board pursuant to Section 6(f)(iii) hereof, (i) dispute such determination
in good faith by more than five percent (5%), and (ii) such dispute cannot be resolved between the
Independent Directors and the Manager within ten (10) Business Days after the Manager provides
written notice to the Company of such dispute (the
Valuation Notice
), then the matter shall be
resolved by an independent appraiser of recognized standing selected jointly by the Independent
Directors and the Manager within not more than twenty (20) days after the Valuation Notice. In the
event the Independent Directors and the Manager cannot agree with respect to such selection within
the aforesaid twenty (20) day time-frame, the Independent Directors shall select one such
independent appraiser and the Manager shall select one independent appraiser within five (5)
Business Days after the expiration of the twenty (20) day period, with one additional such
appraiser (the
Last Appraiser
) to be selected by the appraisers so designated within five (5)
Business Days after their selection. Any valuation decision made by the Last Appraiser shall be
deemed final and binding upon the Board and the Manager and shall be delivered to the Manager and
the Board within not more than fifteen (15) days after the selection of the Last Appraiser. The
expenses of the appraisal shall be paid by the party with the estimate which deviated the furthest
from the final valuation decision made by the independent appraisers.
18
(h) The Manager agrees to reduce the Base Management Fee and Incentive Compensation (but not
below zero), in respect of any equity investment the Company
or its Subsidiaries may decide to make in any Legacy Securities PPIF or Legacy Loan PPIF
managed by the Manager or any of its Affiliates, by the amount of the fees payable to the Manager
or any of its Affiliates under the Legacy Securities PPIF or Legacy Loan PPIF (the
PPIF Management
Fee
) with regard to such equity investment. Each installment of a PPIF Management Fee paid by the
Company will first be applied to reduce the amount of the next quarterly installment of the Base
Management Fee otherwise payable to the Manager and then the quarterly installment of the Incentive
Compensation otherwise payable at such time, if any. Any excess will be applied to reduce the next
quarterly installment of the Base Management Fee and the Incentive Compensation in the same manner
until the Company has received full credit for the PPIF Management Fee that is paid.
(i) The Company acknowledges the obligation of the Manager to pay to the underwriters of the
Initial Public Offering the Manager Offering Payments as defined in and pursuant to Section 2 of
the IPO Underwriting Agreement.
(i) The Company agrees to reimburse the Manager an amount (the
Manager Conditional
Payment
) equal to the Manager Offering Payments if during any full four calendar quarter
period during the 24 full calendar quarters after the Closing Date (the
Conditional Payment
Period
), the Companys Core Earnings for such four-quarter period exceeds the product of:
(1) the weighted average of the issue price per share of Common Stock of all of the
Companys public offerings of Common Stock (including the Initial Public Offering)
multiplied by the weighted average number of shares of Common Stock outstanding (including,
for the avoidance of doubt, any restricted shares of Common Stock, restricted stock units or
any shares of Common Stock underlying other awards granted under one or more of the
Companys Equity Incentive Plans) in the four-quarter period; and (2) 8% (such product of
(1) and (2), the
Performance Hurdle Rate
).
(ii) During the Conditional Payment Period if the Manager Conditional Payment has not
been made, the Manager shall compute Core Earnings for each full four-quarter period within
forty five (45) days after the end of each calendar quarter and shall promptly deliver such
computation and the calculation of the Performance Hurdle Rate to the Board. In the event
that the Performance Hurdle Rate has been met, the Company shall pay the Manager Conditional
Payment in cash to the Manager no later than the date which is five (5) Business Days after
the date of delivery to the Board of the applicable computation of Core Earnings and the
calculation of the Performance Hurdle Rate.
(iii) In the event the Termination Fee is payable to the Manager prior to the end of
the Conditional Payment Period and the Manager Conditional Payment has not been paid, the
Company shall pay the Manager Conditional Payment in cash to the Manager on the same date as
the payment of the Termination Fee in reimbursement of the Managers payment of the Manager
Offering Payments, irrespective of whether the Performance Hurdle Rate has been met.
19
Section 7. Expenses of the Company.
(a) The Manager shall be responsible for the expenses related to any and all personnel of the
Manager and its Affiliates who provide services to the Company pursuant to this Agreement or to the
Manager pursuant to the Investment Advisory Agreement (including, without limitation, each of the
officers of the Company and any directors of the Company who are also directors, officers,
employees or agents of the Manager or any of its Affiliates), including, without limitation,
salaries, bonus and other wages, payroll taxes and the cost of employee benefit plans of such
personnel, and costs of insurance with respect to such personnel.
(b) The Company shall pay all of its costs and expenses and shall reimburse the Manager or its
Affiliates for expenses of the Manager and its Affiliates incurred on behalf of the Company,
excepting only those expenses that are specifically the responsibility of the Manager pursuant to
Section 7(a) of this Agreement. Without limiting the generality of the foregoing, it is
specifically agreed that the following costs and expenses of the Company or any Subsidiary shall be
paid by the Company and shall not be paid by the Manager or Affiliates of the Manager:
(i) expenses in connection with the issuance and transaction costs incident to the
acquisition, disposition and financing of the investments of the Company and its
Subsidiaries;
(ii) costs of legal, tax, accounting, consulting, auditing and other similar services
rendered for the Company by providers retained by the Manager (including, but not limited
to, Rinaldi, Finkelstein & Franklin, LLC) or, if provided by the Managers personnel, in
amounts which are no greater than those which would be payable to outside professionals or
consultants engaged to perform such services pursuant to agreements negotiated on an
arms-length basis;
(iii) the compensation and expenses of the Companys directors and the cost of
liability insurance to indemnify the Companys directors and officers;
(iv) costs associated with the establishment and maintenance of any of the Companys
credit facilities, other financing arrangements, or other indebtedness of the Company
(including commitment fees, accounting fees, legal fees, closing and other similar costs) or
any of the Companys securities offerings;
20
(v) expenses connected with communications to holders of the Companys securities or of
the Subsidiaries and other bookkeeping and clerical work necessary in maintaining relations
with holders of such securities and in complying with the continuous reporting and other
requirements of governmental bodies or agencies,
including, without limitation, all costs of preparing and filing required reports with
the SEC, the costs payable by the Company to any transfer agent and registrar in connection
with the listing and/or trading of the Companys securities on any exchange, the fees
payable by the Company to any such exchange in connection with its listing, costs of
preparing, printing and mailing the Companys annual report to the Companys stockholders
and proxy materials with respect to any meeting of the Companys stockholders;
(vi) costs associated with any computer software or hardware, electronic equipment or
purchased information technology services from third-party vendors that is used for the
Company;
(vii) expenses incurred by managers, officers, personnel and agents of the Manager for
travel on the Companys behalf and other out-of-pocket expenses incurred by managers,
officers, personnel and agents of the Manager in connection with the purchase, financing,
refinancing, sale or other disposition of an investment or establishment and maintenance of
any of the Companys securitizations or any of the Companys securities offerings;
(viii) costs and expenses incurred with respect to market information systems and
publications, research publications and materials, and settlement, clearing and custodial
fees and expenses;
(ix) compensation and expenses of the Companys custodian and transfer agent, if any;
(x) the costs of maintaining compliance with all federal, state and local rules and
regulations or any other regulatory agency;
(xi) all taxes and license fees;
(xii) all insurance costs incurred in connection with the operation of the Companys
business except for the costs attributable to the insurance that the Manager elects to carry
for itself and its personnel;
(xiii) costs and expenses incurred in contracting with third parties;
21
(xiv) all other costs and expenses relating to the Companys business and investment
operations, including, without limitation, the costs and expenses of acquiring,
owning, protecting, maintaining, developing and disposing of investments, including
appraisal, reporting, audit and legal fees;
(xv) expenses relating to any office(s) or office facilities, including, but not
limited to, disaster backup recovery sites and facilities, maintained for the Company or the
investments of the Company and its Subsidiaries separate from the office or offices of the
Manager;
(xvi) expenses connected with the payments of interest, dividends or distributions in
cash or any other form authorized or caused to be made by the Board to or on account of
holders of the Companys securities or of the Subsidiaries, including, without limitation,
in connection with any dividend reinvestment plan;
(xvii) any judgment or settlement of pending or threatened proceedings (whether civil,
criminal or otherwise) against the Company or any Subsidiary, or against any trustee,
director, partner, member or officer of the Company or of any Subsidiary in his capacity as
such for which the Company or any Subsidiary is required to indemnify such trustee,
director, partner, member or officer by any court or governmental agency; and
(xviii) all other expenses actually incurred by the Manager (except as otherwise
specified herein) which are reasonably necessary for the performance by the Manager of its
duties and functions under this Agreement.
(c) Costs and expenses incurred by the Manager on behalf of the Company shall be reimbursed
monthly to the Manager. The Manager shall prepare a written statement in reasonable detail
documenting the costs and expenses of the Company and those incurred by the Manager on behalf of
the Company during each month, and shall deliver such written statement to the Company within
thirty (30) days after the end of each month. The Company shall pay all amounts payable to the
Manager pursuant to this Section 7(c) within five (5) Business Days after the receipt of the
written statement without demand, deduction, offset or delay. Cost and expense reimbursement to
the Manager shall be subject to adjustment at the end of each calendar year in connection with the
annual audit of the Company. The provisions of this Section 7 shall survive the expiration or
earlier termination of this Agreement to the extent such expenses have previously been incurred or
are incurred in connection with such expiration or termination.
22
Section 8. Limits of the Managers Responsibility.
(a) The Manager assumes no responsibility under this Agreement other than to render the
services called for hereunder in good faith and shall not be responsible for any action of the
Board in following or declining to follow any advice or recommendations of the
Manager, including as set forth in the Investment Guidelines. The Manager and its Affiliates,
and the directors, officers, employees and stockholders of the Manager and its Affiliates, will not
be liable to the Company, any Subsidiary, the Board, the Companys stockholders or any Subsidiarys
stockholders or partners for any acts or omissions by the Manager or its officers, employees or
Affiliates performed in accordance with and pursuant to this Agreement, except by reason of acts or
omission constituting bad faith, willful misconduct, gross negligence or reckless disregard of
their respective duties under this Agreement. The Company shall, to the full extent lawful,
reimburse, indemnify and hold harmless the Manager, its Affiliates, and the directors, officers,
employees and stockholders of the Manager and its Affiliates (each, a
Manager Indemnified Party
),
of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever (including reasonable attorneys fees) (collectively
Losses
) in respect of or
arising from any acts or omissions of such Manager Indemnified Party performed in good faith under
this Agreement and not constituting bad faith, willful misconduct, gross negligence or reckless
disregard of duties of such Manager Indemnified Party under this Agreement. In addition, the
Manager will not be liable for trade errors that may result from ordinary negligence, including,
without limitation, errors in the investment decision making process or in the trade process.
(b) The Manager shall, to the full extent lawful, reimburse, indemnify and hold harmless the
Company, and the directors, officers and stockholders of the Company and each Person, if any,
controlling the Company (each, a
Company Indemnified Party
; a Manager Indemnified Party and a
Company Indemnified Party are each sometimes hereinafter referred to as an
Indemnified Party
) of
and from any and all Losses in respect of or arising from (i) any acts or omissions of the Manager
constituting bad faith, willful misconduct, gross negligence or reckless disregard of duties of the
Manager under this Agreement or (ii) any claims by the Managers employees relating to the terms
and conditions of their employment by the Manager.
(c) In case any such claim, suit, action or proceeding (a
Claim
) is brought against any
Indemnified Party in respect of which indemnification may be sought by such Indemnified Party
pursuant hereto, the Indemnified Party shall give prompt written notice thereof to the indemnifying
party, which notice shall include all documents and information in the possession of or under the
control of such Indemnified Party reasonably necessary for the evaluation and/or defense of such
Claim and shall specifically state that indemnification for such Claim is being sought under this
Section;
provided, however
, that the failure of the Indemnified Party to so notify the indemnifying
party shall not limit or affect such Indemnified Partys rights other than pursuant to this
Section. Upon receipt of such notice of Claim (together with such documents and information from
such Indemnified Party), the indemnifying party shall, at its sole cost and expense, in good faith
defend any such Claim with counsel reasonably satisfactory to such Indemnified Party, which counsel
may, without limiting the rights of such Indemnified Party pursuant to the next succeeding sentence
of this Section, also represent the indemnifying party in such investigation, action or proceeding.
In the alternative, such Indemnified Party may elect to conduct the defense of the Claim, if (i)
such Indemnified Party reasonably determines that the conduct of its defense by the indemnifying
party could be materially prejudicial to its interests, (ii) the indemnifying party refuses to
assume such defense (or fails to give written notice to the Indemnified Party
23
within ten (10) days
of receipt of a notice of Claim that the indemnifying party assumes such defense), or (iii) the indemnifying party shall have failed,
in such Indemnified Partys reasonable judgment, to defend the Claim in good faith. The
indemnifying party may settle any Claim against such Indemnified Party without such Indemnified
Partys consent, provided (i) such settlement is without any Losses whatsoever to such Indemnified
Party, (ii) the settlement does not include or require any admission of liability or culpability by
such Indemnified Party and (iii) the indemnifying party obtains an effective written release of
liability for such Indemnified Party from the party to the Claim with whom such settlement is being
made, which release must be reasonably acceptable to such Indemnified Party, and a dismissal with
prejudice with respect to all claims made by the party against such Indemnified Party in connection
with such Claim. The applicable Indemnified Party shall reasonably cooperate with the indemnifying
party, at the indemnifying partys sole cost and expense, in connection with the defense or
settlement of any Claim in accordance with the terms hereof. If such Indemnified Party is entitled
pursuant to this Section to elect to defend such Claim by counsel of its own choosing and so
elects, then the indemnifying party shall be responsible for any good faith settlement of such
Claim entered into by such Indemnified Party. Except as provided in the immediately preceding
sentence, no Indemnified Party may pay or settle any Claim and seek reimbursement therefor under
this Section.
(d) The provisions of this Section 8 shall survive the expiration or earlier termination of
this Agreement.
Section 9. No Joint Venture.
The Company and the Manager are not partners or joint venturers with each other and nothing
herein shall be construed to make them such partners or joint venturers or impose any liability as
such on either of them.
Section 10. Term; Renewal; Termination Without Cause.
(a) This Agreement shall become effective on the Closing Date and shall continue in operation,
unless terminated in accordance with the terms hereof, until the third anniversary of the Closing
Date (the
Initial Term
). After the Initial Term, this Agreement shall be deemed renewed
automatically each year for an additional one-year period (an
Automatic Renewal Term
) unless the
Company or the Manager elects not to renew this Agreement in accordance with Section 10(b) or
Section 10(d), respectively.
(b) Notwithstanding any other provision of this Agreement to the contrary, upon the expiration
of the Initial Term or any Automatic Renewal Term and upon 180 days prior written notice to the
Manager (the
Termination Notice
), the Company may, without cause, in connection with the
expiration of the Initial Term or the then current Automatic Renewal Term, decline to renew this
Agreement (any such nonrenewal, a
Termination Without Cause
) upon the affirmative vote of at
least two-thirds of the Independent Directors that (1) there has been unsatisfactory performance by
the Manager that is materially detrimental to the Company and its Subsidiaries taken as a whole or
(2) the Base Management Fee and Incentive Compensation payable to the Manager are not fair, subject
to Section 10(c) below. In the event of a Termination Without Cause, the Company shall pay the
Manager the Termination Fee before or on the last day of the Initial Term or such Automatic Renewal
Term, as the case may
be (the
Effective Termination Date
). The Company may terminate this Agreement for cause
pursuant to Section 12 hereof even after a Termination Notice and, in such case, no Termination Fee
shall be payable.
24
(c) Notwithstanding the provisions of subsection (b) above, if the reason for nonrenewal
specified in the Companys Termination Notice is that two thirds of the Independent Directors have
determined that the Base Management Fee or the Incentive Compensation payable to the Manager is
unfair, the Company shall not have the foregoing nonrenewal right in the event the Manager agrees
that it will continue to perform its duties hereunder during the Automatic Renewal Term that would
commence upon the expiration of the Initial Term or then current Automatic Renewal Term at a fee
that at least two thirds of the Independent Directors determine to be fair;
provided, however
, the
Manager shall have the right to renegotiate the Base Management Fee and/or the Incentive
Compensation, by delivering to the Company, not less than 120 days prior to the pending Effective
Termination Date, written notice (a
Notice of Proposal to Negotiate
) of its intention to
renegotiate the Base Management Fee and/or the Incentive Compensation. Thereupon, the Company and
the Manager shall endeavor to negotiate the Base Management Fee and/or the Incentive Compensation
in good faith. Provided that the Company and the Manager agree to a revised Base Management Fee,
Incentive Compensation or other compensation structure within sixty (60) days following the
Companys receipt of the Notice of Proposal to Negotiate, the Termination Notice from the Company
shall be deemed of no force and effect, and this Agreement shall continue in full force and effect
on the terms stated herein, except that the Base Management Fee, the Incentive Compensation or
other compensation structure shall be the revised Base Management Fee, Incentive Compensation or
other compensation structure as then agreed upon by the Company and the Manager. The Company and
the Manager agree to execute and deliver an amendment to this Agreement setting forth such revised
Base Management Fee, Incentive Compensation, or other compensation structure promptly upon reaching
an agreement regarding same. In the event that the Company and the Manager are unable to agree to
a revised Base Management Fee, Incentive Compensation, or other compensation structure during such
sixty (60) day period, this Agreement shall terminate on the Effective Termination Date and the
Company shall be obligated to pay the Manager the Termination Fee upon the Effective Termination
Date.
(d) No later than 180 days prior to the expiration of the Initial Term or the then current
Automatic Renewal Term, the Manager may deliver written notice to the Company informing it of the
Managers intention to decline to renew this Agreement, whereupon this Agreement shall not be
renewed and extended and this Agreement shall terminate effective on the anniversary date of this
Agreement next following the delivery of such notice. The Company is not required to pay to the
Manager the Termination Fee if the Manager terminates this Agreement pursuant to this Section
10(d).
(e) Except as set forth in this Section 10, a nonrenewal of this Agreement pursuant to this
Section 10 shall be without any further liability or obligation of either party to the other,
except as provided in Section 3(b), Section 5, Section 7, Section 8 and Section 14 of this
Agreement.
(f) The Manager shall cooperate with the Company in executing an orderly transition of the
management of the Companys consolidated assets to a new manager.
25
Section 11. Assignments.
(a)
Assignments by the Manager.
This Agreement shall terminate automatically without payment
of the Termination Fee in the event of its assignment, in whole or in part, by the Manager, unless
such assignment is consented to in writing by the Company with the consent of a majority of the
Independent Directors. Any such permitted assignment shall bind the assignee under this Agreement
in the same manner as the Manager is bound, and the Manager shall be liable to the Company for all
acts or omissions of the assignee under any such assignment. In addition, the assignee shall
execute and deliver to the Company a counterpart of this Agreement naming such assignee as the
Manager. Notwithstanding the foregoing, the Manager may, without the approval of the Companys
Independent Directors, (i) assign this Agreement to an Affiliate of the Manager, conditioned on
such Affiliate becoming a party to, or becoming subject to the rights and obligations of, the
Co-Investment and Allocation Agreement and Investment Advisory Agreement and (ii) delegate to one
or more of its Affiliates the performance of any of its responsibilities hereunder so long as it
remains liable for any such Affiliates performance, in each case so long as assignment or
delegation does not require the Companys approval under the Investment Company Act (but if such
approval is required, the Company shall not unreasonably withhold, condition or delay its consent).
Nothing contained in this Agreement shall preclude any pledge, hypothecation or other transfer of
any amounts payable to the Manager under this Agreement.
(b)
Assignments by the Company.
This Agreement shall not be assigned by the Company without
the prior written consent of the Manager, except in the case of assignment by the Company to
another REIT or other organization which is a successor (by merger, consolidation, purchase of
assets, or other transaction) to the Company, in which case such successor organization shall be
bound under this Agreement and by the terms of such assignment in the same manner as the Company is
bound under this Agreement.
Section 12. Termination for Cause.
(a) The Company may terminate this Agreement effective upon 30 days prior written notice of
termination from the Company to the Manager, without payment of any Termination Fee, if (i) the
Manager, its agents or its assignees breaches any material provision of this Agreement and such
breach shall continue for a period of 30 days after written notice thereof specifying such breach
and requesting that the same be remedied in such 30-day period (or 45 days after written notice of
such breach if the Manager takes steps to cure such breach within 30 days of the written notice),
(ii) there is a commencement of any proceeding relating to the Managers Bankruptcy or insolvency,
including an order for relief in an involuntary bankruptcy case or the Manager authorizing or
filing a voluntary bankruptcy petition, (iii) any Manager Change of Control which a majority of the
Independent Directors determines is materially detrimental to the Company and its Subsidiaries
taken as a whole, (iv) the dissolution of the Manager, or (v) the Manager commits fraud against the
Company, misappropriates or
embezzles funds of the Company, or acts, or fails to act, in a manner constituting bad faith,
willful misconduct, gross negligence or reckless disregard in the performance of its duties under
this Agreement;
provided, however
, that if any of the actions or omissions described in this clause
(v) are caused by an employee and/or officer of the Manager or one of its Affiliates and the
Manager takes all necessary and appropriate action against such person and cures the damage caused
by such actions or omissions within 30 days of the Manager actual knowledge of its commission or
omission, the Company shall not have the right to terminate this Agreement pursuant to this Section
12(a)(v).
26
(b) The Manager may terminate this Agreement effective upon 60 days prior written notice of
termination to the Company in the event that the Company shall default in the performance or
observance of any material term, condition or covenant contained in this Agreement and such default
shall continue for a period of 30 days after written notice thereof specifying such default and
requesting that the same be remedied in such 30-day period. The Company is required to pay to the
Manager the Termination Fee if the termination of this Agreement is made pursuant to this Section
12(b).
(c) The Manager may terminate this Agreement if the Company becomes required to register as an
investment company under the Investment Company Act, with such termination deemed to occur
immediately before such event, in which case the Company shall not be required to pay the
Termination Fee.
Section 13. Action Upon Termination.
From and after the effective date of termination of this Agreement pursuant to Sections 10,
11, or 12 of this Agreement, the Manager shall not be entitled to compensation for further services
hereunder, but shall be paid all compensation accruing to the date of termination and, if
terminated pursuant to section 12(b) hereof or not renewed pursuant to Section 10(b) hereof
(subject to Section 10(c) hereof), the Termination Fee. Upon any such termination, the Manager
shall forthwith:
(a) after deducting any accrued compensation and reimbursement for its expenses to which it is
then entitled, pay over to the Company or a Subsidiary all money collected and held for the account
of the Company or a Subsidiary pursuant to this Agreement;
(b) deliver to the Board a full accounting, including a statement showing all payments
collected by it and a statement of all money held by it, covering the period following the date of
the last accounting furnished to the Board with respect to the Company and any Subsidiaries; and
(c) deliver to the Board all property and documents of the Company and any Subsidiaries then
in the custody of the Manager.
27
Section 14. Release of Money or Other Property Upon Written Request.
The Manager agrees that any money or other property of the Company (which such term, for the
purposes of this Section, shall be deemed to include any and all of its Subsidiaries, if any) held
by the Manager shall be held by the Manager as custodian for the Company, and the Managers records
shall be appropriately and clearly marked to reflect the ownership of such money or other property
by the Company. Upon the receipt by the Manager of a written request signed by a duly authorized
officer of the Company requesting the Manager to release to the Company any money or other property
then held by the Manager for the account of the Company under this Agreement, the Manager shall
release such money or other property to the Company within a reasonable period of time, but in no
event later than 60 days following such request. Upon delivery of such money or other property to
the Company, the Manager shall not be liable to the Company, the Board, or the Companys
stockholders or partners for any acts or omissions by the Company in connection with the money or
other property released to the Company in accordance with this Section. The Company shall
indemnify the Manager, its directors, officers, stockholders, employees and agents against any and
all Losses which arise in connection with the Managers proper release of such money or other
property to the Company in accordance with the terms of this Section 14. Indemnification pursuant
to this provision shall be in addition to any right of the Manager to indemnification under Section
8 of this Agreement.
Section 15. Representations and Warranties.
(a) The Company hereby represents and warrants to the Manager as follows:
(i) The Company is duly organized, validly existing and in good standing under the laws
of the State of Maryland, has the corporate power and authority and the legal right to own
and operate its assets, to lease any property it may operate as lessee and to conduct the
business in which it is now engaged and is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, except for failures to be so
qualified, authorized or licensed that could not in the aggregate have a material adverse
effect on the business operations, assets or financial condition of the Company and its
Subsidiaries, if any, taken as a whole.
(ii) The Company has the corporate power and authority and the legal right to make,
deliver and perform this Agreement and all obligations required hereunder and has taken all
necessary corporate action to authorize this Agreement on the terms and conditions hereof
and the execution, delivery and performance of this Agreement and all obligations required
hereunder. No consent of any other Person, including stockholders and creditors of the
Company, and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental authority is
required by the Company in connection with this Agreement or the execution, delivery,
performance, validity or enforceability of this Agreement and all
obligations required hereunder. This Agreement has been, and each instrument or
document required hereunder will be, executed and delivered by a duly authorized officer of
the Company, and this Agreement constitutes, and each instrument or document required
hereunder when executed and delivered hereunder will constitute, the legally valid and
binding obligation of the Company enforceable against the Company in accordance with its
terms.
28
(iii) The execution, delivery and performance of this Agreement and the documents or
instruments required hereunder will not violate any provision of any existing law or
regulation binding on the Company, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Company, or the Governing Instruments
of, or any securities issued by the Company or of any mortgage, indenture, lease, contract
or other agreement, instrument or undertaking to which the Company is a party or by which
the Company or any of its assets may be bound, the violation of which would have a material
adverse effect on the business operations, assets or financial condition of the Company and
its Subsidiaries, if any, taken as a whole, and will not result in, or require, the creation
or imposition of any lien or any of its property, assets or revenues pursuant to the
provisions of any such mortgage, indenture, lease, contract or other agreement, instrument
or undertaking.
(b) The Manager hereby represents and warrants to the Company as follows:
(i) The Manager is duly organized, validly existing and in good standing under the laws
of the State of Delaware, has the limited liability company power and authority and the
legal right to own and operate its assets, to lease the property it operates as lessee and
to conduct the business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification, except for
failures to be so qualified, authorized or licensed that could not in the aggregate have a
material adverse effect on the business operations, assets or financial condition of the
Manager.
(ii) The Manager has the limited liability company power and authority and the legal
right to make, deliver and perform this Agreement and all obligations required hereunder and
has taken all necessary corporate action to authorize this Agreement on the terms and
conditions hereof and the execution, delivery and performance of this Agreement and all
obligations required hereunder. No consent of any other Person, including members and
creditors of the Manager, and no license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any governmental
authority is required by the Manager in connection with this Agreement or the execution,
delivery, performance, validity or enforceability of this Agreement and all obligations
required hereunder. This Agreement has been, and each instrument or document required
hereunder will be, executed and delivered by a duly
authorized officer of the Manager, and this Agreement constitutes, and each instrument
or document required hereunder when executed and delivered hereunder will constitute, the
legally valid and binding obligation of the Manager enforceable against the Manager in
accordance with its terms.
29
(iii) The execution, delivery and performance of this Agreement and the documents or
instruments required hereunder will not violate any provision of any existing law or
regulation binding on the Manager, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Manager, or the Governing Instruments
of, or any securities issued by the Manager or of any mortgage, indenture, lease, contract
or other agreement, instrument or undertaking to which the Manager is a party or by which
the Manager or any of its assets may be bound, the violation of which would have a material
adverse effect on the business operations, assets or financial condition of the Manager, and
will not result in, or require, the creation or imposition of any lien or any of its
property, assets or revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.
Section 16. Miscellaneous.
(a)
Notices
. All notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered against receipt or upon
actual receipt of (i) personal delivery, (ii) delivery by reputable overnight courier, (iii)
delivery by facsimile transmission with telephonic confirmation or (iv) delivery by registered or
certified mail, postage prepaid, return receipt requested, addressed as set forth below (or to such
other address as may be hereafter notified by the respective parties hereto in accordance with this
Section 16):
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The Company:
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Starwood Property Trust, Inc.
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591 West Putnam Avenue
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Greenwich, Connecticut 06830
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Attention: Ellis F. Rinaldi, Esq.
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Fax: (203) 422-7873
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with a copy to:
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Skadden, Arps, Slate, Meagher & Flom LLP
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4 Times Square
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New York, New York 10036
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Attention: David J. Goldschmidt, Esq.
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Fax: (212) 735-2000
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The Manager:
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SPT Management, LLC
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591 West Putnam Avenue
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Greenwich, Connecticut 06830
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Attention: Ellis F. Rinaldi, Esq.
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Fax: (203) 422-7873
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with a copy to:
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Skadden, Arps, Slate, Meagher & Flom LLP
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4 Times Square
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New York, New York 10036
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Attention: David J. Goldschmidt, Esq.
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Fax: (212) 735-2000
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30
(b)
Binding Nature of Agreement; Successors and Assigns
. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns as provided herein.
(c)
Integration
. This Agreement contains the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof. The express terms
hereof control and supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof.
(d)
Amendments
. This Agreement, nor any terms hereof, may not be amended, supplemented or
modified except in an instrument in writing executed by the parties hereto.
(e) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE
UNITED STATES DISTRICT COURT FOR ANY DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY ACTION OR
JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.
(f) WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND,
THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
31
(g)
Survival of Representations and Warranties
. All representations and warranties made
hereunder, and in any document, certificate or statement delivered pursuant hereto or in connection
herewith, shall survive the execution and delivery of this Agreement.
(h)
No Waiver; Cumulative Remedies
. No failure to exercise and no delay in exercising, on the
part of a party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
(i)
Costs and Expenses
. Each party hereto shall bear its own costs and expenses (including
the fees and disbursements of counsel and accountants) incurred in connection with the negotiations
and preparation of and the closing under this Agreement, and all matter incident thereto.
(j)
Section Headings
. The section and subsection headings in this Agreement are for
convenience in reference only and shall not be deemed to alter or affect the interpretation of any
provisions hereof.
(k)
Counterparts
. This Agreement may be executed by the parties to this Agreement on any
number of separate counterparts (including by telecopy), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
(l)
Severability
. Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
IN WITNESS WHEREOF, each of the parties hereto has executed this Management Agreement as of
the date first written above.
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Starwood Property Trust, Inc.
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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Secretary
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SPT Management, LLC
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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Secretary
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Exhibit A
Investment Guidelines
1. No investment shall be made that would cause the Company to fail to qualify as a REIT under
the Code.
2. No investment shall be made that would cause the Company to be regulated as an investment
company under the Investment Company Act.
3. The Companys investments shall be in the Target Assets.
4. Not more than 25% of Equity will be invested in any individual asset, including any equity
investment by the Company in any Legacy Loans PPIF or Legacy Securities PPIF without the consent of
a majority of the Independent Directors.
5. Until appropriate investments in the Target Assets are identified, the Manager may invest
the proceeds of the Initial Public Offering and any future offerings of the Companys securities
for cash in interest-bearing, short-term investments, including AAA-rated CMBS (as defined in the
Companys prospectus, dated August 11, 2009, relating to the Initial Public Offering), Agency RMBS
( as defined in the Companys prospectus, dated August 11, 2009, relating to the Initial Public
Offering), money market accounts and/or funds, subject to the requirements for the Companys
qualification as a REIT under the Code.
6. Any investment by the Company of up to $25 million requires the approval of the Companys
Chief Executive Officer. Any investment in excess of $25 million but less than or equal to $75
million requires the approval of the Manager Investment Committee. Any investment in excess of $75
million but less than or equal to $150 million requires the approval of the Board Investment
Committee and the Manager Investment Committee. Any investment in excess of $150 million requires
the approval of the Board.
These Investment Guidelines may be amended, restated, modified, supplemented or waived by the
Board (which must include a majority of the Independent Directors) without the approval of the
Companys stockholders.
EXHIBIT 10.5
STARWOOD PROPERTY TRUST, INC.
NON-EXECUTIVE DIRECTOR STOCK PLAN
STARWOOD PROPERTY TRUST INC.
NON-EXECUTIVE DIRECTOR STOCK PLAN
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Section
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Page
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1. Purpose; Types of Awards; Construction
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1
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2. Definitions
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1
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3. Administration
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3
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4. Eligibility
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4
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5. Stock Subject to the Plan
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4
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6. Terms of Awards
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4
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7. Change in Control
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7
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8. General Provisions
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7
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STARWOOD PROPERTY TRUST INC.
NON-EXECUTIVE DIRECTOR STOCK PLAN
1.
Purpose; Types of Awards.
The purposes of the Starwood Property Trust Inc. Non-Executive Director Stock Plan (the
Plan) are to afford an incentive to the non-executive directors of Starwood Property Trust Inc.
(the Company) to continue as directors, to increase their efforts on behalf of the Company and to
promote the success of the Companys business. The Plan provides for the grant of restricted
stock, restricted stock units and other equity-based awards. The Plan is also intended to
implement the Companys non-executive director program for the payment of fees in shares of Stock.
2.
Definitions
.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) Award means any award of Restricted Stock or Restricted Stock Unit or any other Other
Stock-Based Award granted under the Plan.
(b) Award Agreement means any written agreement, contract or other instrument or document
evidencing an Award.
(c) Board means the Board of Directors of the Company.
(d) Change of Control means a change in ownership or effective control of the Company, or a
change in the ownership of a substantial portion of the assets of the Company, in any case, within
the meaning of Section 409A of the Code; provided, however, that a transaction or series of
transactions effected with the Manager and/or any Affiliate of the Manager, through the acquisition
of Stock or other Company securities (regardless of the form of such transaction or series of
transactions), changes to the membership of the Board or otherwise, shall not constitute a Change
of Control for purposes of the Plan or any Award.
(e) Code means the Internal Revenue Code of 1986, as amended from time to time, and the
rules and regulations promulgated thereunder.
(f) Committee means the committee established by the Board to administer the Plan, the
composition of which shall at all times consist of non-employee directors within the meaning of
Rule 16b-3 under the Exchange Act.
(g) Company means Starwood Property Trust Inc., a Maryland corporation, or any successor
corporation.
(h) Effective Date means August 11, 2009, the date on which the Plan was adopted by the
Board, subject to obtaining the approval of the Companys stockholders.
(i) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time,
and the rules and regulations promulgated thereunder.
(j) Fair Market Value means, with respect to Stock or other property, the fair market value
of such Stock or other property determined by such methods or procedures as shall be established
from time to time by the Board. Unless otherwise determined by the Board in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the closing sales price per
share of Stock on the national securities exchange on which the Stock is principally traded, for
the last preceding date on which there was a sale of such Stock on such exchange; (ii) if the
shares of Stock are then traded in an over-the-counter market, the average of the closing bid and
asked prices for the shares of Stock in such over-the-counter market for the last preceding date on
which there was a sale of such Stock in such market; or (iii) if the shares of Stock are not then
listed on a national securities exchange or traded in an over-the-counter market, such value as the
Board, in its sole discretion, shall determine.
(k) Manager means SPT Management, LLC, a Delaware limited liability company.
(l) Other Stock-Based Award means a right or other interest granted to a Participant that
may be denominated or payable in, valued in whole or in part by reference to, or otherwise based
on, or related to, Stock, including but not limited to unrestricted shares of Stock or dividend
equivalent rights.
(m) Participant means an eligible person who has been granted an Award under the Plan.
(n) Plan means this Starwood Property Trust Inc. Non-Executive Director Stock Plan, as
amended from time to time.
(o) Restricted Stock means an Award of shares of Stock to a Participant under Section
6(b)(i) that may be subject to certain restrictions and to a risk of forfeiture.
(p) Restricted Stock Unit or RSU means a right granted to a Participant under Section
6(b)(ii) to receive Stock, cash or other property at the end of a specified period, which right may
be conditioned on the satisfaction of specified performance or other criteria.
(q) Securities Act means the Securities Act of 1933, as amended from time to time, and the
rules and regulations promulgated thereunder.
2
(r) Separation from Service shall have the meaning attributed to such term under Section
409A of the Code.
(s) Stock means shares of the common stock, par value $0.01 per share, of the Company.
3.
Administration.
The Plan shall be administered by the Board. Except with respect to the amendment,
modification, suspension or early termination of the Plan, the Board may appoint a Committee to
administer all or a portion of the Plan. To the extent that the Board so delegates its authority,
references herein to the Board shall be deemed references to the Committee. The Board may delegate
to one or more agents such administrative duties as it may deem advisable, and the Committee or any
other person to whom the Board has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Board or such Committee or person may have
under the Plan. No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted hereunder.
The Board shall have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to: (i) grant Awards;
(ii) determine the persons to whom and the time or times at which Awards shall be granted; (iii)
determine the type and number of Awards to be granted, the number of shares of Stock to which an
Award may relate and the terms, conditions, restrictions and performance criteria relating to any
Award; (iv) determine whether, to what extent, and under what circumstances an Award may be
settled, cancelled, forfeited, exchanged, or surrendered; (v) make adjustments in the terms and
conditions of Awards; (vi) construe and interpret the Plan and any Award; (vii) prescribe, amend
and rescind rules and regulations relating to the Plan; (viii) determine the terms and provisions
of the Award Agreements (which need not be identical for each Participant); and (ix) make all other
determinations deemed necessary or advisable for the administration of the Plan. All decisions,
determinations and interpretations of the Board shall be final and binding on all persons,
including but not limited to the Company, any parent or subsidiary of the Company, any Participant
(or any person claiming any rights under the Plan from or through any Participant) and any
stockholder. Notwithstanding any provision of the Plan or any Award Agreement to the contrary,
except as provided in the second paragraph of Section 5, neither the Board nor the Committee may
take any action which would have the effect of reducing the aggregate exercise, base or purchase
price of any Award without obtaining the approval of the Companys stockholders.
3
4.
Eligibility
.
Awards may be granted, in the discretion of the Board, to directors of the Company who are not
officers of the Company. In determining the persons to whom
Awards shall be granted and the type of any Award (including the number of shares to be
covered by such Award), the Board shall take into account such factors as the Board shall deem
relevant in connection with accomplishing the purposes of the Plan.
5.
Stock Subject to the Plan
.
The maximum number of shares of Stock reserved for the grant of Awards under the Plan shall be
equal to
100,000
, subject to adjustment as provided herein. Stock issued under the Plan may, in
whole or in part, be authorized but unissued shares or shares that shall have been or may be
reacquired by the Company in the open market, in private transactions or otherwise. If any shares
subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award terminates or
expires without a distribution of shares to the Participant, or if shares of Stock are surrendered
or withheld by the Company as payment of either the purchase price of an Award and/or withholding
taxes in respect of an Award, the shares of Stock with respect to such Award shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration,
again be available for Awards under the Plan.
In the event that the Board shall determine that any dividend or other distribution (whether
in the form of cash, Stock, or other property), recapitalization, Stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of Participants under the
Plan, then the Board shall make equitable changes or adjustments to any or all of: (i) the number
and kind of shares of Stock or other property (including cash) that may thereafter be issued in
connection with Awards; (ii) the number and kind of shares of Stock or other property (including
cash) issued or issuable in respect of outstanding Awards; (iii) the purchase price relating to any
Award and (iv) the performance goals, if any, applicable to outstanding Awards. In addition, the
Board may determine that any such equitable adjustment may be accomplished by making a payment to
the Award holder, in the form of cash or other property (including but not limited to shares of
Stock).
6.
Terms of Awards
.
(a)
General
. The term of each Award shall be for such period as may be determined by
the Board. Subject to the terms of the Plan and any applicable Award Agreement, payments to be
made by the Company upon the grant, vesting or delivery of an Award may be made in such forms as
the Board shall determine at the date of grant or thereafter, including, without limitation, cash,
Stock or other property, and may be made in a single payment or transfer, in installments or on a
deferred basis. The Board may make rules relating to installment or deferred payments with respect
to Awards, including the rate of interest to be credited with respect to such payments. In
addition to the foregoing, the Board may impose on any Award or the exercise thereof, at the date
of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Board shall determine.
4
(b)
Terms of Specified Awards
. The Board is authorized to grant the Awards described
in this Section 6(b), under such terms and conditions as deemed by the Board to be consistent with
the purposes of the Plan. Such Awards may be granted with vesting, value and/or and payment
contingent upon attainment of one or more performance goals. Except as otherwise set forth herein
or as may be determined by the Board, each Award granted under the Plan shall be evidenced by an
Award Agreement containing such terms and conditions applicable to such Award as the Board shall
determine at the date of grant or thereafter.
(i)
Restricted Stock
. The Board is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(A)
Issuance and Restrictions
. Restricted Stock shall be
subject to such restrictions on transferability and other restrictions, if
any, as the Board may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Board may
determine. The Board may place restrictions on Restricted Stock that
shall lapse, in whole or in part, only upon the attainment of one or more
performance goals. Unless otherwise determined by the Board, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Stock and the right to receive dividends thereon.
(B)
Forfeiture
. Subject to Section 7, upon termination of
service to the Company during the applicable restriction period,
Restricted Stock and any accrued but unpaid dividends shall be forfeited;
provided, that the Board may provide, by rule or regulation or in any
Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from
specified causes, and the Board may in other cases waive in whole or in
part the forfeiture of Restricted Stock.
(C)
Certificates for Stock
. Restricted Stock granted under
the Plan may be evidenced in such manner as the Board shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Stock, and the Company shall retain physical possession of the
certificate.
5
(D)
Dividends/Distributions
. Unless otherwise determined by
the Board, except as provided in the immediately following sentence,
dividends and distributions paid on Restricted
Stock shall be paid at the dividend or distribution payment date in
the same form as dividends and distributions are paid to other Company
stockholders. Unless otherwise determined by the Board, Stock distributed
in connection with a stock split or stock dividend, and other property
distributed as a dividend or distribution, shall be subject to
restrictions and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such Stock or other property has been
distributed.
(ii)
Restricted Stock Units
. The Board is authorized to grant RSUs to
Participants, subject to the following terms and conditions:
(A)
Award and Restrictions
. Delivery of Stock, cash or other
property, as determined by the Board, will occur upon expiration of the
period specified for RSUs by the Board during which forfeiture conditions
apply, or such later date as the Board shall determine. The Board may
place restrictions on RSUs that shall lapse, in whole or in part, only
upon the attainment of one or more performance goals.
(B)
Forfeiture
. Subject to Section 7, upon termination of
service to the Company prior to the vesting of RSUs, or upon failure to
satisfy any other conditions precedent to the delivery of Stock or cash to
which such RSUs relate, all RSUs and any accrued but unpaid dividend
equivalents that are then subject to deferral or restriction shall be
forfeited; provided, that the Board may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to RSUs will be waived in
whole or in part in the event of termination resulting from specified
causes, and the Board may in other cases waive in whole or in part the
forfeiture of RSUs.
(C)
Dividend/Distribution Equivalents
. The Board is
authorized to grant to Participants the right to receive dividend
equivalent payments and/or distribution equivalent payments for the period
prior to settlement of the RSU. Dividend equivalents or distribution
equivalents may be paid currently or credited to an account for the
Participant, and may be settled in cash or Stock, as determined by the
Board. Any such settlements, and any such crediting of dividend
equivalents or distribution equivalents or reinvestment in Stock, may be
subject to such conditions, restrictions and contingencies as the Board
shall establish, including the reinvestment of such credited amounts in
Stock equivalents. Unless otherwise determined by the Board, any such
dividend equivalents or distribution equivalents shall be paid or
credited, as applicable, on the dividend payment date to the
Participant as though each RSU held by such Participant were a share
of outstanding Stock.
6
(iii)
Other Stock-Based Awards
. The Board is authorized to grant
Awards to Participants in the form of Other Stock-Based Awards, as deemed by the
Board to be consistent with the purposes of the Plan. Awards granted pursuant to
this paragraph may be granted with vesting, value and/or payment contingent upon
the attainment of one or more performance goals. The Board shall determine the
terms and conditions of such Awards at the date of grant or thereafter. Without
limiting the generality of this paragraph, Other Stock-Based Awards may include
grants of shares of Stock that are not subject to any restrictions or a substantial
risk of forfeiture. Subject to Section 7, upon termination of service to the
Company prior to the vesting of an Other Stock-Based Award, or upon failure to
satisfy any other conditions precedent to the delivery of Stock or cash to which
such Other Stock-Based Award relates, all Other Stock-Based Awards that are then
subject to deferral or restriction shall be forfeited; provided, that the Board may
provide, by rule or regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to such Other
Stock-Based Award will be waived in whole or in part in the event of termination
resulting from specified causes, and the Board may in other cases waive in whole or
in part the forfeiture of such Other Stock-Based Award.
7.
Change in Control
. In the event of a Change in Control, any Award that was not
previously vested will become fully vested and/or payable, and any performance conditions imposed
with respect to the Award will be deemed to be fully achieved; provided, however, that for any
Award subject to Section 409A of the Code, no payment may be made to the holder of such Award
unless the transaction constituting a Change in Control also constitutes, within the meaning of
Section 409A of the Code, a change in the ownership or effective control of the Company or a
change in the ownership of a substantial portion of the assets of the Company.
8.
General Provisions
.
(a)
Nontransferability
. Unless otherwise provided in an Award Agreement, Awards shall
not be transferable by a Participant except by will or the laws of descent and distribution and
shall be exercisable during the lifetime of a Participant only by such Participant or his guardian
or legal representative.
(b)
No Right to Continued Service, etc
. Nothing in the Plan or in any Award, any
Award Agreement or other agreement entered into pursuant hereto shall confer upon any Participant
the right to continue as a director of, or continue to provide services to, the Company or any
parent, subsidiary or Affiliate of the Company or the Manager or to be entitled to any remuneration
or benefits not set forth in the Plan
or such Award Agreement or other agreement or to interfere with or limit in any way the right
of the Company to terminate such Participants service.
7
(c)
Taxes
. The Company or any parent or subsidiary of the Company is authorized to
withhold from any Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any other payment to a Participant, amounts of withholding and other
taxes due in connection with any transaction involving an Award, and to take such other action as
the Board may deem advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make cash payments in
respect thereof in satisfaction of a Participants tax obligations. The Board may provide in the
Award Agreement that in the event that a Participant is required to pay any amount to be withheld
in connection with the issuance of shares of Stock in settlement or exercise of an Award, the
Participant may satisfy such obligation (in whole or in part) by electing to have the Company
withhold a portion of the shares of Stock to be received upon settlement or exercise of such Award
that is equal to the minimum amount required to be withheld.
(d)
Effective Date; Amendment and Termination
.
(i) The Plan shall take effect upon the Effective Date, subject to the
approval of the Companys stockholders.
(ii) The Board may at any time and from time to time terminate, amend, modify
or suspend the Plan in whole or in part; provided, however, that unless otherwise
determined by the Board, an amendment that requires stockholder approval in order
for the Plan to comply with any law, regulation or stock exchange requirement shall
not be effective unless approved by the requisite vote of stockholders. The Board
may at any time and from time to time amend any outstanding Award in whole or in
part. Notwithstanding the foregoing sentence of this clause (ii), no amendment or
modification to or suspension or termination of the Plan or amendment of any Award
shall affect adversely any of the rights of any Participant, without such
Participants consent, under any Award theretofore granted under the Plan.
(e)
Expiration of Plan
. Unless earlier terminated by the Board pursuant to the
provisions of the Plan, the Plan shall expire on the tenth anniversary of the Effective Date. No
Awards shall be granted under the Plan after such expiration date. The expiration of the Plan
shall not affect adversely any of the rights of any Participant, without such Participants
consent, under any Award theretofore granted.
(f)
Deferrals
. The Board shall have the authority to establish such procedures and
programs that it deems appropriate to provide Participants with the ability to defer receipt of
cash, Stock or other property payable with respect to Awards granted under the Plan.
8
(g)
No Rights to Awards; No Stockholder Rights
. No Participant shall have any claim
to be granted any Award under the Plan. There is no obligation for uniformity of treatment among
Participants. Except as provided specifically herein, a Participant or a transferee of an Award
shall have no rights as a stockholder with respect to any shares covered by the Award until the
date of the issuance of a stock certificate to him for such shares.
(h)
Unfunded Status of Awards
. The Plan is intended to constitute an unfunded plan
for incentive and deferred compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such
Participant any rights that are greater than those of a general creditor of the Company.
(i)
No Fractional Shares
. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Board shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
(j)
Regulations and Other Approvals
.
(i) The obligation of the Company to sell or deliver Stock with respect to any
Award granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed necessary
or appropriate by the Board.
(ii) Each Award is subject to the requirement that, if at any time the Board
determines, in its absolute discretion, that the listing, registration or
qualification of Stock issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Award or the issuance of Stock, no such Award
shall be granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Board.
(iii) In the event that the disposition of Stock acquired pursuant to the Plan
is not covered by a then-current registration statement under the Securities Act
and is not otherwise exempt from such registration, such Stock shall be restricted
against transfer to the extent required by the Securities Act or regulations
thereunder, and the Board may require a Participant receiving Stock pursuant to the
Plan, as a condition precedent to receipt of such Stock, to represent to the
Company
in writing that the Stock acquired by such Participant is acquired for
investment only and not with a view to distribution.
9
(iv) The Board may require a Participant receiving Stock pursuant to the Plan,
as a condition precedent to receipt of such Stock, to enter into a stockholder
agreement or lock-up agreement in such form as the Board shall determine is
necessary or desirable to further the Companys interests.
(k)
Registration on Form S-8
. The Company shall file with the Securities and Exchange
Commission a registration statement on Form S-8 with respect to the securities to be offered to
Participants under the Plan and shall during the term of the Plan keep such registration statement
effective.
(l)
Governing Law
. The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of Maryland without giving effect to the conflict of laws
principles thereof.
(m)
Section 409A
. It is intended that the payments and benefits under the Plan comply
with, or as applicable, constitute a short-term deferral or otherwise be exempt from, the
provisions of Section 409A of the Code. The Plan will be administered and interpreted in a manner
consistent with this intent, and any provision that would cause the Plan or any Award to fail to
satisfy Section 409A of the Code will have no force and effect until amended to comply therewith
(which amendment may be retroactive to the extent permitted by Section 409A of the Code). To the
extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of
the Code, amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Plan during the six-month period immediately following Participants termination
of employment shall instead be paid on the first business day after the date that is six months
following Participants termination of employment (or upon Participants s death, if earlier).
10
EXHIBIT 10.7
STARWOOD PROPERTY TRUST, INC.
MANAGER EQUITY PLAN
STARWOOD PROPERTY TRUST INC.
MANAGER EQUITY PLAN
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Section
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1.
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Purpose; Types of Awards
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2.
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Definitions
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3.
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Administration
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4.
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Eligibility
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4
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5.
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Stock Subject to the Plan
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6.
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Terms of Awards
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5
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7.
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Termination of Management Agreement
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8.
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Change in Control
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9.
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General Provisions
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STARWOOD PROPERTY TRUST INC.
MANAGER EQUITY PLAN
1.
Purpose; Types of Awards.
The purpose of the Starwood Property Trust Inc. Manager Equity Plan (the Plan) is to issue
equity-based incentives to SPT Management, LLC, a Delaware limited liability company (the
Manager), which may in turn issue incentives to the directors, officers, employees of, or
advisors or consultants to, the Manager or an Affiliate (as defined in Section 2) of the Manager,
in order to increase their efforts on behalf of the Company and to promote the success of the
Companys business. The Plan provides for the grant of stock options, stock appreciation rights,
restricted stock, restricted stock units and other equity-based awards.
2.
Definitions.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) Affiliate means (i) any Person directly or indirectly controlling, controlled by, or
under common control with such other Person, (ii) any executive officer or general partner of such
other Person and (iii) any legal entity for which such Person acts as an executive officer or
general partner.
(b) Award means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock
Unit or Other Stock-Based Award granted under the Plan.
(c) Award Agreement means any written agreement, contract or other instrument or document
evidencing an Award.
(d) Board means the Board of Directors of the Company.
(e) Change of Control means a change in ownership or effective control of the Company, or a
change in the ownership of a substantial portion of the assets of the Company, in any case, within
the meaning of Section 409A of the Code; provided, however, that a transaction or series of
transactions effected with the Manager and/or any Affiliate of the Manager, through the acquisition
of Stock or other Company securities (regardless of the form of such transaction or series of
transactions), changes to the membership of the Board or otherwise, shall not constitute a Change
of Control for purposes of the Plan or any Award.
(f) Code means the Internal Revenue Code of 1986, as amended from time to time, and the
rules and regulations promulgated thereunder.
(g) Committee means the committee established by the Board to administer the Plan, the
composition of which shall at all times consist of non-employee directors within the meaning of
Rule 16b-3 under the Exchange Act.
(h) Company means Starwood Property Trust Inc., a Maryland corporation, or any successor
corporation.
(i) Effective Date means August 11, 2009, the date on which the Plan was adopted by the
Board, subject to obtaining the approval of the Companys stockholders.
(j) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time,
and the rules and regulations promulgated thereunder.
(k) Fair Market Value means, with respect to Stock or other property, the fair market value
of such Stock or other property determined by such methods or procedures as shall be established
from time to time by the Board. Unless otherwise determined by the Board in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the closing sales price per
share of Stock on the national securities exchange on which the Stock is principally traded, for
the last preceding date on which there was a sale of such Stock on such exchange; (ii) if the
shares of Stock are then traded in an over-the-counter market, the average of the closing bid and
asked prices for the shares of Stock in such over-the-counter market for the last preceding date on
which there was a sale of such Stock in such market; or (iii) if the shares of Stock are not then
listed on a national securities exchange or traded in an over-the-counter market, such value as the
Board, in its sole discretion, shall determine.
(l) Management Agreement means the Management Agreement, to be dated as of August 17, 2009,
by and between the Company and the Manager, as such may be amended from time to time.
(m) Manager means SPT Management, LLC, a Delaware limited liability company.
(n) Option means a right, granted to the Manager under Section 6(b)(i), to purchase shares
of Stock.
(o) Other Stock-Based Award means a right or other interest granted to the Manager that may
be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or
related to, Stock, including but not limited to unrestricted shares of Stock or dividend equivalent
rights.
(p) Person means any natural person, corporation, partnership, association, limited
liability company, estate, trust, joint venture, any federal, state or municipal government or any
bureau, department or agency thereof or any other legal entity and any fiduciary acting in such
capacity on behalf of the foregoing.
2
(q) Plan means this Starwood Property Trust Inc. Manager Equity Plan, as amended from time
to time.
(r) Restricted Stock means an Award of shares of Stock to the Manager under Section
6(b)(iii) that may be subject to certain restrictions and to a risk of forfeiture.
(s) Restricted Stock Unit or RSU means a right granted to the Manager under Section
6(b)(iv) to receive Stock, cash or other property at the end of a specified period, which right may
be conditioned on the satisfaction of specified performance or other criteria.
(t) Securities Act means the Securities Act of 1933, as amended from time to time, and the
rules and regulations promulgated thereunder.
(u) Stock means shares of the common stock, par value $0.01 per share, of the Company.
(v) Stock Appreciation Right or SAR means the right granted to the Manager under Section
6(b)(ii) to be paid an amount measured by the appreciation in the Fair Market Value of Stock from
the date of grant to the date of exercise of the right.
3.
Administration.
The Plan shall be administered by the Board. Except with respect to the amendment,
modification, suspension or early termination of the Plan, the Board may appoint a Committee to
administer all or a portion of the Plan. To the extent that the Board so delegates its authority,
references herein to the Board shall be deemed references to the Committee. The Board may delegate
to one or more agents such administrative duties as it may deem advisable, and the Committee or any
other person to whom the Board has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Board or such Committee or person may have
under the Plan. No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted hereunder.
The Board shall have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to: (i) grant Awards;
(ii) determine the type and number of Awards to be granted, the number of shares of Stock to which
an Award may relate and the terms, conditions, restrictions and performance criteria relating to
any Award; (iii) determine whether, to what extent, and under what circumstances an Award may be
settled, cancelled, forfeited, exchanged, or surrendered; (iv) make adjustments in the terms and
conditions of Awards; (vi) construe and interpret the Plan and any Award; (vii) prescribe, amend
and rescind rules and regulations relating to the Plan; (viii) determine the terms
3
and provisions of the Award Agreements (which need not be identical for each grant); and (ix)
make all other determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Board shall be final and binding on all
persons, including but not limited to the Company, any parent or subsidiary of the Company, the
Manager (or any person claiming any rights under the Plan from or through the Manager) and any
stockholder. Notwithstanding any provision of the Plan or any Award Agreement to the contrary,
except as provided in the second paragraph of Section 5, neither the Board nor the Committee may
take any action which would have the effect of reducing the aggregate exercise, base or purchase
price of any Award without obtaining the approval of the Companys stockholders.
4.
Eligibility.
Awards under the Plan may be granted only to the Manager. In determining the type of Award to
be granted and the terms and conditions of such Award (including the number of shares to be covered
by such Award), the Board shall take into account such factors as the Board shall deem relevant in
connection with accomplishing the purposes of the Plan.
5.
Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Awards under the Plan shall be
equal to
3,112,500
, less any shares of common stock issued or subject to awards granted under the
Companys Equity Plan, subject to adjustment as provided herein. Stock issued under the Plan may,
in whole or in part, be authorized but unissued shares or shares that shall have been or may be
reacquired by the Company in the open market, in private transactions or otherwise. If any vested
Award granted under the Plan is paid or otherwise settled without the issuance of shares of Stock,
or if shares of Stock are surrendered to or withheld by the Company as payment of either the
exercise price of an Award and/or withholding taxes in respect of an Award, the shares of Stock
that were subject to such Award shall not again be available for Awards under the Plan. If any
shares subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award
terminates or expires without a distribution of shares to the Manager (other than as provided in
the immediately preceding sentence), the shares of Stock with respect to such Award shall, to the
extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Awards under the Plan. Upon the exercise of any Award granted in tandem with any
other Award, such related Award shall be cancelled to the extent of the number of shares of Stock
as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall
no longer be available for Awards under the Plan.
In the event that the Board shall determine that any dividend or other distribution (whether
in the form of cash, Stock, or other property), recapitalization, Stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of the Manager under the
Plan, then the Board shall make equitable changes
4
or adjustments to any or all of: (i) the number and kind of shares of Stock or other property
(including cash) that may thereafter be issued in connection with Awards; (ii) the number and kind
of shares of Stock or other property (including cash) issued or issuable in respect of outstanding
Awards; (iii) the exercise price, base price or purchase price relating to any Award and (iv) the
performance goals, if any, applicable to outstanding Awards. In addition, the Board may determine
that any such equitable adjustment may be accomplished by making a payment to the Award holder, in
the form of cash or other property (including but not limited to shares of Stock).
6.
Terms of Awards.
(a)
General
. The term of each Award shall be for such period as may be determined by
the Board. Subject to the terms of the Plan and any applicable Award Agreement, payments to be
made by the Company upon the grant, vesting, maturation or exercise of an Award may be made in such
forms as the Board shall determine at the date of grant or thereafter, including, without
limitation, cash, Stock or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. The Board may make rules relating to installment or deferred
payments with respect to Awards, including the rate of interest to be credited with respect to such
payments. In addition to the foregoing, the Board may impose on any Award or the exercise thereof,
at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Board shall determine.
(b)
Terms of Specified Awards
. The Board is authorized to grant the Awards described
in this Section 6(b), under such terms and conditions as deemed by the Board to be consistent with
the purposes of the Plan. Such Awards may be granted with vesting, value and/or and payment
contingent upon attainment of one or more performance goals. Except as otherwise set forth herein
or as may be determined by the Board, each Award granted under the Plan shall be evidenced by an
Award Agreement containing such terms and conditions applicable to such Award as the Board shall
determine at the date of grant or thereafter.
(i)
Options
. The Board is authorized to grant Options to the Manager
on the following terms and conditions:
(A)
Exercise Price
. The exercise price per share of Stock
purchasable under an Option shall be determined by the Board, but in no
event shall the per share exercise price of any Option be less than 100%
of the Fair Market Value of a share of Stock on the date of grant of such
Option. The exercise price for Stock subject to an Option may be paid in
cash or by an exchange of Stock previously owned by the Manager, through a
broker cashless exercise procedure approved by the Board (to the extent
permitted by law) or a combination of the above, in any case in an amount
having a combined value equal to such exercise price; provided that the
Board may require that any Stock exchanged by the Manager have been owned
by the Manager for at least six
months as of the date of exercise. An Award Agreement may provide
that the Manager may pay all or a portion of the aggregate exercise price
by having shares of Stock with a Fair Market Value on the date of exercise
equal to the aggregate exercise price withheld by the Company.
5
(B)
Term and Exercisability of Options
. The date on which
the Board adopts a resolution expressly granting an Option shall be
considered the day on which such Option is granted. Options shall be
exercisable over the exercise period (which shall not exceed ten years
from the date of grant), at such times and upon such conditions as the
Board may determine, as reflected in the Award Agreement; provided, that
the Board shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its
sole discretion, deems appropriate. An Option may be exercised to the
extent of any or all full shares of Stock as to which the Option has
become exercisable, by giving written notice of such exercise to the Board
or its designated agent.
(C)
Other Provisions
. Options may be subject to such other
conditions including, but not limited to, restrictions on transferability
of the shares acquired upon exercise of such Options, as the Board may
prescribe in its discretion or as may be required by applicable law.
(ii)
Stock Appreciation Rights
. The Board is authorized to grant SARs
to the Manager on the following terms and conditions:
(A)
In General
. Unless the Board determines otherwise, an
SAR granted in tandem with an Option may be granted at the time of grant
of the related Option or at any time thereafter. An SAR granted in tandem
with an Option shall be exercisable only to the extent the underlying
Option is exercisable. Payment of an SAR may made in cash, Stock, or
property as specified in the Award or determined by the Board.
(B)
Right Conferred
. An SAR shall confer on the Manager a
right to receive an amount with respect to each share subject thereto,
upon exercise thereof, equal to the excess of (1) the Fair Market Value of
one share of Stock on the date of exercise over (2) the base price of the
SAR (which in the case of an SAR granted in tandem with an Option shall be
equal to the exercise price of the underlying Option, and which in the
case of any other SAR shall be such price as the Board may determine,
provided it is no less than 100% of the Fair Market Value of a share of
Stock on the date of grant of such SAR).
6
(C)
Term and Exercisability of SARs
. The date on which the
Board adopts a resolution expressly granting an SAR shall be considered
the day on which such SAR is granted. SARs shall be exercisable over the
exercise period (which shall not exceed the lesser of ten years from the
date of grant or, in the case of a tandem SAR, the expiration of its
related Award), at such times and upon such conditions as the Board may
determine, as reflected in the Award Agreement; provided, that the Board
shall have the authority to accelerate the exercisability of any
outstanding SAR at such time and under such circumstances as it, in its
sole discretion, deems appropriate. An SAR may be exercised to the extent
of any or all full shares of Stock as to which the SAR (or, in the case of
a tandem SAR, its related Award) has become exercisable, by giving written
notice of such exercise to the Board or its designated agent.
(D)
Other Provisions
. SARs may be subject to such other
conditions including, but not limited to, restrictions on transferability
of the shares acquired upon exercise of such SARs, as the Board may
prescribe in its discretion or as may be required by applicable law.
(iii)
Restricted Stock
. The Board is authorized to grant Restricted
Stock to the Manager on the following terms and conditions:
(A)
Issuance and Restrictions
. Restricted Stock shall be
subject to such restrictions on transferability and other restrictions, if
any, as the Board may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Board may
determine. The Board may place restrictions on Restricted Stock that
shall lapse, in whole or in part, only upon the attainment of one or more
performance goals. Unless otherwise determined by the Board, following a
grant of Restricted Stock, the Manager shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Stock and the right to receive dividends thereon.
(B)
Certificates for Stock
. Restricted Stock granted under
the Plan may be evidenced in such manner as the Board shall determine. If
certificates representing Restricted Stock are registered in the name of
the Manager, such certificates shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Restricted
Stock, and the Company shall retain physical possession of the
certificate.
7
(C)
Dividends/Distributions
. Unless otherwise determined by
the Board, dividends and distributions paid on Restricted Stock shall be
paid at the dividend or distribution payment date, provided that such
payments may be deferred to such date as determined by the Board, and in
any event shall be payable in cash or in shares of Stock having a Fair
Market Value equal to the amount of such dividends or distributions.
Unless otherwise determined by the Board, Stock distributed in connection
with a stock split or stock dividend, and other property distributed as a
dividend or distribution, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to
which such Stock or other property has been distributed.
(iv)
Restricted Stock Units
. The Board is authorized to grant RSUs to
the Manager, subject to the following terms and conditions:
(A)
Award and Restrictions
. Delivery of Stock, cash or other
property, as determined by the Board, will occur upon expiration of the
period specified for RSUs by the Board during which forfeiture conditions
apply, or such later date as the Board shall determine. The Board may
place restrictions on RSUs that shall lapse, in whole or in part, only
upon the attainment of one or more performance goals.
(B)
Dividend/Distribution Equivalents
. The Board is
authorized to grant to the Manager the right to receive dividend
equivalent payments and/or distribution equivalent payments for the period
prior to settlement of the RSU. Dividend equivalents or distribution
equivalents may be paid currently or credited to an account for the
Manager, and may be settled in cash or Stock, as determined by the Board.
Any such settlements, and any such crediting of dividend equivalents or
distribution equivalents or reinvestment in Stock, may be subject to such
conditions, restrictions and contingencies as the Board shall establish,
including the reinvestment of such credited amounts in Stock equivalents.
Unless otherwise determined by the Board, any such dividend equivalents or
distribution equivalents shall be paid or credited, as applicable, on the
dividend payment date to the Manager as though each RSU held by such
Manager were a share of outstanding Stock.
(v)
Other Stock-Based Awards
. The Board is authorized to grant Awards
to the Manager in the form of Other Stock-Based Awards, as deemed by the Board to
be consistent with the purposes of the Plan. Awards granted pursuant to this
paragraph may be granted with vesting, value and/or payment contingent upon the
attainment of one
or more performance goals. The Board shall determine the terms and conditions
of such Awards at the date of grant or thereafter. Without limiting the generality
of this paragraph, Other Stock-Based Awards may include grants of shares of Stock
that are not subject to any restrictions or a substantial risk of forfeiture.
8
7.
Termination of Management Agreement. Upon termination of the Management Agreement
either (i) by the Company for cause (as defined in the Management Agreement) or (ii) by the
Manager for any reason other than for cause (as defined in the Management Agreement) or other
than due to an adverse change in the Managers compensation thereunder, all unvested Awards then
held by the Manager and all accrued and unpaid dividends or dividend equivalents related thereto
shall be immediately cancelled and forfeited without consideration. Upon termination of the
Management Agreement for any reason other than as enumerated in the immediately preceding sentence,
any Award that was not previously vested will become fully vested and/or payable, and any
performance conditions imposed with respect to the Award will be deemed to be fully achieved;
provided, however, that for any Award subject to Section 409A of the Code, no payment may be made
to the Manager unless the termination of the Management Agreement also constitutes a separation
from service within the meaning of Section 409A of the Code.
8.
Change in Control. In the event of a Change in Control, any Award that was not
previously vested will become fully vested and/or payable, and any performance conditions imposed
with respect to the Award will be deemed to be fully achieved; provided, however, that for any
Award subject to Section 409A of the Code, no payment may be made to the Manager unless the
transaction constituting a Change in Control also constitutes, within the meaning of Section 409A
of the Code, a change in the ownership or effective control of the Company or a change in the
ownership of a substantial portion of the assets of the Company.
9.
General Provisions.
(a)
Nontransferability
. Awards granted to the Manager under the Plan shall not be
transferable by Manager and shall be exercisable only by the Manager.
(b)
No Right to Continued Service
. Nothing in the Plan or in any Award, any Award
Agreement or other agreement entered into pursuant hereto shall confer upon the Manager the right
to continue to provide services to the Company or any parent or subsidiary of the Company or to be
entitled to any remuneration or benefits not set forth in the Plan or such Award Agreement or other
agreement or to interfere with or limit in any way the right of the Company to terminate the
Management Agreement in accordance with its terms.
(c)
Taxes
. The Company or any parent or subsidiary of the Company is authorized to
withhold from any Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any other payment to the
Manager, amounts of withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Board may deem advisable to enable the
Company and the Manager to satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award.
9
(d) Effective Date; Amendment and Termination.
(i) The Plan shall take effect upon the Effective Date, subject to the
approval of the Companys stockholders.
(ii) The Board may at any time and from time to time terminate, amend, modify
or suspend the Plan in whole or in part; provided, however, that unless otherwise
determined by the Board, an amendment that requires stockholder approval in order
for the Plan to comply with any law, regulation or stock exchange requirement shall
not be effective unless approved by the requisite vote of stockholders. The Board
may at any time and from time to time amend any outstanding Award in whole or in
part. Notwithstanding the foregoing sentence of this clause (ii), no amendment or
modification to or suspension or termination of the Plan or amendment of any Award
shall affect adversely any of the rights of the Manager, without the Managers
consent, under any Award theretofore granted under the Plan.
(e)
Expiration of Plan
. Unless earlier terminated by the Board pursuant to the
provisions of the Plan, the Plan shall expire on the tenth anniversary of the Effective Date. No
Awards shall be granted under the Plan after such expiration date. The expiration of the Plan
shall not affect adversely any of the rights of the Manager, without the Managers consent, under
any Award theretofore granted.
(f)
No Rights to Awards; No Stockholder Rights
. The Manager shall have no claim to be
granted any Award under the Plan. Each Award may be subject to different terms and conditions, as
determined by the Board. Except as provided specifically herein, the Manager shall have no rights
as a stockholder with respect to any shares covered by an Award until the date of the issuance of a
stock certificate to the Manager for such shares.
(g)
Unfunded Status of Awards
. The Plan is intended to constitute an unfunded plan
for incentive and deferred compensation. With respect to any payments not yet made to the Manager
pursuant to an Award, nothing contained in the Plan or any Award shall give the Manager any rights
that are greater than those of a general creditor of the Company.
(h)
No Fractional Shares
. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Board shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
10
(i) Regulations and Other Approvals.
(i) The obligation of the Company to sell or deliver Stock with respect to any
Award granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed necessary
or appropriate by the Board.
(ii) Each Award is subject to the requirement that, if at any time the Board
determines, in its absolute discretion, that the listing, registration or
qualification of Stock issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Award or the issuance of Stock, no such Award
shall be granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Board.
(iii) In the event that the disposition of Stock acquired pursuant to the Plan
is not covered by a then-current registration statement under the Securities Act
and is not otherwise exempt from such registration, such Stock shall be restricted
against transfer to the extent required by the Securities Act or regulations
thereunder, and the Board may require the Manager receiving Stock pursuant to the
Plan, as a condition precedent to receipt of such Stock, to represent to the
Company in writing that the Stock acquired by the Manager is acquired for
investment only and not with a view to distribution.
(iv) The Board may require the Manager, as a condition precedent to receipt of
an Award or of shares of Stock, to enter into a stockholder agreement or lock-up
agreement in such form as the Board shall determine is necessary or desirable to
further the Companys interests.
(j)
Governing Law
. The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of Maryland without giving effect to the conflict of laws
principles thereof.
(k)
Section 409A
. It is intended that the payments and benefits under the Plan comply
with, or as applicable, constitute a short-term deferral or otherwise be exempt from, the
provisions of Section 409A of the Code. The Plan will be administered and interpreted in a manner
consistent with this intent, and any provision that would cause the Plan or any Award to fail to
satisfy Section 409A of the Code will have no force and effect until amended to comply therewith
(which amendment may be retroactive to the extent permitted by Section 409A of the Code).
11
EXHIBIT 10.9
STARWOOD PROPERTY TRUST, INC.
EQUITY PLAN
STARWOOD PROPERTY TRUST INC.
EQUITY PLAN
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1.
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Purpose; Types of Awards
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2.
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Definitions
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3.
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Administration
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4.
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Eligibility
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5.
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Stock Subject to the Plan
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6.
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Terms of Awards
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7.
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Termination of Service
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8.
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Change in Control
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9.
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General Provisions
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STARWOOD PROPERTY TRUST INC.
EQUITY PLAN
1.
Purpose; Types of Awards.
The purposes of the Starwood Property Trust Inc. Equity Plan (the Plan) are to afford an
incentive to the directors and officers, advisors and consultants of Starwood Property Trust Inc.
(the Company) who are in any case natural persons and providing services to the Company,
including without limitation individuals who are employees of the Manager or one of its Affiliates
who are providing services to the Company, to continue as directors, officers, advisors and
consultants, to increase their efforts on behalf of the Company and to promote the success of the
Companys business. The Plan provides for the grant of stock options, stock appreciation rights,
restricted stock, restricted stock units and other equity-based awards.
2.
Definitions.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) Affiliate means (i) any Person directly or indirectly controlling, controlled by, or
under common control with such other Person, (ii) any executive officer or general partner of such
other Person and (iii) any legal entity for which such Person acts as an executive officer or
general partner.
(b) Award means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock
Unit or Other Stock-Based Award granted under the Plan.
(c) Award Agreement means any written agreement, contract or other instrument or document
evidencing an Award.
(d) Board means the Board of Directors of the Company.
(e) Change of Control means a change in ownership or effective control of the Company, or a
change in the ownership of a substantial portion of the assets of the Company, in any case, within
the meaning of Section 409A of the Code; provided, however, that a transaction or series of
transactions effected with the Manager and/or any Affiliate of the Manager, through the acquisition
of Stock or other Company securities (regardless of the form of such transaction or series of
transactions), changes to the membership of the Board or otherwise, shall not constitute a Change
of Control for purposes of the Plan or any Award.
(f) Code means the Internal Revenue Code of 1986, as amended from time to time, and the
rules and regulations promulgated thereunder.
(g) Committee means the committee established by the Board to administer the Plan, the
composition of which shall at all times consist of non-employee directors within the meaning of
Rule 16b-3 under the Exchange Act.
(h) Company means Starwood Property Trust Inc., a Maryland corporation, or any successor
corporation.
(i) Effective Date means August 11, 2009, the date on which the Plan was adopted by the
Board, subject to obtaining the approval of the Companys stockholders.
(j) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time,
and the rules and regulations promulgated thereunder.
(k) Fair Market Value means, with respect to Stock or other property, the fair market value
of such Stock or other property determined by such methods or procedures as shall be established
from time to time by the Board. Unless otherwise determined by the Board in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the closing sales price per
share of Stock on the national securities exchange on which the Stock is principally traded, for
the last preceding date on which there was a sale of such Stock on such exchange; (ii) if the
shares of Stock are then traded in an over-the-counter market, the average of the closing bid and
asked prices for the shares of Stock in such over-the-counter market for the last preceding date on
which there was a sale of such Stock in such market; or (iii) if the shares of Stock are not then
listed on a national securities exchange or traded in an over-the-counter market, such value as the
Board, in its sole discretion, shall determine.
(l) Management Agreement means the Management Agreement, to be dated as of August 17, 2009,
by and between the Company and the Manager, as such may be amended from time to time.
(m) Manager means SPT Management, LLC, a Delaware limited liability company.
(n) Option means a right, granted to a Participant under Section 6(b)(i), to purchase shares
of Stock.
(o) Other Stock-Based Award means a right or other interest granted to a Participant that
may be denominated or payable in, valued in whole or in part by reference to, or otherwise based
on, or related to, Stock, including but not limited to unrestricted shares of Stock or dividend
equivalent rights.
(p) Participant means an eligible person who has been granted an Award under the Plan.
(q) Person means any natural person, corporation, partnership, association, limited
liability company, estate, trust, joint venture, any federal,
state or municipal government or any bureau, department or agency thereof or any other legal
entity and any fiduciary acting in such capacity on behalf of the foregoing.
2
(r) Plan means this Starwood Property Trust Inc. Equity Plan, as amended from time to time.
(s) Restricted Stock means an Award of shares of Stock to a Participant under Section
6(b)(iii) that may be subject to certain restrictions and to a risk of forfeiture.
(t) Restricted Stock Unit or RSU means a right granted to a Participant under Section
6(b)(iv) to receive Stock, cash or other property at the end of a specified period, which right may
be conditioned on the satisfaction of specified performance or other criteria.
(u) Securities Act means the Securities Act of 1933, as amended from time to time, and the
rules and regulations promulgated thereunder.
(v) Separation from Service shall have the meaning attributed to such term under Section
409A of the Code.
(w) Stock means shares of the common stock, par value $0.01 per share, of the Company.
(x) Stock Appreciation Right or SAR means the right granted to a Participant under Section
6(b)(ii) to be paid an amount measured by the appreciation in the Fair Market Value of Stock from
the date of grant to the date of exercise of the right.
3.
Administration.
The Plan shall be administered by the Board. Except with respect to the amendment,
modification, suspension or early termination of the Plan, the Board may appoint a Committee to
administer all or a portion of the Plan. To the extent that the Board so delegates its authority,
references herein to the Board shall be deemed references to the Committee. The Board may delegate
to one or more agents such administrative duties as it may deem advisable, and the Committee or any
other person to whom the Board has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Board or such Committee or person may have
under the Plan. No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted hereunder.
3
The Board shall have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to: (i) grant Awards;
(ii) determine the persons to whom and the time or times
at which Awards shall be granted; (iii) determine the type and number of Awards to be granted,
the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions
and performance criteria relating to any Award; (iv) determine whether, to what extent, and under
what circumstances an Award may be settled, cancelled, forfeited, exchanged, or surrendered; (v)
make adjustments in the terms and conditions of Awards; (vi) construe and interpret the Plan and
any Award; (vii) prescribe, amend and rescind rules and regulations relating to the Plan; (viii)
determine the terms and provisions of the Award Agreements (which need not be identical for each
Participant); and (ix) make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of the Board shall
be final and binding on all persons, including but not limited to the Company, any parent or
subsidiary of the Company, any Participant (or any person claiming any rights under the Plan from
or through any Participant) and any stockholder. Notwithstanding any provision of the Plan or any
Award Agreement to the contrary, except as provided in the second paragraph of Section 5, neither
the Board nor the Committee may take any action which would have the effect of reducing the
aggregate exercise, base or purchase price of any Award without obtaining the approval of the
Companys stockholders.
4.
Eligibility.
Awards may be granted, in the discretion of the Board, to individuals who are, as of the date
of grant, directors or officers, advisors or consultants of the Company, who in any case are
natural persons and providing services to the Company, including without limitation individuals who
are employees of the Manager or one of its Affiliates. In determining the persons to whom Awards
shall be granted and the type of any Award (including the number of shares to be covered by such
Award), the Board shall take into account such factors as the Board shall deem relevant in
connection with accomplishing the purposes of the Plan.
5.
Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Awards under the Plan shall be
equal to
3,112,500
, less any shares of common stock issued or subject to awards granted under the
Companys Manager Equity Plan, subject to adjustment as provided herein. During the term of the
Plan, no more than an aggregate 50,000 shares of Stock, subject to adjustment as provided herein,
may be made subject to Awards granted to the Companys chief financial officer and/or chief
compliance officer. Stock issued under the Plan may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any vested Award granted under the Plan is paid
or otherwise settled without the issuance of shares of Stock, or if shares of Stock are surrendered
to or withheld by the Company as payment of either the exercise price of an Award and/or
withholding taxes in respect of an Award, the shares of Stock that were subject to such Award shall
not again be available for Awards under the Plan. If any shares subject to an Award are forfeited,
cancelled, exchanged or surrendered or if an Award terminates or expires without a distribution of
shares to the Participant (other than as provided in the immediately preceding sentence), the
shares of Stock with respect to
such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender,
termination or expiration, again be available for Awards under the Plan. Upon the exercise of any
Award granted in tandem with any other Award, such related Award shall be cancelled to the extent
of the number of shares of Stock as to which the Award is exercised and, notwithstanding the
foregoing, such number of shares shall no longer be available for Awards under the Plan.
4
In the event that the Board shall determine that any dividend or other distribution (whether
in the form of cash, Stock, or other property), recapitalization, Stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of Participants under the
Plan, then the Board shall make equitable changes or adjustments to any or all of: (i) the number
and kind of shares of Stock or other property (including cash) that may thereafter be issued in
connection with Awards; (ii) the number and kind of shares of Stock or other property (including
cash) issued or issuable in respect of outstanding Awards; (iii) the exercise price, base price or
purchase price relating to any Award and (iv) the performance goals, if any, applicable to
outstanding Awards. In addition, the Board may determine that any such equitable adjustment may be
accomplished by making a payment to the Award holder, in the form of cash or other property
(including but not limited to shares of Stock).
6.
Terms of Awards.
(a)
General.
The term of each Award shall be for such period as may be determined by the
Board. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by
the Company upon the grant, vesting, maturation or exercise of an Award may be made in such forms
as the Board shall determine at the date of grant or thereafter, including, without limitation,
cash, Stock or other property, and may be made in a single payment or transfer, in installments or
on a deferred basis. The Board may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to such payments. In
addition to the foregoing, the Board may impose on any Award or the exercise thereof, at the date
of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Board shall determine.
(b)
Terms
of Specified Awards.
The Board is authorized to grant the Awards described in this
Section 6(b), under such terms and conditions as deemed by the Board to be consistent with the
purposes of the Plan. Such Awards may be granted with vesting, value and/or and payment contingent
upon attainment of one or more performance goals. Except as otherwise set forth herein or as may
be determined by the Board, each Award granted under the Plan shall be evidenced by an Award
Agreement containing such terms and conditions applicable to such Award as the Board shall
determine at the date of grant or thereafter.
(i)
Options.
The Board is authorized to grant Options to Participants on the
following terms and conditions:
5
(A)
Exercise
Price.
The exercise price per share of Stock
purchasable under an Option shall be determined by the Board, but in no
event shall the per share exercise price of any Option be less than 100%
of the Fair Market Value of a share of Stock on the date of grant of such
Option. The exercise price for Stock subject to an Option may be paid in
cash or by an exchange of Stock previously owned by the Participant,
through a broker cashless exercise procedure approved by the Board (to
the extent permitted by law) or a combination of the above, in any case in
an amount having a combined value equal to such exercise price; provided
that the Board may require that any Stock exchanged by the Participant
have been owned by the Participant for at least six months as of the date
of exercise. An Award Agreement may provide that a Participant may pay
all or a portion of the aggregate exercise price by having shares of Stock
with a Fair Market Value on the date of exercise equal to the aggregate
exercise price withheld by the Company.
(B)
Term and Exercisability of Options.
The date on which the Board
adopts a resolution expressly granting an Option shall be considered the
day on which such Option is granted. Options shall be exercisable over
the exercise period (which shall not exceed ten years from the date of
grant), at such times and upon such conditions as the Board may determine,
as reflected in the Award Agreement; provided, that the Board shall have
the authority to accelerate the exercisability of any outstanding Option
at such time and under such circumstances as it, in its sole discretion,
deems appropriate. An Option may be exercised to the extent of any or all
full shares of Stock as to which the Option has become exercisable, by
giving written notice of such exercise to the Board or its designated
agent.
(C)
Termination of Service.
Subject to Section 7, an Option may not
be exercised unless (1) the Participant is then providing services to the
Company and (2) the Participant has continuously maintained such
relationship since the date of grant of the Option; provided, that the
Award Agreement may contain provisions extending the exercisability of
Options, in the event of specified terminations of service, to a date not
later than the expiration date of such Option.
(D)
Other Provisions.
Options may be subject to such other
conditions including, but not limited to, restrictions on transferability
of the shares acquired upon exercise of such Options, as the Board may
prescribe in its discretion or as may be required by applicable law.
6
(ii)
Stock Appreciation Rights.
The Board is authorized to grant SARs to
Participants on the following terms and conditions:
(A)
In General.
Unless the Board determines otherwise, an SAR
granted in tandem with an Option may be granted at the time of grant of
the related Option or at any time thereafter. An SAR granted in tandem
with an Option shall be exercisable only to the extent the underlying
Option is exercisable. Payment of an SAR may made in cash, Stock, or
property as specified in the Award or determined by the Board.
(B)
Right Conferred.
An SAR shall confer on the Participant a right
to receive an amount with respect to each share subject thereto, upon
exercise thereof, equal to the excess of (1) the Fair Market Value of one
share of Stock on the date of exercise over (2) the base price of the SAR
(which in the case of an SAR granted in tandem with an Option shall be
equal to the exercise price of the underlying Option, and which in the
case of any other SAR shall be such price as the Board may determine,
provided it is no less than 100% of the Fair Market Value of a share of
Stock on the date of grant of such SAR).
(C)
Term and Exercisability of SARs.
The date on which the Board
adopts a resolution expressly granting an SAR shall be considered the day
on which such SAR is granted. SARs shall be exercisable over the exercise
period (which shall not exceed the lesser of ten years from the date of
grant or, in the case of a tandem SAR, the expiration of its related
Award), at such times and upon such conditions as the Board may determine,
as reflected in the Award Agreement; provided, that the Board shall have
the authority to accelerate the exercisability of any outstanding SAR at
such time and under such circumstances as it, in its sole discretion,
deems appropriate. An SAR may be exercised to the extent of any or all
full shares of Stock as to which the SAR (or, in the case of a tandem SAR,
its related Award) has become exercisable, by giving written notice of
such exercise to the Board or its designated agent.
(D)
Termination of Service.
Subject to Section 7, an SAR may not be
exercised unless (1) the Participant is then providing services to the
Company and (2) the Participant has continuously maintained such
relationship since the date of grant of the SAR; provided, that the Award
Agreement may contain provisions extending the exercisability of SARs, in
the event of specified terminations of service, to a date not later than
the expiration date of such SARs (or, in the case of a tandem SAR, its
related Award).
7
(E)
Other Provisions.
SARs may be subject to such other conditions
including, but not limited to, restrictions on transferability of the
shares acquired upon exercise of such SARs, as the Board may prescribe in
its discretion or as may be required by applicable law.
(iii)
Restricted Stock.
The Board is authorized to grant Restricted Stock to
Participants on the following terms and conditions:
(A)
Issuance and Restrictions.
Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as
the Board may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Board may
determine. The Board may place restrictions on Restricted Stock that
shall lapse, in whole or in part, only upon the attainment of one or more
performance goals. Unless otherwise determined by the Board, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Stock and the right to receive dividends thereon.
(B)
Forfeiture.
Subject to Section 8, upon termination of service to
the Company during the applicable restriction period, Restricted Stock and
any accrued but unpaid dividends that are then subject to restrictions
shall be forfeited; provided, that the Board may provide, by rule or
regulation or in any Award Agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Board may in other cases waive in
whole or in part the forfeiture of Restricted Stock.
(C)
Certificates for Stock.
Restricted Stock granted under the Plan
may be evidenced in such manner as the Board shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Stock, and the Company shall retain physical possession of the
certificate.
(D)
Dividends/Distributions.
Unless otherwise determined by the
Board, dividends paid on Restricted Stock shall be paid at the dividend or
distribution payment date, provided that such payments may be deferred to
such date as determined by the Board, and in any event shall be payable in
cash or in shares of Stock having a Fair Market Value equal to the amount
of such
dividends and distributions. Unless otherwise determined by the
Board, Stock distributed in connection with a stock split or stock
dividend, and other property distributed as a dividend or distribution,
shall be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock with respect to which such Stock or other
property has been distributed.
8
(iv)
Restricted Stock Units.
The Board is authorized to grant RSUs to
Participants, subject to the following terms and conditions:
(A)
Award and Restrictions.
Delivery of Stock, cash or other
property, as determined by the Board, will occur upon expiration of the
period specified for RSUs by the Board during which forfeiture conditions
apply, or such later date as the Board shall determine. The Board may
place restrictions on RSUs that shall lapse, in whole or in part, only
upon the attainment of one or more performance goals.
(B)
Forfeiture.
Subject to Section 8, upon termination of service to
the Company prior to the vesting of RSUs, or upon failure to satisfy any
other conditions precedent to the delivery of Stock or cash to which such
RSUs relate, all RSUs and any accrued but unpaid dividend equivalents that
are then subject to deferral or restriction shall be forfeited; provided,
that the Board may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to RSUs will be waived in whole or in part
in the event of termination resulting from specified causes, and the Board
may in other cases waive in whole or in part the forfeiture of RSUs.
(C)
Dividend/Distribution Equivalents.
The Board is authorized to
grant to Participants the right to receive dividend equivalent payments
and/or distribution equivalent payments for the period prior to settlement
of the RSU. Dividend equivalents or distribution equivalents may be paid
currently or credited to an account for the Participant, and may be
settled in cash or Stock, as determined by the Board. Any such
settlements, and any such crediting of dividend equivalents or
distribution equivalents or reinvestment in Stock, may be subject to such
conditions, restrictions and contingencies as the Board shall establish,
including the reinvestment of such credited amounts in Stock equivalents.
Unless otherwise determined by the Board, any such dividend equivalents or
distribution equivalents shall be paid or credited, as applicable, on the
dividend payment date to the Participant as though each RSU held by such
Participant were a share of outstanding Stock.
9
(v)
Other Stock-Based Awards
. The Board is authorized to grant Awards to
Participants in the form of Other Stock-Based Awards, as deemed by the Board to be
consistent with the purposes of the Plan. Awards granted pursuant to this
paragraph may be granted with vesting, value and/or payment contingent upon the
attainment of one or more performance goals. The Board shall determine the terms
and conditions of such Awards at the date of grant or thereafter. Without limiting
the generality of this paragraph, Other Stock-Based Awards may include grants of
shares of Stock that are not subject to any restrictions or a substantial risk of
forfeiture.
7.
Termination of Service. Unless otherwise determined by the Board, all unvested Awards then
held by a Participant who ceases to provide services to the Company, whether through a Separation
from Service or because of reassignment by such Participants employer, shall be immediately
cancelled and forfeited without consideration. The terms of Award Agreements shall set forth the
terms under which an Option or Stock Appreciation Right may remain exercisable following such a
termination of service with the Company
.
8.
Change in Control. In the event of a Change in Control, any Award that was not previously
vested will become fully vested and/or payable, and any performance conditions imposed with respect
to the Award will be deemed to be fully achieved; provided, however, that for any Award subject to
Section 409A of the Code, no payment may be made to the holder of such Award unless the transaction
constituting a Change in Control also constitutes, within the meaning of Section 409A of the Code,
a change in the ownership or effective control of the Company or a change in the ownership of a
substantial portion of the assets of the Company
.
9.
General Provisions
.
(a)
Nontransferability
. Unless otherwise provided in an Award Agreement, Awards shall not be
transferable by a Participant except by will or the laws of descent and distribution and shall be
exercisable during the lifetime of a Participant only by such Participant or his guardian or legal
representative.
(b)
No Right to Continued Service, etc
. Nothing in the Plan or in any Award, any Award
Agreement or other agreement entered into pursuant hereto shall confer upon any Participant the
right to continue as a director of, or continue to provide services to, the Company or any parent,
subsidiary or Affiliate of the Company or the Manager or to be entitled to any remuneration or
benefits not set forth in the Plan or such Award Agreement or other agreement or to interfere with
or limit in any way the right of the Company to terminate such Participants service.
10
(c)
Taxes
. The Company or any parent or subsidiary of the Company is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan, including from a
distribution of Stock, or any other payment to a Participant, amounts of withholding and other
taxes due in connection with any
transaction involving an Award, and to take such other action as the Board may deem advisable
to enable the Company and Participants to satisfy obligations for the payment of withholding taxes
and other tax obligations relating to any Award. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect thereof in
satisfaction of a Participants tax obligations. The Board may provide in the Award Agreement that
in the event that a Participant is required to pay any amount to be withheld in connection with the
issuance of shares of Stock in settlement or exercise of an Award, the Participant may satisfy such
obligation (in whole or in part) by electing to have the Company withhold a portion of the shares
of Stock to be received upon settlement or exercise of such Award that is equal to the minimum
amount required to be withheld.
(d)
Effective Date
; Amendment and Termination.
(i) The Plan shall take effect upon the Effective Date, subject to the
approval of the Companys stockholders.
(ii) The Board may at any time and from time to time terminate, amend, modify
or suspend the Plan in whole or in part; provided, however, that unless otherwise
determined by the Board, an amendment that requires stockholder approval in order
for the Plan to comply with any law, regulation or stock exchange requirement shall
not be effective unless approved by the requisite vote of stockholders. The Board
may at any time and from time to time amend any outstanding Award in whole or in
part. Notwithstanding the foregoing sentence of this clause (ii), no amendment or
modification to or suspension or termination of the Plan or amendment of any Award
shall affect adversely any of the rights of any Participant, without such
Participants consent, under any Award theretofore granted under the Plan.
(e)
Expiration of Plan
. Unless earlier terminated by the Board pursuant to the provisions of
the Plan, the Plan shall expire on the tenth anniversary of the Effective Date. No Awards shall be
granted under the Plan after such expiration date. The expiration of the Plan shall not affect
adversely any of the rights of any Participant, without such Participants consent, under any Award
theretofore granted.
(f)
Deferrals
. The Board shall have the authority to establish such procedures and programs
that it deems appropriate to provide Participants with the ability to defer receipt of cash, Stock
or other property payable with respect to Awards granted under the Plan.
(g)
No Rights to Awards
; No Stockholder Rights. No Participant shall have any claim to be
granted any Award under the Plan. There is no obligation for uniformity of treatment among
Participants. Except as provided specifically herein, a Participant or a transferee of an Award
shall have no rights as a stockholder with respect to any shares covered by the Award until the
date of the issuance of a stock certificate to him for such shares.
11
(h)
Unfunded Status of Awards
. The Plan is intended to constitute an unfunded plan for
incentive and deferred compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant
any rights that are greater than those of a general creditor of the Company.
(i)
No Fractional Shares
. No fractional shares of Stock shall be issued or delivered pursuant
to the Plan or any Award. The Board shall determine whether cash, other Awards or other property
shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Regulations and Other Approvals.
(i) The obligation of the Company to sell or deliver Stock with respect to any
Award granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed necessary
or appropriate by the Board.
(ii) Each Award is subject to the requirement that, if at any time the Board
determines, in its absolute discretion, that the listing, registration or
qualification of Stock issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Award or the issuance of Stock, no such Award
shall be granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Board.
(iii) In the event that the disposition of Stock acquired pursuant to the Plan
is not covered by a then-current registration statement under the Securities Act
and is not otherwise exempt from such registration, such Stock shall be restricted
against transfer to the extent required by the Securities Act or regulations
thereunder, and the Board may require a Participant receiving Stock pursuant to the
Plan, as a condition precedent to receipt of such Stock, to represent to the
Company in writing that the Stock acquired by such Participant is acquired for
investment only and not with a view to distribution.
(iv) The Board may require a Participant receiving Stock pursuant to the Plan,
as a condition precedent to receipt of such Stock, to enter into a stockholder
agreement or lock-up agreement in such form as the Board shall determine is
necessary or desirable to further the Companys interests.
12
(k)
Registration on Form S-8
. The Company shall file with the Securities and Exchange
Commission a registration statement on Form S-8 with respect to the securities to be offered to
Participants under the Plan and shall during the term of the Plan keep such registration statement
effective.
(l)
Governing Law
. The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of Maryland without giving effect to the conflict of laws principles
thereof.
(m)
Section 409A
. It is intended that the payments and benefits under the Plan comply with,
or as applicable, constitute a short-term deferral or otherwise be exempt from, the provisions of
Section 409A of the Code. The Plan will be administered and interpreted in a manner consistent
with this intent, and any provision that would cause the Plan or any Award to fail to satisfy
Section 409A of the Code will have no force and effect until amended to comply therewith (which
amendment may be retroactive to the extent permitted by Section 409A of the Code). To the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the
Code, amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Plan during the six-month period immediately following Participants termination
of employment shall instead be paid on the first business day after the date that is six months
following Participants termination of employment (or upon Participants s death, if earlier).
13
EXHIBIT 10.11
STARWOOD PROPERTY TRUST, INC.
(a Maryland corporation)
40,500,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: August 11, 2009
STARWOOD PROPERTY TRUST, INC.
(a Maryland corporation)
40,500,000 Shares of Common Stock
(Par Value $0.01 Per Share)
PURCHASE AGREEMENT
August 11, 2009
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
Deutsche Bank Securities Inc.
60 Wall Street
New York, New York 10005
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
as Representatives of the several Underwriters
Ladies and Gentlemen:
Starwood Property Trust, Inc., a Maryland corporation (the Company) and SPT Management, LLC,
a Delaware limited liability company (the Manager) each confirms its agreement with Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Deutsche Bank Securities Inc.
(Deutsche Bank) and Citigroup Global Markets Inc. (Citigroup) and each of the other
Underwriters named in Schedule A hereto (collectively, the Underwriters, which term shall also
include any underwriter substituted as hereinafter provided in Section 11 hereof), for whom Merrill
Lynch, Deutsche Bank and Citigroup are acting as representatives (in such capacity, the
Representatives), with respect to the issue and sale by the Company and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of shares of common
stock, par value $0.01 per share, of the Company (Common Stock) set forth in said Schedule A,
representing 40,500,000 shares of Common Stock in the aggregate, and with respect to the grant by
the Company to the Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 6,075,000 additional shares of Common Stock to
cover overallotments, if any. The aforesaid 40,500,000 shares of Common Stock (the Initial
Securities) to be purchased by the Underwriters and all or any part of the 6,075,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the Option Securities) are
hereinafter called, collectively, the Securities.
The Company understands that the Underwriters propose to make a public offering of the
Securities as soon as the Representatives deem advisable after this Agreement has been executed and
delivered.
The Company and the Underwriters agree that up to 405,000 shares of the Initial Securities to
be purchased by the Underwriters (the Reserved Securities) shall be reserved for sale by the
Underwriters to certain eligible employees and persons having business relationships with the
Company (the Invitees), as part of the distribution of the Securities by the Underwriters,
subject to the terms of this Agreement, the applicable rules, regulations and interpretations of
the Financial Industry Regulatory Authority (FINRA) and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally confirmed for purchase by
Invitees by 9:00 a.m. Eastern Time on the
first business day after the date of this Agreement, such Reserved Securities may be offered
to the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the Commission) a
registration statement on Form S-11 (No. 333-159754), including the related preliminary prospectus
or prospectuses, covering the registration of the Securities under the Securities Act of 1933, as
amended (the 1933 Act). Promptly after execution and delivery of this Agreement, the Company
will prepare and file a prospectus in accordance with the provisions of Rule 430A (Rule 430A) of
the rules and regulations of the Commission under the 1933 Act (the 1933 Act Regulations) and
paragraph (b) of Rule 424 (Rule 424(b)) of the 1933 Act Regulations. The information included in
such prospectus that was omitted from such registration statement at the time it became effective
but that is deemed to be part of such registration statement at the time it became effective
pursuant to paragraph (b) of Rule 430A is referred to as Rule 430A Information. Each prospectus
used before such registration statement became effective, and any prospectus that omitted the Rule
430A Information, that was used after such effectiveness and prior to the execution and delivery of
this Agreement, is herein called a preliminary prospectus. Such registration statement,
including the amendments thereto, the exhibits and any schedules thereto, at the time it became
effective, and including the Rule 430A Information, is herein called the Registration Statement.
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the Rule 462(b) Registration Statement, and after such filing the term
Registration Statement shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to the Underwriters for use in connection with the offering
of the Securities is herein called the Prospectus. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Interactive Data Electronic Applications System (IDEA).
SECTION 1. Representations and Warranties
.
(a)
Representations and Warranties by the Company.
The Company represents and warrants to
each Underwriter as of the date hereof, the Applicable Time referred to in Section 1(a)(i) hereof,
the Closing Time referred to in Section 2(c) hereof, and each Date of Delivery (if any) referred to
in Section 2(b) hereof, and agrees with each Underwriter, as follows:
(i)
Compliance with Registration Requirements
. Each of the Registration
Statement and any Rule 462(b) Registration Statement and any post-effective amendment
thereto has become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement, any Rule 462(b) Registration Statement or any
post-effective amendment thereto has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or, to the knowledge of the Company, are
contemplated by the Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendments thereto became effective and at the Closing Time
(and, if any Option Securities are purchased, at the applicable Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto (including any prospectus wrapper), at the time the
Prospectus or any such amendment or supplement was issued or at the Closing Time (or, if any
Option Securities are purchased, at the applicable Date of Delivery), included or will
include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading.
2
As of the Applicable Time (as defined below), neither (x) the Issuer General Use Free
Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time and the
Statutory Prospectus (as defined below) as of the Applicable Time and the information
included on Schedule B hereto all considered together (collectively, the General Disclosure
Package), nor (y) any individual Issuer Limited Use Free Writing Prospectus, when
considered together with the General Disclosure Package, included any untrue statement of a
material fact or omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not
misleading.
As used in this subsection and elsewhere in this Agreement:
Applicable Time means 7:00 A.M. (Eastern time) on August 12, 2009 or such other time
as agreed by the Company and the Representatives.
Issuer Free Writing Prospectus means any issuer free writing prospectus, as defined
in Rule 433 of the 1933 Act Regulations (Rule 433), relating to the Securities that (i) is
required to be filed with the Commission by the Company, (ii) is a road show that is a
written communication within the meaning of Rule 433(d)(8)(i) whether or not required to be
filed with the Commission or (iii) is exempt from filing pursuant to Rule 433(d)(5)(i)
because it contains a description of the Securities or of the offering that does not reflect
the final terms, in each case in the form filed or required to be filed with the Commission
or, if not required to be filed in the form required to be retained in the Companys records
pursuant to Rule 433(g).
Issuer General Use Free Writing Prospectus means any Issuer Free Writing Prospectus
that is intended for general distribution to prospective investors (other than a Bona Fide
Electronic Road Show (as defined below)), as evidenced by its being specified in Schedule E
hereto.
Issuer Limited Use Free Writing Prospectus means any Issuer Free Writing Prospectus
that is not an Issuer General Use Free Writing Prospectus.
Statutory Prospectus as of any time means the prospectus relating to the Securities
that is included in the Registration Statement immediately prior to that time, including any
document incorporated by reference therein.
The Company has made available a bona fide electronic road show, as defined in Rule
433, in compliance with Rule 433(d)(8)(ii) (the Bona Fide Electronic Road Show) such that
no filing of any road show (as defined in Rule 433(h)) is required in connection with the
offering of the Securities.
Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times
through the completion of the public offer and sale of the Securities or until any earlier
date that the issuer notified or notifies the Representatives as described in Section 3(e),
did not, does not and will not include any information that conflicted, conflicts or will
conflict with the information contained in the Registration Statement or the Prospectus, and
any preliminary or other prospectus deemed to be a part thereof that has not been superseded
or modified.
The representations and warranties in this subsection shall not apply to statements in
or omissions from the Registration Statement, the Prospectus or any Issuer Free Writing
Prospectus made in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives expressly for use therein.
3
Each preliminary prospectus delivered to the Underwriters for use in connection with
the sale of the Securities complied when so filed in all material respects with the 1933 Act
Regulations and each such preliminary prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to IDEA, except to the extent
permitted by Regulation S-T.
At the time of filing the Registration Statement, any 462(b) Registration Statement and
any post-effective amendments thereto and at the date hereof, the Company was not and is not
an ineligible issuer, as defined in Rule 405 of the 1933 Act Regulations.
(ii)
Independent Accountants
. The accountants who certified the financial
statements and supporting schedules included in the Registration Statement are independent
public accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii)
Financial Statements
. The financial statements included in the
Registration Statement, the General Disclosure Package and the Prospectus, together with
the related schedules and notes, are accurate in all material respects and present fairly
the financial position of the Company and its consolidated subsidiaries at the dates
indicated; said financial statements have been prepared in conformity with generally
accepted accounting principles (GAAP) applied on a consistent basis. The supporting
schedules, if any, present fairly in accordance with GAAP the information required to be
stated therein. The selected financial and statistical data included in the Registration
Statement, the General Disclosure Package and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the financial
statements included therein. No other financial statements are required to be set forth in
the Registration Statement, the General Disclosure Package or the Prospectus under the 1933
Act and the 1933 Act Regulations.
(iv)
No Material Adverse Change in Business
. Since the respective dates as of
which information is given in the Registration Statement, the General Disclosure Package or
the Prospectus, except as otherwise stated in the Registration Statement, the General
Disclosure Package and the Prospectus, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs, business
prospects, management, assets or properties of the Company and its Subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business (a Material
Adverse Effect), (B) there have been no transactions entered into by the Company or any of
its subsidiaries, other than those in the ordinary course of business, which are material
with respect to the Company and its subsidiaries considered as one enterprise, (C) there
has been no obligation, direct or contingent (including off-balance sheet obligations),
which is material to the Company and or any of its subsidiaries, incurred by the Company or
any of its subsidiaries, except obligations incurred in the ordinary course of business,
and (D) there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.
(v)
Good Standing of the Company
. The Company has been duly organized and is
validly existing under and by virtue of the laws of the State of Maryland and is in good
standing with the State Department of Assessments and Taxation of Maryland and has
corporate power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement, the General Disclosure Package and the
Prospectus and to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material Adverse
Effect. Complete and correct copies of the charter and of the bylaws of the Company and
all amendments thereto have been delivered to the Representatives
and, except as set forth in the exhibits to the Registration Statement, no changes
therein will be made subsequent to the date hereof and prior to the Closing Time or, if
applicable, each Date of Delivery.
4
(vi)
Good Standing of Subsidiaries
. The only subsidiaries (as such term is
defined in Rule 1-02 of Regulation S-X) of the Company are SPT Real Estate Sub I, LLC and
SPT TALF Sub I, LLC (each, a Subsidiary and, collectively, the Subsidiaries). Each
Subsidiary has been duly organized and is validly existing as a corporation, partnership or
limited liability company in good standing under the laws of the jurisdiction of its
incorporation, formation or organization, has such entity power and authority to own, lease
and operate its properties and to conduct its business as described in the Registration
Statement, the General Disclosure Package and the Prospectus and is duly qualified as a
foreign corporation, partnership or limited liability company to transact business and is
in good standing in each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement, the General Disclosure
Package and the Prospectus all of the issued and outstanding capital stock or other equity
interests of each such Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through Subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity;
none of the outstanding shares of capital stock or other equity interest of any Subsidiary
was issued in violation of the preemptive or similar rights of any securityholder of such
Subsidiary. Except for the equity interests in the Subsidiaries, the Company does not own,
directly or indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity.
(vii)
Capitalization
. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Registration Statement, the General Disclosure Package
and the Prospectus in the column entitled Actual under the caption Capitalization
(except for subsequent issuances, if any, pursuant to this Agreement or pursuant to
separate offerings, reservations, agreements or employee benefit plans referred to in the
Registration Statement, the General Disclosure Package and the Prospectus). The shares of
issued and outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.
(viii)
Authorization of Agreement
. This Agreement has been duly authorized,
executed and delivered by the Company.
(ix)
Authorization and Description of Securities
. The Securities have been
duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid and non-assessable,
free and clear of any pledge, lien, encumbrance, security interest or other claim, and will
be registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the 1934 Act); the Common Stock conforms to all statements relating thereto contained in
the Registration Statement, the General Disclosure Package and the Prospectus and such
description conforms to the rights set forth in the instruments defining the same; the
certificates for the Securities, if any, are in due and proper form; no holder of the
Securities will be subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to any statutory or contractual preemptive
rights, resale rights, rights of first refusal or other similar rights of any
securityholder of the Company.
5
(x)
Absence of Defaults and Conflicts
. Neither the Company nor any of its
Subsidiaries is in violation of its charter, partnership agreement, limited liability
company agreement, by-laws or other organizational documents or in default in the
performance or observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of its Subsidiaries is a party or
by which it or any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (collectively, Agreements and Instruments) except
for such defaults that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement, the General Disclosure Package and
the Prospectus (including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described therein under the caption Use of
Proceeds) and compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter, partnership agreement, limited liability
company agreement, by-laws or other organizational documents of the Company or any
Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their assets, properties or
operations. As used herein, a Repayment Event means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any person acting
on such holders behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any Subsidiary.
(xi)
Absence of Proceedings
. There is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting
the Company or any Subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which could reasonably be expected to
result in a Material Adverse Effect, or which might materially and adversely affect the
properties or assets thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder; the aggregate of
all pending legal or governmental proceedings to which the Company or any Subsidiary is a
party or of which any of their respective property or assets is the subject which are not
described in the Registration Statement, the General Disclosure Package and the Prospectus,
including ordinary routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xii)
Accuracy of Descriptions
. The descriptions in the Registration
Statement, the General Disclosure Package and the Prospectus, if any, of affiliate
transactions, contracts required to be described therein and other legal documents are true
and correct in all material respects, and there are no affiliate transactions, contracts or
other documents of a character required to be described in the Registration Statement, the
General Disclosure Package and the Prospectus, if any, or to be filed as exhibits to the
Registration Statement which are not described or filed as required. All agreements between
the Company and any other party expressly referenced in the Registration Statement, the
General Disclosure Package and the Prospectus are legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective terms,
except to the extent that enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors rights generally and by general equitable principles.
6
(xiii)
Possession of Intellectual Property
. The Company and each of its
Subsidiaries owns or possesses, adequate patents, patent rights, licenses, inventions,
copyrights, software and design licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual property
(collectively, Intellectual Property) necessary to conduct its business as described in
the Registration Statement, the General Disclosure Package and the Prospectus, and neither
the Company nor any of its Subsidiaries has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect to any
Intellectual Property or of any facts or circumstances which would render any Intellectual
Property invalid or inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
(xiv)
Absence of Further Requirements
. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance by the
Company of its obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions contemplated by this
Agreement except (i) such as have been already obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws and (ii) such as have been
obtained under the laws and regulations of jurisdictions outside the United States in which
the Reserved Securities are offered.
(xv)
Absence of Manipulation
. Neither the Company nor any affiliate of the
Company has taken, nor will the Company or any affiliate of the Company take, directly or
indirectly, any action which is designed to or which has constituted or which would be
expected to cause or result in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities.
(xvi)
Possession of Licenses and Permits
. The Company and its Subsidiaries
possess such permits, licenses, approvals, consents and other authorizations (collectively,
Governmental Licenses) issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct their business now operated by them,
except where the failure so to possess would not, singly or in the aggregate, result in a
Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms
and conditions of all such Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, result in a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in full force
and effect would not, singly or in the aggregate, result in a Material Adverse Effect; and
neither the Company nor any of its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a Material Adverse Effect.
(xvii)
Title to Property
. The Company and its Subsidiaries have good and
marketable title to all real property owned by the Company and its Subsidiaries and good
title to all other properties owned by them, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances of any kind except
such as (a) are described in the Registration Statement, the General Disclosure Package and
the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use
7
made and proposed to be made of such property by the Company or any of its
Subsidiaries; and all of the leases and subleases to which the Company or any of the
Subsidiaries is a party and are material to the business of the Company and its
Subsidiaries, considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Registration Statement, the General
Disclosure Package and the Prospectus, are in full force and effect, and neither the
Company nor any Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the
leases or subleases mentioned above, or affecting or questioning the rights of the Company
or such Subsidiary to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xix)
Investment Company Act
. The Company is not and, solely after giving
effect to the offering and sale of the Securities and the application of the proceeds
thereof as described in the Registration Statement, the General Disclosure Package and the
Prospectus will not be subject to registration and regulation as an investment company as
such term is defined in the Investment Company Act of 1940, as amended (the 1940 Act).
(xx)
Environmental Laws
. Except as described in the Registration Statement and
except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A)
neither the Company nor any of its Subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without limitation,
laws and regulations relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum
products, asbestos-containing materials or mold (collectively, Hazardous Materials) or to
the manufacture, processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, Environmental Laws), (B) the Company and
its Subsidiaries have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their requirements, (C) there
are no pending or threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or any of its Subsidiaries
and (D) there are no events or circumstances that would reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the Company or any of its
Subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxi)
Registration Rights
. There are no persons with registration rights or
other similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act other than as described
in the Registration Statement, the General Disclosure Package and the Prospectus.
(xxii)
Accounting Controls and Disclosure Controls
. The Company maintains a
system of internal accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with managements general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (C) access to assets is
permitted only in accordance with managements general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. Except as
described in the Registration Statement, the General Disclosure Package and the Prospectus,
since the date of the Companys formation, there has been (1) no material weakness in the
Companys internal control
over financial reporting (whether or not remediated) and (2) there has been no change
in the Companys internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, the Companys internal control over financial
reporting.
8
(xxiii)
Compliance with the Sarbanes-Oxley Act
. The Company has taken all
necessary actions to ensure that, upon the effectiveness of the Registration Statement, it
will be in compliance in all material respects with all provisions of the Sarbanes-Oxley Act
of 2002 and all rules and regulations promulgated thereunder and implementing the provisions
thereof (the Sarbanes-Oxley Act) which the Company is required to comply with as of the
effectiveness of the Registration Statement.
(xxiv)
Payment of Taxes
. All United States federal income tax consolidated
returns of the Company required by law to be filed have been timely filed, if any such
returns were required to be filed, and all taxes shown by such returns or otherwise
assessed, which are due and payable, have been paid, except assessments against which
appeals have been or will be promptly taken and as to which adequate reserves have been
provided. The Company has timely filed all other consolidated tax returns that are required
to have been filed by them pursuant to applicable foreign, state, local or other law except
insofar as the failure to file such returns would not result in a Material Adverse Effect,
and has paid all taxes due pursuant to such returns or pursuant to any assessment received
by the Company or its Subsidiaries, except for such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company in respect of any income and corporation tax liability
for any years not finally determined are adequate to meet any assessments or re-assessments
for additional income tax for any years not finally determined, except to the extent of any
inadequacy that would not result in a Material Adverse Effect.
(xxv)
Insurance
. The Company carries or is entitled to the benefits of
insurance, with financially sound and reputable insurers, in such amounts and covering the
Company and its Subsidiaries against such risks as is generally maintained by companies of
established repute engaged in the same or similar business, and all such insurance is in
full force and effect. The Company has no reason to believe that it will not be able (A) to
renew its existing insurance coverage as and when such policies expire or (B) to obtain
comparable coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material Adverse
Change.
(xxvi)
Statistical and Market-Related Data
. Any statistical and market-related
data included in the Registration Statement, the General Disclosure Package and the
Prospectus are based on or derived from sources that the Company believes to be reliable and
accurate.
(xxvii)
Foreign Corrupt Practices Act
. Neither the Company nor, to the
knowledge of the Company, any director or officer of the Company, any officer of the Manager
or any employee of Starwood Capital Group Global, L.P. (Starwood L.P.) or one of its
subsidiaries (including without limitation, the Manager) (collectively, Starwood Capital)
acting on behalf of the Company or any of its Subsidiaries is aware of or has taken any
action, directly or indirectly, that would result in a violation by any of such persons of
the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (the FCPA), including, without limitation, making use of the mails or any means
or instrumentality of interstate commerce corruptly in furtherance of an offer, payment,
promise to pay or authorization of the payment of any money, or other property, gift,
promise to give, or authorization of the giving of anything of value to any foreign
official (as such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the FCPA and the
Company and, to the knowledge of the Company, Starwood Capital, acting on behalf of the
Company or any of its Subsidiaries, intend to conduct their business in compliance with the
FCPA and have instituted and maintain policies and procedures designed to ensure, and
which are reasonably expected to continue to ensure, continued compliance therewith.
9
(xxviii)
Money Laundering Laws
. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with applicable
financial recordkeeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the
rules and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency (collectively, the
Money Laundering Laws) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company or any of its
Subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge
of the Company, threatened.
(xxix)
OFAC
. Neither the Company nor, to the knowledge of the Company, any
director or officer of the Company, any officer of the Manager, or any employee of Starwood
Capital, acting on behalf of the Company or any of its Subsidiaries, is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (OFAC); and the Company will not directly or indirectly use the proceeds of the
offering, or lend, contribute or otherwise make available such proceeds to any Subsidiary,
joint venture partner or other person or entity, for the purpose of financing the activities
of any person currently subject to any U.S. sanctions administered by OFAC.
(xxx)
Real Estate Investment Trust Status
. Upon the sale of the Securities,
the Company will be organized in conformity with the requirements for qualification and
taxation as a real estate investment trust (a REIT) under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the Code). The Company intends to make an
election to be taxed as a REIT under the Code beginning with the year ending December 31,
2009. The proposed method of operation of the Company as described in the Registration
Statement, the General Disclosure Package and the Prospectus will enable the Company to meet
the requirements for qualification and taxation as a REIT under the Code, and no actions
have been taken (or not taken which are required to be taken) which would cause such
qualification to be lost. The Company intends to operate in a manner which would permit it
to qualify as a REIT under the Code. The Company has no intention of changing its proposed
method of operations or engaging in activities which would cause it to fail to qualify as a
REIT.
(xxxi)
Management Agreement
. The management agreement (the Management
Agreement), to be entered into between the Company and the Manager, has been duly
authorized by the Company, and at the Closing Time will be duly executed and delivered by
the Company and will constitute a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except to the extent that enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors rights generally and by general equitable principles.
(xxxii)
Co-Investment and Allocation Agreement
. The co-investment and
allocation agreement (the Co-Investment Agreement), to be entered into among the Company,
the Manager and Starwood L.P. has been duly authorized by the Company, and at the Closing
Time will be duly executed and delivered by the Company and will constitute a valid and
binding agreement of the Company enforceable against the Company in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors rights generally and by
general equitable principles.
(xxxiii)
Certain Relationships
. No relationship, direct or indirect, exists
between or among the Company on the one hand, and the directors, officers, stockholders or
directors of the Company, on the other hand, which is required by the rules of the FINRA to be
described in the Registration Statement or the Prospectus which is not so described.
10
(xxxiv)
Authorization of Common Stock in Concurrent Offering
. The 1,000,000
shares of Common Stock to be sold to SPT Investment, LLC, a Delaware limited liability
company (SPT Investment), in a private offering concurrent with the offering of the
Securities as described in the Registration Statement, the General Disclosure Package and
the Prospectus (the Concurrent Offering), pursuant to a private placement purchase
agreement (the Concurrent Offering Private Placement Purchase Agreement), dated as of the
date of this Agreement, between the Company and SPT Investment have been duly authorized
for issuance and sale, and when issued and delivered by the Company pursuant to the
Concurrent Offering Private Placement Purchase Agreement, will be validly issued and fully
paid and non-assessable, free and clear of any pledge, lien, encumbrance, security interest
or other claim.
(xxxv)
Concurrent Offering Private Placement Purchase Agreement
. The
Concurrent Offering Private Placement Purchase Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors rights generally and by general equitable principles.
(xxxvi)
Registration Rights Agreement
. The registration rights agreement
(Registration Rights Agreement) to be entered into among the Company, the Manager and SPT
Investment has been duly authorized by the Company and at the Closing Time will be duly
executed and delivered by the Company and will constitute a valid and binding agreement of
the Company, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors rights generally and by general equitable principles.
(xxxvii)
Reserved Securities Sales
. The Company has not offered, or caused
the Representatives to offer, Reserved Securities to any person with the specific intent to
unlawfully influence (i) a customer or supplier of the Company or any of its affiliates to
alter the customers or suppliers level or type of business with any such entity or (ii) a
trade journalist or publication to write or publish favorable information about the Company
or any of its affiliates, or their respective businesses or products.
(b)
Representations and Warranties by the Manager.
The Manager represents and warrants to
each Underwriter as of the date hereof, the Applicable Time referred to in Section 1(a)(i) hereof,
the Closing Time referred to in Section 2(c) hereof, and each Date of Delivery (if any) referred to
in Section 2(b) hereof, and agrees with each Underwriter, as follows:
(i)
Certain Information
. The information provided by Starwood Capital set
forth under the headings Prospectus Summary Our Manager and Starwood Capital Group,
Prospectus Summary Our Managers Competitive Strengths, Prospectus Summary
Management Agreement, Prospectus Summary Investment Advisory Agreement, Prospectus
Summary Conflicts of Interest and Related Policies, Business Our Managers
Competitive Strengths, Business Conflicts of Interest and Related Policies, Our
Manager and the Management Agreement and Certain Relationships and Related Transactions
in the Registration Statement, the General Disclosure Package and the Prospectus is true
and correct in all material respects. As of the date of this Agreement, the Manager has no
plan or intention to materially alter its capital investment policy or investment
allocation policy with respect to the Company as described in the Registration Statement,
the General Disclosure Package and the Prospectus.
11
(ii)
Good Standing of the Manager
. The Manager is a limited liability company
duly organized and validly existing and in good standing under the laws of the State of
Delaware and has limited liability company power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration Statement, the
General Disclosure Package and the Prospectus and to enter into and perform its obligations
under this Agreement, the Management Agreement, the Co-Investment Agreement and the
investment advisory agreement (the Investment Advisory Agreement), to be entered into
between the Manager and Starwood Capital Group Management, LLC; and the Manager is duly
qualified as a foreign limited liability company to transact business and is in good
standing in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material Adverse
Effect.
(iii)
Authorization of Agreement
. This Agreement has been duly authorized,
executed and delivered by the Manager.
(iv)
Authorization of Other Agreements
. Each of the Management Agreement, the
Co-Investment Agreement and the Investment Advisory Agreement has been duly authorized by
the Manager and at the Closing Time will be duly executed and delivered by the Manager and
will constitute a valid and binding agreement of the Manager, enforceable against the
Manager in accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors rights generally and by general equitable principles.
(v)
Absence of Defaults and Conflicts
. The Manager is not in violation of its
limited liability company agreement or other organizational documents or in default in the
performance or observance of any obligation, agreement, covenant or condition contained in
Agreements or Instruments to which it is bound or by which it may be bound, or which any of
its property or assets is subject, except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of this Agreement, the
Management Agreement, the Co-Investment Agreement and/or the Investment Advisory Agreement,
as the case may be, and the consummation of the transactions contemplated herein and
therein and in the Registration Statement, the General Disclosure Package and the
Prospectus and compliance by the Manager with its obligations hereunder and thereunder have
been duly authorized by all necessary limited liability company action and do not and will
not, whether with or without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of the Manager
pursuant to its Agreements and Instruments (except for such conflicts, breaches, defaults
or Repayment Events or liens, charges or encumbrances that would not result in a Material
Adverse Effect), nor will such action result in any violation of the provisions of the
limited liability company agreement or other organizational documents of the Manager or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign, having jurisdiction
over the Manager or any of its respective assets, properties or operations.
(vi)
Absence of Further Requirements
. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance by the
Manager of its obligations hereunder, in connection with the offering or the consummation
of the transactions contemplated by this Agreement, the Management Agreement, the
Co-Investment Agreement and/or the Investment Advisory Agreement, except (i) such as have
been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations
or state securities laws or as are described in the Registration Statement, the General
Disclosure Package and the Prospectus
and (ii) such as have been obtained under the laws and regulations of jurisdictions
outside the United States in which the Reserved Securities are offered.
12
(vii)
Possession of Licenses and Permits
. The Manager possesses such
Governmental Licenses issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary for the Manager to perform its duties set forth in the
Management Agreement, except where the failure so to possess would not, singly or in the
aggregate, result in a Material Adverse Effect; the Manager is in compliance with the terms
and conditions of all such Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, result in a Material Adverse Effect; all of such
Governmental Licenses are valid and in full force and effect, except when the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in full force
and effect would not, singly or in the aggregate, result in a Material Adverse Effect; and
the Manager has not received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(viii)
Absence of Proceedings
. There is no action, suit, proceeding, inquiry
or investigation before or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Manager, threatened, against or affecting
the Manager which might result in a Material Adverse Effect, or which might materially and
adversely affect the properties or assets thereof or the consummation of the transactions
contemplated in this Agreement, the Management Agreement, the Co-Investment Agreement
and/or the Investment Advisory Agreement or the performance by the Manager of its
obligations hereunder and/or thereunder; the aggregate of all pending legal or governmental
proceedings to which the Manager is a party or of which any of its property or assets is
the subject, including ordinary routine litigation incidental to the business, could not
result in a Material Adverse Effect.
(ix)
Access to Resources
. Pursuant to the Investment Advisory Agreement, the
Manager will have access to the personnel and other resources of Starwood Capital necessary
for the performance of the duties of the Manager set forth in the Management Agreement and
as disclosed in the Registration Statement, the General Disclosure Package and the
Prospectus and under this Agreement.
(x)
Employment; Noncompetition; Nondisclosure
. The Manager has not been
notified that any of its executive officers or key employees or a key or significant number
of Starwood Capitals mortgage investment team plans to terminate his or her employment
with the Manager or Starwood Capital, as the case may be. None of the Manager, Starwood
Capital or any executive officer or key employee of the Manager or Starwood Capitals
mortgage investment team is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be violated by the present or
proposed business activities of the Company or the Manager as described in the Management
Agreement, the Registration Statement, the General Disclosure Package and the Prospectus.
(xi)
Internal Controls
. The Manager intends to operate a system of internal
controls sufficient to provide reasonable assurance that (A) transactions that may be
effectuated by it on behalf of the Company pursuant to its duties set forth in the
Management Agreement will be executed in accordance with managements general or specific
authorization and (B) access to the Companys assets is permitted only in accordance with
managements general or specific authorization.
(xii)
Investment Advisers Act
. The Manager is not prohibited by the
Investment Advisers Act of 1940, as amended, or the rules and regulations thereunder, from
performing the duties set forth in the Management Agreement and disclosed in the Registration
Statement, the General Disclosure Package and the Prospectus.
13
(xiii)
Reserved Securities Sales.
The Company has not offered, or caused the
Representatives to offer, Reserved Securities to any person with the specific intent to
unlawfully influence (i) a customer or supplier of the Company or any of its affiliates to
alter the customers or suppliers level or type of business with any such entity or (ii) a
trade journalist or publication to write or publish favorable information about the Company
or any of its affiliates, or their respective businesses or products.
(c)
Officers Certificates.
Any certificate signed by any officer of the Company or any of
its Subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to the matters covered
thereby. Any certificate signed by any officer or other designee of the Manager delivered to the
Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by
the Manager to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing
.
(a)
Initial Securities.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company agrees to sell to each
Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule C, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional
number of Initial Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof. In addition, in connection with the sale of the Initial
Securities, the Manager agrees to pay Merrill Lynch for the account of the Underwriters, the amount
per Initial Security set forth on Schedule C for each Initial Security purchased buy such
Underwriter as set forth on Schedule C (the Initial Securities Manager Offering Payment).
(b)
Option Securities.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company hereby grants an
option to the Underwriters, severally and not jointly, to purchase up to an additional 6,075,000
shares of Common Stock at the price per share set forth in Schedule C, less an amount per share
equal to any dividends or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time only for the
purpose of covering overallotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the Company setting
forth the number of Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option Securities. Any such time and
date of delivery (a Date of Delivery) shall be determined by the Representatives, but shall not
be later than seven full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase
that proportion of the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as the Representatives in
their discretion shall make to eliminate any sales or purchases of fractional shares. In addition,
in connection with the sale of any Option Securities, the Manager agrees to pay to Merrill Lynch,
for the account of the Underwriters, the amount per Option Security set forth on Schedule C for
each Option Security purchased by such Underwriter (the Option Securities Manager Offering
Payment, and collectively with the Initial Securities Manager Offering Payment, the Manager
Offering Payments)
14
(c)
Payment.
Payment of the purchase price for, and delivery of the Initial Securities and
payment of the Initial Securities Manager Offering Payment shall be made at the offices of Sidley
Austin
llp
, 787 Seventh Avenue, New York, New York 10019, or at such other place as shall
be agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after
the date hereof (unless postponed in accordance with the provisions of Section 11), or such other
time not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery being herein called
Closing Time).
In addition, in the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates for, such Option
Securities and payment of the Option Securities Manager Offering Payment shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and
the Company, on each Date of Delivery as specified in the notice from the Representatives to the
Company.
Payment shall be made to the Company by wire transfer of immediately available funds to a bank
account designated by the Company, against delivery to the Representatives for the respective
accounts of the Underwriters of the Securities to be purchased by them and payment of the Manager
Offering Payments shall be made to Merrill Lynch, for the account of the Underwriters, by wire
transfer of immediately available funds to a bank account designated by Merrill Lynch. It is
understood that each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and
the Option Securities, if any, which it has agreed to purchase and has authorized Merrill Lynch,
for its account, to accept delivery of the Manager Offering Payments. Merrill Lynch, Deutsche Bank
and Citigroup, each individually and not as a representative of the Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d)
Conditional Payment to the Underwriters
. In addition to the amounts required by Section
2(a) or 2(b), as the case may be, the Company agrees to pay to Merrill Lynch, for the account of
the Underwriters, an amount equal to the product of the amount per share set forth in Schedule C
multiplied by the number of Securities set forth on Schedule C (the Conditional Payment), if
during any full four calendar quarter period during the 24 full calendar quarters after the date of
the Closing Time (the Conditional Payment Period), the Companys Core Earnings for such
four-quarter period exceeds the product of (1) the weighted average of the issue price per share of
all of the Companys public offerings multiplied by the weighted average number of shares of Common
Stock outstanding (including any of the Companys restricted stock units, restricted shares of
Common Stock and other shares of Common Stock underlying awards granted under the Companys equity
incentive plans) in the four-quarter period and (2) 8.0% (such product of (1) and (2), the
Performance Hurdle Rate). Such Conditional Payment shall not exceed, on a per share basis, 2% of
the initial public offering price per share of Common Stock set forth in Schedule C. The Manager,
on behalf of the Company, shall compute the Companys Core Earnings for each full four-quarter
period during the Conditional Payment Period within 30 days after the end of each calendar quarter
and shall promptly deliver such computations to the Underwriters (but in no event later than the
date that is 35 days after the end of each calendar quarter). In the event that the Performance
Hurdle Rate has been met, the Conditional Payment shall be payable by the Company to the
Underwriters by wire transfer of immediately available funds to a bank account designated by
Merrill Lynch no later than the date which is five (5) business days after the date of delivery of
the computations to the Underwriters. If the Performance Hurdle Rate is not met or exceeded for a
full four calendar quarter period during the Conditional Payment Period, the Companys obligation
to make the Conditional Payment shall terminate.
For purposes of this Section and the Schedules attached to this Agreement:
15
(i) Affiliate means (i) any Person directly or indirectly controlling,
controlled by, or under common control with such other Person, (ii) any executive
officer, general partner or employee of such other Person, (iii) any member of the
board of directors or board of managers (or bodies performing similar functions) of
such Person, and (iv) any legal entity for which such Person acts as an executive
officer or general partner.
(ii) Core Earnings means
(A) GAAP net income (loss) excluding non-cash equity compensation
expense, any incentive fee that might be due to the Manager by the Company
pursuant to the Management Agreement, depreciation and amortization (to the
extent that the Company forecloses on any properties underlying its target
assets);
(B) excluding any unrealized gains, losses or other non-cash items
recorded in net income for the period, regardless of whether such items are
included in other comprehensive income or loss, or in net income; and
(C) adjusted to exclude one-time events pursuant to changes in GAAP and
certain other non-cash charges after discussions between the Manager and the
Independent Directors and after approval by a majority of the Independent
Directors.
(iii) Independent Director means a member of the Board of Directors of the
Company who is independent in accordance with the rules of the NYSE or such other
securities exchange on which the shares of Common Stock may be listed.
(iv) Person means any natural person, corporation, partnership, association,
limited liability company, estate, trust, joint venture, unincorporated association,
any federal, state, county or municipal government or any bureau, department or
agency thereof or any other legal entity and any fiduciary acting in such capacity
on behalf of the foregoing.
(e)
Denominations; Registration.
Certificates for the Initial Securities and the Option
Securities, if any, shall be in such denominations and registered in such names as the
Representatives may request in writing at least one full business day before the Closing Time or
the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business
day prior to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company and the Manager
. The Company and the Manager,
jointly and severally covenant, for as long as the manager remains Manager under the Management
Agreement, with each Underwriter as follows:
(a)
Compliance with Securities Regulations and Commission Requests.
The Company, subject to
Section 3(b), will comply with the requirements of Rule 430A and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the
16
use of any preliminary prospectus, or of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings
for any of such purposes or of any examination pursuant to Section 8(e) of the 1933 Act concerning
the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section
8A of the 1933 Act in connection with the offering of the Securities. The Company will effect the
filings required under Rule 424(b), in the manner and within the time period required by Rule
424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b)
Filing of Amendments and Exchange Act Documents.
The Company will give the
Representatives notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to
either the prospectus included in the Registration Statement at the time it became effective or to
the Prospectus, and will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and will not file or use
any such document to which the Representatives or counsel for the Underwriters shall object. The
Company has given the Representatives notice of any filings made pursuant to the 1934 Act or the
rules and regulations of the Commission under the 1934 Act (the 1934 Act Regulations) within 48
hours prior to the execution of this Agreement; the Company will give the Representatives notice of
its intention to make any such filing from the execution of this Agreement to the Closing Time and
will furnish the Representatives with copies of any such documents a reasonable amount of time
prior to such proposed filing, as the case may be, and will not file or use any such document to
which the Representatives or counsel for the Underwriters shall object.
(c)
Delivery of Registration Statements.
The Company has furnished or will deliver to the
Representatives and counsel for the Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including exhibits filed therewith)
and signed copies of all consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement as originally filed
and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the Underwriters will be identical
to the electronically transmitted copies thereof filed with the Commission pursuant to IDEA, except
to the extent permitted by Regulation S-T.
(d)
Delivery of Prospectuses.
The Company has delivered to each Underwriter, without charge,
as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the period when the Prospectus is
required to be delivered (or but for the exception afforded by Rule 172 would be required to be
delivered) under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented)
as such Underwriter may reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to IDEA, except to the extent permitted by Regulation
S-T.
(e)
Continued Compliance with Securities Laws.
The Company will comply with the 1933 Act and
the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required
(or but for the exception afforded by Rule 172 would be required) by the 1933 Act to be delivered
in connection with sales of the Securities, any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company,
to amend the Registration Statement or amend or supplement the General Disclosure Package or the
Prospectus in order that the same will not include any untrue statements of a material fact or omit
to state a material fact
17
necessary in order to make the statements therein not misleading (solely in the case of the
General Disclosure Package and the Prospectus, in the light of the circumstances existing at the
time it is delivered to a purchaser), or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or supplement the Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the Underwriters may
reasonably request. If at any time following issuance of an Issuer Free Writing Prospectus there
occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus
conflicted or would conflict with the information contained in the Registration Statement relating
to the Securities or included or would include an untrue statement of a material fact or omitted or
would omit to state a material fact necessary in order to make the statements therein, in the light
of the circumstances, prevailing at that subsequent time, not misleading, the Company will promptly
notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer
Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
(f)
Blue Sky Qualifications.
The Company will use its reasonable best efforts, in cooperation
with the Underwriters, to qualify the Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions (domestic and foreign) as the
Representatives may designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so subject.
(g)
Rule 158.
The Company will timely file such reports pursuant to the 1934 Act as are
necessary in order to make generally available to its securityholders as soon as practicable an
earnings statement for the purposes of, and to provide to the Underwriters the benefits
contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(h)
Use of Proceeds.
The Company will use the net proceeds received by it from the sale of
the Securities in the manner contemplated in the Prospectus under Use of Proceeds.
(i)
Listing.
The Company will use its best efforts to effect the listing of the Common Stock
(including the Securities) on the New York Stock Exchange.
(j)
Books and Records; Accounting Controls and Disclosure Controls
. The Company and each of
its Subsidiaries will maintain and keep accurate books and records reflecting their assets and will
maintain a system of internal accounting controls sufficient to provide reasonable assurances that:
(A) transactions are executed in accordance with managements general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted
only in accordance with managements general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
The Company and its consolidated Subsidiaries will employ disclosure controls and procedures
that are effective to perform the functions for which they were established and designed to ensure
that information required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms, and is accumulated and communicated to the Companys
management, including its principal executive officer or officers and principal financial officer or officers,
as appropriate, to allow timely decisions regarding disclosure.
18
(k)
Qualification as a REIT
. The Company intends to operate in conformity with the
requirements for qualification and taxation of the Company as a REIT under the Code until such time
as the Companys board of directors determines that operating in such manner is not in the best
interests of the Company and its stockholders.
(l)
Compliance with the Sarbanes-Oxley Act
. The Company will take all necessary actions to
ensure that it is in compliance in all material respects with all applicable provisions of the
Sarbanes-Oxley Act that are in effect.
(m)
Restriction on Sale of Securities.
During the period of 180 days from the date of the
Prospectus, the Company or its directors or executive officers, will not, without the prior written
consent of the Representatives, (i) directly or indirectly, sell, offer, contract or grant any
option to sell, pledge, transfer or establish an open put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Rule 16a-1(h) under the Exchange Act,
or otherwise dispose of or transfer (or enter into any transaction that is designed to, or might
reasonably be expected to, result in the disposition of), or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of Common Stock, options
or warrants to acquire shares of the Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the shares of Common Stock, whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise. The foregoing shall not apply to (A) any Common Stock issued by
the Company in the Concurrent Offering or (B) any awards based on Common Stock granted by the
Company to the Manager, the Companys officers or directors or any persons employed by Starwood
Capital under any of the Companys equity incentive plans, in each case, as described in the
Registration Statement, the General Disclosure Package and the Prospectus. Notwithstanding the
foregoing, if (1) during the last 17 days of the 180-day restricted period described above the
Company issues an earnings release or material news or a material event relating to the Company
occurs, or (2) prior to the expiration of the 180-day restricted period described above, the
Company announces that it will release earnings results during the 16-day period beginning on the
last day of the 180-day period, the restrictions imposed in this clause (m) shall continue to apply
until the expiration of the 18-day period beginning on the date of the issuance of the earnings
release or the occurrence of the material news or material event as applicable, unless the
Representatives waive, in writing, such restrictions. The Company will provide the Representatives
and each individual subject to the restricted periods pursuant to the lockup letters described in
section 6(j) with prior notice of any such announcement that gives rise to an extension of the
restricted periods.
(n)
Reporting Requirements.
The Company, during the period when a prospectus is required (or
but for the exception in Rule 172 would be required) to be delivered under the 1933 Act, will file
all documents required to be filed with the Commission pursuant to the 1934 Act within the time
periods required by the 1934 Act and the 1934 Act Regulations.
(o)
Issuer Free Writing Prospectuses
. The Company represents and agrees that, unless it
obtains the prior consent of the Representatives, and each Underwriter represents and agrees that,
unless it obtains the prior consent of the Company and the Representatives, it has not made and
will not make any offer relating to the Securities that would constitute an issuer free writing
prospectus, as defined in Rule 433, or that would otherwise constitute a free writing
prospectus, as defined in Rule 405, required to be filed with the Commission. Any such free
writing prospectus consented to by the Representatives or by the Company and the Representatives,
as the case may be, is hereinafter referred to as a Permitted Free Writing Prospectus. The
Company represents that it has treated or agrees that it will treat each Permitted Free Writing
Prospectus as an issuer free writing prospectus, as defined in Rule 433, and has complied
and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing
Prospectus, including timely filing with the Commission where required, legending and record
keeping.
19
SECTION 4. Covenants of the Manager
. The Manager covenants with each Underwriter and
with the Company that, during the period when a prospectus is required (or but for the exception
afforded by Rule 172 would be required) to be delivered under the 1933 Act or the 1934 Act, it
shall notify you and the Company of the occurrence of any material events respecting Starwood
Capitals activities, affairs or condition, financial or otherwise, and the Manager will forthwith
supply such information to the Company as shall be necessary in the opinion of counsel to the
Company and the Underwriters for the Company to prepare any necessary amendment or supplement to
the Prospectus so that, as so amended or supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it is delivered to a
purchaser, not misleading.
SECTION 5. Payment of Expenses
.
(a)
Expenses.
The Company will pay all expenses incident to the performance of its
obligations under this Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as originally filed and of
each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities, if any, to the
Underwriters, including any stock or other transfer taxes and any stamp or other duties payable
upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Companys counsel, accountants and other advisors, (v) the qualification of
the Securities under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Permitted Free Writing Prospectus and the Prospectus and any amendments
or supplements thereto and any costs associated with electronic delivery of any of the foregoing by
the Underwriters to investors, (vii) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the costs and expenses of the Company relating
to investor presentations on any road show undertaken in connection with the marketing of the
Securities, including without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in connection with the road show
presentations, travel and lodging expenses of the representatives and officers of the Company and
any such consultants, and 50% of the cost of aircraft and other transportation chartered in
connection with the road show, (x) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms
of the sale of the Securities, (xi) the fees and expenses incurred in connection with the listing
of the Securities on the New York Stock Exchange and (xii) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection
with matters related to the Reserved Securities which are designated by the Company for sale to
Invitees.
(b)
Termination of Agreement.
If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 6 or Section 10(a)(i) hereof, the Company shall reimburse
the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 6. Conditions of Underwriters Obligations
. The obligations of the several
Underwriters hereunder are subject to the accuracy of the representations and warranties of the
Company and the Manager contained in Section 1 hereof or in certificates of any officer of the
Company, the Manager, or any Subsidiary of the Company delivered pursuant to the provisions hereof,
to the performance by the Company and the Manager of their respective covenants and other obligations
hereunder, and to the following further conditions:
20
(a)
Effectiveness of Registration Statement.
The Registration Statement, including any Rule
462(b) Registration Statement, has become effective and at Closing Time no stop order suspending
the effectiveness of the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the reasonable satisfaction
of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been
filed with the Commission in the manner and within the time frame required by Rule 424(b) without
reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of Rule 430A.
(b)
Opinion of Counsel for the Company and the Manager.
At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the Closing Time, of each of
Skadden, Arps, Slate, Meagher & Flom LLP (Skadden Arps), DLA Piper LLP (US) (DLA Piper) and
Rinaldi, Finkelstein & Franklin, L.L.C. (RFF), counsel for the Company and the Manager, in form
and substance satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters substantially in the form set forth in
Exhibit A, Exhibit B and Exhibit C hereto, respectively, and to such further effect as counsel to
the Underwriters may reasonably request.
(c)
Opinion of Counsel for the Underwriters.
At the Closing Time, the Representatives shall
have received the favorable opinion, dated as of the Closing Time, of Sidley Austin
llp
,
counsel for the Underwriters, together with signed or reproduced copies of such letter for each of
the other Underwriters with respect to such matters as the Representatives may reasonably request.
In giving such opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of the United States,
upon the opinions of DLA Piper rendered pursuant to Section 6(b), as to matters arising under
Maryland law, or other counsel satisfactory to the Representatives. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its Subsidiaries and certificates of
public officials.
(d)
Company Officers Certificate.
At the Closing Time, there shall not have been, since the
date hereof, since the Applicable Time or since the respective dates as of which information is
given in the Registration Statement, the General Disclosure Package or the Prospectus, any material
adverse change in the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have received a
certificate of the President of the Company and of the Chief Financial Officer of the Company,
dated as of the Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with
the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company
has complied with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose have been instituted
or are pending or, to their knowledge, contemplated by the Commission.
(e)
Managers Officers Certificate
. The Representatives shall have received a certificate of
the President of the Manager and of a Vice President or the Treasurer of the Manager, dated as of
the Closing Time, to the effect that (i) the representations and warranties in Section 1(b) are
true and correct with the same force and effect as though expressly made at and as of Closing Time
and (ii) the Manager has complied with all agreements and satisfied all conditions on its part to
be performed or satisfied at or prior to Closing Time.
21
(f)
Accountants Comfort Letter.
At the time of the execution of this Agreement, the
Representatives shall have received from Deloitte & Touche LLP a letter dated the date of delivery
thereof, in form and substance satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants comfort letters to underwriters with
respect to the financial statements and certain financial information contained in the Registration
Statement, the General Disclosure Package and the Prospectus.
(g)
Bring-down Comfort Letter.
At the Closing Time, the Representatives shall have received
from Deloitte & Touche LLP a letter, dated as of the Closing Time, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (f) of this Section, except that
the specified date referred to shall be a date not more than three business days prior to the
Closing Time.
(h)
Approval of Listing.
At the Closing Time, the Securities shall have been approved for
listing on the New York Stock Exchange, subject only to official notice of issuance.
(i)
No Objection.
The FINRA has confirmed that it has not raised any objection with respect
to the fairness and reasonableness of the underwriting terms and arrangements.
(j)
Lockup Agreements.
At the date of this Agreement, the Representatives shall have received
agreements substantially in the form of Exhibit D or E hereto, as the case may be, as reflected in,
and signed by the persons listed on, Schedule D hereto, and such letter agreements shall be in full
force and effect.
(k)
No Amendments or Supplements.
No amendment or supplement to the Registration Statement,
the Prospectus, any preliminary prospectus or any Issuer Free Writing Prospectus shall be filed to
which the Underwriters shall have objected in writing.
(l)
Initial Securities Manager Offering Payment.
The Manager has paid to Merrill Lynch for the
account of the Underwriters the Initial Securities Manager Offering Payment as set forth in Section
2(a) hereof.
(m)
Conditions to Purchase of Option Securities.
In the event that the Underwriters exercise
their option provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company and the Manager contained in Section
1 hereof or in certificates of any officer of the Company, any of its Subsidiaries or the Manager
delivered pursuant to the provisions hereof shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:
(i)
Company Officers Certificate
. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company confirming that the certificate delivered at the
Closing Time pursuant to Section 6(d) hereof remains true and correct as of such Date of
Delivery.
(ii)
Manager Officers Certificate
. A certificate, dated such Date of
Delivery, of the President of the Manager and of a Vice President or the Treasurer of the
Manager confirming that the certificate delivered at the Closing Time pursuant to Section
6(e) hereof remains true and correct as of such Date of Delivery.
(iii)
Opinion of Counsel for the Company and the Manager
. The favorable
opinion of each of Skadden Arps, DLA Piper and RFF, counsel for the Company and the
Manager, each in form and substance satisfactory to counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions required by Section 6(b) hereof.
22
(iv)
Opinion of Counsel for the Underwriters
. The favorable opinion of Sidley
Austin
llp
, counsel for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 6(c) hereof.
(v)
Bring-down Comfort Letter
. A letter from Deloitte & Touche LLP, in form
and substance satisfactory to the Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter furnished to the Representatives
pursuant to Section 6(g) hereof, except that the specified date in the letter furnished
pursuant to this paragraph shall be a date not more than five days prior to such Date of
Delivery.
(vi)
Option Securities Manager Offering Payment
. The Manager has paid to
Merrill Lynch for the account of the Underwriters the Option Securities Manager Offering
Payment as set forth in Section 2(b) hereof
(n)
Additional Documents.
At the Closing Time and at each Date of Delivery, counsel for the
Underwriters shall have been furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings taken by the
Company and the Manager in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the Representatives and counsel for the
Underwriters.
(o)
Termination of Agreement.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to
the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or prior to the Closing
Time or such Date of Delivery, as the case may be, and such termination shall be without liability
of any party to any other party except as provided in Section 5 and except that Sections 1, 7, 8
and 9 shall survive any such termination and remain in full force and effect.
SECTION 7. Indemnification
.
(a)
Indemnification of Underwriters.
The Company agrees to indemnify and hold harmless each
Underwriter, its affiliates, as such term is defined in Rule 501(b) under the 1933 Act (each, an
Affiliate), its selling agents and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto), including the Rule
430A Information, or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not misleading or arising
out of any untrue statement or alleged untrue statement of a material fact included in any
preliminary prospectus delivered to the Underwriters for use in connection with the sale of
the Securities, any Issuer Free Writing Prospectus, the General Disclosure Package or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, or
of any claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 7(e) below) any
such settlement is effected with the written consent of the Company;
23
(iii) against any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by the Representatives), reasonably incurred in
investigating, preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided
,
however
, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the Representatives expressly for
use in the Registration Statement (or any amendment thereto), including the Rule 430A Information,
or any preliminary prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package
or the Prospectus (or any amendment or supplement thereto).
(b)
Indemnification of Company, Directors and Officers.
Each Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls either the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a) of this Section 7,
as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements
or omissions, made in the Registration Statement (or any amendment thereto), including the Rule
430A Information, or any preliminary prospectus, any Issuer Free Writing Prospectus, the General
Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such Underwriter through the
Representatives expressly for use therein. The Company hereby acknowledges that the only
information that the Underwriters have furnished to the Company expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A Information, or any
preliminary prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package or the
Prospectus (or any amendment or supplement thereto) are the statements set forth in the fifth
paragraph, the second sentence of the twentieth paragraph, the twenty-first paragraph,
twenty-second paragraph and the twenty-third paragraph under the caption Underwriting in the
Prospectus.
(c)
Actions against Parties; Notification.
Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. In the case of parties
indemnified pursuant to Section 7(a) or 7(b) above, counsel to the indemnified parties shall be
selected by the Representatives, and, in the case of parties indemnified pursuant to Section 7(c)
above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action;
provided
,
however
, that counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any judgment with respect
to any litigation, or any investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever in
24
respect of which indemnification or contribution could be sought under this Section 6 or
Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto),
unless such settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation, investigation, proceeding or
claim and (ii) does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.
(d)
Settlement without Consent if Failure to Reimburse.
If at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a) or Section 7(b) or settlement of any claim in connection with any
violation referred to in Section 7(f) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall
not have reimbursed such indemnified party in accordance with such request prior to the date of
such settlement.
(e)
Indemnification for Reserved Securities.
In connection with the offer and sale of the
Reserved Securities, the Company agrees to indemnify and hold harmless the Underwriters, their
Affiliates and selling agents and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any
and all loss, liability, claim, damage and expense (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending, investigating or settling any such
action or claim), as incurred, (i) arising out of the violation of any applicable laws or
regulations of foreign jurisdictions where Reserved Securities have been offered; (ii) arising out
of any untrue statement or alleged untrue statement of a material fact contained in any prospectus
wrapper or other material prepared by or with the consent of the Company for distribution to
Invitees in connection with the offering of the Reserved Securities or caused by any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; (iii) caused by the failure of any Invitee to pay for
and accept delivery of Reserved Securities which have been orally confirmed for purchase by any
Invitee by 9:00 a.m. Eastern Time on the first business day after the date of the Agreement; or
(iv) related to, or arising out of or in connection with, the offering of the Reserved Securities.
SECTION 8. Contribution
. If the indemnification provided for in Section 7 hereof is
for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of
any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the Underwriters on
the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) 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 the Company on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions, or in connection with any violation of the nature
referred to in Section 7(f) hereof, which resulted in such losses, liabilities, claims, damages or
expenses, 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 hand in connection with the offering of the Securities pursuant to this Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Underwriters, in each case as set forth on the cover of
the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth
on the cover of the Prospectus.
25
The relative fault of the Company on the one hand and the Underwriters on the other hand shall
be determined by reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission
or any violation of the nature referred to in Section 7(f) hereof.
The Company and the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8. The aggregate amount
of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred
to above in this Section 8 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 8, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 8, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriters
Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The
Underwriters respective obligations to contribute pursuant to this Section 8 are several in
proportion to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 9. Representations, Warranties and Agreements to Survive
. All
representations, warranties and agreements contained in this Agreement or in certificates of
officers of the Company, any of its Subsidiaries or the Manager submitted pursuant hereto, shall
remain operative and in full force and effect regardless of (i) any investigation made by or on
behalf of any Underwriter or its Affiliates or selling agents, any person controlling any
Underwriter, its officers or directors or any person controlling the Company and (ii) delivery of
and payment for the Securities.
SECTION 10. Termination of Agreement
.
(a)
Termination; General.
The Representatives may terminate this Agreement, by notice to the
Company, at any time at or prior to the Closing Time (i) if, in the sole judgment of the
Representatives, there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Registration Statement, the General
Disclosure Package or the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise or Starwood Capital, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or development
involving a
26
prospective change in national or international political, financial or economic conditions,
in each case the effect of which is such as to make it, in the judgment of the Representatives,
impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the
Securities, or (iii) if trading in any securities of the Company has been suspended or materially
limited by the Commission or the New York Stock Exchange, or if trading generally on the New York
Stock Exchange or in the Nasdaq Global Select Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the Commission, the FINRA or
any other governmental authority, or (iv) a material disruption has occurred in commercial banking
or securities settlement or clearance services in the United States, or (v) if a banking moratorium
has been declared by either Federal or New York authorities.
(b)
Liabilities.
If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party except as provided in
Section 5 hereof, and provided further that Sections 1, 7, 8 and 9 shall survive such termination
and remain in full force and effect.
SECTION 11. Default by One or More of the Underwriters
. If one or more of the
Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which
it or they are obligated to purchase under this Agreement (the Defaulted Securities), the
Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less
than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the Representatives shall not have completed such arrangements
within such 24-hour period, then:
(i) if the number of Defaulted Securities does not exceed 10% of the number of
Securities to be purchased on such date, each of the non-defaulting Underwriters shall be
obligated, severally and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the number of Securities to
be purchased on such date, this Agreement or, with respect to any Date of Delivery which
occurs after the Closing Time, the obligation of the Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such Date of Delivery
shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from
liability in respect of its default.
In the event of any such default which does not result in a termination of this Agreement or,
in the case of a Date of Delivery which is after the Closing Time, which does not result in a
termination of the obligation of the Underwriters to purchase and the Company to sell the relevant
Option Securities, as the case may be, either the Representatives or the Company shall have the
right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a
period not exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. As used herein, the term
Underwriter includes any person substituted for an Underwriter under this Section 11.
SECTION 12. Tax Disclosure
. Notwithstanding any other provision of this Agreement,
from the commencement of discussions with respect to the transactions contemplated hereby, the
Company (and each employee, representative or other agent of the Company) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are
used in Sections 6011, 6111 and 6112 of the Code and the Treasury Regulations promulgated
thereunder) of the transactions contemplated by this Agreement and all materials of any kind
(including opinions or other tax analyses) that are provided relating to such tax treatment and tax
structure.
27
SECTION 13. Notices
. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriters shall be directed to Merrill Lynch, Pierce,
Fenner & Smith Incorporated at One Bryant Park, New York, New York 10036, Facsimile: (646)
855-3073, attention of Syndicate Department, with a copy to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, One Bryant Park, New York, New York 10036, Facsimile: (212) 230-8730, attention of
ECM Legal, to Deutsche Bank Securities Inc. at 60 Wall Street, New York, NY 10005, attention of ECM
Syndicate and to Citigroup Global Markets, Inc., at 388 Greenwich Street, New York, New York 10013,
attention of the General Counsel; and notices to the Company or the Manager shall be directed to it
at 591 West Putnam Avenue, Greenwich, Connecticut 06830, attention of the General Counsel.
SECTION 14. Parties
. This Agreement shall each inure to the benefit of and be
binding upon the Underwriters, the Manager and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Underwriters, the Manager and the Company and their
respective successors and the controlling persons and officers and directors referred to in
Sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the
Underwriters, the Company and the Manager and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives, and for the benefit
of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 15. No Advisory or Fiduciary Relationship
. The Company and the Manager
acknowledge and agree that (a) the purchase and sale of the Securities pursuant to this Agreement,
including the determination of the public offering price of the Securities and any related
discounts and commissions, is an arms-length commercial transaction between the Company and the
Manager, on the one hand, and the several Underwriters, on the other hand, (b) in connection with
the offering contemplated hereby and the process leading to such transaction each Underwriter is
and has been acting solely as a principal and is not the agent or fiduciary of the Company or the
Manager, or their respective stockholders, creditors, employees or any other party, (c) no
Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the
Company or the Manager with respect to the offering contemplated hereby or the process leading
thereto (irrespective of whether such Underwriter has advised or is currently advising the Company
or the Manager on other matters) and no Underwriter has any obligation to the Company or the
Manager with respect to the offering contemplated hereby except the obligations expressly set forth
in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad
range of transactions that involve interests that differ from those of each of the Company or the
Manager, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice
with respect to the offering contemplated hereby and the Company, and the Manager have each
consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed
appropriate.
SECTION 16. Integration
. This Agreement supersedes all prior agreements and
understandings (whether written or oral) between the Company, the Manager and the Underwriters, or
any of them, with respect to the subject matter hereof.
SECTION 17. Trial by Jury
. Each of the Company and the Manager (on its behalf and,
to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each
of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
SECTION 18. GOVERNING LAW
. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
28
SECTION 19. TIME
. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 20. Counterparts
. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
SECTION 21. Effect of Headings
. The Section headings herein are for convenience only
and shall not affect the construction hereof.
29
If the foregoing is in accordance with your understanding of our agreement, please sign and
return to the Company and the Manager a counterpart hereof, whereupon this instrument, along with
all counterparts, will become a binding agreement between the Underwriters and the Company and the
Manager in accordance with its terms.
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Very truly yours,
STARWOOD PROPERTY TRUST, INC.
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By:
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/s/ Ellis F. Rinaldi
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Name:
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Ellis F. Rinaldi
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Title:
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General Counsel, Secretary and Executive Vice
President
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SPT MANAGEMENT, LLC
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By:
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/s/ Jerome C. Silvey
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Name:
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Jerome C. Silvey
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Title:
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Executive Vice President
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CONFIRMED AND ACCEPTED,
as of the date first above written:
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By:
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MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
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By
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/s/ Anne Walker
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Authorized Signatory
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By:
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DEUTSCHE BANK SECURITIES INC.
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By
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/s/ Jeremy Fox
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Authorized Signatory
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By
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/s/ Frank Windels
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Authorized Signatory
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By:
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CITIGROUP GLOBAL MARKETS INC.
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By
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/s/ Julian Allen
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Authorized Signatory
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For themselves and as Representatives of the other Underwriters named in Schedule A hereto.
30
SCHEDULE A
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Number of
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Name of Underwriter
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Initial Securities
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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14,175,000
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Deutsche Bank Securities Inc.
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12,150,000
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Citigroup Global Markets Inc.
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6,075,000
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Barclays Capital Inc.
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2,701,350
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Wells Fargo Securities, LLC
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2,701,350
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Calyon Securities (USA) Inc.
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1,081,350
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Cantor Fitzgerald & Co.
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538,650
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Piper Jaffray & Co.
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538,650
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Scotia Capital (USA) Inc.
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538,650
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Total
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40,500,000
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Sch A-1
SCHEDULE B
1. The initial public offering price per share for the Securities is $20.00.
2. The number of shares of the Securities purchased by the Underwriters is 40,500,000.
Sch B-1
SCHEDULE C
STARWOOD PROPERTY TRUST, INC.
40,500,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The initial public offering price per share for the Securities, determined as
provided in said Section 2, shall be $20.00.
2. The purchase price per share for the Securities to be paid by the several
Underwriters shall be $19.50 for 1,250,000 of the Initial Securities purchased, being an
amount equal to the initial public offering price set forth above less $0.50 per share, and
shall be $19.40 for the remaining 39,250,000 Initial Securities purchased, plus any Option
Securities, being an amount equal to the initial public offering price set forth above less
$0.60 per share; provided that the purchase price per share for any Option Securities
purchased upon the exercise of the overallotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option Securities.
3. The Manager Offering Payments as described in Sections 2(a) and 2(b) shall be $0.20
per share for 39,250,000 of the Initial Securities purchased plus any Option Securities.
4. The Conditional Payment to be made by the Company to Merrill Lynch, for the account
of the Underwriters, in the event that the Performance Hurdle Rate described in Section 2(d)
is met or exceeded, shall be $0.40 per share for 39,250,000 of the Initial Securities
purchased plus any Option Securities.
Sch C-1
SCHEDULE D
List of persons and entities subject to lockup
1.
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Required to deliver a letter in the form of Exhibit D.
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SPT Management, LLC
Barry S. Sternlicht
Jeffrey G. Dishner
Jerome C. Silvey
Ellis Rinaldi
Barbara J. Anderson
Richard D. Bronson
Jeffrey F. DiModica
Lynn Forester de Rothschild
Straus S. Zelnick
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2.
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Required to deliver a letter in the form of Exhibit E.
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SPT Investment, LLC
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Sch D-1
SCHEDULE E
Issuer General Use Free Writing Prospectuses
None.
Sch E-1
Exhibit A
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
TO BE DELIVERED PURSUANT TO
SECTION 6(b)
[Intentionally
omitted.]
A-1
Exhibit B
FORM OF OPINION OF DLA PIPER LLP (US)
TO BE DELIVERED PURSUANT TO
SECTION 6(b)
[Intentionally
omitted.]
B-1
Exhibit C
FORM OF OPINION OF RINALDI, FINKELSTEIN & FRANKLIN, L.L.C.
TO BE DELIVERED PURSUANT TO
SECTION 6(b)
[Intentionally
omitted.]
C-1
Exhibit D
Form of lockup from the Manager and the Companys directors and officers pursuant to
Section 6(j)
August 11, 2009
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Deutsche Bank Securities Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
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Re:
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Proposed Public Offering by Starwood Property Trust, Inc.
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Dear Sirs:
The undersigned, [an officer and/or director] [SPT Management, LLC, the manager] of Starwood
Property Trust, Inc., a Maryland corporation (the Company), understands that Merrill Lynch,
Pierce, Fenner & Smith Incorporated (Merrill Lynch) and Deutsche Bank Securities Inc. (Deutsche
Bank and, together with Merrill Lynch, the Representatives) propose to enter into a Purchase
Agreement (the Purchase Agreement) with the Company providing for the public offering of shares
(the Securities) of the Companys common stock, par value $0.01 per share (the Common Stock).
In recognition of the benefit that such an offering will confer upon the undersigned and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a
period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the
prior written consent of the Representatives (i) directly or indirectly, offer, sell, contract to
sell, or otherwise dispose of or hedge, or enter into any transaction that is designed to, or could
be expected to result in the disposition of any shares of the Companys Common Stock or any other
securities convertible into or exchangeable or exercisable for shares of the Companys Common Stock
or derivatives on shares of the Companys Common Stock, whether now owned or hereafter acquired by
the undersigned or with respect to which the undersigned has or hereafter acquires the power of
disposition (collectively, the Lockup Securities) or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Lockup Securities, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash or otherwise. Clause (ii)
above shall apply to shares of Common Stock and to securities convertible into or exchangeable or
exercisable for or repayable with shares of Common Stock and shall apply for a period of 180 days
from the date of the Purchase Agreement to shares acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the power of disposition.
D-1
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may
transfer the Lockup Securities without the prior written consent of the Representatives
provided that (1) the Representatives receive a signed lockup agreement for the balance of
the lockup period from each donee, trustee, distributee, or transferee, as the case may be,
(2) any such transfer shall not involve a disposition for value, (3) such transfers are not
required to be reported in any public report or filing with the Securities and Exchange
Commission, or otherwise and (4) the undersigned does not otherwise voluntarily effect any
public filing or report regarding such transfers:
(i) as a bona fide gift or gifts; or
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned (for purposes of this lockup agreement, immediate
family shall mean any relationship by blood, marriage or adoption, not more remote than
first cousin.
Notwithstanding the foregoing, if:
(1) during the last 17 days of the 180-day lockup period, the Company issues an earnings
release or material news or a material event relating to the Company and its subsidiaries
considered as one enterprise occurs; or
(2) prior to the expiration of the 180-day lockup period, the Company announces that it will
release earnings results during the 16-day period beginning on the last day of the 180-day lockup
period,
the restrictions imposed by this lockup agreement shall continue to apply until the expiration of
the 18-day period beginning on the date of the release of the earnings results or the occurrence of
the material news or material event, as applicable, unless the Representatives waive, in writing,
such extension.
The undersigned hereby acknowledges and agrees that written notice of any extension of the
180-day lockup period pursuant to the previous paragraph will be delivered by the Representatives
to the Company (in accordance with Section 13 of the Purchase Agreement) and that any such notice
properly delivered will be deemed to have been given to, and received by, the undersigned. The
undersigned further agrees that, prior to engaging in any transaction or taking any other action
that is subject to the terms of this lockup agreement during the period from the date of this
lockup agreement to and including the 34th day following the expiration of the initial 180-day
lockup period, it will give notice thereof to the Company and will not consummate such transaction
or take any such action unless it has received written confirmation from the Company that the
180-day lockup period (as may have been extended pursuant to the previous paragraph) has expired.
D-2
The undersigned also agrees and consents to the entry of stop transfer instructions with the
Companys transfer agent and registrar against the transfer of the Lockup Securities except in
compliance with the foregoing restrictions.
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Very truly yours,
[Entity]
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Signature:
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Print Name:
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[Title:
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]
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D-3
Exhibit E
Form of lockup from SPT Investment, LLC pursuant to Section 6(j)
August 11, 2009
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Deutsche Bank Securities Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
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Re:
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Proposed Public Offering by Starwood Property Trust, Inc.
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Dear Sirs:
The undersigned, SPT Investment, LLC (SPT Investment) understands that Merrill Lynch,
Pierce, Fenner & Smith Incorporated (Merrill Lynch) and Deutsche Bank Securities Inc. (Deutsche
Bank and, together with Merrill Lynch, the Representatives) propose to enter into a Purchase
Agreement (the Purchase Agreement) with Starwood Property Trust, Inc., a Maryland corporation
(the Company) providing for the public offering of shares (the Securities) of the Companys
common stock, par value $0.01 per share (the Common Stock). In recognition of the benefit that
such an offering will confer upon the undersigned and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the SPT Investment agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 365 days from the date
of the Purchase Agreement, the undersigned will not, without the prior written consent of the
Representatives (i) directly or indirectly, offer, sell, contract to sell, or otherwise dispose of
or hedge, or enter into any transaction that is designed to, or could be expected to result in the
disposition of any shares of the Companys Common Stock or any other securities convertible into or
exchangeable or exercisable for shares of the Companys Common Stock or derivatives on shares of
the Companys Common Stock, whether now owned or hereafter acquired by the undersigned or with
respect to which the undersigned has or hereafter acquires the power of disposition (collectively,
the Lockup Securities) or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of
the Lockup Securities, whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise. Clause (ii) above shall apply to shares of Common
Stock and to securities convertible into or exchangeable or exercisable for or repayable with
shares of Common Stock and shall apply for a period of 365 days from the date of the Purchase
Agreement to shares acquired later by the person executing the agreement or for which the person
executing the agreement later acquires the power of disposition.
Concurrently with the public offering, SPT Investment will purchase the Companys common stock
in a private offering, pursuant to a private placement purchase agreement (the Concurrent
Shares). In recognition of the benefit that such private offering will confer upon SPT Investment
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, SPT Investment further agrees with each underwriter to be named in the Purchase
Agreement that, during a
period of 365 days from the date of the Purchase Agreement, SPT Investment will not, without the
prior written consent of the Representatives, directly or indirectly, offer, sell, contract to
sell, or otherwise dispose of or hedge, or enter into any transaction that is designed to, or
could be expected to result in the disposition of any shares of the Concurrent Shares.
E-1
Notwithstanding the foregoing, and subject to the conditions below, SPT Investment may
transfer the Lockup Securities and the Concurrent Shares without the prior written consent of the
Representatives provided that (1) the Representatives receive a signed lockup agreement for the
balance of the lockup period from each donee or trustee, as the case may be, (2) any such transfer
shall not involve a disposition for value, (3) such transfers are not required to be reported in
any public report or filing with the Securities and Exchange Commission, or otherwise and (4) SPT
Investment does not otherwise voluntarily effect any public filing or report regarding such
transfers:
(i) as a bona fide gift or gifts; or
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned (for purposes of this lockup agreement, immediate
family shall mean any relationship by blood, marriage or adoption, not more remote than
first cousin.
Notwithstanding the foregoing, if:
(1) during the last 17 days of the 365-day lockup period, the Company issues an earnings
release or material news or a material event relating to the Company occurs; or
(2) prior to the expiration of the 365-day lockup period, the Company announces that it will
release earnings results during the 16-day period beginning on the last day of the 365-day lockup
period,
the restrictions imposed by this lockup agreement shall continue to apply until the expiration of
the 18-day period beginning on the date of the release of the earnings results or the occurrence of
the material news or material event, as applicable, unless the Representatives waive, in writing,
such extension.
SPT Investment hereby acknowledges and agrees that written notice of any extension of the
365-day lockup period pursuant to the previous paragraph will be delivered by the Representatives
to the Company (in accordance with Section 13 of the Purchase Agreement) and that any such notice
properly delivered will be deemed to have been given to, and received by SPT Investment. SPT
Investment further agrees that, prior to engaging in any transaction or taking any other action
that is subject to the terms of this lockup agreement during the period from the date of this
lockup agreement to and including the 34th day following the expiration of the initial 365-day
lockup period, it will give notice thereof to the Company and will not consummate such transaction
or take any such action unless it has received written confirmation from the Company that the
365-day lockup period (as may have been extended pursuant to the previous paragraph) has expired.
SPT Investment also agrees and consents to the entry of stop transfer instructions with the
Companys transfer agent and registrar against the transfer of the Lockup Securities and the
Concurrent Shares except in compliance with the foregoing restrictions.
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Very truly yours,
SPT INVESTMENT, LLC
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By:
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Name:
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Title:
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E-2