<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1994
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER: 1-8996
CAPSTEAD MORTGAGE CORPORATION
(Exact name of Registrant as specified in its Charter)
MARYLAND 75-2027937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 BRYAN TOWER, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 999-2323
The Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) for Form 10-Q and is therefore filing this Form under the reduced disclosure
format.
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock ($.01 par value) 15,236,803 as of May 10, 1994
================================================================================
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheet - March 31, 1994 and December 31, 1993... 3
Consolidated Statement of Income - Quarter Ended
March 31, 1994 and 1993............................................ 4
Consolidated Statement of Cash Flows - Quarter Ended
March 31, 1994 and 1993............................................ 5
Notes to Consolidated Financial Statements.......................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 11
PART II. - OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security-Holders............. 18
ITEM 6. Exhibits and Reports on Form 8-K.............................. 18
SIGNATURES............................................................ 19
-2-
<PAGE>
PART I. -- FINANCIAL INFORMATION
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $4,972,438 $3,995,956
Mortgage investments 2,406,682 2,842,151
---------- ----------
7,379,120 6,838,107
Less allowance for possible losses (6,872) (6,927)
---------- ----------
7,372,248 6,831,180
Cash and cash equivalents 110,573 87,760
Prepaids, receivables and other 32,174 32,421
Purchased mortgage servicing rights 89,092 28,963
---------- ----------
$7,604,087 $6,980,324
==========
LIABILITIES
Collateralized mortgage securities $4,837,850 $3,891,134
Repurchase arrangements 2,078,814 2,443,807
Accounts payable and accrued expenses 42,649 7,193
---------- ----------
6,959,313 6,342,134
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $0.10 par value;
100,000 shares authorized:
$1.60 Cumulative Preferred Stock,
Series A, 679 and 735 shares
issued and outstanding ($11,136
aggregate liquidation preference) 9,512 10,295
$1.26 Cumulative Convertible
Preferred Stock, Series B, 29,897
and 29,797 shares issued and
outstanding ($340,228 aggregate
liquidation preference) 320,891 319,543
Common stock - $0.01 par value; 100,000
shares authorized; 15,229 and 15,154
shares issued and outstanding 152 152
Paid-in capital 309,501 308,140
Undistributed income (deficit) 1,212 60
Unrealized gain on debt and equity
securities held available-for-sale 3,506 -
---------- ----------
644,774 638,190
---------- ----------
$7,604,087 $6,980,324
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
----------------------
1994 1993
--------- --------
<S> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $ 81,511 $112,033
Mortgage investments 44,269 37,533
-------- --------
Total interest income 125,780 149,566
-------- --------
INTEREST AND RELATED EXPENSES:
Collateralized mortgage securities 77,078 105,154
Short-term borrowings 21,134 16,287
Mortgage insurance and other 3,957 5,015
Provision for possible losses 500 1,300
-------- --------
Total interest and related expenses 102,669 127,756
-------- --------
Net margin on mortgage assets 23,111 21,810
-------- --------
OTHER REVENUES:
Gain on sales 1,997 9,275
Mortgage servicing revenues 3,077 61
Other 654 273
-------- --------
5,728 9,609
-------- --------
OTHER EXPENSES:
Salaries and related costs 2,524 1,936
General and administrative 1,978 1,788
Amortization of purchased mortgage servicing rights 868 -
Management fees - 891
Manager termination costs - 3,900
-------- --------
Total other expenses 5,370 8,515
-------- --------
Net income $ 23,469 $ 22,904
======== ========
Net income $ 23,469 $ 22,904
Less cash dividends on preferred stock (9,680) (9,626)
-------- --------
Net income available to common stockholders $ 13,789 $ 13,278
======== ========
NET INCOME PER SHARE:
Primary $ 0.90 $ 0.88
Fully diluted 0.88 0.86
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 15,286 15,036
Fully diluted 15,916 15,868
CASH DIVIDENDS PAID PER SHARE:
Common $ 0.83 $ 0.88
Series A Preferred 0.40 0.40
Series B Preferred 0.32 0.32
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 23,469 $ 22,904
Noncash items:
Amortization of discount and premium 1,212 3,768
Amortization of purchased mortgage servicing rights 868 -
Provision for possible losses 500 1,300
Net gain from investing activities (1,997) (9,275)
Net change in prepaids, receivables and other assets (6,097)
Net change in accounts payable and accrued expenses
excluding payables for bulk purchases of
mortgage servicing rights (831) 831
------------- -------------
Net cash provided by operating activities 23,221 13,431
------------- -------------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 577,747 344,686
Decrease (increase) in accrued interest receivable (4,829) 4,177
Increase in short-term investments 84,103 39,966
Purchases of mortgage investments (1,075,639) (684,728)
Purchases of agency securities (216,387) (541,525)
Principal collections on mortgage investments 80,544 31,782
Purchases of mortgage servicing rights (24,517) -
Proceeds from sales of mortgage investments 19,394 355,477
------------- -------------
Net cash used by investing activities (559,584) (450,165)
------------- -------------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities 1,611,841 344,950
Principal payments on securities (669,487) (395,719)
Increase (decrease) in accrued interest payable 2,206 (1,871)
Capital stock transactions 1,926 1,916
Dividends paid (22,317) (22,847)
Increase in short-term borrowings (364,993) 503,881
------------- -------------
Net cash provided by financing activities 559,176 430,310
------------- -------------
Net increase (decrease) in cash and cash equivalents 22,813 (6,424)
Cash and cash equivalents at beginning of period 87,760 30,302
------------- -------------
Cash and cash equivalents at end of period $ 110,573 $ 23,878
============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Charges to allowance for losses $555 $474
Transfers from mortgage investments to mortgage
securities collateral $ 1,650,354 $ 353,023
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1994 are not necessarily
indicative of the results that may be expected for the calendar year ending
December 31, 1994. For further information refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1993. Certain amounts for prior periods have been
reclassified to conform to the 1994 presentation.
NOTE B - ACCOUNTING CHANGES
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities (the "Statement"). The Company adopted the
provisions of the Statement for investments held as of or acquired after January
1, 1994. In accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting principle. There was
no cumulative effect as of January 1, 1994 of adopting the Statement on net
income. The opening balance of stockholders' equity was increased by $7,512,000
to reflect net unrealized holding gains on securities classified as available-
for-sale previously carried at amortized cost.
Accounting policies followed by the Company upon adoption of the Statement are
as follows:
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost.
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts over the estimated life of the security. Such amortization is
included in interest income. Interest and dividends are included in interest
income and other revenue, respectively. Realized gains and losses, and declines
in value judged to be other-than-temporary are included in other
-6-
<PAGE>
revenue. The cost of securities sold is based on the specific identification
method.
NOTE C - MORTGAGE INVESTMENTS
Mortgage investments and the related average effective interest rates during the
quarter indicated were (dollars in thousands):
<TABLE>
<CAPTION>
AS OF Quarter Ended
MARCH 31 March 31
---------------------- -----------------
1994 1993 1994 1993
---------- ---------- ------ -------
<S> <C> <C> <C> <C>
Mortgage loan portfolio:
Fixed-rate mortgage loans $ 700,780 $ 537,449 6.73% 8.32%
Medium-term mortgage loans 71,718 37,465 6.51 7.55
Adjustable-rate mortgage loans 143,155 83,294 4.48 5.96
AAA-rated mortgage pass-through
securities portfolio:
Medium-term mortgage securities 414,467 221,869 6.89 7.61
Adjustable-rate mortgage securities 457,395 1,326,640 5.18 5.85
Agency securities portfolio:
Fixed-rate agency securities 504,453 202,670 6.44 6.67
Adjustable-rate agency securities 114,714 - 3.97 -
---------- ----------
$2,406,682 $2,409,387
========== ==========
</TABLE>
The Company classifies its mortgage investments by term and interest rate
characteristics of the underlying mortgage loans. The Company's fixed-rate
mortgage loans (i) have fixed rates of interest for their entire terms, or (ii)
adjust annually based on a specified margin over one-year United States Treasury
Securities ("one-year Treasuries") after an initial fixed rate period of ten
years after origination. Medium-term mortgage loans (i) adjust annually based
on a specified margin over one-year Treasuries after an initial fixed rate
period of three or five years after origination, or (ii) have initial interest
rates that adjust one time, approximately five years following origination of
the mortgage loan, based on a specified margin over the Federal National
Mortgage Association ("FNMA") yields for 30-year fixed-rate commitments at the
time of adjustment. Adjustable-rate mortgage loans ("ARM" loans) either (i)
adjust semiannually based on a specified margin over the six-month London
interbank offered rate ("LIBOR"), or (ii) adjust annually based on a specified
margin over one-year Treasuries.
At March 31, 1994 the AAA-rated mortgage pass-through securities ("Mortgage
Pass-Throughs") portfolio, the agency securities portfolio, and $688,320,000 of
the mortgage loan portfolio was pledged to secure short-term borrowings. As of
March 31, 1994, the Company had outstanding commitments to purchase
approximately $298,417,000 of mortgage loans.
During the quarter, the Company entered into forward delivery contracts for the
purpose of reducing exposure to the effect of changes in interest rates on
fixed-rate mortgage loans which it has purchased or has committed to purchase.
These contracts have terms of not more than 90 days. Gains and losses on such
contracts will be deferred as an adjustment of the carrying value of the related
mortgage investments and amortized into interest income using the effective
yield method over the expected remaining life of the mortgage loans. As of
March 31, 1994, the Company had outstanding for hedging purposes forward
delivery contracts with an aggregate gross contract amount of $250 million.
-7-
<PAGE>
NOTE D - MORTGAGE SECURITIES COLLATERAL
The following table sets forth information at March 31, 1994 with respect to
mortgage collateral, including short-term investments held by the trustee and
accrued interest receivable, securing each series of collateralized mortgage
securities issued during the quarter (dollars in thousands):
<TABLE>
<CAPTION>
AVERAGE COUPON TOTAL
SERIES TYPE OF COLLATERAL INTEREST RATE COLLATERAL
- - -------- ---------------------- -------------- ----------
<S> <C> <C> <C>
1994-A Fixed-rate whole loans 6.82% $ 345,182
1994-B Fixed-rate whole loans 6.41 295,601
1994-C Fixed-rate whole loans 6.75 304,962
1994-D 10/1 whole loans 6.00 204,316
1994-E Fixed-rate whole loans 6.50 501,208
----------
1,651,269
Add premium 3,814
----------
$1,655,084
==========
</TABLE>
NOTE E - COLLATERALIZED MORTGAGE SECURITIES
The following table sets forth information at March 31, 1994 with respect to
each series of collateralized mortgage securities issued and retained during the
quarter, including accrued interest (dollars in thousands):
<TABLE>
<CAPTION>
ORIGINAL
STATED AVERAGE COUPON PRINCIPAL TOTAL
SERIES MATURITY INTEREST RATE BALANCE OBLIGATION
- - ------ -------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
1994-A 2024 6.82% $ 342,701 $ 341,152
1994-B 2009 6.41 295,448 293,682
1994-C 2024 6.75 298,400 299,748
1994-D 2024 6.00 203,849 204,308
1994-E 2024 6.50 498,318 501,010
---------- ----------
$1,638,716 1,639,900
==========
Less discount (25,891)
$1,614,009
==========
</TABLE>
NOTE F - NET INTEREST INCOME ANALYSIS
The following table summarizes the amount of interest income and interest
expense and the average effective interest rate (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
---------------------------------------
1994 1993
------------------ ------------------
AMOUNT AVERAGE AMOUNT AVERAGE
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest income:
Mortgage securities collateral $ 81,511 7.89% $112,033 8.70%
Mortgage investments 44,269 6.37 37,533 6.63
-------- --------
Total interest income 125,780 149,566
Interest expense: -------- --------
Collateralized mortgage
securities 77,078 7.66 105,154 8.39
Short-term borrowings 21,134 3.63 16,287 3.63
-------- -------
Total interest expense 98,212 121,441
-------- -------
Net interest income $ 27,568 $28,125
======== =======
</TABLE>
-8-
<PAGE>
The following table summarizes the amount of change in interest income and
interest expense due to changes in interest rates versus changes in volume
between the quarter ended March 31, 1994 and the quarter ended March 31, 1993
(in thousands):
<TABLE>
<CAPTION>
RATE VOLUME TOTAL
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Mortgage securities collateral $ (9,740) $(20,782) $(30,522)
Mortgage investments (1,526) 8,262 6,736
-------- -------- --------
Total interest income (11,266) (12,520) (23,786)
-------- -------- --------
Interest expense:
Collateralized mortgage securities (8,573) (19,503) (28,076)
Short-term borrowings 4 4,843 4,847
-------- -------- --------
Total interest expense (8,569) (14,660) (23,229)
-------- -------- --------
Net interest income $ (2,697) $ 2,140 $ (557)
======== ======== ========
</TABLE>
NOTE G - DISCLOSURES REGARDING FAIR VALUES OF CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES
The following tables summarize available-for-sale securities and held-to-
maturity securities as of March 31, 1994 (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------
GROSS GROSS Estimated
UNREALIZED UNREALIZED Fair
COST GAINS LOSSES Value
---------- ---------- ---------- ----------
Mortgage Pass-Throughs:
<S> <C> <C> <C> <C>
Medium-term securities $ 414,924 $ - $ 457 $ 414,467
ARM securities 453,331 4,064 - 457,395
ARM agency securities 114,714 - - 114,714
Other mortgage securities 12,050 978 1,025 12,003
---------- --------- ---------- ----------
Total debt securities 995,019 5,042 1,482 998,579
Equity securities 3,623 - 54 3,569
---------- --------- ---------- ----------
$ 998,642 $ 5,042 $ 1,536 $1,002,148
========== ========= ========== ==========
<CAPTION>
Held-to-Maturity Securities
-------------------------------------------------
GROSS GROSS Estimated
UNREALIZED UNREALIZED Fair
COST GAINS LOSSES Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed-rate agency
securities $ 504,453 $ - $ 38,672 $ 465,781
Mortgage securities
collateral 4,956,222 49,230 110,668 4,894,784 *
Other mortgage securities 4,213 - 500 3,713
---------- ---------- ---------- ----------
$5,464,888 $ 49,230 $ 149,860 $5,364,278
========== ========== ========== ==========
</TABLE>
* The estimated fair value calculation for mortgage securities collateral does
not take into consideration the fact that such securities have been
permanently financed through the issuance of collateralized mortgage
securities, which virtually eliminates the risk of loss due to changes in the
fair value of the underlying assets. The Company does however retain
prepayment risk on the mortgage securities collateral as it relates to its
effect on the net investment retained by the Company at securitization.
-9-
<PAGE>
The maturity of the Company's mortgage assets is directly affected by the rate
of principal prepayments by mortgagors and redemptions by issuers, including the
Company, of remaining debt securities outstanding (referred to as "clean-up
calls"). As a result, the actual maturity of the Company's mortgage assets
usually occurs well in advance of stated maturities. The Company anticipates
that through prepayments and exercising clean-up calls, much of its higher cost
collateralized mortgage securities will be retired in 1994 and 1995 and a
residual amount of high coupon mortgage securities collateral will be released
and can be sold or continue to be held as investments. Included in mortgage
securities collateral is $31,018,000 and $33,277,000 of collateral released from
the related indentures at March 31, 1994 and December 31, 1993, respectively.
During the three months ended March 31, 1994, $17,397,000 of mortgage securities
collateral previously released from the related indentures pursuant to clean-up
calls was sold at a gross realized gain of $1,997,000. No available-for-sale
securities were sold. The net adjustment to unrealized holding gains on
available-for-sale securities included as a separate component of stockholders'
equity totaled $(4,006,000) during the three months ended March 31, 1994. Since
trading securities consisted solely of overnight deposits during the quarter, no
net unrealized holding gains or losses were included in income during the three
months ended March 31, 1994.
NOTE H - CONTINGENCY RELATED TO THE CALIFORNIA EARTHQUAKE
On January 17, 1994, the Los Angeles region of southern California suffered a
relatively severe earthquake. The Company has exposure to earthquake losses in
cases where a homeowner defaults on his mortgage and the property has structural
damage from an earthquake, exclusive of fire or water damage (the standard
homeowners policy covers fire and water damage even if such damage was the
result of an earthquake). The Company has determined, through discussions with
homeowners and inspections, that properties underlying approximately $6 million
of mortgage loans that are not insured by either the Company or the homeowner
for special hazards such as an earthquake may have significant structural
damage. The Company expects some of these homeowners may default. However, the
Company believes any losses incurred as a result of this earthquake will not be
material and that its allowance for possible losses at March 31, 1994 is
adequate to absorb any such losses.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- - -------------------
During the first quarter of 1994, the Company purchased 3,632 mortgage loans
totaling $1,073,112,000, compared to purchases of 2,196 mortgage loans totaling
$687,743,000 during the same period in 1993. Purchase and commitment volumes,
although higher than those achieved during the first quarter of 1993, have
fallen significantly from levels achieved in the fourth quarter of 1993 due to
increases in mortgage interest rates. General market interest rates have risen
sharply as a result of the Federal Reserve's current policy to increase short-
term interest rates to help slow inflation. Inflation fears have caused long-
term interest rates to increase very significantly. The Company's current
interest rate on fixed-rate mortgage loans is nearly two percentage points
higher than the low of October 1993. This recent rise in mortgage rates is
likely to result in a significant reduction in mortgage loan purchases through
the remainder of the year. We currently expect purchases to be in the range of
$3.0 billion for 1994, down from $4.4 billion in 1993.
During 1993 the Company was able to expand its correspondent network resulting
in less reliance on the California market. During the first quarter of 1994, 24
percent of the Company's mortgage loan acquisitions were secured by properties
located in California, down from 44 percent in calendar year 1993 and 75 percent
in calendar year 1992. As of March 31, 1994, approximately 54 percent of the
Company's mortgage assets were secured by properties located in California,
compared to 75 percent as of March 31, 1993. Although the Company continues to
expand its marketing efforts to acquire mortgage loans from other regions of the
United States, California is the largest market for jumbo mortgage loans;
therefore, no assurance can be given that the Company's operations would not be
materially affected by economic or other events in California.
On January 17, 1994, the Los Angeles region of southern California suffered a
relatively severe earthquake. The Company has exposure to earthquake losses in
cases where a homeowner defaults on his mortgage and the property has structural
damage from an earthquake, exclusive of fire or water damage (the standard
homeowners policy covers fire and water damage even if such damage was the
result of an earthquake). The Company has determined, through discussions with
homeowners and inspections, that properties underlying approximately $6 million
of mortgage loans that are not insured by either the Company or the homeowner
for special hazards such as an earthquake may have significant structural
damage. The Company expects some of these homeowners may default. However, the
Company believes any losses incurred as a result of this earthquake will not be
material and that its allowance for possible losses at March 31, 1994 is
adequate to absorb any such losses.
The Company formed $84 million of AAA-rated private mortgage pass-through
securities ("Mortgage Pass-Throughs") during the first quarter of 1994, the
majority of which were backed by adjustable-rate mortgage loans ("ARM" loans).
The primary benefit of pooling mortgage loans into Mortgage Pass-Throughs is the
liquidity of AAA-rated securities over that of individual loans. As a result,
when securing short-term borrowings, the Company is able to negotiate more
favorable terms. The Company plans to continue to retain a large portfolio of
primarily ARM Mortgage Pass-Throughs.
In order to expedite growth of the Company's adjustable-rate mortgage assets,
the Company began purchasing ARM agency securities during the first quarter.
Approximately $115 million of ARM agency securities were acquired in March and
-11-
<PAGE>
another $246 million were acquired in April. The Company also has a portfolio
of fixed-rate agency securities that it intends to continue to finance using
dollar repurchase agreements or repurchase agreements and eventually place into
a collateralized mortgage obligation ("CMO").
During the quarter ended March 31, 1994, the Company issued five CMOs totaling
$1.65 billion through special-purpose finance subsidiaries secured by mortgage
loans. The Company's net investment in these financings at issuance totaled
$41,770,000. Execution on these CMOs was negatively impacted by the general
rise in interest rates causing the Company to secure higher rate bonds with
lower rate collateral the Company had committed to purchase in late 1993 to
early 1994 when long-term interest rates were lower. The Company's CMO
investment portfolio, (excluding collateral of $31,018,000 released from related
indentures through redemption or pay off of the Bonds) declined from
$127,287,000 at March 31, 1993 to $103,570,000 this quarter-end, as record
levels of prepayments on mortgage securities collateral seen in 1993 continued
through January 1994, dramatically reducing outstanding balances of existing
CMOs during the intervening period.
Recently, the Company began issuing CMOs with a senior/subordinate structure in
lieu of purchasing pool insurance where bond investors or the Company assumes
credit and special hazard risks by purchasing/retaining subordinate classes of
securitization. During the current quarter the Company retained $2,558,000 of
these subordinate classes for its CMO investment portfolio at a cost of
$895,000. The cost and yield characteristics of subordinate securities reflects
the market's and the Company's expectation of the risks assumed and, therefore,
the Company does not anticipate a need to increase its provision for losses for
this added exposure.
The Company formed its mortgage servicing unit early in 1993, and later in the
year, Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation servicing approvals were obtained so that the Company could begin
servicing conforming loans guaranteed by these government-sponsored entities.
As of March 31, 1994, the Company serviced and master serviced mortgage loan
portfolios of $3.8 billion and $5.3 billion, respectively. Purchased mortgage
servicing rights for mortgage loans totaled $84.0 million at March 31, 1994,
which included $44.4 million of servicing rights on bulk acquisitions purchased
but not delivered. Master servicing rights on mortgage loans totaled $5.1
million. The Company had committed to bulk acquisitions of servicing rights for
both conforming and non-conforming mortgage loan portfolios totaling $3.8
billion to be completed by the third quarter of 1994. A key advantage of the
Company over others in the mortgage servicing industry is that the weighted
average interest rates of its servicing and master servicing portfolios are very
low (approximately 7.0%) relative to others in the industry and to current
interest rates.
-12-
<PAGE>
The following table summarizes the Company's utilization of capital as of March
31, 1994 (in thousands):
<TABLE>
<CAPTION>
FUNDED THROUGH
--------------------
ASSETS BORROWINGS EQUITY
---------- ---------- --------
<S> <C> <C> <C>
Mortgage loan portfolio:
Fixed-rate mortgage loans $ 700,780 $ 497,049 $203,731
Medium-term mortgage loans 71,718 50,868 20,850
Adjustable-rate mortgage loans 143,155 101,537 41,618
AAA-rated mortgage pass-through
securities portfolio:
Medium-term mortgage securities 414,467 394,196 20,271
Adjustable-rate mortgage securities 457,395 435,025 22,370
Agency securities portfolio:
Fixed-rate agency securities 504,453 488,859 15,594
Adjustable-rate agency securities 114,714 111,280 3,434
CMO investment portfolio 4,972,438 4,837,850 134,588
Purchased mortgage servicing rights 89,092 - 89,092
---------- ---------- --------
$7,468,212 $6,916,664 551,548
========== ========== --------
Other assets, net of other liabilities
including $36 million owed under
contracts for bulk purchases of
mortgage servicing rights 93,266
--------
Total stockholders' equity $644,774
========
</TABLE>
As of March 31, 1994, the Company's mortgage investments and its commitments to
acquire ARM agency securities and mortgage loans ("Pipeline") totaled
approximately $2.7 billion. Market value risk associated with holding or
acquiring these assets was reduced by entering into forward sale agreements for
hedging purposes totaling $250 million. In addition, approximately $851 million
was invested or committed for investment in ARM loans, which generally tend to
hold their market value in a rising interest rate environment. Remaining
mortgage assets and Pipeline (adjusted for expected Pipeline fallout of 15
percent on "best efforts" commitments and 20 percent on "optional" commitments)
that was subject to market value risk as of March 31, 1994 was approximately
$1.6 billion. As the Company continues to acquire mortgage loans, it may pool
such loans into CMOs or other securitizations, thereby periodically reducing the
amount of mortgage loans subject to market value risk (see "Effects of Interest
Rate Changes").
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1994 was $23,469,000, or $0.90 per
primary share ($0.88 per fully diluted share), which represents a return on
average total stockholders' equity of 14.60 percent. This compares to first
quarter 1993 net income of $22,904,000, or $0.88 per primary share ($0.86 per
fully diluted share), which represents a return on average total stockholders'
equity of 14.41 percent.
-13-
<PAGE>
The following table presents the components and weighted average yields of the
Company's mortgage investment portfolios, and related short-term borrowings:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
-----------------------
1994 1993
---- ----
<S> <C> <C>
Mortgage loans 6.56% 7.49%
Mortgage Pass-Throughs 6.01 6.16
Agency securities 6.44 6.67
Short-term borrowings 3.63 3.63
</TABLE>
Interest income earned on the Company's mortgage investments increased for the
quarter ended March 31, 1994 because of an increase in the average portfolios
outstanding, net of the effects of decreases in mortgage interest rates. The
combined average mortgage investment portfolio increased to $2.8 billion for the
quarter ended March 31, 1994, from $2.3 billion for the same period in 1993.
The increase reflects higher mortgage loan and Mortgage Pass-Through portfolios
because of higher volume of loan purchases during the fourth quarter of 1993 and
the first quarter of 1994, and the timing of securitizations. The Company also
maintained a larger position in agency securities due primarily to opportunities
to earn superior interest rate spreads with dollar repurchase agreements. The
lower yields on these portfolios reflects the general reduction in interest
rates on all types of mortgage products experienced during the latter part of
1993, which continued to be purchased during the first quarter of 1994 pursuant
to commitments taken prior to the end of 1993.
Short-term borrowing costs for the quarter ended March 31, 1994 were higher than
those experienced during the same period in 1993 because of a $550 million
increase in the average debt outstanding to $2.3 billion, primarily due to
growth of the related portfolios. The weighted average interest rate on short-
term borrowings increased 25 basis points from the fourth quarter of 1993 to the
current quarter because of sharply rising short-term interest rates reflecting
the Federal Reserve's current policy to increase short-term interest rates.
The following table presents the weighted average yields of the mortgage
securities collateral and collateralized mortgage securities components of the
CMO investment portfolio:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------
1993 1992
----- -----
<S> <C> <C>
Mortgage securities collateral 7.89% 8.70%
Collateralized mortgage securities 7.66 8.39
----- -----
Net interest spread 0.23% 0.31%
===== =====
</TABLE>
The CMO investment portfolio earned $1,332,000 during the quarter ended March
31, 1994, compared to $2,972,000 for the same period in 1993. Net income
produced by the CMO investment portfolio is represented by interest income on
mortgage securities collateral (including interest earned on collateral released
from the related indebtedness due to redemption or payoff of the related bonds),
less interest expense and professional fees on collateralized mortgage
securities, and mortgage pool insurance expense on mortgage securities
collateral, and includes net investment income or loss on other mortgage
securities held by the Company.
Operating results produced by the CMO investment portfolio for the quarter ended
March 31, 1994 were lower than for the same period in 1993 primarily because of
high levels of prepayments on mortgage securities collateral during
-14-
<PAGE>
the intervening period. During 1993 the Company received principal collections
on mortgage securities collateral totaling $2.4 billion, nearly double the $1.3
billion of runoff in 1992. The primary long-term effect from increased
prepayments (above the levels originally anticipated) is the reduction in the
cash interest spread between the collateral and bonds (excluding the effects of
premiums or discounts) more rapidly than originally anticipated. As mortgage
prepayments have increased, higher coupon mortgage loans have prepaid faster
than lower coupon mortgage loans, which results in lower yields on the
collateral in future periods. At the same time, high mortgage prepayments have
caused rapid repayment of lower yielding bond classes (shorter maturity bonds
typically carry the lowest interest rates), leaving higher yielding bond classes
outstanding, thus increasing the average interest cost for the remainder of the
life of a particular CMO. Another factor in lower results of the CMO investment
portfolio in the current quarter is the poor execution the Company experienced
on the $1.65 billion in CMOs closed in the quarter. These transactions will
have a modest adverse effect on future results of this portfolio.
During the first quarter of 1994 the Company sold $17,397,000 of mortgage
securities collateral previously released from CMOs pursuant to "clean-up calls"
recognizing a net gain of $1,997,000. This compares to mortgage asset sales of
$355,477,000 for gains of $9,275,000 during the same period in 1993.
Mortgage insurance, professional fees and other administrative expenses relating
to the Company's mortgage assets were less than in the same period in 1993 due
to less use of mortgage pool insurance in favor of senior/subordinate structures
where bond investors or the Company assume the credit risk and a portion of the
special hazard risks by purchasing/retaining subordinate classes of the
securitizations.
The Company provided $500,000 for possible losses during the quarter ended March
31, 1994, compared to $1,300,000 in 1993. The provision was lower in the
current quarter in recognition of favorable loss experience, including an
expectation that the Company's exposure to the January 1994 earthquake in
California is limited.
Net income from servicing and master servicing totaled $1,182,000 and $368,000,
respectively, for the quarter ended March 31, 1994. Net income from servicing
and master servicing is represented by mortgage servicing or master servicing
fees, late charges and ancillary revenues earned, less amortization of purchased
mortgage servicing rights and other direct expenses (including employee and
system costs, and direct general and administrative expenses). During the
quarter ended March 31, 1994, the portfolios of loans serviced and master
serviced averaged $3.04 billion and $4.8 billion, respectively.
In March 1993 and again in September 1993, the Company negotiated amendments to
its management agreement and a related non-competition agreement, principally to
shorten the agreements' terms and lower the required payments. Consequently, on
October 1, 1993 the Company became fully self-administered. Termination costs
under the terms of the amended management agreement totaled $7,528,000, of which
$3,900,000 was expensed in the first quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include monthly mortgage loan principal
and interest payments, servicing revenues, short-term financing arrangements,
excess cash flows on issued CMOs, proceeds from securitizations, and equity
offerings when available. The Company currently believes that these funds are
sufficient for the acquisition of additional mortgage loans and other mortgage
-15-
<PAGE>
assets, repayments on short-term borrowings, growth of its servicing unit and
the payment of cash dividends as required for Capstead's continued qualification
as a Real Estate Investment Trust ("REIT"). It is the Company's policy to
remain strongly capitalized and conservatively leveraged.
The Company may, from time to time, sell a portion of its fixed-rate mortgage
loans and its investments in other mortgage loans, by issuing publicly-offered,
multi-class MPCs and electing Real Estate Mortgage Investment Conduit ("REMIC")
status for tax purposes on these transactions. Such sales may make quarterly
income more volatile than in the past because of the recognition of
transactional gains or losses.
Short-term borrowings are primarily made under repurchase arrangements. At
March 31, 1994, the Company had uncommitted repurchase facilities with
investment banking firms with approved credit limits of $2 billion, subject to
certain conditions, to finance the mortgage loan portfolio. Interest rates on
borrowings under these facilities are based on overnight London interbank
offered rate ("LIBOR") rates. The Company currently uses other repurchase
arrangements as needed. As the Company commits to the issuance of CMOs or MPCs,
the Company may deliver the mortgage loans that are expected to secure the
issuance as collateral for a repurchase transaction with the managing
underwriter of the related issuance. The Company also enters into repurchase
and dollar repurchase arrangements with investment banking firms pursuant to
which the Company pledges Mortgage Pass-Throughs and agency securities. The
terms and conditions of these arrangements, including interest rates, are
negotiated on a transaction-by-transaction basis.
EFFECTS OF INTEREST RATE CHANGES
Changes in interest rates may impact the Company's earnings in various ways.
The Company's earnings depend, in part, on the difference between the interest
received on mortgage investments and the interest paid on related short-term
borrowings (primarily repurchase arrangements). The resulting spread may be
reduced in a rising interest rate environment. For ARM loans the risk of rising
short-term interest rates is offset to some extent by increases in the rates of
interest earned on these loans. Since ARM loans generally limit the amount of
such increase during any single interest rate adjustment period and over the
life of the loan, it is possible that the interest rates on the repurchase
arrangements could rise to levels that may exceed the interest rates on the
underlying ARM loans which may cause the Company to realize a negative interest
spread.
In addition, the Company's earnings are impacted if long-term interest rates
change during the period after the Company has committed to purchase fixed-rate
mortgage loans, but before these loans have been pledged to secure CMOs or MPCs.
If long-term interest rates increase during this period, the interest payable on
the CMOs issued will increase, while the yield on the underlying mortgage loans
pledged to collateralize the CMOs will not change; as a consequence, the
interest spread on the CMO will be lower. Conversely, if long-term interest
rates decrease during this period, the interest payable on the CMO issued will
decrease, while the yield on the underlying mortgage loans pledged to
collateralize the CMO will not change; as a consequence, the interest spread on
the CMO will be higher. Similarly, proceeds received on the issuance of MPCs,
and related gains or losses, will be negatively impacted by an increase in long-
term interest rates during this period due to the resulting decline in market
value of the related collateral. Conversely, these transactional gains or
losses will be favorably impacted by a decrease in long-term interest rates
during this period. The Company attempts to manage its exposure to long-term
interest rate changes in part by pricing CMOs
-16-
<PAGE>
and MPCs prior to the purchase of, but subsequent to the commitment to purchase,
all of the mortgages that will collateralize the issuance, and may from time to
time elect to enter into forward sale agreements for hedging purposes.
A change in interest rates also impacts earnings recognized from the Company's
CMO investment portfolio, which consists primarily of fixed-rate CMO residuals.
The amount of income that may be generated from the typical CMO residual is
dependent upon the rate of principal prepayments on the underlying mortgage
loans. If mortgage interest rates fall significantly below the interest rate on
the collateral pledged to secure the CMO, principal prepayments will increase,
reducing or even eliminating the overall return on the investment in the CMO
residual. This is due primarily to the acceleration of the amortization of bond
discounts, a noncash item, as bond classes are repaid more rapidly than
originally anticipated. During 1993 the Company experienced such a period of
declining rates and high prepayments and having concluded that high levels of
prepayments may continue, reduced its remaining bond discounts accordingly.
Interest-only and principal-only securities that are held by the Company in the
CMO Investment portfolio are carried at the present value of the future cash
flows expected to be received during the remaining terms of the investments,
discounted at a constant effective yield. Income recognized is the excess of
cash received over the reduction of the carrying value. In a falling interest
rate environment, prepayments on the underlying mortgage collateral generally
will be high and the Company could incur losses on investments in interest-only
securities. Conversely, in periods of rising interest rates, interest-only
securities will tend to perform very favorably because the underlying mortgage
collateral will generally prepay at slower rates. Principal-only securities
react differently to changes in interest rates. Lower interest rates result in
the recovery of this investment more rapidly thus increasing yields. During
periods of rising rates, it takes longer for the Company to recover its
investments thus lowering yields. Principal-only securities retained by the
Company generally represent a much smaller investment than interest-only
investments.
Another effect of changes in interest rates is that if interest rates decrease,
the rate of prepayment of mortgage loans may increase. To the extent the
proceeds of prepayments of mortgage loans or agency securities in the Company's
mortgage investment portfolios cannot be reinvested at a rate of interest at
least equal to the rate previously earned on such mortgage loans or agency
securities, the Company's earnings may be adversely affected. In addition, the
rates of interest earned on the Company's ARM loans generally will decline
during periods of falling interest rates.
The above discussion regarding how changes in interest rates impact our
investments in mortgage loans and other mortgage assets also applies to our
growing investment in purchased mortgage servicing rights and capitalized master
servicing rights. If interest rates rise, our servicing and master servicing
assets become more valuable since the average lives of the related mortgage
loans will tend to be longer and earnings from large, temporarily-held cash
balances will be greater. Conversely, lower interest rates will spur
prepayments thus reducing the period of time we can service the related loans.
Because the Company began servicing in 1993, exposure to lower interest rates is
less than for other servicers that acquired servicing portfolios in previous
years when interest rates were substantially higher.
-17-
<PAGE>
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS:
(a) The annual meeting of stockholders was held April 22, 1994.
(b) The following directors were elected to Board of Directors (constituting the
entire Board of Directors):
J. Michael Cornwall Ronn K. Lytle
Bevis Longstreth Harriet E. Miers
Paul M. Low William R. Smith
(c) The following items were voted on at the annual meeting:
<TABLE>
<CAPTION>
VOTES
---------------------------------------------
WITHHELD/ BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- --------- ----------- ---------
Election of Board Members:
<S> <C> <C> <C> <C>
J. Michael Cornwall.................. 13,175,368 - 130,618 -
Bevis Longstreth..................... 13,178,104 - 127,882 -
Paul M. Low.......................... 13,185,018 - 120,968 -
Ronn K. Lytle........................ 13,166,312 - 139,674 -
Harriet E. Miers..................... 13,172,708 - 133,278 -
William R. Smith..................... 13,175,878 - 130,108 -
Ratification of Ernst & Young as
independent auditors of the Company....
13,149,550 83,169 73,267 -
Adoption of amendment to the Company's
Bylaws to allow for the amendment of
the Bylaws by either the Board of
Directors or a majority of the
stockholders of the Company............
7,402,330 1,313,848 235,842 4,353,966
Adoption of the 1994 Flexible Long Term
Incentive Plan......................... 7,011,779 1,705,097 235,144 4,353,966
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
--------
The following Exhibits are presented herewith:
Exhibit 2.1 - Amended and Restated Bylaws as of April 22, 1994.
Exhibit 11 - Computation of Earnings Per Share for the quarter ended March
31, 1994 and 1993.
(b) Reports on Form 8-K: None.
-------------------
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTEAD MORTGAGE CORPORATION
Date: May 12, 1994 By /s/Ronn K. Lytle
-----------------------------------------
Ronn K. Lytle
President
Date: May 12, 1994 By /s/Andrew F. Jacobs
-----------------------------------------
Andrew F. Jacobs
Principal Financial Officer and Treasurer
-19-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit Number Page
- - -------------- ------------
2.1 Amended and Restated Bylaws as of
April 22, 1994.
11 Computation of Earnings Per Share
<PAGE>
EXHIBIT 2.1
CAPSTEAD MORTGAGE CORPORATION
AMENDED AND RESTATED BYLAWS
As of April 22, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - STOCKHOLDERS................................................... 1
1.1. Annual Meeting.................................................. 1
1.2. Special Meeting................................................. 1
1.3. Place of Meetings............................................... 2
1.4. Notice of Meetings; Waiver of Notice............................ 2
1.5. Quorum; Voting.................................................. 2
1.6. Adjournments.................................................... 3
1.7. General Right to Vote; Proxies.................................. 3
1.8. List of Stockholders............................................ 3
1.9. Fixing of Record Date........................................... 3
1.10. Organization and Order of Business.............................. 4
1.11. Conduct of Voting............................................... 4
ARTICLE II - BOARD OF DIRECTORS............................................. 5
2.1. Function of Directors........................................... 5
2.2. Number of Directors............................................. 5
2.3. Election and Tenure of Directors................................ 5
2.4. Removal of Director............................................. 5
2.5. Vacancy on Board................................................ 5
2.6. Regular Meetings................................................ 6
2.7. Special Meetings................................................ 6
2.8. Notice of Meeting............................................... 6
2.9. Quorum and Voting............................................... 7
2.10. Organization.................................................... 7
2.11. Action by Directors............................................. 7
2.12. Meeting by Conference Telephone................................. 8
2.13. Compensation.................................................... 8
2.14. Interested Director Transactions................................ 8
ARTICLE III - COMMITTEES................................................... 10
3.1. Number, Tenure and Qualification............................... 10
3.2. Delegation of Power............................................ 10
3.3. Quorum and Voting.............................................. 11
3.4. Conduct of Meetings............................................ 11
3.5. Action by Committees........................................... 11
3.6. Interested Committee Member Transactions....................... 12
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV - OFFICERS...................................................... 13
4.1. Executive Officers............................................. 13
4.2. Chairman of the Board.......................................... 14
4.3. President...................................................... 14
4.4. Vice Presidents................................................ 14
4.5. Secretary...................................................... 15
4.6. Treasurer...................................................... 15
4.7. Assistant and Subordinate Officers............................. 16
4.8. Compensation................................................... 16
4.9. Election, Tenure and Removal of Officers....................... 16
ARTICLE V - STOCK.......................................................... 17
5.1. Certificates of Stock.......................................... 17
5.2. Transfers...................................................... 18
5.3. Legends........................................................ 18
5.4. Record Date and Closing of Transfer Books...................... 18
5.5. Stock Ledger................................................... 18
5.6. Lost Stock Certificates........................................ 19
ARTICLE VI - FINANCE....................................................... 19
6.1. Checks, Drafts, Etc............................................ 19
6.2. Annual Statement of Affairs.................................... 19
6.3. Dividends...................................................... 20
6.4. Fiscal Year.................................................... 20
ARTICLE VII - MISCELLANEOUS................................................ 20
7.1. Books and Records.............................................. 20
7.2. Corporate Seal................................................. 20
7.3. Bonds.......................................................... 21
7.4. Voting Upon Shares in Other Corporations....................... 21
7.5. Mail........................................................... 21
7.6. Execution of Documents......................................... 21
7.7. Amendments..................................................... 22
</TABLE>
-ii-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
AMENDED AND RESTATED BYLAWS
As of April 22, 1994
ARTICLE I.
STOCKHOLDERS
SECTION 1.1. Annual Meeting. The Corporation shall hold an annual
--------------
meeting of its stockholders to elect directors and transact any other business
as properly may come before such meeting, on such date and at such time as
shall be designated annually by the Board of Directors and stated in the
notice of the meeting. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.2. Special Meeting. At any time in the interval between
---------------
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting, and shall be called by any officer
of the Corporation upon the written request of the holders of shares entitled
to cast not less than twenty-five percent (25%) of all the votes entitled to
be cast at such meeting for the purpose of removing a director or for any
other lawful purpose or purposes. If a special meeting is called at the
request of stockholders, such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on. Business of the
Corporation transacted at any special meeting of stockholders by whomever
called shall be limited to the purposes stated in the notice.
<PAGE>
SECTION 1.3. Place of Meetings. Meetings of stockholders shall be held
-----------------
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.4. Notice of Meetings; Waiver of Notice. Not less than ten
------------------------------------
(10) nor more than ninety (90) days before each stockholders' meeting, the
Secretary shall give written notice of the meeting to each stockholder
entitled to vote at the meeting and each other stockholder entitled to notice
of the meeting. The notice shall state the time and place of the meeting and,
if the meeting is a special meeting or notice of the purpose is required by
statute, the purpose of the meeting. Notice is given to a stockholder when it
is personally delivered to him, left at his residence or usual place of
business, or mailed to him at his address as it appears on the records of the
Corporation. If mailed with postage thereon prepaid, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post-office address as it appears on the records of the
Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to
notice waives notice if he, before or after the meeting, signs a waiver of the
notice which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy.
SECTION 1.5. Quorum; Voting. Unless a statute or the Articles of
--------------
Incorporation of the Corporation (the "Charter") provide otherwise, at a
meeting of stockholders the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the
meeting constitutes a quorum and a majority of all the votes cast at a meeting
at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes
cast at a meeting at which a quorum is present is sufficient to elect a
director. In the event that at any meeting a quorum exists for the
transaction of some business but does not exist for the transaction of other
business, the business as to which a
-2-
<PAGE>
quorum is present may be transacted by the holders of stock present in person
or by proxy who are entitled to vote thereon.
SECTION 1.6. Adjournments. Whether or not a quorum is present, a meeting
------------
of stockholders convened on the date for which it was called may be adjourned
from time to time by the stockholders present in person or by proxy by a
majority vote. Any business which might have been transacted at the meeting
as originally notified may be deferred and transacted at such adjourned
meeting at which a quorum shall be present. No further notice of an adjourned
meeting than by announcement at the meeting.
SECTION 1.7. General Right to Vote; Proxies. Unless otherwise provided
------------------------------
in the Charter, each outstanding share of capital stock, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. A stockholder may vote only the shares owned by him as shown on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 1.9 below or pursuant to applicable law and may vote the
stock either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is
not valid more than eleven (11) months after its date.
SECTION 1.8. List of Stockholders. At each meeting of stockholders, a
--------------------
full, true, and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.9. Fixing of Record Date. The Board of Directors may fix, in
---------------------
advance, a record date not more than ninety (90) nor less than ten (10) days
before the date then fixed for the holding of any meeting of the stockholders.
All persons who were holders of record of shares
-3-
<PAGE>
at such time, and no others, shall be entitled to vote at such meeting and
any adjournment thereof.
SECTION 1.10. Organization and Order of Business. At each meeting of the
----------------------------------
stockholders, the Chairman of the Board of Directors, or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election or, in the absence of any such
designation, in the order of their election), shall act as chairman of the
meeting. The Secretary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the minutes thereof. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 1.11. Conduct of Voting. At all meetings of stockholders, unless
-----------------
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions relating to the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. The Board of Directors may appoint judges of
election to serve at any election of directors and at balloting on any other
matter that may properly come before a meeting of stockholders. If no such
appointment shall be made, or if any of the judges so appointed shall fail to
attend, or refuse or be unable to serve, then such appointment may be made by
the presiding officer at the meeting.
-4-
<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. Function of Directors. The business and affairs of the
---------------------
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or these Bylaws.
SECTION 2.2. Number of Directors. The Corporation shall have the number
-------------------
of directors provided in the Charter until changed as herein provided. A
majority of the entire Board of Directors may alter the number of directors
set by the Charter to not more than twenty-five (25) nor less than the number
required by Section 2-402 of the Maryland General Corporation Law, as amended
(the "MGCL").
SECTION 2.3. Election and Tenure of Directors. At each annual meeting,
--------------------------------
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualified.
SECTION 2.4. Removal of Director. Unless statute or the Charter
-------------------
provides otherwise, the stockholders may remove any director or directors from
office at any time, with or without cause, by the affirmative vote at any
meeting of stockholders, duly called and at which a quorum is present, of the
holders of a majority of the outstanding shares of the Corporation entitled to
be cast for the election of directors and may elect a successor or successors
to fill any resulting vacancies for the unexpired terms of removed directors.
SECTION 2.5. Vacancy on Board. The stockholders may elect a successor
----------------
to fill a vacancy on the Board of Directors which results from the removal of
a director. A director elected by the stockholders to fill a vacancy which
results from the removal of a director serves
-5-
<PAGE>
for the balance of the term of the removed director. A majority of the
remaining directors, whether or not sufficient to constitute a quorum, may
fill a vacancy on the Board of Directors which results from any cause except
an increase in the number of directors, and a majority of the entire Board of
Directors may fill a vacancy which results from an increase in the number of
directors. A director elected by the Board of Directors to fill a vacancy
serves until the next annual meeting of stockholders and until his successor
is elected and qualifies.
SECTION 2.6. Regular Meetings. Any regular meeting of the Board of
----------------
Directors shall be held on such date and at any place in or out of the State
of Maryland as may be designated from time to time by the Board of Directors.
SECTION 2.7. Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place in or out of the State
of Maryland as may be designated from time to time by the Board of Directors
or in the call.
SECTION 2.8. Notice of Meeting. The Secretary shall give notice to each
-----------------
director of each regular and special meeting of the Board of Directors. The
notice shall state the time and place of the meeting. Notice is given to a
director when it is delivered personally to him, left at his residence or
usual place of business, or sent by telegraph or telephone, at least
twenty-four (24) hours before the time of the meeting or, in the alternative
by mail to his address as it appears on the records of the Corporation, at
least seventy-two (72) hours before the time of the meeting. Unless the
Bylaws or a resolution of the Board of Directors provides otherwise, the
notice need not state the business to be transacted at or the purposes of any
regular or special meeting. No notice of any meeting of the Board of
Directors need be given to any director who
-6-
<PAGE>
attends, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Any meeting of the Board of Directors, regular or special, may adjourn
from time to time to reconvene at the same or some other place, and no notice
need be given of any such adjourned meeting other than by announcement.
SECTION 2.9. Quorum and Voting. At all meetings of the Board of
-----------------
Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business, and the action of a majority of the
directors present at any meeting at which a quorum is present shall be the
action of the Board of Directors unless the concurrence of a greater
proportion is required for such action by statute, the Charter or these Bylaws.
If a quorum shall not be present at any meeting of directors, the directors
present at the meeting may by a majority vote adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 2.10. Organization. The Chairman of the Board shall preside at
------------
each meeting of the Board of Directors or, in his absence or inability to act,
another director chosen by the Chairman of the Board. The Secretary (or, in
his absence or inability to act, any person appointed by the chairman) shall
act as secretary of the meeting and keep the minutes thereof.
SECTION 2.11. Action by Directors. Unless statute, the Charter or these
-------------------
Bylaws require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the Board of Directors shall constitute a quorum for
the transaction of business. In the absence of a quorum, the directors present
by majority vote and without notice other than by announcement may adjourn the
meeting from time to time until a quorum shall attend. At any such adjourned
-7-
<PAGE>
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified. Any
action required or permitted to be taken at a meeting of the Board of
Directors may be taken without a meeting, if a unanimous written consent which
sets forth the action is signed by each member of the Board of Directors and
filed with the minutes of proceedings of the Board of Directors. Such
consents may be signed by different members on separate counterparts.
SECTION 2.12. Meeting by Conference Telephone. Members of the Board of
-------------------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.13. Compensation. By resolution of the Board of Directors a
------------
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
SECTION 2.14. Interested Director Transactions.
--------------------------------
(a) Taking into account compliance with the provisions of subsection (b)
of this Section 2.14, a contract or other transaction between the Corporation
and any of its directors or between the Corporation and any other corporation,
firm or other entity in which any of the Corporation's directors is a director
or has a material financial interest (an "Interested Director Transaction") is
not void or voidable solely because of any one or more of the following:
(i) the common directorship;
-8-
<PAGE>
(ii) the presence of the director at the meeting of the Board of
Directors which authorizes, approves or ratifies the contract
or transaction; or
(iii) the counting of the vote of the director for the
authorization, approval or ratification of the contract or
transaction.
(b) An Interested Director Transaction is not void or voidable solely
because of any one or more of the factors set forth in subsection (a) above
if:
(i) the fact of the common directorship or interest is disclosed
or known to:
1. the Board of Directors of the Corporation, and the Board
of Directors authorizes, approves or ratifies the
contract or transaction by the affirmative vote of a
majority of disinterested directors, even if the
disinterested directors constitute less than a quorum; or
2. the stockholders entitled to vote, and the contract or
transaction is authorized, approved or ratified by a
majority of the votes cast by the stockholders entitled
to vote other than the votes of shares owned of record or
beneficially by the interested director, or corporation,
firm or other entity; or
(ii) a contract or transaction is fair and reasonable to the
Corporation.
(c) Common or interested directors or the stock owned by them or by an
interested corporation, firm or other entity may be counted in determining the
presence of a quorum in a meeting of the Board of Directors of the Corporation
or at a meeting of the stockholders, as the case may be, at which the contract
or transaction is authorized, approved or ratified.
(d) (i) if a contract or transaction is not authorized, approved or
ratified in any one of the ways provided for in subsection
(b)(i) of this Section 2.14, the
-9-
<PAGE>
person asserting the validity of the contract or transaction
bears the burden of proving that the contract or transaction was
fair and reasonable to the Corporation at the time it was
authorized, approved or ratified.
(ii) this subsection (d) does not apply to the fixing by the Board
of Directors of the Corporation of reasonable compensation,
whether as a director or in any other capacity.
ARTICLE III.
COMMITTEES
SECTION 3.1. Number, Tenure and Qualification. The Board of Directors
--------------------------------
may appoint from among its members an executive committee and other
committees, composed of two (2) or more directors, to serve at the pleasure of
the Board of Directors. If any committee may take or authorize any act as to
any matter in which any director (or affiliate of such director) who is an
employee of the Corporation has or may have any interest, a majority of the
members of such committee shall be directors who are not employees of the
Corporation, except that any such committee consisting of only two (2)
directors may have one director who is not an employee of the Corporation and
one director who is an employee of the Corporation.
SECTION 3.2. Delegation of Power. The Board of Directors may delegate to
-------------------
those committees in the intervals between meetings of the Board of Directors
any of the powers of the Board of Directors to manage the business and affairs
of the Corporation, except those powers which the Board of Directors is
specifically prohibited from delegating pursuant to Section 2-411 of the MGCL.
-10-
<PAGE>
SECTION 3.3. Quorum an Voting. A majority of the members of any
----------------
committee shall constitute a quorum for the transaction of business by such
committee, and the act of a majority of the quorum shall constitute the act of
the committee, unless the concurrence of a greater proportion is required for
such action by statute, the Charter or these Bylaws. If a quorum shall not be
present at any meeting of such committee, the members of the committee present
at the meeting may by a majority vote adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present.
SECTION 3.4. Conduct of Meetings. Each committee shall designate a
-------------------
presiding officer of such committee and, if not present at a particular
meeting, the committee shall select a presiding officer for such meeting.
Members of any committee may participate in meetings of such committee by
conference telephone or similar communications equipment by means of which all
directors participating in the meeting can hear each other at the same time,
and participation in a meeting in accordance herewith shall constitute
presence in person at such meeting for all purposes of these Bylaws. Each
committee shall keep minutes of its meetings, and report the results of any
proceedings at the next succeeding annual or regular meeting of the Board of
Directors.
SECTION 3.5. Action by Committees. Any action required or permitted to
--------------------
be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a written consent to such action is signed by all
members of the committee and such written consent is filed with the minutes of
proceedings of such committee. Such consents may be signed by different
members on separate counterparts.
-11-
<PAGE>
SECTION 3.6. Interested Committee Member Transactions.
----------------------------------------
(a) Taking into account compliance with the provisions of subsection (b)
of this Section 3.6, an Interest Director Transaction is not void or voidable
solely because of any one or more of the following:
(i) the common directorship
(ii) the presence of the director at the meeting of a committee
of the Board of Directors which authorizes, approves or
ratifies the contract or transaction; or
(iii) the counting of the vote of the director at such meeting for
the authorization, approval or ratification of the contract
or transaction.
(b) An Interested Director Transaction is not void or voidable solely
because of any one or more of the factors set forth in subsection (a) above
if:
(i) the fact of the common directorship or interest in disclosed
or known to:
1. a committee of the Board of Directors of the Corporation,
and such committee authorized, approves or ratifies the
contract or transaction by the affirmative vote of a
majority of disinterested directors on such committee,
even if the disinterested directors constitute less than
a quorum; or
2. the stockholders entitled to vote, and the contract or
transaction is authorized, approved or ratified by a
majority of the votes cast by the stockholders entitled
to vote other than the votes of shares owned of record or
beneficially by the interested director, or corporation,
firm or other entity; or
-12-
<PAGE>
(ii) a contract or transaction is fair and reasonable to the
Corporation
(c) Common or interested directors or the stock owned by them or by an
interested corporation, firm or other entity may be counted in determining the
presence of a quorum in a meeting of a committee of the Board of Directors of
the Corporation or at a meeting of the stockholders, as the case may be, at
which the contract or transaction is authorized, approved or ratified.
(d) (i) if a contract or transaction is not authorized, approved or
ratified in any one of the ways provided for in subsection
(b)(i) of this Section 3.6, the person asserting the validity
of the contract or transaction bears the burden of proving
that the contract or transaction was fair and reasonable to
the Corporation at the time it was authorized, approved or
ratified.
(ii) this subsection (d) does not apply to the fixing by a
committee of the Board of Directors of the Corporation of
reasonable compensation, whether as a member of such
committee or in any other capacity.
ARTICLE IV.
OFFICERS
SECTION 4.1. Executive Officers. The Corporation shall have a Chairman
------------------
of the Board (who shall be a director of the Corporation), a President, a
Secretary and a Treasurer. It may also have one or more Vice Presidents, one
or more Assistant Vice-Presidents, one or more Assistant Secretaries and one
or more Assistant Treasurers. A person may hold more than one office in
the Corporation except those of President and Vice-President, but no officer
shall
-13-
<PAGE>
execute, acknowledge or verify any instrument in more than one capacity, if
such instrument is required by law, the Charter or these Bylaws to be
executed, acknowledged or verified by two or more officers.
SECTION 4.2. Chairman of the Board. The Chairman of the Board shall be
---------------------
the chief executive officer of the Corporation and shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board shall have general powers of oversight, supervision and management of
the business and affairs of the Corporation and shall perform such other
duties as may be prescribed by the Board of Directors. Unless the Board of
Directors shall otherwise delegate such duties, the Chairman of the Board
shall be ex-officio a member of all standing committees.
SECTION 4.3. President. The President shall serve, under the general
---------
direction of the Chairman of the Board, as the Chief Operating Officer of the
Company. He shall have general and active management of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall execute bonds, mortgages and other
contracts except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation. The President shall, in the absence or disability of the Chairman
of the Board, perform the duties and exercise the powers of the Chairman of the
Board and shall perform such other duties as the Board of Directors or the
Chairman of the Board may from time to time prescribe.
SECTION 4.4. Vice Presidents. The Vice Presidents, in the order of
---------------
their seniority, unless otherwise determined by the Board of Directors or the
Chairman of the Board, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the
-14-
<PAGE>
President and shall perform such other duties as the Board of Directors or
the Chairman of the Board or the President may from time to time prescribe.
SECTION 4.5. Secretary. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or the Chairman of the Board or the President, under whose
supervision he shall be. He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors, affix the same to
any instrument and, when so affixed, it shall be attested by his signature or
by the signature of the Treasurer or an Assistant Secretary.
SECTION 4.6. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors taking proper vouchers for such disbursements, and
shall render to the Chairman of the Board and the Board of Directors, at the
regular meetings of the Board, or when the Board of Directors so requires, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in
-15-
<PAGE>
case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
SECTION 4.7. Assistant and Subordinate Officers. The Corporation may
----------------------------------
have such assistant and subordinate officers as the Board of Directors may
from time to time deem desirable. Each such officer shall hold office for such
period and perform such duties as the Board of Directors, the President or the
committee or officer designated pursuant to Section 4.09 may prescribe.
SECTION 4.8. Compensation. The Board of Directors shall have power to fix
------------
the salaries and other compensation and remuneration, of whatever kind, of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such
assistant and subordinate officers.
SECTION 4.9. Election, Tenure and Removal of Officers. The Board of
----------------------------------------
Directors shall elect the officers, except as provided in the following
sentence. The Board of Directors may (a) authorize the Chairman of the Board
to appoint, promote or remove any other officer of the Corporation (provided
that the foregoing shall not be deemed to impair the Chairman's ability to
resign as Chairman of the Board) and (b) authorize the President to appoint,
promote or remove any other officer of the Corporation except the Chairman of
the Board (provided that the foregoing shall not be deemed to impair the
President's ability to resign as President). All officers shall be appointed
to hold their offices, respectively, during the pleasure of the Board. Any
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors (at any meeting of the Board of Directors by affirmative
vote of a majority of the
-16-
<PAGE>
directors then in office) whenever in its judgment the best interests of the
Corporation would be served thereby. Any officer elected or appointed by the
Chairman of the Board or the President may be removed by the Chairman of the
Board or the President, as applicable (except with respect to the Chairman of
the Board), at any time without cause. In either case, such removal shall be
without prejudice to such removed officer's contract rights. The Board of
Directors, the Chairman of the Board or the President, as the case may be, may
fill a vacancy which occurs in an office for the unexpired portion of the
term.
ARTICLE V.
STOCK
SECTION 5.1. Certificates for Stock. Each stockholder is entitled to
----------------------
certificates which represent and certify the shares of stock he holds in the
Corporation provided, however, that certificates for fractional shares shall not
be issued. Each stock certificate shall include on its face the name of the
Corporation,the name of the stockholder or other person to whom it is issued
and the class of stock and number of shares it represents. It shall be in such
form, not inconsistent with law or with the Charter, as shall be approved by
the Board of Directors or any officer or officers designated for such purpose by
resolution of the Board of Directors. Each stock certificate shall be signed
by the Chairman of the Board, the President or a Vice President, and
countersigned by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer. Each certificate may be sealed with the actual corporate
seal or a facsimile of it or in any other form and the signatures may be
either manual or facsimile signatures. A certificate is valid and may be
issued whether or not an officer who signed it is still an officer when it is
-17-
<PAGE>
issued. A stock certificate may not be issued by the Corporation until the
stock represented by it is fully paid by the stockholder.
SECTION 5.2. Transfers. The Board of Directors shall have power and
---------
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.
SECTION 5.3. Legends. Every stock certificate representing shares of
-------
stock which are restricted as to transferability by the Corporation shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restriction to the stockholder on request and
without charge.
SECTION 5.4. Record Date and Closing of Transfer Books. The Board of
-----------------------------------------
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be more than ninety (90) days before the
date on which the action requiring the determination will be taken; the
transfer books may not be closed for a period longer than twenty (20) days;
and, in the case of a meeting of stockholders, the record date or the closing
of the transfer books shall be at least ten (10) days before the date of the
meeting.
SECTION 5.5. Stock Ledger. The Corporation shall maintain a stock
------------
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock ledger
may be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The
-18-
<PAGE>
original or a duplicate of the stock ledger shall be kept at the offices of
a transfer agent for the particular class of stock, within or without the
State of Maryland, or, if none, at the principal office of the principal
executive offices of the Corporation.
SECTION 5.6. Lost Stock Certificates. The Board of Directors or any
-----------------------
officer of the Corporation designated by the Board of Directors may determine
the conditions for issuing a new stock certificate in place of one which is
alleged to have been lost, stolen, or destroyed. In their discretion, the
Board of Directors or such officer or officers may refuse to issue such new
certificate except upon the order of some court having jurisdiction in the
premises.
ARTICLE VI.
FINANCE
SECTION 6.1. Checks, Drafts, Etc. All checks, drafts and orders for the
-------------------
payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the Chairman of the Board, the President, a
Vice President or an Assistant Vice President, and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary.
SECTION 6.2. Annual Statement of Affairs. The Chairman of the Board, the
---------------------------
President, a Vice President or the Treasurer shall prepare or cause to be
prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year, which shall be certified by independent
certified public accountants and distributed to shareholders within 120 days
after the close of the Corporation's fiscal year and a reasonable period of
time prior to the annual meeting of shareholders. Such
-19-
<PAGE>
annual statement shall also be submitted at the annual meeting and shall be
filed within twenty (20) days thereafter at the principal office of the
Corporation.
SECTION 6.3. Dividends. Dividends upon the capital stock of the
---------
Corporation, subject to the provisions of the Charter, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in its own shares, subject to
the provisions of any statute and of the Charter.
SECTION 6.4. Fiscal Year. The fiscal year of the Corporation for
-----------
purposes of preparing its tax returns shall be from January 1 to December 31
unless otherwise provided by the Board of Directors.
ARTICLE VII.
MISCELLANEOUS
SECTION 7.1. Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
the Bylaws shall be kept at the principal office of the Corporation.
SECTION 7.2. Corporate Seal. There shall be a suitable seal, bearing the
--------------
name of the Corporation, which shall be in the charge of the Secretary. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any
-20-
<PAGE>
offices or officers designated for such purpose by resolution of the Board of
Directors. The Board of Directors may authorize one or more duplicate seals
and provide for the custody thereof. If the Corporation is required to place
its corporate seal to a document, it is sufficient to meet the requirement of
any law, rule or regulation relating to the corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 7.3. Bonds. The Board of Directors may require any officer,
-----
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.4. Voting Upon Shares in Other Corporations. Stock of other
----------------------------------------
corporations or associations, registered in the name of the Corporation, may
be voted by the Chairman of the Board, the President, or any Vice President,
or a proxy appointed by any of them. The Board of Directors, however, may by
resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a
certified copy of such resolution.
SECTION 7.5. Mail. Any notice or other document which is required by
----
these Bylaws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.6. Execution of Documents. A person who holds more than one
----------------------
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
-21-
<PAGE>
EXHIBIT 11
CAPSTEAD MORTGAGE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------
1994 1993
--------- ---------
<S> <C> <C>
Primary:
Average number of common shares outstanding 15,202 14,943
Incremental shares calculated using the
Treasury Stock method 84 93
------- -------
15,286 15,036
======= =======
Net income $23,469 $22,904
Less cash dividends paid on convertible
preferred stock:
Series A paid ($.40 paid per share) (273) (343)
Series B paid ($.315 paid per share) (9,407) (9,283)
------- -------
Net income available to common stockholders $13,789 $13,278
======= =======
Primary net income per share $0.90 $0.88
Fully diluted:
Average number of common shares outstanding 15,202 14,943
Assumed conversion of convertible
preferred stock:
Series A 632 817
Series B * *
Incremental shares calculated using the
Treasury stock method 82 108
------- -------
15,916 15,868
======= =======
Net income $23,469 $22,904
Less cash dividends paid on the Series B
preferred stock (9,407) (9,283)
------- -------
Net income $14,062 $13,621
======= =======
Fully diluted net income per share $0.88 $0.86
</TABLE>
* The Series B Preferred Stock is not considered convertible for purposes of
calculating fully diluted net income per share as it is currently
antidilutive.
