-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SMowaQ0p23R0HTjONiZglkKe9IPAPXyFt/2XWbNAQK6iCG0mWWNqIi4a1u7oR5Gx CjJHLrvuEQcwMkjsOGFAlA== 0000950134-99-011086.txt : 19991217 0000950134-99-011086.hdr.sgml : 19991217 ACCESSION NUMBER: 0000950134-99-011086 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991215 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTEAD MORTGAGE CORP CENTRAL INDEX KEY: 0000766701 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752027937 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08896 FILM NUMBER: 99775653 BUSINESS ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 800 CITY: DALLAS STATE: TX ZIP: 75225-4410 BUSINESS PHONE: 214-874-2323 MAIL ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 800 CITY: DALLAS STATE: TX ZIP: 75225-4410 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS MORTGAGE CORP DATE OF NAME CHANGE: 19891105 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: DECEMBER 15, 1999 (Date of Earliest Event Reported) CAPSTEAD MORTGAGE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) MARYLAND 1-8896 75-2027937 (State of Incorporation) (Commission File No.) I.R.S. Employer Identification No.) 8401 NORTH CENTRAL EXPRESSWAY SUITE 800 DALLAS, TEXAS 75225 ----------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (214) 874-2323 2 ITEM 5. OTHER EVENTS CAPSTEAD MORTGAGE CORPORATION ANNOUNCES ISSUANCE OF PREFERRED STOCK TO FORTRESS AND RELATED AGREEMENTS AND PROPOSED MODIFICATION OF INVESTMENT STRATEGY Capstead Mortgage Corporation ("Capstead" or the "Company") announced December 9, 1999 that an affiliate of Fortress Investment Group LLC, a real estate investment and asset management company ("Fortress"), has made an aggregate investment of $51,200,000 in the Company through the purchase of 5,378,000 shares of Capstead's newly created $0.56 Cumulative Convertible Preferred Stock, Series C (the "Series C Preferred Stock") and 5,378,000 shares of Capstead's newly created $0.40 Cumulative Convertible Preferred Stock, Series D (the "Series D Preferred Stock") (together, the "Preferred Stock") for $4.76 per share. Each share of the Series C Preferred Stock is convertible into one share of common stock and has a liquidation preference of $6.89. Each share of the Series D Preferred Stock is convertible into one share of common stock and has a liquidation preference of $4.76. This investment by Fortress represents an ownership interest in Capstead of approximately 16 percent, assuming the conversion of the Preferred Stock. Further assuming the successful completion of a 10,000,000 share tender offer, also announced on December 9, 1999, this investment will represent an ownership interest in Capstead of approximately 19 percent. In connection with this investment by Fortress, Capstead's Board of Directors (i) approved an immediate increase in the number of Directors serving on Capstead's Board from six to eight and appointed Mr. Wesley R. Edens, Chief Executive Officer and Chairman of Fortress, and Mr. Robert I. Kauffman, President of Fortress, to fill the newly created vacancies on the Board and (ii) authorized the Company to enter into a Supplemental Agreement to the Stock Purchase Agreement (the "Supplemental Agreement") with Fortress. The Supplemental Agreement provides that upon Capstead's stockholders' ratification of certain matters contained in the Supplemental Agreement at a special meeting of stockholders to be held by April 30, 2000, (i) the Board of Directors will be reconstituted to consist of four directors appointed by Fortress and three directors appointed by Capstead, with Mr. Edens serving as Chairman and Chief Executive Officer and Mr. Ronn K. Lytle serving as Vice Chairman and (ii) Fortress will acquire 5,000,000 shares of Capstead common stock by means of either open-market purchases, the conversion of some portion of the Preferred Stocks, or some combination thereof, within six months of the special meeting. If this requirement to acquire the common shares is fulfilled through open-market purchases, then the total investment by Fortress will represent an ownership interest in Capstead of approximately 23 percent before and 27 percent assuming, the successful completion of the 10,000,000 share tender offer, calculated assuming conversion of the Preferred Stock. Capstead will hold the above mentioned special meeting of stockholders for the purpose of voting on (i) ratification of certain matters contained in the Supplemental Agreement, which will have the effect of approving a new Board of Directors for Capstead and (ii) approval of a 1-for-2 reverse stock split of the Company's common stock. A detailed description of the proposals will be provided in a proxy statement expected to be distributed to stockholders by mid-February 2000. Capstead is currently considering modifying its investment strategy to replace a portion of its existing mortgage investments with a diversified portfolio of credit sensitive commercial and residential mortgage-backed securities, most of which are expected to be "investment grade" at the time of purchase as determined by national rating agencies. This proposed strategy is intended to improve the Company's earnings prospects while providing more stability during periods of increased interest rate volatility. The sale or other disposition of some of the Company's mortgage investments in order to implement this proposed strategy could result in the recognition of a portion of the losses currently reflected in the Company's balance sheet. 3 Fortress is a real estate investment and asset management company headquartered in New York. Fortress manages approximately $760 million of private equity and focuses on undervalued and distressed real estate, both domestic and international. If Capstead decides to modify its investment strategy by investing in commercial mortgage-backed securities ("CMBSs"), it may be exposed to additional risks and uncertainties. CMBSs are generally viewed as exposing an investor to greater risk of loss than residential mortgage-backed securities since such securities are typically secured by larger loans to fewer obligors than residential mortgage-backed securities. Further, the repayment of loans secured by income producing properties is typically dependent upon the successful operation of the related real estate project. If the cash flow from this project is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. 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, some commercial mortgaged properties may not readily be convertible to alternative uses if such mortgaged properties were to become unprofitable due to competition, age of the 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 borrowers to refinance commercial mortgage loans or sell mortgaged properties will be significantly dependent upon economic conditions in the markets where such commercial mortgaged properties are located, as well as the willingness and ability of lenders to make such loans. The availability of funds in the credit market 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 assets similar to the commercial mortgaged properties, and the competition for available credit, may affect the ability of potential purchasers to obtain financing for the acquisition of the commercial mortgaged properties. There can be no assurance as to what extent, if any, this proposed strategy to invest in CMBSs will be implemented and, if implemented, whether or not it will be successful in meeting Capstead's goals. In addition, there can be no assurance that Capstead will be able to successfully assess and monitor these risks. Capstead Mortgage Corporation, a mortgage investment firm with assets of over $9 billion, earns income from investing in mortgage assets and other investment strategies. Note: This document contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. The Company's actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of the Company's investments and unforeseen factors. As discussed in the Company's filings with the Securities and Exchange Commission and this document, 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, year 2000 compliance failures, increases in costs and other general competitive factors. 4 EXHIBITS: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FINANCIAL STATEMENTS: None EXHIBIT NUMBER 3.1(c) Articles Supplementary $0.56 Cumulative Convertible Preferred Stock, Series C, of Capstead Mortgage Corporation. 3.1(d) Articles Supplementary $0.40 Cumulative Convertible Preferred Stock, Series D, of Capstead Mortgage Corporation. 10.34 Series C and Series D Convertible Preferred Stock Asset Purchase Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. 10.35 Supplemental Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. 10.36 Registration Rights Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. CAPSTEAD MORTGAGE CORPORATION December 15, 1999 By: s/s Phillip A. Reinsch ----------------------------------- Phillip A. Reinsch - Senior Vice President - Control 5 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1(c) Articles Supplementary $0.56 Cumulative Convertible Preferred Stock, Series C, of Capstead Mortgage Corporation. 3.1(d) Articles Supplementary $0.40 Cumulative Convertible Preferred Stock, Series D, of Capstead Mortgage Corporation. 10.34 Series C and Series D Convertible Preferred Stock Asset Purchase Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. 10.35 Supplemental Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. 10.36 Registration Rights Agreement dated as of December 9, 1999 by and among Capstead Mortgage Corporation and Fortress Investment Corp. EX-3.1(C) 2 ARTICLES SUPPLEMENTARY $0.56 CUMULATIVE STOCK 1 EXHIBIT 3.1(c) ARTICLES SUPPLEMENTARY $0.56 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C OF CAPSTEAD MORTGAGE CORPORATION CAPSTEAD MORTGAGE CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: Pursuant to authority conferred upon the Board of Directors by the charter, as amended, of the Corporation (the "Charter"), the Board of Directors on November 30, 1999 adopted a resolution, creating and authorizing the issuance of a series of 5,378,000 shares of $0.56 Cumulative Convertible Preferred Stock, Series C, and that the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of the shares of such series are as follows: 1. Designation and Number of Shares. Five million three hundred seventy-eight thousand (5,378,000) shares of Preferred Stock of the Corporation, par value $.10 per share, are hereby designated as the "$0.56 Cumulative Convertible Preferred Stock, Series C" (hereinafter called the "Series C Preferred Stock"). 2. Dividends. Holders of shares of Series C Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds of the Corporation legally available for payment thereof, cumulative preferential cash dividends at the annual rate of fifty-six cents ($0.56) per share of Series C Preferred Stock (the "Preference Dividend"), payable in equal quarterly installments of fourteen cents $0.14 per share of Series C Preferred Stock in arrears on the last business day of each calendar quarter (each, a "Dividend Payment Date"), to holders of record as they appear on the register for the Series C Preferred Stock of the Corporation on such record dates, not more than 10 days preceding the payment dates thereof (each, a "Preferred Record Date"), as may be fixed by the Board of Directors. The amount of any distribution payable for any distribution period greater or less than a full calendar quarter shall be prorated and computed on the basis of a 360-day year of twelve 30-day months. The first Preference Dividend payable per share of Series C Preferred Stock (the "Initial Dividend") payable on December 31, 1999 shall be an amount calculated as $0.00156 times the number of days having elapsed from and including the date of issuance of the Series C Preferred Stock through and including December 30, 1999. Distributions shall accumulate from the date of original issuance whether or not earned or declared and whether or not there shall be funds legally available for the payment thereof. So long as any Series C Preferred Stock shall remain outstanding, no dividend shall be declared or paid upon or set apart for payment for the Common Stock of the Corporation, par value $.01 per share (the "Common Stock"), or any other class or series of stock of the Corporation ranking junior to the Series C Preferred Stock in respect of dividends ("Junior Stock"), nor may any Common Stock or any other Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any shares of such stock), unless in each instance full Preference Dividends on all outstanding shares of Series C Preferred Stock for all past dividend periods required to be paid shall have been paid at the rate fixed therefor and the then current quarterly dividend shall have been paid or declared and sufficient funds set aside 2 for payment thereof. No dividends shall be declared on any other series or class or classes of stock ranking on a parity with the Series C Preferred Stock as to dividends (including, without limitation, outstanding shares of the Corporation's $1.60 Cumulative Preferred Stock, Series A, the Corporation's $1.26 Cumulative Convertible Preferred Stock, Series B and the Corporation's $0.40 Cumulative Convertible Preferred Stock, Series D (collectively, the "Pari Passu Stock")) in respect of any dividend period thereof unless there shall likewise be or have been declared and sufficient funds set aside for payment thereof on all shares of Series C Preferred Stock at the time outstanding dividends for all quarterly periods coinciding with or ending before the end of such other period, ratably in proportion to the respective annual dividend rates per annum fixed therefor. Accumulated and unpaid Preference Dividends required to be paid on any shares of Series C Preferred Stock shall not bear interest. As used in these Articles Supplementary, "business day" shall mean a day that is neither a Saturday nor a Sunday nor a day on which the New York Stock Exchange is closed. 3. Liquidation. The shares of Series C Preferred Stock shall rank prior to the shares of Common Stock and any other class of stock of the Corporation ranking junior to the Series C Preferred Stock upon liquidation, so that in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of shares of Common Stock or any other such Junior Stock, an amount equal to $6.89 per share (the "Liquidation Preference") of Series C Preferred Stock plus an amount equal to the Preference Dividends (whether or not declared) accumulated and unpaid on the shares of Series C Preferred Stock to the date of final distribution. If upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation or proceeds thereof, distributable among the holders of shares of Series C Preferred Stock and holders of any other class or series of stock of the Corporation ranking on a parity with shares of Series C Preferred Stock as to payments upon liquidation (including, without limitation, the Pari Passu Stock), shall be insufficient to pay in full the respective preferential amounts of shares of Series C Preferred Stock and any other such class or series, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts thereon were paid in full. For the purposes hereof, neither a consolidation or merger of the Corporation with or into any other entity, nor a transfer of all or any part of the Corporation's assets for cash, property or securities shall be considered a liquidation, dissolution or winding up of the Corporation. 4. Voting Rights. Without limiting the rights of the holders of the Series C Preferred Stock to vote separately as a class as provided in Section 5 below, the holders of shares of Series C Preferred Stock shall be entitled to vote, together as a single group with the holders of the Common Stock and the holders of any other class or series of stock entitled to vote together with the holders of the Common Stock, on all matters as to which the holders of the Common Stock vote. When the Series C Preferred Stock votes together with the Common Stock and any other such class or series of stock, each share of Series C Preferred Stock shall entitle its holders to one vote for each share of Common Stock into which such share of Series C Preferred Stock is convertible immediately prior to the time of such vote. -2- 3 5. Limitations on Certain Actions. (A) The Corporation shall not, without the affirmative vote of the holders of a majority of the shares of Series C Preferred Stock then outstanding, given in person or by proxy at a meeting called for the purpose of such vote at which the holders of Series C Preferred Stock shall vote separately as a class, directly or indirectly: (i) create any class or classes of stock ranking prior to Series C Preferred Stock either as to dividends or as to amounts distributable upon liquidation or increase the authorized number of shares of any class or classes of stock ranking prior to Series C Preferred Stock either as to dividends or as to amounts distributable upon liquidation; (ii) authorize any reclassification of Series C Preferred Stock; (iii) amend, alter or repeal any of the provisions of the Charter of the Corporation (including the provisions of this Section 5) so as to affect adversely the preferences, special rights or voting powers of the Series C Preferred Stock; or (iv) merge or consolidate with or into any other entity unless after such transaction the holders of the Series C Preferred Stock either (A) continue to hold such Series C Preferred Stock without any adverse change thereto and there is no class of stock outstanding ranking prior to the Series C Preferred Stock with respect to payment of dividends or upon liquidation or (B) hold a substantially identical security and there is no class of stock outstanding ranking prior to such security with respect to payment of dividends or upon liquidation. (B) Except as otherwise provided herein or otherwise required by law, no consent of the holders of Series C Preferred Stock shall be required for (a) the creation of any indebtedness of any kind of the Corporation, (b) the creation, or increase or decrease in the amount, of any class or series of stock of the Corporation ranking on a parity with the Series C Preferred Stock as to dividends or as to amounts distributable upon liquidation, or any other class or series of stock of the Corporation not ranking prior to the Series C Preferred Stock as to dividends or as to amounts distributable upon liquidation, or (c) any increase or decrease in the amount of authorized Common Stock or any increase, decrease or change in the par value thereof. 6. Redemption. Shares of Series C Preferred Stock will be redeemable at the option of the Corporation by resolution of its Board of Directors, passed by at least a majority of the members of the Board, at any time after December 9, 2004, in whole or in part, for cash in an amount per share so redeemed equal to $6.56 per share plus all Preference Dividends on such shares (whether or not earned or declared) accumulated and unpaid to the date of such redemption (the "Redemption Price"). If less than all shares of Series C Preferred Stock are to be redeemed, (i) all arrearages in Preference Dividends on all outstanding shares of Series C Preferred Stock must be paid in full prior to any such partial redemption and (ii) the shares of such series to be redeemed shall be determined by lot or in such other equitable manner as the Board of Directors may determine. -3- 4 The Corporation shall mail to each record holder of the Series C Preferred Stock notice of any redemption not less than 30 nor more than 60 days prior to the date fixed for such Redemption (the "Redemption Date"). Such notice shall specify the Redemption Date, the place or places where certificates for shares of Series C Preferred Stock are to be surrendered, the serial number or numbers of the certificates for shares to be redeemed (if less than all shares of Series C Preferred Stock are to be redeemed), the Redemption Price, that shares of Series C Preferred Stock may be convertible into Common Stock at any time prior to the close of business on the fifth business day preceding the Redemption Date, and that dividends on Series C Preferred Stock to be redeemed on the Redemption Date shall cease to accrue on the Redemption Date. Upon surrender of Series C Preferred Stock in accordance with said notice (properly endorsed or assigned for transfer if the Corporation shall so require and the notice shall so state), such Series C Preferred Stock shall be redeemed by the Corporation at the Redemption Price and in the manner as aforesaid. The Corporation shall not be required to register a transfer of any shares of Series C Preferred Stock that have been redeemed after the Redemption Date in respect thereof. If, at any time after the giving of notice of redemption but before the Redemption Date specified therein, the Corporation shall deposit with a bank or trust company in the United States, having a capital surplus of at least $50,000,000, in trust to be applied to the redemption of the shares of Series C Preferred Stock called for redemption the funds necessary for such redemption, then from and after the date of such deposit all rights of the holders of the shares of Series C Preferred Stock so called for redemption shall cease and terminate, excepting only (i) the right to receive the Redemption Price therefor, but without interest, and (ii) the right to exercise on or before the fifth business day preceding the Redemption Date privileges of conversion set forth in Section 7, and such shares shall not be deemed to be outstanding. Any funds so deposited which shall not be required for such redemption because of the exercise of any such right of conversion subsequent to the date of such deposit shall be returned to the Corporation. In case the holders of shares of Series C Preferred Stock that shall have been called for redemption shall not, within five years after the date fixed for redemption, claim the amount deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the Corporation for the payment thereof. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time. 7. Conversion. The holders of shares of Series C Preferred Stock shall have conversion rights as follows: (A) The shares of Series C Preferred Stock shall be convertible, at the option of the respective holders thereof, at any time into fully paid and non-assessable shares of Common Stock of the Corporation, at the conversion rate, determined as hereinafter provided, in effect at the time of conversion. In case of any call for redemption of any shares of Series C Preferred Stock, such right of conversion shall terminate, as to any shares designated for redemption, at the close of business on the fifth business day preceding the Redemption Date unless default is made in the payment of the Redemption Price. -4- 5 (B) Before any holder of Series C Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender (i) the certificate or certificates therefor, duly endorsed or accompanied by proper instruments of transfer, and (ii) if such surrender is made after a Preferred Record Date and on or before the record date for the payment of quarterly dividends on the Common Stock for the quarter in which such Preferred Record Date (or Dates) falls (or fall) (any such Preferred Record Date, an "Intervening Preferred Date"), a cashier's check or other guaranteed funds in an amount equal to the aggregate amount of Preference Dividends declared or received on the shares of Series C Preferred Stock on the Dividend Payment Date or Dates to which such Intervening Preferred Date or Dates related, at the office of the corporation, and shall give written notice to the Corporation at such office that such holder elects to convert the same. The Corporation, as soon as practicable thereafter, shall issue and deliver to such holder, certificates for the number of full shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share as hereinafter provided. Such conversion shall be deemed to have been made as of the date of such surrender of the certificate or certificates representing the shares of Series C Preferred Stock to be converted and, if applicable, the cashier's check or other guaranteed funds, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on said date. (C) Notwithstanding any of the foregoing, all shares of Series C Preferred Stock outstanding on December 31, 2009 (the "Conversion Date") shall automatically convert into fully paid and non-assessable shares of Common Stock, at the conversion rate, determined as hereinafter provided, in effect at the time of such conversion; provided, however, that if funds are not legally available for the payment (in whole or in part) of any accrued but unpaid dividends as of the Conversion Date, the amount of such dividends which cannot be legally paid by the Corporation as of the Conversion Date ("Unpaid Dividends") shall be payable in shares of Common Stock. The number of shares of Common Stock to be issued in payment of any Unpaid Dividends on each share of Series C Preferred Stock outstanding as of the Conversion Date shall be determined by dividing the Unpaid Dividends payable on each outstanding share of Series C Preferred Stock by the Fair Market Value of a share of Common Stock as of the Conversion Date. For purposes of this Section 7(C), "Fair Market Value" shall mean the average of the daily closing prices of the Common Stock for the 30 consecutive business days commencing 45 business days prior to the Conversion Date. The Closing price per share of Common Stock for each day shall be the last reported sale price regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way in either case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to business on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to business, or if not listed or admitted to business on any national securities exchange, the average of the closing bid and asked prices as furnished by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information. The aggregate number of shares of -5- 6 Common Stock to be issued to each holder of Series C Preferred Stock shall be determined and any fractional shares issuable to such holder after such aggregation shall be eliminated. (D) The conversion rate shall be one (1) share of Common Stock for each share of Series C Preferred Stock converted, such rate being subject to adjustment from time to time as follows: (i) If the Corporation shall at any time issue additional shares of Common Stock as a dividend upon any outstanding stock of the Corporation other than the Series C Preferred Stock (which stock is convertible into Common Stock) or subdivide the outstanding shares of Common Stock, or combine the outstanding shares of Common Stock, the conversion rate in effect immediately prior thereto shall be adjusted so that each share of Series C Preferred Stock shall thereafter be convertible into the total number of shares of Common Stock which the holder of a share of Series C Preferred Stock would have held immediately after the happening of any of the aforesaid events had such share been converted immediately prior to the happening of such event. Such adjustment shall become effective immediately after the opening of business on the record date for the determination of stockholders entitled to such dividend, or on the effective date of such subdivision or combination, as the case may be. (ii) If the Corporation shall at any time issue rights or warrants to all holders of its outstanding Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of the Common Stock on the record date mentioned below, the conversion rate theretofore in effect immediately prior to such record date shall be adjusted by multiplying such conversion rate by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the record date referred to below plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such current market price, such adjustment to become effective immediately after the opening of business on the record date for the determination of stockholders entitled to receive such rights or warrants. For the purpose of any computation under this subsection (ii) or subsection (iii) below, the current market price per share of Common Stock at any record date shall be deemed to be the average of the daily closing prices for the 30 consecutive business days commencing 45 business days prior to the day in question. The closing price per share of Common Stock for each day shall be the last reported sale price regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way in either case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to business on such Exchange, on the principal national securities exchange on which the Common Stock -6- 7 is listed or admitted to business, or if not listed or admitted to business on any national securities exchange, the average of the closing bid and asked prices as furnished by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information. (iii) If the Corporation distributes to holders of its Common Stock evidences of indebtedness or securities or cash or other assets (excluding regular quarterly cash dividends or dividends payable in shares of Common Stock), the conversion rate in effect immediately prior to the record date mentioned below shall be adjusted by multiplying such conversion rate by a fraction, of which the numerator shall be the current market price per share of Common Stock on such record date and of which the denominator shall be such current market price per share of the Common Stock, less the cash or the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or securities or evidences of indebtedness so distributed applicable to one share of Common Stock, such adjustment to become effective immediately on the record date for the determination of stockholders entitled to receive such distribution. The reclassification (including any reclassification upon a merger in which the Corporation is the continuing corporation) of Common Stock into securities which include both Common Stock and other securities shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the record date for the determination" above), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter. (iv) In the event of a declaration of a dividend by the Corporation without the fixing of a record date for the determination of stockholders entitled thereto, the first business day during which the stock transfer books of the Corporation shall be closed for the purpose of such determination shall be deemed to be the record date. (E) No fractional shares of Common Stock shall be issued upon the conversion of shares of Series C Preferred Stock. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 7(E), be deliverable upon the conversion of any shares of Series C Preferred Stock, the Corporation, in lieu of delivering a fractional share therefor, shall make a payment to the holder of such surrendered share of Series C Preferred Stock of an amount in cash equal (computed to the nearest cent) to such fraction multiplied by the closing price per share of Common Stock (as such term is defined in the final sentence of Section 7(D)(ii)) on the day of conversion. (F) Whenever the conversion rate is adjusted, as herein provided, the Corporation shall forthwith deliver to each record holder of the Series C Preferred Stock a statement signed by the President or Vice President of the Corporation and by its Treasurer or an -7- 8 Assistant Treasurer, showing in detail the facts requiring such adjustment and the conversion rate after such adjustment. (G) In case of any capital reorganization or any reclassification of the Common Stock or in case of a consolidation, merger or statutory share exchange of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Series C Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such shares of Series C Preferred Stock would have been entitled upon such reorganization, reclassification, consolidation, merger or conveyance; and, in any such case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the shares of Series C Preferred Stock to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the conversion rate) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the shares of Series C Preferred Stock. (H) In the event that: (i) the Corporation shall take a record of the holders of shares of its Common Stock for the purpose of entitling them to receive a dividend, or any other distribution, other than regular quarterly cash dividends; or (ii) the Corporation shall take a record of the holders of shares of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or to receive any other rights or warrants; or (iii) there shall be any capital reorganization of the Corporation, reclassification of the Common Stock (other than a subdivision or combination thereof), consolidation or merger of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation; or (iv) there shall be any voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, and in any such case, the Corporation shall cause to be given to each record holder of Series C Preferred Stock, at least fifteen (15) days prior to the date hereinafter specified, or if notice is given to holders of Common Stock, no later than the date such notice is given, a notice stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place and the date, if any, that is to be fixed, as of which holders of shares of Common Stock of record shall be entitled to -8- 9 exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (I) The Corporation shall obtain and keep in force such permits or other authorizations as may be required by law in order to enable the Corporation validly to issue and deliver such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of Series C Preferred Stock from time to time outstanding. The Corporation at all times shall reserve and keep available, out of its authorized but unissued Common Stock, solely for the purposes of effecting the conversion of the shares of Series C Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all shares of Series C Preferred Stock from time to time outstanding. (J) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series C Preferred Stock pursuant hereto. 8. Parity With Respect to Dividends and Distribution Upon Liquidation. The Series C Preferred Stock shall rank on a parity with any other series of Preferred Stock, including the Pari Passu Stock, not by its terms made junior or senior to the Series C Preferred Stock, with respect to the payment of dividends and shall rank on a parity with any other series of Preferred Stock, including the Pari Passu Stock, not by its terms made junior or senior to the Series C Preferred Stock, as to distribution of assets in liquidation. 9. Transfer of Series C Preferred Stock. The shares of the Series C Preferred Stock shall not be transferable, either in whole or in part, unless such shares have been publicly registered, subject to any agreement between any holder of the Series C Preferred Stock and the Corporation to the contrary, or the Corporation receives an opinion (or affirmatively waives its right to receive such opinion) of transferee's or transferor's counsel stating that such transfer is exempt from the registration and prospectus delivery requirements of applicable securities laws. 10. Notice to Holders. Any notice required to be given to any holder of Series C Preferred Stock shall be mailed, postage prepaid, to such holder at such holder's address last shown on the records of the Corporation. IN WITNESS WHEREOF, the undersigned has caused the Articles Supplementary to be executed by its Executive Vice President - Finance and witnessed by its Assistant Secretary this 9th day of December, 1999. CAPSTEAD MORTGAGE CORPORATION Witness By: /s/ DAVID BARBOUR By: /s/ ANDREW F. JACOBS ---------------------------------- ---------------------------------- David Barbour, Assistant Secretary Executive Vice President - Finance -9- 10 THE UNDERSIGNED, Executive Vice President - Finance of THE CORPORATION, who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval therefor are true in all material respects under the penalties of perjury. /s/ ANDREW F. JACOBS ---------------------------------------- Executive Vice President - Finance -10- EX-3.1(D) 3 ARTICLES SUPPLEMENTARY $0.40 CUMULATIVE STOCK 1 EXHIBIT 3.1(d) ARTICLES SUPPLEMENTARY $0.40 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D OF CAPSTEAD MORTGAGE CORPORATION CAPSTEAD MORTGAGE CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: Pursuant to authority conferred upon the Board of Directors by the charter, as amended, of the Corporation (the "Charter"), the Board of Directors on November 30, 1999 adopted a resolution, creating and authorizing the issuance of a series of 5,378,000 shares of $0.40 Cumulative Convertible Preferred Stock, Series D, and that the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of the shares of such series are as follows: 1. Designation and Number of Shares. Five million three hundred seventy-eight thousand (5,378,000) shares of Preferred Stock of the Corporation, par value $.10 per share, are hereby designated as the "$0.40 Cumulative Convertible Preferred Stock, Series D" (hereinafter called the "Series D Preferred Stock"). 2. Dividends. Holders of shares of Series D Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds of the Corporation legally available for payment thereof, cumulative preferential cash dividends at the annual rate of forty cents ($0.40) per share of Series D Preferred Stock (the "Preference Dividend"), payable in equal quarterly installments of ten cents ($0.10) per share of Series D Preferred Stock in arrears on the last business day of each calendar quarter (each, a "Dividend Payment Date"), to holders of record as they appear on the register for the Series D Preferred Stock of the Corporation on such record dates, not more than 10 days preceding the payment dates thereof (each, a "Preferred Record Date"), as may be fixed by the Board of Directors. The amount of any distribution payable for any distribution period greater or less than a full calendar quarter shall be prorated and computed on the basis of a 360-day year of twelve 30-day months. The first Preference Dividend payable per share of Series D Preferred Stock (the "Initial Dividend") payable on December 31, 1999 shall be an amount calculated as $0.00111 times the number of days having elapsed from and including the date of issuance of the Series D Preferred Stock through and including December 30, 1999. Distributions shall accumulate from the date of original issuance whether or not earned or declared and whether or not there shall be funds legally available for the payment thereof. So long as any Series D Preferred Stock shall remain outstanding, no dividend shall be declared or paid upon or set apart for payment for the Common Stock of the Corporation, par value $.01 per share (the "Common Stock"), or any other class or series of stock of the Corporation ranking junior to the Series D 2 Preferred Stock in respect of dividends ("Junior Stock"), nor may any Common Stock or any other Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any shares of such stock), unless in each instance full Preference Dividends on all outstanding shares of Series D Preferred Stock for all past dividend periods required to be paid shall have been paid at the rate fixed therefor and the then current quarterly dividend shall have been paid or declared and sufficient funds set aside for payment thereof. No dividends shall be declared on any other series or class or classes of stock ranking on a parity with the Series D Preferred Stock as to dividends (including, without limitation, outstanding shares of the Corporation's $1.60 Cumulative Preferred Stock, Series A, the Corporation's $1.26 Cumulative Convertible Preferred Stock, Series B and the Corporation's $0.56 Cumulative Convertible Preferred Stock, Series C (collectively, the "Pari Passu Stock")) in respect of any dividend period thereof unless there shall likewise be or have been declared and sufficient funds set aside for payment thereof on all shares of Series D Preferred Stock at the time outstanding dividends for all quarterly periods coinciding with or ending before the end of such other period, ratably in proportion to the respective annual dividend rates per annum fixed therefor. Accumulated and unpaid Preference Dividends required to be paid on any shares of Series D Preferred Stock shall not bear interest. As used in these Articles Supplementary, "business day" shall mean a day that is neither a Saturday nor a Sunday nor a day on which the New York Stock Exchange is closed. 3. Liquidation. The shares of Series D Preferred Stock shall rank prior to the shares of Common Stock and any other class of stock of the Corporation ranking junior to the Series D Preferred Stock upon liquidation, so that in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series D Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of shares of Common Stock or any other such Junior Stock, an amount equal to $4.76 per share (the "Liquidation Preference") of Series D Preferred Stock plus an amount equal to the Preference Dividends (whether or not declared) accumulated and unpaid on the shares of Series D Preferred Stock to the date of final distribution. If upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation or proceeds thereof, distributable among the holders of shares of Series D Preferred Stock and holders of any other class or series of stock of the Corporation ranking on a parity with shares of Series D Preferred Stock as to payments upon liquidation (including, without limitation, the Pari Passu Stock), shall be insufficient to pay in full the respective preferential amounts of shares of Series D Preferred Stock and any other such class or series, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts thereon were paid in full. For the purposes hereof, neither a consolidation or merger of the Corporation with or into any other entity, nor a transfer of all or any part of the Corporation's assets for cash, property or securities shall be considered a liquidation, dissolution or winding up of the Corporation. 4. Voting Rights. Without limiting the rights of the holders of the Series D Preferred Stock to vote separately as a class as provided in Section 5 below, the holders of shares of Series D Preferred Stock shall be entitled to vote, together as a single group with the holders of the Common Stock and the holders of any other class or series of stock entitled to vote together with the holders of the Common Stock, on all matters as to which the holders of the Common Stock vote. When the Series D Preferred Stock votes together with the Common Stock and any other such class or series of stock, each share of Series D Preferred Stock shall entitle its holder to one vote for each share of Common Stock into which such share of Series D Preferred Stock is convertible immediately prior to the time of such vote. -2- 3 5. Limitations on Certain Actions. (A) The Corporation shall not, without the affirmative vote of the holders of a majority of the shares of Series D Preferred Stock then outstanding, given in person or by proxy at a meeting called for the purpose of such vote at which the holders of Series D Preferred Stock shall vote separately as a class, directly or indirectly: (i) create any class or classes of stock ranking prior to Series D Preferred Stock either as to dividends or as to amounts distributable upon liquidation or increase the authorized number of shares of any class or classes of stock ranking prior to Series D Preferred Stock either as to dividends or as to amounts distributable upon liquidation; (ii) authorize any reclassification of Series D Preferred Stock; (iii) amend, alter or repeal any of the provisions of the Charter of the Corporation (including the provisions of this Section 5) so as to affect adversely the preferences, special rights or voting powers of the Series D Preferred Stock; or (iv) merge or consolidate with or into any other entity unless after such transaction the holders of the Series D Preferred Stock either (A) continue to hold such Series D Preferred Stock without any adverse change thereto and there is no class of stock outstanding ranking prior to the Series D Preferred Stock with respect to payment of dividends or upon liquidation or (B) hold a substantially identical security and there is no class of stock outstanding ranking prior to such security with respect to payment of dividends or upon liquidation. (B) Except as otherwise provided herein or otherwise required by law, no consent of the holders of Series D Preferred Stock shall be required for (a) the creation of any indebtedness of any kind of the Corporation, (b) the creation, or increase or decrease in the amount, of any class or series of stock of the Corporation ranking on a parity with the Series D Preferred Stock as to dividends or as to amounts distributable upon liquidation, or any other class or series of stock of the Corporation not ranking prior to the Series D Preferred Stock as to dividends or as to amounts distributable upon liquidation, or (c) any increase or decrease in the amount of authorized Common Stock or any increase, decrease or change in the par value thereof. 6. Redemption. Shares of Series D Preferred Stock will be redeemable at the option of the Corporation by resolution of its Board of Directors, passed by at least a majority of the members of the Board, at any time after December 9, 2004, in whole or in part, for cash in an amount per share so redeemed equal to $4.76 per share plus all Preference Dividends on such shares (whether or not earned or declared) accumulated and unpaid to the date of such redemption (the "Redemption Price"). If less than all shares of Series D Preferred Stock are to be redeemed, (i) all arrearages in Preference Dividends on all outstanding shares of Series D Preferred Stock must be paid in full prior to any such partial redemption and (ii) the shares of such series to be redeemed shall be determined by lot or in such other equitable manner as the Board of Directors may determine. -3- 4 The Corporation shall mail to each record holder of the Series D Preferred Stock notice of any redemption not less than 30 nor more than 60 days prior to the date fixed for such Redemption (the "Redemption Date"). Such notice shall specify the Redemption Date, the place or places where certificates for shares of Series D Preferred Stock are to be surrendered, the serial number or numbers of the certificates for shares to be redeemed (if less than all shares of Series D Preferred Stock are to be redeemed), the Redemption Price, that shares of Series D Preferred Stock may be convertible into Common Stock at any time prior to the close of business on the fifth business day preceding the Redemption Date, and that dividends on Series D Preferred Stock to be redeemed on the Redemption Date shall cease to accrue on the Redemption Date. Upon surrender of Series D Preferred Stock in accordance with said notice (properly endorsed or assigned for transfer if the Corporation shall so require and the notice shall so state), such Series D Preferred Stock shall be redeemed by the Corporation at the Redemption Price and in the manner as aforesaid. The Corporation shall not be required to register a transfer of any shares of Series D Preferred Stock that have been redeemed after the Redemption Date in respect thereof. If, at any time after the giving of notice of redemption but before the Redemption Date specified therein, the Corporation shall deposit with a bank or trust company in the United States, having a capital surplus of at least $50,000,000, in trust to be applied to the redemption of the shares of Series D Preferred Stock called for redemption the funds necessary for such redemption, then from and after the date of such deposit all rights of the holders of the shares of Series D Preferred Stock so called for redemption shall cease and terminate, excepting only (i) the right to receive the Redemption Price therefor, but without interest, and (ii) the right to exercise on or before the fifth business day preceding the Redemption Date privileges of conversion set forth in Section 7, and such shares shall not be deemed to be outstanding. Any funds so deposited which shall not be required for such redemption because of the exercise of any such right of conversion subsequent to the date of such deposit shall be returned to the Corporation. In case the holders of shares of Series D Preferred Stock that shall have been called for redemption shall not, within five years after the date fixed for redemption, claim the amount deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the Corporation for the payment thereof. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time. 7. Conversion. The holders of shares of Series D Preferred Stock shall have conversion rights as follows: (A) The shares of Series D Preferred Stock shall be convertible, at the option of the respective holders thereof, at any time into fully paid and non-assessable shares of Common Stock of the Corporation, at the conversion rate, determined as hereinafter provided, in effect at the time of conversion. In case of any call for redemption of any shares of Series D Preferred Stock, such right of conversion shall terminate, as to any shares designated for redemption, at the close of business on the fifth business day preceding the Redemption Date unless default is made in the payment of the Redemption Price. -4- 5 (B) Before any holder of Series D Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender (i) the certificate or certificates therefor, duly endorsed or accompanied by proper instruments of transfer, and (ii) if such surrender is made after a Preferred Record Date and on or before the record date for the payment of quarterly dividends on the Common Stock for the quarter in which such Preferred Record Date (or Dates) falls (or fall) (any such Preferred Record Date, an "Intervening Preferred Date"), a cashier's check or other guaranteed funds in an amount equal to the aggregate amount of Preference Dividends declared or received on the shares of Series D Preferred Stock on the Dividend Payment Date or Dates to which such Intervening Preferred Date or Dates related, at the office of the corporation, and shall give written notice to the Corporation at such office that such holder elects to convert the same. The Corporation, as soon as practicable thereafter, shall issue and deliver to such holder, certificates for the number of full shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share as hereinafter provided. Such conversion shall be deemed to have been made as of the date of such surrender of the certificate or certificates representing the shares of Series D Preferred Stock to be converted and, if applicable, the cashier's check or other guaranteed funds, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on said date. (C) Notwithstanding any of the foregoing, all shares of Series D Preferred Stock outstanding on December 31, 2005 (the "Conversion Date") shall automatically convert into fully paid and non-assessable shares of Common Stock, at the conversion rate, determined as hereinafter provided, in effect at the time of such conversion; provided, however, that if funds are not legally available for the payment (in whole or in part) of any accrued but unpaid dividends as of the Conversion Date, the amount of such dividends which cannot be legally paid by the Corporation as of the Conversion Date ("Unpaid Dividends") shall be payable in shares of Common Stock. The number of shares of Common Stock to be issued in payment of any Unpaid Dividends on each share of Series D Preferred Stock outstanding as of the Conversion Date shall be determined by dividing the Unpaid Dividends payable on each outstanding share of Series D Preferred Stock by the Fair Market Value of a share of Common Stock as of the Conversion Date. For purposes of this Section 7(C), "Fair Market Value" shall mean the average of the daily closing prices of the Common Stock for the 30 consecutive business days commencing 45 business days prior to the Conversion Date. The Closing price per share of Common Stock for each day shall be the last reported sale price regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way in either case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to business on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to business, or if not listed or admitted to business on any national securities exchange, the average of the closing bid and asked prices as furnished by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information. The aggregate number of shares of -5- 6 Common Stock to be issued to each holder of Series D Preferred Stock shall be determined and any fractional shares issuable to such holder after such aggregation shall be eliminated. (D) The conversion rate shall be one (1) share of Common Stock for each share of Series D Preferred Stock converted, such rate being subject to adjustment from time to time as follows: (i) If the Corporation shall at any time issue additional shares of Common Stock as a dividend upon any outstanding stock of the Corporation other than the Series D Preferred Stock (which stock is convertible into Common Stock) or subdivide the outstanding shares of Common Stock, or combine the outstanding shares of Common Stock, the conversion rate in effect immediately prior thereto shall be adjusted so that each share of Series D Preferred Stock shall thereafter be convertible into the total number of shares of Common Stock which the holder of a share of Series D Preferred Stock would have held immediately after the happening of any of the aforesaid events had such share been converted immediately prior to the happening of such event. Such adjustment shall become effective immediately after the opening of business on the record date for the determination of stockholders entitled to such dividend, or on the effective date of such subdivision or combination, as the case may be. (ii) If the Corporation shall at any time issue rights or warrants to all holders of its outstanding Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of the Common Stock on the record date mentioned below, the conversion rate theretofore in effect immediately prior to such record date shall be adjusted by multiplying such conversion rate by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the record date referred to below plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such current market price, such adjustment to become effective immediately after the opening of business on the record date for the determination of stockholders entitled to receive such rights or warrants. For the purpose of any computation under this subsection (ii) or subsection (iii) below, the current market price per share of Common Stock at any record date shall be deemed to be the average of the daily closing prices for the 30 consecutive business days commencing 45 business days prior to the day in question. The closing price per share of Common Stock for each day shall be the last reported sale price regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way in either case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to business on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to business, or if not listed or admitted to business on any -6- 7 national securities exchange, the average of the closing bid and asked prices as furnished by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information. (iii) If the Corporation distributes to holders of its Common Stock evidences of indebtedness or securities or cash or other assets (excluding regular quarterly cash dividends or dividends payable in shares of Common Stock), the conversion rate in effect immediately prior to the record date mentioned below shall be adjusted by multiplying such conversion rate by a fraction, of which the numerator shall be the current market price per share of Common Stock on such record date and of which the denominator shall be such current market price per share of the Common Stock, less the cash or the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or securities or evidences of indebtedness so distributed applicable to one share of Common Stock, such adjustment to become effective immediately on the record date for the determination of stockholders entitled to receive such distribution. The reclassification (including any reclassification upon a merger in which the Corporation is the continuing corporation) of Common Stock into securities which include both Common Stock and other securities shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the record date for the determination" above), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter. (iv) In the event of a declaration of a dividend by the Corporation without the fixing of a record date for the determination of stockholders entitled thereto, the first business day during which the stock transfer books of the Corporation shall be closed for the purpose of such determination shall be deemed to be the record date. (E) No fractional shares of Common Stock shall be issued upon the conversion of shares of Series D Preferred Stock. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 7(E), be deliverable upon the conversion of any shares of Series D Preferred Stock, the Corporation, in lieu of delivering a fractional share therefor, shall make a payment to the holder of such surrendered share of Series D Preferred Stock of an amount in cash equal (computed to the nearest cent) to such fraction multiplied by the closing price per share of Common Stock (as such term is defined in the final sentence of Section 7(D)(ii)) on the day of conversion. (F) Whenever the conversion rate is adjusted, as herein provided, the Corporation shall forthwith deliver to each record holder of the Series D Preferred Stock a statement signed by the President or Vice President of the Corporation and by its Treasurer or an Assistant Treasurer, showing in detail the facts requiring such adjustment and the conversion rate after such adjustment. -7- 8 (G) In case of any capital reorganization or any reclassification of the Common Stock or in case of a consolidation, merger or statutory share exchange of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Series D Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such shares of Series D Preferred Stock would have been entitled upon such reorganization, reclassification, consolidation, merger or conveyance; and, in any such case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the shares of Series D Preferred Stock to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the conversion rate) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the shares of Series D Preferred Stock. (H) In the event that: (i) the Corporation shall take a record of the holders of shares of its Common Stock for the purpose of entitling them to receive a dividend, or any other distribution, other than regular quarterly cash dividends; or (ii) the Corporation shall take a record of the holders of shares of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or to receive any other rights or warrants; or (iii) there shall be any capital reorganization of the Corporation, reclassification of the Common Stock (other than a subdivision or combination thereof), consolidation or merger of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation; or (iv) there shall be any voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, and in any such case, the Corporation shall cause to be given to each record holder of Series D Preferred Stock, at least fifteen (15) days prior to the date hereinafter specified, or if notice is given to holders of Common Stock, no later than the date such notice is given, a notice stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place and the date, if any, that is to be fixed, as of which holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon -8- 9 such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (I) The Corporation shall obtain and keep in force such permits or other authorizations as may be required by law in order to enable the Corporation validly to issue and deliver such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of Series D Preferred Stock from time to time outstanding. The Corporation at all times shall reserve and keep available, out of its authorized but unissued Common Stock, solely for the purposes of effecting the conversion of the shares of Series D Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all shares of Series D Preferred Stock from time to time outstanding. (J) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series D Preferred Stock pursuant hereto. 8. Parity With Respect to Dividends and Distribution Upon Liquidation. The Series D Preferred Stock shall rank on a parity with any other series of Preferred Stock, including the Pari Passu Stock, not by its terms made junior or senior to the Series D Preferred Stock, with respect to the payment of dividends and shall rank on a parity with any other series of Preferred Stock, including the Pari Passu Stock, not by its terms made junior or senior to the Series D Preferred Stock, as to distribution of assets in liquidation. 9. Transfer of Series D Preferred Stock. The shares of the Series D Preferred Stock shall not be transferable, either in whole or in part, unless such shares have been publicly registered, subject to any agreement between any holder of the Series D Preferred Stock and the Corporation to the contrary, or the Corporation receives an opinion (or affirmatively waives its right to receive such opinion) of transferee's or transferor's counsel stating that such transfer is exempt from the registration and prospectus delivery requirements of applicable securities laws. 10. Notice to Holders. Any notice required to be given to any holder of Series D Preferred Stock shall be mailed, postage prepaid, to such holder at such holder's address last shown on the records of the Corporation. IN WITNESS WHEREOF, the undersigned has caused the Articles Supplementary to be executed by its Executive Vice President - Finance and witnessed by its Assistant Secretary this 9th day of December, 1999. CAPSTEAD MORTGAGE CORPORATION Witness By: /s/ DAVID S. BARBOUR By: /s/ ANDREW F. JACOBS -------------------------------------- ---------------------------------- David S. Barbour, Assistant Secretary Executive Vice President - Finance -9- 10 THE UNDERSIGNED, Executive Vice President - Finance of THE CORPORATION, who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval therefor are true in all material respects under the penalties of perjury. /s/ ANDREW F. JACOBS ----------------------------------- Executive Vice President - Finance -10- EX-10.34 4 SERIES C & SERIES D PURCHASE AGREEMENT STOCK 1 EXHIBIT 10.34 SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT BY AND AMONG CAPSTEAD MORTGAGE CORPORATION, AND FORTRESS INVESTMENT CORP. DATED AS OF DECEMBER 9, 1999 2 TABLE OF CONTENTS INTRODUCTORY STATEMENTS.......................................................1 ARTICLE I THE STOCK PURCHASE.......................................................1 SECTION 1.01 Purchase and Sale of Series C Preferred Shares...1 SECTION 1.02 Purchase and Sale of Series D Preferred Shares...2 SECTION 1.03 Date and Time of Closing.........................2 SECTION 1.04 Deliveries by Fortress...........................2 SECTION 1.05 Deliveries by Capstead. ........................2 ARTICLE II REPRESENTATIONS AND WARRANTIES OF FORTRESS..............................................................3 SECTION 2.01 Organization.....................................3 SECTION 2.02 Power and Capacity; Charter Documents............3 SECTION 2.03 No Conflicts.....................................3 SECTION 2.04 Consents and Approvals...........................3 SECTION 2.05 Accredited Investor..............................4 SECTION 2.06 Absence of Market................................4 SECTION 2.07 Investment Purposes..............................4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CAPSTEAD..............................................................4 SECTION 3.01 Organization and Qualification of Capstead.......5 SECTION 3.02 Power and Capacity; Charter Documents of Capstead.........................................5 SECTION 3.03 Subsidiaries.....................................5 SECTION 3.04 Capitalization and Ownership; Authorization of Preferred........................................7 SECTION 3.05 No Conflicts.....................................7 SECTION 3.06 Consents and Approvals...........................7 SECTION 3.07 Financial and Operating Statements and Reports...7 SECTION 3.08 No Undisclosed or Contingent Liabilities.........8 SECTION 3.09 Absence of Certain Changes.......................9 SECTION 3.10 Real Property...................................11 SECTION 3.11 Company Equipment...............................12 SECTION 3.12 Contracts and Commitments.......................12 SECTION 3.13 Intellectual Property...........................14
-i- 3 SECTION 3.14 Inventory.......................................14 SECTION 3.15 Pension and Other Employee Plans and Agreements......................................14 SECTION 3.16 Litigation......................................15 SECTION 3.17 Insurance.......................................15 SECTION 3.18 Collective Bargaining Agreements; Compensation; Employee Agreements.............................16 SECTION 3.19 Compliance with Law.............................16 SECTION 3.20 Permits.........................................16 SECTION 3.21 Tax Matters.....................................16 SECTION 3.22 Title to Assets.................................17 ARTICLE IV OTHER OBLIGATIONS OF THE PARTIES........................................19 SECTION 4.01 Conduct of Company Business.....................19 SECTION 4.02 Access to Books and Records.....................19 SECTION 4.03 Consents........................................19 SECTION 4.04 Supplemental Disclosure by Capstead.............19 SECTION 4.05 Governmental Filings............................20 SECTION 4.06 Covenant to Satisfy Conditions..................20 SECTION 4.07 Employees.......................................20 SECTION 4.08 Public Announcements............................20 ARTICLE V CONDITIONS PRECEDENT....................................................20 SECTION 5.01 Conditions Precedent to Obligations of Fortress........................................20 SECTION 5.02 Conditions Precedent to Obligations of Capstead........................................22 ARTICLE VI INDEMNIFICATION.........................................................23 SECTION 6.01 Survival of Representations and Warranties......23 SECTION 6.02 Indemnification by Capstead.....................23 SECTION 6.03 Indemnification by Fortress.....................23 SECTION 6.04 Limitations Regarding Indemnification Obligations of Capstead.....................24 SECTION 6.05 Limitations Regarding Indemnification Obligations of Fortress.....................24 SECTION 6.06 Conditions of Indemnification...................24 SECTION 6.07 Claim Disputes..................................25 SECTION 6.08 Remedies Exclusive..............................26 ARTICLE VII TERMINATION OF AGREEMENT................................................26
-ii- 4 SECTION 7.01 Termination of Agreement........................26 SECTION 7.02 Procedure Upon Termination......................26 ARTICLE VIII MISCELLANEOUS...........................................................26 SECTION 8.01 Commissions.....................................27 SECTION 8.02 Definition of Knowledge.........................27 SECTION 8.03 Definition of Material Adverse Effect and Material Adverse Change.........................27 SECTION 8.04 Expenses, Taxes, Etc............................27 SECTION 8.05 Successors and Assigns..........................27 SECTION 8.06 No Third-Party Benefit..........................27 SECTION 8.07 Entire Agreement; Amendment.....................28 SECTION 8.08 Reformation and Severability....................28 SECTION 8.09 Notices.........................................28 SECTION 8.10 Governing Law...................................29 SECTION 8.11 Counterparts....................................29
EXHIBIT "A" - Form of Articles Supplementary for Series C Convertible Preferred Stock EXHIBIT "B" - Form of Articles Supplementary for Series D Convertible Preferred Stock EXHIBIT "C" - Form of Registration Rights Agreement EXHIBIT "D" - Form of Supplemental Agreement EXHIBIT "E" - Form of Opinion of Andrews & Kurth L.L.P. EXHIBIT "F" - Form of Opinion of Hogan & Hartson L.L.P. APPENDIX I - Year End Financial Statements APPENDIX II - Third Quarter Financial Statements -iii- 5 SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December 9, 1999, is by and among Capstead Mortgage Corporation, a Maryland corporation ("CAPSTEAD") and Fortress Investment Corp., a Maryland corporation ("FORTRESS"). INTRODUCTORY STATEMENTS Capstead desires to sell and issue, and Fortress desires to purchase, 5,378,000 shares of a series of Capstead's preferred stock to be designated as Series C Convertible Preferred Stock, $.10 par value per share (the "SERIES C PREFERRED STOCK"). The form of Articles Supplementary for the Series C Preferred Stock is attached hereto as Exhibit "A" (the "SERIES C ARTICLES SUPPLEMENTARY"). The shares of Series C Preferred Stock to be acquired by Fortress shall be termed the "SERIES C SHARES". Capstead desires to sell and issue, and Fortress desires to purchase, 5,378,000 shares of a series of preferred stock to be designated as Series D Convertible Preferred Stock, $.10 par value per share (the "SERIES D PREFERRED STOCK"). The form of Articles Supplementary for the Series D Preferred Stock is attached hereto as Exhibit "B" (the "SERIES D ARTICLES SUPPLEMENTARY"). The shares of Series D Preferred Stock to be acquired by Fortress shall be termed the "SERIES D SHARES". The Series C Shares and the Series D Shares shall be termed collectively the "SHARES". Accordingly, for and in consideration of the foregoing and the mutual agreements, representations, warranties, covenants and conditions herein set forth, and other good, valid and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I THE STOCK PURCHASE SECTION 1.01 Purchase and Sale of Series C Preferred Shares. On and subject to the terms and conditions of this Agreement, Capstead covenants and agrees that it will issue and sell to Fortress, and Fortress covenants and agrees that it will purchase from Capstead, the Series C Shares. The aggregate amount of consideration to be paid to Capstead for the Series C Shares by Fortress shall be $25,600,000 (the "SERIES C PURCHASE PRICE"). The Series C Purchase Price shall be paid to Capstead at the Closing by wire transfer in immediately available funds. 6 SECTION 1.02 Purchase and Sale of Series D Preferred Shares. On and subject to the terms and conditions of this Agreement, Capstead covenants and agrees that it will issue and sell to Fortress, and Fortress covenants and agrees that it will purchase from Capstead, the Series D Shares. The aggregate amount of consideration to be paid to Capstead for the Series D Shares by Fortress shall be $25,600,000 ("SERIES D PURCHASE PRICE"). The Series D Purchase Price shall be paid by Fortress to Capstead at the Closing by wire transfer in immediately available funds. SECTION 1.03 Date and Time of Closing. The sale and purchase of the Shares provided for by this Article I shall be consummated, provided that each of the conditions set forth in Article V hereto shall have been satisfied or waived, at 10 a.m. on such date and at such place as may be mutually agreed upon by the parties to this Agreement (the "CLOSING"). The date on which the Closing actually occurs is referred to herein as the "CLOSING DATE". SECTION 1.04 Deliveries by Fortress. At the Closing, Fortress shall deliver, or cause to be delivered, to Capstead (unless delivered previously) the following: (a) the Officers' Certificate referred to in Section 5.02(d) hereof; (b) the Secretary's Certificate referred to in Section 5.03(e) hereof; (c) the Series C Purchase Price and the Series D Purchase Price (collectively, the "PURCHASE PRICE"); and (d) all other previously undelivered documents, instruments and writings required to be delivered by Fortress to Capstead at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. SECTION 1.05 Deliveries by Capstead. At the Closing, Capstead shall deliver, or cause to be delivered, to Fortress (unless delivered previously) the following: (a) certificates representing the Shares being purchased by Fortress, which certificates shall be registered in the name of Fortress and dated the Closing Date; (b) the Officers' Certificate referred to in Section 5.01(d) hereof; (c) the Secretary's Certificates referred to in Section 5.01(e) hereof; and (d) all other previously undelivered documents, instruments and writings required to be delivered by Capstead to Fortress at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. -2- 7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF FORTRESS Fortress represents and warrants to Capstead as follows: SECTION 2.01 Organization. Fortress is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware. SECTION 2.02 Power and Capacity; Charter Documents. (a) Fortress has all requisite power and authority to enter into, execute and deliver this Agreement, the Registration Rights Agreement (as defined below) and the Supplemental Agreement (as defined below) and perform its obligations hereunder and thereunder. Each of this Agreement, the Registration Rights Agreement and the Supplemental Agreement has been duly executed and delivered by Fortress and is a valid and binding obligation of Fortress, enforceable in accordance with its terms, subject in each case to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Fortress will not result in a violation or breach of or constitute a default under any term or provision of the Articles of Incorporation or Bylaws of Fortress. SECTION 2.03 No Conflicts. The execution, delivery and performance of this Agreement by Fortress and the consummation of the transactions contemplated hereby will not violate any statute or law or any judgment, decree, order, writ, injunction, regulation or rule of any court or any local, state or federal governmental or regulatory authority, which violation, conflict, acceleration, requirement, termination, modification or default could reasonably be expected to result in a Material Adverse Effect on the transactions contemplated by this Agreement. SECTION 2.04 Consents and Approvals. Fortress is not required to obtain, transfer or cause to be transferred any consent, approval, license, permit or authorization of, or make any declaration, filing or registration with, any third party or any public body or authority in connection with (a) the execution and delivery by Fortress of this Agreement or (b) the consummation of the transactions contemplated hereby, other than those that may be required under applicable "blue sky" securities laws or that may be required solely by reason of Capstead's (as opposed to any other third party's) participation in the transactions contemplated hereby the failure of which to obtain, transfer or cause to be transferred could reasonably be expected to result in a Material Adverse Effect on the transactions contemplated by this Agreement. -3- 8 SECTION 2.05 Accredited Investor. Fortress is an "ACCREDITED INVESTOR" as such term is defined in Rule 501(a) promulgated under the Securities Act of 1933 as amended (the "SECURITIES ACT"). Fortress represents and warrants that it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its or his investment in the Shares being issued to it pursuant to Article I hereof. SECTION 2.06 Absence of Market. Fortress acknowledges that the Shares lack liquidity as compared with other investments since there is not, and there is not expected to be, any market therefor, and that the sale or transfer of the Shares must comply with applicable federal and state securities laws. Fortress acknowledges that it must bear the economic risk of its investment in the Shares for an indefinite period of time since none of the Shares have been registered under the Securities Act and therefore cannot be sold unless such Shares are subsequently registered pursuant to the terms of the registration rights agreement attached hereto as Exhibit "C" (the "REGISTRATION RIGHTS AGREEMENT") or otherwise, or an exemption from registration is available. SECTION 2.07 Investment Purposes. Fortress hereby represents and warrants that it is acquiring the Shares for investment purposes only, for its own account, and not as nominee or agent for any other person or entity, and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. Fortress further acknowledges that representatives of Capstead have advised it that no state or federal agency or instrumentality has made any finding or determination as to the investment in the Shares, nor has any state or federal agency or instrumentality made any recommendation with respect to any purchase or investment in the Shares. SECTION 2.08 Access and Information. Fortress hereby represents and warrants that it has been given access to full and complete information regarding the Company and, to the extent such access has been given, Fortress has utilized that access to the satisfaction of Fortress for the purpose of obtaining information concerning the Company. Fortress has obtained, in its judgment, sufficient information to evaluate the merits and risks of an investment in Capstead, understands the business in which the Company is engaged, and is able to evaluate the merits and risks of an investment in the Shares. SECTION 2.09 REIT Status. Fortress has made a valid election under applicable law to be treated as a real estate investment trust ("REIT") as defined in Section 856 of the Internal Revenue Code of 1986, as amended (the "Code") for its taxable year ending December 31, 1998 and has qualified as a REIT for federal tax purposes for such year. -4- 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CAPSTEAD Capstead hereby represents and warrants to Fortress as follows, except as otherwise set forth in the relevant section of the disclosure schedule of Capstead (the "CAPSTEAD DISCLOSURE SCHEDULE"): SECTION 3.01 Organization and Qualification of Capstead. Capstead is (a) a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and (b) duly qualified to do business as a foreign corporation and in good standing in each jurisdiction in which the character of the properties and assets now owned or leased by it or the nature of the business transacted by it requires it to be so qualified, except where the failure to be so qualified, individually or in the aggregate, would not have a Material Adverse Effect (as defined herein) upon the Company (as defined herein) or the consummation of the transactions contemplated hereby. Each jurisdiction in which Capstead is qualified to do business is listed on Section 3.01 of the Capstead Disclosure Schedule. No jurisdiction in which Capstead is not qualified or licensed has claimed, in writing or otherwise, that Capstead is required to qualify or be licensed therein. SECTION 3.02 Power and Capacity; Charter Documents of Capstead. (a) Capstead has all requisite power and authority (corporate and otherwise) to enter into, execute and deliver this Agreement, the Registration Rights Agreement and the Supplemental Agreement, to sell and issue the Shares hereunder, to issue the shares of Capstead's common stock ("COMMON STOCK") issuable upon conversion of the Shares, and to carry out and perform its obligations hereunder and thereunder. Capstead has the corporate power and authority to carry on its business as now being conducted and to own and lease its properties. Each of this Agreement, the Registration Rights Agreement and the Supplemental Agreement has been duly executed and delivered by Capstead and is a valid and binding obligation of Capstead, enforceable in accordance with its terms, subject in each case to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Capstead will not result in a violation or breach of or constitute a default under any term or provision of the Articles of Incorporation or Bylaws of Capstead. Complete and correct copies of the Articles of Incorporation and Bylaws of Capstead, and all amendments thereto, have been delivered to Fortress, and no changes therein will be made subsequent to the date hereof and prior to the Closing without the consent of Fortress, except that Articles Supplementary will be filed with the State Department of Assessments and Taxation of Maryland in order to designate and classify the Shares. -5- 10 SECTION 3.03 Subsidiaries. (a) Section 3.03(a) of the Capstead Disclosure Schedule sets forth for each subsidiary, direct or indirect, of Capstead (each a "SUBSIDIARY"), its capital structure, its place of organization and the other jurisdictions in which it is qualified to do business. Each of the Subsidiaries has been duly organized and is validly existing and in good standing under the laws of its respective state of incorporation, has all requisite corporate power and authority to own or lease and operate its properties and conduct its business as now conducted and is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties owned or leased by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed, individually or in the aggregate, would not have a Material Adverse Effect on the Company or the consummation of the transactions contemplated hereby. No jurisdiction in which any Subsidiary is not qualified or licensed has claimed, in writing or otherwise, that such Subsidiary is required to qualify or be licensed therein, except where the failure to be so qualified or licensed, individually or in the aggregate, would not have a Material Adverse Effect on the Company or the consummation of the transactions contemplated hereby. (b) Capstead owns, free and clear of all mortgages, liens, claims, charges, pledges, security interests or other encumbrances of any nature whatsoever ("ENCUMBRANCES"), and has the unrestricted power to dispose of and vote, all of the outstanding capital stock of each of the Subsidiaries. There are no outstanding or authorized options, warrants, subscriptions, calls, conversions or other rights, contracts, agreements, commitments or understandings of any kind obligating any Subsidiary to issue, sell, purchase, return or redeem any shares of its capital stock or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any shares of capital stock of, or other ownership interest in, any Subsidiary. All of the outstanding shares of the capital stock of each class of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive rights or any applicable Law (as defined herein). (c) Except for its interest in any Subsidiary, Capstead does not (i) own, beneficially or of record, any shares of any other corporation or entity or any interests in any partnerships or limited liability companies or (ii) participate in any manner in any joint ventures, corporate alliance agreements or corporate partnering agreements. Except for Capstead's interest in any Subsidiary, neither Capstead nor any Subsidiary has an interest in, or is subject to, any agreement, obligation or commitment to make any equity investment in or loan or advance to, any other Person (as defined herein). (d) For purposes of this Agreement, Capstead and the Subsidiaries shall collectively be termed the "COMPANY"; when such collective term is used in connection with financial issues, it shall refer to Capstead and the Subsidiaries as a consolidated whole. For example, when references are made to officers, directors and employees of the Company, it shall mean all officers, directors and stockholders of Capstead and the Subsidiaries. -6- 11 SECTION 3.04 Capitalization and Ownership; Authorization of Preferred. (a) Section 3.04(a) of the Disclosure Schedule lists, for Capstead, its authorized capitalization and the number of shares of its capital stock (or other equity interests) issued and outstanding as of September 30, 1999. All of the outstanding shares of the capital stock of Capstead are validly issued, fully paid and non-assessable. All such shares are owned free and clear of any Encumbrance imposed by Capstead. There are no outstanding options, warrants or other rights to acquire any share of capital stock of Capstead, there are no outstanding securities authorized, granted or issued by Capstead that are convertible into or exchangeable for shares of its capital stock and there are no phantom stock rights, dividend equivalent rights, stock appreciation rights or similar rights regarding Capstead or any Subsidiary. (b) The issuance, sale and delivery of the Shares have been duly authorized by all requisite corporate action of Capstead and when issued, sold and delivered in accordance with the terms of this Agreement, the Shares will be validly issued and outstanding, fully paid and nonassessable. (c) Capstead has duly reserved the number of shares of its common stock (the "RESERVED SHARES") necessary for issuance upon conversion in full of the Series C Shares and the Series D Shares. When issued, sold and delivered in accordance with the terms of the Series C Articles Supplementary or the Series D Articles Supplementary, as the case may be, the Reserved Shares will be validly issued and outstanding, fully paid and nonassessable. SECTION 3.05 No Conflicts. The execution, delivery and performance of this Agreement by Capstead and the consummation of the transactions contemplated hereby will not: (a) result in the creation or imposition of any security interest, lien, charge or other encumbrance against the assets of the Company, with or without the giving of notice and/or the passage of time, or (b) violate, conflict with, affect acceleration of, or result in termination, cancellation or modification of, or constitute a default under or give rise to any predetermined rights to any third party under (i) any contract, agreement or other instrument to which the Company is a party or by which the Company or its assets is bound or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which the Company is a party or by which the Company may be bound or affected, or to which any of the assets of the Company may be subject, or (c) violate any statute or Law or any judgment, decree, order, writ, injunction, regulation or rule of any court or any local, state or federal governmental or regulatory authority, which violation, conflict, acceleration, requirement, termination, modification or default described in (a), (b), or (c) above could reasonably be expected to result in a Material Adverse Effect on Capstead or the transactions contemplated by this Agreement. -7- 12 SECTION 3.06 Consents and Approvals. The Company is not required to obtain, transfer or cause to be transferred any consent, approval, license, permit or authorization of, or make any declaration, filing or registration with, any third party or any public body or authority in connection with the execution and delivery by Capstead of this Agreement or the consummation of the transactions contemplated hereby, the failure of which to obtain, transfer or cause to be transferred could reasonably be expected to result in a Material Adverse Effect on the transactions contemplated by this Agreement. SECTION 3.07 Financial and Operating Statements and Reports. (a) Year End Financial Statements. Attached hereto as Appendix I is a true and complete copy of audited consolidated financial statements of the Company for the years ended December 31, 1998 and 1997 (the "YEAR END FINANCIAL STATEMENTS"). The Year End Financial Statements include audited balance sheets of the Company as of December 31, 1998 and 1997 (such 1998 balance sheet being termed the "1998 BALANCE SHEET"), together with related statements of operations, equity and cash flows of the Company (and notes thereto) for each of such periods. The Year End Financial Statements are accurate and correct in all material respects, have been prepared on a consistent basis from, and are in accordance with, the Company's books and records, and fairly present the consolidated financial position and the results of operations of the Company for the periods therein identified in conformity with generally accepted accounting principles ("GAAP") consistently applied. (b) Third Quarter Financial Statements. Attached hereto as Appendix II is a true and complete copy of consolidated financial statements of the Company for the three and nine months ended September 30, 1999 (the "THIRD QUARTER FINANCIAL STATEMENTS"). The Third Quarter Financial Statements include a balance sheet of the Company as of September 30, 1999 (such 1999 balance sheet being termed the "1999 THIRD QUARTER BALANCE SHEET"), together with related statements of operations and cash flows of the Company (and notes thereto) for such period. The Third Quarter Financial Statements are accurate and correct in all material respects, have been prepared on a consistent basis from, and are in accordance with, the Company's books and records, and fairly present the consolidated financial position and the results of operations of the Company for the periods therein identified in conformity with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X under the Securities Act (except that the Third Quarter Financial Statements do not include all of the information and footnotes that may be required in the Year End Financial Statements or normal year-end adjustments). (c) Each report, schedule, registration statement and definitive proxy statement filed by Capstead with the Securities and Exchange Commission (the "SEC") since December 31, 1998 and through the date hereof (collectively, the "SEC REPORTS"), at the time filed, and all forms, reports or other documents filed by Capstead with the SEC after the date hereof, did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. -8- 13 (d) None of the Company or its respective employees or agents have made any payment of funds of the Company, or received or retained any such funds in violation of any law, rule or regulation where such actions are of a character required to be disclosed in the SEC Reports. SECTION 3.08 No Undisclosed or Contingent Liabilities. Except for (a) liabilities or obligations incurred by the Company in the ordinary course of business and not required by GAAP applied on a consistent basis to be set forth on the 1999 Third Quarter Balance Sheet (all of which known items exceeding $250,000 per item are described in Section 3.08 of the Capstead Disclosure Schedule), and (b) liabilities and obligations incurred by the Company in the ordinary course of business since the date of the 1999 Third Quarter Balance Sheet, to the best knowledge of the Company, there is no basis for the assertion against the Company of any liability or obligation of any nature whatsoever (whether absolute, accrued, contingent or otherwise) that may encumber or affect the Company or the transactions contemplated hereby which is not fully reflected or reserved against on the 1999 Third Quarter Balance Sheet. SECTION 3.09 Absence of Certain Changes. Except as set forth in Section 3.09 of the Capstead Disclosure Schedule, since September 30, 1999, the Company has not: (a) suffered any Material Adverse Effect and there has not been any event (whether occurring before or after September 30, 1999) that could reasonably be expected to have a Material Adverse Effect on the Company; or (b) experienced any material decrease in the book value of the assets of the Company from the amounts reflected on the 1999 Third Quarter Balance Sheet, other than decreases resulting from (i) depreciation or amortization in accordance with accounting practices in effect at all times since January 1, 1999 or (ii) changes in the market value of the Company's mortgage investment portfolio due generally to economic changes in the industry in which the Company conducts business; or (c) incurred any liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise and whether due or to become due), except (i) liabilities or obligations for rent under the Leases (as defined herein) and (ii) liabilities or obligations for other items incurred in the ordinary course of business of the Company and consistent with past practice, none of which other items exceeds $100,000 (considering liabilities or obligations arising from one transaction or a series of similar transactions, and all periodic installments or payments under any lease (other than the Leases and other than repurchase obligations with respect to the Company's agency security and non-agency security portfolio) or other agreement providing for periodic installments or payments, as a single obligation or liability); or (d) increased (other than increases resulting from the calculation of reserves in the ordinary course of business and in a manner consistent with past practice), or experienced any change in any assumptions underlying or methods of calculating, any bad debt, contingency or other reserves; or (e) paid, discharged or satisfied any claims, encumbrances, liabilities or obligations (whether absolute, accrued, contingent or otherwise and whether due or to become due) -9- 14 other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities and obligations reflected or reserved against in the 1999 Third Quarter Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date thereof; or (f) permitted, allowed or suffered any of the material assets of the Company, including, without limitation, real property, personal property or any leasehold interest, to be subjected to any mortgage, pledge, lien, encumbrance, restriction or charge of any kind (except for liens for Taxes (as defined herein) not yet owing), other than repurchase obligations of the Company incurred in the ordinary course of business; or (g) written off as uncollectible any notes or accounts receivable or any portion thereof, except for write-downs in the ordinary course of business, consistent with past practice, in accordance with GAAP consistently applied; or (h) canceled any material amount of indebtedness or waived any material claims or rights, except as reserved for in the 1999 Third Quarter Financial Statements; or (i) sold, transferred or otherwise disposed of any assets of the Company except in the ordinary course of business and consistent with past practice; or (j) disposed of or permitted to lapse any right to the use of any patent, trademark, assumed name, service mark, trade name, copyright, license or application therefor or disposed of or disclosed to any corporation, association, partnership, organization, business, individual, government or political subdivision thereof or government agency (each, a "PERSON"), any trade secret, formula, process or know-how not theretofore a matter of public knowledge; or (k) granted any increase in the salary, compensation, rate of compensation, commissions or bonuses payable to or to become payable by the Company to any officer or director of the Company (including, without limitation, any increase or change pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment); or (l)granted any increase in the salary, compensation, rate of compensation, commissions of bonuses payable to or to become payable by the Company to any employee of the Company (including, without limitation, any increase or change pursuant to any bonus, pension, profit-sharing, retirement or other plan or commitment), except in the ordinary course of business and consistent with past practice; or (m) paid, loaned or advanced any amount to any officer, director, employee or stockholder of the Company except for amounts advanced to employees of the Company in the ordinary course of business consistent with past practice (none of which advances were loans for personal purposes), or sold, transferred or leased any assets of the Company to, or entered into any agreement (other than this Agreement) or arrangement with, any officer, director, employee or stockholder of the Company (except for agreements or arrangements made in the ordinary course of business and consistent with past practice); or -10- 15 (n) entered into any collective bargaining or labor agreement, or experienced any labor dispute or difficulty; or (o) made any single capital expenditure or commitment in excess of $50,000 for additions to property, plant, equipment or for any other purpose or made aggregate capital expenditures or commitments in excess of $100,000 for additions to property, plant, equipment or for any other purpose; or (p) made any change in any method of accounting or accounting practice or policy; or (q) suffered any casualty loss in excess of $50,000 (whether or not insured against) or suffered aggregate casualty losses in excess of $100,000 (whether or not insured against); or (r)issued any additional shares of capital stock of Capstead or the Subsidiaries or any option, warrant, right or other security exercisable for, convertible into or exchangeable for shares of capital stock of Capstead or the Subsidiaries other than shares of common stock issued upon conversion of outstanding shares of Capstead's preferred stock; or (s) paid dividends on or made other distributions or payments in respect of the capital stock of Capstead or the Subsidiaries; or (t) paid its suppliers and other vendors in a manner and time not consistent with past practice other than items in dispute totaling not more than $200,000; or (u) taken any other action not either in the ordinary course of business and consistent with past practice or provided for in this Agreement; or (v) entered into or agreed to any transaction not in the ordinary course of business; or (w) agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 3.09. SECTION 3.10 Real Property. (a) The Company does not currently own, and has not owned in the past five years, any real property, other than (i) real estate that the Company owns or has owned in the ordinary course of business incident to its master servicing or former servicing operations and (ii) leasehold improvements. (b) Section 3.10 of the Capstead Disclosure Schedule contains a complete and accurate list of all real property leases to which the Company is a party in any capacity (including all amendments thereof and modifications thereto) (the "LEASES"). The Company's interests in and to all Leases listed on Section 3.10 of the Capstead Disclosure Schedule are free and clear of all -11- 16 Encumbrances including without limitation subleases, chattel mortgages, mechanics' and materialmen's liens, conditional sales contracts, collateral security arrangements and other interest retention arrangements. The Company has not received notice of any default by the Company under any of the Leases, and there are no facts or conditions that would, with notice or lapse of time or both, constitute a default by the Company under any of the Leases. To the best knowledge of the Company, none of the landlords under any of the Leases is in default. Any Lease or proposed Lease for which Capstead or an affiliate thereof or related party thereto is landlord are on terms that are no more burdensome to the Company than terms for third party leases in the same geographic area for similarly-situated properties. (c) The buildings and improvements leased by the Company on any Lease, and the operation and maintenance thereof as operated and maintained, do not (i) contravene any zoning or building Law or ordinance or other administrative regulation or (ii) violate any restrictive covenant or any applicable Law. To the best knowledge of the Company, all of the plants, buildings and structures located on any real property owned by the Company or on any Lease are in a state of good maintenance and repair (normal wear and tear excepted) suitable in all respects for the operation of the Company Business. (d) There is no pending or threatened condemnation, eminent domain or similar proceeding with respect to, or that could affect, any real property owned by the Company or any Lease. SECTION 3.11 Company Equipment. The Company has good and indefeasible title to all furniture, fixtures and equipment of the Company (the "COMPANY EQUIPMENT"), free and clear of any Encumbrances. To the best knowledge of the Company, the Company Equipment is in good and normal operating condition and repair and adequate for the uses to which it is being put by the Company. The Company has not received any notification from any governmental or regulatory authority within the last two years that the Company is in violation of any health, sanitation, fire, safety, zoning, building or other Law, ordinance or regulation in respect of the Company Equipment or operations, which violation has not been appropriately and completely resolved. SECTION 3.12 Contracts and Commitments. (a) Except as set forth in Section 3.12(a) of the Capstead Disclosure Schedule, the Company is not a party to or bound by any agreements, contracts or commitments which individually or when aggregated with all related agreements, contracts or commitments, are material to the business, operations, condition (financial or otherwise), liabilities, assets, earnings or working capital of the Company or that provide for the grant of any preferential rights to purchase or lease any of the assets of the Company. (b) The enforceability of the agreements, contracts and commitments referred to in this Section 3.12 will not be affected in any respect by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (c) No purchase contracts or commitments of the Company are in excess of the normal, ordinary and usual requirements of the Company, or to the best knowledge of the Company, -12- 17 were entered into at prices materially in excess of those available in the industry in arm's length transactions on the respective dates thereof. (d) The Company is not a party to or bound by any outstanding agreements, arrangements or contracts with any of its directors, officers, stockholders, employees, agents, consultants, advisors, salesmen or sales representatives (or any of the affiliates of any of such Persons) that (A) are not cancelable by it on notice of not longer than 30 days and without the imposition of any liability, penalty or premium, (B) require non-cancelable payment by the Company of over $25,000, or (C) provide for any bonus or other payment based on the sale of the Company or any portion thereof. (e) The Company is not a party to or bound by any employment agreement, consulting agreement or any other agreements that contains any provision for severance or termination pay liabilities or obligations. (f) The Company is not a party to or bound by: (i) other than repurchase agreements reflected on the 1999 Third Quarter Financial Statements and entered into in the ordinary course of business, any mortgage, indenture, note, installment obligation or other instrument, agreement or arrangement for or relating to any borrowing of money by the Company; (ii) any guaranty, direct or indirect, by the Company of any obligation for borrowings or otherwise, excluding endorsements made for collection in the ordinary course of business; (iii) any obligation to make payments, contingent or otherwise, of over $250,000 arising out of any prior acquisition of the business, assets or stock of other persons; (iv) any collective bargaining agreement with any labor union; (v) any lease or similar arrangement for the use by the Company of personal property requiring payments by the Company, on an annual basis, of over $50,000; (vi) any agreement containing noncompetition or other limitations restricting the conduct of the business of the Company; and (vii) any partnership, joint venture or similar agreement. (g) Neither the Company nor any of its officers, directors, stockholders or affiliates is a party to or bound by any agreement (other than this Agreement) or arrangement for the sale of any of the assets or capital stock of Capstead or the Subsidiaries or for the grant of any preferential rights to purchase any of the assets or capital stock of Capstead or the Subsidiaries; and (h) The Company is not bound by any agreement to redeem shares of capital stock held by any stockholders. -13- 18 (i) With respect to each contract and agreement listed in Section 3.12 of the Capstead Disclosure Schedule, except as set forth therein, (i) each of such contracts and agreements is valid, binding and in full force and effect and is enforceable by the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other Laws and judicial decisions of general applicability relating to or affecting creditors' rights and to general principles of equity; (ii) there have been no cancellations or threatened cancellations thereof nor are there any outstanding disputes thereunder; (iii) neither the Company, nor any other party is in breach of any material provision thereof; and (iv) there does not exist any material default under, or any event or condition which with the giving of notice or passage of time or both would become a material breach or material default under, the terms of any such contract or agreement on the part of the Company or on the part of any other party thereto. (j) The Company has delivered or made available to Fortress true and complete copies of each written contract or agreement listed in Section 3.12 of the Capstead Disclosure Schedule and true and accurate summaries of any oral agreement listed thereon. SECTION 3.13 Intellectual Property. Section 3.13 of the Capstead Disclosure Schedule contains an accurate and complete list of (a) all material patents, trademarks (registered or unregistered), trade names, assumed names, copyrights, and all applications therefor, owned or filed by the Company and used in or necessary for the conduct of the Company Business and, with respect to registered trademarks, contains a list of all jurisdictions in which such trademarks are registered and all registration numbers; (b) all material licenses, permits and other agreements relating thereto; and (c) all material agreements relating to technology, know-how or processes used in or necessary for the conduct of the business of the Company Business which the Company is licensed or authorized to use by others (including, without limitation, licenses for the use of software of all types). Such patents, trademarks (registered or unregistered), copyrights, licenses and permits are (i) valid, subsisting and enforceable, and (ii) duly recorded in the names of the Persons set forth in Section 3.13 of the Capstead Disclosure Schedule. The Persons set forth in Section 3.13 of the Capstead Disclosure Schedule have the sole and exclusive right, free from any liens, mortgages, security interests, charges or encumbrances, to use the patents, trademarks (registered or unregistered), copyrights and applications therefor set forth beside their names, and the Company has the full right to use the trade names, assumed names, technology, know-how, inventions, works and processes referred to in such lists and all trade secrets required for or incident to the conduct of the Company Business in the jurisdictions in which the Company Business is conducted, and the consummation of the transactions contemplated hereby will not alter or impair any such rights. No material claims have been asserted by any Person against the Company with respect to the ownership, validity, enforceability, misappropriation or use of any product or service of the Company Business or such patents, trademarks (registered or unregistered, or of any confusingly similar or dilative trademarks), trade names, assumed names, copyrights, applications therefor, technology, know-how, processes or trade secrets or challenging or questioning the validity or effectiveness of any such license, permits or agreement and there is no valid basis for any such claim, and the use or other exploitation of any such product or service of the Company Business or patents, trademarks (registered or unregistered), trade names, assumed names, copyrights, applications therefor, technology, know-how, processes and trade secrets by the Company does not infringe on or dilute the rights of any Person; and, to the best knowledge of the Company, no other Person is -14- 19 infringing the rights of the Company with respect to such patents, trademarks (registered or unregistered), trade names, assumed names, copyrights, and applications therefor, technology, know-how, inventions, works, processes or trade secrets. SECTION 3.14 Inventory. The Company has no inventory, other than with respect to office supplies that are stored in amounts necessary for the reasonably foreseeable use of the Company. SECTION 3.15 Pension and Other Employee Plans and Agreements. (a) Section 3.15(a) of the Capstead Disclosure Schedule sets forth, as of the date of this Agreement, all of the material pension, profit sharing, stock option, stock purchase, stock bonus, employee stock ownership, incentive, bonus, life, health, disability or accident plans, deferred compensation plans, and other employee compensation or benefit plans, agreements, practices, policies, customs, contracts, arrangements or commitments, including, without limitation, changes in control or severance agreements, holiday, vacation or other similar plans, programs or arrangements, employee benefit plans (within the meaning of section 3(3) of ERISA), and labor union agreements under or with respect to which the Company or any Person ("ERISA AFFILIATE") who would be treated as being a "single employer" with the Company under section 414 of the Code, has any liability or obligation, whether current, contingent, secondary or otherwise (collectively, the "PLANS" and individually, a "PLAN"), and the Company has furnished to Fortress complete copies of all of the foregoing as amended and in effect on the date hereof, including, where applicable, any trust agreements, insurance contracts or other funding mediums related to any Plan and Summary Plan Descriptions. (b) Except for any events of noncompliance resulting in aggregate payments of not greater than $150,000, each Plan is in compliance in all material respects with its terms and applicable Law, including (without limitation) ERISA and the Code. (c) Seller has never been required to contribute to any multiple employer plan (as defined in Section 412 of the Code) or multiemployer plan (as defined under Section 3(37) of ERISA), and no Plan is subject to Title IV of ERISA or Section 412 of the Code. (d) No Plan provides (or has any commitment to provide) health benefits with respect to any current or former employees or independent contractors (or beneficiary thereof) of the Company or any ERISA Affiliate beyond their retirement or other termination of service (other than coverage mandated by COBRA). Each Plan can be unilaterally terminated at any time by the Company without material liability. SECTION 3.16 Litigation. Except as set forth in Section 3.16 of the Capstead Disclosure Schedule, there are no open and unresolved claims, actions, suits, proceedings, investigations or inquiries that have been made or served against the Company or, to the best knowledge of the Company, that are pending against (without having been so served), threatened by or against, or otherwise affecting or that, if adversely decided, would reasonably be expected to have a Material Adverse Effect on the Company or the transactions contemplated hereby (except as otherwise disclosed in the Disclosure Schedule). The Company is not a party to or a recipient of -15- 20 service of process regarding (and has not otherwise been named and noticed in) any judgment, order or decree entered in any lawsuit or proceeding which has had or may have a Material Adverse Effect on the Company or on its ability to acquire any property or conduct its business in any way. SECTION 3.17 Insurance. (a) All policies of fire, liability, workmen's compensation, health, D&O insurance and other forms of insurance relating to the business of the Company (the "COMPANY BUSINESS") are in full force and effect, (b) all billed premiums with respect thereto covering all periods up to and including the Closing Date have been paid or will be paid prior to the Closing Date, and (c) no notice of cancellation or termination has been received with respect to any such policy. Capstead maintains insurance of the types, and at least in the amounts, that to its knowledge are customary for businesses similar to the Company Business. All information disclosed by Capstead to Fortress regarding coverage under such insurance policies is true and correct in all material respects. SECTION 3.18 Collective Bargaining Agreements; Compensation; Employee Agreements. The Company does not have in effect any collective bargaining agreement. The Company is not currently engaged in any bargaining with any labor union. To the best knowledge of the Company, no petition is on file with the National Labor Relations Board submitted by a labor union seeking to represent any of the employees of the Company and the Company is not aware of any attempts to organize the employees of the Company by any labor union. SECTION 3.19 Compliance with Law. The Company is in compliance in all material respects with all federal, state, foreign and local laws (whether statutory or otherwise), ordinances, rules, regulations, orders, judgments, decrees, writs and injunctions of any governmental authority (collectively, "LAWS") applicable to the Company Business. The Company has not been notified by any governmental or regulatory authority that the Company is in violation or alleged violation of any Law applicable to the Company Business which violation has not been appropriately and completely resolved, or that any governmental or regulatory authority contemplates any investigation or proceeding with respect to any such violation or alleged violation which has not been appropriately and completely resolved which, in either case, could reasonably be expected to have a Material Adverse Effect. SECTION 3.20 Permits. The Company has all material licenses, permits and authorizations issued by any federal, state, local or governmental authority ("PERMITS") necessary for the ownership or leasing of its properties and the conduct of the Company Business as now being conducted. All such Permits are in full force and effect. No violations exist or, to the best knowledge of the Company, have been reported in respect of such Permits. No notice of any proceeding has been served or otherwise given to the Company or, to the best knowledge of the Company, is pending (without service or other notice) or threatened seeking the revocation or limitation of any of such Permits. SECTION 3.21 Tax Matters. (a) All Tax Returns required to be filed on or before the Closing Date by the Company have been or will be filed within the time prescribed by Law (including extensions of time approved by the appropriate taxing authority). "TAX RETURN" means any report, statement, form, -16- 21 return or other document or information required to be supplied to a taxing authority in connection with Taxes. "TAX" or "TAXES" means any United States or foreign federal, state, or local tax, including without limitation income tax, ad valorem tax, excise tax, sales tax, use tax, franchise tax, gross receipts tax, withholding tax, social security tax, occupation tax, service tax, license tax, payroll tax, transfer and recording tax, severance tax, customs tax, import tax, export tax, employment tax, or any similar or other tax, assessment, duty, fee, levy or other governmental charge, together with and including, without limitation, any and all interest, fines, penalties, assessments and additions to tax resulting from, relating to, or incurred in connection with any such tax or any contest or dispute thereof. (b) The Tax Returns so filed are complete, correct and accurate representations of the Tax liabilities of the Company and such Tax Returns accurately set forth or will accurately set forth all items to the extent required to be reflected or included in such returns. (c) The Company has timely paid or has made adequate provision in the 1998 Balance Sheet for the payment of all Taxes due on such Tax Returns that have been filed or will be filed for periods ending on or before the date of the 1998 Balance Sheet. (d) There is no action, suit, investigation, proceeding, audit or claim that has been served against or otherwise properly noticed to the Company, or, to the best knowledge of the Company, pending or proposed against or with respect to the Company in respect of any Tax. There are no material liens for Taxes upon any of the assets of the Company. (e) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other Person. (f) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (g) The Company does not have in effect a consent under Section 341(f) of the Code concerning collapsible corporations. (h) There has never been a Tax sharing or allocation agreement in place between the Company and any other Person other than those, if any, with respect to which the applicable statute of limitations has run. (i) The Company is not liable for a Tax incurred by any other corporation that was a member of a consolidated group of corporations (within the meaning of Treasury regulation section 1.1502) that included the Company. (j) The Company has delivered or made available to Fortress correct and complete copies of all Tax Returns filed by the Company for 1996, 1997 and 1998, all examination reports, and any statements of deficiencies assessed against or agreed to by the Company. -17- 22 (k) Capstead has made a valid election under applicable law to be treated as a REIT as defined in Section 856 of the Code for each taxable year ending from December 31, 1985 through December 31, 1998 and has qualified as a REIT for federal tax purposes for such years. SECTION 3.22 Title to Assets. The Company has good, valid and indefeasible title to the assets of the Company, including without limitation those assets set forth on the 1999 Third Quarter Balance Sheet (other than with respect to those assets which are subject to repurchase obligations and collateralized mortgage obligations of the Company), subject to the mortgages, liens, claims, charges, pledges, security interests set forth in Section 3.22 of the Capstead Disclosure Schedule. SECTION 3.23 Brokers or Finders; Other Offers. Except as set forth in Section 3.23 of the Capstead Disclosure Schedule, the Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. SECTION 3.24 Articles of Incorporation Exemptions and Other Exclusions. The issuance of the Shares hereunder and the acquisition of shares of the Common Stock, upon conversion or redemption of such Shares, are excluded by resolutions of the Company's board of directors from the application of Article VIII of Capstead's Articles of Incorporation and from the provisions of Section 3-602 of the Maryland General Corporation Law (the "MARYLAND GCL") prohibiting business combinations with Interested Stockholders (as such term is defined in Section 3-601 of the Maryland GCL and the provisions of Sections 3-701 et seq. of the Maryland GCL). No "fair price," "moratorium," "control share acquisition," or other similar anti-takeover statute or regulation to which Capstead or its operations is subject is applicable to the sale of Shares or the acquisition of Common Stock by Fortress upon conversion or redemption of such Shares or to Fortress solely as a result of its acquisition of such Shares or Common Stock. SECTION 3.25 Investment Company. Capstead is not, and upon the issuance and sale of the Shares as contemplated herein and the application of the net proceeds therefrom will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), and is not required to be registered under the Investment Company Act. SECTION 3.26 Internal Controls. Capstead maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable internals and appropriate action is taken with respect to any differences. -18- 23 SECTION 3.27 Year 2000 Compliance. (a) Capstead has completed a review and assessment of all areas within its business and operations that could be reasonably expected to be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Capstead may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). (b) All computer software, computer firmware and computer hardware (whether general or special purpose) owned by Capstead that are material to the conduct of Capstead's business is reasonably expected to, on a timely basis, be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"). Capstead has also inquired as to the Year 2000 compliance of service contractors and suppliers and other third parties with whom Capstead conducts a material amount of business and, to the knowledge of Capstead, these third parties are Year 2000 Compliant. ARTICLE IV OTHER OBLIGATIONS OF THE PARTIES SECTION 4.01 Conduct of Company Business. From the date hereof to the Closing, except as otherwise expressly set forth in this Agreement, and except for costs and expenses reasonably incurred in connection with the transactions contemplated by this Agreement, the Company shall conduct the business, operations, activities and practices of the Company only in the ordinary course, in accordance with prudent practice and consistent with past practice since January 1, 1999. SECTION 4.02 Access to Books and Records. In order that Fortress may have a full opportunity to make investigations of Capstead in connection with the actions contemplated by this Agreement, Capstead shall permit Purchaser and its counsel, accountants, auditors, lenders, environmental consultants and other representatives reasonable access, upon reasonable notice, to all of the offices, properties, books and records, contracts and commitments of Capstead from the date hereof through the Closing Date. SECTION 4.03 Consents. Each of Capstead and Fortress agree to use commercially reasonable best efforts to obtain prior to the Closing all consents and approvals necessary, in the reasonable determination of Fortress, to consummate the transactions contemplated hereby, including, without limitation, the consents and approvals listed or referred to in Section 3.06 of the Disclosure Schedule. All such consents shall be in writing and in form and substance reasonably satisfactory to Fortress, and executed counterparts thereof shall be delivered to Fortress promptly after receipt thereof by Capstead but in no event later than the Closing. -19- 24 SECTION 4.04 Supplemental Disclosure by Capstead. (a) The Capstead Disclosure Schedule shall be considered to be part of the representations and warranties of Capstead. (b) Following delivery of the Capstead Disclosure Schedule in accordance with the provisions of Article III and continuing through the Closing, Capstead shall have the continuing obligation to supplement or amend the Capstead Disclosure Schedule with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in such specific Sections of the Capstead Disclosure Schedule ("CAPSTEAD SUPPLEMENTAL DISCLOSURES"). (c) Capstead acknowledges that the Capstead Disclosure Schedule is an important and integral part of this Agreement. Fortress shall be entitled to treat any Capstead Supplemental Disclosures as a breach of the appropriate representation or warranty, whether or not the event or condition giving rise to such Capstead Supplemental Disclosures occurred on or prior to the date hereof, unless such supplementation or amendment is a result of any of the activities not prohibited by Section 4.01 ("SECTION 4.01 ITEMS"); provided, that as a result of the occurrence of the Closing despite such supplementation or amendment of the Capstead Disclosure Schedule, Fortress shall be deemed to have waived any breach arising from such supplementation or amendment. SECTION 4.05 Governmental Filings. As soon as practicable, Capstead and Fortress shall make any and all filings and submissions to any governmental agency that are required to be made in connection with the transactions contemplated hereby. Capstead shall furnish to Fortress, and Fortress shall furnish to Capstead, such information and assistance as the other party or parties may reasonably request in connection with the preparation of any such filings or submissions. SECTION 4.06 Covenant to Satisfy Conditions. Capstead and Fortress shall each use their commercially reasonable best efforts to insure that the conditions set forth in Article V hereof are satisfied, insofar as such matters are within their respective control. SECTION 4.07 Employees. From the date hereof Capstead shall use its commercially reasonable best efforts to retain as employees of the Company through the Closing Date the active employment of the Company's current employees, except as may be otherwise agreed by the parties. Capstead agrees in this regard to cooperate with Fortress by permitting Fortress throughout the period prior to the Closing Date to meet with the employees of the Company (especially the corporate officers of the Company) at such times as shall be approved by Capstead (which approval shall not be unreasonably withheld). SECTION 4.08 Public Announcements. Neither the Company nor Fortress, nor any of their affiliates, shall make any public statement, including, without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby, without the prior written consent of the other party (which consent may not be unreasonably withheld), except as may be required by law. -20- 25 ARTICLE V CONDITIONS PRECEDENT SECTION 5.01 Conditions Precedent to Obligations of Fortress. The obligations of Fortress under this Agreement are subject to the satisfaction or, unless prohibited by law, the waiver by Fortress, at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of Capstead contained herein shall be true, complete and accurate in all material respects as of the date when made and at and as of the Closing Date as though such representations, warranties and statements were made at and as of such date. (b) Performance. Capstead shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be so performed or complied with by it or them at or prior to the Closing. (c) No Injunction. On the Closing Date, there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction restraining or prohibiting the consummation of the transactions contemplated hereby. (d) Compliance Certificates. Capstead shall have delivered to Fortress a certificate, dated the Closing Date, executed by its Chief Executive Officer and Chief Financial Officer certifying the fulfillment of the conditions specified in Section 5.01(a) and (b) hereof with respect to its representations, warranties, agreements, obligations and conditions hereunder. (e) Secretary's Certificate. Capstead shall have delivered to Fortress a certificate, dated the Closing Date, executed by its Secretary or Assistant Secretary and certifying as to Capstead's articles of incorporation, bylaws, enabling resolutions, incumbency of officers and other reasonably related matters (including, without limitation, the certificate of incorporation and bylaws of any Subsidiary). (f)Consents and Approvals. All licenses, permits, consents, approvals and authorizations of all third parties and governmental bodies and agencies shall have been obtained which are necessary, in the reasonable determination of counsel to Fortress, in connection with (a) the execution and delivery by each of the parties, as appropriate, of this Agreement or (b) the consummation by each of the parties of the transactions contemplated hereby or thereby. (g) Filings with Secretary of State. On or prior to the Closing, Capstead shall have filed the Series C Articles Supplementary and Series D Articles Supplementary with the Department of Assessments and Taxation of the State of Maryland. (h) Registration Rights Agreement. On or prior to the Closing, Capstead shall execute and deliver to Fortress a registration rights agreement in the form attached hereto as Exhibit "C" (the "REGISTRATION RIGHTS AGREEMENT"). -21- 26 (i) Supplemental Agreement. On or prior to the Closing, Capstead and Fortress shall execute and deliver the supplemental agreement to the stock purchase agreement in the form attached hereto as Exhibit "D" (the "SUPPLEMENTAL AGREEMENT"). (j) No Material Adverse Change. Except as specifically disclosed herein or in the Disclosure Schedule, the events occurring since September 30, 1999, and the conditions arising since such date shall not, in the aggregate, have resulted in a Material Adverse Change to the Company. (k) Documents. All documents to be delivered by Capstead to Fortress at the Closing shall be duly executed and in form and substance reasonably satisfactory to Fortress. (l) Blue Sky. The Company shall have obtained all necessary blue sky law permits, if any, and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Shares and the Common Stock issuable upon conversion of the Shares. (m) Legal Matters. All material matters of a legal nature that pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by counsel to Fortress. (n) Opinion of Company's Counsel. At the Closing, Fortress shall have received from Andrews & Kurth L.L.P., counsel to the Company, an opinion addressed to them, dated the Closing Date, in the form attached hereto as Exhibit "E". (o) Opinion of Company's Maryland Counsel. At the Closing, Fortress shall have received from Hogan & Hartson L.L.P., Maryland counsel to the Company, an opinion addressed to them, dated the Closing Date, in the form attached hereto as Exhibit "F". (p) REIT Opinion. At the Closing, Fortress shall have received an opinion from Andrews & Kurth L.L.P., tax counsel to the Company, substantially to the effect that, for all of its taxable years beginning September 5, 1985 and ending on December 31, 1998, Capstead has met the requirements for qualification as a REIT under the Code and Capstead will continue to qualify as a REIT for the taxable year beginning January 1, 1999, provided that after the Closing Date, Capstead continues to be organized and operated according to representations made by Capstead to Andrews & Kurth L.L.P. and therefore continues to satisfy the income tests, asset tests and distribution, shareholder, record keeping and other applicable REIT requirements under the Code. (q) Other. Fortress shall have received such other documents or certificates as Fortress may reasonably have requested. SECTION 5.02 Conditions Precedent to Obligations of Capstead. The obligations of Capstead under this Agreement are subject to the satisfaction or, unless prohibited by law, the waiver by Capstead at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of Fortress contained herein shall be true, complete and accurate in all material respects as of the date -22- 27 when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date. (b) Performance. Fortress shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be so performed or complied with by them at or prior to the Closing. (c) No Injunction. On the Closing Date, there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction restraining or prohibiting consummation of the transactions contemplated hereby. (d) Officers' Certificates. Fortress shall have delivered to Capstead a certificate, dated the Closing Date and executed by its respective Chief Executive Officer and Chief Financial Officer certifying the fulfillment of the conditions specified in Sections 5.02(a) and (b) hereof. (e) Secretary's Certificates. Fortress shall have delivered to Capstead a certificate, dated the Closing Date, executed by its Secretary or Assistant Secretary and certifying as to its organizational documents, enabling resolutions, incumbency of officers and other related matters. (f) Documents. All documents to be delivered by Fortress to Capstead at the Closing shall be duly executed and in form and substance reasonably satisfactory to Capstead. (g) Supplemental Agreement. On or prior to the Closing, Capstead and Fortress shall execute and deliver the Supplemental Agreement. (h) Other. Capstead shall have received such other documents or certificates as Capstead may reasonably have requested. ARTICLE VI INDEMNIFICATION SECTION 6.01 Survival of Representations and Warranties. All representations and warranties made hereunder shall survive any investigation made by or on behalf of any party hereto and shall survive for a period of twelve months following the Closing; provided, however, that the representations and warranties contained in this Agreement relating to Taxes or made pursuant to Sections 3.17 hereof shall survive until 90 days following the expiration of the period of limitations for any matter relating thereto, plus any extended period applicable thereto by reason of any waiver of the period of limitations. Each covenant and agreement (but not representations and warranties, since they are covered above) of the parties hereunder shall survive any investigation made by or on behalf of any party hereto and shall survive the Closing hereunder. -23- 28 SECTION 6.02 Indemnification by Capstead. Subject to the other terms and conditions of this Agreement, Capstead agrees to indemnify, defend and hold harmless Fortress and any of its officers, directors, employees, representatives, affiliates, subsidiaries, successors and assigns (collectively, the "FORTRESS GROUP"), at any time after the Closing, from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses including, without limitation, interest, penalties and reasonable attorneys' fees and expenses (collectively "FORTRESS GROUP DAMAGES") asserted against, resulting to, imposed upon or incurred by the Fortress Group or any member thereof, directly or indirectly, by reason of or resulting from any misrepresentation or breach of any representation, warranty or agreement of Capstead contained in or made pursuant to this Agreement or any facts or circumstances constituting such a breach (the "FORTRESS GROUP CLAIMS"). SECTION 6.03 Indemnification by Fortress. Subject to the other terms and conditions of this Agreement, Fortress agrees to indemnify, defend and hold harmless Capstead and any of its stockholders, officers, directors, employees, representatives, affiliates, subsidiaries, successors and assigns (collectively, the "CAPSTEAD GROUP"), at any time after the Closing, from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses including, without limitation, interest, penalties and reasonable attorneys' fees and expenses, after deducting any insurance proceeds received by Capstead in connection therewith, (collectively "CAPSTEAD GROUP DAMAGES") asserted against, resulting to, imposed upon or incurred by the Capstead Group or any member thereof, directly or indirectly, by reason of or resulting from any misrepresentation or breach of any representation, warranty or agreement of Fortress contained in or made pursuant to this Agreement or any facts or circumstances constituting such a breach (collectively, the "CAPSTEAD GROUP CLAIMS"; the Capstead Group Claims and the Fortress Group Claims are hereinafter collectively referred to as the "CLAIMS"). SECTION 6.04 Limitations Regarding Indemnification Obligations of Capstead. Notwithstanding any other provision in this Agreement, the liability of Capstead to indemnify the Fortress Group pursuant to Section 6.02 hereof against any Fortress Group Damages sustained by reason of any Fortress Group Claim shall be limited to Fortress Group Claims as to which any member of the Fortress Group has given to Capstead written notice thereof within twelve months following the Closing, whether or not any Fortress Group Damages have then actually been sustained; provided, however, that, notwithstanding the foregoing, the liability of Capstead to indemnify the Fortress Group against any Fortress Group Damages sustained by reason of any Fortress Group Claim relating to a breach of any of the representations, warranties or agreements relating to Taxes or made pursuant to Sections 3.17 of this Agreement shall be limited to Fortress Group Claims as to which a member of the Fortress Group has given to Capstead written notice thereof at or prior to 90 days following the expiration of the period of limitations applicable to the event giving rise to such Fortress Group Claim, plus any extended period applicable thereto by reason of any waiver of the period of limitations; provided further, that the provisions for indemnity contained in this Agreement shall be effective against Capstead only after the aggregate amount of all Fortress Claims for which Capstead is liable hereunder equals or exceeds the amount of $500,000 (and then such indemnity shall cover such first $500,000 in Fortress Group Damages), but in no event in excess of the sum of the Series C Purchase Price and the Series D Purchase Price payable hereunder to Fortress. -24- 29 SECTION 6.05 Limitations Regarding Indemnification Obligations of Fortress. Notwithstanding any other provision in this Agreement, the liability of Fortress to indemnify the Capstead Group pursuant to Section 6.03 hereof against any Capstead Group Damages sustained by reason of any Capstead Group Claim shall be limited to Capstead Group Claims as to which any member of the Capstead Group has given to Fortress written notice thereof within twelve months following the Closing, whether or not any Capstead Group Damages have then actually been sustained; provided, further, the provisions for indemnity contained in this Agreement shall be effective against Fortress only after the aggregate amount of all Capstead Claims for which Fortress is liable hereunder equals or exceeds $500,000 (and then such indemnity shall cover such first $500,000 in Capstead Group Damages), but in no event in excess of the sum of the Series C Purchase Price and the Series D Purchase Price. SECTION 6.06 Conditions of Indemnification. The obligations and liabilities of the parties with respect to Claims shall be subject to the following terms and conditions: (a) The indemnified party shall give the indemnifying party prompt notice of any such Claim, and the indemnifying party shall have the right to undertake the defense thereof by representatives chosen by it; (b) If the indemnifying party fails to defend the indemnified party against such Claim within a reasonable time after being notified of the Claim, then the indemnified party shall (upon further notice to the indemnifying party) have the right to defend, compromise or settle such Claim on behalf of and for the account and risk of the indemnifying party subject to the right of the indemnifying party to assume the defense of such Claim at any time prior to settlement, compromise or final determination thereof; provided, that the indemnified party shall provide the indemnifying party with notice of any proposed settlement or compromise of such Claim (as far in advance of the actual settlement or compromise of the Claim as is reasonably practicable); and (c) Anything in this Agreement to the contrary notwithstanding, (i) if there is a reasonable probability that a Claim may materially and adversely affect the indemnified party other than as a result of money damages or other money payments, the indemnified party shall have the right, at the cost and expense of the indemnifying party, to manage the defense, compromise or settlement of such Claim; provided, however, that if such Claim is settled without the indemnifying party's consent (which consent shall not be unreasonably withheld), the indemnified party shall be deemed to have waived all rights hereunder against the indemnifying party for money damages arising out of such Claim; and (ii) the indemnifying party shall not, without the written consent of the indemnified party, settle or compromise any Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party a release from all liability in respect to such Claim. SECTION 6.07 Claim Disputes. (a) Within 30 days of its receipt from Fortress of written notice under Section 6.06 above regarding a Fortress Group Claim and the amount of Fortress Group Damages related thereto, Capstead shall deliver to Fortress written notice containing specific objections (prepared in good faith) to the nature of the Fortress Group Claim or the amount of Fortress Group Damages -25- 30 specified in the original notice. In such event, Fortress and Capstead shall work in good faith during the next 30 days toward resolving any such objections. If a resolution is reached within such 30 days, the Fortress Group shall be indemnified for the amount so agreed upon in accordance with the other terms and conditions of this Agreement. (b) Within 30 days of its receipt of written notice from Capstead under Section 6.06 above regarding an Capstead Group Claim and the amount of Capstead Group Damages related thereto, Fortress shall deliver to Capstead written notice containing specific objections (prepared in good faith) to the nature of the Capstead Group Claim or the amount of Capstead Group Damages specified in the original notice. In such event, Fortress and Capstead shall work in good faith during the next 30 days toward resolving any such objections. If a resolution is reached within such 30 days, the Capstead Group shall be indemnified for the amount so agreed upon in accordance with the other terms and conditions of this Agreement. (c) In the event no mutually agreeable resolution of an indemnification matter is reached under the foregoing clauses (a) or (b) within such 30 day period, such dispute shall be submitted to three arbitrators in accordance with the Rules of Commercial Arbitration of the American Arbitration Association. If there is a dispute as to whether all or any part of a Claim arose after the Closing, this issue (as well as the resulting allocation of damages) may, without limitation as to other matters, be among the matters addressed by the arbitrators. The arbitrators shall be governed by and shall apply the substantive law of the State of Texas in making their determination, and their ruling shall be binding and conclusive upon Fortress and Capstead. SECTION 6.08 Remedies Exclusive. The remedies provided to the parties in this Agreement shall be exclusive and shall preclude assertion by them of any other rights or the seeking of any other remedies against any other party hereto. ARTICLE VII TERMINATION OF AGREEMENT SECTION 7.01 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing: (a) by mutual agreement of Capstead and Fortress; (b) by Fortress, on or after December 15, 1999, if any of the conditions provided in Section 5.01 hereof of this Agreement have not been met or, to the extent permitted by applicable law, have not been waived in writing by Fortress prior to such date; or (c) by Capstead, on or after December 15, 1999, if any of the conditions provided in Section 5.02 hereof have not been met or, to the extent permitted by applicable law, have not been waived in writing by Capstead prior to such date. -26- 31 SECTION 7.02 Procedure Upon Termination. In the event of termination by Capstead or Fortress pursuant to Section 7.01 hereof, written notice thereof shall promptly be given to the other parties and the transactions contemplated by this Agreement shall be terminated, without further action by any party. If the transactions contemplated by this Agreement are terminated as provided herein: (a) each of Capstead and Fortress shall return all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; and (b) all confidential information received by Capstead and Fortress with respect to the business of any other party or its subsidiaries or affiliates shall be treated confidentially. ARTICLE VIII MISCELLANEOUS SECTION 8.01 Commissions. No party hereto has employed any investment banker, broker, finder or similar agent in connection with any transaction contemplated by this Agreement. SECTION 8.02 Definition of Knowledge. For the purpose of this Agreement, the Exhibits and Appendices to this Agreement and the Disclosure Schedule, the phrases "to the best knowledge" of any party and "known" and words of like effect shall mean to the knowledge of such party, which knowledge shall also include information existing in the records and files of such party. SECTION 8.03 Definition of Material Adverse Effect and Material Adverse Change. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means, with respect to any party, any direct or indirect change, occurrence or effect (other than as a result of changes in general conditions, including economical or political developments, applicable to the industry in which such party operates) on the business, operations, properties (including tangible properties), condition (financial or otherwise), assets, obligations or liabilities (whether absolute, contingent or otherwise and whether due or to become due) of such party and its subsidiaries taken as a whole that reasonably could be expected to be materially adverse to such party. SECTION 8.04 Expenses, Taxes, Etc. Except as otherwise provided herein, in the event of the termination of this Agreement prior to Closing, each of the parties hereto shall pay all fees and expenses incurred by it or any of its affiliates in connection with the transactions contemplated by this Agreement. SECTION 8.05 Successors and Assigns. Except as set forth in the next sentence, no party shall have the right to assign all or any part of its interest in this Agreement without the prior written consent of the other parties, and any attempted transfer without such consent shall be null and void. Fortress' rights and obligations hereunder shall be assignable by and among Fortress and its affiliates; provided, that (i) each such assignment shall assign the full rights and obligations of Fortress or, as the case may be, its affiliate (if Fortress has already assigned its full rights and -27- 32 obligations hereunder to such affiliate), (ii) each such assignment shall be made between Fortress or, as the case may be, such affiliate to only one of Fortress' affiliates per assignment (i.e., Fortress may not distribute its rights and obligations hereunder among more than one affiliate at any time), (iii) Capstead shall receive prior notice of such proposed assignment and (iv) Fortress shall remain primarily liable for its obligations hereunder unless its assignee-affiliate (and any further assignee- affiliate) has a net worth that is reasonably acceptable to Capstead (as evidenced by Capstead's prior written consent, not to be unreasonably withheld). SECTION 8.06 No Third-Party Benefit. Nothing in this Agreement shall be deemed to create any right or obligation in any Person not a party hereto and this Agreement shall not be construed in any respect to be a contract or agreement in whole or in part for the benefit of or binding upon any Person not a party hereto. SECTION 8.07 Entire Agreement; Amendment. This Agreement, the Exhibits, the Appendices, the Capstead Disclosure Schedule and the Fortress Disclosure Schedule hereto constitute the entire agreement among the parties hereto with respect to the transactions contemplated herein and supersede all prior oral and written agreements, memoranda, understandings and undertakings between the parties hereto relating to the subject matter hereof including, without limitation, the summary of terms executed by Capstead and Fortress. Neither this Agreement nor any term hereof may be modified, amended, waived, altered or supplemented except by a written instrument executed and delivered by each of the parties hereto. SECTION 8.08 Reformation and Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof and such illegality, invalidity or unenforceability does not result in a material failure of consideration, then; (a) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable; and (b) the legality, validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. SECTION 8.09 Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or telecopied or five business days after being mailed (registered or certified mail, postage prepaid, return receipt requested) as follows: If to Capstead: Capstead Mortgage Corporation 8401 N. Central Expressway Suite 800 Dallas, Texas 75225-4401 Attention: Andrew F. Jacobs -28- 33 Telecopier: (214) 874-2398 with a copy to: Andrews & Kurth L.L.P. 1717 Main Street Suite 3700 Dallas, Texas 75201 Attention: David Barbour Telecopier: (214) 659-4401 If to Fortress: Fortress Investment Corp. 1301 Avenue of the Americas 42nd Floor New York, New York 10019 Attention: Wesley R. Edens Telecopier: (212) 798-6122 with a copy to: Skadden, Arps, Slate, Meagher & Flom L.L.P. 919 3rd Avenue New York, New York 10022 Attention: J. Gregory Milmoe Telecopier: (212) 735-3594 or to such other address as the person to whom notice is to be given may have previously furnished to the other in writing in the manner set forth above, provided that notice of a change of address shall be deemed given only upon receipt. SECTION 8.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES. SECTION 8.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The remainder of this page is intentionally left blank. -29- 34 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by parties hereto on the date first above written. CAPSTEAD MORTGAGE CORPORATION By: /s/ ANDREW F. JACOBS --------------------------------- Andrew F. Jacobs Executive Vice President - Finance FORTRESS INVESTMENT CORP. By: /s/ RANDAL A. NARDONE ---------------------------------- Randal A. Nardone Chief Operating Officer -30- EX-10.35 5 SUPPLEMENTAL AGREEMENT TO STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.35 SUPPLEMENTAL AGREEMENT TO THE STOCK PURCHASE AGREEMENT THIS SUPPLEMENTAL AGREEMENT TO THE STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of December 9, 1999, is by and among FORTRESS INVESTMENT CORP., a Maryland corporation ("Fortress"), and CAPSTEAD MORTGAGE CORPORATION, a Maryland corporation ("Capstead"). WHEREAS, Fortress and Capstead are entering into a Series C and Series D Convertible Preferred Stock Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), pursuant to which Fortress is purchasing from Capstead 5,378,000 shares of a series of Capstead's preferred stock to be designated as Series C Convertible Preferred Stock, $0.10 par value per share (the "Series C Preferred Stock"), and 5,378,000 shares of a series of Capstead's preferred stock to be designated as Series D Convertible Preferred Stock, $0.10 par value per share (the "Series D Preferred Stock," and, together with the Series C Preferred Stock, the "Preferred Stock") for total consideration of $51,200,000 (the "Purchase Price"); WHEREAS, the execution and delivery of this Agreement by Capstead and Fortress is a condition to closing under the Preferred Stock Purchase Agreement; WHEREAS, the board of directors of Capstead (the "Board") has determined to hold a special meeting (the "Special Meeting") of the holders of Capstead's common stock, par value $0.01 per share (the "Common Stock"), at which such holders will vote upon certain matters that may require their approval (collectively, the "Proposal") and a reverse stock split of the Common Stock; and WHEREAS, Fortress and Capstead deem it in their best interests to enter into this Agreement in order to set forth certain rights and obligations in connection with the ongoing management of Capstead; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, representations, warranties, covenants and conditions herein set forth, and other good, valid and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 2 1. Conduct of Capstead's Business. From the date hereof until the earlier to occur of (i) the approval of the Proposal at the Special Meeting and the consummation of the actions contemplated thereby and (ii) Fortress' receipt of the Put/Call Payment (defined below) or the termination of the rights and obligations of Capstead and Fortress under Section 2 hereof as set forth in subsection 2(c) (the "Transition Period"), except as otherwise expressly set forth in this Agreement, and except for costs and expenses reasonably incurred in connection with the transactions contemplated by this Agreement, Capstead shall conduct the business, operations, activities and practices of Capstead and its Subsidiaries only in the ordinary course, in accordance with prudent practice and consistent with past practice established in 1999; provided that (a) Capstead shall not enter into any new agreements or arrangements with Persons that are Affiliates (other than its consolidated subsidiaries) or, as of the date hereof, are executive officers or directors of Capstead or its Subsidiaries and (b) Capstead may, in conjunction with Fortress, design and implement certain policies with respect to mitigating interest rate risk and repositioning Capstead's current portfolio. 2. Fortress Put/Capstead Call. a. Fortress Put. In the event that one or more of the following shall not have occurred as of the respective dates set forth below: i. Prior to or concurrently with the execution of this Agreement, the Board shall have passed resolutions pursuant to which the Board shall have (a) increased the number of directors comprising the Board from six to eight and appointed Wesley Edens and Robert Kauffman to fill the vacancies created thereby to serve on the Board until the next annual meeting of stockholders and until their successors are elected and qualified and (b) exempted Fortress' purchase of the Preferred Stock and subsequent acquisition of Common Stock pursuant to Section 6 hereof from (i) the application of Article VIII of Capstead's Articles of Incorporation, (ii) Section 3-602 of the Maryland General Corporation Law ("MGCL") prohibiting business combinations with Interested Stockholders (as such term is defined in Section 3-601 of the MGCL) and (iii) Section 3-701 et. seq. of the MGCL; and ii. The Proposal shall have been approved by Capstead's stockholders at the Special Meeting, which Special Meeting 2 3 shall be held as soon as practicable, but in no event later than April 30, 2000; iii. Effective as of the date of the Special Meeting, Bevis Longstreth, Harriet E. Miers, William R. Smith, and John C. Tolleson shall have resigned their positions as directors on the Board and the Board shall have adopted resolutions to (a) reduce the number of Board members from eight to seven, (b) appoint Wesley Edens Chairman of the Board and Chief Executive Officer and Ronn Lytle Vice Chairman of the Board; (c) appoint three individuals to fill the vacancies on the Board created by such resignations, provided, that (x) one of such individuals shall have been nominated by Ronn Lytle and Paul Low and (y) two of such individuals shall have been nominated by Wesley Edens and Robert Kaufman, provided, that such two individuals shall be "independent directors" for purposes of the Securities Exchange Act of 1934, as amended, Section 3-802 of the MGCL, Section 162(m) of the Internal Revenue Code of 1986, and the rules of the New York Stock Exchange; and iv. During the Transition Period, Capstead shall have conducted the business, operations, activities and practices of Capstead and its Subsidiaries in accordance with Section 1 hereof (except actions taken outside such scope at the request or with the approval of Fortress) and there shall not have been a Material Adverse Change (other than a Material Adverse Change directly resulting from any action taken at the request or with the approval of Fortress). "Material Adverse Change" means, with respect to Capstead, any direct or indirect change, occurrence or effect (other than as a result of changes in general conditions, including economical or political developments, applicable to the industry in which Capstead operates) on the business, operations, properties (including tangible properties), condition (financial or otherwise), assets, obligations or liabilities (whether absolute, contingent or otherwise and whether due or to become due) of Capstead and its subsidiaries taken as a whole that reasonably could be expected to be materially adverse to Capstead; 3 4 then Fortress shall have the right to cause Capstead to purchase from Fortress all, but not less than all, of the Preferred Stock (the "Fortress Put"), for a price equal to 103% of the Purchase Price plus any and all accrued and unpaid dividends on the Preferred Stock (the "Put/Call Payment"). b. Capstead Call. In the event that the Proposal is not approved at the Special Meeting, then Capstead shall have the right to cause Fortress to sell to Capstead all, but not less than all, of the Preferred Stock (the "Capstead Call") for the Put/Call Payment. c. The sale or purchase of Preferred Stock pursuant to this Section 2 (the "Put/Call Closing") shall occur on such date as the parties hereto may agree, which date shall be within one month after delivery by the party exercising its rights under this Section 2 of written notice to the other party hereto to the effect that it is exercising its rights pursuant to this Section 2. Payment of the Put/Call Payment shall be made by wire transfer in immediately available funds unless some other form of consideration is agreed to by the parties hereto. On or prior to the Put/Call Closing, Fortress shall deliver to Capstead and Capstead shall deliver to Fortress all documents reasonably required to be executed in connection with the sale or purchase of Preferred Stock pursuant to this Section 2. d. The rights and obligations, if any, of Capstead and Fortress under this Section 2 shall terminate and be of no further force and effect upon the later to occur of (i) the expiration of the 30 day period following the date of the Special Meeting and (ii) May 31, 2000. 3. Fortress Put Upon a Change in Control of Capstead. a. At any time after the approval of the Proposal at the Special Meeting and prior to the 5th anniversary of the date hereof, in the event of a Change in Control of Capstead, Fortress shall have the right to cause Capstead to purchase from Fortress all, but not less than all, of the Preferred Stock then outstanding (the "Change in Control Put") for the Purchase Price multiplied by a fraction, the numerator of which shall be the number of shares of Preferred Stock then outstanding and the denominator of which shall be 10,756,000, plus any and all accrued and unpaid dividends on such Preferred Stock. For purposes hereof, a "Change in Control" of Capstead shall be deemed to have occurred upon any of the following events: 4 5 i. any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than Fortress and its affiliates) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Capstead representing 25 percent or more of the voting power of Capstead's then outstanding securities; ii. at any time subsequent to the date the Board is reconstituted in accordance with the provisions of subsection 2(a)(iii) hereof and during any period of two consecutive years thereafter, individuals (a) who were elected to the Board by a vote of at least two-thirds (2/3) of the Board at the beginning of such period or (b) whose nomination for election by Capstead's stockholders was approved by a vote of at least two-thirds (2/3) of the Board at the beginning of such period or (c) whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors of Capstead; or iii. Capstead shall be party to a merger, consolidation, share exchange, tender offer or similar transaction or a purchase or other acquisition of all or a significant portion of the assets of Capstead (a "Business Combination"), except a Business Combination approved by Wesley Edens and Robert Kauffman or their Fortress-approved successors. b. The purchase of Preferred Stock pursuant to this Section 3 shall occur on such date as the parties hereto may agree, which date shall be within one month after delivery by Fortress of written notice to Capstead to the effect that it is exercising its rights pursuant to this Section 3. Payment shall be made to Fortress by wire transfer in immediately available funds unless some other form of consideration is agreed to by the parties hereto. On or prior to the purchase of Preferred Stock pursuant to this Section 3, Fortress shall deliver to Capstead and Capstead shall deliver to Fortress all documents reasonably required to be executed in connection with the purchase of Preferred Stock pursuant to this Section 3. 4. Services Agreement. If (i) the Proposal is approved at the Special Meeting and the actions contemplated thereby are consummated, (ii) the merger (the 5 6 "Merger") of Impac Commercial Holdings, Inc., a Maryland corporation, with and into AMRESCO Capital Trust, a Texas real estate investment trust ("AMRESCO"), is consummated and (iii) Fortress has not exercised either the Fortress Put or the Change in Control Put and Capstead has not exercised the Capstead Call, then Fortress (or its designated Affiliate), the surviving entity of the Merger and Capstead (or a subsidiary thereof) shall promptly enter into a Services Agreement mutually satisfactory to the parties thereto for the provision of services at fair market prices by Capstead to the surviving entity of the Merger, including, but not limited, to (a) office space in Capstead's existing offices at Lincoln Park, 8401 North Central Expressway, Dallas, Texas; (b) office management, including payroll; (c) stockholder relations; (d) financial reporting; (e) accounting and tax services; (f) mail room services; and (g) receptionist services. 5. Employment Matters. a. Subject to approval of the Proposal at the Special Meeting, Capstead shall take all necessary action as soon as practicable thereafter to: i. Have an individual designated by Fortress appointed to the position of Chief Investment Officer of Capstead; ii. Have Andrew F. Jacobs appointed to the positions of Executive Vice President and Chief Financial Officer of Capstead; and b. Subject to approval of the Proposal at the Special Meeting, Capstead will take all necessary action to, and Fortress will not take any action to prevent Capstead from taking any action to: i. For at least three years after the date of the Special Meeting, maintain all of Capstead's obligations, arrangements, policies or practices to provide benefits, including officer grade, salary, bonus and incentive compensation, as compensation for services rendered by employees of Capstead at levels that are no less favorable than those in place as of the date hereof and set forth on a side letter delivered to Fortress concurrently herewith, provided, that this obligation shall cease to exist upon a Change in Control of Capstead; ii. For at least three years after the date of the Special Meeting, provide coverage of medical, dental, life insurance accidental 6 7 death and disability insurance, long term disability, Flexible Spending Account, 401k, deferred compensation plan and travel accident insurance at levels that are no less favorable than those in place as of the date hereof and set forth on a side letter delivered to Fortress concurrently herewith, provided, that this obligation shall cease to exist upon a Change in Control of Capstead. 6. Common Stock Acquisition. Subject to approval of the Proposal at the Special Meeting, Fortress or its designated Affiliate will, within the six-month period following the date of the Special Meeting, acquire no less than five million shares of Common Stock through, at Fortress' option, (i) open-market purchases, (ii) the conversion of Preferred Stock or (iii) any combination thereof; provided, that purchases by Fortress and/or its Affiliates of Common Stock from and after the date hereof and to and including the date of the Special Meeting (which shall not exceed 3,300,000 shares) shall be considered as part of such five million shares of Common Stock; and provided, further, that this Section 6 and Fortress' obligation hereunder shall terminate and be of no further force and effect upon exercise of the Fortress Put, Change in Control Put or Capstead Call. 7. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and mailed or facsimiled or delivered by hand or courier service: If to Fortress, to: Fortress Investment Corp. 1301 Avenue of the Americas, 42nd Street New York, New York 10019 Attn: Randal Nardone Facsimile No. (212) 798-6120 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attn: J. Gregory Milmoe, Esq. Facsimile No. (212) 735-2000 If to Capstead, to: Capstead Mortgage Corporation 8401 North Central Expressway, Suite 800 Dallas, TX 75225-4410 Attn: Andrew F. Jacobs Facsimile No. (214) 874-2398 7 8 With a copy to: Andrews & Kurth L.L.P. 1717 Main Street, Suite 3700 Dallas, Texas 75201 Attn: David Barbour Facsimile No. (214) 659-4401 8. Entire Agreement. This Agreement (including the attachments hereto) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior or contemporary agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 9. Termination. This Agreement will automatically terminate and be of no further force and effect at such time that (i) Fortress has received payment of the applicable payment pursuant to exercise of the Fortress Put, Capstead Call or Change in Control Put or (ii) Fortress no longer owns Preferred Stock or Common Stock acquired pursuant to the Preferred Stock Purchase Agreement. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, each of which shall remain in full force and effect. 11. Assignment. This Agreement and the rights hereunder shall not be assignable or transferable by either party (except (i) by Fortress to any of its Affiliates and (ii) by operation of law in connection with a merger, consolidation, or sale of all or substantially all the assets of either party) without the prior written consent of the other party. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns. 12. Amendment and Modification. This Agreement may be amended, modified, or supplemented at any time only by an instrument in writing signed on behalf of the parties hereto. 13. Specific Performance. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist, and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. 8 9 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 15. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 16. Certain Definitions. a. An "Affiliate" of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person; b. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Purchase Agreement. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 18. Third-Party Beneficiaries. Nothing contained in this Agreement shall be construed to give any person other than Fortress and Capstead, and their successors and assigns, any legal or equitable right, remedy, or claim under or with respect to this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. CAPSTEAD MORTGAGE CORPORATION By: /s/ ANDREW F. JACOBS ------------------------------------- Andrew F. Jacobs Executive Vice President-Finance 9 10 FORTRESS INVESTMENT CORP. By: /s/ RANDAL A. NARDONE ------------------------------------- Randal A. Nardone Chief Operating Officer 10 EX-10.36 6 REGISTRATION RIGHTS AGREEMENT DATED 12/9/99 1 EXHIBIT 10.36 CAPSTEAD MORTGAGE CORPORATION and FORTRESS INVESTMENT CORP. --------------- REGISTRATION RIGHTS AGREEMENT --------------- Dated as of December 9, 1999 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 9, 1999, is between CAPSTEAD MORTGAGE CORPORATION, a Maryland corporation (the "Company"), and FORTRESS INVESTMENT CORP., a Maryland Corporation ("Fortress"). 1. Introduction. The Company and Fortress are each a party to the separate Series C Convertible Preferred Stock and Series D Convertible Preferred Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of even date herewith between the Company and Fortress pursuant to which the Company has agreed, among other things, to issue 5,378,000 shares of its $______ Series C Convertible Preferred Stock, par value $.10 per share (the "Series C Preferred Stock"), and 5,378,000 shares of its $0.40 Series D Convertible Preferred Stock, par value $.10 per share (the "Series D Preferred Stock"), to Fortress. This Agreement shall become effective upon the issuance of such securities to Fortress pursuant to the Stock Purchase Agreement. Certain capitalized terms used in this Agreement are defined in section 3 hereof; references to sections shall be to sections of this Agreement. 2. Registration under Securities Act, etc. 2.1 Registration on Request. (a) Request. At any time after the first anniversary of issuance of the Series C Preferred Stock and the Series D Preferred Stock pursuant to the Stock Purchase Agreement, upon the written request of one or more Initiating Holders, requesting that the Company effect the registration under the Securities Act of at least a majority of the Registrable Securities and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all Holders of Registrable Securities, and thereupon the Company will, subject to the terms of this Agreement, use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the Holders of which shall have made a written request to the Company for registration thereof within 20 days after 3 the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities); and (iii) all securities which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this section 2.1; all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional securities, if any, so to be registered. The Holders shall be entitled to make a request to the Company to register Registered Securities pursuant to this Section 2.1 on no more than two occasions. (b) Registration Statement Form. Registrations under this section 2.1 shall be on such appropriate registration form of the Commission (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in the request for such registration. (c) Expenses. Except as set forth in Section 2.1(d), the Company will pay all Registration Expenses in connection with a registration requested pursuant to this section 2.1. (d) Effective Registration Statement. A registration requested pursuant to this section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of the Participating Holders (other than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of such Participating Holders unless the Participating Holders shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, or (iii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than by reason of some act or omission by such Participating Holders. (e) Selection of Underwriters. If a requested registration pursuant to this section 2.1 involves an underwritten offering, the underwriter or underwriters thereof shall be selected by the Company and shall be reasonably acceptable to the holders of at least a majority (by number of shares) of the Registrable Securities as to which registration has been requested. (f) Priority in Requested Registrations. If a requested registration pursuant to this section 2.1 involves an underwritten offering, and the managing underwriter shall 2 4 advise the Company in writing (with a copy to each Participating Holder) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering within a price range acceptable to the holders of a majority of the Registrable Securities so requested to be included, the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the Initiating Holders, pro rata among the Initiating Holders, on the basis of the number of such securities requested to be included by the Initiating Holders, (ii) second, Registrable Securities requested to be included in such registration by the other Participating Holders, pro rata among such Participating Holders, on the basis of the number of such securities requested to be included by such Participating Holders, and (iii) third, securities the Company proposes to sell and other securities of the Company included in such registration by the holders thereof. 2.2 Incidental Registration. (a) Right to Include Registrable Securities. If the Company at any time after the first anniversary of the issuance of the Series C Preferred Stock and the Series D Preferred Stock proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8, or any successor or similar forms and other than pursuant to section 2.1, and except for at-the-market offerings under its Stockholder Investment Program (Common Stock), its Dividend Reinvestment Program (Series B Preferred Stock) and its shelf offerings of Common Stock and Series B Convertible Preferred Stock pursuant to one or more Sales Agency Agreements or similar agreements)), whether or not for sale for its own account, it will each such time give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders' rights under this section 2.2. Upon the written request of any such Holder made within 20 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder), the Company will, subject to the terms of this Agreement, use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any Holder or Holders of Registrable Securities entitled to do so to 3 5 request that such registration be effected as a registration under section 2.1 (unless such registration has already been effected), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this section 2.2 shall relieve the Company of its obligation to effect the registration upon request under section 2.1, nor shall any such registration under this section 2.2 be deemed to have been effected pursuant to section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this section 2.2. (b) Priority in Incidental Registrations. If (i) a registration pursuant to this Section 2.2 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company (the "Piggyback Securities"), to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (ii) the managing underwriter of such underwritten offering shall inform the Company and Holders of the Registrable Securities requesting such registration in writing of its belief that the distribution of all or a specified number of such Registrable Securities concurrently with the securities being distributed by such underwriters would interfere with the successful marketing of the securities being distributed by such underwriters, then the Company may, upon written notice to all Holders of such Registrable Securities include as many of the Piggyback Securities as possible, and (before reducing the number of any Piggyback Securities) reduce pro rata (if and to the extent stated by such managing underwriter to be necessary to eliminate such effect) the number of such Registrable Securities the registration of which shall have been requested by each Holder of Registrable Securities so that the resultant aggregate number of such Registrable Securities so included in such registration shall be equal to the number of shares stated in such managing underwriter's letter. (c) Expenses. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this section 2.2. 2.3 Registration Procedures. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in sections 2.1 and 2.2, the Company shall, as expeditiously as possible: (a) prepare and in the case of an incidental registration under Section 2.2, within 60 days after the end of the period within which requests for registration may be given to the Company hereunder or in any event as soon thereafter as possible, or, in the case of a registration pursuant to section 2.1, within 90 days after the initial request of one or more Initiating Holders of Registrable Securities or in any event as soon thereafter as possible, file with the Commission the requisite registration statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated 4 6 thereunder) and thereafter use its best efforts to cause such registration statement to become and remain effective, provided however that the Company may discontinue any registration of its securities which are not Registrable Securities (and, under the circumstances specified in section 2.2(a), its securities which are Registrable Securities) at any time prior to the effective date of the registration statement relating thereto, provided further that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the Holders of a majority of the Registrable Securities which are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the reasonable review of such counsel; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement or (i) in the case of a registration pursuant to section 2.1, the expiration of 180 days after such registration statement becomes effective, or (ii) in the case of a registration pursuant to section 2.2, the expiration of 90 days after such registration statement becomes effective; (c) furnish to each seller of Registrable Securities covered by such registration statement and each underwriter, if any, of the securities being sold by such seller such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and under writer, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any seller thereof and any underwriter of the securities being sold by such seller shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (d) be obligated to be so qualified, 5 7 o subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (e) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller and the underwriters, if any, of: (i) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), reasonably satisfactory in form and substance to such seller, and (ii) a "comfort" letter (or, in the case of any such Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter), dated the effective date of such registration statement (and, if such registration includes an under written public offering, a letter of like kind dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35) and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as such seller (or the underwriters, if any) may reasonably request; (g) notify the Holders of Registrable Securities and the managing underwriter or underwriters, if any, promptly and confirm such advice in writing promptly thereafter: (i) when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; 6 8 (ii) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; (iv) if at any time the representations and warranties of the Company made as contemplated by section 2.4 below cease to be true and correct; and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (h) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon the Company's discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such seller promptly prepare and furnish to such seller and each underwriter, if any, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (i) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the Company's first full calendar quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and will furnish to each such seller at least five business days prior to the filing thereof a copy of any amendment or supplement to such 7 9 registration statement or prospectus (provided, however that a filing on Form 10-K, 10-Q or 8-K (or similar or successor form) shall not be deemed such an amendment or supplement) and shall not file any thereof to which any such seller shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (k) make available for inspection by a representative or representatives of the Holders of Registrable Securities, each such representative representing the Holders of not less than a majority of the Registrable Securities included in the registration, any underwriter partici- pating in any disposition pursuant to the registration statement and any attorney or accountant retained by such selling Holders or underwriter (each, an "Inspector"), all financial and other records, pertinent corporate documents and properties of the Company (the "Records"), and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration in order to permit a reasonable investigation within the meaning of Section 11 of the Securities Act, provided that the Company shall not be required to comply with this paragraph (k) if there is a reasonable likelihood, in the judgment of the Company, that such delivery could result in the loss of any attorney-client privilege related thereto; (l) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and (m) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which the Holders of at least a majority of the Registrable Securities covered by such registration statement or the underwriter or underwriters, if any, shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel. Each Holder of Registrable Securities shall be deemed to have agreed by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in paragraph (h) of this section 2.3, such Holder will forthwith 8 10 discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (h) of this section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in paragraph (b) of this section 2.3 shall be extended by the length of the period from and including the date when each seller of any Registrable Securities covered by such registration statement shall have received such notice to the date on which each such seller has received the copies of the supplemented or amended prospectus contemplated by paragraph (h) of this section 2.3. If any such registration statement refers to any Holder of Registrable Securities by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder. 2.4 Underwritten Offerings. (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to a registration requested under section 2.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to the Company and the underwriters, and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in section 2.6. The Holders of the Registrable Securities will cooperate with the Company in the negotiation of the underwriting agreement and will give consideration to the reasonable suggestions of the Company regarding the form thereof, provided that nothing herein contained shall diminish the foregoing obligations of the Company. The Holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable 9 11 Securities. Any such Holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in such registration statement or agreements regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by section 2.2 and such securities are to be distributed by or through one or more underwriters, the Holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable Securities. Any such Holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law. (c) Holdback Agreements. (i) Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of any equity securities of the Company, during such period as the managing underwriter may request (not to exceed the two days prior to and the 90 days after any underwritten registration pursuant to section 2.1 or 2.2 has become effective or such lesser period of time, prior to and/or after the date of effectiveness, as may be requested by the managing underwriter with respect to the disposition of equity securities of the Company held by the Company and/or its management stockholders) except as part of such underwritten registration, whether or not such Holder participates in such registration. Notwithstanding the foregoing sentence, each Holder of Registrable Securities subject to the foregoing sentence shall be entitled to sell during the foregoing period securities in a private sale. Each Holder of Registrable Securities agrees that the Company may instruct its transfer agent to place stop transfer notations in its records to enforce this section 2.4(c). 10 12 (ii) The Company agrees (x) if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the pur chase of, effect any public sale or distribution of or otherwise dispose of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during such period of time as the managing underwriter may request (not to exceed the two days prior to and the 90 days after any underwritten registration pursuant to section 2.1 or 2.2 has become effective, except as part of such under written registration and except pursuant to registrations on Form S-4, S-8, or any successor or similar forms thereto and except for at-the-market offerings under its Stockholder Investment Program (Common Stock), its Dividend Reinvestment Program (Series B Preferred Stock) and its shelf offerings of Common Stock and Series B Convertible Preferred Stock pursuant to one or more Sales Agency Agreements or similar agreements and (y) to cause each holder of more than 1% of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased directly from the Company (or indirectly from the Company as the first purchaser in a Rule 144A Offering) at any time after the date of this Agreement (other than in a public offering) to agree not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of such securities during such period except as part of such underwritten registration. (d) Participation in Underwritten Offerings. No Person may participate in any underwritten offering hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and condi tions hereof, by the Company and the Holders of a majority of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require any Holder of Registrable Securities to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such Holder expressly for use in the related registration statement or agreements regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law. 2.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Holders of Registrable Securities registered under such registration state ment, their underwriters, if any, each Requesting Holder and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included 11 13 therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does agree to, indemnify and hold harmless (i) in the case of any registration statement filed pursuant to section 2.1 or 2.2, the Holder of any Registrable Securities covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder specifically stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person 12 14 if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. (b) Indemnification by the Sellers. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to section 2.3, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this section 2.6) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs of this section 2.6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this section 2.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by 13 15 the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. (d) Other Indemnification. Indemnification similar to that specified in the preceding paragraphs of this section 2.6 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) Indemnification Payments. The indemnification required by this section 2.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) Contribution. If the indemnification provided for in the preceding paragraphs of this section 2.6 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holder or underwriter, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Holder or underwriter, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Holder or underwriter, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the purchasers pursuant to the Purchase Agreement bear to the gain, if any, realized by the selling Holder or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the Holder or by the underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such 14 16 indemnified party by reason of the provisions contained in the first sentence of paragraph (a) of this section 2.6, and in no event shall the obligation of any indemnifying party to contribute under this paragraph (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under paragraphs (a) or (b) of this sec tion 2.6 had been available under the circumstances. The Company and the Holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this paragraph (f) were determined by pro rata allocation (even if the Holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and paragraph (c) of this section 2.6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph (f), no Holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such Holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 2.7 Restrictions on Transfer. (a) Restrictive Legends. Except as otherwise permitted by this section 2.7, each certificate or other instrument evidencing any Registrable Securities (including each such certificate or other instrument issued upon the transfer of any Registrable Securities) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares of Series C Convertible Preferred Stock, Series D Convertible Preferred Stock or Common Stock (as the case may be) represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act." (b) Notice of Proposed Transfer; Opinions of Counsel. Prior to any transfer of any Registrable Securities which are not registered under an effective registration state- 15 17 ment under the Securities Act, the Holder thereof will give written notice to the Company of such Holder's intention to effect such transfer and to comply in all other respects with this section 2.7(b). Each such notice (i) shall describe the manner and circumstances of the proposed transfer in sufficient detail to enable counsel to render the opinions referred to below, and (ii) shall designate counsel for the Holder giving such notice (who may be house counsel for such Holder). The Holder giving such notice will submit a copy thereof to the counsel designated in such notice and the Company will promptly submit a copy thereof to its counsel. The following provisions shall then apply: (x) If (A) in the opinion of such counsel for the Holder the proposed transfer may be effected without registration of such Registrable Securities under the Securities Act, and (B) counsel for the Company shall not have rendered an opinion within 15 days after receipt by the Company of such written notice that such registration is required, such Holder shall thereupon be entitled to transfer such Registrable Securities in accordance with the terms of the notice delivered by such Holder to the Company. (y) If in the opinion of either or both of such counsel the proposed transfer may not legally be effected without registration of such Registrable Securities under the Securities Act (such opinion or opinions to state the basis of the legal conclusions reached therein), the Company will promptly so notify the holder thereof and thereafter such holder shall not be entitled to transfer such Registrable Securities until receipt of a further notice from the Company under clause (x) above or until registration of such Registrable Securities under the Securities Act has become effective. 3. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Commission: The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. Common Stock: The Common Stock, par value $.01, of the Company. Company: As defined in the introductory paragraph of this Agreement. Exchange Act: The Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. 16 18 Initiating Holders: Any Holder or Holders of Registrable Securities initiating a request pursuant to section 2.1 for the registration of at least a majority of the Registrable Securities. Holders: As defined in Section 7. Stock Purchase Agreement: As defined in section 1. Person: A corporation, an association, a partnership, a limited liability company, an organization, business, an individual, a governmental or political paragraph thereof or a governmental agency. Participating Holders: Holders who have elected to have their Registrable Securities registered in accordance with the provisions of Section 2.1. Piggyback Securities: As defined in Section 2.2(b). Registrable Securities: Any of the shares of Common Stock into which shares of Series C Preferred Stock and Series D Preferred Stock issued to Fortress pursuant to the Stock Purchase Agreement are convertible. Registration Expenses: All expenses incident to the Company's performance of or compliance with section 2.1 through 2.5, including, without limitation, all registration, filing and NASD fees, all stock exchange listing fees, all fees and ex penses of complying with securities or blue sky laws, all word processing, dupli cating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the fees and disbursements of a single counsel and accountants retained by the Holders of the Registrable Securities being registered, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. 17 19 Securities Act: The Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as of the same shall be in effect at the time. References to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar Federal statute. 4. Rules 144 and 144A. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any holder of Registrable Securities, make publicly available other information) and will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with the requirements of this Section 4. 5. Amendments and Waivers. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall agree and shall have obtained the written consent to such amendment, action or omission to act, of the Holder or Holders of 66 2/3 % or more of the shares of Registrable Securities and, in the case of any such amendment, action or omission to act in respect of the first sentence of Section 4, the written consent of each Holder affected thereby. Each Holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. Notices. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of Fortress, in the manner set forth in the Stock Purchase Agreement or at such other address as Fortress shall have furnished to the Company in writing, or (b) in the case of any other Holder of Registrable Securities, at the address that such Holder shall have furnished to the Company in writing, or, until any such other Holder so furnishes to the Company an address, then to and at the address of the last Holder of such Registrable Securities who 18 20 has furnished an address to the Company, or (c) in the case of the Company, at 8401 N. Central Expressway, Suite 800, Dallas, Texas 75225-4401 to the attention of its Chairman, or at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder of Registrable Securities at the time outstanding. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by air courier), when delivered at the address specified above, provided that any such notice, request or communication to any holder of Registrable Securities shall not be effective until received. 7. Assignment. Except as set forth in the next sentence, this Agreement shall not be assignable except in one or more cases by and among Fortress and its affiliates (provided that each such assignment shall assign the full rights and obligations of Fortress or, as the case may be, its affiliate (if Fortress has already assigned its full rights and obligations hereunder to such affiliate) and each such assignment shall be made between Fortress or, as the case may be, such affiliate to only one of Fortress' affiliates per assignment (i.e., Fortress may not distribute its rights and obligations hereunder among more than one affiliate at any time)). The provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall only be assignable to transferees of at least 25% of the Registrable Securities (which transferees, together with Fortress or such affiliate (as long as Fortress or such affiliate, as the case may be, holds any Registrable Securities), shall be termed "Holders"), subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities required in order to be entitled to certain rights, or take certain actions, contained herein. Any attempt to assign any portion of this Agreement outside of the scope set forth in this Section 7 shall be null and void. 8. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. 10. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 19 21 11. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 12. Severability. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 20 22 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. CAPSTEAD MORTGAGE CORPORATION By: /s/ ANDREW F. JACOBS ------------------------------------ Andrew F. Jacobs Executive Vice President - Finance FORTRESS INVESTMENT CORP. By: /s/ RANDAL A. NARDONE ------------------------------------ Randal A. Nardone Chief Operating Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----