SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO 13D-2(A)
CAPSTEAD MORTGAGE CORPORATION
(NAME OF ISSUER)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
14067E 10 0
(CUSIP NUMBER)
Randal A. Nardone
Chief Operating Officer and Secretary
Fortress Investment Corp.
1301 Avenue of the Americas
New York, New York 10019
(212) 798-6100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
COPY TO:
J. Gregory Milmoe
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
December 9, 1999
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this Schedule 13D,
and is filing this schedule because of Rule 13d-1(e), 13d(f) or 13d-1(g),
check the following box ( ).
(Page 1 of 7 Pages)
CUSIP NO. 14067 10 0 13D PAGE 2 OF 7 PAGES
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
FORTRESS INVESTMENT CORP. (I.R.S. EMPLOYER IDENTIFICATION NUMBER [ ])
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_|
NOT APPLICABLE (b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) | |
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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NUMBER OF 7 SOLE VOTING POWER - 10,756,000 -
SHARES ---------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER - 0 -
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER - 10,756,000 -
REPORTING --------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER - 0 -
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
-10,756,000 -
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES |_|
NOT APPLICABLE
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.91% (BASED ON 67,610,405 SHARES OF COMMON STOCK OUTSTANDING AS OF
DECEMBER 7, 1999 AND ASSUMING CONVERSION OF THE PREFERRED STOCK
BENEFICIALLY OWNED BY THE REPORTING PERSON)
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14 TYPE OF REPORTING PERSON
CO
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ITEM 1. SECURITY AND ISSUER.
This statement relates to shares of the common stock, $0.01
par value per share ("Common Stock"), of Capstead Mortgage
Corporation, a Maryland corporation (the "Issuer"). The principal
executive offices of the Issuer are located at: 8401 North Central
Parkway, Dallas, TX 75225.
ITEM 2. IDENTITY AND BACKGROUND.
Fortress Investment Corp. ("Fortress") is a Maryland
corporation. The address of its principal office is 1301 Avenue of
the Americas, New York, New York 10019. Fortress's principal
business is real estate-related investments.
Set forth on Annex A to this Schedule 13D is a listing of
the directors and executive officers of Fortress (collectively, the
"Covered Persons"), the present principal occupation or employment
of each of the Covered Persons and the business address of each of
the Covered Persons. Each of the Covered Persons is a United States
citizen.
None of Fortress or, to the best of its knowledge, the
Covered Persons has, during the past five years, (i) been convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been party to a civil proceeding of a
judicial or administrative body of competent jurisdiction as a
result of which any of them is or was subject to a judgment, decree
or final order enjoining future violations of, or prohibiting or
mandating activities subject to, Federal or State securities laws
or finding a violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Fortress obtained the funds to purchase the Preferred Stock
(as defined in Item 4 hereof) from its working capital. In
addition, if necessary, Fortress will obtain the funds needed to
purchase shares of Common Stock, if any, in the open market as
described in Item 4, from its working capital.
ITEM 4. PURPOSE OF TRANSACTION.
On December 9, 1999, pursuant to the terms of a Series C and
Series D Convertible Preferred Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated as of that date, between Fortress and
the Issuer, Fortress purchased (the "Preferred Stock Purchase")
from the Issuer 5,378,000 shares of the Issuer's newly created
$0.56 Cumulative Convertible Preferred Stock, Series C (the "Series
C Preferred Stock") and 5,378,000 shares of the Issuer's newly
created $0.40 Cumulative Convertible Preferred Stock, Series D (the
"Series D Preferred Stock") (together, the "Preferred Stock") for
an aggregate purchase of $51,200,000, or $4.76 per share. Each
share of Series C Preferred Stock is convertible into one share of
Common Stock and has a liquidation preference of $6.89 per share.
Each share of Series D Preferred Stock is convertible into one
share of Common Stock and has a liquidation preference of $4.76 per
share. This investment by Fortress represents an ownership interest
in the Issuer of approximately 16 percent, based on 67,610,405
shares of Common Stock outstanding as of December 7, 1999 and
assuming full conversion of the Preferred Stock. The Articles
Supplementary to the Issuer's Charter with respect to the Preferred
Stock contain certain anti-dilution provisions which will cause the
number of shares of Common Stock into which the Preferred Stock
will be convertible to be adjusted upon the occurrence of dilutive
events. Fortress purchased the Preferred Shares because it believed
that, through its infusion of capital and the consummation of the
transactions described below, it could increase the value of the
Common Stock.
In connection with this investment by Fortress, the Issuer's
Board of Directors (the "Board") (i) approved an immediate increase
in the number of Directors serving on its Board from six to eight
and appointed Mr. Wesley R. Edens, Chief Executive Officer and
Chairman of Fortress, and Mr. Robert I. Kauffman, President of
Fortress, to fill the newly created vacancies on the Board and (ii)
authorized the Issuer to enter into a Supplemental Agreement to the
Stock Purchase Agreement (the "Supplemental Agreement"'). The
Supplemental Agreement provides that upon the Issuer's
stockholders' approval at a special meeting of stockholders to be
held no later than April 30, 2000 (the "Special Meeting"), the
Board will be reconstituted to consist of seven directors,
including (i) Mr. Edens, Mr. Kauffman and two directors selected by
Mr. Edens and Mr. Kauffman who shall be "independent directors" and
(ii) Mr. Ronn K. Lytle, the Issuer's current Chairman and Chief
Executive Officer, Mr. Paul Low, a current member of the Board, and
a nominee of Messrs. Lytle and Low, with Mr. Edens serving as
Chairman and Chief Executive Officer and Mr. Lytle serving as Vice
Chairman.
The Supplemental Agreement also provides that if, among
other things, the stockholders approve the reconstituted Board at
the Special Meeting, Fortress or an affiliate of Fortress will,
within the six-month period following the date of the Special
Meeting, acquire no less than five million shares of Common Stock
through, at Fortress' option (i) open-market purchases, (ii) the
conversion of Preferred Stock or (iii) a combination thereof.
Purchases by Fortress and/or its affiliates of Common Stock through
the date of the Special Meeting shall be considered as part of such
five million shares. If Fortress' obligation to acquire Common
Stock pursuant to the Supplemental Agreement is fulfilled solely
through open-market purchases, then the total investment by
Fortress will represent an ownership interest in the Issuer of
approximately 23 percent, based on 67,610,405 shares of Common
Stock outstanding as of December 7, 1999 and assuming full
conversion of the Preferred Stock.
On December 9, 1999, the Issuer announced that its Board of
Directors had authorized the Company to purchase through a tender
offer up to 10,000,000 shares of its Common Stock for a cash
purchase price of $4.55 per share. This tender offer by the Issuer
is unrelated to Fortress' investment in the Preferred Stock
Assuming the successful completion of this 10,000,000 share tender
offer, Fortress' investment in the Preferred Stock will represent
an ownership interest in the Issuer, assuming full conversion of
the Preferred Stock, of (i) approximately 19 percent, without
giving effect to any open-market purchases of Common Stock pursuant
to the Supplemental Agreement and (ii) approximately 27 percent, if
Fortress satisfies its obligation to acquire 5,000,000 shares of
Common Stock pursuant to the Supplemental Agreement solely through
open-market purchases.
The Supplemental Agreement also provides as follows:
o Until the earlier to occur of (i) the approval of certain matters
contemplated by the Supplemental Agreement that may require the
approval of the Issuer's stockholders (the "Proposal") at the
Special Meeting and the consummation of the actions contemplated
thereby, (ii) Fortress' receipt of the Put/Call Payment (defined
below), (iii) the expiration of the 30 day period following the
date of the Special Meeting and (iv) April 30, 2000 (the
"Transition Period"), the Issuer shall conduct its business only in
the ordinary course, in accordance with prudent practice and
consistent with past practice established in 1999.
o Fortress has the right to cause the Issuer to purchase from
Fortress all, but not less than all, of the outstanding Preferred
Stock (the "Fortress Put"), for a price equal to 103% of the
purchase price of the Preferred Stock plus accrued and unpaid
dividends thereon (the "Put/Call Payment") if:
(a) the proposal relating to the reconstitution of the
Board, as discussed above, is not approved by the
Issuer's stockholders at the Special Meeting on or
before April 30, 2000; or
(b) during the Transition Period, the Issuer shall not
have conducted its business in the ordinary course
(other than actions taken outside such scope at the
request or with the approval of Fortress) or there
shall have been a material adverse change in the
condition, financial or otherwise, or in the
earnings, business affairs or business prospects of
the Issuer, whether or not arising in the ordinary
course of business (except a material adverse change
directly resulting from any action taken at the
request or with the approval of Fortress or a
material adverse change resulting from adverse
economic conditions in the industry in which the
Issuer operates).
o The Issuer can cause Fortress to sell to it all, but not less
than all, of the Preferred Stock (the "Capstead Call") for the
Put/Call Payment if the Proposal is not approved at the Special
Meeting.
o The Fortress Put and the Capstead Call shall expire on the earlier
to occur of 30 days following the Special Meeting and May 31, 2000.
o In the event of a change in control of the Issuer (as defined in
the Supplemental Agreement) after the Special Meeting and prior to
December 9, 2004, except for certain business combinations approved
by Fortress, Fortress can cause the Issuer to purchase from
Fortress all, but not less than all, of the Preferred Stock
outstanding at such time (the "Change in Control Put") for the
original per share purchase price of the Preferred Stock plus
accrued and unpaid dividends thereon.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
See numbers 7-11 of the cover page to this Schedule 13D for
the information required by Item 5.
None of the Covered Persons directly owns any securities of
the Issuer. However, by reason of their status as directors and/or
directors of Fortress, the Covered Persons may be deemed to be the
beneficial owners of the Preferred Stock and shares of the Common
Stock owned directly or beneficially by Fortress. Fortress has been
advised that each of the Covered Persons disclaims beneficial
ownership of the Preferred Stock and any shares of the Common Stock
from time to time owned directly or beneficially by Fortress.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
Not applicable.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Series C and Series D Convertible Preferred Stock
Purchase Agreement, dated as of December 9, 1999, by
and among Capstead Mortgage Corporationand Fortress
Investment Corp.
Exhibit 2 Supplemental Agreement to the Stock Purchase Agreement,
dated as of December 9, 1999, by and among Fortress
Investment Corp.and Capstead Mortgage Corporation
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
December 17, 1999
FORTRESS INVESTMENT CORP.
By: /s/ Randal A. Nardone
------------------------------
Randal A. Nardone
as Secretary and Chief Operating
Officer
ANNEX A
DIRECTORS AND EXECUTIVE OFFICERS
OF FORTRESS INVESTMENT CORP.
The name and principal occupation of each of the executive officers
and directors of Fortress Investment Corp are listed below. Except as set
forth below, the principal business address of each of the executive
officers and directors of Fortress Investment Corp. is 1301 Avenue of the
Americas, New York, NY 10019.
NAME PRINCIPAL OCCUPATION
- -----------------------------------------------------------------------------
Wesley R. Edens Chief Executive Officer and Chairman of the
Board of Directors of Fortress Investment
Corp.
Robert I. Kauffman President and Director of Fortress Investment
Corp.
Mark H. Burton Managing Director in the Financial Services
Group at Lehman Brothers Inc.*
Douglas L. Jacobs Senior Vice President and Treasurer of Fleet
Financial Group **
Stuart A. McFarland Managing Partner of Federal City Capital
Advisors, LLC ***
Gregory F. Hughes Chief Financial Officer of Fortress
Investment Corp.
Randal A. Nardone Chief Operating Officer and Secretary of
Fortress Investment Corp.
Erik P. Nygaard Chief Information Officer and Treasurer of
Fortress Investment Corp.
- ----------------
* Mr. Burton is an Independent Director of Fortress Investment Corp.
Mr. Burton's principal business address is Lehman Brothers, 3 World
Financial Center, 16th Floor, New York, New York 10285.
** Mr. Jacobs is an Independent Director of Fortress Investment Corp.
Mr. Jacobs' principal business address is Fleet Financial Group, 75
State Street, Mail Stop MABO F03E, Boston, Massachusetts 02109.
*** Mr. McFarland is an Independent Director of Fortress Investment
Corp. Mr. McFarland's principal business address is Federal City
Capital Advisors LLC, 1341 G Street NW, Suite 720, Washington, D.C.
20005.
SERIES C AND SERIES D CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
BY AND AMONG
CAPSTEAD MORTGAGE CORPORATION,
AND
FORTRESS INVESTMENT CORP.
DATED AS OF DECEMBER 9, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INTRODUCTORY STATEMENTS......................................................................1
ARTICLE I
THE STOCK PURCHASE...................................................................1
SECTION 1.01 Purchase and Sale of Series C Preferred Shares..................1
SECTION 1.02 Purchase and Sale of Series D Preferred Shares..................2
SECTION 1.03 Date and Time of Closing........................................2
SECTION 1.04 Deliveries by Fortress..........................................2
SECTION 1.05 Deliveries by Capstead. .......................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF FORTRESS..........................................................................3
SECTION 2.01 Organization....................................................3
SECTION 2.02 Power and Capacity; Charter Documents...........................3
SECTION 2.03 No Conflicts....................................................3
SECTION 2.04 Consents and Approvals..........................................3
SECTION 2.05 Accredited Investor.............................................4
SECTION 2.06 Absence of Market...............................................4
SECTION 2.07 Investment Purposes.............................................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF CAPSTEAD..........................................................................4
SECTION 3.01 Organization and Qualification of Capstead......................5
SECTION 3.02 Power and Capacity; Charter Documents of Capstead...............5
SECTION 3.03 Subsidiaries....................................................5
SECTION 3.04 Capitalization and Ownership; Authorization of Preferred........7
SECTION 3.05 No Conflicts....................................................7
SECTION 3.06 Consents and Approvals..........................................7
SECTION 3.07 Financial and Operating Statements and Reports..................7
SECTION 3.08 No Undisclosed or Contingent Liabilities........................8
SECTION 3.09 Absence of Certain Changes......................................9
SECTION 3.10 Real Property..................................................11
SECTION 3.11 Company Equipment..............................................12
SECTION 3.12 Contracts and Commitments......................................12
SECTION 3.13 Intellectual Property..........................................14
SECTION 3.14 Inventory......................................................14
SECTION 3.15 Pension and Other Employee Plans and Agreements................14
SECTION 3.16 Litigation.....................................................15
SECTION 3.17 Insurance......................................................15
SECTION 3.18 Collective Bargaining Agreements; Compensation; Employee
Agreements.....................................................16
SECTION 3.19 Compliance with Law............................................16
SECTION 3.20 Permits........................................................16
SECTION 3.21 Tax Matters....................................................16
SECTION 3.22 Title to Assets................................................17
ARTICLE IV
OTHER OBLIGATIONS OF THE PARTIES....................................................19
SECTION 4.01 Conduct of Company Business....................................19
SECTION 4.02 Access to Books and Records....................................19
SECTION 4.03 Consents.......................................................19
SECTION 4.04 Supplemental Disclosure by Capstead............................19
SECTION 4.05 Governmental Filings...........................................20
SECTION 4.06 Covenant to Satisfy Conditions.................................20
SECTION 4.07 Employees......................................................20
SECTION 4.08 Public Announcements...........................................20
ARTICLE V
CONDITIONS PRECEDENT................................................................20
SECTION 5.01 Conditions Precedent to Obligations of Fortress................20
SECTION 5.02 Conditions Precedent to Obligations of Capstead................22
ARTICLE VI
INDEMNIFICATION.....................................................................23
SECTION 6.01 Survival of Representations and Warranties.....................23
SECTION 6.02 Indemnification by Capstead....................................23
SECTION 6.03 Indemnification by Fortress....................................23
SECTION 6.04 Limitations Regarding Indemnification Obligations
of Capstead................................................24
SECTION 6.05 Limitations Regarding Indemnification Obligations
of Fortress................................................24
SECTION 6.06 Conditions of Indemnification..................................24
SECTION 6.07 Claim Disputes.................................................25
SECTION 6.08 Remedies Exclusive.............................................26
ARTICLE VII
TERMINATION OF AGREEMENT............................................................26
SECTION 7.01 Termination of Agreement.......................................26
SECTION 7.02 Procedure Upon Termination.....................................26
ARTICLE VIII
MISCELLANEOUS.......................................................................26
SECTION 8.01 Commissions....................................................27
SECTION 8.02 Definition of Knowledge........................................27
SECTION 8.03 Definition of Material Adverse Effect and Material Adverse
Change.........................................................27
SECTION 8.04 Expenses, Taxes, Etc...........................................27
SECTION 8.05 Successors and Assigns.........................................27
SECTION 8.06 No Third-Party Benefit.........................................27
SECTION 8.07 Entire Agreement; Amendment....................................28
SECTION 8.08 Reformation and Severability...................................28
SECTION 8.09 Notices........................................................28
SECTION 8.10 Governing Law..................................................29
SECTION 8.11 Counterparts...................................................29
EXHIBIT "A" - Form of Articles Supplementary for Series C Convertible
Preferred Stock
EXHIBIT "B" - Form of Articles Supplementary for Series D Convertible
Preferred Stock
EXHIBIT "C" - Form of Registration Rights Agreement
EXHIBIT "D" - Form of Supplemental Agreement
EXHIBIT "E" - Form of Opinion of Andrews & Kurth L.L.P.
EXHIBIT "F" - Form of Opinion of Hogan & Hartson L.L.P.
APPENDIX I - Year End Financial Statements
APPENDIX II - Third Quarter Financial Statements
</TABLE>
SERIES C AND SERIES D CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December 9, 1999, is by
and among Capstead Mortgage Corporation, a Maryland corporation
("CAPSTEAD") and Fortress Investment Corp., a Maryland corporation
("FORTRESS").
INTRODUCTORY STATEMENTS
Capstead desires to sell and issue, and Fortress desires to
purchase, 5,378,000 shares of a series of Capstead's preferred stock to be
designated as Series C Convertible Preferred Stock, $.10 par value per
share (the "SERIES C PREFERRED STOCK"). The form of Articles Supplementary
for the Series C Preferred Stock is attached hereto as Exhibit "A" (the
"SERIES C ARTICLES SUPPLEMENTARY"). The shares of Series C Preferred Stock
to be acquired by Fortress shall be termed the "SERIES C SHARES".
Capstead desires to sell and issue, and Fortress desires to
purchase, 5,378,000 shares of a series of preferred stock to be designated
as Series D Convertible Preferred Stock, $.10 par value per share (the
"SERIES D PREFERRED STOCK"). The form of Articles Supplementary for the
Series D Preferred Stock is attached hereto as Exhibit "B" (the "SERIES D
ARTICLES SUPPLEMENTARY"). The shares of Series D Preferred Stock to be
acquired by Fortress shall be termed the "SERIES D SHARES". The Series C
Shares and the Series D Shares shall be termed collectively the "SHARES".
Accordingly, for and in consideration of the foregoing and
the mutual agreements, representations, warranties, covenants and
conditions herein set forth, and other good, valid and binding
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
THE STOCK PURCHASE
SECTION 1.01 Purchase and Sale of Series C Preferred Shares.
On and subject to the terms and conditions of this Agreement, Capstead
covenants and agrees that it will issue and sell to Fortress, and Fortress
covenants and agrees that it will purchase from Capstead, the Series C
Shares. The aggregate amount of consideration to be paid to Capstead for
the Series C Shares by Fortress shall be $25,600,000 (the "SERIES C
PURCHASE PRICE"). The Series C Purchase Price shall be paid to Capstead at
the Closing by wire transfer in immediately available funds.
SECTION 1.02 Purchase and Sale of Series D Preferred Shares.
On and subject to the terms and conditions of this Agreement, Capstead
covenants and agrees that it will issue and sell to Fortress, and Fortress
covenants and agrees that it will purchase from Capstead, the Series D
Shares. The aggregate amount of consideration to be paid to Capstead for
the Series D Shares by Fortress shall be $25,600,000 ("SERIES D PURCHASE
PRICE"). The Series D Purchase Price shall be paid by Fortress to Capstead
at the Closing by wire transfer in immediately available funds.
SECTION 1.03 Date and Time of Closing. The sale and purchase
of the Shares provided for by this Article I shall be consummated, provided
that each of the conditions set forth in Article V hereto shall have been
satisfied or waived, at 10 a.m. on such date and at such place as may be
mutually agreed upon by the parties to this Agreement (the "CLOSING"). The
date on which the Closing actually occurs is referred to herein as the
"CLOSING DATE".
SECTION 1.04 Deliveries by Fortress. At the Closing,
Fortress shall deliver, or cause to be delivered, to Capstead (unless
delivered previously) the following:
(a) the Officers' Certificate referred to in Section 5.02(d)
hereof;
(b) the Secretary's Certificate referred to in Section
5.03(e) hereof;
(c) the Series C Purchase Price and the Series D Purchase
Price (collectively, the "PURCHASE PRICE"); and
(d) all other previously undelivered documents, instruments
and writings required to be delivered by Fortress to Capstead at or prior
to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
SECTION 1.05 Deliveries by Capstead. At the Closing,
Capstead shall deliver, or cause to be delivered, to Fortress (unless
delivered previously) the following:
(a) certificates representing the Shares being purchased by
Fortress, which certificates shall be registered in the name of Fortress
and dated the Closing Date;
(b) the Officers' Certificate referred to in Section 5.01(d)
hereof;
(c) the Secretary's Certificates referred to in Section
5.01(e) hereof; and
(d) all other previously undelivered documents, instruments
and writings required to be delivered by Capstead to Fortress at or prior
to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF FORTRESS
Fortress represents and warrants to Capstead as follows:
SECTION 2.01 Organization. Fortress is a business trust duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
SECTION 2.02 Power and Capacity; Charter Documents.
(a) Fortress has all requisite power and authority to enter
into, execute and deliver this Agreement, the Registration Rights Agreement
(as defined below) and the Supplemental Agreement (as defined below) and
perform its obligations hereunder and thereunder. Each of this Agreement,
the Registration Rights Agreement and the Supplemental Agreement has been
duly executed and delivered by Fortress and is a valid and binding
obligation of Fortress, enforceable in accordance with its terms, subject
in each case to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by
Fortress will not result in a violation or breach of or constitute a
default under any term or provision of the Articles of Incorporation or
Bylaws of Fortress.
SECTION 2.03 No Conflicts. The execution, delivery and
performance of this Agreement by Fortress and the consummation of the
transactions contemplated hereby will not violate any statute or law or any
judgment, decree, order, writ, injunction, regulation or rule of any court
or any local, state or federal governmental or regulatory authority, which
violation, conflict, acceleration, requirement, termination, modification
or default could reasonably be expected to result in a Material Adverse
Effect on the transactions contemplated by this Agreement.
SECTION 2.04 Consents and Approvals. Fortress is not
required to obtain, transfer or cause to be transferred any consent,
approval, license, permit or authorization of, or make any declaration,
filing or registration with, any third party or any public body or
authority in connection with (a) the execution and delivery by Fortress of
this Agreement or (b) the consummation of the transactions contemplated
hereby, other than those that may be required under applicable "blue sky"
securities laws or that may be required solely by reason of Capstead's (as
opposed to any other third party's) participation in the transactions
contemplated hereby the failure of which to obtain, transfer or cause to be
transferred could reasonably be expected to result in a Material Adverse
Effect on the transactions contemplated by this Agreement.
SECTION 2.05 Accredited Investor. Fortress is an "ACCREDITED
INVESTOR" as such term is defined in Rule 501(a) promulgated under the
Securities Act of 1933 as amended (the "SECURITIES ACT"). Fortress
represents and warrants that it has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its or his investment in the Shares being issued to it
pursuant to Article I hereof.
SECTION 2.06 Absence of Market. Fortress acknowledges that
the Shares lack liquidity as compared with other investments since there is
not, and there is not expected to be, any market therefor, and that the
sale or transfer of the Shares must comply with applicable federal and
state securities laws. Fortress acknowledges that it must bear the economic
risk of its investment in the Shares for an indefinite period of time since
none of the Shares have been registered under the Securities Act and
therefore cannot be sold unless such Shares are subsequently registered
pursuant to the terms of the registration rights agreement attached hereto
as Exhibit "C" (the "REGISTRATION RIGHTS AGREEMENT") or otherwise, or an
exemption from registration is available.
SECTION 2.07 Investment Purposes. Fortress hereby represents
and warrants that it is acquiring the Shares for investment purposes only,
for its own account, and not as nominee or agent for any other person or
entity, and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act. Fortress
further acknowledges that representatives of Capstead have advised it that
no state or federal agency or instrumentality has made any finding or
determination as to the investment in the Shares, nor has any state or
federal agency or instrumentality made any recommendation with respect to
any purchase or investment in the Shares.
SECTION 2.08 Access and Information. Fortress hereby
represents and warrants that it has been given access to full and complete
information regarding the Company and, to the extent such access has been
given, Fortress has utilized that access to the satisfaction of Fortress
for the purpose of obtaining information concerning the Company. Fortress
has obtained, in its judgment, sufficient information to evaluate the
merits and risks of an investment in Capstead, understands the business in
which the Company is engaged, and is able to evaluate the merits and risks
of an investment in the Shares.
SECTION 2.09 REIT Status. Fortress has made a valid election
under applicable law to be treated as a real estate investment trust
("REIT") as defined in Section 856 of the Internal Revenue Code of 1986, as
amended (the "Code") for its taxable year ending December 31, 1998 and
has qualified as a REIT for federal tax purposes for such year.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF CAPSTEAD
Capstead hereby represents and warrants to Fortress as
follows, except as otherwise set forth in the relevant section of the
disclosure schedule of Capstead (the "CAPSTEAD DISCLOSURE SCHEDULE"):
SECTION 3.01 Organization and Qualification of Capstead.
Capstead is (a) a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and (b) duly qualified to
do business as a foreign corporation and in good standing in each
jurisdiction in which the character of the properties and assets now owned
or leased by it or the nature of the business transacted by it requires it
to be so qualified, except where the failure to be so qualified,
individually or in the aggregate, would not have a Material Adverse Effect
(as defined herein) upon the Company (as defined herein) or the
consummation of the transactions contemplated hereby. Each jurisdiction in
which Capstead is qualified to do business is listed on Section 3.01 of the
Capstead Disclosure Schedule. No jurisdiction in which Capstead is not
qualified or licensed has claimed, in writing or otherwise, that Capstead
is required to qualify or be licensed therein.
SECTION 3.02 Power and Capacity; Charter Documents of
Capstead.
(a) Capstead has all requisite power and authority
(corporate and otherwise) to enter into, execute and deliver this
Agreement, the Registration Rights Agreement and the Supplemental
Agreement, to sell and issue the Shares hereunder, to issue the shares of
Capstead's common stock ("COMMON STOCK") issuable upon conversion of the
Shares, and to carry out and perform its obligations hereunder and
thereunder. Capstead has the corporate power and authority to carry on its
business as now being conducted and to own and lease its properties. Each
of this Agreement, the Registration Rights Agreement and the Supplemental
Agreement has been duly executed and delivered by Capstead and is a valid
and binding obligation of Capstead, enforceable in accordance with its
terms, subject in each case to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by
Capstead will not result in a violation or breach of or constitute a
default under any term or provision of the Articles of Incorporation or
Bylaws of Capstead. Complete and correct copies of the Articles of
Incorporation and Bylaws of Capstead, and all amendments thereto, have been
delivered to Fortress, and no changes therein will be made subsequent to
the date hereof and prior to the Closing without the consent of Fortress,
except that Articles Supplementary will be filed with the State Department
of Assessments and Taxation of Maryland in order to designate and classify
the Shares.
SECTION 3.03 Subsidiaries.
(a) Section 3.03(a) of the Capstead Disclosure Schedule sets
forth for each subsidiary, direct or indirect, of Capstead (each a
"SUBSIDIARY"), its capital structure, its place of organization and the
other jurisdictions in which it is qualified to do business. Each of the
Subsidiaries has been duly organized and is validly existing and in good
standing under the laws of its respective state of incorporation, has all
requisite corporate power and authority to own or lease and operate its
properties and conduct its business as now conducted and is duly qualified
or licensed to do business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties owned or leased by it makes
such qualification or licensing necessary, except where the failure to be
so qualified or licensed, individually or in the aggregate, would not have
a Material Adverse Effect on the Company or the consummation of the
transactions contemplated hereby. No jurisdiction in which any Subsidiary
is not qualified or licensed has claimed, in writing or otherwise, that
such Subsidiary is required to qualify or be licensed therein, except where
the failure to be so qualified or licensed, individually or in the
aggregate, would not have a Material Adverse Effect on the Company or the
consummation of the transactions contemplated hereby.
(b) Capstead owns, free and clear of all mortgages, liens,
claims, charges, pledges, security interests or other encumbrances of any
nature whatsoever ("ENCUMBRANCES"), and has the unrestricted power to
dispose of and vote, all of the outstanding capital stock of each of the
Subsidiaries. There are no outstanding or authorized options, warrants,
subscriptions, calls, conversions or other rights, contracts, agreements,
commitments or understandings of any kind obligating any Subsidiary to
issue, sell, purchase, return or redeem any shares of its capital stock or
any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of capital stock of, or other ownership
interest in, any Subsidiary. All of the outstanding shares of the capital
stock of each class of each Subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights or any applicable Law (as defined
herein).
(c) Except for its interest in any Subsidiary, Capstead does
not (i) own, beneficially or of record, any shares of any other corporation
or entity or any interests in any partnerships or limited liability
companies or (ii) participate in any manner in any joint ventures,
corporate alliance agreements or corporate partnering agreements. Except
for Capstead's interest in any Subsidiary, neither Capstead nor any
Subsidiary has an interest in, or is subject to, any agreement, obligation
or commitment to make any equity investment in or loan or advance to, any
other Person (as defined herein).
(d) For purposes of this Agreement, Capstead and the
Subsidiaries shall collectively be termed the "COMPANY"; when such
collective term is used in connection with financial issues, it shall refer
to Capstead and the Subsidiaries as a consolidated whole. For example, when
references are made to officers, directors and employees of the Company, it
shall mean all officers, directors and stockholders of Capstead and the
Subsidiaries.
SECTION 3.04 Capitalization and Ownership; Authorization of
Preferred.
(a) Section 3.04(a) of the Disclosure Schedule lists, for
Capstead, its authorized capitalization and the number of shares of its
capital stock (or other equity interests) issued and outstanding as of
September 30, 1999. All of the outstanding shares of the capital stock of
Capstead are validly issued, fully paid and non-assessable. All such shares
are owned free and clear of any Encumbrance imposed by Capstead. There are
no outstanding options, warrants or other rights to acquire any share of
capital stock of Capstead, there are no outstanding securities authorized,
granted or issued by Capstead that are convertible into or exchangeable for
shares of its capital stock and there are no phantom stock rights, dividend
equivalent rights, stock appreciation rights or similar rights regarding
Capstead or any Subsidiary.
(b) The issuance, sale and delivery of the Shares have been
duly authorized by all requisite corporate action of Capstead and when
issued, sold and delivered in accordance with the terms of this Agreement,
the Shares will be validly issued and outstanding, fully paid and
nonassessable.
(c) Capstead has duly reserved the number of shares of its
common stock (the "RESERVED SHARES") necessary for issuance upon conversion
in full of the Series C Shares and the Series D Shares. When issued, sold
and delivered in accordance with the terms of the Series C Articles
Supplementary or the Series D Articles Supplementary, as the case may be,
the Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable.
SECTION 3.05 No Conflicts. The execution, delivery and
performance of this Agreement by Capstead and the consummation of the
transactions contemplated hereby will not:
(a) result in the creation or imposition of any security
interest, lien, charge or other encumbrance against the assets of the
Company, with or without the giving of notice and/or the passage of time,
or
(b) violate, conflict with, affect acceleration of, or
result in termination, cancellation or modification of, or constitute a
default under or give rise to any predetermined rights to any third party
under (i) any contract, agreement or other instrument to which the Company
is a party or by which the Company or its assets is bound or (ii) any note,
bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, understanding, arrangement, agreement or restriction of any
kind or character to which the Company is a party or by which the Company
may be bound or affected, or to which any of the assets of the Company may
be subject, or
(c) violate any statute or Law or any judgment, decree,
order, writ, injunction, regulation or rule of any court or any local,
state or federal governmental or regulatory authority, which violation,
conflict, acceleration, requirement, termination, modification or default
described in (a), (b), or (c) above could reasonably be expected to result
in a Material Adverse Effect on Capstead or the transactions contemplated
by this Agreement.
SECTION 3.06 Consents and Approvals. The Company is not
required to obtain, transfer or cause to be transferred any consent,
approval, license, permit or authorization of, or make any declaration,
filing or registration with, any third party or any public body or
authority in connection with the execution and delivery by Capstead of this
Agreement or the consummation of the transactions contemplated hereby, the
failure of which to obtain, transfer or cause to be transferred could
reasonably be expected to result in a Material Adverse Effect on the
transactions contemplated by this Agreement.
SECTION 3.07 Financial and Operating Statements and Reports.
(a) Year End Financial Statements. Attached hereto as
Appendix I is a true and complete copy of audited consolidated financial
statements of the Company for the years ended December 31, 1998 and 1997
(the "YEAR END FINANCIAL STATEMENTS"). The Year End Financial Statements
include audited balance sheets of the Company as of December 31, 1998 and
1997 (such 1998 balance sheet being termed the "1998 BALANCE SHEET"),
together with related statements of operations, equity and cash flows of
the Company (and notes thereto) for each of such periods. The Year End
Financial Statements are accurate and correct in all material respects,
have been prepared on a consistent basis from, and are in accordance with,
the Company's books and records, and fairly present the consolidated
financial position and the results of operations of the Company for the
periods therein identified in conformity with generally accepted accounting
principles ("GAAP") consistently applied.
(b) Third Quarter Financial Statements. Attached hereto as
Appendix II is a true and complete copy of consolidated financial
statements of the Company for the three and nine months ended September 30,
1999 (the "THIRD QUARTER FINANCIAL STATEMENTS"). The Third Quarter
Financial Statements include a balance sheet of the Company as of September
30, 1999 (such 1999 balance sheet being termed the "1999 THIRD QUARTER
BALANCE SHEET"), together with related statements of operations and cash
flows of the Company (and notes thereto) for such period. The Third Quarter
Financial Statements are accurate and correct in all material respects,
have been prepared on a consistent basis from, and are in accordance with,
the Company's books and records, and fairly present the consolidated
financial position and the results of operations of the Company for the
periods therein identified in conformity with GAAP for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X under the Securities Act (except that the Third Quarter
Financial Statements do not include all of the information and footnotes
that may be required in the Year End Financial Statements or normal
year-end adjustments).
(c) Each report, schedule, registration statement and
definitive proxy statement filed by Capstead with the Securities and
Exchange Commission (the "SEC") since December 31, 1998 and through the
date hereof (collectively, the "SEC REPORTS"), at the time filed, and all
forms, reports or other documents filed by Capstead with the SEC after the
date hereof, did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) None of the Company or its respective employees or
agents have made any payment of funds of the Company, or received or
retained any such funds in violation of any law, rule or regulation where
such actions are of a character required to be disclosed in the SEC
Reports.
SECTION 3.08 No Undisclosed or Contingent Liabilities.
Except for (a) liabilities or obligations incurred by the Company in the
ordinary course of business and not required by GAAP applied on a
consistent basis to be set forth on the 1999 Third Quarter Balance Sheet
(all of which known items exceeding $250,000 per item are described in
Section 3.08 of the Capstead Disclosure Schedule), and (b) liabilities and
obligations incurred by the Company in the ordinary course of business
since the date of the 1999 Third Quarter Balance Sheet, to the best
knowledge of the Company, there is no basis for the assertion against the
Company of any liability or obligation of any nature whatsoever (whether
absolute, accrued, contingent or otherwise) that may encumber or affect the
Company or the transactions contemplated hereby which is not fully
reflected or reserved against on the 1999 Third Quarter Balance Sheet.
SECTION 3.09 Absence of Certain Changes. Except as set forth
in Section 3.09 of the Capstead Disclosure Schedule, since September 30,
1999, the Company has not:
(a) suffered any Material Adverse Effect and there has not
been any event (whether occurring before or after September 30, 1999) that
could reasonably be expected to have a Material Adverse Effect on the
Company; or
(b) experienced any material decrease in the book value of
the assets of the Company from the amounts reflected on the 1999 Third
Quarter Balance Sheet, other than decreases resulting from (i) depreciation
or amortization in accordance with accounting practices in effect at all
times since January 1, 1999 or (ii) changes in the market value of the
Company's mortgage investment portfolio due generally to economic changes
in the industry in which the Company conducts business; or
(c) incurred any liabilities or obligations of any nature
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except (i) liabilities or obligations for rent under the
Leases (as defined herein) and (ii) liabilities or obligations for other
items incurred in the ordinary course of business of the Company and
consistent with past practice, none of which other items exceeds $100,000
(considering liabilities or obligations arising from one transaction or a
series of similar transactions, and all periodic installments or payments
under any lease (other than the Leases and other than repurchase
obligations with respect to the Company's agency security and non-agency
security portfolio) or other agreement providing for periodic installments
or payments, as a single obligation or liability); or
(d) increased (other than increases resulting from the
calculation of reserves in the ordinary course of business and in a manner
consistent with past practice), or experienced any change in any
assumptions underlying or methods of calculating, any bad debt, contingency
or other reserves; or
(e) paid, discharged or satisfied any claims, encumbrances,
liabilities or obligations (whether absolute, accrued, contingent or
otherwise and whether due or to become due) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice of liabilities and obligations reflected or reserved
against in the 1999 Third Quarter Balance Sheet or incurred in the ordinary
course of business and consistent with past practice since the date
thereof; or
(f) permitted, allowed or suffered any of the material
assets of the Company, including, without limitation, real property,
personal property or any leasehold interest, to be subjected to any
mortgage, pledge, lien, encumbrance, restriction or charge of any kind
(except for liens for Taxes (as defined herein) not yet owing), other than
repurchase obligations of the Company incurred in the ordinary course of
business; or
(g) written off as uncollectible any notes or accounts
receivable or any portion thereof, except for write-downs in the ordinary
course of business, consistent with past practice, in accordance with GAAP
consistently applied; or
(h) canceled any material amount of indebtedness or waived
any material claims or rights, except as reserved for in the 1999 Third
Quarter Financial Statements; or
(i) sold, transferred or otherwise disposed of any assets of
the Company except in the ordinary course of business and consistent with
past practice; or
(j) disposed of or permitted to lapse any right to the use
of any patent, trademark, assumed name, service mark, trade name,
copyright, license or application therefor or disposed of or disclosed to
any corporation, association, partnership, organization, business,
individual, government or political subdivision thereof or government
agency (each, a "PERSON"), any trade secret, formula, process or know-how
not theretofore a matter of public knowledge; or
(k) granted any increase in the salary, compensation, rate
of compensation, commissions or bonuses payable to or to become payable by
the Company to any officer or director of the Company (including, without
limitation, any increase or change pursuant to any bonus, pension,
profit-sharing, retirement or other plan or commitment); or
(l) granted any increase in the salary, compensation, rate
of compensation, commissions of bonuses payable to or to become payable by
the Company to any employee of the Company (including, without limitation,
any increase or change pursuant to any bonus, pension, profit-sharing,
retirement or other plan or commitment), except in the ordinary course of
business and consistent with past practice; or
(m) paid, loaned or advanced any amount to any officer,
director, employee or stockholder of the Company except for amounts
advanced to employees of the Company in the ordinary course of business
consistent with past practice (none of which advances were loans for
personal purposes), or sold, transferred or leased any assets of the
Company to, or entered into any agreement (other than this Agreement) or
arrangement with, any officer, director, employee or stockholder of the
Company (except for agreements or arrangements made in the ordinary course
of business and consistent with past practice); or
(n) entered into any collective bargaining or labor
agreement, or experienced any labor dispute or difficulty; or
(o) made any single capital expenditure or commitment in
excess of $50,000 for additions to property, plant, equipment or for any
other purpose or made aggregate capital expenditures or commitments in
excess of $100,000 for additions to property, plant, equipment or for any
other purpose; or
(p) made any change in any method of accounting or
accounting practice or policy; or
(q) suffered any casualty loss in excess of $50,000 (whether
or not insured against) or suffered aggregate casualty losses in excess of
$100,000 (whether or not insured against); or
(r) issued any additional shares of capital stock of
Capstead or the Subsidiaries or any option, warrant, right or other
security exercisable for, convertible into or exchangeable for shares of
capital stock of Capstead or the Subsidiaries other than shares of common
stock issued upon conversion of outstanding shares of Capstead's preferred
stock; or
(s) paid dividends on or made other distributions or
payments in respect of the capital stock of Capstead or the Subsidiaries;
or
(t) paid its suppliers and other vendors in a manner and
time not consistent with past practice other than items in dispute totaling
not more than $200,000; or
(u) taken any other action not either in the ordinary course
of business and consistent with past practice or provided for in this
Agreement; or
(v) entered into or agreed to any transaction not in the
ordinary course of business; or
(w) agreed, whether in writing or otherwise, to take any of
the actions set forth in this Section 3.09.
SECTION 3.10 Real Property.
(a) The Company does not currently own, and has not owned in
the past five years, any real property, other than (i) real estate that the
Company owns or has owned in the ordinary course of business incident to
its master servicing or former servicing operations and (ii) leasehold
improvements.
(b) Section 3.10 of the Capstead Disclosure Schedule
contains a complete and accurate list of all real property leases to which
the Company is a party in any capacity (including all amendments thereof
and modifications thereto) (the "LEASES"). The Company's interests in and
to all Leases listed on Section 3.10 of the Capstead Disclosure Schedule
are free and clear of all Encumbrances including without limitation
subleases, chattel mortgages, mechanics' and materialmen's liens,
conditional sales contracts, collateral security arrangements and other
interest retention arrangements. The Company has not received notice of any
default by the Company under any of the Leases, and there are no facts or
conditions that would, with notice or lapse of time or both, constitute a
default by the Company under any of the Leases. To the best knowledge of
the Company, none of the landlords under any of the Leases is in default.
Any Lease or proposed Lease for which Capstead or an affiliate thereof or
related party thereto is landlord are on terms that are no more burdensome
to the Company than terms for third party leases in the same geographic
area for similarly-situated properties.
(c) The buildings and improvements leased by the Company on
any Lease, and the operation and maintenance thereof as operated and
maintained, do not (i) contravene any zoning or building Law or ordinance
or other administrative regulation or (ii) violate any restrictive covenant
or any applicable Law. To the best knowledge of the Company, all of the
plants, buildings and structures located on any real property owned by the
Company or on any Lease are in a state of good maintenance and repair
(normal wear and tear excepted) suitable in all respects for the operation
of the Company Business.
(d) There is no pending or threatened condemnation, eminent
domain or similar proceeding with respect to, or that could affect, any
real property owned by the Company or any Lease.
SECTION 3.11 Company Equipment. The Company has good and
indefeasible title to all furniture, fixtures and equipment of the Company
(the "COMPANY EQUIPMENT"), free and clear of any Encumbrances. To the best
knowledge of the Company, the Company Equipment is in good and normal
operating condition and repair and adequate for the uses to which it is
being put by the Company. The Company has not received any notification
from any governmental or regulatory authority within the last two years
that the Company is in violation of any health, sanitation, fire, safety,
zoning, building or other Law, ordinance or regulation in respect of the
Company Equipment or operations, which violation has not been appropriately
and completely resolved.
SECTION 3.12 Contracts and Commitments.
(a) Except as set forth in Section 3.12(a) of the Capstead
Disclosure Schedule, the Company is not a party to or bound by any
agreements, contracts or commitments which individually or when aggregated
with all related agreements, contracts or commitments, are material to the
business, operations, condition (financial or otherwise), liabilities,
assets, earnings or working capital of the Company or that provide for the
grant of any preferential rights to purchase or lease any of the assets of
the Company.
(b) The enforceability of the agreements, contracts and
commitments referred to in this Section 3.12 will not be affected in any
respect by the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(c) No purchase contracts or commitments of the Company are
in excess of the normal, ordinary and usual requirements of the Company, or
to the best knowledge of the Company, were entered into at prices
materially in excess of those available in the industry in arm's length
transactions on the respective dates thereof.
(d) The Company is not a party to or bound by any
outstanding agreements, arrangements or contracts with any of its
directors, officers, stockholders, employees, agents, consultants,
advisors, salesmen or sales representatives (or any of the affiliates of
any of such Persons) that (A) are not cancelable by it on notice of not
longer than 30 days and without the imposition of any liability, penalty or
premium, (B) require non-cancelable payment by the Company of over $25,000,
or (C) provide for any bonus or other payment based on the sale of the
Company or any portion thereof.
(e) The Company is not a party to or bound by any employment
agreement, consulting agreement or any other agreements that contains any
provision for severance or termination pay liabilities or obligations.
(f) The Company is not a party to or bound by:
(i) other than repurchase agreements reflected on the 1999
Third Quarter Financial Statements and entered into in the
ordinary course of business, any mortgage, indenture, note,
installment obligation or other instrument, agreement or
arrangement for or relating to any borrowing of money by the
Company;
(ii) any guaranty, direct or indirect, by the Company of
any obligation for borrowings or otherwise, excluding
endorsements made for collection in the ordinary course of
business;
(iii) any obligation to make payments, contingent or
otherwise, of over $250,000 arising out of any prior
acquisition of the business, assets or stock of other
persons;
(iv) any collective bargaining agreement with any labor union;
(v) any lease or similar arrangement for the use by the
Company of personal property requiring payments by the
Company, on an annual basis, of over $50,000;
(vi) any agreement containing noncompetition or other
limitations restricting the conduct of the business of the
Company; and
(vii) any partnership, joint venture or similar agreement.
(g) Neither the Company nor any of its officers, directors,
stockholders or affiliates is a party to or bound by any agreement (other
than this Agreement) or arrangement for the sale of any of the assets or
capital stock of Capstead or the Subsidiaries or for the grant of any
preferential rights to purchase any of the assets or capital stock of
Capstead or the Subsidiaries; and
(h) The Company is not bound by any agreement to redeem
shares of capital stock held by any stockholders.
(i) With respect to each contract and agreement listed in
Section 3.12 of the Capstead Disclosure Schedule, except as set forth
therein, (i) each of such contracts and agreements is valid, binding and in
full force and effect and is enforceable by the Company in accordance with
its terms, subject to bankruptcy, insolvency, reorganization and other Laws
and judicial decisions of general applicability relating to or affecting
creditors' rights and to general principles of equity; (ii) there have been
no cancellations or threatened cancellations thereof nor are there any
outstanding disputes thereunder; (iii) neither the Company, nor any other
party is in breach of any material provision thereof; and (iv) there does
not exist any material default under, or any event or condition which with
the giving of notice or passage of time or both would become a material
breach or material default under, the terms of any such contract or
agreement on the part of the Company or on the part of any other party
thereto.
(j) The Company has delivered or made available to Fortress
true and complete copies of each written contract or agreement listed in
Section 3.12 of the Capstead Disclosure Schedule and true and accurate
summaries of any oral agreement listed thereon.
SECTION 3.13 Intellectual Property. Section 3.13 of the
Capstead Disclosure Schedule contains an accurate and complete list of (a)
all material patents, trademarks (registered or unregistered), trade names,
assumed names, copyrights, and all applications therefor, owned or filed by
the Company and used in or necessary for the conduct of the Company
Business and, with respect to registered trademarks, contains a list of all
jurisdictions in which such trademarks are registered and all registration
numbers; (b) all material licenses, permits and other agreements relating
thereto; and (c) all material agreements relating to technology, know-how
or processes used in or necessary for the conduct of the business of the
Company Business which the Company is licensed or authorized to use by
others (including, without limitation, licenses for the use of software of
all types). Such patents, trademarks (registered or unregistered),
copyrights, licenses and permits are (i) valid, subsisting and enforceable,
and (ii) duly recorded in the names of the Persons set forth in Section
3.13 of the Capstead Disclosure Schedule. The Persons set forth in Section
3.13 of the Capstead Disclosure Schedule have the sole and exclusive right,
free from any liens, mortgages, security interests, charges or
encumbrances, to use the patents, trademarks (registered or unregistered),
copyrights and applications therefor set forth beside their names, and the
Company has the full right to use the trade names, assumed names,
technology, know-how, inventions, works and processes referred to in such
lists and all trade secrets required for or incident to the conduct of the
Company Business in the jurisdictions in which the Company Business is
conducted, and the consummation of the transactions contemplated hereby
will not alter or impair any such rights. No material claims have been
asserted by any Person against the Company with respect to the ownership,
validity, enforceability, misappropriation or use of any product or service
of the Company Business or such patents, trademarks (registered or
unregistered, or of any confusingly similar or dilative trademarks), trade
names, assumed names, copyrights, applications therefor, technology,
know-how, processes or trade secrets or challenging or questioning the
validity or effectiveness of any such license, permits or agreement and
there is no valid basis for any such claim, and the use or other
exploitation of any such product or service of the Company Business or
patents, trademarks (registered or unregistered), trade names, assumed
names, copyrights, applications therefor, technology, know-how, processes
and trade secrets by the Company does not infringe on or dilute the rights
of any Person; and, to the best knowledge of the Company, no other Person
is infringing the rights of the Company with respect to such patents,
trademarks (registered or unregistered), trade names, assumed names,
copyrights, and applications therefor, technology, know-how, inventions,
works, processes or trade secrets.
SECTION 3.14 Inventory. The Company has no inventory, other
than with respect to office supplies that are stored in amounts necessary
for the reasonably foreseeable use of the Company.
SECTION 3.15 Pension and Other Employee Plans and Agreements.
(a) Section 3.15(a) of the Capstead Disclosure Schedule sets
forth, as of the date of this Agreement, all of the material pension,
profit sharing, stock option, stock purchase, stock bonus, employee stock
ownership, incentive, bonus, life, health, disability or accident plans,
deferred compensation plans, and other employee compensation or benefit
plans, agreements, practices, policies, customs, contracts, arrangements or
commitments, including, without limitation, changes in control or severance
agreements, holiday, vacation or other similar plans, programs or
arrangements, employee benefit plans (within the meaning of section 3(3) of
ERISA), and labor union agreements under or with respect to which the
Company or any Person ("ERISA Affiliate") who would be treated as being a
"single employer" with the Company under section 414 of the Code, has any
liability or obligation, whether current, contingent, secondary or
otherwise (collectively, the "PLANS" and individually, a "PLAN"), and the
Company has furnished to Fortress complete copies of all of the foregoing
as amended and in effect on the date hereof, including, where applicable,
any trust agreements, insurance contracts or other funding mediums related
to any Plan and Summary Plan Descriptions.
(b) Except for any events of noncompliance resulting in
aggregate payments of not greater than $150,000, each Plan is in compliance
in all material respects with its terms and applicable Law, including
(without limitation) ERISA and the Code.
(c) Seller has never been required to contribute to any
multiple employer plan (as defined in Section 412 of the Code) or
multiemployer plan (as defined under Section 3(37) of ERISA), and no Plan
is subject to Title IV of ERISA or Section 412 of the Code.
(d) No Plan provides (or has any commitment to provide)
health benefits with respect to any current or former employees or
independent contractors (or beneficiary thereof) of the Company or any
ERISA Affiliate beyond their retirement or other termination of service
(other than coverage mandated by COBRA). Each Plan can be unilaterally
terminated at any time by the Company without material liability.
SECTION 3.16 Litigation. Except as set forth in Section 3.16
of the Capstead Disclosure Schedule, there are no open and unresolved
claims, actions, suits, proceedings, investigations or inquiries that have
been made or served against the Company or, to the best knowledge of the
Company, that are pending against (without having been so served),
threatened by or against, or otherwise affecting or that, if adversely
decided, would reasonably be expected to have a Material Adverse Effect on
the Company or the transactions contemplated hereby (except as otherwise
disclosed in the Disclosure Schedule). The Company is not a party to or a
recipient of service of process regarding (and has not otherwise been named
and noticed in) any judgment, order or decree entered in any lawsuit or
proceeding which has had or may have a Material Adverse Effect on the
Company or on its ability to acquire any property or conduct its business
in any way.
SECTION 3.17 Insurance. (a) All policies of fire, liability,
workmen's compensation, health, D&O insurance and other forms of insurance
relating to the business of the Company (the "COMPANY BUSINESS") are in
full force and effect, (b) all billed premiums with respect thereto
covering all periods up to and including the Closing Date have been paid or
will be paid prior to the Closing Date, and (c) no notice of cancellation
or termination has been received with respect to any such policy. Capstead
maintains insurance of the types, and at least in the amounts, that to its
knowledge are customary for businesses similar to the Company Business. All
information disclosed by Capstead to Fortress regarding coverage under such
insurance policies is true and correct in all material respects.
SECTION 3.18 Collective Bargaining Agreements; Compensation;
Employee Agreements. The Company does not have in effect any collective
bargaining agreement. The Company is not currently engaged in any
bargaining with any labor union. To the best knowledge of the Company, no
petition is on file with the National Labor Relations Board submitted by a
labor union seeking to represent any of the employees of the Company and
the Company is not aware of any attempts to organize the employees of the
Company by any labor union.
SECTION 3.19 Compliance with Law. The Company is in
compliance in all material respects with all federal, state, foreign and
local laws (whether statutory or otherwise), ordinances, rules,
regulations, orders, judgments, decrees, writs and injunctions of any
governmental authority (collectively, "LAWS") applicable to the Company
Business. The Company has not been notified by any governmental or
regulatory authority that the Company is in violation or alleged violation
of any Law applicable to the Company Business which violation has not been
appropriately and completely resolved, or that any governmental or
regulatory authority contemplates any investigation or proceeding with
respect to any such violation or alleged violation which has not been
appropriately and completely resolved which, in either case, could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.20 Permits. The Company has all material licenses,
permits and authorizations issued by any federal, state, local or
governmental authority ("PERMITS") necessary for the ownership or leasing
of its properties and the conduct of the Company Business as now being
conducted. All such Permits are in full force and effect. No violations
exist or, to the best knowledge of the Company, have been reported in
respect of such Permits. No notice of any proceeding has been served or
otherwise given to the Company or, to the best knowledge of the Company, is
pending (without service or other notice) or threatened seeking the
revocation or limitation of any of such Permits.
SECTION 3.21 Tax Matters.
(a) All Tax Returns required to be filed on or before the
Closing Date by the Company have been or will be filed within the time
prescribed by Law (including extensions of time approved by the appropriate
taxing authority). "TAX RETURN" means any report, statement, form, return
or other document or information required to be supplied to a taxing
authority in connection with Taxes. "TAX" or "TAXES" means any United
States or foreign federal, state, or local tax, including without
limitation income tax, ad valorem tax, excise tax, sales tax, use tax,
franchise tax, gross receipts tax, withholding tax, social security tax,
occupation tax, service tax, license tax, payroll tax, transfer and
recording tax, severance tax, customs tax, import tax, export tax,
employment tax, or any similar or other tax, assessment, duty, fee, levy or
other governmental charge, together with and including, without limitation,
any and all interest, fines, penalties, assessments and additions to tax
resulting from, relating to, or incurred in connection with any such tax or
any contest or dispute thereof.
(b) The Tax Returns so filed are complete, correct and
accurate representations of the Tax liabilities of the Company and such Tax
Returns accurately set forth or will accurately set forth all items to the
extent required to be reflected or included in such returns.
(c) The Company has timely paid or has made adequate
provision in the 1998 Balance Sheet for the payment of all Taxes due on
such Tax Returns that have been filed or will be filed for periods ending
on or before the date of the 1998 Balance Sheet.
(d) There is no action, suit, investigation, proceeding,
audit or claim that has been served against or otherwise properly noticed
to the Company, or, to the best knowledge of the Company, pending or
proposed against or with respect to the Company in respect of any Tax.
There are no material liens for Taxes upon any of the assets of the
Company.
(e) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent
contractor, or other Person.
(f) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(g) The Company does not have in effect a consent under
Section 341(f) of the Code concerning collapsible corporations.
(h) There has never been a Tax sharing or allocation
agreement in place between the Company and any other Person other than
those, if any, with respect to which the applicable statute of limitations
has run.
(i) The Company is not liable for a Tax incurred by any
other corporation that was a member of a consolidated group of corporations
(within the meaning of Treasury regulation section 1.1502) that included
the Company.
(j) The Company has delivered or made available to Fortress
correct and complete copies of all Tax Returns filed by the Company for
1996, 1997 and 1998, all examination reports, and any statements of
deficiencies assessed against or agreed to by the Company.
(k) Capstead has made a valid election under applicable law
to be treated as a REIT as defined in Section 856 of the Code for each
taxable year ending from December 31, 1985 through December 31, 1998 and
has qualified as a REIT for federal tax purposes for such years.
SECTION 3.22 Title to Assets. The Company has good, valid
and indefeasible title to the assets of the Company, including without
limitation those assets set forth on the 1999 Third Quarter Balance Sheet
(other than with respect to those assets which are subject to repurchase
obligations and collateralized mortgage obligations of the Company),
subject to the mortgages, liens, claims, charges, pledges, security
interests set forth in Section 3.22 of the Capstead Disclosure Schedule.
SECTION 3.23 Brokers or Finders; Other Offers. Except as set
forth in Section 3.23 of the Capstead Disclosure Schedule, the Company has
not incurred, and will not incur, directly or indirectly, as a result of
any action taken by the Company, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement.
SECTION 3.24 Articles of Incorporation Exemptions and Other
Exclusions. The issuance of the Shares hereunder and the acquisition of
shares of the Common Stock, upon conversion or redemption of such Shares,
are excluded by resolutions of the Company's board of directors from the
application of Article VIII of Capstead's Articles of Incorporation and
from the provisions of Section 3-602 of the Maryland General Corporation
Law (the "MARYLAND GCL") prohibiting business combinations with Interested
Stockholders (as such term is defined in Section 3-601 of the Maryland GCL
and the provisions of Sections 3-701 et seq. of the Maryland GCL). No "fair
price," "moratorium," "control share acquisition," or other similar
anti-takeover statute or regulation to which Capstead or its operations is
subject is applicable to the sale of Shares or the acquisition of Common
Stock by Fortress upon conversion or redemption of such Shares or to
Fortress solely as a result of its acquisition of such Shares or Common
Stock.
SECTION 3.25 Investment Company. Capstead is not, and upon
the issuance and sale of the Shares as contemplated herein and the
application of the net proceeds therefrom will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended (the "INVESTMENT COMPANY ACT"), and is not required to be
registered under the Investment Company Act.
SECTION 3.26 Internal Controls. Capstead maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable internals and appropriate action is taken with respect
to any differences.
SECTION 3.27 Year 2000 Compliance.
(a) Capstead has completed a review and assessment of all
areas within its business and operations that could be reasonably expected
to be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by Capstead may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999).
(b) All computer software, computer firmware and computer
hardware (whether general or special purpose) owned by Capstead that are
material to the conduct of Capstead's business is reasonably expected to,
on a timely basis, be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "YEAR 2000
COMPLIANT"). Capstead has also inquired as to the Year 2000 compliance of
service contractors and suppliers and other third parties with whom
Capstead conducts a material amount of business and, to the knowledge of
Capstead, these third parties are Year 2000 Compliant.
ARTICLE IV
OTHER OBLIGATIONS OF THE PARTIES
SECTION 4.01 Conduct of Company Business. From the date
hereof to the Closing, except as otherwise expressly set forth in this
Agreement, and except for costs and expenses reasonably incurred in
connection with the transactions contemplated by this Agreement, the
Company shall conduct the business, operations, activities and practices of
the Company only in the ordinary course, in accordance with prudent
practice and consistent with past practice since January 1, 1999.
SECTION 4.02 Access to Books and Records. In order that
Fortress may have a full opportunity to make investigations of Capstead in
connection with the actions contemplated by this Agreement, Capstead shall
permit Purchaser and its counsel, accountants, auditors, lenders,
environmental consultants and other representatives reasonable access, upon
reasonable notice, to all of the offices, properties, books and records,
contracts and commitments of Capstead from the date hereof through the
Closing Date.
SECTION 4.03 Consents. Each of Capstead and Fortress agree
to use commercially reasonable best efforts to obtain prior to the Closing
all consents and approvals necessary, in the reasonable determination of
Fortress, to consummate the transactions contemplated hereby, including,
without limitation, the consents and approvals listed or referred to in
Section 3.06 of the Disclosure Schedule. All such consents shall be in
writing and in form and substance reasonably satisfactory to Fortress, and
executed counterparts thereof shall be delivered to Fortress promptly after
receipt thereof by Capstead but in no event later than the Closing.
SECTION 4.04 Supplemental Disclosure by Capstead.
(a) The Capstead Disclosure Schedule shall be considered to
be part of the representations and warranties of Capstead.
(b) Following delivery of the Capstead Disclosure Schedule
in accordance with the provisions of Article III and continuing through the
Closing, Capstead shall have the continuing obligation to supplement or
amend the Capstead Disclosure Schedule with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in such
specific Sections of the Capstead Disclosure Schedule ("CAPSTEAD
SUPPLEMENTAL DISCLOSURES").
(c) Capstead acknowledges that the Capstead Disclosure
Schedule is an important and integral part of this Agreement. Fortress
shall be entitled to treat any Capstead Supplemental Disclosures as a
breach of the appropriate representation or warranty, whether or not the
event or condition giving rise to such Capstead Supplemental Disclosures
occurred on or prior to the date hereof, unless such supplementation or
amendment is a result of any of the activities not prohibited by Section
4.01 ("SECTION 4.01 ITEMS"); provided, that as a result of the occurrence
of the Closing despite such supplementation or amendment of the Capstead
Disclosure Schedule, Fortress shall be deemed to have waived any breach
arising from such supplementation or amendment.
SECTION 4.05 Governmental Filings. As soon as practicable,
Capstead and Fortress shall make any and all filings and submissions to any
governmental agency that are required to be made in connection with the
transactions contemplated hereby. Capstead shall furnish to Fortress, and
Fortress shall furnish to Capstead, such information and assistance as the
other party or parties may reasonably request in connection with the
preparation of any such filings or submissions.
SECTION 4.06 Covenant to Satisfy Conditions. Capstead and
Fortress shall each use their commercially reasonable best efforts to
insure that the conditions set forth in Article V hereof are satisfied,
insofar as such matters are within their respective control.
SECTION 4.07 Employees. From the date hereof Capstead shall
use its commercially reasonable best efforts to retain as employees of the
Company through the Closing Date the active employment of the Company's
current employees, except as may be otherwise agreed by the parties.
Capstead agrees in this regard to cooperate with Fortress by permitting
Fortress throughout the period prior to the Closing Date to meet with the
employees of the Company (especially the corporate officers of the Company)
at such times as shall be approved by Capstead (which approval shall not be
unreasonably withheld).
SECTION 4.08 Public Announcements. Neither the Company nor
Fortress, nor any of their affiliates, shall make any public statement,
including, without limitation, any press release, with respect to this
Agreement and the transactions contemplated hereby, without the prior
written consent of the other party (which consent may not be unreasonably
withheld), except as may be required by law.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to Obligations of
Fortress. The obligations of Fortress under this Agreement are subject to
the satisfaction or, unless prohibited by law, the waiver by Fortress, at
or before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Capstead contained herein shall be true, complete and
accurate in all material respects as of the date when made and at and as of
the Closing Date as though such representations, warranties and statements
were made at and as of such date.
(b) Performance. Capstead shall have performed and complied
with all agreements, obligations and conditions required by this Agreement
to be so performed or complied with by it or them at or prior to the
Closing.
(c) No Injunction. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction restraining or
prohibiting the consummation of the transactions contemplated hereby.
(d) Compliance Certificates. Capstead shall have delivered
to Fortress a certificate, dated the Closing Date, executed by its Chief
Executive Officer and Chief Financial Officer certifying the fulfillment of
the conditions specified in Section 5.01(a) and (b) hereof with respect to
its representations, warranties, agreements, obligations and conditions
hereunder.
(e) Secretary's Certificate. Capstead shall have delivered
to Fortress a certificate, dated the Closing Date, executed by its
Secretary or Assistant Secretary and certifying as to Capstead's articles
of incorporation, bylaws, enabling resolutions, incumbency of officers and
other reasonably related matters (including, without limitation, the
certificate of incorporation and bylaws of any Subsidiary).
(f) Consents and Approvals. All licenses, permits, consents,
approvals and authorizations of all third parties and governmental bodies
and agencies shall have been obtained which are necessary, in the
reasonable determination of counsel to Fortress, in connection with (a) the
execution and delivery by each of the parties, as appropriate, of this
Agreement or (b) the consummation by each of the parties of the
transactions contemplated hereby or thereby.
(g) Filings with Secretary of State. On or prior to the
Closing, Capstead shall have filed the Series C Articles Supplementary and
Series D Articles Supplementary with the Department of Assessments and
Taxation of the State of Maryland.
(h) Registration Rights Agreement. On or prior to the
Closing, Capstead shall execute and deliver to Fortress a registration
rights agreement in the form attached hereto as Exhibit "C" (the
"REGISTRATION RIGHTS AGREEMENT").
(i) Supplemental Agreement. On or prior to the Closing,
Capstead and Fortress shall execute and deliver the supplemental agreement
to the stock purchase agreement in the form attached hereto as Exhibit "D"
(the "SUPPLEMENTAL AGREEMENT").
(j) No Material Adverse Change. Except as specifically
disclosed herein or in the Disclosure Schedule, the events occurring since
September 30, 1999, and the conditions arising since such date shall not,
in the aggregate, have resulted in a Material Adverse Change to the
Company.
(k) Documents. All documents to be delivered by Capstead to
Fortress at the Closing shall be duly executed and in form and substance
reasonably satisfactory to Fortress.
(l) Blue Sky. The Company shall have obtained all necessary
blue sky law permits, if any, and qualifications, or secured exemptions
therefrom, required by any state for the offer and sale of the Shares and
the Common Stock issuable upon conversion of the Shares.
(m) Legal Matters. All material matters of a legal nature
that pertain to this Agreement and the transactions contemplated hereby
shall have been reasonably approved by counsel to Fortress.
(n) Opinion of Company's Counsel. At the Closing, Fortress
shall have received from Andrews & Kurth L.L.P., counsel to the Company, an
opinion addressed to them, dated the Closing Date, in the form attached
hereto as Exhibit "E".
(o) Opinion of Company's Maryland Counsel. At the Closing,
Fortress shall have received from Hogan & Hartson L.L.P., Maryland counsel
to the Company, an opinion addressed to them, dated the Closing Date, in
the form attached hereto as Exhibit "F".
(p) REIT Opinion. At the Closing, Fortress shall have
received an opinion from Andrews & Kurth L.L.P., tax counsel to the
Company, substantially to the effect that, for all of its taxable years
beginning September 5, 1985 and ending on December 31, 1998, Capstead has
met the requirements for qualification as a REIT under the Code and
Capstead will continue to qualify as a REIT for the taxable year beginning
January 1, 1999, provided that after the Closing Date, Capstead continues
to be organized and operated according to representations made by Capstead
to Andrews & Kurth L.L.P. and therefore continues to satisfy the income
tests, asset tests and distribution, shareholder, record keeping and other
applicable REIT requirements under the Code.
(q) Other. Fortress shall have received such other documents
or certificates as Fortress may reasonably have requested.
SECTION 5.02 Conditions Precedent to Obligations of
Capstead. The obligations of Capstead under this Agreement are subject to
the satisfaction or, unless prohibited by law, the waiver by Capstead at or
before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Fortress contained herein shall be true, complete and
accurate in all material respects as of the date when made and at and as of
the Closing Date as though such representations and warranties were made at
and as of such date.
(b) Performance. Fortress shall have performed and complied
with all agreements, obligations and conditions required by this Agreement
to be so performed or complied with by them at or prior to the Closing.
(c) No Injunction. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction restraining or
prohibiting consummation of the transactions contemplated hereby.
(d) Officers' Certificates. Fortress shall have delivered to
Capstead a certificate, dated the Closing Date and executed by its
respective Chief Executive Officer and Chief Financial Officer certifying
the fulfillment of the conditions specified in Sections 5.02(a) and (b)
hereof.
(e) Secretary's Certificates. Fortress shall have delivered
to Capstead a certificate, dated the Closing Date, executed by its
Secretary or Assistant Secretary and certifying as to its organizational
documents, enabling resolutions, incumbency of officers and other related
matters.
(f) Documents. All documents to be delivered by Fortress to
Capstead at the Closing shall be duly executed and in form and substance
reasonably satisfactory to Capstead.
(g) Supplemental Agreement. On or prior to the Closing,
Capstead and Fortress shall execute and deliver the Supplemental Agreement.
(h) Other. Capstead shall have received such other documents
or certificates as Capstead may reasonably have requested.
ARTICLE VI
INDEMNIFICATION
SECTION 6.01 Survival of Representations and Warranties. All
representations and warranties made hereunder shall survive any
investigation made by or on behalf of any party hereto and shall survive
for a period of twelve months following the Closing; provided, however,
that the representations and warranties contained in this Agreement
relating to Taxes or made pursuant to Sections 3.17 hereof shall survive
until 90 days following the expiration of the period of limitations for any
matter relating thereto, plus any extended period applicable thereto by
reason of any waiver of the period of limitations. Each covenant and
agreement (but not representations and warranties, since they are covered
above) of the parties hereunder shall survive any investigation made by or
on behalf of any party hereto and shall survive the Closing hereunder.
SECTION 6.02 Indemnification by Capstead. Subject to the
other terms and conditions of this Agreement, Capstead agrees to indemnify,
defend and hold harmless Fortress and any of its officers, directors,
employees, representatives, affiliates, subsidiaries, successors and
assigns (collectively, the "FORTRESS GROUP"), at any time after the
Closing, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses including,
without limitation, interest, penalties and reasonable attorneys' fees and
expenses (collectively "FORTRESS GROUP DAMAGES") asserted against,
resulting to, imposed upon or incurred by the Fortress Group or any member
thereof, directly or indirectly, by reason of or resulting from any
misrepresentation or breach of any representation, warranty or agreement of
Capstead contained in or made pursuant to this Agreement or any facts or
circumstances constituting such a breach (the "FORTRESS GROUP CLAIMS").
SECTION 6.03 Indemnification by Fortress. Subject to the
other terms and conditions of this Agreement, Fortress agrees to indemnify,
defend and hold harmless Capstead and any of its stockholders, officers,
directors, employees, representatives, affiliates, subsidiaries, successors
and assigns (collectively, the "CAPSTEAD GROUP"), at any time after the
Closing, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses including,
without limitation, interest, penalties and reasonable attorneys' fees and
expenses, after deducting any insurance proceeds received by Capstead in
connection therewith, (collectively "CAPSTEAD GROUP DAMAGES") asserted
against, resulting to, imposed upon or incurred by the Capstead Group or
any member thereof, directly or indirectly, by reason of or resulting from
any misrepresentation or breach of any representation, warranty or
agreement of Fortress contained in or made pursuant to this Agreement or
any facts or circumstances constituting such a breach (collectively, the
"CAPSTEAD GROUP CLAIMS"; the Capstead Group Claims and the Fortress Group
Claims are hereinafter collectively referred to as the "CLAIMS").
SECTION 6.04 Limitations Regarding Indemnification
Obligations of Capstead. Notwithstanding any other provision in this
Agreement, the liability of Capstead to indemnify the Fortress Group
pursuant to Section 6.02 hereof against any Fortress Group Damages
sustained by reason of any Fortress Group Claim shall be limited to
Fortress Group Claims as to which any member of the Fortress Group has
given to Capstead written notice thereof within twelve months following the
Closing, whether or not any Fortress Group Damages have then actually been
sustained; provided, however, that, notwithstanding the foregoing, the
liability of Capstead to indemnify the Fortress Group against any Fortress
Group Damages sustained by reason of any Fortress Group Claim relating to a
breach of any of the representations, warranties or agreements relating to
Taxes or made pursuant to Sections 3.17 of this Agreement shall be limited
to Fortress Group Claims as to which a member of the Fortress Group has
given to Capstead written notice thereof at or prior to 90 days following
the expiration of the period of limitations applicable to the event giving
rise to such Fortress Group Claim, plus any extended period applicable
thereto by reason of any waiver of the period of limitations; provided
further, that the provisions for indemnity contained in this Agreement
shall be effective against Capstead only after the aggregate amount of all
Fortress Claims for which Capstead is liable hereunder equals or exceeds
the amount of $500,000 (and then such indemnity shall cover such first
$500,000 in Fortress Group Damages), but in no event in excess of the sum
of the Series C Purchase Price and the Series D Purchase Price payable
hereunder to Fortress.
SECTION 6.05 Limitations Regarding Indemnification
Obligations of Fortress. Notwithstanding any other provision in this
Agreement, the liability of Fortress to indemnify the Capstead Group
pursuant to Section 6.03 hereof against any Capstead Group Damages
sustained by reason of any Capstead Group Claim shall be limited to
Capstead Group Claims as to which any member of the Capstead Group has
given to Fortress written notice thereof within twelve months following the
Closing, whether or not any Capstead Group Damages have then actually been
sustained; provided, further, the provisions for indemnity contained in
this Agreement shall be effective against Fortress only after the aggregate
amount of all Capstead Claims for which Fortress is liable hereunder equals
or exceeds $500,000 (and then such indemnity shall cover such first
$500,000 in Capstead Group Damages), but in no event in excess of the sum
of the Series C Purchase Price and the Series D Purchase Price.
SECTION 6.06 Conditions of Indemnification. The obligations
and liabilities of the parties with respect to Claims shall be subject to
the following terms and conditions:
(a) The indemnified party shall give the indemnifying party
prompt notice of any such Claim, and the indemnifying party shall have the
right to undertake the defense thereof by representatives chosen by it;
(b) If the indemnifying party fails to defend the
indemnified party against such Claim within a reasonable time after being
notified of the Claim, then the indemnified party shall (upon further
notice to the indemnifying party) have the right to defend, compromise or
settle such Claim on behalf of and for the account and risk of the
indemnifying party subject to the right of the indemnifying party to assume
the defense of such Claim at any time prior to settlement, compromise or
final determination thereof; provided, that the indemnified party shall
provide the indemnifying party with notice of any proposed settlement or
compromise of such Claim (as far in advance of the actual settlement or
compromise of the Claim as is reasonably practicable); and
(c) Anything in this Agreement to the contrary
notwithstanding, (i) if there is a reasonable probability that a Claim may
materially and adversely affect the indemnified party other than as a
result of money damages or other money payments, the indemnified party
shall have the right, at the cost and expense of the indemnifying party, to
manage the defense, compromise or settlement of such Claim; provided,
however, that if such Claim is settled without the indemnifying party's
consent (which consent shall not be unreasonably withheld), the indemnified
party shall be deemed to have waived all rights hereunder against the
indemnifying party for money damages arising out of such Claim; and (ii)
the indemnifying party shall not, without the written consent of the
indemnified party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnified party a release
from all liability in respect to such Claim.
SECTION 6.07 Claim Disputes.
(a) Within 30 days of its receipt from Fortress of written
notice under Section 6.06 above regarding a Fortress Group Claim and the
amount of Fortress Group Damages related thereto, Capstead shall deliver to
Fortress written notice containing specific objections (prepared in good
faith) to the nature of the Fortress Group Claim or the amount of Fortress
Group Damages specified in the original notice. In such event, Fortress and
Capstead shall work in good faith during the next 30 days toward resolving
any such objections. If a resolution is reached within such 30 days, the
Fortress Group shall be indemnified for the amount so agreed upon in
accordance with the other terms and conditions of this Agreement.
(b) Within 30 days of its receipt of written notice from
Capstead under Section 6.06 above regarding an Capstead Group Claim and the
amount of Capstead Group Damages related thereto, Fortress shall deliver to
Capstead written notice containing specific objections (prepared in good
faith) to the nature of the Capstead Group Claim or the amount of Capstead
Group Damages specified in the original notice. In such event, Fortress and
Capstead shall work in good faith during the next 30 days toward resolving
any such objections. If a resolution is reached within such 30 days, the
Capstead Group shall be indemnified for the amount so agreed upon in
accordance with the other terms and conditions of this Agreement.
(c) In the event no mutually agreeable resolution of an
indemnification matter is reached under the foregoing clauses (a) or (b)
within such 30 day period, such dispute shall be submitted to three
arbitrators in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association. If there is a dispute as to whether all
or any part of a Claim arose after the Closing, this issue (as well as the
resulting allocation of damages) may, without limitation as to other
matters, be among the matters addressed by the arbitrators. The arbitrators
shall be governed by and shall apply the substantive law of the State of
Texas in making their determination, and their ruling shall be binding and
conclusive upon Fortress and Capstead.
SECTION 6.08 Remedies Exclusive. The remedies provided to
the parties in this Agreement shall be exclusive and shall preclude
assertion by them of any other rights or the seeking of any other remedies
against any other party hereto.
ARTICLE VII
TERMINATION OF AGREEMENT
SECTION 7.01 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of Capstead and Fortress;
(b) by Fortress, on or after December 15, 1999, if any of
the conditions provided in Section 5.01 hereof of this Agreement have not
been met or, to the extent permitted by applicable law, have not been
waived in writing by Fortress prior to such date; or
(c) by Capstead, on or after December 15, 1999, if any of
the conditions provided in Section 5.02 hereof have not been met or, to the
extent permitted by applicable law, have not been waived in writing by
Capstead prior to such date.
SECTION 7.02 Procedure Upon Termination. In the event of
termination by Capstead or Fortress pursuant to Section 7.01 hereof,
written notice thereof shall promptly be given to the other parties and the
transactions contemplated by this Agreement shall be terminated, without
further action by any party. If the transactions contemplated by this
Agreement are terminated as provided herein:
(a) each of Capstead and Fortress shall return all
documents, work papers and other material of any other party relating to
the transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the party furnishing the same; and
(b) all confidential information received by Capstead and
Fortress with respect to the business of any other party or its
subsidiaries or affiliates shall be treated confidentially.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Commissions. No party hereto has employed any
investment banker, broker, finder or similar agent in connection with any
transaction contemplated by this Agreement.
SECTION 8.02 Definition of Knowledge. For the purpose of
this Agreement, the Exhibits and Appendices to this Agreement and the
Disclosure Schedule, the phrases "to the best knowledge" of any party and
"known" and words of like effect shall mean to the knowledge of such party,
which knowledge shall also include information existing in the records and
files of such party.
SECTION 8.03 Definition of Material Adverse Effect and
Material Adverse Change. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE
CHANGE" means, with respect to any party, any direct or indirect change,
occurrence or effect (other than as a result of changes in general
conditions, including economical or political developments, applicable to
the industry in which such party operates) on the business, operations,
properties (including tangible properties), condition (financial or
otherwise), assets, obligations or liabilities (whether absolute,
contingent or otherwise and whether due or to become due) of such party and
its subsidiaries taken as a whole that reasonably could be expected to be
materially adverse to such party.
SECTION 8.04 Expenses, Taxes, Etc. Except as otherwise
provided herein, in the event of the termination of this Agreement prior to
Closing, each of the parties hereto shall pay all fees and expenses
incurred by it or any of its affiliates in connection with the transactions
contemplated by this Agreement.
SECTION 8.05 Successors and Assigns. Except as set forth in
the next sentence, no party shall have the right to assign all or any part
of its interest in this Agreement without the prior written consent of the
other parties, and any attempted transfer without such consent shall be
null and void. Fortress' rights and obligations hereunder shall be
assignable by and among Fortress and its affiliates; provided, that (i)
each such assignment shall assign the full rights and obligations of
Fortress or, as the case may be, its affiliate (if Fortress has already
assigned its full rights and obligations hereunder to such affiliate), (ii)
each such assignment shall be made between Fortress or, as the case may be,
such affiliate to only one of Fortress' affiliates per assignment (i.e.,
Fortress may not distribute its rights and obligations hereunder among more
than one affiliate at any time), (iii) Capstead shall receive prior notice
of such proposed assignment and (iv) Fortress shall remain primarily liable
for its obligations hereunder unless its assignee-affiliate (and any
further assignee-affiliate) has a net worth that is reasonably acceptable
to Capstead (as evidenced by Capstead's prior written consent, not to be
unreasonably withheld).
SECTION 8.06 No Third-Party Benefit. Nothing in this
Agreement shall be deemed to create any right or obligation in any Person
not a party hereto and this Agreement shall not be construed in any respect
to be a contract or agreement in whole or in part for the benefit of or
binding upon any Person not a party hereto.
SECTION 8.07 Entire Agreement; Amendment. This Agreement,
the Exhibits, the Appendices, the Capstead Disclosure Schedule and the
Fortress Disclosure Schedule hereto constitute the entire agreement among
the parties hereto with respect to the transactions contemplated herein and
supersede all prior oral and written agreements, memoranda, understandings
and undertakings between the parties hereto relating to the subject matter
hereof including, without limitation, the summary of terms executed by
Capstead and Fortress. Neither this Agreement nor any term hereof may be
modified, amended, waived, altered or supplemented except by a written
instrument executed and delivered by each of the parties hereto.
SECTION 8.08 Reformation and Severability. If any provision
of this Agreement is held to be illegal, invalid or unenforceable under
present or future laws effective during the term hereof and such
illegality, invalidity or unenforceability does not result in a material
failure of consideration, then;
(a) in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable; and
(b) the legality, validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby.
SECTION 8.09 Notices. All notices, claims, certificates,
requests, demands and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally or
telecopied or five business days after being mailed (registered or
certified mail, postage prepaid, return receipt requested) as follows:
If to Capstead:
Capstead Mortgage Corporation
8401 N. Central Expressway
Suite 800
Dallas, Texas 75225-4401
Attention: Andrew F. Jacobs
Telecopier: (214) 874-2398
with a copy to:
Andrews & Kurth L.L.P.
1717 Main Street
Suite 3700
Dallas, Texas 75201
Attention: David Barbour
Telecopier: (214) 659-4401
If to Fortress:
Fortress Investment Corp.
1301 Avenue of the Americas
42nd Floor
New York, New York 10019
Attention: Wesley R. Edens
Telecopier: (212) 798-6122
with a copy to:
Skadden, Arps, Slate, Meagher & Flom L.L.P.
919 3rd Avenue
New York, New York 10022
Attention: J. Gregory Milmoe
Telecopier: (212) 735-3594
or to such other address as the person to whom notice is to be given may
have previously furnished to the other in writing in the manner set forth
above, provided that notice of a change of address shall
be deemed given only upon receipt.
SECTION 8.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES.
SECTION 8.11 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by parties hereto on the date first above written.
CAPSTEAD MORTGAGE CORPORATION
By: /s/ Andrew F. Jacobs
________________________________
Andrew F. Jacobs
Executive Vice President - Finance
FORTRESS INVESTMENT CORP.
By: /s/ Randal A. Nardone
_______________________________
Randal A. Nardone
Chief Operating Officer
SUPPLEMENTAL AGREEMENT
TO
THE STOCK PURCHASE AGREEMENT
THIS SUPPLEMENTAL AGREEMENT TO THE STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of December 9, 1999, is by and among FORTRESS
INVESTMENT CORP., a Maryland corporation ("Fortress"), and CAPSTEAD
MORTGAGE CORPORATION, a Maryland corporation ("Capstead").
WHEREAS, Fortress and Capstead are entering into a Series C and
Series D Convertible Preferred Stock Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), pursuant to which Fortress is
purchasing from Capstead 5,378,000 shares of a series of Capstead's
preferred stock to be designated as Series C Convertible Preferred Stock,
$0.10 par value per share (the "Series C Preferred Stock"), and 5,378,000
shares of a series of Capstead's preferred stock to be designated as Series
D Convertible Preferred Stock, $0.10 par value per share (the "Series D
Preferred Stock," and, together with the Series C Preferred Stock, the
"Preferred Stock") for total consideration of $51,200,000 (the "Purchase
Price");
WHEREAS, the execution and delivery of this Agreement by Capstead
and Fortress is a condition to closing under the Preferred Stock Purchase
Agreement;
WHEREAS, the board of directors of Capstead (the "Board") has
determined to hold a special meeting (the "Special Meeting") of the holders
of Capstead's common stock, par value $0.01 per share (the "Common Stock"),
at which such holders will vote upon certain matters that may require their
approval (collectively, the "Proposal") and a reverse stock split of the
Common Stock; and
WHEREAS, Fortress and Capstead deem it in their best interests to
enter into this Agreement in order to set forth certain rights and
obligations in connection with the ongoing management of Capstead;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, representations, warranties, covenants and conditions herein
set forth, and other good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Conduct of Capstead's Business. From the date hereof until the
earlier to occur of (i) the approval of the Proposal at the Special Meeting
and the consummation of the actions contemplated thereby and (ii) Fortress'
receipt of the Put/Call Payment (defined below) or the termination of the
rights and obligations of Capstead and Fortress under Section 2 hereof as
set forth in subsection 2(c) (the "Transition Period"), except as otherwise
expressly set forth in this Agreement, and except for costs and expenses
reasonably incurred in connection with the transactions contemplated by
this Agreement, Capstead shall conduct the business, operations, activities
and practices of Capstead and its Subsidiaries only in the ordinary course,
in accordance with prudent practice and consistent with past practice
established in 1999; provided that (a) Capstead shall not enter into any
new agreements or arrangements with Persons that are Affiliates (other than
its consolidated subsidiaries) or, as of the date hereof, are executive
officers or directors of Capstead or its Subsidiaries and (b) Capstead may,
in conjunction with Fortress, design and implement certain policies with
respect to mitigating interest rate risk and repositioning Capstead's
current portfolio.
2. Fortress Put/Capstead Call.
a. Fortress Put. In the event that one or more of the
following shall not have occurred as of the respective dates set
forth below:
i. Prior to or concurrently with the execution of this
Agreement, the Board shall have passed resolutions
pursuant to which the Board shall have (a) increased
the number of directors comprising the Board from six
to eight and appointed Wesley Edens and Robert
Kauffman to fill the vacancies created thereby to
serve on the Board until the next annual meeting of
stockholders and until their successors are elected
and qualified and (b) exempted Fortress' purchase of
the Preferred Stock and subsequent acquisition of
Common Stock pursuant to Section 6 hereof from (i)
the application of Article VIII of Capstead's
Articles of Incorporation, (ii) Section 3-602 of the
Maryland General Corporation Law ("MGCL") prohibiting
business combinations with Interested Stockholders
(as such term is defined in Section 3-601 of the
MGCL) and (iii) Section 3-701 et. seq. of the MGCL;
and
ii. The Proposal shall have been approved by Capstead's
stockholders at the Special Meeting, which Special
Meeting shall be held as soon as practicable, but in
no event later than April 30, 2000;
iii. Effective as of the date of the Special Meeting,
Bevis Longstreth, Harriet E. Miers, William R. Smith,
and John C. Tolleson shall have resigned their
positions as directors on the Board and the Board
shall have adopted resolutions to (a) reduce the
number of Board members from eight to seven, (b)
appoint Wesley Edens Chairman of the Board and Chief
Executive Officer and Ronn Lytle Vice Chairman of the
Board; (c) appoint three individuals to fill the
vacancies on the Board created by such resignations,
provided, that (x) one of such individuals shall have
been nominated by Ronn Lytle and Paul Low and (y) two
of such individuals shall have been nominated by
Wesley Edens and Robert Kaufman, provided, that such
two individuals shall be "independent directors" for
purposes of the Securities Exchange Act of 1934, as
amended, Section 3-802 of the MGCL, Section 162(m) of
the Internal Revenue Code of 1986, and the rules of
the New York Stock Exchange; and
iv. During the Transition Period, Capstead shall have
conducted the business, operations, activities and
practices of Capstead and its Subsidiaries in
accordance with Section 1 hereof (except actions
taken outside such scope at the request or with the
approval of Fortress) and there shall not have been a
Material Adverse Change (other than a Material
Adverse Change directly resulting from any action
taken at the request or with the approval of
Fortress). "Material Adverse Change" means, with
respect to Capstead, any direct or indirect change,
occurrence or effect (other than as a result of
changes in general conditions, including economical
or political developments, applicable to the industry
in which Capstead operates) on the business,
operations, properties (including tangible
properties), condition (financial or otherwise),
assets, obligations or liabilities (whether absolute,
contingent or otherwise and whether due or to become
due) of Capstead and its subsidiaries taken as a
whole that reasonably could be expected to be
materially adverse to Capstead;
then Fortress shall have the right to cause Capstead to purchase
from Fortress all, but not less than all, of the Preferred Stock
(the "Fortress Put"), for a price equal to 103% of the Purchase
Price plus any and all accrued and unpaid dividends on the
Preferred Stock (the "Put/Call Payment").
b. Capstead Call. In the event that the Proposal is not
approved at the Special Meeting, then Capstead shall have the right
to cause Fortress to sell to Capstead all, but not less than all,
of the Preferred Stock (the "Capstead Call") for the Put/Call
Payment.
c. The sale or purchase of Preferred Stock pursuant to this
Section 2 (the "Put/Call Closing") shall occur on such date as the
parties hereto may agree, which date shall be within one month
after delivery by the party exercising its rights under this
Section 2 of written notice to the other party hereto to the effect
that it is exercising its rights pursuant to this Section 2.
Payment of the Put/Call Payment shall be made by wire transfer in
immediately available funds unless some other form of consideration
is agreed to by the parties hereto. On or prior to the Put/Call
Closing, Fortress shall deliver to Capstead and Capstead shall
deliver to Fortress all documents reasonably required to be
executed in connection with the sale or purchase of Preferred Stock
pursuant to this Section 2.
d. The rights and obligations, if any, of Capstead and
Fortress under this Section 2 shall terminate and be of no further
force and effect upon the later to occur of (i) the expiration of
the 30 day period following the date of the Special Meeting and
(ii) May 31, 2000.
3. Fortress Put Upon a Change in Control of Capstead.
a. At any time after the approval of the Proposal at the
Special Meeting and prior to the 5th anniversary of the date
hereof, in the event of a Change in Control of Capstead, Fortress
shall have the right to cause Capstead to purchase from Fortress
all, but not less than all, of the Preferred Stock then
outstanding (the "Change in Control Put") for the Purchase Price
multiplied by a fraction, the numerator of which shall be the
number of shares of Preferred Stock then outstanding and the
denominator of which shall be 10,756,000, plus any and all accrued
and unpaid dividends on such Preferred Stock. For purposes hereof,
a "Change in Control" of Capstead shall be deemed to have occurred
upon any of the following events:
i. any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than Fortress and
its affiliates) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Capstead
representing 25 percent or more of the voting power
of Capstead's then outstanding securities;
ii. at any time subsequent to the date the Board is
reconstituted in accordance with the provisions of
subsection 2(a)(iii) hereof and during any period of
two consecutive years thereafter, individuals (a) who
were elected to the Board by a vote of at least
two-thirds (2/3) of the Board at the beginning of
such period or (b) whose nomination for election by
Capstead's stockholders was approved by a vote of at
least two-thirds (2/3) of the Board at the beginning
of such period or (c) whose election or nomination
for election was previously so approved, cease for
any reason to constitute at least a majority of the
Board of Directors of Capstead; or
iii. Capstead shall be party to a merger, consolidation,
share exchange, tender offer or similar transaction
or a purchase or other acquisition of all or a
significant portion of the assets of Capstead (a
"Business Combination"), except a Business
Combination approved by Wesley Edens and Robert
Kauffman or their Fortress-approved successors.
b. The purchase of Preferred Stock pursuant to this Section
3 shall occur on such date as the parties hereto may agree, which
date shall be within one month after delivery by Fortress of
written notice to Capstead to the effect that it is exercising its
rights pursuant to this Section 3. Payment shall be made to
Fortress by wire transfer in immediately available funds unless
some other form of consideration is agreed to by the parties
hereto. On or prior to the purchase of Preferred Stock pursuant to
this Section 3, Fortress shall deliver to Capstead and Capstead
shall deliver to Fortress all documents reasonably required to be
executed in connection with the purchase of Preferred Stock
pursuant to this Section 3.
4. Services Agreement. If (i) the Proposal is approved at the
Special Meeting and the actions contemplated thereby are consummated, (ii)
the merger (the "Merger") of Impac Commercial Holdings, Inc., a Maryland
corporation, with and into AMRESCO Capital Trust, a Texas real estate
investment trust ("AMRESCO"), is consummated and (iii) Fortress has not
exercised either the Fortress Put or the Change in Control Put and Capstead
has not exercised the Capstead Call, then Fortress (or its designated
Affiliate), the surviving entity of the Merger and Capstead (or a
subsidiary thereof) shall promptly enter into a Services Agreement mutually
satisfactory to the parties thereto for the provision of services at fair
market prices by Capstead to the surviving entity of the Merger, including,
but not limited, to (a) office space in Capstead's existing offices at
Lincoln Park, 8401North Central Expressway, Dallas, Texas; (b) office
management, including payroll; (c) stockholder relations; (d) financial
reporting; (e) accounting and tax services; (f) mail room services; and (g)
receptionist services.
5. Employment Matters.
a. Subject to approval of the Proposal at the Special
Meeting, Capstead shall take all necessary action as soon as
practicable thereafter to:
i. Have an individual designated by Fortress appointed
to the position of Chief Investment Officer of
Capstead;
ii. Have Andrew F. Jacobs appointed to the positions of
Executive Vice President and Chief Financial Officer
of Capstead; and
b. Subject to approval of the Proposal at the Special
Meeting, Capstead will take all necessary action to, and Fortress
will not take any action to prevent Capstead from taking any action
to:
i. For at least three years after the date of the
Special Meeting, maintain all of Capstead's
obligations, arrangements, policies or practices to
provide benefits, including officer grade, salary,
bonus and incentive compensation, as compensation for
services rendered by employees of Capstead at levels
that are no less favorable than those in place as of
the date hereof and set forth on a side letter
delivered to Fortress concurrently herewith,
provided, that this obligation shall cease to exist
upon a Change in Control of Capstead;
ii. For at least three years after the date of the
Special Meeting, provide coverage of medical, dental,
life insurance accidental death and disability
insurance, long term disability, Flexible Spending
Account, 401k, deferred compensation plan and travel
accident insurance at levels that are no less
favorable than those in place as of the date hereof
and set forth on a side letter delivered to Fortress
concurrently herewith, provided, that -------- this
obligation shall cease to exist upon a Change in
Control of Capstead.
6. Common Stock Acquisition. Subject to approval of the Proposal at
the Special Meeting, Fortress or its designated Affiliate will, within the
six-month period following the date of the Special Meeting, acquire no less
than five million shares of Common Stock through, at Fortress' option, (i)
open-market purchases, (ii) the conversion of Preferred Stock or (iii) any
combination thereof; provided, that purchases by Fortress and/or its
Affiliates of Common Stock from and after the date hereof and to and
including the date of the Special Meeting (which shall not exceed 3,300,000
shares) shall be considered as part of such five million shares of Common
Stock; and provided, further, that this Section 6 and Fortress' obligation
hereunder shall terminate and be of no further force and effect upon
exercise of the Fortress Put, Change in Control Put or Capstead Call.
7. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and mailed
or facsimiled or delivered by hand or courier service:
If to Fortress, to: Fortress Investment Corp.
1301 Avenue of the Americas, 42nd Street
New York, New York 10019
Attn: Randal Nardone
Facsimile No. (212) 798-6120
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: J. Gregory Milmoe, Esq.
Facsimile No. (212) 735-2000
If to Capstead, to: Capstead Mortgage Corporation
8401 North Central Expressway, Suite 800
Dallas, TX 75225-4410
Attn: Andrew F. Jacobs
Facsimile No. (214) 874-2398
With a copy to: Andrews & Kurth L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
Attn: David Barbour
Facsimile No. (214) 659-4401
8. Entire Agreement. This Agreement (including the attachments
hereto) constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all other prior or contemporary
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
9. Termination. This Agreement will automatically terminate and be
of no further force and effect at such time that (i) Fortress has received
payment of the applicable payment pursuant to exercise of the Fortress Put,
Capstead Call or Change in Control Put or (ii) Fortress no longer owns
Preferred Stock or Common Stock acquired pursuant to the Preferred Stock
Purchase Agreement.
10. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provisions of this Agreement, each of which shall remain in full
force and effect.
11. Assignment. This Agreement and the rights hereunder shall not
be assignable or transferable by either party (except (i) by Fortress to
any of its Affiliates and (ii) by operation of law in connection with a
merger, consolidation, or sale of all or substantially all the assets of
either party) without the prior written consent of the other party. This
Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and permitted
assigns.
12. Amendment and Modification. This Agreement may be amended,
modified, or supplemented at any time only by an instrument in writing
signed on behalf of the parties hereto.
13. Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with its
specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist, and damages would be difficult to
determine, and that the parties shall be entitled to specific performance
of the terms hereof, in addition to any other remedy at law or equity.
14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
15. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
16. Certain Definitions.
a. An "Affiliate" of any Person means another Person that
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such
first Person;
b. Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
18. Third-Party Beneficiaries. Nothing contained in this Agreement
shall be construed to give any person other than Fortress and Capstead, and
their successors and assigns, any legal or equitable right, remedy, or
claim under or with respect to this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
CAPSTEAD MORTGAGE CORPORATION
By: /s/ Andrew F. Jacobs
________________________
Andrew F. Jacobs
Executive Vice President-Finance
FORTRESS INVESTMENT CORP.
By: /s/ Randal A. Nardone
_______________________
Randal A. Nardone
Chief Operating Officer
