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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 2001
REGISTRATION NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CAPSTEAD MORTGAGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 75-2027937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8401 NORTH CENTRAL EXPRESSWAY
SUITE 800
DALLAS, TEXAS 75225-4410
(214) 874-2323
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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ANDREW F. JACOBS
8401 NORTH CENTRAL EXPRESSWAY
SUITE 800
DALLAS, TEXAS 75225-4410
(214) 874-2323
(Name, address, including zip code, and telephone number
including area code, of agent for service)
----------
The Commission is requested to send copies of all communication to:
DAVID BARBOUR
ANDREWS & KURTH L.L.P.
1717 MAIN STREET
SUITE 3700
DALLAS, TEXAS 75201
(214) 659-4400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<Table>
<Caption>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value 875,000 shares $25.26 $22,102,500.00 $5,525.63
- -----------------------------------------------------------------------------------------------------------------------------
$1.26 Cumulative Convertible
Preferred Stock, Series B, $0.10
par value 1,000,000 shares $12.29 $12,290,000.00 $3,072.50
=============================================================================================================================
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low
sales prices of the Common Stock on August 24, 2001 as reported on the
New York Stock Exchange.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[CAPSTEAD LOGO]
CAPSTEAD MORTGAGE CORPORATION
COMMON STOCK
$1.26 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
You should Through this prospectus, Capstead Mortgage
carefully Corporation may offer and sell from time to
consider the time up to 875,000 shares of our common
risk factors stock, and up to 1,000,000 shares of our
beginning on $1.26 Cumulative Convertible Preferred
page 4 of this Stock, Series B which are listed on the New
prospectus. York Stock Exchange under the symbols "CMO"
and "CMOPB", respectively.
We may sell all or a portion of the shares of stock offered pursuant to
this prospectus through agents, to or through underwriters or dealers. We are a
party to a sales agreement with RCG Equity Finance, a Division of Ramius
Securities, LLC, as sales manager, relating to the sale of shares offered
pursuant to this prospectus. The sales manager is not required to sell any
specific number or dollar amount of shares, but will use its best efforts to
sell the shares offered by this prospectus. See "Description of Sales Agreement"
and "Plan of Distribution".
You should rely only on the information contained or incorporated by
reference in this prospectus and in any prospectus supplement accompanying this
prospectus and that we have referred you to.
We have not authorized anyone to provide you with information that is
different.
You should not assume that the information in this prospectus or in any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
References in this prospectus to "we," "us," "our" and "the company"
are to Capstead Mortgage Corporation.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 27, 2001.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov and at the public reference rooms of
the New York Stock Exchange, 20 Broad Street, New York, New York and the Pacific
Stock Exchange, 115 Sansome Street, San Francisco, California.
We have filed a registration statement with the SEC on Form S-3
relating to the securities offered by this prospectus. This prospectus does not
contain all of the information included in the registration statement. You may
refer to the registration statement and the related exhibits for more
information about the securities offered by this prospectus. The statements we
make in this prospectus regarding the content of any documents filed as exhibits
to the registration statement are not necessarily complete, and you should refer
to the filed copy for additional information. All our statements about these
documents are qualified in their entirety by the exhibits to the registration
statement.
INCORPORATION OF INFORMATION WE FILE
WITH THE SEC BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until all the securities offered under this prospectus are
sold. This prospectus is part of the registration statement we filed with the
SEC.
1. Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
2. Our definitive Proxy Statement dated March 9, 2001, issued in
connection with our annual stockholders' meeting.
3. Our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2001.
4. Our definitive Proxy Statement dated May 17, 2001, issued in
connection with a proposed one-for-two reverse split of our
common stock.
5. Our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2001.
6. Our Current Report on Form 8-K dated July 2, 2001.
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You may view and obtain copies of these filings in the Investor
Relations section of our website at www.capstead.com. You may also request a
copy of these filings, at no cost, by writing or telephoning us at Capstead
Mortgage Corporation, 8401 N. Central Expressway, Suite 800, Dallas, Texas
75225, telephone (214) 874-2323, Attention: Investor Relations.
FORWARD-LOOKING INFORMATION
This prospectus contains "forward-looking statements" (within the
meaning of the Private Securities Litigation Reform Act of 1995) that inherently
involve risks and uncertainties. Our actual results and liquidity can differ
materially from those anticipated in these forward-looking statements because of
changes in the level and composition of our investments and unforeseen factors.
These factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in, and
market expectations for fluctuations in, interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors. For a discussion of the risks and uncertainties which could cause
actual results to differ from those contained in the forward-looking statements,
see "Risk Factors" in this prospectus. We do not undertake, and specifically
disclaim any obligation, to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
ABOUT CAPSTEAD MORTGAGE CORPORATION
We were incorporated on April 15, 1985 in Maryland and commenced
operations in September 1985. We are a mortgage investment firm operating as a
real estate investment trust ("REIT") that earns income from investing in real
estate-related assets on a leveraged basis and from other investment strategies.
These investments currently include, but are not limited to, adjustable-rate
single-family residential mortgage-backed securities issued by
government-sponsored entities, either Fannie Mae, Freddie Mac or Ginnie Mae. We
are also evaluating other suitable investments which may include additional
investments in credit-sensitive commercial and residential real estate-related
assets.
We and our qualified REIT subsidiaries have elected to be taxed as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"), and
intend to continue to do so. As a result of this election, we and our qualified
REIT subsidiaries are not taxed at the corporate level on taxable income
distributed to stockholders, provided that certain REIT qualification tests are
met. Certain other affiliated entities which are consolidated with us for
financial reporting purposes, are not consolidated for federal income tax
purposes because such entities were not established as REITs or qualified REIT
subsidiaries. All taxable income of these affiliated entities is subject to
federal and state income taxes, where applicable.
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RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER,
IDENTIFIES CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN
OUR COMMON STOCK AND OUR SERIES B PREFERRED STOCK.
CHANGES IN INTEREST RATES
MAY ADVERSELY AFFECT OUR
EARNINGS....................... Our earnings currently depend primarily on
the difference or "spread" between the
interest we receive on our mortgage
securities and other investments, and the
interest we pay on our related borrowings,
which are generally based on 30-day LIBOR,
an index that reflects prevailing
short-term interest rates. The resulting
spread may be reduced or even be negative
in a rising short-term interest rate
environment.
Because a substantial portion of our
mortgage investments currently consist of
adjustable-rate mortgage securities, the
risk of rising short-term interest rates is
offset to some extent by increases in the
rates of interest earned on the underlying
adjustable-rate mortgage loans, a portion
of which reset each month based on
underlying indices (generally 1-year
Constant Maturity U.S. Treasury Note
Rates).
Since only a portion of the adjustable-rate
mortgage loans underlying our securities
reset each month, and the terms of an
adjustable rate mortgage loan generally
limit the amount of these increases during
any single interest rate adjustment period
and over the life of the loan, interest
rates on borrowings can rise to levels that
may exceed the interest rates on the
underlying loans contributing to lower or
even negative financing spreads.
At other times, as seen in 1998 and as is
currently being experienced in 2001,
declines in these indices during periods of
falling short-term interest rates will
negatively affect yields on adjustable-rate
mortgage securities as the underlying
adjustable-rate loans reset at lower
interest rates. If declines in these
indices exceed declines in our borrowing
rates, our earnings may be adversely
affected.
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AN INCREASE IN PREPAYMENTS MAY
ADVERSELY AFFECT OUR EARNINGS... Another effect of changes in interest rates
is that, as long-term interest rates
decrease, the rate of principal prepayments
on mortgage loans underlying our mortgage
investments generally increases. As seen in
1998, and to some extent in 2001, prolonged
periods of high prepayments can
significantly reduce the expected life of
our mortgage investments; therefore, the
actual yields realized can be lower due to
faster amortization of premiums.
THE AVAILABILITY OF SUITABLE
INVESTMENTS AT ATTRACTIVE
PRICING MAY ADVERSELY
AFFECT OUR EARNINGS............. To the extent proceeds of prepayments on
our mortgage investments are not reinvested
or cannot be reinvested at a rate of
interest at least equal to the rate
previously earned on those investments, our
earnings may be adversely affected. We
cannot assure you that we will be able to
acquire suitable investments at attractive
pricing and in a timely manner to replace
portfolio runoff as it occurs or that we
will maintain the current composition of
our investments, consisting primarily of
adjustable-rate mortgage securities.
EARNINGS ON OUR CMO INVESTMENTS
ARE ALSO AFFECTED BY CHANGES
IN INTEREST RATES............... A change in interest rates also impacts the
results we recognize in our earnings from
our CMO investments, which currently
consist primarily of fixed-rate CMO
residuals. As seen in 1998, if mortgage
interest rates fall, prepayments on the
underlying mortgage loans generally will be
higher, accelerating the amortization of
collateral premiums and bond discounts.
Conversely, if mortgage interest rates rise
significantly above interest rates on the
collateral, principal prepayments will
typically diminish, improving the overall
return on an investment in a fixed-rate CMO
residual because of an increase in time
over which we receive positive net cash
flows and can amortize remaining collateral
premiums and bond discounts.
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THE VALUE OF OUR MORTGAGE ASSETS
FLUCTUATES WITH CHANGES IN
INTEREST RATES................. We periodically sell mortgage assets, which
may increase our income volatility because
of the recognition of transactional gains
or losses. These sales may become
attractive or prudent as the value of our
mortgage assets fluctuates with changes in
interest rates and market liquidity. At
other times, such as in the second quarter
of 2000, we may shift our investment focus,
resulting in asset sales. Because we have
significant capital loss carryforwards for
tax purposes, we may not distribute gains
on sales of assets to our stockholders as
dividends.
During periods of rising interest rates or
falling market liquidity, the value of our
mortgage assets can decline, leading to
increased margin calls and reducing our
liquidity. In the event of a margin call,
our lenders may require us to pledge
additional collateral to re-establish the
ratio of the value of our collateral to the
amount of our borrowing. If we are unable
or unwilling to pledge additional
collateral, our lenders can liquidate our
collateral under adverse market conditions.
Any such liquidation would likely result in
a loss to us.
WE HAVE NOT USED DERIVATIVES TO
MITIGATE OUR INTEREST RATE
AND PREPAYMENT RISKS........... We may invest in derivative financial
instruments from time to time with the goal
of achieving more stable financing spreads
on a portion of our mortgage investment
portfolio. As of the date of this filing,
we did not own any derivative financial
instruments for this purpose.
SOME OF OUR CURRENT OR FUTURE
INVESTMENTS MAY BE MORE
CREDIT SENSITIVE THAN OUR
OTHER INVESTMENTS.............. We continue to evaluate suitable real
estate-related investments, which may
include credit sensitive assets that
generally earn higher yields due largely to
a higher risk of default and reduced
liquidity. We believe that such
investments, when combined with the prudent
use of leverage, can provide attractive
returns over the long term. Suitable
investments may include credit sensitive
commercial and residential mortgage assets.
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Commercial mortgage assets are generally
viewed as exposing an investor to greater
risk of loss than residential mortgage
assets because commercial mortgage assets
are typically secured by larger loans to
fewer obligors than residential mortgage
assets. Commercial property values and net
operating income are subject to volatility,
and net operating income may be sufficient
or insufficient to cover debt service on
the related mortgage loan at any given
time. The repayment of loans secured by
income-producing properties is typically
dependent upon the successful operation of
the related real estate project and the
ability of the applicable property to
produce net operating income rather than
upon the liquidation value of the
underlying real estate. Even when the
current net operating income is sufficient
to cover debt service, there can be no
assurance that this will continue to be the
case in the future.
Additionally, commercial properties may not
readily be convertible to alternative uses
if such properties were to become
unprofitable due to competition, age of
improvements, decreased demand, regulatory
changes or other factors. The conversion of
commercial properties to alternate uses
generally requires substantial capital
expenditures, which may or may not be
available.
The availability of credit for commercial
mortgage loans is significantly dependent
upon economic conditions in the markets
where such properties are located, as well
as the willingness and ability of lenders
to make such loans. The availability of
funds in the credit markets fluctuates and
there can be no assurance that the
availability of such funds will increase
above, or will not contract below current
levels. In addition, the availability of
similar commercial properties, and the
competition for available credit, may
affect the ability of potential purchasers
to obtain financing for the acquisition of
properties. This could effect the repayment
of commercial mortgages.
Credit sensitive residential mortgages
differ from commercial mortgages in several
important ways, yet can still carry
substantial credit risk. Residential
mortgage-backed securities typically are
secured by smaller loans to more obligors
than commercial mortgage-backed securities,
thus spreading the risk of mortgagor
default. However, most of the mortgages
supporting credit sensitive
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residential mortgage-backed securities are
made to homeowners that do not qualify for
agency loan programs for reasons including
loan size, financial condition, or work or
credit history that may be indicative of
higher risk of default than loans
qualifying for such programs. As with
commercial mortgages, in instances of
default we may incur losses if proceeds
from sales of the underlying collateral are
less than the unpaid principal balances of
the mortgage loans and related foreclosure
costs. However, with residential mortgages,
this risk may be mitigated by various forms
of credit enhancements including, but not
limited to, primary mortgage insurance.
Through the process of securitizing both
commercial and residential mortgages,
credit risk can be heightened or minimized.
Senior classes in multi-class
securitizations generally have first
priority over cash flows from a pool of
mortgages and, as a result, carry the least
risk, highest investment ratings and the
lowest yields. Typically a securitization
will also have mezzanine classes and
subordinated classes. Mezzanine classes
will generally have lower credit ratings,
higher yields and may have average lives
that are longer than the senior classes.
Subordinate classes are junior in the right
to receive cash flow from the underlying
mortgages, thus providing credit
enhancement to the senior and mezzanine
classes. As a result, subordinated
securities will have even lower credit
ratings and higher yields because of the
elevated risk of credit loss inherent in
these securities.
The availability of capital from external
sources to finance investments in
credit-sensitive commercial and residential
mortgage assets that are not financed to
maturity at acquisition may be diminished
during periods of mortgage finance market
illiquidity, such as was experienced in
1998. Additionally, if market conditions
deteriorate resulting in substantial
declines in value of these assets,
sufficient capital may not be available to
support the continued ownership of these
assets, requiring them to be sold at a
loss.
IF OUR EARNINGS OR THE VALUE OF OUR
INVESTMENTS ARE ADVERSELY AFFECTED BY A
CHANGE IN INTEREST RATES OR CHANGE IN THE
CREDIT QUALITY OF THE INVESTMENT PORTFOLIO,
THE BOOK VALUE OF OUR COMMON STOCK COULD BE
EXPECTED TO DECLINE.
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WE ARE CURRENTLY INVOLVED IN
STOCKHOLDER LITIGATION......... During 1998 twenty-four purported class
action lawsuits were filed against us and
certain of our officers alleging, among
other things, that we violated federal
securities laws by publicly issuing false
and misleading statements and omitting
disclosure of material adverse information
regarding our business during various
periods between January 28, 1997 and July
24, 1998. The complaints claim that as a
result of such alleged improper actions,
the market prices of our equity securities
were artificially inflated during that time
period. The complaints seek monetary
damages in an undetermined amount. In March
1999 these actions were consolidated and in
July 2000 a lead plaintiff group was
appointed by the court. An amended
complaint was filed October 20, 2000. The
amended complaint seeks monetary damages in
an undetermined amount. We responded to
this amended complaint on February 20, 2001
with a motion to dismiss all allegations
against us and our officers. On April 20,
2001, the plaintiffs responded to our
motion to dismiss. We filed our reply to
the plaintiff's response on May 21, 2001.
We believe that we have meritorious
defenses to the claims and we intend to
vigorously defend against the actions.
Based on available information, we believe
the resolution of these suits will not have
a material adverse effect on our financial
position.
WE HAVE NOT ESTABLISHED A
MINIMUM DIVIDEND
PAYMENT LEVEL.................. We intend to pay quarterly dividends and to
make distributions to our stockholders in
amounts such that most, if not all, of our
REIT taxable income in each year (subject
to certain adjustments) is distributed.
This will enable us to qualify for the tax
benefits accorded to a REIT under the Code.
We have not established a minimum dividend
payment level and our ability to pay
dividends may be adversely affected due to
the risk factors described in this
prospectus. All distributions will be made
at the discretion of our board of directors
and will depend on our earnings, our
financial condition, maintenance of our
REIT status and such other factors as our
board of directors may deem relevant from
time to time.
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OUR FAILURE TO QUALIFY AS A REIT
WOULD HAVE ADVERSE TAX
CONSEQUENCES .................. Many REIT-related tax requirements are
highly technical and complex. The
determination of whether we and our
qualified REIT subsidiaries are taxable as
a REIT requires an analysis of various
factual matters and circumstances that may
not be totally within our control. For
example, to qualify as a REIT, at least 75%
of our REIT gross income must come from
real estate sources and 95% of our REIT
gross income must come from real estate
sources and certain other sources that are
itemized in the REIT tax laws. We are also
required to distribute to stockholders at
least 90% of our REIT taxable income
(excluding capital gains). Even a technical
or inadvertent mistake could jeopardize our
REIT status. Furthermore, Congress and the
IRS might make changes to the tax laws and
regulations, and the courts might issue new
rulings that make it more difficult or
impossible for us to remain qualified as a
REIT. If we fail to qualify as a REIT, we
would be subject to federal income tax at
regular corporate rates. Also, unless the
IRS granted us relief under certain
statutory provisions, we would remain
disqualified as a REIT for four years
following the year we first fail to
qualify. If we fail to qualify as a REIT,
we would have to pay significant income
taxes and would therefore have less money
available for investments or for
distributions to our stockholders. This
would likely have a significant adverse
effect on the value of our securities. In
addition, the tax law would no longer
require us to make distributions to our
stockholders.
WE MAY NOT DISTRIBUTE GAINS ON
SALES OF ASSETS TO OUR
STOCKHOLDERS AS DIVIDENDS...... Because we have significant capital loss
carryforwards available through 2003, we
will not likely distribute any gains on the
sale of assets to our stockholders as
dividends.
WE HAVE CERTAIN DISTRIBUTION
REQUIREMENTS................... As a REIT, we must distribute 90% of our
annual REIT taxable income (excluding
capital gains). The required distribution
limits the amount we have available for
other business purposes, including amounts
to fund our growth.
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LOSS OF INVESTMENT COMPANY ACT
EXEMPTION WOULD ADVERSELY
AFFECT US...................... The Investment Company Act exempts entities
that are primarily engaged in the business
of purchasing or otherwise acquiring
mortgages and other liens on and interests
in real estate. We intend to conduct our
business so as not to become regulated as
an investment company under the Investment
Company Act. If we fail to qualify for this
exemption, our ability to use leverage
would be substantially reduced and we would
be unable to conduct our business as
described in this prospectus.
APPROXIMATELY 34% OF OUR
COMMON STOCK IS CONTROLLED
BY FORTRESS ................... Fortress Investment Group, LLC ("Fortress")
controls approximately 34% of our
outstanding common stock and Welsey R.
Edens, our Chairman, Chief Executive
Officer, President and Director, is also
Chairman of the Board of Fortress. If Mr.
Edens resigns or does not stand for
re-election to our board, or if Fortress
sells or disposes of the common shares it
holds, our stock price could decline.
ISSUANCES OF LARGE AMOUNTS OF OUR
STOCK COULD CAUSE OUR PRICE
TO DECLINE..................... As of August 20, 2001, 13,849,941 shares of
common stock and 15,842,279 shares of
Series B Preferred Stock were outstanding.
This prospectus may be used for the
issuance of additional shares of common
stock or Series B Preferred Stock. The
continuing availability of new shares in
the market may decrease or limit increases
in the market prices of these securities.
WE MAY CHANGE OUR POLICIES
WITHOUT STOCKHOLDER
APPROVAL....................... Our board of directors and management
determine all of our policies, including
our investment, financing and distribution
policies and may amend or revise these
policies at any time without a vote of our
stockholders. Policy changes could
adversely affect our financial condition,
results of operations, the market price of
our common stock and/or Series B Preferred
Stock or our ability to pay dividends or
distributions.
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USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement for
any offering of the shares of stock offered pursuant to this prospectus, the net
proceeds from the stock offered by us will be available for general corporate
purposes. These general corporate purposes may include, without limitation,
repayment of maturing obligations, redemption of outstanding indebtedness,
financing (in whole or part), future acquisitions (including acquisitions of
real estate-related companies or real estate-related assets), capital
expenditures and working capital. Pending any such uses, we may invest the net
proceeds from the sale of any stock offered pursuant to this prospectus or
related prospectus supplement or may use them to reduce short-term indebtedness.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to
combined fixed charges and our preferred stock dividends for the periods
indicated:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
QUARTER ENDED -----------------------------------------------
JUNE 30, 2001 2000 1999 1998 1997 1996
------------- ------ ------ ------ ------ ------
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(a) 1.18:1 0.87:1 1.07:1 0.63:1 1.20:1 1.14:1
</Table>
(a) Includes fixed charges relating to CMO's issued by our finance subsidiaries.
Excluding interest expense on CMO debt, the ratio of earnings to combined fixed
charges and preferred stock dividends would have been 1.35:1, 0.77:1, 1.14:1,
0.28:1, 1.36:1, and 1.28:1, respectively, for the periods indicated.
DESCRIPTION OF SALES AGREEMENT
We may sell our common stock and our $1.26 cumulative convertible
Preferred Stock designated as "Series B Preferred Stock" from time to time (1)
through arrangements with underwriters or dealers, (2) directly to one or more
purchasers, or (3) through agents. We have entered into a sales agreement dated
as of August 20, 2001 with RCG Equity Finance, a division of Ramius Securities,
LLC ("RCG") with respect to sales of common stock and Series B Preferred Stock,
and may enter into other sales agreements with other sales agents or
underwriters in the future. Under the terms of the RCG sales agreement, we may
issue and sell up to 875,000 shares of our common stock and up to 1,000,000
shares of our Series B Preferred Stock from time to time through RCG, as our
sales agent. We have agreed to provide indemnification and contribution to RCG
against certain liabilities, including liabilities under the Securities Act.
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CERTAIN TERMS OF THE SALES AGENCY AGREEMENT
Sales pursuant to the RCG sales agreement may be effected on a daily
basis. The compensation to RCG for sales of common stock and Series B Preferred
Stock under the RCG Agreement shall be at the following commission rates:
o 3.5% of the gross sales price per shares ("sales proceeds")
for the first $4 million of aggregate sales proceeds raised under this sales
agreement in each year;
o 3.0% of sales proceeds for the second $4 million of aggregate
sales proceeds raised in such year;
o 2.5% of sales proceeds for the third $4 million of aggregate
sales proceeds raised in such year; and
o 2.0% of sales proceeds for any additional aggregate sales
proceeds raised in such year.
For purposes of determining the appropriate commission rates, the first year
shall begin on August 20, 2001 and end on August 31, 2002, and each subsequent
year shall end on the next succeeding August 31st. The remaining proceeds, after
further deduction for any transaction fees imposed by any governmental or
self-regulatory organization in respect to such sale shall constitute the net
proceeds to us for such shares of stock.
The offering of common stock and Series B Preferred Stock pursuant to
the RCG sales agreement will terminate upon the earlier of (i) the sale of all
shares of common stock and Series B Preferred Stock subject thereto or (ii)
termination of the RCG sales agreement. The RCG sales agreement may be
terminated by us or by RCG upon written notice and in certain other
circumstances specified therein.
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock currently consists of 100,000,000 shares
of common stock, par value $0.01 per share, and 100,000,000 shares of preferred
stock, par value $0.10 per share. As of August 20, 2001, there were 13,849,941
shares of our common stock, 287,516 shares of our $1.60 Cumulative Preferred
Stock designated as "Series A Preferred Stock" and 15,842,279 shares of our
Series B Preferred Stock issued and outstanding. The common stock, Series A
Preferred Stock and Series B Preferred Stock are listed on the New York Stock
Exchange.
COMMON STOCK
Each share of common stock is entitled to one vote. The outstanding
shares of common stock are fully paid and non-assessable. Holders of shares of
common stock do not have cumulative voting rights or preference, conversion,
exchange, subscription or preemptive rights.
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Subject to our obligations to pay dividends on all shares of our outstanding
preferred stock, each share of common stock is entitled to participate equally
in dividends on the common stock when and as declared by our board of directors
and in the distribution of our assets upon liquidation after payment of our
liabilities and liquidation preferences with regard to our preferred stock. The
foregoing summary does not purport to be a complete description of our common
stock and is subject to, and qualified in its entirety by reference to, our
charter and bylaws, in each case as amended and supplemented to date and filed
as exhibits to the registration statement.
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
General. In November, 1989, a wholly-owned subsidiary of ours was
merged with and into Strategic Mortgage Investments, Inc., a Maryland
corporation, and each outstanding share of Strategic common stock was converted
into one share of our Series A Preferred Stock. In December, 1992, Tyler Cabot
Mortgage Securities Fund, Inc., a Maryland corporation, was merged with and into
us, and each outstanding share of Tyler Cabot common stock was converted into
one share of our Series B Preferred Stock. The Series A Preferred Stock and
Series B Preferred Stock are fully paid and non-assessable and neither has
preemptive rights. The Series A Preferred Stock ranks on a parity with the
Series B Preferred Stock, and each rank on a parity with any other series of our
preferred stock which is not by its terms made junior or senior to the Series A
Preferred Stock or Series B Preferred Stock with respect to the payment of
dividends and distribution of assets in liquidation.
Dividends. Holders of the Series B Preferred Stock are entitled to
receive, when, as and if declared by our board of directors out of funds legally
available therefor, cumulative preferential cash dividends at the annual rate of
$1.26 per share, and no more, payable in equal monthly installments on each
monthly dividend payment date. Holders of the Series A Preferred Stock are
entitled to receive, when, as and if declared by our board of directors out of
funds legally available therefor, cumulative preferential cash dividends at the
rate of $1.60 per annum per share, and no more, payable in equal quarterly
installments on each March 31, June 30, September 30 and December 31. Whenever
dividends are in arrears and until all accrued and unpaid dividends on shares of
Series A Preferred Stock and Series B Preferred Stock outstanding have been paid
in full and the then current dividend on each such series shall have been paid
or declared and sufficient funds set aside for payment thereof, we may not
declare or pay dividends on the common stock or any other class or series of
capital stock ranking junior to the Series A Preferred Stock and the Series B
Preferred Stock in respect of dividends or redeem, purchase or otherwise acquire
for consideration any shares of common stock or stock ranking junior to the
Series A Preferred Stock or Series B Preferred Stock.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of our company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock and the Series B Preferred Stock will be entitled to
receive out of our assets available for distribution to stockholders, whether
from capital, surplus or earnings, before any distribution is made to holders of
shares of common stock or junior stock:
o in the case of the Series A Preferred Stock, an amount equal
to $16.40 per share of Series A Preferred Stock; and
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o in the case of Series B Preferred Stock, an amount per share
of Series B Preferred Stock equal to $11.38 per share of Series B Preferred
Stock,
plus, in each case, dividends accumulated and unpaid to the date of final
distribution. If we consolidate or merge with or into any other corporation or
transfer of all or any part of our assets for cash, property or securities, it
will not be considered a liquidation, dissolution or winding-up of our company.
Voting Rights. Except as indicated below, as otherwise provided in our
charter or as required under the Maryland General Corporation Law, the holders
of shares of our Series A Preferred Stock and Series B Preferred Stock will not
have voting rights. If at any time all or any portion of the dividends on the
Series A Preferred Stock or Series B Preferred Stock shall be in arrears and
unpaid for any two or more dividend periods (whether or not consecutive), then
the number of directors constituting our board of directors shall be increased
by two in case of such arrearages on one of the Series A Preferred Stock or
Series B Preferred Stock and four in the case of arrearages on both. The holders
of Series A Preferred Stock and Series B Preferred Stock, voting separately as a
class, will each be entitled to elect two directors to fill such newly created
directorships. At such time as all dividends in default have been paid in full
and dividends for the current quarterly period have been paid or declared and a
sufficient sum for payment has been set aside, the term of any director then in
office solely as a result of the voting rights described in this paragraph will
terminate.
The affirmative vote of at least two-thirds of the outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, in each case voting
separately as a class, will be required to:
o create or increase the number of authorized shares of any
class of our stock ranking prior to the Series A Preferred Stock or Series B
Preferred Stock as to dividends or distributions upon liquidation;
o authorize any reclassification of Series A Preferred Stock or
Series B Preferred Stock; or
o amend, alter or repeal any provisions of our charter which
would adversely affect the rights, powers or preferences of the Series A
Preferred Stock or Series B Preferred Stock.
So long as 20% or more of the aggregate number of shares of Series B
Preferred Stock issued in connection with the Tyler Cabot merger remain
outstanding, the affirmative vote of at least a majority of the outstanding
shares of such Series B Preferred Stock will be required for the sale, lease or
conveyance by us of all or substantially all of our property or business, or our
consolidation or merger with any other corporation unless the corporation
resulting from such consolidation or merger will have after such consolidation
or merger no class of shares either authorized or outstanding ranking prior to
or on a parity with the Series B Preferred Stock except the same number of
shares ranking prior to or on a parity with the Series B Preferred Stock and
having the same rights and preferences as our authorized and outstanding shares
immediately preceding such consolidation or merger, and each holder of Series B
Preferred Stock immediately
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preceding such consolidation or merger shall receive the same number of shares,
with the same rights and preferences, of the resulting corporation.
Except as described herein or otherwise required by law, no consent of
the holders of Series B Preferred Stock will be required for:
o our creation of any indebtedness of any kind;
o the creation, or increase or decrease in the amount, of any
class or series of our stock ranking on a parity with, or not ranking prior to,
the Series B Preferred Stock as to dividends or as to amounts distributable upon
liquidation; or
o any increase or decrease in the amount of our authorized
common stock or any increase, decrease or change in the par value thereof.
Redemption. Neither the Series A Preferred Stock nor the Series B
Preferred Stock is subject to mandatory redemption and neither is entitled to
the benefit of a sinking fund. We may, at our option, redeem the Series A
Preferred Stock, in whole or in part, for cash in an amount per share equal to
$16.40 plus accumulated and unpaid dividends to the date of redemption, whether
or not earned or declared. In addition, we may, at our option, redeem the Series
B Preferred Stock, in whole or in part, for cash in an amount per share equal to
$12.50 plus accumulated and unpaid dividends to the date of redemption, whether
or not earned or declared.
Conversion Rights. Holders of the Series A Preferred Stock may, at
their option, convert shares of Series A Preferred Stock into shares of our
common stock at the rate of 0.9657 shares of our common stock for each share of
Series A Preferred Stock converted. Holders of Series B Preferred Stock may, at
their option, convert shares of Series B Preferred Stock into shares of the our
common stock at the rate of 0.3559 shares of our common stock for each share of
Series B Preferred Stock converted. The conversion rates of the Series A
Preferred Stock and the Series B Preferred Stock are subject to adjustment in
certain circumstances.
REDEMPTION OR REPURCHASE OF CAPITAL STOCK TO MAINTAIN OUR STATUS AS A REIT
Our charter provides that if our board of directors determines in good
faith that the direct or indirect ownership of our stock has or may become
concentrated to an extent which would cause us to fail to qualify or be
qualified as a REIT under Sections 856(a)(5) or (6) of the Code, or similar
provisions of successor statutes, we may redeem or repurchase any number of
shares of common stock and/or preferred stock sufficient to maintain or bring
such ownership into conformity with the Code and may refuse to transfer or issue
shares of common stock and/or preferred stock to any person whose acquisition
would result in our being unable to conform with the requirements of the Code.
In general, Code Sections 856(a)(5) and (6) provide that, as a REIT, we must
have at least 100 beneficial owners for 335 days of each taxable year and that
we cannot qualify as a REIT if, at any time during the last half of our taxable
year, more than 50% in value of our outstanding stock is owned, directly or
indirectly, by or for not more than five individuals. In addition, our charter
provides that we may redeem or refuse to transfer any shares of our capital
stock to the extent necessary to prevent the imposition of a penalty tax as a
result of
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ownership of those shares by certain disqualified organizations, including
governmental bodies and tax-exempt entities that are not subject to tax on
unrelated business taxable income. The redemption or purchase price for those
shares shall be equal to the fair market value of those shares as reflected in
the closing sales price for those shares if then listed on a national securities
exchange, or the average of the closing sales prices for those shares if then
listed on more than one national securities exchange, or if those shares are not
then listed on a national securities exchange, the latest bid quotation for the
shares if then traded over-the-counter on the last business day for which
closing prices are available immediately preceding the day on which notices of
such acquisitions are sent or, if no such closing sales prices or quotations are
available, then the net asset value of those shares as determined by our board
of directors in accordance with the provisions of applicable law.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
The following summary of certain provisions of the Maryland General
Corporations Law and of our charter and the bylaws does not purport to be
complete and is subject to and qualified in its entirety by reference to
Maryland law and to our charter and the bylaws, copies of which are filed with
the SEC.
Business Combination Statute. Under the Maryland General Corporations
Law, certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and any
person who directly or indirectly beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate or associate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the Maryland General Corporations Law) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder.
Control Share Acquisition Statute. The Maryland General Corporations
Law provides that "control shares" of a Maryland corporation acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, and by officers of the
corporation or by directors who are employees of the corporation. "Control
shares" are voting shares of stock
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which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power except solely by virtue of a revocable proxy,
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (1) one-tenth or more but less than
one-third of all voting power, (2) one-third or more but less than a majority of
all voting power, or (3) a majority or more of all voting power. Control shares
do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained stockholder approval within any level of voting
power set forth above. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions. A person who has made or proposes
to make a control share acquisition, upon satisfaction of certain conditions
(including an undertaking to pay expenses), may compel the board of directors of
the corporation to call a special meeting of stockholders to be held within 50
days of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders meeting. If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the statute, then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date of
the last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved.
If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition. The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if the corporation
is a party to the transaction, (b) to acquisitions approved or exempted by the
charter or bylaws of the corporation and adopted at any time before the
acquisition of shares, or (c) to the acquisition of shares within one-tenth or
more but less than one-fifth of all voting power of outstanding shares of stock
of the corporation before June 1, 2000.
Possible Anti-takeover Effect of Certain Provisions of Maryland Law and
of our Charter and Bylaws. The business combination provisions, if the
applicable provision in our bylaws is rescinded, the control share acquisition
provisions of the Maryland General Corporations Law, and the provisions of our
charter on ownership and transfer of stock could delay, defer or prevent a
change in control or other transaction that might involve a premium price for
holders of our common stock or otherwise be in their best interest.
PLAN OF DISTRIBUTION
We may sell common stock and Series B Preferred Stock through
arrangements with broker dealers, directly to one or more purchasers, or through
agents such as RCG.
In connection with the sale of the common stock and the Series B
Preferred Stock on our behalf under the RCG sales agreement, RCG may be deemed
to be an "underwriter" within the
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meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
the compensation payable to RCG under the RCG sales agreement may be deemed to
be an underwriting commission or discount. We have separately agreed to provide
indemnification and contribution to RCG against certain civil liabilities,
including liabilities under the Securities Act. RCG may engage in transactions
with, or perform services for, us in the ordinary course of business.
We will open and maintain a trading account at the clearing agent
designated by RCG to facilitate the transactions contemplated by the RCG sales
agreement. The net proceeds from the sale of the common stock and Series B
Preferred Stock under the RCG sales agreement shall be available in the trading
account on the third business day (or such other day as is industry practice for
regular-way trading) following each sale of the common stock and Series B
Preferred Stock (each, a "Settlement Date"). We will effect the delivery of the
applicable number of shares of common stock and/or Series B Preferred Stock (as
the case may be) to an account designated by RCG at The Depository Trust Company
on or before the settlement date of each sale hereunder. RCG's compensation
shall be withheld from the sales proceeds on each settlement date and shall be
paid to RCG.
The offering of common stock and Series B Preferred Stock pursuant to
the RCG sales agreement will terminate upon the earlier of (i) the sale of all
shares of common stock and Series B Preferred Stock subject thereto or (ii)
termination of the RCG sales agreement. The RCG sales agreement may be
terminated by us or by RCG upon written notice and in certain other
circumstances specified therein.
TAXATION
The applicable provisions of the Code are highly technical and complex.
This summary is not intended as a detailed discussion of all applicable
provisions of the Code, the rules and regulations promulgated thereunder, or the
administrative and judicial interpretations thereof. For the particular
provisions that govern the federal income tax treatment of the company and its
stockholders, reference is made generally to Sections 856 and 860 of the Code
and the Treasury Regulations promulgated thereunder. We have not obtained
rulings from the Internal Revenue Service with respect to any tax considerations
relevant to our organization or operations or to an investment in our common
stock or Series B Preferred Stock. This summary is not intended to substitute
for prudent tax planning and stockholders are urged to consult their own tax
advisors with respect to these and other federal, state and local tax
consequences of the ownership and disposition of any of our common stock or
Series B Preferred Stock and any potential changes in applicable law.
Nonresident aliens, non-U.S. persons and entities, tax-exempt organizations,
life insurance companies, cooperatives and certain other categories of investors
may be subject to special tax rules that are not discussed below and that could
affect an investment in our common stock or Series B Preferred Stock.
FEDERAL INCOME TAXATION OF CAPSTEAD MORTGAGE CORPORATION
As used herein, "Capstead REIT" refers to Capstead Mortgage Corporation
and the entities that are effectively consolidated with Capstead Mortgage
Corporation for federal income
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tax purposes. Certain of our subsidiaries (the "Non-REIT subsidiaries") are
consolidated with Capstead Mortgage Corporation for financial reporting purposes
but are not consolidated for federal income tax purposes. All of the Non-REIT
subsidiaries' taxable income is subject to federal and state income taxes. We
may form additional Non-REIT subsidiaries.
So long as a corporation such as Capstead REIT qualifies as a REIT and
distributes at least 90% of its REIT taxable income and net income from
foreclosure properties to stockholders, it will not be subject to federal
corporate income taxes on such income distributed to stockholders, with limited
exceptions discussed below. Under certain circumstances, a REIT may be subject
to the corporate minimum tax or certain other special taxes. However, Capstead
REIT does not anticipate generating material items of income or deductions that
would cause it to be subject to the minimum tax or any such special tax.
QUALIFICATION AND TAXATION OF CAPSTEAD REIT AS A REIT
Capstead REIT has made an election to be taxed as a REIT under Sections
856 through 860 of the Code effective for its taxable years ending on and after
December 31, 1985. Capstead REIT's qualification and taxation as a REIT depends
upon Capstead REIT's ability to meet on a continuing basis, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests and organizational requirements imposed under
the Code, as discussed below. Capstead REIT believes that it is organized and
has operated in such a manner as to qualify under the Code for taxation as a
REIT commencing with its 1985 taxable year, and Capstead REIT intends to
continue to operate in such a manner. No assurance, however, can be given that
Capstead REIT will operate in a manner so as to qualify or remain qualified as a
REIT. See "Failure to Qualify" below.
In the opinion of Andrews & Kurth L.L.P., tax counsel to Capstead REIT,
for all of its taxable years beginning September 5, 1985 and ending December 31,
2000, Capstead REIT has met the requirements for qualification as a REIT under
the Code and will be able to qualify as a REIT for taxable years beginning on
and after January 1, 2001, provided that Capstead REIT continues to be organized
and operated after the date of this prospectus so as to satisfy the applicable
REIT requirements under the Code. This opinion is based on various assumptions
relating to the organization and operation of Capstead REIT, and is conditioned
upon the accuracy of certain representations made by Capstead REIT as to certain
relevant factual matters relating to the organization and expected manner of
operation of Capstead REIT and its subsidiaries. Andrews & Kurth L.L.P. is not
aware of any facts or circumstances that are inconsistent with these assumptions
and representations. Moreover, such qualification and taxation as a REIT will
depend upon Capstead REIT's ability to meet on a continuing basis, through
actual annual operating results, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code discussed
below. Andrews & Kurth L.L.P. will not review compliance with these tests on a
continuing basis. No assurance can be given that Capstead REIT will satisfy such
tests on a continuing basis. See "Failure to Qualify" below.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth
certain material aspects of the Code
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sections that govern the federal income tax treatment of a REIT and its
stockholders. The discussion is qualified in its entirety by the applicable Code
provisions, Treasury Regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change
prospectively or retroactively.
So long as Capstead REIT continues to qualify for taxation as a REIT,
it generally will not be subject to federal corporate income tax on its net
income that is distributed currently to its stockholders. That treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from investment in a
corporation. However, Capstead REIT will be subject to federal income tax in the
following circumstances. First, Capstead REIT will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, Capstead REIT may be subject
to the "alternative minimum tax" on items of tax preference, if any. Third, if
Capstead REIT has (1) net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired by foreclosure
or otherwise on default of a loan or lease secured by the property) that is held
primarily for sale to customers in the ordinary course of business or (2) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if Capstead REIT has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property, other than foreclosure property, held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if Capstead REIT should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and
nonetheless has maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amounts by which it fails the 75% or 95%
gross income test. Sixth, if Capstead REIT should fail to distribute during each
calendar year at least the sum of:
- 85% of its REIT ordinary income for such year,
- 95% of its REIT capital gain net income for such year and
- any undistributed taxable income from prior periods,
it would be subject to a 4% excise tax on the excess of such required
distribution over the sum of the amounts actually distributed and amounts
retained for which federal income tax was paid. Seventh, Capstead REIT may be
subject to a 100% excise tax with respect to certain "redetermined rents,"
"redetermined deductions," and "excess interest" to ensure arm's length (1)
pricing for certain services provided by taxable REIT subsidiaries of Capstead
REIT to Capstead REIT's tenants, if any, and (2) allocation of shared expenses
between Capstead REIT and its taxable REIT subsidiaries. Finally, if Capstead
REIT acquires any asset from a C corporation (i.e., a corporation generally
subject to full corporate-level tax) in a transaction in which the basis of the
asset in Capstead REIT's hands is determined by reference to the basis of the
asset or any other property in the hands of the corporation, and Capstead REIT
recognizes gain on the disposition of such asset during the ten-year period
beginning on the date on which such asset was acquired by Capstead REIT, then,
to the extent of such property's "built-in" gain (the excess
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of the fair market value of such property at the time of acquisition by Capstead
REIT over the adjusted basis of such property at such time), that gain will be
subject to the highest corporate rate applicable, provided an election is made
by Capstead REIT to defer this gain for the 10-year period under the principles
of Section 1374 of the Code.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for the REIT
provisions of the Code;
(4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) not more than 50% in value of the outstanding shares of which is
owned, directly or indirectly, by five or fewer individuals, as defined in the
Code to include certain entities (the "5/50 Rule");
(7) that makes an election to be a REIT, or has made such election for
a previous taxable year which has not been revoked or terminated, and satisfies
all relevant filing and other administrative requirements established by the IRS
that must be met in order to elect and maintain REIT status;
(8) that uses a calendar year for federal income tax purposes; and
(9) that meets certain other tests, described below, regarding the
nature of its income and assets.
The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year, that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months, and that condition (6) must be met during
the last half of the taxable year. For purposes of determining stock ownership
under the 5/50 Rule, a supplemental unemployment compensation benefits plan, a
private foundation or a portion of a trust permanently set aside or used
exclusively for charitable purposes generally is considered an individual. A
qualified employee benefit trust, however, generally is not considered an
individual, and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust. Finally, Capstead
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REIT will be treated as having met condition (6) above if it has complied with
certain Treasury Regulations for ascertaining the ownership of its stock for
such year and if it did not know, or after the exercise of reasonable diligence
would not have known, that its stock was sufficiently closely held during such
year to cause it to fail condition (6).
A corporation that is a "qualified REIT subsidiary" is not treated as a
separate corporation for federal income tax purposes, and all assets,
liabilities and items of income, deduction and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities and items of income, deduction
and credit of the REIT. A "qualified REIT subsidiary" is a corporation, all of
the capital stock of which is owned directly by the REIT. Certain subsidiaries
of Capstead REIT constitute qualified REIT subsidiaries. Accordingly, in
applying the income and asset tests described below, those subsidiaries will be
ignored for federal income tax purposes, and all assets, liabilities and items
of income, deduction and credit of those subsidiaries will be treated as assets,
liabilities and items of income, deduction, and credit of Capstead REIT. Those
subsidiaries therefore will not be subject to federal corporate income taxation,
although they may be subject to state and local taxation.
In the case of a REIT that is a partner in an entity that is classified
for federal income tax purposes as a partnership, Treasury Regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership, based on the REIT's capital interest in the partnership, and will
be deemed to be entitled to the gross income of the partnership attributable to
such share. In addition, the assets and gross income of the partnership will
retain the same character in the hands of the REIT for purposes of the REIT
provisions of the Code, including satisfying the gross income and asset tests
described below.
INCOME TESTS. In order for Capstead REIT to maintain its qualification
as a REIT, two requirements relating to gross income must be satisfied annually.
First, at least 75% of its gross income, excluding gross income from prohibited
transactions, for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or temporary investment income. Second, at least 95% of
its gross income, excluding gross income from prohibited transactions, for each
taxable year must be derived from real property or temporary investments, and
from dividends, other types of interest and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing.
Capstead REIT does not presently earn substantial amounts of rental
income. However, if Capstead REIT were to acquire rental real estate, the rent
received by Capstead REIT from its tenants would qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based,
in whole or in part, on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, rents received from a tenant of
Capstead REIT will not qualify as "rents from real property" in satisfying the
gross income tests if Capstead REIT, or a direct or indirect owner of 10% or
more of Capstead REIT, directly or constructively owns 10% or more
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of such tenant (a "Related Party Tenant") unless such tenant is a "taxable REIT
subsidiary" of the REIT and certain other conditions are satisfied. Third, if
rent attributable to personal property that is leased in connection with a lease
of real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property." Finally, for the rent to qualify as "rents from
real property," Capstead REIT generally must not operate or manage its
properties or furnish or render services to the tenants of such properties,
other than through an "independent contractor" who is adequately compensated and
from whom Capstead REIT derives or receives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by Capstead REIT are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." In addition, the "independent contractor"
requirement will not apply to noncustomary services provided by Capstead REIT,
the annual value of which does not exceed 1% of the gross income derived from
the property with respect to which the services are provided (the "1% de minimis
exception"). For this purpose, such services may not be valued at less than 150%
of Capstead REIT's direct cost of providing the services, and any gross income
deemed to have been derived by Capstead REIT from the performance of
noncustomary services pursuant to the 1% de minimis exception will constitute
nonqualifying gross income under the 75% and 95% gross income tests. In
addition, a "taxable REIT subsidiary" of a REIT may provide noncustomary
services to the tenants of the REIT without causing the rents paid by such
tenants to be disqualified as "rents from real property."
If Capstead REIT fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it nevertheless may qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions generally will be available if the failure to meet such
tests is due to reasonable cause and not due to willful neglect, Capstead REIT
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Capstead
REIT would be entitled to the benefit of those relief provisions. As discussed
above in "Qualification and Taxation of Capstead REIT as a REIT," even if those
relief provisions apply, a 100% tax would be imposed on the net income
attributable to the greater of the amount by which Capstead REIT fails the 75%
and 95% gross income tests.
ASSET TESTS. At the close of each quarter of its taxable year, Capstead
REIT also must satisfy several tests relating to the nature of its assets.
First, at least 75% of the value of Capstead REIT's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, of the investments not included in the 75% asset class, the value of any
one issuer's debt and equity securities owned by Capstead REIT may not exceed 5%
of the value of Capstead REIT's total assets. Third, Capstead REIT may not own
more than 10% of any one issuer's outstanding voting securities, nor, more than
10% of the total value of any one issuer's outstanding debt and equity
securities.
The 5% and 10% asset tests described above do not apply to the
securities of a "taxable REIT subsidiary" of Capstead REIT, although the value
of the debt and equity securities of all
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taxable REIT subsidiaries owned by Capstead REIT cannot represent more than 20%
of the value of the REIT's total assets. Any corporation in which a REIT
directly or indirectly owns stock (other than another REIT, a corporation which
directly or indirectly operates or manages a lodging facility or a health care
facility, and, with certain exceptions, a corporation which directly or
indirectly provides to any other person (under a franchise, license, or
otherwise) rights to any brand name under which any lodging facility or health
care facility is operated) may be treated as a "taxable REIT subsidiary" if the
REIT and the corporation file a joint election with the Internal Revenue Service
for the corporation to be treated as a taxable REIT subsidiary of the REIT.
A number of constraints are imposed on REITs and their taxable REIT
subsidiaries to ensure that REITs cannot, through taxable REIT subsidiaries,
engage in substantial non-real estate activities and also to ensure that taxable
REIT subsidiaries pay an appropriate corporate-level tax on their income. For
example, a taxable REIT subsidiary will be subject to the "earnings stripping"
rules of the Code with respect to interest paid to the REIT, which could
disallow a portion of the taxable REIT subsidiary's interest deductions under
certain circumstances. In addition, a 100% excise tax may be imposed on the REIT
with respect to certain "redetermined rents", "redetermined deductions", and
"excess interest" to ensure arm's length (1) pricing for services provided by
the taxable REIT subsidiary to REIT tenants and (2) allocation of shared
expenses between the REIT and the taxable REIT subsidiary.
DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, Capstead REIT
is required to distribute with respect to each taxable year dividends, other
than capital gain dividends, to its stockholders in an aggregate amount at least
equal to (1) the sum of (A) 90% of its "REIT taxable income," computed without
regard to the dividends paid deduction and its net capital gain, and (B) 90% of
the net after tax income, if any, from foreclosure property, minus (2) the sum
of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before Capstead REIT timely files its federal income tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration. To the extent that Capstead REIT does not distribute all of its net
capital gain or distributes at least 90%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates.
Capstead REIT has made and intends to continue to make timely
distributions sufficient to satisfy the minimum annual distribution
requirements. It is possible, however, that Capstead REIT, from time to time,
may not have sufficient cash or other liquid assets to meet the distribution
requirements due to timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of such income and
deduction of such expenses in arriving at Capstead REIT's taxable income, or if
the amount of nondeductible expenses (such as principal amortization or capital
expenses) exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the distribution requirements,
Capstead REIT may arrange for borrowings to permit the payment of required
dividends.
If Capstead REIT should fail to distribute during each calendar year at least
the sum of:
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- 85% of its REIT ordinary income for such year,
- 95% of its REIT capital gain income for such year and
- any undistributed taxable income from prior periods,
it would be subject to a 4% nondeductible excise tax on the excess of such
required distribution over the sum of the amounts actually distributed and
amounts retained for which federal income tax was paid.
Under certain circumstances, Capstead REIT may be able to rectify a
failure to meet the distribution requirements for a year by paying "deficiency
dividends" to its stockholders in a later year, which may be included in its
deduction for dividends paid for the earlier year. Although Capstead REIT may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
RECORDKEEPING REQUIREMENTS. Pursuant to applicable Treasury
Regulations, Capstead REIT must maintain certain records and request on an
annual basis certain information from its stockholders designed to disclose the
actual ownership of its outstanding shares. Capstead REIT intends to comply with
these requirements.
FAILURE TO QUALIFY
If Capstead REIT fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, it will be subject to tax,
including any applicable alternative minimum tax on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
Capstead REIT fails to qualify will not be deductible nor will they be required
to be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to stockholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Capstead REIT also will be disqualified from
taxation as a REIT for the four taxable years following the year during which it
ceased to qualify as a REIT. It is not possible to predict whether in all
circumstances Capstead REIT would be entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
As long as Capstead REIT qualifies as a REIT, distributions made to
taxable U.S. Stockholders out of current or accumulated earnings and profits,
and not designated as capital gain dividends will be taken into account by such
U.S. Stockholders as ordinary income and will not be eligible for the dividends
received deduction generally available to corporations. The term "U.S.
Stockholder" means a holder of Capstead REIT's shares that for United States
federal income tax purposes is:
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(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized in
or under the laws of the United States, any State or the District of Columbia,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source, or
(4) a trust if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust, and (B) one or more
United States persons have the authority to control all substantial decisions of
the trust.
Distributions that are designated as capital gain dividends will be
taxed as gain from the sale or exchange of a capital asset held for more than
one year (to the extent they do not exceed Capstead REIT's actual net capital
gain for the taxable year) without regard to the period for which the U.S.
Stockholder has held his or her shares. However, corporate U.S. Stockholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. Stockholder to the extent that they do not exceed
the adjusted basis of the U.S. Stockholder's shares, but will reduce the
adjusted basis of such shares. To the extent that such distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
U.S. Stockholder's shares, such distributions will be included in income as
capital gain, if such shares are capital assets in the hands of the U.S.
Stockholder. In addition, any distribution declared by Capstead REIT in October,
November or December of any year and payable to a U.S. Stockholder of record on
a specified date in any such month will be treated as both paid by Capstead REIT
and received by the U.S. Stockholder on December 31 of such year, provided that
the distribution is actually paid by Capstead REIT during January of the
following calendar year.
Capstead REIT may make an election to treat all or part of its
undistributed net capital gain as if it had been distributed to its
stockholders. As described above, these undistributed amounts would be subject
to corporate level tax payable by Capstead REIT. If Capstead REIT should make
such an election, its stockholders would be required to include in their income
as long-term capital gain their proportionate share of Capstead REIT's
undistributed net capital gain as designated by Capstead REIT. Each such
stockholder would be deemed to have paid his proportionate share of the income
tax imposed on Capstead REIT with respect to such undistributed net capital
gain, and this amount would be credited or refunded to the stockholder. In
addition, the tax basis of the stockholder's stock would be increased by his
proportionate share of undistributed net capital gains included in his income
less his proportionate share of the income tax imposed on Capstead REIT with
respect to such gains.
U.S. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of Capstead REIT. Instead,
such losses would be carried over by Capstead REIT for potential offset against
its future income (subject to certain limitations). Taxable distributions from
Capstead REIT and gain from the disposition of its shares will not be treated as
passive activity income and, therefore, U.S. Stockholders generally will not be
able to
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apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a stockholder is a limited partner) against such
income. In addition, taxable distributions from Capstead REIT generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Capstead REIT's shares (or
distributions treated as such), however, will be treated as investment income
only if the U.S. Stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates. Capstead REIT will notify stockholders after the
close of Capstead REIT's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
In general, any gain or loss realized upon a taxable disposition of
Capstead REIT's shares by a U.S. Stockholder who is not a dealer in securities
will be treated as a capital gain or loss. However, any loss upon a sale or
exchange by a U.S. Stockholder who has held such shares for six months or less,
after applying certain holding period rules, will be treated as a long-term
capital loss to the extent of distributions from Capstead REIT required to be
treated by such U.S. Stockholder as long- term capital gain. All or a portion of
any loss realized upon a taxable disposition of Capstead REIT's shares may be
disallowed if other Capstead REIT shares are purchased within 30 days before or
after the disposition.
Under the Code and related regulations, a change in the conversion
ratio for convertible preferred stock may be treated as a taxable distribution
of stock with respect to any shareholder whose proportionate interest in the
earnings and profits or assets of the corporation is increased by such change. A
change in a conversion ratio or conversion price of convertible preferred stock
pursuant to a bonafide, reasonable adjustment formula which has the effect of
preventing dilution of the interest of the holders of such stock will not be
considered to result in a deemed distribution of stock. However, generally an
adjustment in the conversion ratio to compensate for a taxable cash distribution
to other shareholders will not be considered as made pursuant to a bonafide
adjustment formula. For example, in the case of the Series B Preferred Stock,
the conversion rate may be adjusted if we distribute to holders of our common
stock cash or other assets (other than regular quarterly cash dividends payable
out of consolidated earnings or earned surplus or dividends payable in shares of
common stock). Under the above described federal income tax provisions, such an
adjustment may result in a taxable distribution to the Series B Preferred
Stockholders.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Capstead REIT will report to its U.S. Stockholders and to the IRS the
amount of distributions paid during each calendar year and the amount of tax
withheld, if any. Under the backup withholding rules, a U.S. Stockholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (1) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (2) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Stockholder who does not provide Capstead REIT
with his correct taxpayer identification number also may be subject to penalties
imposed by the IRS. Any amount paid as backup
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withholding will be creditable against the U.S. Stockholder's income tax
liability. In addition, Capstead REIT may be required to withhold a portion of
capital gain distributions to any U.S. Stockholders who fail to certify their
non-U.S. Stockholder status to Capstead REIT.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). The IRS has ruled
that dividend distributions from a REIT to an exempt employee pension trust do
not constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Social
clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts and qualified group legal service plans that are exempt from
taxation under paragraphs (7), (9), (17) and (20), respectively, of Code section
501(c) are subject to different UBTI rules, which generally will require them to
characterize distributions from Capstead REIT as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% (by value) of the shares
of a REIT would be required to treat a percentage of the dividends on its shares
as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income, less
related direct expenses, derived by Capstead REIT from an unrelated trade or
business (determined as if Capstead REIT were a pension trust) divided by the
gross income, less related direct expenses, of Capstead REIT for the year in
which the dividends are paid. The UBTI rule applies to a pension trust holding
more than 10% of the common stock only if (1) the UBTI Percentage is at least
5%, (2) Capstead REIT qualifies as a REIT by reason of the modification of the
5/50 Rule that allows the beneficiaries of the pension trust to be treated as
holding shares of Capstead REIT, in proportion to their actuarial interests in
the pension trust and (3) either (A) one pension trust owns more than 25% of the
value of such shares or (B) a group of pension trusts individually holding more
than 10% of the value of shares collectively owns more than 50% of the value of
the shares.
NON-U.S. STOCKHOLDERS
Specific tax rules of a complex nature not summarized herein apply to
non-U.S. investors in REITs. Accordingly, non-U.S. Stockholders should consult
their own tax advisers concerning the federal income and withholding tax
consequences and the state, local and foreign tax consequences of an investment
in Capstead REIT.
STATE AND LOCAL TAXES
State or local income tax treatment of Capstead REIT or holders of any
of its securities may differ from the federal income tax treatment described
above. As a result, prospective stockholders should consult their own tax
advisers for an explanation of how state and local tax laws may affect their
investment in Capstead REIT.
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LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby
will be passed on for the company by Andrews & Kurth L.L.P., Dallas, Texas, and
for the underwriters or agents by counsel to be identified in the related
prospectus supplement. Andrews & Kurth L.L.P. will rely as to all matters of
Maryland law on Hogan & Hartson L.L.P., Baltimore, Maryland.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2000, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<Table>
SEC Registration Fee................................ $ 8,598
Legal Fees and Expenses............................. 60,000
Accounting Fees and Expenses........................ 7,500
Printing Expenses................................... 5,000
Miscellaneous....................................... 2,500
--------
Total.................................... $ 83,598
========
</Table>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's charter provides for indemnification of directors to
the full extent permitted by Maryland law, indemnification of officers who are
also directors to the extent the Registrant shall indemnify its directors and
indemnification of officers who are not directors to such further extent as
shall be authorized by the Board of Directors and be consistent with law.
Section 2-418 of the Maryland General Corporation Law generally permits
a Maryland corporation to indemnify any director made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administration, or investigative, by reason of service in his capacity as a
director, unless it is established that (i) the act or omission of the director
was material to the matter giving rise to the proceeding and (a) was committed
in bad faith or (b) was the result of active and deliberate dishonesty; or, (ii)
the director actually received an improper personal benefit in money, property,
or services or, (iii) in the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be against judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by the director in connection with the
proceeding. If the proceeding was one by or in the right of the corporation,
indemnification may not be made in respect of any proceeding in which the
director shall have been adjudged to be liable to the corporation. In addition,
a director may not be indemnified in respect of any proceeding charging improper
personal benefit to the director, whether or not involving action in the
director's official capacity, in which the director was adjudged to be liable on
the basis that personal benefit was improperly received. The termination of any
proceeding by conviction, or a plea of nolo contendere or its equivalent, or an
entry of an order of probation prior to judgment, creates a rebuttable
presumption that the director did not meet the requisite standard of conduct.
Section 2-418 also provides that a court of appropriate jurisdiction
may, upon application of a director and such notice as the court shall require,
order indemnification if it determines that a director is entitled to
reimbursement because the director has been successful on the merits or
otherwise, in any such proceeding, in which case the director shall be entitled
to recover the expenses of securing such reimbursement, or if the court
determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director has met the applicable standards of conduct or has been adjudged liable
in the proceeding charging improper personal benefit to the director.
Indemnification with respect to any proceeding by or in the right of the
corporation or in which liability shall have been adjudged on the basis that
personal benefit was improperly received shall be limited to expenses. The
indemnification and advancement of expenses provided or authorized by Section
2-418 may not be deemed exclusive of any other rights, by indemnification or
otherwise, to which a director may be entitled under the charter, the bylaws, a
resolution of stockholders or directors, an agreement or otherwise,
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both as to action in an official capacity and as to action in another capacity
while holding such office. A corporation may indemnify and advance expenses to
an officer, employee, or agent in the corporation to the same extent that it may
indemnify directors under Section 2-418 and, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not a director to such
further extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract. Section 2-418
also provides that a corporation may purchase and maintain insurance against
liabilities for which indemnification is not expressly provided by the statute.
Capstead Mortgage Corporation provides insurance from commercial
carriers against certain liabilities incurred by its directors and officers.
ITEM 16. EXHIBITS
<Table>
1.1 --Form of RCG Sales Agreement**
3.1 --Charter of the Company, which includes Articles of
Incorporation, Articles Supplementary for each outstanding
Series of Preferred Stock and all other amendments to such
Articles of Incorporation*
3.2 --Amended and Restated Bylaws of the Company*
4.1 --Specimen of Common Stock Certificate*
4.2 --Specimen of $1.26 Cumulative Convertible Preferred Stock,
Series B**
5.1 --Opinion of Andrews & Kurth L.L.P., as to the legality of
the Securities being offered**
5.2 --Opinion of Hogan & Hartson L.L.P., as to the legality of
the Securities being offered**
8.1 --Opinion of Andrews & Kurth L.L.P., as to certain tax
matters**
23.1 --Consent of Ernst & Young LLP.**
23.2 --Consent of Andrews & Kurth L.L.P. (included in its
opinions filed as Exhibits 5.1 and 8.1 hereto)**
23.3 --Consent of Hogan & Hartson L.L.P. (included in its opinion
filed as Exhibit 5.2 hereto)
24.1 --Power of Attorney (set forth on page lI-4)**
</Table>
- ----------
*Previously filed with the Commission on June 19, 2001 as an Exhibit to the
Registrant's Registration Statement on Form S-3 (No. 333-63358).
**Filed herewith.
The Company will file as an Exhibit to a Current Report on Form 8-K any related
forms utilized in the future and not previously so filed by means of an
amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section l0(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
change in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
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(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration.
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (a)( I )(i) and
(a)(I)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the 1934 Act
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit of proceeding) is asserted against the Registrant by
such director, officer or controlling person in connection with the securities
being registered hereby, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4), or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 24th day of August, 2001.
CAPSTEAD MORTGAGE CORPORATION
By: /s/ Andrew F. Jacobs
-----------------------------------------------
Andrew F. Jacobs
Executive Vice President--Finance and Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Wesley R. Edens and Andrew F. Jacobs his true and lawful
attorney-in-fact and agent, with full powers of substitution, for him and in his
name, place and stead, in any and all capacities, to sign and to file any and
all amendments, including post-effective amendments, to this registration
statement with the Securities and Exchange Commission, granting to said
attorney-in-fact power and authority to perform any other act on behalf of the
undersigned required to be done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Wesley R. Edens Chairman, Chief Executive Officer, August 27, 2001
- ------------------------------ President and Director (Principal
Wesley R. Edens Executive Officer)
/s/ Andrew F. Jacobs Executive Vice President - Finance August 27, 2001
- ------------------------------ and Secretary (Principal Financial
Andrew F. Jacobs and Accounting Officer)
/s/ Robert I. Kauffman Director August 27, 2001
- ------------------------------
Robert I. Kauffman
/s/ Paul M. Low Director August 27, 2001
- ------------------------------
Paul M. Low
Director August 27, 2001
- ------------------------------
Ronn K. Lytle
/s/ Michael G. O'Neil Director August 27, 2001
- ------------------------------
Michael G. O'Neil
Director August 27, 2001
- ------------------------------
Howard Rubin
/s/ Mark S. Whiting Director August 27, 2001
- ------------------------------
Mark S. Whiting
</Table>
II-4
36
INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit
Number Description
- ------- -----------
1.1 --Form of RCG Sales Agreement**
3.1 --Charter of the Company, which includes Articles of
Incorporation, Articles Supplementary for each outstanding
Series of Preferred Stock and all other amendments to such
Articles of Incorporation*
3.2 --Amended and Restated Bylaws of the Company*
4.1 --Specimen of Common Stock Certificate*
4.2 --Specimen of $1.26 Cumulative Convertible Preferred Stock,
Series B**
5.1 --Opinion of Andrews & Kurth L.L.P., as to the legality of
the Securities being offered**
5.2 --Opinion of Hogan & Hartson L.L.P., as to the legality of
the Securities being offered**
8.1 --Opinion of Andrews & Kurth L.L.P., as to certain tax
matters**
23.1 --Consent of Ernst & Young LLP.**
23.2 --Consent of Andrews & Kurth L.L.P. (included in its
opinions filed as Exhibits 5.1 and 8.1 hereto)**
23.3 --Consent of Hogan & Hartson L.L.P. (included in its opinion
filed as Exhibit 5.2 hereto)
24.1 --Power of Attorney (set forth on page lI-4)**
</Table>
- ----------
*Previously filed with the Commission on June 19, 2001 as an Exhibit to the
Registrant's Registration Statement on Form S-3 (No. 333-63358).
**Filed herewith.
The Company will file as an Exhibit to a Current Report on Form 8-K any related
forms utilized in the future and not previously so filed by means of an
amendment.