Item 8.01 Other Events.
As previously disclosed, on July 25, 2021, Capstead Mortgage Corporation, a
Maryland corporation ("Capstead"), entered into an Agreement and Plan of Merger,
as amended pursuant to that certain First Amendment to Agreement and Plan of
Merger, dated as of September 22, 2021 (as amended, the "Merger Agreement"),
with Benefit Street Partners Realty Trust, Inc., a Maryland corporation
("BSPRT"), Rodeo Sub I, LLC, a Maryland limited liability company and a
wholly-owned subsidiary of BSPRT ("Merger Sub"), and Benefit Street Partners
L.L.C., a Delaware limited liability company ("BSPRT Advisor"), pursuant to
which, subject to the terms and conditions therein, Capstead will merge with and
into Merger Sub, with Merger Sub remaining as a wholly-owned subsidiary of BSPRT
(such transaction, the "Merger"). On September 7, 2021, Capstead and BSPRT
respectively filed a definitive proxy statement/prospectus (the "Definitive
Proxy Statement") with the U.S. Securities and Exchange Commission (the "SEC")
for the solicitation of proxies in connection with the special meeting of the
common stockholders of Capstead, to be held on October 15, 2021, to vote upon
matters in connection with the Merger. On September 23, 2021, Capstead and BSPRT
respectively filed a supplement to the Definitive Proxy Statement (as
supplemented, the "Proxy Statement") with respect to the First Amendment to
Agreement and Plan of Merger.
Five lawsuits have been filed by purported stockholders of Capstead with respect
to the Merger. The first suit, styled as Shiva Stein v. Capstead Mortgage
Corporation, et al., No. 1:21-cv-7306 (the "Stein Lawsuit"), was filed in the
United States District Court for the Southern District of New York on August 31,
2021, and asserts claims against Capstead, members of the Capstead board of
directors (the "Capstead Board"), BSPRT and Merger Sub. The second suit, styled
as Matthew Hopkins v. Capstead Mortgage Corporation, et al., No. 1:21-cv-07369
(the "Hopkins Lawsuit"), was filed in the United States District Court for the
Southern District of New York on September 1, 2021, and asserts claims against
Capstead, members of the Capstead Board, BSPRT, Merger Sub and BSPRT Advisor.
The third suit, styled as Bryan Harrington v. Capstead Mortgage Corporation, et
al., No. 1:21-cv-05080 (the "Harrington Lawsuit"), was filed in the United
States District Court for the Eastern District of New York on September 11,
2021, and asserts claims against Capstead and members of the Capstead Board. The
fourth suit, styled as Randy Gill v. Capstead Mortgage Corporation, et al., No.
1:21-cv-07973 (the "Gill Lawsuit"), was filed in the United States District
Court for the Southern District of New York on September 24, 2021, and asserts
claims against Capstead and members of the Capstead Board. The fifth suit,
styled as Jordan Wilson v. Capstead Mortgage Corporation, et al., No.
1:21-cv-08147-UA (the "Wilson Lawsuit"), was filed in the United States District
Court for the Southern District of New York on October 1, 2021, and asserts
claims against Capstead and members of the Capstead Board.
Capstead has also received demand letters from two purported stockholders, Brett
Braafhart and Angelo Fisichella, threatening to assert claims against Capstead
and members of the Capstead Board (such demand letters, together with the Stein
Lawsuit, the Hopkins Lawsuit, the Harrington Lawsuit, the Gill Lawsuit and the
Wilson Lawsuit, the "Lawsuits").
Each of the Lawsuits alleges that certain of the disclosures in the Proxy
Statement are deficient, and seeks preliminary and injunctive relief. While
Capstead believes that the disclosures set forth in the Proxy Statement comply
fully with applicable law, in order to address certain disclosure claims in the
Lawsuits, minimize the cost, risk and uncertainty inherent in litigation, avoid
nuisance and preclude any efforts to delay the completion of the Merger,
Capstead has determined to voluntarily supplement the Proxy Statement with the
supplemental disclosures set forth below (the "Supplemental Disclosures").
Nothing in the Supplemental Disclosures shall be deemed an admission of
liability, wrongdoing or the legal merit, necessity or materiality under
applicable laws of any of the disclosures set forth herein. To the contrary,
Capstead believes the claims asserted in the Lawsuits are without merit and
expressly denies all allegations in the Lawsuits, including that any additional
disclosure was or is required.
Supplemental Disclosures to Proxy Statement
The following Supplemental Disclosures should be read in conjunction with the
Proxy Statement, which should be read in its entirety. All page references are
to pages in the Definitive Proxy Statement, and terms used below, unless
otherwise defined, have the meanings set forth in the Proxy Statement.
Underlined text shows text being added to a referenced disclosure in the Proxy
Statement.
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The disclosure on page 61 of the Proxy Statement is hereby supplemented by
revising the fourth complete paragraph on the page in its entirety as follows:
On February 11, 2021, the Capstead Transaction Committee held a meeting at which
Mr. Reinsch and representatives of Credit Suisse and Hunton were present. The
Capstead Transaction Committee discussed industry conditions and expressed
concern for Capstead's position in the market. Representatives of Credit Suisse
discussed potential strategic alternatives available to Capstead and outlined
considerations relating to various types of strategic transactions with a
variety of potential counterparties, including a business combination
transaction, an orderly liquidation of Capstead and a management
externalization. During this meeting, the Capstead Transaction Committee
reviewed a preliminary analysis prepared by Capstead's management regarding a
hypothetical liquidation of Capstead. Based on preliminary estimates made by
Capstead's management, and an estimated book value per share of Capstead Common
Stock before such liquidation of $6.70, the preliminary analysis had an
estimated implied liquidation value per share for Capstead Common Stock of
approximately $6.50 per share.
The disclosure on page 61 of the Proxy Statement is hereby supplemented by
revising the last paragraph on the page in its entirety as follows:
On February 26, 2021, the Capstead Transaction Committee held a meeting at which
Mr. Reinsch and representatives of Hunton were present. The Capstead Transaction
Committee reviewed the proposed terms of Credit Suisse's engagement letter and,
based on its prior discussions with Credit Suisse and consideration of its
qualifications, the Capstead Transaction Committee authorized the engagement of
Credit Suisse as Capstead's financial advisor to assist in a potential strategic
transaction. The Capstead Transaction Committee authorized this engagement due
to Credit Suisse's qualifications, expertise, experience in the mortgage REIT
industry, its knowledge of Capstead and its business, its understanding of the
then-current state of the financial markets, its perspectives regarding
potential strategic alternatives that might be available to Capstead to enhance
long-term stockholder value and its past experience advising other mortgage
REITs in similar transactions. Mr. Reinsch reviewed with the Capstead
Transaction Committee various considerations relating to an orderly liquidation
of Capstead. The Capstead Transaction Committee considered the fact that shares
of Capstead Common Stock have traded at a discount to Capstead's book value and
that an orderly liquidation might generate proceeds for stockholders equal to
less of a discount to Capstead's book value. The Capstead Transaction Committee
then reviewed an updated hypothetical liquidation analysis prepared by
Capstead's management. Based on preliminary estimates made by Capstead's
management, and an estimated book value per share of Capstead Common Stock
before such liquidation of $6.75, the updated preliminary analysis had an
estimated implied liquidation value per share for Capstead Common Stock of
approximately $6.54 per share. Capstead's management did not prepare the
hypothetical liquidation analysis with a view towards public dissemination, nor
did the analysis purport to be indicative of the actual values or expected
values in a liquidation and wind down of Capstead. The Capstead Transaction
Committee also considered estimated transaction costs associated with an orderly
liquidation and with a business combination transaction. Representatives of
Hunton reviewed legal considerations relating to an orderly liquidation,
including the process for obtaining Capstead stockholder approval of the
dissolution, winding-up Capstead's business and setting aside reserves to
satisfy liabilities and an illustrative timeline for maintaining such reserves
and distributing the liquidation proceeds to Capstead stockholders. Following
discussion, the Capstead Transaction Committee's view, in consultation with
Mr. Reinsch and representatives of Hunton, was that an orderly liquidation was
not attractive because of the uncertainty associated with the amount and timing
of the distribution of the liquidation proceeds to Capstead stockholders and
that a business combination transaction or a management externalization was more
likely to generate value for stockholders, including by obtaining a premium to
Capstead's book value.
The disclosure on page 69 of the Proxy Statement is hereby supplemented by
revising the fifth complete paragraph on the page in its entirety as follows:
On June 25, 2021, a representative of BSPRT informed representatives of Credit
Suisse that BSPRT (i) was continuing to review whether the transaction could
qualify as a tax-deferred transaction for U.S. federal income purposes, and
(ii) would agree to add three Capstead independent directors to the BSPRT Board
upon the completion of the merger, with two such directors being nominated to
stand for election after the first annual meeting of BSPRT stockholders after
the merger. Also on June 25, 2021, representatives of Hunton discussed the tax
structure of the proposed transaction with representatives of Hogan Lovells.
Other than with respect to post-transaction
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representation on the BSPRT Board, at no time during the parties' negotiations
with respect to the merger did representatives of Capstead and BSPRT engage in
discussions regarding post-transaction employment of any Capstead senior
executives.
The disclosure on page 81 of the Proxy Statement is hereby supplemented by
revising the first complete paragraph under the subsection captioned "Dividend
Discount Analysis" in its entirety as follows:
Capstead. Credit Suisse performed a dividend discount analysis of Capstead to
calculate the estimated present value of the distributed cash flows that
Capstead was forecasted to generate during the third and fourth quarters of
Capstead's fiscal year ending December 31, 2021, through the full fiscal year
ending December 31, 2023, based on the Capstead Projections. Credit Suisse
calculated terminal values for Capstead by applying a selected range of
price/TBVPS multiples of 0.90x to 1.05x, which multiples were selected based on
Credit Suisse's professional judgment, to Capstead's estimated book value as of
December 31, 2023. The present values (as of June 30, 2021) of the distributed
cash flows and terminal values were then calculated using a selected range of
discount rates of 9.0% to 13.0%, based on Credit Suisse's professional judgment,
which utilizes Capstead's estimated cost of equity based on the capital asset
pricing model and illustrative dividend yields for the selected companies.
Approximate implied per share equity values for Capstead were calculated as
total implied equity value divided by the total number of fully diluted shares
of Capstead Common Stock outstanding, which was 97,513,711 shares, as provided
by Capstead management. This analysis indicated the following approximate
implied per share equity value reference range for Capstead:
The disclosure on page 81 of the Proxy Statement is hereby supplemented by
revising the second complete paragraph under the subsection captioned "Dividend
Discount Analysis" in its entirety as follows:
BSPRT. Credit Suisse performed a dividend discount analysis of BSPRT (on a
standalone basis) to calculate the estimated present value of the distributed
cash flows that BSPRT was forecasted to generate during the third and fourth
quarters of BSPRT's fiscal year ending December 31, 2021, through the full
fiscal year ending December 31, 2023, based on the BSPRT Projections. Credit
Suisse calculated terminal values for BSPRT by applying a selected range of
price/TBVPS multiples of 0.95x to 1.20x, which multiples were selected based on
Credit Suisse's professional judgment, to BSPRT's estimated book value as of
December 31, 2023. The present values (as of June 30, 2021) of the distributed
cash flows and terminal values were then calculated using a selected range of
discount rates of 8.0% to 14.0%, based on Credit Suisse's professional judgment,
which utilizes BSPRT's estimated cost of equity based on the capital asset
pricing model and illustrative dividend yields for the selected companies.
Approximate implied per share equity values for BSPRT were calculated as total
implied equity value divided by the total number of fully diluted shares of
BSPRT Common Stock outstanding, which was 57,724,696 shares, as provided by
BSPRT management. This analysis indicated the following approximate implied per
share equity value reference range for BSPRT:
Item 9.01 Financial Statements and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Exhibits.
Exhibit 99.1 Complaint filed by Shiva Stein on August 31, 2021, in the United
States District Court for the Southern District of New York.
Exhibit 99.2 Complaint filed by Matthew Hopkins on September 1, 2021, in the
United States District Court for the Southern District of New
York .
Exhibit 99.3 Complaint filed by Bryan Harrington on September 11, 2021, in the
United States District Court for the Eastern District of New
York .
Exhibit 99.4 Complaint filed by Randy Gill on September 24, 2021, in the
United States District Court for the Southern District of New
York .
Exhibit 99.5 Complaint filed by Jordan Wilson on October 1, 2021, in the
United States District Court for the Southern District of New
York .
Exhibit 104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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Important Additional Information and Where to Find It
In connection with the proposed transaction contemplated by the Merger
Agreement, pursuant to which, subject to the terms and conditions therein,
Capstead will be merged with and into Merger Sub, with Merger Sub continuing as
the surviving company, BSPRT has filed with the SEC a registration statement on
Form S-4 (File No. 333-258947), which was declared effective by the SEC on
September 3, 2021. The registration statement includes a prospectus of BSPRT and
a proxy statement of Capstead. On September 23, 2021, Capstead and BSPRT
respectively filed with the SEC a supplement to the proxy statement/prospectus
with respect to the First Amendment to Agreement and Plan of Merger. Capstead
and BSPRT also expect to file with the SEC other documents regarding the Merger.
STOCKHOLDERS OF CAPSTEAD AND BSPRT ARE ADVISED TO READ THE REGISTRATION
STATEMENT AND THE PROXY STATEMENT/PROSPECTUS (INCLUDING ALL OTHER RELEVANT
DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY
AMENDMENTS AND SUPPLEMENTS TO THESE DOCUMENTS) CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT CAPSTEAD, BSPRT, THE PROPOSED
MERGER AND RELATED MATTERS. Stockholders of Capstead and BSPRT may obtain free
copies of the registration statement, the proxy statement/prospectus and all
other documents filed or that will be filed with the SEC by Capstead or BSPRT at
the SEC's website at http://www.sec.gov. Copies of documents filed with the SEC
by Capstead are available free of charge on Capstead's website at
http://www.capstead.com/investor-relations/financial-reports/sec-filings. Copies
of documents filed with the SEC by BSPRT are available free of charge on BSPRT's
website at http://bsprealtytrust.com/investorrelations.
Participants in the Solicitation Relating to the Merger
Capstead, BSPRT and their respective directors, executive officers and other
members of management and employees may be deemed to be "participants" in the
solicitation of proxies from the stockholders of Capstead in connection with the
proposed Merger. Information regarding Capstead and its directors and executive
officers and their ownership of common stock of Capstead can be found in
Capstead's Annual Report on Form 10-K for the fiscal year ended December 31,
2020, and in its definitive proxy statement relating to its 2021 annual meeting
of stockholders filed with the SEC on April 1, 2021. Information regarding BSPRT
and its directors and executive officers and their ownership of common stock of
BSPRT can be found in BSPRT's Annual Report on Form 10-K for the fiscal year
ended December 31, 2020, and in its definitive proxy statement relating to its
2021 annual meeting of stockholders filed with the SEC on April 8, 2021.
Additional information regarding the interests of such individuals in the Merger
is included in the proxy statement/prospectus relating to the Merger filed with
the SEC on September 7, 2021. Free copies of these documents may be obtained as
described in the preceding paragraph.
No Offer or Solicitation
This communication and the information contained herein does not constitute an
offer to sell or the solicitation of an offer to buy or sell any securities or a
solicitation of a proxy or of any vote or approval, nor shall there be any sale
of securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended. This communication may be deemed to be solicitation
material in respect of the proposed Merger.
Forward-Looking Statements
This communication contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Statements can generally be identified as forward-looking because they include
words such as "believes," "anticipates," "expects," "would," "could," or words
of similar meaning. Such forward-looking statements include or may relate to
statements about the benefits of the proposed Merger and statements that address
operating performance, events or developments that Capstead expects or
anticipates will occur in the future, including but not limited to statements
regarding future financial and operating results, plans, objectives,
expectations and intentions, expected sources of financing, anticipated asset
dispositions, anticipated leadership and governance changes, changes to
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outstanding structure of Capstead's capital stock, creation of value for
stockholders, operation and implementation of share repurchase programs,
benefits of the proposed Merger to customers, stockholders and other
constituents of the combined company, the integration of Capstead and BSPRT, the
expected GAAP book value per share of Capstead, cost savings and the expected
timetable for completing the proposed Merger, and other non-historical
statements. These statements are based on the companies' current expectations
and beliefs and are subject to a number of trends and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements; Capstead can give no assurance that its expectations
will be attained. Factors that could cause actual results to differ materially
from Capstead's expectations include, but are not limited to, the risk that the
Merger will not be consummated within the expected time period or at all; the
occurrence of any event, change or other circumstance that could give rise to
the termination of the Merger Agreement; the failure to satisfy the conditions
to the consummation of the proposed Merger, including the approval of the
stockholders of Capstead; fluctuations in the adjusted book value per share of
both Capstead and BSPRT; risks related to the disruption of management's
attention from ongoing business operations due to the proposed Merger; the
availability of suitable investment or disposition opportunities; changes in
interest rates; the availability and terms of financing; the impact of the
COVID-19 pandemic on the operations and financial condition of each of Capstead
and BSPRT and the industries in which they operate; general financial and
economic conditions, which may be affected by government responses to the
COVID-19 pandemic; market conditions; legislative and regulatory changes that
could adversely affect the business of Capstead and BSPRT; and other factors,
including those set forth in the section entitled "Risk Factors" in the proxy
statement/prospectus, Capstead's and BSPRT's most recent Annual Reports on Form
10-K, as amended, and Quarterly Reports on Form 10-Q filed with the SEC, and
other reports filed by Capstead and BSPRT with the SEC, copies of which are
available on the SEC's website, www.sec.gov. Forward-looking statements are not
guarantees of performance or results and speak only as of the date such
statements are made. Except as required by law, neither Capstead nor BSPRT
undertakes any obligation to update or revise any forward-looking statement in
this communication, whether to reflect new information, future events, changes
in assumptions or circumstances or otherwise.
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CAPSTEAD MORTGAGE CORPORATION 