425

CAPSTEAD MORTGAGE CORPORATION

Date: October 6, 2021

/s/ Phillip A. Reinsch

Phillip A. Reinsch

President and Chief Executive Officer

0001193125-21-292560.txt : 20211006 0001193125-21-292560.hdr.sgml : 20211006 20211006061202 ACCESSION NUMBER: 0001193125-21-292560 CONFORMED SUBMISSION TYPE: 425 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20211006 DATE AS OF CHANGE: 20211006 SUBJECT COMPANY: 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: 425 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08896 FILM NUMBER: 211308792 BUSINESS ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148742323 MAIL ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS MORTGAGE CORP DATE OF NAME CHANGE: 19891105 FILED BY: 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: 425 BUSINESS ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148742323 MAIL ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS MORTGAGE CORP DATE OF NAME CHANGE: 19891105 425 1 d219694d425.htm 425 425

UNITED STATES

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 (Date of earliest event reported): October 6, 2021

CAPSTEAD MORTGAGE CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Maryland

001-08896

75-2027937

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS 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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

☒	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	CMO	New York Stock Exchange
7.50% Series E Cumulative Redeemable Preferred Stock, $0.10 par value	CMOPRE	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act or Rule 12b-2 of the Exchange Act.

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01

Other Events.

As previously disclosed, on July 25, 2021, Capstead Mortgage Corporation, a Maryland corporation (“Capstead”), entered into an Agreement and Plan of Merger, as amended pursuant to that certain First Amendment to Agreement and Plan of Merger, dated as of September 22, 2021 (as amended, the “Merger Agreement”), with Benefit Street Partners Realty Trust, Inc., a Maryland corporation (“BSPRT”), Rodeo Sub I, LLC, a Maryland limited liability company and a wholly-owned subsidiary of BSPRT (“Merger Sub”), and Benefit Street Partners L.L.C., a Delaware limited liability company (“BSPRT Advisor”), pursuant to which, subject to the terms and conditions therein, Capstead will merge with and into Merger Sub, with Merger Sub remaining as a wholly-owned subsidiary of BSPRT (such transaction, the “Merger”). On September 7, 2021, Capstead and BSPRT respectively filed a definitive proxy statement/prospectus (the “Definitive Proxy Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) for the solicitation of proxies in connection with the special meeting of the common stockholders of Capstead, to be held on October 15, 2021, to vote upon matters in connection with the Merger. On September 23, 2021, Capstead and BSPRT respectively filed a supplement to the Definitive Proxy Statement (as supplemented, the “Proxy Statement”) with respect to the First Amendment to Agreement and Plan of Merger.

Five lawsuits have been filed by purported stockholders of Capstead with respect to the Merger. The first suit, styled as Shiva Stein v. Capstead Mortgage Corporation, et al., No. 1:21-cv-7306 (the “Stein Lawsuit”), was filed in the United States District Court for the Southern District of New York on August 31, 2021, and asserts claims against Capstead, members of the Capstead board of directors (the “Capstead Board”), BSPRT and Merger Sub. The second suit, styled as Matthew Hopkins v. Capstead Mortgage Corporation, et al., No. 1:21-cv-07369 (the “Hopkins Lawsuit”), was filed in the United States District Court for the Southern District of New York on September 1, 2021, and asserts claims against Capstead, members of the Capstead Board, BSPRT, Merger Sub and BSPRT Advisor. The third suit, styled as Bryan Harrington v. Capstead Mortgage Corporation, et al., No. 1:21-cv-05080 (the “Harrington Lawsuit”), was filed in the United States District Court for the Eastern District of New York on September 11, 2021, and asserts claims against Capstead and members of the Capstead Board. The fourth suit, styled as Randy Gill v. Capstead Mortgage Corporation, et al., No. 1:21-cv-07973 (the “Gill Lawsuit”), was filed in the United States District Court for the Southern District of New York on September 24, 2021, and asserts claims against Capstead and members of the Capstead Board. The fifth suit, styled as Jordan Wilson v. Capstead Mortgage Corporation, et al., No. 1:21-cv-08147-UA (the “Wilson Lawsuit”), was filed in the United States District Court for the Southern District of New York on October 1, 2021, and asserts claims against Capstead and members of the Capstead Board.

Capstead has also received demand letters from two purported stockholders, Brett Braafhart and Angelo Fisichella, threatening to assert claims against Capstead and members of the Capstead Board (such demand letters, together with the Stein Lawsuit, the Hopkins Lawsuit, the Harrington Lawsuit, the Gill Lawsuit and the Wilson Lawsuit, the “Lawsuits”).

Each of the Lawsuits alleges that certain of the disclosures in the Proxy Statement are deficient, and seeks preliminary and injunctive relief. While Capstead believes that the disclosures set forth in the Proxy Statement comply fully with applicable law, in order to address certain disclosure claims in the Lawsuits, minimize the cost, risk and uncertainty inherent in litigation, avoid nuisance and preclude any efforts to delay the completion of the Merger, Capstead has determined to voluntarily supplement the Proxy Statement with the supplemental disclosures set forth below (the “Supplemental Disclosures”). Nothing in the Supplemental Disclosures shall be deemed an admission of liability, wrongdoing or the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, Capstead believes the claims asserted in the Lawsuits are without merit and expressly denies all allegations in the Lawsuits, including that any additional disclosure was or is required.

Supplemental Disclosures to Proxy Statement

The following Supplemental Disclosures should be read in conjunction with the Proxy Statement, which should be read in its entirety. All page references are to pages in the Definitive Proxy Statement, and terms used below, unless otherwise defined, have the meanings set forth in the Proxy Statement. Underlined text shows text being added to a referenced disclosure in the Proxy Statement.

The disclosure on page 61 of the Proxy Statement is hereby supplemented by revising the fourth complete paragraph on the page in its entirety as follows:

On February 11, 2021, the Capstead Transaction Committee held a meeting at which Mr. Reinsch and representatives of Credit Suisse and Hunton were present. The Capstead Transaction Committee discussed industry conditions and expressed concern for Capstead’s position in the market. Representatives of Credit Suisse discussed potential strategic alternatives available to Capstead and outlined considerations relating to various types of strategic transactions with a variety of potential counterparties, including a business combination transaction, an orderly liquidation of Capstead and a management externalization. During this meeting, the Capstead Transaction Committee reviewed a preliminary analysis prepared by Capstead’s management regarding a hypothetical liquidation of Capstead. Based on preliminary estimates made by Capstead’s management, and an estimated book value per share of Capstead Common Stock before such liquidation of $6.70, the preliminary analysis had an estimated implied liquidation value per share for Capstead Common Stock of approximately $6.50 per share.

The disclosure on page 61 of the Proxy Statement is hereby supplemented by revising the last paragraph on the page in its entirety as follows:

On February 26, 2021, the Capstead Transaction Committee held a meeting at which Mr. Reinsch and representatives of Hunton were present. The Capstead Transaction Committee reviewed the proposed terms of Credit Suisse’s engagement letter and, based on its prior discussions with Credit Suisse and consideration of its qualifications, the Capstead Transaction Committee authorized the engagement of Credit Suisse as Capstead’s financial advisor to assist in a potential strategic transaction. The Capstead Transaction Committee authorized this engagement due to Credit Suisse’s qualifications, expertise, experience in the mortgage REIT industry, its knowledge of Capstead and its business, its understanding of the then-current state of the financial markets, its perspectives regarding potential strategic alternatives that might be available to Capstead to enhance long-term stockholder value and its past experience advising other mortgage REITs in similar transactions. Mr. Reinsch reviewed with the Capstead Transaction Committee various considerations relating to an orderly liquidation of Capstead. The Capstead Transaction Committee considered the fact that shares of Capstead Common Stock have traded at a discount to Capstead’s book value and that an orderly liquidation might generate proceeds for stockholders equal to less of a discount to Capstead’s book value. The Capstead Transaction Committee then reviewed an updated hypothetical liquidation analysis prepared by Capstead’s management. Based on preliminary estimates made by Capstead’s management, and an estimated book value per share of Capstead Common Stock before such liquidation of $6.75, the updated preliminary analysis had an estimated implied liquidation value per share for Capstead Common Stock of approximately $6.54 per share. Capstead’s management did not prepare the hypothetical liquidation analysis with a view towards public dissemination, nor did the analysis purport to be indicative of the actual values or expected values in a liquidation and wind down of Capstead. The Capstead Transaction Committee also considered estimated transaction costs associated with an orderly liquidation and with a business combination transaction. Representatives of Hunton reviewed legal considerations relating to an orderly liquidation, including the process for obtaining Capstead stockholder approval of the dissolution, winding-up Capstead’s business and setting aside reserves to satisfy liabilities and an illustrative timeline for maintaining such reserves and distributing the liquidation proceeds to Capstead stockholders. Following discussion, the Capstead Transaction Committee’s view, in consultation with Mr. Reinsch and representatives of Hunton, was that an orderly liquidation was not attractive because of the uncertainty associated with the amount and timing of the distribution of the liquidation proceeds to Capstead stockholders and that a business combination transaction or a management externalization was more likely to generate value for stockholders, including by obtaining a premium to Capstead’s book value.

The disclosure on page 69 of the Proxy Statement is hereby supplemented by revising the fifth complete paragraph on the page in its entirety as follows:

On June 25, 2021, a representative of BSPRT informed representatives of Credit Suisse that BSPRT (i) was continuing to review whether the transaction could qualify as a tax-deferred transaction for U.S. federal income purposes, and (ii) would agree to add three Capstead independent directors to the BSPRT Board upon the completion of the merger, with two such directors being nominated to stand for election after the first annual meeting of BSPRT stockholders after the merger. Also on June 25, 2021, representatives of Hunton discussed the tax structure of the proposed transaction with representatives of Hogan Lovells. Other than with respect to post-transaction

representation on the BSPRT Board, at no time during the parties’ negotiations with respect to the merger did representatives of Capstead and BSPRT engage in discussions regarding post-transaction employment of any Capstead senior executives.

The disclosure on page 81 of the Proxy Statement is hereby supplemented by revising the first complete paragraph under the subsection captioned “Dividend Discount Analysis” in its entirety as follows:

Capstead. Credit Suisse performed a dividend discount analysis of Capstead to calculate the estimated present value of the distributed cash flows that Capstead was forecasted to generate during the third and fourth quarters of Capstead’s fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, based on the Capstead Projections. Credit Suisse calculated terminal values for Capstead by applying a selected range of price/TBVPS multiples of 0.90x to 1.05x, which multiples were selected based on Credit Suisse’s professional judgment, to Capstead’s estimated book value as of December 31, 2023. The present values (as of June 30, 2021) of the distributed cash flows and terminal values were then calculated using a selected range of discount rates of 9.0% to 13.0%, based on Credit Suisse’s professional judgment, which utilizes Capstead’s estimated cost of equity based on the capital asset pricing model and illustrative dividend yields for the selected companies. Approximate implied per share equity values for Capstead were calculated as total implied equity value divided by the total number of fully diluted shares of Capstead Common Stock outstanding, which was 97,513,711 shares, as provided by Capstead management. This analysis indicated the following approximate implied per share equity value reference range for Capstead:

The disclosure on page 81 of the Proxy Statement is hereby supplemented by revising the second complete paragraph under the subsection captioned “Dividend Discount Analysis” in its entirety as follows:

BSPRT. Credit Suisse performed a dividend discount analysis of BSPRT (on a standalone basis) to calculate the estimated present value of the distributed cash flows that BSPRT was forecasted to generate during the third and fourth quarters of BSPRT’s fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, based on the BSPRT Projections. Credit Suisse calculated terminal values for BSPRT by applying a selected range of price/TBVPS multiples of 0.95x to 1.20x, which multiples were selected based on Credit Suisse’s professional judgment, to BSPRT’s estimated book value as of December 31, 2023. The present values (as of June 30, 2021) of the distributed cash flows and terminal values were then calculated using a selected range of discount rates of 8.0% to 14.0%, based on Credit Suisse’s professional judgment, which utilizes BSPRT’s estimated cost of equity based on the capital asset pricing model and illustrative dividend yields for the selected companies. Approximate implied per share equity values for BSPRT were calculated as total implied equity value divided by the total number of fully diluted shares of BSPRT Common Stock outstanding, which was 57,724,696 shares, as provided by BSPRT management. This analysis indicated the following approximate implied per share equity value reference range for BSPRT:

Item 9.01

Financial Statements and Exhibits.

(a)

Not Applicable.

(b)

Not Applicable.

(c)

Not Applicable.

(d)

Exhibits.


Exhibit 99.1		Complaint filed by Shiva Stein on August 31, 2021, in the United States District Court for the Southern District of New York.

Exhibit 99.2		Complaint filed by Matthew Hopkins on September 1, 2021, in the United States District Court for the Southern District of New York.

Exhibit 99.3		Complaint filed by Bryan Harrington on September 11, 2021, in the United States District Court for the Eastern District of New York.

Exhibit 99.4		Complaint filed by Randy Gill on September 24, 2021, in the United States District Court for the Southern District of New York.

Exhibit 99.5		Complaint filed by Jordan Wilson on October 1, 2021, in the United States District Court for the Southern District of New York.

Exhibit 104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

Important Additional Information and Where to Find It

In connection with the proposed transaction contemplated by the Merger Agreement, pursuant to which, subject to the terms and conditions therein, Capstead will be merged with and into Merger Sub, with Merger Sub continuing as the surviving company, BSPRT has filed with the SEC a registration statement on Form S-4 (File No. 333-258947), which was declared effective by the SEC on September 3, 2021. The registration statement includes a prospectus of BSPRT and a proxy statement of Capstead. On September 23, 2021, Capstead and BSPRT respectively filed with the SEC a supplement to the proxy statement/prospectus with respect to the First Amendment to Agreement and Plan of Merger. Capstead and BSPRT also expect to file with the SEC other documents regarding the Merger.

STOCKHOLDERS OF CAPSTEAD AND BSPRT ARE ADVISED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS (INCLUDING ALL OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS AND SUPPLEMENTS TO THESE DOCUMENTS) CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT CAPSTEAD, BSPRT, THE PROPOSED MERGER AND RELATED MATTERS. Stockholders of Capstead and BSPRT may obtain free copies of the registration statement, the proxy statement/prospectus and all other documents filed or that will be filed with the SEC by Capstead or BSPRT at the SEC’s website at http://www.sec.gov. Copies of documents filed with the SEC by Capstead are available free of charge on Capstead’s website at http://www.capstead.com/investor-relations/financial-reports/sec-filings. Copies of documents filed with the SEC by BSPRT are available free of charge on BSPRT’s website at http://bsprealtytrust.com/investorrelations.

Participants in the Solicitation Relating to the Merger

Capstead, BSPRT and their respective directors, executive officers and other members of management and employees may be deemed to be “participants” in the solicitation of proxies from the stockholders of Capstead in connection with the proposed Merger. Information regarding Capstead and its directors and executive officers and their ownership of common stock of Capstead can be found in Capstead’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in its definitive proxy statement relating to its 2021 annual meeting of stockholders filed with the SEC on April 1, 2021. Information regarding BSPRT and its directors and executive officers and their ownership of common stock of BSPRT can be found in BSPRT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in its definitive proxy statement relating to its 2021 annual meeting of stockholders filed with the SEC on April 8, 2021. Additional information regarding the interests of such individuals in the Merger is included in the proxy statement/prospectus relating to the Merger filed with the SEC on September 7, 2021. Free copies of these documents may be obtained as described in the preceding paragraph.

No Offer or Solicitation

This communication and the information contained herein does not constitute an offer to sell or the solicitation of an offer to buy or sell any securities or a solicitation of a proxy or of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. This communication may be deemed to be solicitation material in respect of the proposed Merger.

Forward-Looking Statements

This communication contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements can generally be identified as forward-looking because they include words such as “believes,” “anticipates,” “expects,” “would,” “could,” or words of similar meaning. Such forward-looking statements include or may relate to statements about the benefits of the proposed Merger and statements that address operating performance, events or developments that Capstead expects or anticipates will occur in the future, including but not limited to statements regarding future financial and operating results, plans, objectives, expectations and intentions, expected sources of financing, anticipated asset dispositions, anticipated leadership and governance changes, changes to

outstanding structure of Capstead’s capital stock, creation of value for stockholders, operation and implementation of share repurchase programs, benefits of the proposed Merger to customers, stockholders and other constituents of the combined company, the integration of Capstead and BSPRT, the expected GAAP book value per share of Capstead, cost savings and the expected timetable for completing the proposed Merger, and other non-historical statements. These statements are based on the companies’ current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; Capstead can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Capstead’s expectations include, but are not limited to, the risk that the Merger will not be consummated within the expected time period or at all; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; the failure to satisfy the conditions to the consummation of the proposed Merger, including the approval of the stockholders of Capstead; fluctuations in the adjusted book value per share of both Capstead and BSPRT; risks related to the disruption of management’s attention from ongoing business operations due to the proposed Merger; the availability of suitable investment or disposition opportunities; changes in interest rates; the availability and terms of financing; the impact of the COVID-19 pandemic on the operations and financial condition of each of Capstead and BSPRT and the industries in which they operate; general financial and economic conditions, which may be affected by government responses to the COVID-19 pandemic; market conditions; legislative and regulatory changes that could adversely affect the business of Capstead and BSPRT; and other factors, including those set forth in the section entitled “Risk Factors” in the proxy statement/prospectus, Capstead’s and BSPRT’s most recent Annual Reports on Form 10-K, as amended, and Quarterly Reports on Form 10-Q filed with the SEC, and other reports filed by Capstead and BSPRT with the SEC, copies of which are available on the SEC’s website, www.sec.gov. Forward-looking statements are not guarantees of performance or results and speak only as of the date such statements are made. Except as required by law, neither Capstead nor BSPRT undertakes any obligation to update or revise any forward-looking statement in this communication, whether to reflect new information, future events, changes in assumptions or circumstances or otherwise.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

EX-99.1 2 d219694dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 1 of 16


UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


SHIVA STEIN,	:
	:
Plaintiff,	:	Civil Action No. 1:21-cv-7306
	:
v.	:	COMPLAINT FOR VIOLATIONS OF
	:	SECTIONS 14(a) AND 20(a) OF THE
CAPSTEAD MORTGAGE CORPORATION,	:	SECURITIES EXCHANGE ACT OF
PAT AUGUSTINE, JACK E. BIEGLER,	:	1934
MICHELLE P. GOOLSBY, GARY KEISER,	:
CHRISTOPHER W. MAHOWALD,	:	JURY TRIAL DEMANDED
MICHAEL G. O’NEIL, PHILLIP A.	:
REINSCH, MARKS. WHITING, BENEFIT	:
STREET PARTNERS REALTY TRUST,	:
INC., and RODEO SUB I, LLC,	:
	:
Defendants.	:
	:

Shiva Stein (“Plaintiff’), by and through her attorneys, alleges the following upon information and belief, including investigation of counsel and review of publicly-available information, except as to those allegations pertaining to Plaintiff, which are alleged upon personal knowledge:

1. This is an action brought by Plaintiff against Capstead Mortgage Corporation (“Capstead or the “Company”), the members Capstead’s board of directors (the “Board” or the “Individual Defendants”), Benefit Street Partners Realty Trust (“Benefit Street Partners”) and Rodeo Sub I, LLC (“Merger Sub” and collectively with the Company, Benefit Street Partners, the Board or Individual Defendants, the “Defendants”) for their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and SEC Ru1e 14a-9, 17 C.F.R. 240.14a-9 and 17 C.F.R. § 244.100, in connection with the proposed merger between Capstead and Benefit Street Partners Corporation and its affiliates (“Benefit Street Partners”).

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 2 of 16

2. Defendants have violated the above-referenced sections of the Exchange Act by causing a materially incomplete and misleading Registration Statement on Form S-4 (the “Registration Statement”) to be filed on August 19, 2021 with the United States Securities and Exchange Commission (“SEC”) and disseminated to Company stockholders. The Registration Statement recommends that Company stockholders vote in favor of a proposed transaction whereby Capstead will merge with and into Merger Sub, with Merger Sub continuing as the surviving company and a direct wholly owned subsidiary of Benefit Street Partners (the “Proposed Transaction”). Pursuant to the terms of the definitive agreement and plan of merger the companies entered into (the “Merger Agreement”), each Capstead stockholder will receive: (i) a cash payment equal to a 15.75% premium to Capstead’s diluted book value per share and (ii) shares of Benefit Street Partners common stock calculated on an adjusted “book-for-book” basis, to be calculated on a date prior to the closing of the Proposed TRansaction (the “Merger Consideration”)

3. As discussed below, Defendants have asked Capstead’s stockholders to support the Proposed Transaction based upon the materially incomplete and misleading representations and information contained in the Registration Statement, in violation of Sections 14(a) and 20(a) of the Exchange Act. Specifically, the Registration Statement contains materially incomplete and misleading information concerning the analyses performed by the Company’s financial advisor, Credit Suisse Securities (USA) LLC (“Credit Suisse”) in support of its fairness opinions.

4. It is imperative that the material information that has been omitted from the Registration Statement is disclosed to the Company’s stockholders prior to the forthcoming stockholder vote so that they can properly exercise their corporate suffrage rights.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 3 of 16

5. For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin Defendants from taking any steps to consummate the Proposed Transaction unless and until the material information discussed below is disclosed to Capstead’s stockholders or, in the event the Proposed Transaction is consummated, to recover damages resulting from the Defendants’ violations of the Exchange Act.

JURISDICTION AND VENUE

6. This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges violations of Sections 14(a) and 20(a) ofthe Exchange Act and SEC Rule 14a-9.

7. Personal jurisdiction exists over each Defendant either because the Defendant conducts business in or maintains operations in this District, or is an individual who is either present in this District for jurisdictional purposes or has sufficient minimum contacts with this District as to render the exercise of jurisdiction over Defendant by this Court permissible under traditional notions of fair play and substantial justice.

8. Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C. § 78aa, as well as under 28 U.S.C. § 1391, because Benefit Street Partners is headquartered in this District.

PARTIES

9. Plaintiff is, and has been at all relevant times, the owner of Capstead stocks and has held such stocks since prior to the wrongs complained of herein.

10. Individual Defendant Pat Augustine has served as a member of the Board since August 2020.

11. Individual Defendant Jack E. Biegler has served as a member of the Board since June 2005.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 4 of 16

12. Individual Defendant Michelle P. Goolsby has served as a member of the Board since June 2012.

13. Individual Defendant Gary Keiser has served as a member of the Board since January 2004.

14. Individual Defendant Christopher W. Mahowald has served as a member of the Board since June 2005 and is the Chairman of the Board.

15. Individual Defendant Michael G. O’Neil has served as a member of the Board since April 2000.

16. Individual Defendant Phillip A. Reinsch has served as a member of the Board since July 2016 and is the Company’s President and Chief Executive Officer.

17. Individual Defendant Mark S. Whiting has served as a member of the Board since April 2000.

18. Defendant Capstead is a Maryland corporation and maintains its principal offices at 8401 N. Central Expressway, Suite 800, Dallas, Texas 75225. The Company’s stock trades on the New York Stock Exchange under the symbol “CMO.”

19. Defendant Benefit Street Partners is a party to the Merger Agreement.

20. Defendant Merger Sub is a party to the Merger Agreement.

21. The defendants identified in paragraphs 10-17 are collectively referred to as the “Individual Defendants” or the “Board.”

22. The defendants identified in paragraphs 10-20 are collectively referred to as the “Defendants.”

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 5 of 16

SUBSTANTIVE ALLEGATIONS

A.	The Proposed Transaction

23. Capstead operates as a real estate investment trust (REIT) in the United States. It invests in a portfolio of residential mortgage pass-through securities primarily consisting of short-duration adjustable-rate mortgage securities issued and guaranteed by government-sponsored enterprises, or by an agency of the federal government. The Company qualifies as a REIT for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The Company was incorporated in 1985 and is headquartered in Dallas, Texas.

24. On July 26, 2021, the Company and Benefit Street Partners jointly announced the Proposed Transaction:

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 6 of 16

The combined company, to be called “Franklin BSP Realty Trust” post-close, will transition the capital base of Capstead, a residential mortgage REIT, into commercial mortgage loans where BSPRT is focused. BSPRT’s external manager, Benefit Street Partners L.L.C. (“BSP’’), a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), will manage the combined company following the completion of the transaction. Upon closing the transaction, which is expected in the fourth quarter of 2021, the combined company will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity and its common stock will trade on the NYSE under the new ticker symbol FBRT.

Highlights of the Merger

•

Transaction provides Capstead common stockholders with a cash payment at closing equal to a 15.75% premium to diluted book value per share and an ongoing ownership interest in Franklin BSP Realty Trust with the potential for higher returns and dividend yields.

•

Franklin BSP Realty Trust will be the 4th largest commercial mortgage REIT with nearly $2 billion of pro forma equity.

•

Transition to BSPRT’s strategy of originating commercial mortgage loans, which has delivered returns on equity in excess of 10%, is expected to generate higher returns with less volatility and lower leverage than Capstead’s current strategy.

•

Franklin BSP Realty Trust will be externally managed by an experienced team of approximately 60 real estate credit investment professionals at BSP, led by Michael Comparato, BSP’s Head of Commercial Real Estate, and Franklin Templeton with significant investment and risk management expertise across the credit spectrum.

•

Franklin BSP Realty Trust will be publicly traded on the NYSE under the ticker FBRT, providing existing BSPRT stockholders greater access to liquidity.

•

A $100 million common stock repurchase program will be available post-closing to support the combined company’s common stock trading level.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 7 of 16

Richard J. Byrne, President and Chief Executive Officer of BSPRT, said, “With the combined capital of BSPRT and Capstead, we are well positioned to capture opportunities ahead of us and create superior value for our stockholders. We believe our differentiated investment strategy, marked by a focus on middle market commercial real estate mortgages, provides us a significant competitive advantage with a large-scale, diverse portfolio that has delivered strong growth and attractive returns over the long term. Coupled with BSP’s strong deal sourcing and underwriting capabilities supported by Franklin Templeton’s world class sponsorship, the new Franklin BSP Realty Trust will be poised to benefit from the large and compelling commercial real estate lending market opportunity resulting from a significant volume of upcoming commercial real estate debt maturities.”

Phillip A. Reinsch, Chief Executive Officer of Capstead, said, “This transaction provides Capstead common stockholders with an immediate and sizable cash premium and significant opportunity to participate in the upside of the combined company as it establishes itself as one of the larger publicly-traded commercial mortgage REITs. After conducting a thorough strategic review, our Board concluded redirecting Capstead’s capital into commercial real estate lending by combining with a highly respected originator that has a strong track record and best-in-class sponsorship is an exciting opportunity. Combining with BSPRT will allow Capstead’s stockholders to transition into an ownership position in a leading commercial mortgage REIT capable of generating 10%-plus returns on equity that we believe has significant long-term growth potential.”

The combined company will be externally managed by BSP, a leading credit-focused alternative asset manager with approximately $32 billion of assets under management as of June 30, 2021. BSP is a wholly-owned subsidiary of Franklin Templeton, one of the largest independent asset managers in the world with over $1.5 trillion of assets under management as of June 30, 2021.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 8 of 16

External manager BSP will fund approximately $75 million of the cash merger consideration to be paid for each share of Capstead common stock. The remaining cash consideration will be funded by BSPRT~ which will also issue shares of the combined company~s common stock for each share of Capstead common stock based on an adjusted book-for-book exchange. The merger will be a taxable transaction for U.S. federal income tax purposes.

In addition to the above consideration, BSPRT will assume Capstead’ s $100 million in unsecured borrowings maturing in 2035 and 2036 and $258 million of issued and outstanding 7.50% Series E cumulative redeemable preferred stock, which will be exchanged for new preferred shares of the combined company with the same terms.

BSPRT and BSP have committed to certain structural and market protections to support the combined company’s common stock performance following completion of the merger, including a 6-month lock-up for approximately 94% of the current shares of BSPRT common stock and a committed common stock repurchase plan of up to $100 million to support the combined company’s stock price beginning four weeks after closing, up to $35 million of which will be funded by BSP and Franklin Templeton.

The transaction has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including the approval of Capstead’s stockholders.

Credit Suisse IS serving as financial advisor and Hunton Andrews Kurth LLP is serving as legal advisor to Capstead. Houlihan Lokey served as lead financial advisor, and Barclays served as financial advisor, to BSPRT. Hogan Lovells US LLP served as legal advisor to BSPRT.

***

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 9 of 16

25. The Board has unanimously agreed to the Proposed Transaction. It is therefore imperative that Capstead’s stockholders are provided with the material information that has been omitted from the Registration Statement, so that they can meaningfully assess whether or not the Proposed Transaction is in their best interests prior to the forthcoming stockholder vote.

B.	The Materially Incomplete and Misleading Registration Statement

26. On August 19, 2021, Capstead and Benefit Street Partners jointly filed the Registration Statement with the SEC in connection with the Proposed Transaction. The Registration Statement was furnished to the Company’s stockholders and solicits the stockholders to vote in favor of the Proposed Transaction. The Individual Defendants were obligated to carefully review the Registration Statement before it was filed with the SEC and disseminated to the Company’s stockholders to ensure that it did not contain any material misrepresentations or omissions. However, the Registration Statement misrepresents and/or omits material information that is necessary for the Company’s stockholders to make an informed decision concerning whether to vote in favor of the Proposed Transaction, in violation of Sections 14(a) and 20(a) of the Exchange Act.

Omissions and/or Material Misrepresentations Concerning Financial Projections

27. The Registration Statement fails to provide material information concerning financial projections by management and relied upon by Credit Suisse in its analyses. The Registration Statement discloses management-prepared financial projections for the Company which are materially misleading. The Registration Statement indicates that in connection with the rendering of its fairness opinion, that the management prepared certain non-public financial forecasts (the “Company Projections” and “Benefit Street Partners Projections”) and provided them to the Board and Credit Suisse by management of both Capstead and Benefit Street Partners with forming a view about the stand-alone and pro forma valuations. Accordingly, the Registration

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 10 of 16

Statement should have, but fails to provide, certain information in the projections that managements provided to the Board and its financial advisor. Courts have uniformly stated that ‘‘projections ... are probably among the most highly-prized disclosures by investors. Investors can come up with their own estimates of discount rates or [] market multiples. What they cannot hope to do is replicate management’s inside view of the company’s prospects.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 201-203 (Del. Ch. 2007).

28. For the Company Projections, the Registration Statement provides values for a non-GAAP (Generally Accepted Accounting Principles) financial metric for fiscal years 2021 through 2023: Diluted Core Earnings Per Common Share as calculated by each of the Company’s and Benefit Street Partners’s management, but fails to provide line items used to calculate this metric or a reconciliation of the non-GAAP metric to its most comparable GAAP measure, in direct violation of Regulation G and consequently Section 14(a).

29. For the Benefit Street Partners Projections, the Registration Statement fails to disclose the projected distributed cash flows that Benefit Street Partners was forecasted to generate during the third and fourth quarters of fiscal year ending 2021 through the full fiscal year ending December 31, 2023, and Benefit Street Partners’ Book Value per Common Share, metrics used in Credit Suisse’s financial analyses (below).

30. When a company discloses non-GAAP financial measures in a Registration Statement that were relied on by a board of directors to recommend that stockholders exercise their corporate suffrage rights in a particular manner, the company must, pursuant to SEC regulatory mandates, also disclose all projections and information necessary to make the non-GAAP measures not misleading, and must provide a reconciliation (by schedule or other clearly understandable method) of the differences between the non-GAAP financial measure disclosed or released with the most comparable financial measure or measures calculated and presented in accordance with GAAP. 17 C.F .R. § 244.100.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 11 of 16

31. The SEC has noted that:

companies should be aware that this measure does not have a uniform definition and its title does not describe how it is calculated. Accordingly, a clear description of how this measure is calculated, as well as the necessary reconciliation, should accompany the measure where it is used. Companies should also avoid inappropriate or potentially misleading inferences about its usefulness. For example, “free cash flow” should not be used in a manner that inappropriately implies that the measure represents the residual cash flow available for discretionary expenditures, since many companies have mandatory debt service requirements or other non-discretionary expenditures that are not deducted from the measure.

32. Thus, to cure the Registration Statement and the materially misleading nature of the forecasts under SEC Rule 14a-9 as a result of the omitted information in the Registration Statement, Defendants must provide a reconciliation table of the non-GAAP measure to the most comparable GAAP measure to make the non-GAAP metric included in the Registration Statement not misleading.

Omissions and/or Material Misrepresentations Concerning Financial Analyses

33. With respect to Credit Suisse’s Selected Public Companies Analysis for BSPRT, the Registration Statement fails to disclose Benefit Street Partners’ reported tangible book value per share (“TBVPS”).

34. With respect to Credit Suisse’s Dividend Discount Analysis for Capstead, the Registration Statement fails to disclose: (i) terminal values for Capstead; (ii) the basis for applying a selected range of price/TBVPS multiples of 0.90x to 1.05x; and (iii) the basis for applying a selected range of discount rates of 9.0% to 13.0%.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 12 of 16

35. With respect to Credit Suisse’s Dividend Discount Analysis for Benefit Street Partners, the Registration Statement fails to disclose: (i) terminal values for Benefit Street Partners; (ii) the basis for applying a selected range of price/TBVPS multiples of 0.95x to 1.20x; and (iii) the basis for applying a selected range of discount rates of 8.0% to 14.0%.

36. With respect to Credit Suisse’s Analyst Price Targets analysis, the Registration Statement fails to disclose the analysts observed and the corresponding price targets.

37. In sum, the omission of the above-referenced information renders statements in the Registration Statement materially incomplete and misleading in contravention of the Exchange Act. Absent disclosure of the foregoing material information prior to the special stockholder meeting to vote on the Proposed Transaction, Plaintiff will be unable to make a fully-informed decision regarding whether to vote in favor of the Proposed Transaction, and she is thus threatened with irreparable harm, warranting the injunctive relief sought herein.

CLAIMS FOR RELIEF

COUNT I

On Behalf of Plaintiff Against All Defendants for Violations of

Section 14(a) of the Exchange Act and Rule 14a-9 and 17 C.F.R. § 244.100

38. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.

39. Rule 14a-9, promulgated by the SEC pursuant to Section 14(a) of the Exchange Act, provides that proxy communications with stockholders shall not contain “any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading.” 17 C.F.R. § 240.14a-9.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 13 of 16

40. Defendants have issued the Registration Statement with the intention of soliciting stockholder support for the Proposed Transaction. Each of the Defendants reviewed and authorized the dissemination of the Registration Statement and the use of their name in the Registration Statement, which fails to provide critical information regarding, among other things, the financial projections that were prepared by the Company and relied upon by the Board in recommending the Company’s stockholders vote in favor of the Proposed Transaction.

41. In so doing, Defendants made untrue statements of fact and/or omitted material facts necessary to make the statements made not misleading. Each of the Individual Defendants, by virtue of their roles as officers and/or directors, were aware of the omitted information but failed to disclose such information, in violation of Section 14(a). The Individual Defendants were therefore negligent, as they had reasonable grounds to believe material facts existed that were misstated or omitted from the Registration Statement, but nonetheless failed to obtain and disclose such information to stockholders although they could have done so without extraordinary effort.

42. Defendants were, at the very least, negligent in preparing and reviewing the Registration Statement. The preparation of a Registration Statement by corporate insiders containing materially false or misleading statements or omitting a material fact constitutes negligence. Defendants were negligent in choosing to omit material information from the Registration Statement or failing to notice the material omissions in the Registration Statement upon reviewing it, which they were required to do carefully. Indeed, Defendants were intricately involved in the process leading up to the signing of the Merger Agreement and the preparation and review of strategic alternatives.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 14 of 16

43. The misrepresentations and omissions in the Registration Statement are material to Plaintiff, who will be deprived of her right to cast an informed vote if such misrepresentations and omissions are not corrected prior to the vote on the Proposed Transaction. Plaintiff has no adequate remedy at law. Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected from the immediate and irreparable injury that Defendants’ actions threaten to inflict.

COUNT II

On Behalf of Plaintiff Against the Individual Defendants for Violations of Section 20(a) of the Exchange Act

44. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.

45. The Individual Defendants acted as controlling persons of Capstead within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as directors of Capstead, and participation in and/or awareness of the Company’s operations and/or intimate knowledge of the incomplete and misleading statements contained in the Registration Statement filed with the SEC, they had the power to influence and control and did influence and control, directly or indirectly, the decision making of Capstead, including the content and dissemination of the various statements that Plaintiff contends are materially incomplete and misleading.

46. Each of the Individual Defendants was provided with or had unlimited access to copies of the Registration Statement and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

47. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of Capstead, and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the Exchange Act violations alleged herein, and exercised the same. The omitted information identified above was reviewed by the Board prior to voting on the Proposed Transaction. The Registration Statement at issue contains the unanimous recommendation of the Board to approve the Proposed Transaction. The Individual Defendants were thus directly involved in the making of the Registration Statement.

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 15 of 16

48. In addition, as the Registration Statement sets forth at length, and as described herein, the Individual Defendants were involved in negotiating, reviewing, and approving the Merger Agreement. The Registration Statement purports to describe the various issues and information that the Individual Defendants reviewed and considered. The Individual Defendants participated in drafting and/or gave their input on the content of those descriptions.

49. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of the Exchange Act.

50. As set forth above, the Individual Defendants had the ability to exercise control over and did control a person or persons who have each violated Section 14(a) and Rule 14a-9, by their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Individual Defendants’ conduct, Plaintiff will be irreparably harmed.

51. Plaintiff has no adequate remedy at law. Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected from the immediate and irreparable injury that Defendants’ actions threaten to inflict.

RELIEF REQUESTED

WHEREFORE, Plaintiff demands injunctive relief in her favor and against the Defendants jointly and severally, as follows: A. Preliminarily and permanently enjoining Defendants and their counsel, agents, employees and all persons acting under, in concert with, or for them, from proceeding with, consummating, or closing the Proposed Transaction, unless and until Defendants disclose the material information identified above which has been omitted from the Registration Statement;

Case 1:21-cv-07306 Document 1 Filed 08/31/21 Page 16 of 16

B. Rescinding, to the extent already implemented, the Merger Agreement or any of the terms thereof, or granting Plaintiff rescissory damages;

C. Directing the Defendants to account to Plaintiff for all damages suffered as a result of their wrongdoing;

D. Awarding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and expert fees and expenses; and

E. Granting such other and further equitable relief as this Court may deem just and proper.

JURY DEMAND

Plaintiff demands a trial by jury.


Dated: August 31, 2021		MELWANI & CHAN LLP

	By:	/s/ Gloria Kui Melwani
		Gloria Kui Melwani
		1180 Avenue ofthe Americas, 8th Fl.
		New York, NY 10036
		Telephone: (212) 382-4620
		Email: gloria@melwanichan.com

		Attorneys for Plaintiff

EX-99.2 3 d219694dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 1 of 10

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK


MATTHEW HOPKINS,	)
	)
Plaintiff,	)
	)	Case No.
v.	)
	)	JURY TRIAL DEMANDED
CAPSTEAD MORTGAGE	)
CORPORATION, PAT AUGUSTINE, JACK	)
E. BIEGLER, MICHELLE P. GOOLSBY,	)
GARY KEISER, CHRISTOPHER W.	)
MAHOWALD, MICHAEL G. O’NEIL,	)
PHILIP A. REINSCH, MARK S. WHITING,	)
BENEFIT STREET PARTNERS REALTY	)
TRUST, INC., RODEO SUB I, LLC, and	)
BENEFIT STREET PARTNERS L.L.C.,	)
	)
Defendants.	)

COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934

Plaintiff, by his undersigned attorneys, for this complaint against defendants, alleges upon personal knowledge with respect to himself, and upon information and belief based upon, inter alia, the investigation of counsel as to all other allegations herein, as follows:

NATURE OF THE ACTION

1. This action stems from a proposed transaction announced on July 26, 2021 (the “Proposed Transaction”), pursuant to which Capstead Mortgage Corporation (“Capstead” or the “Company”) will merge with Benefit Street Partners Realty Trust, Inc. (“Parent”), Rodeo Sub I, LLC (“Merger Sub”), and Benefit Street Partners L.L.C. (“Parent Manager,” and together with Parent and Merger Sub, “BSPRT”).

2. On July 25, 2021, Capstead’s Board of Directors (the “Board” or “Individual Defendants”) caused the Company to enter into an agreement and plan of merger (the “Merger Agreement”) with BSPRT. Pursuant to the terms of the Merger Agreement, Capstead’s stockholders will receive a number of shares of BSPRT’s common stock and cash per share.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 2 of 10

3. On August 20, 2021, defendants filed a Form S-4 Registration Statement (the “Registration Statement”) with the United States Securities and Exchange Commission (“SEC”) in connection with the Proposed Transaction.

4. The Registration Statement omits material information with respect to the Proposed Transaction, which renders the Registration Statement false and misleading. Accordingly, plaintiff alleges herein that defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “1934 Act”) in connection with the Registration Statement.

JURISDICTION AND VENUE

5. This Court has jurisdiction over the claims asserted herein pursuant to Section 27 of the 1934 Act because the claims asserted herein arise under Sections 14(a) and 20(a) of the 1934 Act and Rule 14a-9.

6. This Court has jurisdiction over defendants because each defendant is either a corporation that conducts business in and maintains operations within this District, or is an individual with sufficient minimum contacts with this District so as to make the exercise of jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.

7. Venue is proper under 28 U.S.C. § 1391(b) because a portion of the transactions and wrongs complained of herein occurred in this District.

PARTIES

8. Plaintiff is, and has been continuously throughout all times relevant hereto, the owner of Capstead common stock.

9. Defendant Capstead is a Maryland corporation and a party to the Merger Agreement. Capstead’s common stock is traded on the New York Stock Exchange, which is headquartered in New York, New York, under the ticker symbol “CMO.”

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 3 of 10

10. Defendant Pat Augustine is a director of the Company.

11. Defendant Jack E. Biegler is a director of the Company.

12. Defendant Michelle P. Goolsby is a director of the Company.

13. Defendant Gary Keiser is a director of the Company.

14. Defendant Christopher W. Mahowald is Chairman of the Board of the Company.

15. Defendant Michael G. O’Neil is a director of the Company.

16. Defendant Phillip A. Reinsch is President, Chief Executive Officer, and a director of the Company.

17. Defendant Mark S. Whiting is a director of the Company.

18. The defendants identified in paragraphs 10 through 18 are collectively referred to herein as the “Individual Defendants.”

19. Defendant Parent is a Maryland corporation and a party to the Merger Agreement.

20. Defendant Merger Sub is a Maryland limited liability company, a wholly-owned subsidiary of Parent, and a party to the Merger Agreement.

21. Defendant Parent Manager is a Delaware limited liability company and a party to the Merger Agreement.

SUBSTANTIVE ALLEGATIONS

Background of the Company and the Proposed Transaction

22. Capstead is a mortgage REIT that earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 4 of 10

23. On July 25, 2021, Capstead’s Board caused the Company to enter into the Merger Agreement with BSPRT.

24. Pursuant to the terms of the Merger Agreement, Capstead’s stockholders will receive a number of shares of BSPRT’s common stock and cash per share.

25. According to the press release announcing the Proposed Transaction:

Benefit Street Partners Realty Trust, Inc. (“BSPRT”), a publicly-registered, non-listed real estate investment trust (“REIT”), and Capstead Mortgage Corporation (NYSE: CMO) (“Capstead”), a REIT, today announced they have entered into a definitive merger agreement. Under the terms of the agreement, Capstead common stockholders will receive a cash payment equal to a 15.75% premium to Capstead’s diluted book value per share and shares of BSPRT common stock calculated on an adjusted “book-for-book” basis. The book values for Capstead and BSPRT used to calculate the cash consideration and exchange ratio will be set on a date prior to the closing of the transaction. Based on the June 30 adjusted book values per share,1 the implied cash payment would be $0.99 per share and the total value would be $7.30 per share, representing an implied 20% premium to the last reported sale price of Capstead common stock on the New York Stock Exchange (“NYSE”) on July 23, 2021.

The combined company, to be called “Franklin BSP Realty Trust” post-close, will transition the capital base of Capstead, a residential mortgage REIT, into commercial mortgage loans where BSPRT is focused. BSPRT’s external manager, Benefit Street Partners L.L.C. (“BSP”), a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), will manage the combined company following the completion of the transaction. Upon closing the transaction, which is expected in the fourth quarter of 2021, the combined company will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity and its common stock will trade on the NYSE under the new ticker symbol FBRT. . . .

Approvals

The transaction has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including the approval of Capstead’s stockholders.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 5 of 10

Advisors

Credit Suisse is serving as financial advisor and Hunton Andrews Kurth LLP is serving as legal advisor to Capstead. Houlihan Lokey served as lead financial advisor, and Barclays served as financial advisor, to BSPRT. Hogan Lovells US LLP served as legal advisor to BSPRT.

The Registration Statement Omits Material Information, Rendering It False and Misleading

26. Defendants filed the Registration Statement with the SEC in connection with the Proposed Transaction.

27. As set forth below, the Registration Statement omits material information.

28. First, the Registration Statement omits material information regarding the Company’s and BSPRT’s financial projections.

29. The Registration Statement fails to disclose: (i) all line items used to calculate the projections; and (ii) a reconciliation of all non-GAAP to GAAP metrics.

30. The disclosure of projected financial information is material because it provides stockholders with a basis to project the future financial performance of a company, and allows stockholders to better understand the financial analyses performed by the company’s financial advisor in support of its fairness opinion.

31. Second, the Registration Statement omits material information regarding the analyses performed by the Company’s financial advisor, Credit Suisse.

32. With respect to Credit Suisse’s Selected Precedent Transactions Analysis, the Registration Statement fails to disclose: (i) the closing dates for the transactions; and (ii) the total values of the transactions.

33. With respect to Credit Suisse’s Dividend Discount Analysis of Capstead, the Registration Statement fails to disclose: (i) the terminal values; (ii) Credit Suisse’s basis for applying the range of multiples used in the analysis; and (iii) the individual inputs and assumptions underlying the discount rates.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 6 of 10

34. With respect to Credit Suisse’s Dividend Discount Analysis of BSPRT, the Registration Statement fails to disclose: (i) the terminal values; (ii) Credit Suisse’s basis for applying the range of multiples used in the analysis; and (iii) the individual inputs and assumptions underlying the discount rates.

35. With respect to Credit Suisse’s Analyst Price Targets analysis, the Registration Statement fails to disclose: (i) the price targets observed in the analysis; and (ii) the sources thereof.

36. When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed.

37. Third, the Registration Statement fails to disclose the timing and nature of any past services Credit Suisse provided for BSPRT or its affiliates, and the amount of compensation received for providing the services.

38. The omission of the above-referenced material information renders the Registration Statement false and misleading.

39. The above-referenced omitted information, if disclosed, would significantly alter the total mix of information available to the Company’s stockholders.

COUNT I

Claim for Violation of Section 14(a) of the 1934 Act and Rule 14a-9 Promulgated

Thereunder Against the Individual Defendants and Capstead

40. Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.

41. The Individual Defendants disseminated the false and misleading Registration Statement, which contained statements that, in violation of Section 14(a) of the 1934 Act and Rule 14a-9, in light of the circumstances under which they were made, omitted to state material facts necessary to make the statements therein not materially false or misleading. Capstead is liable as the issuer of these statements.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 7 of 10

42. The Registration Statement was prepared, reviewed, and/or disseminated by the Individual Defendants. By virtue of their positions within the Company, the Individual Defendants were aware of this information and their duty to disclose this information in the Registration Statement.

43. The Individual Defendants were at least negligent in filing the Registration Statement with these materially false and misleading statements.

44. The omissions and false and misleading statements in the Registration Statement are material in that a reasonable stockholder will consider them important in deciding how to vote on the Proposed Transaction. In addition, a reasonable investor will view a full and accurate disclosure as significantly altering the total mix of information made available in the Registration Statement and in other information reasonably available to stockholders.

45. The Registration Statement is an essential link in causing plaintiff to approve the Proposed Transaction.

46. By reason of the foregoing, defendants violated Section 14(a) of the 1934 Act and Rule 14a-9 promulgated thereunder.

47. Because of the false and misleading statements in the Registration Statement, plaintiff is threatened with irreparable harm.

COUNT II

Claim for Violation of Section 20(a) of the 1934 Act

Against the Individual Defendants and BSPRT

48. Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 8 of 10

49. The Individual Defendants and BSPRT acted as controlling persons of Capstead within the meaning of Section 20(a) of the 1934 Act as alleged herein. By virtue of their positions as officers and/or Board members of Capstead and participation in and/or awareness of the Company’s operations and/or intimate knowledge of the false statements contained in the Registration Statement, they had the power to influence and control and did influence and control, directly or indirectly, the decision making of the Company, including the content and dissemination of the various statements that plaintiff contends are false and misleading.

50. Each of the Individual Defendants and BSPRT was provided with or had unlimited access to copies of the Registration Statement alleged by plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause them to be corrected.

51. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had the power to control and influence the particular transactions giving rise to the violations as alleged herein, and exercised the same. The Registration Statement contains the unanimous recommendation of the Individual Defendants to approve the Proposed Transaction. They were thus directly involved in the making of the Registration Statement.

52. BSPRT also had supervisory control over the composition of the Registration Statement and the information disclosed therein, as well as the information that was omitted and/or misrepresented in the Registration Statement.

53. By virtue of the foregoing, the Individual Defendants and BSPRT violated Section 20(a) of the 1934 Act.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 9 of 10

54. As set forth above, the Individual Defendants and BSPRT had the ability to exercise control over and did control a person or persons who have each violated Section 14(a) of the 1934 Act and Rule 14a-9, by their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the 1934 Act. As a direct and proximate result of defendants’ conduct, plaintiff is threatened with irreparable harm.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for judgment and relief as follows:

A. Preliminarily and permanently enjoining defendants and all persons acting in concert with them from proceeding with, consummating, or closing the Proposed Transaction;

B. In the event defendants consummate the Proposed Transaction, rescinding it and setting it aside or awarding rescissory damages;

C. Directing the Individual Defendants to disseminate a Registration Statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading;

D. Declaring that defendants violated Sections 14(a) and/or 20(a) of the 1934 Act, as well as Rule 14a-9 promulgated thereunder;

E. Awarding plaintiff the costs of this action, including reasonable allowance for plaintiff’s attorneys’ and experts’ fees; and

F. Granting such other and further relief as this Court may deem just and proper.

JURY DEMAND

Plaintiff hereby requests a trial by jury on all issues so triable.

Case 1:21-cv-07369 Document 1 Filed 09/01/21 Page 10 of 10


Dated: September 1, 2021		RIGRODSKY LAW, P.A.

	By:	/s/ Gina M. Serra
		Seth D. Rigrodsky
		Timothy J. MacFall
		Gina M. Serra
		Vincent A. Licata
		825 East Gate Boulevard, Suite 300
		Garden City, NY 11530
		(516) 683-3516
		sdr@rl-legal.com
		tjm@rl-legal.com
		gms@rl-legal.com
		vl@rl-legal.com

		Attorneys for Plaintiff

EX-99.3 4 d219694dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 1 of 14 PageID #: 1

Daniel Sadeh, Esq.

HALPER SADEH LLP

667 Madison Avenue, 5th Floor

New York, NY 10065

Telephone: (212) 763-0060

Facsimile: (646) 776-2600

Email: sadeh@halpersadeh.com

Counsel for Plaintiff

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK


BRYAN HARRINGTON,		Case No:

Plaintiff,		JURY TRIAL DEMANDED

v.

CAPSTEAD MORTGAGE
CORPORATION, PAT AUGUSTINE,
JACK E. BIEGLER, MICHELLE P.
GOOLSBY, GARY KEISER,
CHRISTOPHER W. MAHOWALD,
MICHAEL G. O’NEIL, PHILLIP A.
REINSCH, and MARK S. WHITING,

Defendants.

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

Plaintiff Bryan Harrington (“Plaintiff”), by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against Defendants (defined below), alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and upon information and belief as to all other matters, based upon, inter alia, the investigation conducted by and through Plaintiff’s attorneys.

NATURE OF THE ACTION

1. This is an action against Capstead Mortgage Corporation (“Capstead” or the “Company”) and its Board of Directors (the “Board” or the “Individual Defendants”) for their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a) and 78t(a), and Rule 14a-9 promulgated thereunder by the SEC, 17 C.F.R. § 240.14a-9, in connection with the proposed merger (the “Proposed Transaction”) of Capstead and Benefit Street Partners Realty Trust, Inc. (“Benefit Street Partners”).

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 2 of 14 PageID #: 2

JURISDICTION AND VENUE

2. The claims asserted herein arise under and pursuant to Sections 14(a) and 20(a) of the Exchange Act (15 U.S.C. §§ 78n(a) and 78t(a)) and Rule 14a-9 promulgated thereunder by the SEC (17 C.F.R. § 240.14a-9).

3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

4. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)) as a substantial portion of the transactions and wrongs complained of herein had an effect in this District, the alleged misstatements entered and the subsequent damages occurred in this District, and the combined company will be headquartered in New York City.

5. In connection with the acts, conduct and other wrongs alleged in this complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mails, interstate telephone communications and the facilities of the national securities exchange.

PARTIES

6. Plaintiff is, and has been at all relevant times hereto, an owner of Capstead common stock.

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7. Defendant Capstead operates as a real estate investment trust in the United States. The Company is incorporated in Maryland. The Company’s common stock trades on the New York Stock Exchange under the ticker symbol, “CMO.” 8. Defendant Pat Augustine (“Augustine”) is a director of the Company.

9. Defendant Jack E. Biegler (“Biegler”) is a director of the Company.

10. Defendant Michelle P. Goolsby (“Goolsby”) is a director of the Company.

11. Defendant Gary Keiser (“Keiser”) is a director of the Company.

12. Defendant Christopher W. Mahowald (“Mahowald”) is Chairman of the Board of the Company.

13. Defendant Michael G. O’Neil (“O’Neil”) is a director of the Company.

14. Defendant Phillip A. Reinsch (“Reinsch”) is President, Chief Executive Officer, and a director of the Company.

15. Defendant Mark S. Whiting (“Whiting”) is a director of the Company.

16. Defendants Augustine, Biegler, Goolsby, Keiser, Mahowald, O’Neil, Reinsch, and Whiting are collectively referred to herein as the “Individual Defendants.”

17. Defendants Capstead and the Individual Defendants are collectively referred to herein as the “Defendants.”

SUBSTANTIVE ALLEGATIONS

A. The Proposed Transaction

18. On July 26, 2021, Capstead and Benefit Street Partners announced that they had entered into a definitive merger agreement. The press release announcing the Proposed Transaction states, in pertinent part:

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 4 of 14 PageID #: 4

Benefit Street Partners Realty Trust and Capstead Mortgage Corporation to Merge

Combined company, Franklin BSP Realty Trust, to become fourth largest commercial mortgage REIT

July 26, 2021 07:30 AM Eastern Daylight Time

NEW YORK & DALLAS—(BUSINESS WIRE)—Benefit Street Partners Realty Trust, Inc. (“BSPRT”), a publicly-registered, non-listed real estate investment trust (“REIT”), and Capstead Mortgage Corporation (NYSE: CMO) (“Capstead”), a REIT, today announced they have entered into a definitive merger agreement. Under the terms of the agreement, Capstead common stockholders will receive a cash payment equal to a 15.75% premium to Capstead’s diluted book value per share and shares of BSPRT common stock calculated on an adjusted “book-for-book” basis. The book values for Capstead and BSPRT used to calculate the cash consideration and exchange ratio will be set on a date prior to the closing of the transaction. Based on the June 30 adjusted book values per share,¹ the implied cash payment would be $0.99 per share and the total value would be $7.30 per share, representing an implied 20% premium to the last reported sale price of Capstead common stock on the New York Stock Exchange (“NYSE”) on July 23, 2021. The combined company, to be called “Franklin BSP Realty Trust” post-close, will transition the capital base of Capstead, a residential mortgage REIT, into commercial mortgage loans where BSPRT is focused. BSPRT’s external manager, Benefit Street Partners L.L.C. (“BSP”), a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), will manage the combined company following the completion of the transaction. Upon closing the transaction, which is expected in the fourth quarter of 2021, the combined company will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity and its common stock will trade on the NYSE under the new ticker symbol FBRT.

* * *

External manager BSP will fund approximately $75 million of the cash merger consideration to be paid for each share of Capstead common stock. The remaining cash consideration will be funded by BSPRT, which will also issue shares of the combined company’s common stock for each share of Capstead common stock based on an adjusted book-for-book exchange. The merger will be a taxable transaction for U.S. federal income tax purposes.

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In addition to the above consideration, BSPRT will assume Capstead’s $100 million in unsecured borrowings maturing in 2035 and 2036 and $258 million of issued and outstanding 7.50% Series E cumulative redeemable preferred stock, which will be exchanged for new preferred shares of the combined company with the same terms.

The transaction has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including the approval of Capstead’s stockholders.

* * *

About Capstead

Formed in 1985 and based in Dallas, Texas, Capstead is a mortgage REIT that earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

About Benefit Street Partners Realty Trust

Benefit Street Partners Realty Trust, Inc. (“BSPRT”) is a publicly-registered, private real estate investment trust that originates, acquires and manages a diversified portfolio of commercial real estate debt secured by properties located in the United States. As of June 30, 2021, BSPRT had over $3 billion of assets. BSPRT is externally managed by Benefit Street Partners L.L.C. For further information, please visit www.bsprealtytrust.com.

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 6 of 14 PageID #: 6

About Benefit Street Partners

Benefit Street Partners L.L.C. (“BSP”) is a leading credit-focused alternative asset management firm with over $32 billion in assets under management as of June 30, 2021. BSP manages assets across a broad range of complementary credit strategies, including private/opportunistic debt, structured credit, high yield, special situations, and commercial real estate. Based in New York, the BSP platform was established in 2008. BSP is a wholly owned subsidiary of Franklin Templeton. For further information, please visit www.benefitstreetpartners.com.

About Franklin Templeton

Franklin Resources, Inc. (NYSE:BEN) is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company brings extensive capabilities in equity, fixed income, multi-asset solutions and alternatives. With offices in more than 30 countries and approximately 1,300 investment professionals, the California-based company has over 70 years of investment experience and over $1.5 trillion in assets under management as of June 30, 2021. For more information, please visit franklinresources.com.

19. On September 7, 2021, the Company filed a Schedule 14A Definitive Proxy Statement under Section 14(a) of the Exchange Act (the “Proxy Statement”) with the SEC in connection with the Proposed Transaction.

B. The Proxy Statement Contains Materially False and Misleading Statements and Omissions

20. The Proxy Statement, which recommends that Capstead shareholders vote in favor of the Proposed Transaction, omits and/or misrepresents material information concerning: (i) Capstead’s and Benefit Street Partners’ financial projections; (ii) the financial analyses performed by Capstead’s financial advisor, Credit Suisse Securities (USA) LLC (“Credit Suisse”), in connection with its fairness opinion; and (iii) potential conflicts of interest involving Credit Suisse.

21. The omission of the material information (referenced below) renders the following sections of the Proxy Statement false and misleading, among others: (i) Recommendation of the Capstead Board and Its Reasons for the Merger; (ii) Opinion of Capstead’s Financial Advisor, Credit Suisse Securities (USA) LLC; (iii) Certain BSPRT Unaudited Prospective Financial Information; and (iv) Certain Capstead Unaudited Prospective Financial Information.

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22. Unless and until the material misstatements and omissions (referenced below) are remedied before the October 15, 2021 shareholder vote on the Proposed Transaction, Capstead shareholders will be forced to make a voting decision on the Proposed Transaction without full disclosure of all material information. In the event the Proposed Transaction is consummated, Plaintiff may seek to recover damages resulting from Defendants’ misconduct.

1. Material Omissions Concerning Capstead’s and Benefit Street Partners’ Financial Projections

23. The Proxy Statement omits material information concerning Capstead’s and Benefit Street Partners’ financial projections.

24. With respect to the “Capstead Projections” and “BSPRT Projections,” the Proxy Statement fails to disclose: (1) all line items underlying the projections; and (2) a reconciliation of all non-GAAP to GAAP metrics.

25. The disclosure of this information is material because it would provide the Company’s shareholders with a basis to project the future financial performance of the Company and combined company and would allow shareholders to better understand the financial analyses performed by the Company’s financial advisor in support of its fairness opinion. Shareholders cannot hope to replicate management’s inside view of the future prospects of the Company. Without such information, which is uniquely possessed by Defendant(s) and the Company’s financial advisor, the Company’s shareholders are unable to determine how much weight, if any, to place on the Company’s financial advisor’s fairness opinion in determining whether to vote for or against the Proposed Transaction.

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 8 of 14 PageID #: 8

26. When a company discloses non-GAAP financial metrics in a Proxy Statement that were relied upon by its board of directors in recommending that shareholders exercise their corporate suffrage rights in a particular manner, the company must also disclose, pursuant to SEC Regulation G, all projections and information necessary to make the non-GAAP metrics not misleading, and must provide a reconciliation (by schedule or other clearly understandable method) of the differences between the non-GAAP financial metrics disclosed or released with the most comparable financial metrics calculated and presented in accordance with GAAP. 17 C.F.R. § 244.100.1

27. The above-referenced omitted information, if disclosed, would significantly alter the total mix of information available to the Company’s shareholders.

2. Material Omissions Concerning Credit Suisse’s Analyses

28. In connection with the Proposed Transaction, the Proxy Statement omits material information concerning analyses performed by Credit Suisse.

29. With respect to Credit Suisse’s “Selected Public Companies Analysis” of Benefit Street Partners, the Proxy Statement fails to disclose Benefit Street Partners’ reported tangible book value per share (“TBVPS”).

30. The Proxy Statement fails to disclose the following concerning Credit Suisse’s “Selected Precedent Transactions Analysis”: (1) the closing dates for each transaction; and (2) the value of each transaction.

31. The Proxy Statement fails to disclose the following concerning Credit Suisse’s

Mary Jo White, Keynote Address, International Corporate Governance Network Annual Conference: Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability (June 27, 2016), https://www.sec.gov/news/speech/chair-white-icgn-speech.html (footnotes omitted) (last visited Sept. 11, 2021) (“And last month, the staff issued guidance addressing a number of troublesome practices which can make non-GAAP disclosures misleading: the lack of equal or greater prominence for GAAP measures; exclusion of normal, recurring cash operating expenses; individually tailored non-GAAP revenues; lack of consistency; cherry-picking; and the use of cash per share data. I strongly urge companies to carefully consider this guidance and revisit their approach to non-GAAP disclosures.”).

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 9 of 14 PageID #: 9

“Dividend Discount Analysis” of Capstead: (1) the distributed cash flows that Capstead was forecasted to generate during the third and fourth quarters of Capstead’s fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, and all underlying line items; (2) the terminal values for Capstead; and (3) the individual inputs and assumptions underlying the (i) range of price/TBVPS multiples of 0.90x to 1.05x, and (ii) range of discount rates of 9.0% to 13.0%.

32. The Proxy Statement fails to disclose the following concerning Credit Suisse’s “Dividend Discount Analysis” of Benefit Street Partners: (1) the distributed cash flows that Benefit Street Partners was forecasted to generate during the third and fourth quarters of Benefit Street Partners’ fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, and all underlying line items; (2) the terminal values for Benefit Street Partners; and (3) the individual inputs and assumptions underlying the (i) range of price/TBVPS multiples of 0.95x to 1.20x, and (ii) range of discount rates of 8.0% to 14.0%.

33. The Proxy Statement fails to disclose the following concerning Credit Suisse’s “Analyst Price Targets” analysis: (1) the individual price targets observed by Credit Suisse in its analysis; and (2) the sources thereof.

34. The valuation methods, underlying assumptions, and key inputs used by Credit Suisse in rendering its purported fairness opinion must be fairly disclosed to Capstead shareholders. The description of Credit Suisse’s fairness opinion and analyses, however, fails to include key inputs and assumptions underlying those analyses. Without the information described above, Capstead shareholders are unable to fully understand Credit Suisse’s fairness opinion and analyses, and are thus unable to determine how much weight, if any, to place on them in determining whether to vote for or against the Proposed Transaction. This omitted information, if disclosed, would significantly alter the total mix of information available to the Company’s shareholders.

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 10 of 14 PageID #: 10

3. Material Omissions Concerning Potential Conflicts of Interest Involving Credit Suisse

35. The Proxy Statement omits material information concerning potential conflicts of interest involving Credit Suisse.

36. The Proxy Statement fails to disclose the timing and nature of the past services Credit Suisse and/or its affiliates provided Benefit Street Partners and/or its affiliates, including the amount of compensation Credit Suisse received or expects to receive for providing each service.

37. Disclosure of a financial advisor’s compensation and potential conflicts of interest to shareholders is required due to their central role in the evaluation, exploration, selection, and implementation of strategic alternatives and the rendering of any fairness opinions. Disclosure of a financial advisor’s potential conflicts of interest may inform shareholders on how much weight to place on that analysis.

38. The omission of the above-referenced information renders the Proxy Statement materially incomplete and misleading. This information, if disclosed, would significantly alter the total mix of information available to the Company’s shareholders.

COUNT I

For Violations of Section 14(a) and Rule 14a-9 Promulgated Thereunder

Against All Defendants

39. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.

40. During the relevant period, Defendants, individually and in concert, directly or indirectly, disseminated or approved the false and misleading Proxy Statement specified above, which failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by the SEC.

Case 1:21-cv-05080 Document 1 Filed 09/11/21 Page 11 of 14 PageID #: 11

41. Each of the Individual Defendants, by virtue of his/her positions within the Company as officers and/or directors, were aware of the omitted information but failed to disclose such information, in violation of Section 14(a) of the Exchange Act. Defendants, by use of the mails and means and instrumentalities of interstate commerce, solicited and/or permitted the use of their names to file and disseminate the Proxy Statement with respect to the Proposed Transaction. The Defendants were, at minimum, negligent in filing the materially false and misleading Proxy Statement.

42. The false and misleading statements and omissions in the Proxy Statement are material in that a reasonable shareholder would consider them important in deciding how to vote on the Proposed Transaction.

43. By reason of the foregoing, Defendants have violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder.

44. Because of the false and misleading statements and omissions in the Proxy Statement, Plaintiff is threatened with irreparable harm.

COUNT II

Violations of Section 20(a) of the Exchange Act

Against the Individual Defendants

45. Plaintiff repeats and realleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein.

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46. The Individual Defendants acted as control persons of the Company within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their senior positions as officers and/or directors of the Company and participation in and/or awareness of the Company’s operations and/or intimate knowledge of the false statements contained in the Proxy Statement filed with the SEC, they had the power to and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the false and misleading Proxy Statement.

47. Each of the Individual Defendants was provided with or had unlimited access to copies of the Proxy Statement and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected. As officers and/or directors of a publicly owned company, the Individual Defendants had a duty to disseminate accurate and truthful information with respect to the Proxy Statement, and to correct promptly any public statements issued by the Company which were or had become materially false or misleading.

48. In particular, each of the Individual Defendants had direct and supervisory involvement in the operations of the Company, and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. The Individual Defendants were provided with or had unlimited access to copies of the Proxy Statement and had the ability to prevent the issuance of the statements or to cause the statements to be corrected. The Proxy Statement at issue contains the recommendation of the Individual Defendants to approve the Proposed Transaction. Thus, the Individual Defendants were directly involved in the making of the Proxy Statement.

49. In addition, as the Proxy Statement sets forth at length, and as described herein, the Individual Defendants were involved in negotiating, reviewing, and approving the Proposed Transaction. The Proxy Statement purports to describe the various issues and information that they reviewed and considered—descriptions which had input from the Individual Defendants.

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50. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of the Exchange Act.

51. As set forth above, the Individual Defendants had the ability to exercise control over and did control a person or persons who have each violated Section 14(a) and Rule 14a-9 promulgated thereunder, by their acts and omissions as alleged herein. By virtue of their positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Defendants’ conduct, the Company’s shareholders will be irreparably harmed.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for judgment and relief as follows:

A. Preliminarily and permanently enjoining Defendants and all persons acting in concert with them from proceeding with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until Defendants disclose and disseminate the material information identified above to Company shareholders;

B. In the event Defendants consummate the Proposed Transaction, rescinding it and setting it aside or awarding rescissory damages;

C. Declaring that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder;

D. Awarding Plaintiff reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and

E. Granting such other and further relief as the Court may deem just and proper.

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JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.


Dated: September 11, 2021		Respectfully submitted,

		HALPER SADEH LLP

		By: /s/ Daniel Sadeh
		Daniel Sadeh, Esq.
		Zachary Halper, Esq. (to be admitted pro hac
		vice)
		667 Madison Avenue, 5th Floor
		New York, NY 10065
		Telephone: (212) 763-0060
		Facsimile: (646) 776-2600
		Email: sadeh@halpersadeh.com
		zhalper@halpersadeh.com

		Counsel for Plaintiff

EX-99.4 5 d219694dex994.htm EX-99.4 EX-99.4

Exhibit 99.4

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 1 of 16

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK


RANDY GILL,
		Civil Action No.
Plaintiff,
		COMPLAINT FOR VIOLATIONS
v.		OF THE FEDERAL SECURITIES
		LAWS

CAPSTEAD MORTGAGE		JURY TRIAL DEMANDED
CORPORATION, PAT AUGUSTINE,
JACK E. BIEGLER, MICHELLE P.
GOOLSBY, GARY KEISER,
CHRISTOPHER W. MAHOWALD,
MICHAEL G. O’NEIL, PHILLIP A.
REINSCH, AND MARK S. WHITING,

Defendants.

Plaintiff Randy Gill (“Plaintiff”) by and through his undersigned attorneys, brings this action on behalf of himself, and alleges the following based upon personal knowledge as to those allegations concerning Plaintiff and, as to all other matters, upon the investigation of counsel, which includes, without limitation: (a) review and analysis of public filings made by Capstead Mortgage Corporation (“Capstead” or the “Company”) and other related parties and non-parties with the United States Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and other publications disseminated by certain of the Defendants (defined below) and other related non-parties; (c) review of news articles, shareholder communications, and postings on the Company’s website concerning the Company’s public statements; and (d) review of other publicly available information concerning Capstead and the Defendants.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 2 of 16

SUMMARY OF THE ACTION

1. This is an action brought by Plaintiff against Capstead and the Company’s Board of Directors (the “Board” or the “Individual Defendants”) for their violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934, 15.U.S.C. §§ 78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. 240.14a-9, in connection with the proposed transaction (the “Proposed Transaction”) between the Company and Benefit Street Partners Realty Trust (“BSPRT”).

2. On July 25, 2021, and as amended September 22, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BSPRT. Pursuant to the terms of the Merger Agreement, Rodeo Sub I, LLC, a wholly owned subsidiary of BSPRT (“Merger Sub”), will merge with and into Capstead with Merger Sub continuing as the surviving company. Upon completion of the merger, BSPRT will change its name to “Franklin BSP Realty Trust, Inc.” As a consequence of the merger, the Company’s shareholders will receive: (i) a cash payment equal to a 15.75% premium to Capstead’s diluted book value per share, and (ii) shares of BSPRT common stock calculated on an adjusted “book-for-book” basis, to be calculated on a date prior to the closing of the Proposed Transaction (the “Merger Consideration”).

3. On September 7, 2021, in order to convince the Company’s shareholders to vote in favor of the Proposed Transaction, the Board authorized the filing of a materially incomplete and misleading proxy statement with the SEC (the “Proxy Statement”), in violation of Sections 14(a) and 20(a) of the Exchange Act.

4. For these reasons, and as set forth in detail herein, Plaintiff asserts claims against Capstead and the Board for violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9. Plaintiff seeks to enjoin Defendants from taking any steps to consummate the Proposed Transaction unless and until the material information discussed below is disclosed to Capstead shareholders before the vote on the Proposed Transaction or, in the event the Proposed Transaction is consummated, recover damages resulting from the Defendants’ violations of the Exchange Act.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 3 of 16

JURISDICTION AND VENUE

5. This Court has subject matter jurisdiction over all claims asserted herein pursuant to Section 27 of the Exchange Act, 15 U.S.C § 78aa, and 28 U.S.C. § 1331, as Plaintiff alleges violations of Sections 14(a) and 20(a) of the Exchange Act.

6. This Court has personal jurisdiction over all of the Defendants because each is either a corporation that conducts business in, solicits shareholders in, and/or maintains operations within, this District, or is an individual who is either present in this District for jurisdictional purposes or has sufficient minimum contacts with this District so as to make the exercise of jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.

7. Venue is proper under 28 U.S.C. § 1391 because a substantial portion of the transactions and wrongs complained of herein occurred in this District.

THE PARTIES

8. Plaintiff is, and has been at all times relevant hereto, the owner of Capstead shares.

9. Defendant Capstead is incorporated under the laws of Maryland and has its principal executive offices located at 8401 N. Central Expressway, Suite 800, Dallas, Texas 75225. The Company’s common stock trades on the New York Stock Exchange under the symbol “CMO.”

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 4 of 16

10. Defendant Pat Augustine (“Augustine”) is and has been a Capstead director at all times during the relevant time period.

11. Defendant Jack E. Biegler (“Biegler”) is and has been a Capstead director at all times during the relevant time period.

12. Defendant Michelle P. Goolsby (“Goolsby”) is and has been a Capstead director at all times during the relevant time period.

13. Defendant Gary Keiser (“Keiser”) is and has been a Capstead director at all times during the relevant time period.

14. Defendant Christopher W. Mahowald (“Mahowald”) is and has been the Chairman of the Board of Capstead at all times during the relevant time period.

15. Defendant Michael G. O’Neil (“O’Neil”) is and has been a Capstead director at all times during the relevant time period.

16. Defendant Phillip A. Reinsch (“Reinsch”) is and has been the President, Chief Executive Officer (“CEO”), and a director of Capstead at all times during the relevant time period.

17. Defendant Mark S. Whiting (“Whiting”) is and has been a Capstead director at all times during the relevant period.

18. Defendants Augustine, Biegler, Goolsby, Keiser, Mahowald, O’Neil, Reinsch, and Whiting are collectively referred to herein as the “Individual Defendants.”

19. The Individual Defendants, along with Defendant Capstead, are collectively referred to herein as “Defendants.”

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 5 of 16

SUBSTANTIVE ALLEGATIONS

Background of the Company

20. Capstead is a mortgage REIT that earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

The Company Announces the Proposed Transaction

21. On July 26, 2021, the Company jointly issued a press release announcing the Proposed Transaction. The press release stated in part:

The combined company, to be called “Franklin BSP Realty Trust” post-close, will transition the capital base of Capstead, a residential mortgage REIT, into commercial mortgage loans where BSPRT is focused. BSPRT’s external manager, Benefit Street Partners L.L.C. (“BSP”), a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), will manage the combined company following the completion of the transaction. Upon closing the transaction, which is expected in the fourth quarter of 2021, the combined company will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity and its common stock will trade on the NYSE under the new ticker symbol FBRT.

Highlights of the Merger

•

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 6 of 16

•

Franklin BSP Realty Trust will be the 4th largest commercial mortgage REIT with nearly $2 billion of pro forma equity.

•

Franklin BSP Realty Trust will be publicly traded on the NYSE under the ticker FBRT, providing existing BSPRT stockholders greater access to liquidity.

•

A $100 million common stock repurchase program will be available post-closing to support the combined company’s common stock trading level.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 7 of 16

External manager BSP will fund approximately $75 million of the cash merger consideration to be paid for each share of Capstead common stock. The remaining cash consideration will be funded by BSPRT, which will also issue shares of the combined company’s common stock for each share of Capstead common stock based on an adjusted book-for-book exchange. The merger will be a taxable transaction for U.S. federal income tax purposes.

In addition to the above consideration, BSPRT will assume Capstead’s $100 million in unsecured borrowings maturing in 2035 and 2036 and $258 million of issued and outstanding 7.50% Series E cumulative redeemable preferred stock, which will be exchanged for new preferred shares of the combined company with the same terms.

The transaction has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including the approval of Capstead’s stockholders.

FALSE AND MISLEADING STATEMENTS

AND/OR MATERIAL OMISSIONS IN THE PROXY STATEMENT

22. On September 7, 2021, the Company authorized the filing of the Proxy Statement with the SEC. The Proxy Statement recommends that the Company’s shareholders vote in favor of the Proposed Transaction.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 8 of 16

23. Defendants were obligated to carefully review the Proxy Statement prior to its filing with the SEC and dissemination to the Company’s shareholders to ensure that it did not contain any material misrepresentations or omissions. However, the Proxy Statement misrepresents and/or omits material information that is necessary for the Company’s shareholders to make informed decisions regarding whether to vote in favor of the Proposed Transaction, in violation of Sections 14(a) and 20(a) of the Exchange Act.

Material False and Misleading Statements or Material

Misrepresentations or Omissions Regarding the Financial Projections

24. The Proxy Statement contains projections prepared by the Company’s and BSPRT’s management concerning the Proposed Transaction, but fails to provide material information concerning such.

25. The SEC has repeatedly emphasized that disclosure of non-GAAP projections can be inherently misleading, and has therefore heightened its scrutiny of the use of such projections.¹ Indeed, on May 17, 2016, the SEC’s Division of Corporation Finance released new and updated Compliance and Disclosure Interpretations (“C&DIs”) on the use of non-GAAP financial measures that demonstrate the SEC’s tightening policy.² One of the new C&DIs regarding forward-looking information, such as financial projections, explicitly requires companies to provide any reconciling metrics that are available without unreasonable efforts.

See, e.g., Nicolas Grabar and Sandra Flow, Non-GAAP Financial Measures: The SEC’s Evolving Views, Harvard Law School Forum on Corporate Governance and Financial Regulation (June 24, 2016), available at https://corpgov.law.harvard.edu/2016/06/24/non-gaap-financial-measuresthesecs evolving-views/; Gretchen Morgenson, Fantasy Math Is Helping Companies Spin Losses Into Profits, N.Y. Times, Apr. 22, 2016, available at http://www.nytimes.com/2016/04/24/business/fantasy-mathis-helping-companies-spin-ossesinto-profits.html?_r=0.

²	Non-GAAP Financial Measures, Compliance & Disclosure Interpretations, U.S. SECURITIES AND EXCHANGE COMMISSION (May 17, 2017), available at https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 9 of 16

26. In order to make management’s projections included in the Proxy Statement materially complete and not misleading, Defendants must provide a reconciliation table of the non-GAAP measures to the most comparable GAAP measures.

27. Specifically, with respect to the Company’s projections, the Company must disclose the line item projections for the financial metrics that were used to calculate the non-GAAP measures, including: (i) Diluted Core Earnings per Common Share.

28. With respect to BSPRT’s projection, BSPRT must disclose: (i) the projected distributed cash flows that BSPRT were forecasted to generate during the third and fourth quarters of fiscal year ending 2021 through the full fiscal year ending December 31, 2023; and (ii) BSPRT’s Book Value per Common Share, metrics used in Credit Suisse’s financial analyses.

29. Disclosure of the above information is vital to provide investors with the complete mix of information necessary to make an informed decision when voting on the Proposed Transaction. Specifically, the above information would provide shareholders with a better understanding of the analyses performed by the Company’s financial advisor in support of its opinion.

Material False and Misleading Statements or Material

Misrepresentations or Omissions Regarding the Sales Process

30. The Proxy Statement contains information concerning the background of the Proposed Transaction, but fails to disclose material information concerning such.

31. Specifically, the Proxy Statement fails to adequately disclose communications regarding post-transaction employment during the negotiation of the underlying transaction which must be disclosed to stockholders.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 10 of 16

32. Disclosure of the above information is vital to provide investors with the complete mix of information necessary to make an informed decision when voting on the Proposed Transaction.

Material False and Misleading Statements or Material

Misrepresentations or Omissions Regarding Credit Suisse’s Financial Opinion

33. The Proxy Statement contains the financial analyses and opinion of Credit Suisse Securities (USA) LLC (“Credit Suisse”) concerning the Proposed Transaction, but fails to provide material information concerning such.

34. With respect to Credit Suisse’s Selected Public Companies Analysis for BSPRT, the Proxy Statement fails to disclose BSPRT’s reported tangible book value per share (“TBVPS”).

35. With respect to Credit Suisse’s Dividend Discount Analysis for Capstead, the Proxy Statement fails to disclose: (i) Capstead’s terminal values; (ii) the inputs and assumptions underlying Credit Suisse’s use of the selected range of price/TBVPS multiples of 0.90x to 1.05x; and (iii) the inputs and assumptions underlying Credit Suisse’s selected range of discount rates of 9.0% to 13.0%.

36. With respect to Credit Suisse’s Dividend Discount Analysis for BSPRT, the Proxy Statement fails to disclose: (i) BSPRT’s terminal values; (ii) the inputs and assumptions underlying Credit Suisse’s selected range of price/TBVPS multiples of 0.95x to 1.20x; and (iii) the inputs and assumptions underlying Credit Suisse’s selected range of discount rates of 8.0% to 14.0%.

37. With respect to Credit Suisse’s Analyst Price Targets analysis, the Proxy Statement fails to disclose: (i) the analysts observed; and (ii) the corresponding price targets.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 11 of 16

38. When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed. Moreover, the disclosure of projected financial information is material because it provides shareholders with a basis to project the future financial performance of a company and allows shareholders to better understand the financial analyses performed by the Company’s financial advisor in support of its fairness opinion.

39. Without the above described information, the Company’s shareholders are unable to cast a fully informed vote on the Proposed Transactions. Accordingly, in order to provide shareholders with a complete mix of information, the omitted information described above should be disclosed.

COUNT I

(Against All Defendants for Violations of Section 14(a)

of the Exchange Act and Rule 14a-9 Promulgated Thereunder)

40. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.

41. Section 14(a)(1) of the Exchange Act makes it “unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 781 of this title.” 15 U.S.C. § 78n(a)(1).

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 12 of 16

42. Rule 14a-9, promulgated by the SEC pursuant to Section 14(a) of the Exchange Act, provides that communications with stockholders in a recommendation statement shall not contain “any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading.” 17 C.F.R. § 240.14a-9.

43. Defendants have issued the Proxy Statement with the intention of soliciting shareholders support for the Proposed Transaction. Each of the Defendants reviewed and authorized the dissemination of the Proxy Statement, which fails to provide critical information regarding, among other things, the financial projections for the Company.

44. In so doing, Defendants made untrue statements of fact and/or omitted material facts necessary to make the statements made not misleading. Each of the Defendants, by virtue of their roles as officers and/or directors, were aware of the omitted information but failed to disclose such information, in violation of Section 14(a). The Defendants were therefore negligent, as they had reasonable grounds to believe material facts existed that were misstated or omitted from the Proxy Statement, but nonetheless failed to obtain and disclose such information to shareholders although they could have done so without extraordinary effort.

45. The Defendants knew or were negligent in not knowing that the Proxy Statement is materially misleading and omits material facts that are necessary to render it not misleading. The Defendants undoubtedly reviewed and relied upon the omitted information identified above in connection with their decision to approve and recommend the Proposed Transaction.

46. The Defendants knew or were negligent in not knowing that the material information identified above has been omitted from the Proxy Statement, rendering the sections of the Proxy Statement identified above to be materially incomplete and misleading. Indeed, the Defendants were required to be particularly attentive to the procedures followed in preparing the Proxy Statement and review it carefully before it was disseminated, to corroborate that there are no material misstatements or omissions.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 13 of 16

47. The Defendants were, at the very least, negligent in preparing and reviewing the Proxy Statement. The preparation of a Proxy Statement by corporate insiders containing materially false or misleading statements or omitting a material fact constitutes negligence. The Defendants were negligent in choosing to omit material information from the Proxy Statement or failing to notice the material omissions in the Proxy Statement upon reviewing it, which they were required to do carefully as the Company’s directors. Indeed, the Defendants were intricately involved in the process leading up to the signing of the Merger Agreement and the preparation of the Company’s financial projections.

48. The misrepresentations and omissions in the Proxy Statement are material to Plaintiff, who will be deprived of his right to cast an informed vote if such misrepresentations and omissions are not corrected prior to the vote on the Proposed Transaction.

49. Plaintiff has no adequate remedy at law. Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected from the immediate and irreparable injury that Defendants’ actions threaten to inflict.

COUNT II

(Against the Individual Defendants for

Violations of Section 20(a) of the Exchange Act)

50. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.

51. The Individual Defendants acted as controlling persons of Capstead within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as officers and/or directors of Capstead, and participation in and/or awareness of the Company’s

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 14 of 16

operations and/or intimate knowledge of the incomplete and misleading statements contained in the Proxy Statement filed with the SEC, they had the power to influence and control and did influence and control, directly or indirectly, the decision making of the Company, including the content and dissemination of the various statements that Plaintiff contends are materially incomplete and misleading.

52. Each of the Individual Defendants was provided with, or had unlimited access to, copies of the Proxy Statement and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

53. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the Exchange Act violations alleged herein, and exercised the same. The Proxy Statement at issue contains the unanimous recommendation of each of the Individual Defendants to approve the Proposed Transaction. They were thus directly involved in preparing this document.

54. In addition, as set forth in the Proxy Statement at length and described herein, the Individual Defendants were involved in negotiating, reviewing, and approving the Merger Agreement. The Proxy Statement purports to describe the various issues and information that the Individual Defendants reviewed and considered. The Individual Defendants participated in drafting and/or gave their input on the content of those descriptions.

55. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of the Exchange Act.

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56. As set forth above, the Individual Defendants had the ability to exercise control over and did control a person or persons who have each violated Section 14(a) and Rule 14a-9 by their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of Individual Defendants’ conduct, Plaintiff will be irreparably harmed.

57. Plaintiff has no adequate remedy at law. Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected from the immediate and irreparable injury that Defendants’ actions threaten to inflict.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for judgment and relief as follows:

A. Preliminarily and permanently enjoining Defendants and all persons acting in concert with them from proceeding with, consummating, or closing the Proposed Transaction;

B. Directing the Individual Defendants to disseminate an Amendment to the Proxy Statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading;

C. Directing Defendants to account to Plaintiff for all damages sustained because of the wrongs complained of herein;

D. Awarding Plaintiff the costs of this action, including reasonable allowance for Plaintiff’s attorneys’ and experts’ fees; and

E. Granting such other and further relief as this Court may deem just and proper.

Case 1:21-cv-07973 Document 1 Filed 09/24/21 Page 16 of 16

JURY DEMAND

Plaintiff demands a trial by jury on all issues so triable.


Dated: September 24, 2021	Respectfully submitted,

	By:	/s/ Joshua M. Lifshitz
	Joshua M. Lifshitz
	Email: jml@jlclasslaw.com
	LIFSHITZ LAW FIRM, P.C.
	1190 Broadway,
	Hewlett, New York 11557
	Telephone: (516) 493-9780
	Facsimile: (516) 280-7376

	Attorneys for Plaintiff

EX-99.5 6 d219694dex995.htm EX-99.5 EX-99.5

Exhibit 99.5

Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 1 of 16


UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
	:
JORDAN WILSON,	:
	:	Case No.
Plaintiff,	:
	:
v.	:	COMPLAINT FOR VIOLATIONS OF
	:	THE FEDERAL SECURITIES LAWS
CAPSTEAD MORTGAGE CORPORATION,	:
PAT AUGUSTINE, JACK BIEGLER,	:
MICHELLE P. GOOLSBY, GARY KEISER,	:	JURY TRIAL DEMANDED
CHRISTOPHER W. MAHOWALD,	:
MICHAEL G. O’NEIL, PHILLIP A.	:
REINSCH, and MARK S. WHITING,	:
	:
Defendants.	:
	:
	:
	:

Plaintiff Jordan Wilson (“Plaintiff”), by and through his undersigned counsel, for his complaint against defendants, alleges upon personal knowledge with respect to himself, and upon information and belief based upon, inter alia, the investigation of counsel as to all other allegations herein, as follows:

NATURE AND SUMMARY OF THE ACTION

1. This action is brought by Plaintiff against Capstead Mortgage Corporation (“Capstead” or the “Company”) and the members of Capstead’s Board of Directors (the “Board” or the “Individual Defendants”) for their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9, and to enjoin the vote on a proposed transaction, pursuant to which Capstead will be acquired by Benefit Street Partners Realty Trust, Inc. (“BSPRT”) through BSPRT’s subsidiary Rodeo Sub I, LLC (“Merger Sub”) (the “Proposed Transaction”).

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2. On July 26, 2021, BSPRT and Capstead issued a joint press release announcing that they had entered into an Agreement and Plan of Merger dated July 25, 2021 (as amended on July 23, 2021, the “Merger Agreement”). Under the terms of the Merger Agreement, each Capstead shareholder will receive:

•

From BSPRT, (A) a number of shares of BSPRT’s common stock, equal to the quotient (rounded to the nearest one ten-thousandth) (the “Exchange Ratio”) determined by dividing (i) Capstead’s adjusted book value per share by (ii) BSPRT’s adjusted book value per share (the “Per Share Stock Consideration”), and (B) a cash amount equal to the product of (rounding to the nearest cent) (x) Capstead’s adjusted book value per share multiplied by 15.75%, multiplied by (y) 22.5%, without any interest thereon (the “Per Share Cash Consideration” and together with the Per Share Stock Consideration, the “Per Common Share BSPRT Consideration”); and

•

From BSPRT’s external manager, Benefit Street Partners L.L.C. (the “Parent Manager”), a cash amount equal to the product of (rounding to the nearest cent) (A) Capstead’s adjusted book value per share multiplied by 15.75%, multiplied by (B) 77.5%, without any interest thereon (the “Parent Manager Cash Consideration” and together with the Per Common Share BSPRT Consideration, the “Merger Consideration”).

3. On September 7, 2021, Capstead filed a Schedule 14A Definitive Proxy Statement (the “Proxy Statement”) with the SEC. The Proxy Statement, which recommends that Capstead stockholders vote in favor of the Proposed Transaction, omits or misrepresents material information concerning, among other things, the Company’s financial projections and the data and inputs underlying the financial valuation analyses that support the fairness opinion provided by the Company’s financial advisor, Credit Suisse Securities (USA) LLC (“Credit Suisse”). The failure to adequately disclose such material information constitutes a violation of Sections 14(a) and 20(a) of the Exchange Act as Capstead stockholders need such information in order to make a fully informed decision whether to vote in favor of the Proposed Transaction.

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4. In short, unless remedied, Capstead’s public stockholders will be forced to make a voting decision on the Proposed Transaction without full disclosure of all material information concerning the Proposed Transaction being provided to them. Plaintiff seeks to enjoin the stockholder vote on the Proposed Transaction unless and until such Exchange Act violations are cured.

JURISDICTION AND VENUE

5. This Court has jurisdiction over the claims asserted herein for violations of Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331 (federal question jurisdiction).

6. This Court has jurisdiction over the defendants because each defendant is either a corporation that conducts business in and maintains operations within this District, or is an individual with sufficient minimum contacts with this District so as to make the exercise of jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.

7. Venue is proper in this District pursuant to 28 U.S.C. § 1391 because defendants are found or are inhabitants or transact business in this District. Moreover, Capstead’s common stock trades on the New York Stock Exchange, which is headquartered in this District, rendering venue in this District appropriate.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 4 of 16

THE PARTIES

8. Plaintiff is, and has been at all times relevant hereto, a continuous stockholder of Capstead.

9. Defendant Capstead is a Maryland corporation, with its principal executive offices located at 8401 North Central Expressway, Suite 800, Dallas, Texas 75225. Capstead is a real estate investment trust (“REIT”) that earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities. Capstead’s shares trade on the New York Stock Exchange under the ticker symbol “CMO.”

10. Defendant Pat Augustine (“Augustine”) has been a director of the Company since August 2020.

11. Defendant Jack Biegler (“Biegler”) has been a director of the Company since June 2005.

12. Defendant Michelle P. Goolsby (“Goolsby”) has been a director of the Company since June 2012.

13. Defendant Gary Keiser (“Keiser”) has been a director of the Company since January 2004.

14. Defendant Christopher W. Mahowald (“Mahowald”) is Chairman of the Board and has been a director of the Company since June 2005.

15. Defendant Michael G. O’Neil (“O’Neil”) has been a director of the Company since April 2000.

16. Defendant Phillip A. Reinsch (“Reinsch”) has been President, Chief Executive Officer (“CEO”), and a director of the Company since July 2016. Defendant Reinsch also previously served as the Company’s Chief Financial Officer and Secretary from 2003 through October 2017.

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17. Defendant Mark Whiting (“Whiting”) has been a director of the Company since April 2000.

18. Defendants identified in paragraphs 10-17 are referred to herein as the “Board” or the “Individual Defendants.”

OTHER RELEVANT ENTITIES

19. BSPRT is a Maryland corporation with its principal executive offices located at 9 West 57th Street, Suite 4920, New York, New York 10019. BSPRT is a publicly-registered, private real estate investment trust that originates, acquires and manages a diversified portfolio of commercial real estate debt secured by properties located in the United States. As of June 30, 2021, BSPRT had over $3 billion of assets. BSPRT is externally managed by Benefit Street Partners L.L.C.

20. Merger Sub is a Maryland limited liability company and a wholly owned subsidiary of BSPRT.

SUBSTANTIVE ALLEGATIONS

Background of the Company

21. Incorporated in 1985, Capstead operates as a self-managed REIT for federal income tax purposes. Capstead’s investment strategy involves managing and earning a financing spread on a leveraged portfolio of residential mortgage pass-through securities currently consisting primarily of adjustable-rate mortgage (“ARM”) securities issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae. Together, these securities are referred to as “Agency Securities,” and are considered to have limited, if any, credit risk. This strategy differentiates Capstead from its peers because ARM loans underlying its investment portfolio can reset to more current interest rates within a relatively short period of time. This positions the Company to benefit from a potential recovery in financing spreads that typically contract during periods of rising interest rates and can result in smaller fluctuations in portfolio values compared to portfolios containing a significant amount of fixed-rate mortgage securities.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 6 of 16

22. On July 28, 2021, the Company announced its second quarter 2021 financial results. Capstead reported GAAP net income of $15.5 million or $0.11 per diluted common share for the quarter ended June 30, 2021. The Company reported core earnings of $13.8 million or $0.09 per diluted common share for the quarter ended June 30, 2021. Reflecting on the results and looking to the future, defendant Reinsch stated:

Our second quarter results were impacted by continued high mortgage prepayment rates and lower investment in the portfolio since last fall due in large part to unacceptably low projected risk-adjusted returns on new investments. During the current quarter, we replaced second quarter portfolio runoff at projected returns in the upper single digits due in large part to increases in ARM production even as mortgage prepayments remained elevated.

Interest rate volatility became more pronounced in June and into July as the markets digested prospects for inflation and the potential for a sooner than anticipated reduction in Federal Reserve monetary accommodation. Shorter-term rates increased and longer-term rates declined, flattening the yield curve back to February 2021 levels. Mortgage interest rates available to homeowners retraced much of the increase seen through April. This has increased prospects for future mortgage prepayments and has hindered pricing for residential mortgage securities, a negative for book values of residential mortgage REITs in general, including Capstead.

23. On September 16, 2021, the Company announced that the Board had declared a third quarter 2021 common dividend of $0.0725 per common share, payable on October 15, 2021 to common stockholders of record as of September 30, 2021.

The Proposed Transaction

24. On July 26, 2021, Capstead and BSPRT issued a joint press release announcing the Proposed Transaction, which states, in relevant part:

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 7 of 16

NEW YORK & DALLAS— Benefit Street Partners Realty Trust, Inc. (“BSPRT”), a publicly-registered, non-listed real estate investment trust (“REIT”), and Capstead Mortgage Corporation (NYSE: CMO) (“Capstead”), a REIT, today announced they have entered into a definitive merger agreement. Under the terms of the agreement, Capstead common stockholders will receive a cash payment equal to a 15.75% premium to Capstead’s diluted book value per share and shares of BSPRT common stock calculated on an adjusted “book-for-book” basis. The book values for Capstead and BSPRT used to calculate the cash consideration and exchange ratio will be set on a date prior to the closing of the transaction. Based on the June 30 adjusted book values per share,1 the implied cash payment would be $0.99 per share and the total value would be $7.30 per share, representing an implied 20% premium to the last reported sale price of Capstead common stock on the New York Stock Exchange (“NYSE”) on July 23, 2021.

The combined company, to be called “Franklin BSP Realty Trust” post-close, will transition the capital base of Capstead, a residential mortgage REIT, into commercial mortgage loans where BSPRT is focused. BSPRT’s external manager, Benefit Street Partners L.L.C. (“BSP”), a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), will manage the combined company following the completion of the transaction. Upon closing the transaction, which is expected in the fourth quarter of 2021, the combined company will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity and its common stock will trade on the NYSE under the new ticker symbol FBRT.

Highlights of the Merger

•

Franklin BSP Realty Trust will be the 4th largest commercial mortgage REIT with nearly $2 billion of pro forma equity.

•

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•

Franklin BSP Realty Trust will be publicly traded on the NYSE under the ticker FBRT, providing existing BSPRT stockholders greater access to liquidity.

•

A $100 million common stock repurchase program will be available post-closing to support the combined company’s common stock trading level.

External manager BSP will fund approximately $75 million of the cash merger consideration to be paid for each share of Capstead common stock. The remaining cash consideration will be funded by BSPRT, which will also issue shares of the combined company’s common stock for each share of Capstead common stock based on an adjusted book-for-book exchange. The merger will be a taxable transaction for U.S. federal income tax purposes.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 9 of 16

In addition to the above consideration, BSPRT will assume Capstead’s $100 million in unsecured borrowings maturing in 2035 and 2036 and $258 million of issued and outstanding 7.50% Series E cumulative redeemable preferred stock, which will be exchanged for new preferred shares of the combined company with the same terms.

The transaction has been unanimously approved by both companies’ Boards of Directors and is subject to customary closing conditions, including the approval of Capstead’s stockholders.

Insiders’ Interests in the Proposed Transaction

25. Capstead insiders are the primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders. The Board and the Company’s executive officers are conflicted because they will have secured unique benefits for themselves from the Proposed Transaction not available to Plaintiff and the public stockholders of Capstead.

26. Notably, certain Company insiders have secured positions for themselves with the combined company. For example, the Merger Agreement provides that defendants Augustine, Keiser, and Goolsby will be appointed to the BSPRT board of directors and will be entitled to compensation pursuant to BSPRT’s independent director compensation program.

27. Moreover, Company insiders stand to reap substantial financial benefits for securing the deal with BSPRT. The Merger Agreement provides that all outstanding awards of Capstead Restricted Stock, as well as Capstead Performance Units, will vest and convert into the right to receive the Merger Consideration. The following table sets forth the value of Capstead Restricted Stock and Capstead Performance Units that Company insiders will receive upon closing of the Proposed Transaction:

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 10 of 16


	Capstead Restricted Stock (#)		Value ($)⁽¹⁾		Capstead Performance Units (target) (#)		Value ($)⁽¹⁾
*Directors*
Pat Augustine		—		—		—		—
Jack Biegler		—		—		—		—
Michelle P. Goolsby		—		—		—		—
Gary Keiser		—		—		—		—
Christopher W. Mahowald		—		—		—		—
Michael G. O’Neil		—		—		—		—
Mark S. Whiting		—		—		—		—
*Executive Officers*
Phillip A. Reinsch		211,359	$	1,547,218.27		211,359	$	1,547,218.27
Lance J. Phillips		107,232	$	775,331.76		107,232	$	775,331.76
Robert R. Spears, Jr.		202,905	$	1,485,332.36		202,905	$	1,485,332.36
Roy S. Kim		144,305	$	1,055,750.79		144,305	$	1,055,750.79

28. Further, if they are terminated in connection with the Proposed Transaction, Capstead insiders stand to receive substantial cash severance payments in the form of golden parachute compensation, as set forth in the following table:


Name	Cash ($)⁽¹⁾		Equity ($)⁽²⁾		Pension/NQDC ($)⁽³⁾		Benefits ($)⁽⁴⁾		Total ($)
Phillip A. Reinsch	$	3,693,541.67	$	3,094,436.54	$	—	$	29,038.54	$	6,817,016.75
Lance J. Phillips	$	1,756,800.00	$	1,550,663.52	$	14,014.80	$	43,557.80	$	3,365,036.12
Robert R. Spears, Jr.	$	3,555,000.00	$	2,970,664.72	$	—	$	43,557.80	$	6,569,222.52
Roy S. Kim	$	2,541,666.67	$	2,111,501.58	$	—	$	43,557.80	$	4,696,726.05

The Proxy Statement Contains Material Misstatements and Omissions

29. The defendants filed a materially incomplete and misleading Proxy Statement with the SEC and disseminated it to Capstead’s stockholders. The Proxy Statement misrepresents or omits material information that is necessary for the Company’s stockholders to make an informed decision whether to vote their shares in favor of the Proposed Transaction.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 11 of 16

30. Specifically, as set forth below, the Proxy Statement fails to provide Company stockholders with material information or provides them with materially misleading information concerning, the Company’s financial projections and the data and inputs underlying the financial analyses performed by the Company’s financial advisor Credit Suisse. Accordingly, Capstead stockholders are being asked to vote in favor of the Proposed Transaction without all material information at their disposal.

Material Omissions Concerning the Company’s Financial Projections and Credit Suisse’s Financial Analyses

31. The Proxy Statement fails to disclose material information concerning the Company’s financial projections.

32. For example, the Proxy Statement fails to disclose all line items underlying the forecasts, including core earnings.

33. The Proxy Statement also fails to disclose material information concerning Credit Suisse’s financial analyses.

34. The Proxy Statement describes Credit Suisse’s fairness opinion and the various valuation analyses performed in support of its opinion. However, the description of Credit Suisse’s fairness opinion and analyses fails to include key inputs and assumptions underlying these analyses. Without this information, as described below, Capstead’s public stockholders are unable to fully understand these analyses and, thus, are unable to determine what weight, if any, to place on Credit Suisse’s fairness opinion in determining whether to vote in favor of the Proposed Transaction.

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35. With respect to Credit Suisse’s Selected Public Companies Analysis of BSPRT, the Proxy Statement fails to disclose BSPRT’s tangible book value per share.

36. With respect to Credit Suisse’s Selected Precedent Transactions Analysis, the Proxy Statement fails to disclose: (i) the total transaction value for each transaction; and (ii) the closing date for each transaction observed.

37. With respect to Credit Suisse’s Dividend Discount Analysis of Capstead, the Proxy Statement fails to disclose: (i) the distributed cash flows the Company was forecasted to generate during the third and fourth quarters of fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, and all underlying line items; (ii) quantification of the terminal values for Capstead; and (iii) quantification of the inputs and assumptions underlying the range of discount rates utilized in the analysis.

38. With respect to Credit Suisse’s Dividend Discount Analysis of BSPRT, the Proxy Statement fails to disclose: (i) the distributed cash flows BSPRT was forecasted to generate during the third and fourth quarters of fiscal year ending December 31, 2021, through the full fiscal year ending December 31, 2023, and all underlying line items; (ii) quantification of the terminal values for BSPRT; and (iii) quantification of the inputs and assumptions underlying the range of discount rates utilized in the analysis.

39. With respect to Credit Suisse’s Analyst Price Targets Analysis, the Proxy Statement fails to disclose: (i) the individual price targets observed by Credit Suisse in its analysis; and (ii) the sources thereof.

40. The omission of this information renders the statements in the “Capstead Projections” and “Opinion of Capstead’s Financial Advisor, Credit Suisse Securities (USA) LLC” sections of the Proxy Statement false and/or materially misleading in contravention of the Exchange Act.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 13 of 16

41. The Individual Defendants were aware of their duty to disclose the above-referenced omitted information and acted negligently (if not deliberately) in failing to include this information in the Proxy Statement. Absent disclosure of the foregoing material information prior to the stockholder vote on the Proposed Transaction, Plaintiff and the other stockholders of Capstead will be unable to make a sufficiently informed voting decision in connection with the Proposed Transaction and are thus threatened with irreparable harm warranting the injunctive relief sought herein.

CLAIMS FOR RELIEF

COUNT I

Claims Against All Defendants for Violations of Section 14(a) of the

Exchange Act and Rule 14a-9 Promulgated Thereunder

42. Plaintiff repeats all previous allegations as if set forth in full.

43. During the relevant period, defendants disseminated the false and misleading Proxy Statement specified above, which failed to disclose material facts necessary to make the statements, in light of the circumstances under which they were made, not misleading in violation of Section 14(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder.

44. By virtue of their positions within the Company, the defendants were aware of this information and of their duty to disclose this information in the Proxy Statement. The Proxy Statement was prepared, reviewed, and/or disseminated by the defendants. It misrepresented and/or omitted material facts, including material information about the Company’s financial projections and Credit Suisse’s financial analyses. The defendants were at least negligent in filing the Proxy Statement with these materially false and misleading statements.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 14 of 16

45. The omissions and false and misleading statements in the Proxy Statement are material in that a reasonable stockholder would consider them important in deciding how to vote on the Proposed Transaction.

46. By reason of the foregoing, the defendants have violated Section 14(a) of the Exchange Act and SEC Rule 14a-9(a) promulgated thereunder.

47. Because of the false and misleading statements in the Proxy Statement, Plaintiff is threatened with irreparable harm, rendering money damages inadequate. Therefore, injunctive relief is appropriate to ensure defendants’ misconduct is corrected.

COUNT II

Claims Against the Individual Defendants for Violations

of Section 20(a) of the Exchange Act

48. Plaintiff repeats all previous allegations as if set forth in full.

49. The Individual Defendants acted as controlling persons of Capstead within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as officers and/or directors of Capstead, and participation in and/or awareness of the Company’s operations and/or intimate knowledge of the false statements contained in the Proxy Statement filed with the SEC, they had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which Plaintiff contends are false and misleading.

50. Each of the Individual Defendants was provided with or had unlimited access to copies of the Proxy Statement and other statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 15 of 16

51. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. The Proxy Statement at issue contains the unanimous recommendation of each of the Individual Defendants to approve the Proposed Transaction. They were, thus, directly involved in the making of the Proxy Statement.

52. In addition, as the Proxy Statement sets forth at length, and as described herein, the Individual Defendants were each involved in negotiating, reviewing, and approving the Proposed Transaction. The Proxy Statement purports to describe the various issues and information that they reviewed and considered—descriptions the Company directors had input into.

53. By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of the Exchange Act.

54. As set forth above, the Individual Defendants had the ability to exercise control over and did control a person or persons who have each violated Section 14(a) and SEC Rule 14a-9, promulgated thereunder, by their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants’ conduct, Capstead stockholders will be irreparably harmed.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief, including injunctive relief, in his favor on behalf of Capstead, and against defendants, as follows:

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Case 1:21-cv-08147-UA Document 1 Filed 10/01/21 Page 16 of 16

A. Preliminarily and permanently enjoining defendants and all persons acting in concert with them from proceeding with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until defendants disclose and disseminate the material information identified above to Capstead stockholders;

B. In the event defendants consummate the Proposed Transaction, rescinding it and setting it aside or awarding rescissory damages to Plaintiff;

C. Declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act, as well as SEC Rule 14a-9 promulgated thereunder;

D. Awarding Plaintiff the costs of this action, including reasonable allowance for Plaintiff’s attorneys’ and experts’ fees; and E. Granting such other and further relief as this Court may deem just and proper.

JURY DEMAND

Plaintiff demands a trial by jury.


Dated: October 1, 2021		WEISSLAW LLP

	By	/s/ Richard A. Acocelli
		Richard A. Acocelli
		305 Broadway, 7th Floor
		New York, New York 10007
		Tel: (212) 682-3025
		Fax: (212) 682-3010
		Email: racocelli@weisslawllp.com

		Attorneys for Plaintiff

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