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PROSPECTUS FILED PURSUANT TO RULE 424(B)(3)
SEC FILE NO. 33-62212
[CAPSTEAD LOGO APPEARS HERE]
CAPSTEAD MORTGAGE CORPORATION
COMMON STOCK, PREFERRED STOCK,
DEBT SECURITIES, WARRANTS TO PURCHASE COMMON STOCK,
WARRANTS TO PURCHASE PREFERRED STOCK AND
WARRANTS TO PURCHASE DEBT SECURITIES
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Capstead Mortgage Corporation, a Maryland corporation (the "Company"),
directly or through agents, dealers or underwriters designated from time to
time, may issue and sell from time to time one or more of the following types
of its securities (the "Securities"): (i) shares of its common stock, par
value $0.01 per share ("Common Stock"); (ii) shares of its preferred stock,
par value $0.10 per share, in one or more series ("Preferred Stock"); (iii)
debt securities, in one or more series, any series of which may be either
secured debt securities, senior debt securities or subordinated debt
securities (collectively, "Debt Securities" and, as appropriate, "Secured Debt
Securities," "Senior Debt Securities" or "Subordinated Debt Securities"); (iv)
warrants to purchase shares of Common Stock ("Common Stock Warrants"); (v)
warrants to purchase shares of Preferred Stock ("Preferred Stock Warrants");
(vi) warrants to purchase Debt Securities ("Debt Warrants") and (vii) any
combination of the foregoing, either individually or as units consisting of
one or more of the foregoing types of Securities. The Securities offered
pursuant to this Prospectus may be issued in one or more series, in amounts,
at prices and on terms to be determined at the time of the offering of each
such series. The Securities offered by the Company pursuant to this Prospectus
will be limited to $500,000,000 aggregate initial public offering price,
including the exercise price of any Common Stock Warrants, Preferred Stock
Warrants and Debt Warrants (collectively, "Securities Warrants").
The specific terms of each offering of Securities in respect of which this
Prospectus is being delivered are set forth in an accompanying Prospectus
Supplement (each, a "Prospectus Supplement") relating to such offering of
Securities. Such specific terms include, without limitation, to the extent
applicable (1) in the case of any series of Preferred Stock, the specific
designations, rights, preferences, privileges and restrictions of such series
of Preferred Stock, including the dividend rate or rates or the method for
calculating same, dividend payment dates, voting rights, liquidation
preferences, and any conversion, exchange, redemption or sinking fund
provisions; (2) in the case of any series of Debt Securities, the specific
designations, rights and restrictions of such series of Debt Securities,
including without limitation whether the Debt Securities are Secured Debt
Securities, Senior Debt Securities or Subordinated Debt Securities, the
currency in which such Debt Securities are denominated and payable, the
aggregate principal amount, stated maturity, method of calculating and dates
for payment of interest and premium, if any, and any conversion, exchange,
redemption or sinking fund provisions; (3) in the case of Securities Warrants,
the Debt Securities, Preferred Stock or Common Stock, as applicable, for which
each such warrant is exercisable, and the exercise price, duration,
detachability and call provisions of each such warrant; and (4) in the case of
any offering of Securities, to the extent applicable, the initial public
offering price or prices, listing on any securities exchange, certain federal
income tax consequences and the agents, dealers or underwriters, if any,
participating in the offering and sale of the Securities. If so specified in
the applicable Prospectus Supplement, any series of Securities may be issued
in whole or in part in the form of one or more temporary or permanent Global
Securities, as defined herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION AND NEITHER
THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company and the Selling Stockholders may sell all or a portion of any
offering of its Securities through agents, to or through underwriters or
dealers, or directly to other purchasers. See "Plan of Distribution." The
related Prospectus Supplement for each offering of Securities sets forth the
name of any agents, underwriters or dealers involved in the sale of such
Securities and any applicable fee, commission, discount or indemnification
arrangement with any such party. The Company will not receive any of the
proceeds from the sale of any Common Stock by the Selling Stockholders. See
"Use of Proceeds."
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement. The delivery in any jurisdiction of
this Prospectus together with a Prospectus Supplement relating to specific
Securities shall not constitute an offer in such jurisdiction of any other
Securities covered by this Prospectus but not described in such Prospectus
Supplement.
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THE DATE OF THIS PROSPECTUS IS DECEMBER 6, 1996
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY DISTRIBUTION OF SECURITIES BEING OFFERED
PURSUANT TO THIS PROSPECTUS AND AN ACCOMPANYING PROSPECTUS SUPPLEMENT SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THEREOF. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and proxy and information
statements filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048 and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material may be obtained from the Public Reference
Section of the Commission at its principal office in Washington, D.C., at
prescribed rates or may be examined without charge at such office of the
Commission. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005-2601, on
which outstanding shares of the Company's Common Stock, Series A Preferred
Stock and Series B Preferred Stock are listed.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities offered hereby.
For further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference
is made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
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2. The Company's definitive Proxy Statement dated March 7, 1996, issued
in connection with the annual meeting of stockholders of the Registrant;
3. The Company's Quarterly Reports on Form 10-Q for each of the fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30,1996;
4. The Company's current report on Form 8-K filed with the Commission on
September 20, 1996; and
5. The Company's Registration Statement on Form 8-A dated May 14, 1985,
as amended, registering the Company's Common Stock pursuant to Section
12(b) of the Exchange Act.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein, in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information
appearing in the documents incorporated herein by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and an accompanying
Prospectus Supplement is delivered, upon the written or oral request of any
such person, a copy of any document described above (other than exhibits).
Written requests for such copies should be directed to Capstead Mortgage
Corporation, 2711 North Haskell, Suite 900, Dallas, Texas 75204, Attention:
Investor Relations. The Company's telephone number is (214) 874-2323.
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THE COMPANY
Capstead Mortgage Corporation (the "Company"), together with certain
affiliated entities, operates a mortgage conduit which purchases and
securitizes different types of single-family residential mortgage loans. The
Company generates earnings primarily from the interest income on its
consolidated mortgage loan portfolio which includes its investments in whole
mortgage loans, AAA-rated private mortgage pass-through securities and its
investments in whole mortgage loans or securities pledged to secure
collateralized mortgage obligations ("CMOs") or pooled in connection with the
issuance of publicly-offered pass-through securities. The mortgage pass-
through securities and CMOs are issued by certain affiliated entities of the
Company.
Commencing in 1993, the Company began servicing a portion of its mortgage
loan investments. Mortgage loan servicing includes collection activities,
accounting for principal and interest payments, escrow administration and
other responsibilities relating to the administration of the mortgage loans.
In exchange for providing this service, the Company will receive periodically
a servicing fee representing an annualized percentage of the outstanding
principal balance of each such mortgage loan. The Company may enter into other
short- or long-term investment strategies as opportunities arise.
The Company, and its qualified real estate investment trust ("REIT")
subsidiaries, have elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), and intend to continue to do so. As a
result of this election, the Company and such subsidiaries are not taxed at
the corporate level on taxable income distributed to stockholders, provided
that certain REIT qualification tests are met. Certain other affiliated
entities which are consolidated with the Company for financial reporting
purposes, are not consolidated for federal income tax purposes because such
entities were not established as REITs or qualified REIT subsidiaries. All
taxable income of these affiliated entities are subject to federal and state
income taxes, where applicable.
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the net proceeds from the sale of Securities offered
by the Company will be available for the general corporate purposes of the
Company. These general corporate purposes may include, without limitation,
repayment of maturing obligations, redemption of outstanding indebtedness,
financing (in whole or part) future acquisitions (including acquisitions of
companies and/or assets and of mortgage loans, servicing rights and other
mortgage-related products), capital expenditures and working capital. Pending
any such uses, the Company may invest the net proceeds from the sale of any
Securities or may use them to reduce short-term indebtedness.
If Debt Securities are issued to one or more persons in exchange for the
Company's outstanding debt securities, the accompanying Prospectus Supplement
related to such offering of Debt Securities will set forth the aggregate
principal amount of outstanding debt securities which the Company will receive
in such exchange and which will cease to be outstanding, the residual cash
payment, if any, which the Company may receive from such persons or which such
persons may receive from the Company, as appropriate, the dates from which the
Company will pay interest accrued on the outstanding debt securities to be
exchanged for the offered Debt Securities and an estimate of the Company's
expenses in respect of such offering of the Debt Securities.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to combined
fixed charges and preferred stock dividends of the Company for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------
1995 1994 1993 1992(A) 1991
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends(b).......... 1.13:1 1.17:1 1.18:1 1.13:1 1.17:1
</TABLE>
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(a) This financial information reflects the effects of a merger between the
Company and Tyler Cabot Mortgage Securities Fund, subsequent to the
merger's consummation in December 1992.
(b) Includes fixed charges related to CMO's issued by the Company's finance
subsidiaries. Excluding interest expense on CMO debt, the ratio of
earnings to combined fixed charges and preferred stock dividends would
have been 1.30:1, 1.48:1, 1.79:1, 1.80:1 and 1.87:1, respectively, for the
periods indicated.
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DESCRIPTION OF SECURITIES
GENERAL
The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Common Stock, par value $0.01
per share; (ii) shares of its Preferred Stock, par value $0.10 per share, in
one or more series; (iii) Debt Securities, in one or more series, any series
of which may be either Secured Debt Securities, Senior Debt Securities or
Subordinated Debt Securities; (iv) Common Stock Warrants; (v) Preferred Stock
Warrants; (vi) Debt Warrants; and (vii) any combination of the foregoing,
either individually or as units consisting of one or more of the types of
Securities described in clauses (i) through (vi). The terms of any specific
offering of Securities, including the terms of any units offered, will be set
forth in a Prospectus Supplement relating to such offering.
The authorized capital stock of the Company currently consists of
100,000,000 shares of Common Stock, par value $0.01 per share, and 100,000,000
shares of Preferred Stock, par value $0.10 per share. As of September 13, 1996
the Company had 39,361,806 shares of its Common Stock, 494,770 shares of its
$1.60 Cumulative Preferred Stock, Series A ("Series A Preferred Stock") and
28,744,729 shares of its $1.26 Cumulative Convertible Preferred Stock, Series
B ("Series B Preferred Stock") issued and outstanding. The Common Stock,
Series A Preferred Stock and Series B Preferred Stock are listed on the New
York Stock Exchange. The Company intends to list any additional shares of its
Common Stock which are issued and sold hereunder. The Company may list any
additional series of its Preferred Stock which are offered and sold hereunder,
as described in the Prospectus Supplement relating to such series of Preferred
Stock.
REDEMPTION OR REPURCHASE OF CAPITAL STOCK TO MAINTAIN THE COMPANY'S STATUS AS
A REIT
The Company's charter provides that if the Board of Directors determines in
good faith that the direct or indirect ownership of stock of the Company has
or may become concentrated to an extent which would cause the Company to fail
to qualify or be qualified as a REIT under Sections 856(a)(5) or (6) of the
Internal Revenue Code of 1986, as amended (the "Code"), or similar provisions
of successor statutes, the Company may redeem or repurchase any number of
shares of Common Stock and/or Preferred Stock sufficient to maintain or bring
such ownership into conformity with the Code and may refuse to transfer or
issue shares of Common Stock and/or Preferred Stock to any person whose
acquisition would result in the Company being unable to conform with the
requirements of the Code. In general, Code Sections 856(a)(5) and (6) provide
that, as a REIT, the Company must have at least 100 beneficial owners for 335
days of each taxable year and that the Company cannot qualify as a REIT if, at
any time during the last half of the Company's taxable year, more than 50% in
value of its outstanding stock is owned, directly or indirectly, by or for not
more than five individuals. In addition, the charter provides that the Company
may redeem or refuse to transfer any shares of capital stock of the Company
necessary to prevent the imposition of a penalty tax as a result of ownership
of such shares by certain disqualified organizations, including governmental
bodies and tax-exempt entities that are not subject to tax on unrelated
business taxable income. The redemption or purchase price for any such shares
shall be equal to the fair market value of such shares as reflected in the
closing sales price for the shares if then listed on a national securities
exchange, or the average of the closing sales prices for the shares if then
listed on more than one national securities exchange, or if the shares are not
then listed on a national securities exchange, the latest bid quotation for
the shares if then traded over-the-counter on the last business day for which
closing prices are available immediately preceding the day on which notices of
such acquisitions are sent or, if no such closing sales prices or quotations
are available, then the net asset value of such stock as determined by the
Board of Directors in accordance with the provisions of applicable law.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
Business Combination Statute. The Maryland General Corporation Law
establishes special requirements with respect to "business combinations"
between Maryland corporations and "interested stockholders" unless exemptions
are applicable. Among other things, the law prohibits for a period of five
years a merger and other
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specified or similar transactions between a Maryland corporation and an
interested stockholder and requires a super-majority vote for such
transactions after the end of such five-year period.
"Interested stockholders" are all persons owning beneficially, directly or
indirectly, 10% or more of the outstanding voting stock of a Maryland
corporation after the date on which the corporation had 100 or more beneficial
owners of its stock, or is an affiliate or associate of the corporation and
was the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding stock of the corporation at any time within the
two-year period immediately prior to the date in question and after the date
on which the corporation had 100 or more beneficial owners. "Business
combinations" include any merger or similar transaction subject to a statutory
vote and additional transactions involving transfers of assets or securities
in specified amounts (other than in the ordinary course of business or
pursuant to a dividend or any other method affording substantially
proportionate treatment to the holders of voting stock) to interested
stockholders or their affiliates. Unless an exemption is available,
transactions of these types may not be consummated between a Maryland
corporation and an interested stockholder or its affiliates for a period of
five years after the date on which the stockholder first became an interested
stockholder and thereafter may not be consummated unless recommended by the
board of directors of the Maryland corporation and approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and 66 2/3% of the votes entitled to be
cast by all holders of outstanding shares of voting stock other than the
interested stockholder. A business combination with an interested stockholder
which is approved by the board of directors of a Maryland corporation at any
time before an interested stockholder first becomes an interested stockholder
is not subject to the 5-year moratorium or the special voting requirements. An
amendment to a Maryland corporation's charter electing not to be subject to
the foregoing requirements must be approved by the affirmative vote of at
least 80% of the votes entitled to be cast by all holders of outstanding
shares of voting stock and 66 2/3% of the votes entitled to be cast by holders
of outstanding shares of voting stock who are not interested stockholders. Any
such amendment is not effective until 18 months after the vote of stockholders
and does not apply to any business combination of a corporation with a
stockholder who was an interested stockholder on the date of the stockholder
vote. The Company has not adopted any such amendment to its charter.
Control Share Acquisition Statute. The Maryland General Corporation Law
imposes limitations on the voting rights of shares acquired in a "control
shares acquisition." The Maryland statute defines a "control share
acquisition" at the 20%, 33 1/3% and 50% acquisition levels, and requires a
two-thirds stockholder vote (excluding shares owned by the acquiring person
and certain members of management) to accord voting rights to stock acquired
in a control share acquisition. The statute also requires Maryland
corporations to hold a special meeting at the request of an actual or proposed
control share acquiror generally within 50 days after a request is made with
the submission of an "acquiring person statement," but only if the acquiring
person (a) posts a bond for the cost of the meeting and (b) submits a
definitive financing agreement to the extent that financing is not provided by
the acquiring person. In addition, unless the charter or bylaws provide
otherwise, the statute gives the Maryland corporation, within certain time
limitations, various redemption rights if there is a stockholder vote on the
issue and the grant of voting rights is not approved, or if an "acquiring
person statement" is not delivered to the target within 10 days following a
control share acquisition. Moreover, unless the charter or bylaws provide
otherwise, the statute provides that if, before a control share acquisition
occurs, voting rights are accorded to control shares which results in the
acquiring person having majority voting power, then minority stockholders have
appraisal rights. An acquisition of shares may be exempted from the control
share statute provided that a charter or bylaw provision is adopted for such
purpose prior to the control share acquisition. There are no such provisions
in the charter or bylaws of the Company.
Reference is made to the full text of the foregoing statutes for their
entire terms, and the partial summary contained in this Prospectus is not
intended to be complete.
COMMON STOCK
GENERAL
Each share of Common Stock, par value $0.01 per share, is entitled to one
vote. The outstanding shares of Common Stock are fully paid and non-
assessable. Holders of shares of Common Stock do not have cumulative
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voting rights or preference, conversion, exchange, subscription or preemptive
rights. Subject to the Company's obligations to pay dividends on all shares of
its outstanding Preferred Stock, including the Series A Preferred Stock and
Series B Preferred Stock, each share of Common Stock is entitled to
participate equally in dividends on the Common Stock when and as declared by
the Board of Directors of the Company and in the distribution of assets of the
Company upon liquidation after payment of liabilities and liquidation
preferences with regard to the Preferred Stock, including the Series A and
Series B Preferred Stock. The foregoing summary does not purport to be a
complete description of the Common Stock and is subject to, and qualified in
its entirety by reference to, the Company's charter and bylaws, in each case
as amended and supplemented to date and filed as exhibits to the Registration
Statement.
As of the date of this Prospectus, the charter of the Company authorizes the
issuance of 100,000,000 shares of Common Stock. As of September 13, 1996,
39,361,806 shares of Common Stock were issued and outstanding.
PREFERRED STOCK
GENERAL
The Board of Directors has authority to issue authorized but unissued shares
of Preferred Stock, par value $0.10 per share, without further approval of the
stockholders, subject to certain restrictions described below, and to fix the
preferences, limitations and relative rights thereof, including voting rights,
dividend rights, conversion rights, redemption rights and liquidation rights
of each series of Preferred Stock. As of the date of this Prospectus, the
charter of the Company authorizes the issuance of 100,000,000 shares of
Preferred Stock. As of September 13, 1996, 494,770 shares of Series A
Preferred Stock and 28,744,729 shares of Series B Preferred Stock were issued
and outstanding, as described hereafter.
Any series of Preferred Stock offered hereby will be fully paid and
nonassessable, and for each such share of Preferred Stock issued, a sum equal
to the stated value will be credited to the Company's Preferred Stock Account.
The rights, preferences, privileges and restrictions of each series of
Preferred Stock in respect of which this Prospectus is delivered shall be
described in an accompanying Prospectus Supplement. Except to the extent
specified otherwise in any Prospectus Supplement, each series of Preferred
Stock offered hereby will rank on a parity in all respects with the
outstanding Series A Preferred Stock and Series B Preferred Stock of the
Company. Among the terms of each series of Preferred Stock which would be
specified in an accompanying Prospectus Supplement are the following:
(a) The maximum number of shares to constitute such series of Preferred
Stock and the designation thereof;
(b) The annual dividend rate, if any, or the means by which such dividend
rate may be calculated (including without limitation the possibility that
the rate of such dividends may bear an inverse relationship to some index
or standard) and the date or dates from which such dividends shall accrue
and the date or dates on which such dividends shall be paid and whether
such dividends shall be cumulative;
(c) The price at which and the terms and conditions on which the shares
of such series of Preferred Stock may be redeemed, including the period of
time during which such shares may be redeemed, any premium to be paid over
and above the par value of such shares of Preferred Stock, whether and to
what extent accumulated dividends on such shares of Preferred Stock will be
paid upon the redemption of such shares;
(d) The liquidation preference, if any, over and above the par value of
such shares of Preferred Stock and whether and to what extent the holders
of such shares of Preferred Stock shall be entitled to accumulated
dividends in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Company;
(e) Whether the shares of such series of Preferred Stock shall be subject
to the operation of a retirement or sinking fund and, if so, a description
of the operation of such retirement or sinking fund;
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(f) The terms and conditions, if any, on which the shares of Preferred
Stock may be convertible into, or exchangeable for, shares of any other
class or classes of stock of the Company, including the price or rate of
conversion or exchange and the method for effecting such conversion or
exchange, provided that no shares of any series of Preferred Stock will be
convertible into shares of a class that has superior rights or preferences
as to dividends or distribution of assets of the Company upon the voluntary
or involuntary dissolution or liquidation of the Company;
(g) A description of the voting rights, if any, on the shares of such
series of Preferred Stock; and
(h) Other preferences, rights, qualifications or restrictions or material
terms of such shares of Preferred Stock.
The description of the foregoing provisions of each series of the Preferred
Stock as set forth in the related Prospectus Supplement for such series does
not purport to be complete and is subject to and qualified in its entirety by
reference to the definitive Articles Supplementary relating to such series of
Preferred Stock. The definitive Articles Supplementary relating to each series
of Preferred Stock will be filed with the Commission by means of a Current
Report on Form 8-K in connection with the offering of such series of Preferred
Stock.
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
General. In November, 1989, a wholly-owned subsidiary of the Company was
merged with and into Strategic Mortgage Corporation, a Maryland corporation
("Strategic"), and each outstanding share of Strategic common stock was
converted into one share of Series A Preferred Stock of the Company. In
December, 1992, Tyler Cabot Mortgage Securities Fund, Inc., a Maryland
corporation ("Tyler Cabot"), was merged with and into the Company, and each
outstanding share of Tyler Cabot common stock was converted into one share of
Series B Preferred Stock of the Company. The Series A Preferred Stock and
Series B Preferred Stock are fully paid and non-assessable and neither has
preemptive rights. The Series A Preferred Stock ranks on a parity with the
Series B Preferred Stock, and each rank on a parity with any other series of
the Company's Preferred Stock which is not by its terms made junior or senior
to the Series A Preferred Stock or Series B Preferred Stock with respect to
the payment of dividends and distribution of assets in liquidation.
Dividends. Holders of the Series A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company out of funds
legally available therefor, cumulative preferential cash dividends at the rate
of $1.60 per annum per share, and no more, payable in equal quarterly
installments on each March 31, June 30, September 30 and December 31. Holders
of the Series B Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors of the Company out of funds legally
available therefore, cumulative preferential cash dividends at the annual rate
of $1.26 per share, and no more, payable in equal monthly installments on each
monthly dividend payment date. Whenever dividends are in arrears and until all
accrued and unpaid dividends on shares of Series A and Series B Preferred
Stock outstanding have been paid in full and the then current dividend on each
such series shall have been paid or declared and sufficient funds set aside
for payment thereof, the Company may not declare or pay dividends on the
Common Stock or any other class or series of capital stock ranking junior to
the Series A Preferred Stock and the Series B Preferred Stock in respect of
dividends ("Junior Stock") or redeem, purchase or otherwise acquire for
consideration any shares of Common Stock or Junior Stock.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of the Series
A Preferred Stock and the Series B Preferred Stock will be entitled to receive
out of the assets of the Company available for distribution to stockholders,
whether from capital, surplus or earnings, before any distribution is made to
holders of shares of Common Stock or Junior Stock (1) in the case of the
Series A Preferred Stock, an amount equal to $16.40 per share of Series A
Preferred Stock and (2) in the case of Series B Preferred Stock, an amount per
share of Series B Preferred Stock equal to $11.38 per share of Series B
Preferred Stock, in each case, plus dividends accumulated and unpaid to the
date of final distribution. A consolidation or merger of the Company with or
into any other corporation or transfer of all
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or any part of the Company's assets for cash, property or securities will not
be considered a liquidation, dissolution or winding-up of the Company.
Voting Rights. Except as indicated below, as otherwise provided in the
Company's charter or as required under the Maryland General Corporation Law,
neither the holders of shares of Series A Preferred Stock or Series B
Preferred Stock will have voting rights. If at any time all or any portion of
the dividends on the Series A Preferred Stock or Series B Preferred Stock
shall be in arrears and unpaid for any two or more dividend periods (whether
or not consecutive), then the number of directors constituting the Board of
Directors of the Company shall be increased by two in case of such arrearages
on one of the Series A Preferred Stock or Series B Preferred Stock and four in
the case of arrearages on both. The holders of Series A Preferred Stock and
Series B Preferred Stock, voting separately as a class, will each be entitled
to elect two directors to fill such newly created directorships. At such time
as all dividends in default have been paid in full and dividends for the
current quarterly period have been paid or declared and a sufficient sum for
payment has been set aside, the term of any director then in office solely as
a result of the voting rights described in this paragraph will terminate.
The affirmative vote of at least two-thirds of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, in each case voting
separately as a class, will be required to (i) create or increase the number
of authorized shares of any class of stock ranking prior to the Series A
Preferred Stock or Series B Preferred Stock as to dividends or distributions
upon liquidation, (ii) authorize any reclassification of Series A Preferred
Stock or Series B Preferred Stock, or (iii) amend, alter or repeal any
provisions of the Company's charter which would adversely affect the rights,
powers or preferences of the Series A Preferred Stock or Series B Preferred
Stock.
So long as 20% or more of the aggregate number of shares of Series B
Preferred Stock issued in connection with the Tyler Cabot merger remain
outstanding, the affirmative vote of at least a majority of the outstanding
shares of such Series B Preferred Stock will be required for the sale, lease
or conveyance by the Company of all or substantially all of its property or
business, or its consolidation or merger with any other corporation unless the
corporation resulting from such consolidation or merger will have after such
consolidation or merger no class of shares either authorized or outstanding
ranking prior to or on a parity with the Series B Preferred Stock except the
same number of shares ranking prior to or on a parity with the Series B
Preferred Stock and having the same rights and preferences as the shares of
the Company authorized and outstanding immediately preceding such
consolidation or merger, and each holder of Series B Preferred Stock
immediately preceding such consolidation or merger shall receive the same
number of shares, with the same rights and preferences, of the resulting
corporation.
Except as described herein or otherwise required by law, no consent of the
holders of Series B Preferred Stock will be required for (i) the creation of
any indebtedness of any kind of the Company, (ii) the creation, or increase or
decrease in the amount, of any class or series of stock of the Company ranking
on a parity with, or not ranking prior to, the Series B Preferred Stock as to
dividends or as to amounts distributable upon liquidation or (iii) any
increase or decrease in the amount of authorized Common Stock or any increase,
decrease or change in the par value thereof.
Redemption. Neither the Series A Preferred Stock nor the Series B Preferred
Stock is subject to mandatory redemption and neither is entitled to the
benefit of a sinking fund. The Company at its option may redeem the Series A
Preferred Stock, in whole or in part, for cash in an amount per share equal to
$16.40 plus accumulated and unpaid dividends to the date of redemption,
whether or not earned or declared. At any time after December 2, 1997, the
Company may at its option redeem the Series B Preferred Stock, in whole or in
part, for cash in an amount per share equal to $12.50 plus accumulated and
unpaid dividends to the date of redemption, whether or not earned or declared.
Conversion Rights. Holders of the Series A Preferred Stock may, at their
option, convert shares of Series A Preferred Stock into shares of Common Stock
at the rate (the "Series A Conversion Rate") of 2.0424 shares of Common Stock
for each share of Series A Preferred Stock converted. Holders of Series B
Preferred
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Stock may, at their option, convert shares of Series B Preferred Stock into
shares of the Company's Common Stock at the rate (the "Series B Conversion
Rate") of .7247 shares of the Company's Common Stock for each share of Series
B Preferred Stock converted. The Series A and Series B Conversion Rates are
subject to adjustment in certain circumstances.
DEBT SECURITIES
GENERAL
The Company may offer one or more series of its Debt Securities representing
either general, unsecured obligations of the Company or obligations secured by
specific assets. Any series of Debt Securities may either (1) be secured by
certain assets of the Company ("Secured Debt Securities"), (2) rank prior to
all subordinated indebtedness of the Company and pari passu with all other
unsecured indebtedness of the Company outstanding on the date of the issuance
of such Debt Securities ("Senior Debt Securities") or (3) be subordinated in
light of payments to certain other obligations of the Company outstanding on
the date of issuance ("Subordinated Debt Securities"). In this Prospectus, any
indenture relating to Secured Debt Securities is referred to as a "Secured
Indenture," any indenture relating to Senior Debt Securities is referred to as
a "Senior Indenture," any indenture relating to Subordinated Debt Securities
is referred to as a "Subordinated Indenture" and the term "Indenture" refers
to Secured, Senior and Subordinated Indentures, collectively. Forms of a
Secured Indenture, a Senior Indenture and a Subordinated Indenture are filed
as exhibits to the Registration Statement.
The aggregate principal amount of Debt Securities which may be issued by the
Company will be set from time to time by the Board of Directors. Further, the
amount of Debt Securities which may be offered by this Prospectus will be
subject to the aggregate initial offering price of Securities specified in the
Registration Statement. Each Indenture will permit the issuance of an
unlimited amount of Debt Securities thereunder from time to time in one or
more series. Additional debt securities may be issued pursuant to another
registration statement for issuance under any Indenture. Any offering of Debt
Securities may be denominated in any currency or currency composite designated
by the Company.
The following description of the Debt Securities which may be offered by the
Company hereunder describes certain general terms and provisions of the Debt
Securities to which any Prospectus Supplement may relate. The particular terms
of any offering of Debt Securities and the extent to which the following
general provisions may apply to such offering of Debt Securities will be
described in the accompanying Prospectus Supplement relating to such offering
of Debt Securities. The following descriptions of certain provisions of the
Indentures do not purport to be complete and are qualified in their entirety
by reference to the form of Secured Indenture, Senior Indenture or
Subordinated Indenture, as appropriate, filed as exhibits to the Registration
Statement and to the definitive Indenture relating to each such offering of
Debt Securities. The definitive Indenture relating to each offering of Debt
Securities will be filed with the Commission by means of a Current Report on
Form 8-K in connection with the offering of such Debt Securities. All article
and section references appearing herein are references to the articles and
sections of the appropriate Indenture and, unless defined herein, all
capitalized terms have the respective meanings specified in the appropriate
Indenture.
The Prospectus Supplement relating to any offering of Debt Securities will
set forth the following terms and other information to the extent applicable
with respect to the Debt Securities being offered thereby: (1) the
designation, aggregate principal amount, authorized denominations and priority
of such Debt Securities; (2) the price (expressed as a percentage of the
aggregate principal amount of such Debt Securities) at which such Debt
Securities will be issued; (3) the currency or currency units for which the
Debt Securities may be purchased and in which the principal of, and any
interest on, such Debt Securities may be payable; (4) the stated maturity of
such Debt Securities or means by which a maturity date may be determined; (5)
the rate at which such Debt Securities will bear interest or the method by
which such rate of interest is to be calculated (which rate may be zero in the
case of certain Debt Securities issued at a price representing a discount from
the principal amount
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payable at maturity); (6) the periods during which such interest will accrue,
the dates on which such interest will be payable (or the method by which such
dates may be determined; including without limitation that such rate of
interest may bear an inverse relationship to some index or standard) and the
circumstances under which the Company may defer payment of interest; (7)
redemption provisions, including any optional redemption, required repayment
or mandatory sinking fund provisions; (8) any terms by which such Debt
Securities may be convertible into shares of the Company's Common Stock,
Preferred Stock or any other Securities of the Company, including a
description of the Securities into which any such Debt Securities are
convertible; (9) any terms by which the principal of such Debt Securities will
be exchangeable for any other Securities of the Company; (10) whether such
Debt Securities are to be issuable as definitive Fully-Registered Securities
(as defined below) or Global Securities and, if Global Securities are to be
issued, the terms thereof, including the manner in which interest thereon will
be payable to the beneficial owners thereof and other book-entry procedures,
any terms for exchange of such Global Securities into definitive Fully-
Registered Securities (as defined below) and any provisions relating to the
issuance of a temporary Global Security; (11) any additional restrictive
covenants included for the benefit of the holders of such Debt Securities;
(12) any additional events of default provided with respect to such Debt
Securities; (13) the terms of any Securities being offered together with such
Debt Securities; (14) whether such Debt Securities represent general,
unsecured obligations of the Company or whether they are secured by specific
assets and, if so, a description of such assets; and (15) any other material
terms of such Debt Securities.
If any of the Debt Securities are sold for foreign currency units, the
restrictions, elections, tax consequences, specific terms, and other
information with respect to such issue of Debt Securities and such currencies
or currency units will be set forth in the Prospectus Supplement relating
thereto.
INDENTURE PROVISIONS
The Debt Securities may be issued in definitive, fully registered form
without coupons ("Fully Registered Securities"), or in a form registered as to
principal only with coupons or in bearer form with coupons. Unless otherwise
specified in the Prospectus Supplement, the Debt Securities will be only Fully
Registered Securities. In addition, Debt Securities of a series may be
issuable in the form of one or more Global Securities, which will be
denominated in an amount equal to all or a portion of the aggregate principal
amount of such Debt Securities. See "Global Securities" below.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
that at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be
described in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the related Prospectus Supplement for a series
of Debt Securities, there are no provisions contained in the Indentures that
would afford holders of Debt Securities protection in the event of a highly
leveraged transaction involving the Company.
Global Securities. Any series of Debt Securities may be issued in whole or
in part in the form of one or more Global Securities that will be deposited
with, or on behalf of, the depositary identified in the Prospectus Supplement
relating to such series. Unless and until it is exchanged in whole or in part
for Debt Securities in individually certificated form, a Global Security may
not be transferred except as a whole to a nominee of the depositary for such
Global Security, or by a nominee for the depositary to the depositary, or to a
successor of the depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any series
of Debt Securities and the rights of, and limitations on, owners of beneficial
interests in a Global Security representing all or a portion of a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series.
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Modification of Indentures. Unless otherwise specified in the related
Prospectus Supplement, each Indenture, the rights and obligations of the
Company, and the rights of the Holders may be modified with respect to one or
more series of Debt Securities issued under such Indenture with the consent of
the Holders of not less than a majority in principal amount of the outstanding
Debt Securities of each such series affected by the modification or amendment.
No modification of the terms of payment of principal or interest, and no
modification reducing the percentage required for modification, is effective
against any Holder without his consent.
Events of Default. Unless otherwise specified in the related Prospectus
Supplement, each Indenture will provide that the following are Events of
Default with respect to any series of Debt Securities issued thereunder: (1)
default in the payment of the principal of any Debt Security of such series
when and as the same shall be due and payable; (2) default in making a sinking
fund payment, if any, when and as the same shall be due and payable by the
terms of the Debt Securities of such series; (3) default for 30 days in the
payment of any installment of interest on any Debt Securities of such series;
(4) default for a specified number of days after notice in the performance of
any other covenants in respect of the Debt Securities of such series contained
in the Indenture; (5) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator, or trustee of
the Company or its property; and (6) any other Event of Default provided in
the applicable Board of Directors' Resolution or supplemental indenture under
which such series of Debt Securities is issued. An Event of Default with
respect to a particular series of Debt Securities issued under an Indenture
will not necessarily constitute an Event of Default with respect to any other
series of Debt Securities issued under such Indenture. The trustee under an
Indenture may withhold notice to the Holders of any series of Debt Securities
of any default with respect to such series (except in the payment of principal
or interest) if it considers such withholding in the interests of such
Holders.
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the appropriate trustee under the Indenture
or the Holders of not less than 25% in aggregate principal amount of the Debt
Securities of such series may declare the principal, or in the case of
discounted Debt Securities, such portion thereof as may be described in the
Prospectus Supplement, of all the Debt Securities of such series to be due and
payable immediately.
Within four months after the close of each fiscal year, the Company will
file with each trustee under the Indentures a certificate, signed by specified
officers, stating whether or not such officers have knowledge of any default,
and, if so, specifying each such default and the nature thereof.
Subject to provisions relating to its duties in case of default, a trustee
under the Indentures shall be under no obligation to exercise any of its
rights or powers under the applicable Indenture at the request, order, or
direction of any Holders, unless such Holders shall have offered to such
trustee reasonable indemnity. Subject to such provisions for indemnification,
the Holders of a majority in principal amount of the Debt Securities of any
series may direct the time, method, and place of conducting any proceeding for
any remedy available to the appropriate trustee, or exercising any trust or
power conferred upon such trustee, with respect to the Debt Securities of such
series.
Payment and Transfer. Principal of, and premium and interest, if any, on,
Fully Registered Securities will be payable at the corporate trust office of
the trustee or any other office maintained by the Company for such purposes,
provided that payment of interest, if any, will be made, unless otherwise
provided in the applicable Prospectus Supplement, by check mailed to the
persons in whose names such Debt Securities are registered at the close of
business on the day or days specified in the Prospectus Supplement. The
principal of, and premium and interest, if any, on, Debt Securities in other
forms will be payable in the manner and at the place or places as designated
by the Company and specified in the applicable Prospectus Supplement.
Fully Registered Securities may be transferred or exchanged at the corporate
trust office of the trustee or any other office or agency maintained by the
Company for such purposes, subject to the limitations in the applicable
Indenture, without the payment of any service charge except for any tax or
governmental charge
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incidental thereto. Provisions with respect to the transfer and exchange of
Debt Securities in other forms will be set forth in the applicable Prospectus
Supplement.
Defeasance. The Indentures provide that each will cease to be of further
effect with respect to a certain series of Debt Securities (except for certain
obligations to register the transfer or exchange of Securities) if (a) the
Company delivers to the Trustee for the Securities of such series for
cancellation of all Securities of all series and the coupons, if any,
appertaining thereto, or (b) if the Company deposits into trust with the
Trustee money or United States government obligations, that, through the
payment of interest thereon and principal thereof in accordance with their
terms, will provide money in an amount sufficient to pay all the principal of,
and interest on, the Securities of such series on the dates such payments are
due or redeemable in accordance with the terms of such Securities.
SECURED DEBT SECURITIES
The Secured Debt Securities will be secured by specific assets as described
in the applicable Prospectus Supplement. In addition, the applicable
Prospectus Supplement will state whether the Secured Debt Securities will be
recourse or nonrecourse obligations of the Company. If the Secured Debt
Securities constitute recourse obligations of the Company, the applicable
Prospectus Supplement will state whether such Secured Debt Securities will be
Senior Indebtedness (as defined below) or Subordinated Indebtedness (as
defined below) of the Company.
SENIOR DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
The Senior Debt Securities will constitute part of the Senior Indebtedness
(as defined below) of the Company and will rank pari passu with all
outstanding senior unsecured debt of the Company. Except as set forth in the
applicable Prospectus Supplement, the outstanding Subordinated Indebtedness
(as defined below), including any Subordinated Debt Securities, will be
subordinated as to payment of principal, interest and premium, if any, to
Senior Indebtedness, including the Senior Debt Securities.
The term "Senior Indebtedness" will be defined to mean (1) all indebtedness
of the Company for money borrowed (including purchase-money obligations with
an original maturity in excess of one year) or evidenced by debentures, notes
or other corporate debt securities or similar instruments issued by the
Company, (2) indebtedness or obligations of the Company constituting a
guarantee of indebtedness of or an obligation of others of the type referred
to in (1) above, or (3) any modification, extension, renewal or refunding of
any of the indebtedness or obligations referred to in (1) or (2) above, except
any indebtedness or obligation or modification, extension, renewal, or
refunding that, under the express provisions of the instrument creating or
evidencing it, or pursuant to which it is outstanding, is not superior in
right of payment to the Subordinated Debt Securities. "Subordinated
Indebtedness" will be defined to mean all indebtedness of the Company that is
subordinate and junior in right of payment to any other indebtedness of the
Company.
Upon any distribution of assets of the Company in connection with any
dissolution, winding up, liquidation, or reorganization of the Company, the
holders of all Senior Indebtedness will first be entitled to receive payment
in full of principal of, and interest, if any, on, such Senior Indebtedness
before the Holders of Subordinated Debt Securities are entitled to receive any
payment thereon. If any Subordinated Debt Security is declared due and payable
because of the occurrence of an Event of Default, under circumstances when the
provision of the foregoing sentence are not applicable, the trustee under a
Subordinated Indenture or the Holders of Subordinated Debt Securities shall be
entitled to payment only after there shall first have been paid in full the
Senior Indebtedness outstanding at the time such Subordinated Debt Security so
becomes due and payable because of such Event of Default. During the
continuance of any default with respect to Senior Indebtedness, or if a
default would be caused by any payment or become payable before their stated
maturity because of an Event of Default, no payment may be made by the Company
or be due or payable upon or in respect of the Subordinated Debt Securities
until all Senior Indebtedness has been paid in full. This subordination will
not prevent the occurrence of any Event of Default. There is no limitation in
a Subordinated Indenture on the issuance of additional Senior Indebtedness.
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SECURITIES WARRANTS
GENERAL
The Company may issue Securities Warrants for the purchase of Common Stock,
Preferred Stock or Debt Securities. Such warrants are referred to herein as
Common Stock Warrants, Preferred Stock Warrants or Debt Warrants, as
appropriate. Securities Warrants may be issued independently or together with
any other Securities covered by the Registration Statement and offered by this
Prospectus and any accompanying Prospectus Supplement and may be attached to
or separate from such other Securities. Each series of Securities Warrants
will be issued under a separate warrant agreement (each, a "Securities Warrant
Agreement") to be entered into between the Company and a bank or trust
company, as agent (each, a "Securities Warrant Agent"), all as set forth in
the Prospectus Supplement relating to the particular issue of offered
Securities Warrants. Each issue of Securities Warrants will be evidenced by
warrant certificates (the "Securities Warrant Certificates"). The Securities
Warrant Agent will act solely as an agent of the Company in connection with
the Securities Warrant Certificates and will not assume any obligation or
relationship of agency or trust for or with any holders of Securities Warrant
Certificates or beneficial owners of Securities Warrants. Copies of the forms
of Securities Warrant Agreements, which include forms of Securities Warrant
Certificates representing the Securities Warrants, are filed as exhibits to
the Registration Statement. The following summaries of certain provisions of
the forms of Securities Warrant Agreements and Securities Warrant Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the forms of Securities
Warrant Agreements and Securities Warrant Certificates filed as exhibits
hereto and to the definitive Securities Warrant Agreements and Securities
Warrant Certificates pertaining to each offering of Securities Warrants.
Copies of the definitive Securities Warrant Agreements and Securities Warrant
Certificates will be filed with the Commission by means of a Current Report on
Form 8-K in connection with the offering of such series of Securities
Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the currencies in which such Debt
Warrants are being offered; (iii) the designation, aggregate principal amount,
currencies, denominations and terms of the series of Debt Securities
purchasable upon exercise of such Debt Warrants; (iv) the designation and
terms of any Securities with which such Debt Warrants are being offered and
the number of such Debt Warrants being offered with each such Security; (v)
the date on and after which such Debt Warrants and the related Securities will
be transferable separately; (vi) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Debt Warrant and the price
at which the currencies in which such principal amount of Debt Securities of
such series may be purchased upon such exercise; (vii) the date on which the
right to exercise such Debt Warrants shall commence and the date on which such
right shall expire (the "Expiration Date"); (viii) whether the Debt Warrants
will be issued in registered or bearer form; (ix) certain federal income tax
consequences; and (x) any other material terms of such Debt Warrants.
In the case of Securities Warrants for the purchase of Preferred Stock or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise
of such Securities Warrants and, in the case of Securities Warrants for
Preferred Stock, the designation, aggregate number and terms of the series of
Preferred Stock purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of the Securities with which such Securities
Warrants are being offered and the number of such Securities Warrants being
offered with each such Security; (iv) the date on and after which such
Securities Warrants and the related Securities will be transferable
separately; (v) the number of shares of Preferred Stock or shares of Common
Stock purchasable upon exercise of each such Securities Warrant and the price
at which such number of shares of Preferred Stock of such series or shares of
Common Stock may be purchased upon such exercise; (vi) the date on which the
right to exercise such Securities Warrants shall commence and the Expiration
Date on which such right shall expire; (vii) certain federal income tax
consequences; and (viii) any other material terms of such Securities Warrants.
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Securities Warrant Certificates may be exchanged for new Securities Warrant
Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the appropriate Securities Warrant Agent or any other office
indicated in the applicable Prospectus Supplement. Prior to the exercise of
any Securities Warrant to purchase Debt Securities, holders of such Debt
Warrants will not have any of the rights of Holders of the Debt Securities
purchasable upon such exercise, including the right to receive payments of
principal of, premium, if any, or interest, if any, on the Debt Securities
purchasable upon such exercise or to enforce covenants in the applicable
Indenture. Prior to the exercise of any Securities Warrants to purchase
Preferred Stock or Common Stock, holders of such Preferred Stock Warrants or
Common Stock Warrants will not have any rights of holders of the respective
Preferred Stock or Common Stock purchasable upon such exercise, including the
right to receive payments of dividends, if any, on the Preferred Stock or
Common Stock purchasable upon such exercise or to exercise any applicable
right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of shares of Preferred Stock or
shares of Common Stock, as the case may be, at such exercise price as shall in
each case be set forth in, or calculable from, the Prospectus Supplement
relating to the offered Securities Warrants. After the close of business on
the Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
Agent payment, as provided in the applicable Prospectus Supplement, of the
amount required to purchase the applicable Debt Securities, Preferred Stock or
Common Stock purchasable upon such exercise together with certain information
set forth on the reverse side of the Securities Warrant Certificate.
Securities Warrants will be deemed to have been exercised upon receipt of
payment of the exercise price, subject to the receipt, within five business
days, of the definitive Securities Warrant Certificate evidencing such
Securities Warrants. Upon receipt of such payment and the definitive
Securities Warrant Certificate properly completed and duly executed at the
corporate trust office of the Securities Warrant Agent or any other office
indicated in the applicable Prospectus Supplement, the Company will, as soon
as practicable, issue and deliver the applicable Debt Securities, Preferred
Stock or Common Stock purchasable upon such exercise. If fewer than all of the
Securities Warrants represented by such Securities Warrant Certificate are
exercised, a new Securities Warrant Certificate will be issued for the
remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
Each Securities Warrant Agreement may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant are subject to adjustment in certain events, including:
(i) the issuance of Common Stock as a dividend or distribution on the Common
Stock; (ii) subdivisions and combinations of the Common Stock; (iii) the
issuance to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase Common Stock within the number of
days, specified in the applicable Prospectus Supplement, after the date fixed
for the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Securities
Warrant Agreement governing such series of Common Stock Warrants); and (iv)
the distribution to all holders of Common Stock of evidences of indebtedness
or assets of the Company (excluding certain cash dividends and distributions
described below).
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The terms of any such adjustment will be specified in the related Prospectus
Supplement for such Common Stock Warrants. Common Stock owned by or held for
the account of the Company or any majority owned subsidiary shall not be
deemed outstanding for the purpose of any adjustment. No adjustment in the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant will be made for regular quarterly or other periodic or
recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from retained earnings. No adjustment in the
number of shares purchasable upon exercise of the Common Stock Warrants will
be required until cumulative adjustments require an adjustment of at least 1%
thereof. The Company may, at its option, reduce the exercise price at any
time. No fractional shares will be issued upon exercise of Common Stock
Warrants, but the Company will pay the cash value of any fractional shares
otherwise issuable. Notwithstanding the foregoing, in case of any
consolidation, merger, or sale or conveyance of the property of the Company as
an entirety or substantially as an entirety, the holder of each outstanding
Common Stock Warrant shall have the right to the kind and amount of shares of
stock and other securities and property (including cash) receivable by a
holder of the number of shares of Common Stock into which such Stock Warrants
were exercisable immediately prior thereto.
NO RIGHTS AS STOCKHOLDERS
Holders of Common Stock Warrants will not be entitled by virtue of being
such holders, to vote, to consent, to receive dividends, to receive notice as
stockholders with respect to any meeting of stockholders for the election of
directors of the Company or any other matter, or to exercise any rights
whatsoever as stockholders of the Company.
PLAN OF DISTRIBUTION
Both the Company and the Selling Stockholders may sell Securities (1)
through underwriters or dealers, (2) directly to one or more purchasers, or
(3) through agents. A Prospectus Supplement will set forth the terms of the
offering of the Securities offered thereby, including the name or names of any
underwriters, the purchase price of the Securities, and the proceeds to the
Company from the sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price, any discounts
or concessions allowed or reallowed or paid to dealers, and any securities
exchange on which the Securities may be listed. Only underwriters so named in
the Prospectus Supplement are deemed to be underwriters in connection with the
Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to
purchase all the Securities of the series offered by the Company's Prospectus
Supplement if any of the Securities are purchased. Any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
Securities may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the
offering and sale of Securities in respect of which this Prospectus is
delivered is named, and any commissions payable by the Company to such agent
are set forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent is acting on a best-efforts basis for
the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters, or dealers to solicit offers by certain institutional
investors to purchase Securities providing for payment and delivery on a
future date specified in the Prospectus Supplement. There may be limitations
on the minimum amount which may be purchased by any such institutional
investor or on the portion of the aggregate principal amount of the particular
Securities which may be sold pursuant to such arrangements. Institutional
investors to which such
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offers may be made, when authorized, include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and such other institutions as may be approved by the
Company. The obligations of any such purchasers pursuant to such delayed
delivery and payment arrangements will not be subject to any conditions except
(1) the purchase by an institution of the particular Securities shall not at
the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (2) if the particular
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of such Securities less the principal
amount thereof covered by such arrangements. Underwriters will not have any
responsibility in respect of the validity of such arrangements or the
performance of the Company or such institutional investors thereunder.
Agents and underwriters may be entitled under agreements entered into with
the Company or the Selling Stockholders to indemnification by the Company
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or to contribution with respect to payments which the agents or
underwriters may be required to make in respect thereof. Agents and
underwriters may engage in transactions with, or perform services for, the
Company in the ordinary course of business.
TAXATION
The applicable provisions of the Code are highly technical and complex. This
summary is not intended as a detailed discussion of all applicable provisions
of the Code, the rules and regulations promulgated thereunder, or the
administrative and judicial interpretations thereof. For the particular
provisions that govern the federal income tax treatment of the Company and its
stockholders, reference is made generally to Sections 856 and 860 of the Code
and the treasury regulations promulgated thereunder. The Company has not
obtained rulings from the Internal Revenue Service with respect to any tax
considerations relevant to its organization or operations or to an investment
in its securities. This summary is not intended to substitute for prudent tax
planning and stockholders are urged to consult their own tax advisors with
respect to these and other federal, state and local tax consequences of the
ownership and disposition of any of the Company's Securities and any potential
changes in applicable law. Nonresident aliens, foreign corporations, tax-
exempt organizations, life insurance companies, cooperatives and certain other
categories of investors may be subject to special tax rules that are not
discussed below and that could affect an investment in any of the Company's
Securities.
FEDERAL INCOME TAXATION OF CAPSTEAD MORTGAGE CORPORATION
As used herein, "Capstead REIT" refers to Capstead Mortgage Corporation and
the entities that are effectively consolidated with Capstead Mortgage
Corporation for federal income tax purposes. Certain of the Company's
subsidiaries (the "Non-REIT subsidiaries") are consolidated with the Company
for financial reporting purposes but are not consolidated for federal income
tax purposes. All of the Non-REIT subsidiaries' taxable income is subject to
federal and state income taxes. The Company may form additional Non-REIT
subsidiaries.
Capstead REIT believes that it has operated, and Capstead REIT intends to
continue to operate, in such a manner so as to qualify as a REIT under the
Code, but no assurance can be given that it will at all times so qualify. In
the opinion of Andrews & Kurth L.L.P., tax counsel to Capstead REIT, for all
of its taxable years ending December 31, 1985 through December 31, 1995,
Capstead REIT has met the requirements for qualification as a REIT under the
Code. In rendering its opinion, Andrews & Kurth L.L.P. has relied, as to
factual determinations and conclusions necessary to its opinion, on
representations of the Company and certain of its subsidiaries.
So long as a company such as Capstead REIT qualifies as a REIT and
distributes at least 95% of its REIT taxable income to stockholders, it will
not be subject to federal corporate income taxes on such income distributed to
stockholders, with limited exceptions discussed below. Under certain
circumstances, such a company may be subject to the corporate minimum tax or
certain other special taxes. However, Capstead REIT
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does not anticipate generating material items of income or deductions that
would cause it to be subject to the minimum tax or any such special tax.
To qualify for treatment as a REIT for a taxable year, a company must have
elected to be so treated (which Capstead REIT has done) and must meet certain
organizational, asset, income, distribution and record-keeping requirements.
TAXATION OF STOCKHOLDERS
So long as a corporation qualifies as a REIT, distributions to stockholders
(other than dividends properly designated as "capital gain dividends") will
constitute ordinary income to the extent of current and accumulated earnings
and profits of the REIT. Capital gain dividends will be taxable as long-term
capital gains. Distributions in excess of the REIT's current and accumulated
earnings and profits will constitute a non-taxable return of capital, except
to the extent that the amount of such distributions received by any
stockholder exceeds the basis of the stockholder's shares, in which case such
excess will be taxable as capital gain, provided such shares are held as a
capital asset. Dividends received from a REIT are ineligible for the 70%
dividends received deduction. If a capital gain dividend is received with
respect to shares which are sold for a loss before being held for a period of
six months, such loss will be characterized as long term capital loss to the
extent of the capital gain dividend. Potential Capstead Mortgage Corporation
stockholders should be aware that for federal income tax purposes any dividend
paid by a REIT in January of any given calendar year will be deemed to have
been paid during the preceding calendar year if it was declared by the REIT in
October, November or December of such preceding year and was payable to the
shareholders of record on a specified date in the month in which it was
declared.
Under the Code and the related regulations, a change in the conversion ratio
for convertible preferred stock may be treated as a taxable distribution of
the stock of such corporation with respect to any shareholder whose
proportionate interest in the earnings and profits or assets of the
corporation is increased by such change. A change in a conversion ratio or
conversion price of convertible preferred stock pursuant to a bonafide,
reasonable adjustment formula which has the effect of preventing dilution of
the interest of the holders of such stock will not be considered to result in
a deemed distribution of stock. However, generally an adjustment in the
conversion ratio to compensate for a taxable cash distribution to other
shareholders will not be considered as made pursuant to a bonafide adjustment
formula. For example, in the case of the Series B Preferred Stock, the
conversion rate may be adjusted if the Company distributes to holders of its
Common Stock cash or other assets (excluding regular quarterly cash dividends
payable out of consolidated earnings or earned surplus or dividends payable in
shares of Common Stock). Under the above described federal income tax
provisions, such an adjustment may result in a taxable distribution to the
Series B Preferred stockholders.
Specific tax rules of a complex nature not summarized herein apply to
foreign investors in REITs. Accordingly, foreign stockholders should consult
their own tax advisers concerning the federal income and withholding tax
consequences and the state, local and foreign tax consequences of an
investment in Capstead REIT.
SPECIAL CONSIDERATIONS--TAX-EXEMPT AND CERTAIN OTHER INVESTORS
For CMOs issued after December 31, 1991, pursuant to regulations not yet
published, the portion of any dividend paid to stockholders attributable to
"excess inclusion income" on the retained residual interests in such CMOs
would be subject to certain rules. Such rules include (i) the characterization
of excess inclusion income as unrelated business income for tax-exempt
stockholders (including employee benefit plans and individual retirement
accounts) and (ii) the inability of a stockholder to offset excess inclusion
income with net operating losses (subject to certain exceptions applicable to
thrift institutions). Generally, tax-exempt entities are subject to federal
income tax on excess inclusion income and other unrelated business income in
excess of $1,000 per year. Excess inclusion income is generally taxable income
with respect to a residual interest in excess of a specified return on
investment in the residual interest. In some cases, all taxable income with
respect to a residual interest may be considered excess inclusion income.
Until regulations or other guidance is issued, Capstead REIT will
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use methods it believes are appropriate for calculating the amount of excess
inclusion income, if any, it recognizes from CMOs issued after December 31,
1991, and allocating any excess inclusion income to its stockholders. Excess
inclusion rules will most likely not apply to any CMO issued by any subsidiary
of the Company on or before December 31, 1991.
In addition, the Company will be taxable on the portion of any excess
inclusion income allocable to any stockholder which is a "disqualified
organization." If the ownership of any shares by a disqualified organization
would subject the Company to tax, such shares shall be immediately redeemable
at the option of the Company. See "Description of Securities--Redemption or
Repurchase of Capital Stock to Maintain the Company's Status as a REIT."
Tax-exempt and other investors are urged to consult their own tax advisors
with respect to the tax consequences arising under federal law and the law of
any state, municipality or other taxing jurisdiction. Foreign investors should
consult their own tax advisors concerning the tax consequences of an
investment in the Company, including the possibility of United States
withholding tax on Company dividends.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
If Capstead REIT fails to qualify for taxation as a REIT in any taxable
year, distributions to its stockholders for such year and future years would
not be deductible by Capstead REIT and Capstead REIT would be subject to tax
on its income at regular corporate rates. In such event, all distributions to
stockholders would be taxable as ordinary income to the extent of current and
accumulated earnings and profits and would be eligible for the 70% dividends
received deduction for corporations. If Capstead REIT fails to qualify as a
REIT for even one year, it could be required to incur substantial indebtedness
(to the extent borrowings are feasible) or liquidate substantial investments
in order to pay the resulting taxes. Thus, if Capstead REIT fails to qualify
for taxation as a REIT, there can be no assurance that any distribution to its
stockholders could be made. Unless entitled to relief under specific statutory
provisions, such company would also be disqualified from treatment as a REIT
for the next four taxable years. It is not possible to state whether in all
circumstances such company would be entitled to statutory relief. While the
Board of Directors of the Company presently intends to cause Capstead REIT to
operate in a manner that will enable it to qualify as a REIT in all future
taxable years, there can be no certainty that such intention will be realized
because, among other things, qualification hinges on the conduct of the
business of Capstead REIT.
DEBT SECURITIES
The Debt Securities will be taxable as indebtedness. Interest and original
issue discount, if any, on a Debt Security will be treated as ordinary income
to a holder. Any special tax considerations applicable to a Debt Security will
be described in the related Prospectus Supplement.
EXERCISE OF SECURITIES WARRANTS
Upon a holder's exercise of a Securities Warrant, the holder will, in
general, (i) not recognize any income, gain or loss for federal income tax
purposes, (ii) receive an initial tax basis in the Security received equal to
the sum of the holder's tax basis in the exercised Securities Warrant and the
exercise price paid for such Security and (iii) have a holding period for the
Security received beginning on the date of exercise.
SALE OR EXPIRATION OF SECURITIES WARRANTS
If a holder of a Securities Warrant sells or otherwise disposes of such
Securities Warrant (other than by its exercise), the holder generally will
recognize capital gain or loss (long term capital gain or loss if the holder's
holding period for the Securities Warrant exceeds twelve months on the date of
disposition; otherwise, short term capital gain or loss) equal to the
difference between (i) the cash and fair market value of other property
received and (ii) the holder's tax basis (on the date of disposition) in the
Securities Warrant sold. Such a holder generally will recognize a capital loss
upon the expiration of an unexercised Securities Warrant equal to the holder's
tax basis in the Securities Warrant on the expiration date.
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STATE AND LOCAL TAXES
State or local income tax treatment of Capstead REIT or holders of any of
its Securities may differ from the federal income tax treatment described
above. As a result, prospective stockholders should consult their own tax
advisers for an explanation of how state and local tax laws may affect their
investment in Capstead REIT.
LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby will be
passed on for the Company and the Selling Stockholders by Andrews & Kurth
L.L.P., Dallas, Texas, and for the underwriters or agents by counsel to be
identified in the Prospectus Supplement. Andrews & Kurth L.L.P. will rely as
to all matters of Maryland law on Piper & Marbury L.L.P., Baltimore, Maryland.
Attorneys at Andrews & Kurth L.L.P. beneficially own approximately 22,500
shares of Common Stock of the Company and 32,600 shares of Series B Preferred
Stock of the Company.
EXPERTS
The consolidated financial statements and schedules of Capstead Mortgage
Corporation and subsidiaries incorporated by reference or appearing in
Capstead Mortgage Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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