BOARD OF DIRECTORS' GUIDELINES
of
CAPSTEAD MORTGAGE CORPORATION
General
Overview
These amended and restated guidelines (the "Guidelines") are intended
to facilitate each director's performance on Capstead Mortgage Corporation's
("Capstead" or "Company") Board of Directors (the "Board")
and thereby improve the overall effectiveness of the Board in discharging its
fundamental duty of serving the best interests of Capstead and its stockholders,
potential stockholders and the investment community. The Guidelines are offered
in the conviction that the quality of the Company is importantly affected by
the quality of its Board's performance, that the efforts of each director make
a difference and that the standards of behavior here set forth will enable each
director to improve his or her effectiveness.
These Guidelines are also intended to help protect individual directors and
the Company by outlining certain standards of business conduct to which the
directors are expected to aspire.
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Selection
of Board Members and Chairman of the Board
All directors are elected annually by the Company's stockholders, except as
noted below with respect to vacancies. The Board is currently comprised of six
directors. Each year the Board recommends a slate of directors for election
by stockholders at the Company's annual meeting of stockholders. The Board's
recommendations are based on its determination (using advice and information
supplied by the Governance & Nomination Committee) as to the suitability
of each individual, and the slate as a whole, to serve as directors of the Company,
taking into account the criteria for qualifications for membership discussed
below. The Board's recommendations must be approved by a majority of the independent
directors, as defined below.
The Bylaws provide that the Board may, from time to time, by vote of a majority
of the entire Board, fix the number of directors constituting the entire Board,
such number not to be less than three nor more than twenty-five directors. The
Board may fill vacancies in existing or new director positions. Such directors
elected by the Board serve only until the next election of directors unless
elected by the stockholders to a further term at that time.
Following the annual meeting of stockholders, the newly elected Board will
convene the Annual Meeting of the Board and elect a chairman (the "Chairman
of the Board") to serve until the next annual meeting of stockholders,
unless removed by an affirmative vote of the majority of the Board for such
removal.
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Qualifications
for Membership
1. Independent Directors. A majority of the directors shall be persons
who are independent of the Company and its senior management (each such director
being herein referred to as an "Independent Director"). To be considered
independent under the New York Stock Exchange Corporate Governance Rules (the
"NYSE Rules"), the Board must affirmatively determine that a director
does not have any direct or indirect material relationship with the Company.
The Board has established the following guidelines in determining director
independence in accordance with that NYSE Rules:
(a) A person may be deemed independent of the Company and its senior management
for purposes of this section if such person does not have a significant
relationship with the Company or any of its senior management, for example,
by reason of family, professional, business or personal relationship, such
that the judgment of such person might be affected by such relationship
in a manner adverse to the Company.
(b) A director will not be independent if, within the preceding three years:
(i) the director was employed by the Company; (ii) an immediate family member
of the director was employed by the Company as an executive officer; (iii)
the director received, or whose immediate family member received, more than
$100,000.00 per year in direct compensation from the Company, other than
Board and committee fees, (iv) the director was employed by or affiliated
with the Company's independent auditor; (v) an immediate family member of
the director was employed by the Company's independent auditor as a partner,
principal or manager; (vi) a member of senior management serves on the compensation
committee of a board of directors of a company which employed the Company
director, or which employed as an officer an immediate family member of
the director; or (vii) the director who is an executive officer or an employee,
or whose immediate family is an executive officer, of a company that makes
payments to, or receives payments from, the Company for property or services
in an amount which, in any single fiscal year, exceeds the greater of $1.0
million, or 2% of such company's consolidated gross revenues.
The determination of independence shall be made in every case by the Board,
in its sole judgment. Each director is responsible for bringing to the attention
of the chairman of the Board's Governance & Nomination Committee the existence
of any relationship, which may be considered a significant relationship. In
case of any doubt regarding the status of a particular relationship, the director
should discuss the matter with the chairman of the Governance & Nomination
Committee and a report thereon should be made to the Board.
2. General Qualifications. Directors will be selected on the basis
of talent and experience relevant to the business of the Company, without
regard to race, religion, gender or national origin.
3. Specific Qualifications. Each candidate for a director position
should, in the sole judgment of the Board:
(a) Possess fundamental qualities of intelligence, honesty, perceptiveness,
good judgment, maturity, high ethics and standards, integrity, fairness
and responsibility.
(b) Have a genuine interest in the Company and a recognition that as a
member of the Board one is accountable to the stockholders of the Company,
not to any particular interest group.
(c) Have a background that demonstrates an understanding of business and
financial affairs and the complexities of a large business organization.
(d) Have no conflict of interest or legal impediment which would interfere
in a fundamental way with the duty of loyalty owed to the Company and its
stockholders.
(e) Have the ability and willingness to spend the time required to function
effectively as a director.
(f) Have independent opinions and be willing to state them in a constructive
manner.
(g) Be a common stockholder in the Company within twelve months of election
to the Board.
4. Age. The Board has not established minimum or maximum age guidelines
for serving on the Board. However, the Governance & Nomination Committee,
in evaluating the suitability of individual directors and making its recommendations
for inclusion in the slate of directors to be submitted to stockholders for
election at the next annual meeting of stockholders, will take into account
a directors ability to contribute to the Board in a capacity consistent with
these guidelines, taken as a whole.
5. No Specific Limitation on other Board Service. The Board does not
prohibit its members from serving on boards and/or committees of other organizations,
and the Board has not adopted guidelines limiting such activities other than
for Audit Committee membership, which the Board recommends its members limit
representation to two other audit committees. The Governance & Nomination
Committee and the Board will take into account the nature of and time involved
in a director's service on other boards in evaluating the suitability of individual
directors and making its recommendations for inclusion in the slate of directors
to be submitted to stockholders for election at the next annual meeting of
stockholders. Service on boards and/or committees of other organizations should
be consistent with the Company's conflict of interest policies.
6. Change of Position. Any Independent Director whose affiliation
or position of principal employment changes substantially after election to
the Board, for any reason other than retirement or retirement planning, shall
provide prompt notice of such change to the Governance & Nomination Committee
who will, in turn, report to the Board. The Board in its sole judgment shall
decide whether such event requires the Board to request the director to resign
in the best interests of the Company and its stockholders. If a decision is
made to request resignation, the director shall promptly submit his or her
resignation as a director.
7. Bankruptcy. Any director who, while serving in that capacity,
declares or is otherwise involved in a personal bankruptcy or the bankruptcy
of a business in which he or she is a principal (e.g., as partner, proprietor
or major stockholder), shall provide prompt notice of such change to the Governance
& Nomination Committee who will in turn report to the Board. The Board
in its sole judgment shall decide whether such event requires the Board to
request the director to resign in the best interests of the Company and its
stockholders. If a decision is made to request resignation, the director shall
promptly submit his or her resignation as a director.
8. Lawsuits. Any director who is named as a party in a material legal
proceeding, becomes the target of a material state or federal investigation,
or receives a request of a material nature for the production of records or
testimony from any state or federal agency shall provide prompt notice of
such event to the Governance & Nomination Committee who will, in turn,
report to the Board. The Board in its sole judgment shall decide whether such
event requires the Board to request the director to resign in the best interests
of the Company and its stockholders. If a decision is made to request resignation,
the director shall promptly submit his or her resignation as a director.
9. Criminal Record. No person shall be eligible to serve as a director
who has been convicted of any felony criminal offense or any criminal offense
involving moral turpitude, dishonesty or a breach of trust. Any person who
is so convicted after becoming a director shall immediately resign from the
Board.
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Meetings
1. Schedule. Generally, four regular Board meetings and four special
meetings (to approve quarterly dividends) are held during the calendar year
and the dates for these meetings will be provided to directors prior to the
end of the preceding year. Other special Board meetings may be called by the
Chairman of the Board, the Chief Executive Officer or a majority of the directors,
by vote at a meeting or in writing, from time to time as necessary upon at
least 24 hours prior notice.
2. Attendance. Attendance at and throughout each Board meeting by
each director is of the utmost importance. Attendance in person is encouraged
at the four regular Board meetings, but the Board recognizes that conflicts
may be unavoidable, in which case, attendance telephonically is acceptable.
If a director is absent from all or any part of two or more regular Board
meetings in a single year, the Governance & Nomination Committee shall
take that fact into consideration in the nominating process.
Attendance at meetings of committees of the Board is also a priority for
directors. Each committee should establish its own meeting schedule. The committee
chairperson will monitor and report to the Board on attendance by the directors
on that committee.
Directors are also expected to attend in-person the annual meeting of stockholders,
which normally is held between April 15 and May 15.
Directors will receive attendance compensation only if they are present,
either in person or telephonically, throughout the meeting of the Board or
of any committee of the Board.
3. Presiding Officer. The Chairman of the Board or the Chief Executive Officer
will preside at meetings of the Board. The Chairman of the Board or the Chief
Executive Officer will designate one or more directors to preside at meetings
in their absence or when abstention is required.
4. Meeting Materials. Documents and other materials for the meetings
will be organized and presented to the directors in a manner to emphasize,
and to cover first, matters which are of the greatest importance to the Company
and its stockholders. Senior management of the Company will coordinate with
the Chairman of the Board and/or the Chief Executive Officer in an effort
to include such memoranda and other material in the package as are necessary
to inform directors adequately to make decisions. To the extent feasible,
senior management will distribute complete materials to directors at least
one day prior to the meeting date. Directors should carefully review all such
materials prior to arrival at the Board meeting.
5. Quorum and Voting. At all meetings, a majority of the entire Board
shall constitute a quorum for the transaction of business. If a quorum is
present, the action of a majority of directors present at the meeting shall
be the action of the Board, unless a greater proportion is required by statute,
the Articles of Incorporation or the Bylaws. An action may be taken without
a meeting if a unanimous written consent is signed by each member of the Board.
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Tenure
and Compensation
1. Term. The Board does not limit the number of terms for which an
individual may serve as a director. Directors who have served on the Board
for an extended period of time are able to provide valuable insight into the
operations and future of the Company based on their experience with and understanding
of the Company's history, policies and objectives. All directors shall be
elected at the annual meeting of stockholders and shall serve until the next
annual meeting and until their successors have been elected and qualified.
2. Termination of Employment. A director who is also an officer of
the Company shall, unless a majority of the Board determines otherwise, resign
from the Board at any time he or she ceases to be employed by the Company,
whether due to retirement or otherwise.
3. Compensation. The Company strives to compensate its directors in
an amount that fairly compensates directors for work required in a company
of Capstead's size and scope. The Company's senior management will report
to the Board's compensation committee (the "Compensation Committee")
on an annual basis as to how the Company's director compensation practices
compare with those of other public companies considered its peers. The Board
will make changes in its director compensation practices only upon the recommendation
of the Compensation Committee, and following discussion and concurrence by
the Board.
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Operation
of the Board
1. Primary Functions. The primary functions of the Board are:
(a) To act always in the best interest of the Company and its stockholders.
(b) To provide policy direction and governance for the Company.
(c) To review and, where appropriate, approve the major financial objectives,
strategies and plans of the Company.
(d) To provide advice and counsel to the Chief Executive Officer and other
senior management.
(e) To select and regularly evaluate the performance of the Chief Executive
Officer and determine his or her base salary and annual incentive compensation.
As part of the evaluation process, the Compensation Committee shall work
with the Chief Executive Officer to plan for Chief Executive Officer and
other key employee succession, as well as to develop plans for interim succession
for the Chief Executive Officer in the event of an unexpected occurrence.
(f) To select and recommend to stockholders an appropriate slate of candidates
for election to the Board.
(g) To oversee the integrity of the Company's financial statements and
the financial reporting process, including the systems of internal accounting
and financial control and disclosure controls and procedures.
(h) To review with management and the independent auditors the financial
statements and disclosures under Management's Discussion and Analysis of
Financial Condition and Results of Operations to be included in the Company's
Annual Report on Form 10-K, including their judgment about the quality,
not just the acceptability, of accounting principles, the reasonableness
of significant judgments, and the clarity of the disclosures in the financial
statements.
(i) To evaluate Board processes and performance.
The Board has delegated certain of the above responsibilities to committees
whose purposes are set forth in the section titled "Committees"
in these Guidelines. The Board may delegate additional responsibilities to
committees as the Board deems appropriate in its sole discretion.
2. Meetings of Non-Management Directors. The Board will have four
regularly scheduled meetings per year for the non-management directors without
management present. At these sessions, the non-management directors will review
strategic issues for Board consideration; future Board agendas; the flow of
information to directors; management progression and succession; and the Board's
corporate governance guidelines. The non-
management directors have determined that the chairman of the Governance &
Nomination Committee will preside at such meetings. The presiding director
is responsible for advising the Chief Executive Officer of decisions reached
and suggestions made at these sessions. The presiding director may have other
duties as determined by the directors. If non-management directors include
a director that is not an Independent Director, then at least one of the scheduled
executive sessions should include only Independent Directors.
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Duty
of Care
1. General. A director shall, to the best of his or her ability, perform
the duties of a director, including the duties as a member of a committee
of the Board:
(a) In good faith.
(b) In the best interests of the Company and its stockholders.
(c) With the care that an ordinarily prudent person in a like position
would use under similar circumstances.
This duty of care includes the obligation to make, or cause to be made,
an inquiry when, but only when, the circumstances would alert a reasonable
director to the need thereof. The extent of such inquiry shall be such as
the director reasonably believes to be necessary.
2. Compliance with Laws, Rules and Regulations. The Company expects
its directors to comply with all laws, rules and regulations applicable to
the Company's operations and business. As a public company with its stock
trading on the New York Stock Exchange ("NYSE"), these include securities
laws, rules and regulations established by the Securities and Exchange Commission
and the NYSE, including insider trading laws. The Company insists on strict
compliance with the spirit and the letter of these laws, rules and regulations.
3. Access to Employees. The Board should have access to Company employees
in order to ensure that directors can ask all questions and glean all information
necessary to fulfill their duties. The Board may specify a protocol for making
such inquiries. Senior management is encouraged to invite Company personnel
to any Board meeting at which their presence and expertise would help the
Board have a full understanding of matters being considered.
4. Adequate Information. Receipt of adequate information is essential
if a director is to fulfill his or her duty of care. The Chairman of the Board
and senior management are responsible for providing an effective and timely
flow of information to the directors, including internal financial statements,
periodic reports on various matters, copies of all publicly-filed documents
and press releases, and periodic briefings concerning developments affecting
the business and affairs of the Company.
5. Reliance on Third Parties. In performing the duties of a director
of the Company, a director is entitled to rely on any information, opinion,
report or statement prepared or presented by:
(a) An officer or employee of the Company whom a director reasonably believes
to be reliable and competent in the matters presented.
(b) A lawyer, accountant or other person, as to a matter that the director
reasonably believes to be within the person's professional or expert competence.
(c) A committee of the Board on which the director does not serve, as to
a matter within its designated authority, if the director reasonably believes
the committee to merit confidence.
6. Independent Professionals. The Board is entitled to retain legal
counsel, accountants, or other experts, at the Company's expense, to advise
the Board on the performance of its duties. In addition, the directors who
are not officers or employees of the Company are entitled, acting as a body
by a majority vote of such directors, to retain independent outside experts,
at the Company's expense, to advise them on problems arising in the exercise
of their functions and powers, provided that the Board authorizes payment
of such expenses.
7. Director Orientation and Continuing Education. The Board and senior
management will conduct a comprehensive orientation process for new directors
to become familiar with the Company's vision, strategic direction, core values
(including ethics) financial matters, corporate governance practices and other
key policies and practices through a review of background material and meetings
with senior management. The Board also recognizes the importance of continuing
education for its directors and is committed to provide such education in
order to improve both Board and Board committee performance. Senior management
will assist in identifying and advising the directors about opportunities
for continuing education, including conferences provided by independent third
parties.
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Duty
of Loyalty
1. General. A director, by becoming such, acknowledges that he or
she has a duty of loyalty to the Company and to the stockholders.
2. Conflicts of Interest. It is the Company's policy that all directors
should be scrupulous in avoiding any action or interest that conflicts, or
gives the appearance of conflict, with the Company's interests. A conflict
situation can arise when a director takes actions or has interests that may
make it difficult to perform his or her duties objectively and effectively.
Conflicts of interest also arise when a director, or a member of his or her
family, receives improper benefits as a result of his or her position in the
Company, whether received from the Company or a third party. The Company requires
its directors to do everything they reasonably can to avoid conflicts of interest,
or even the appearance of such.
3. In Case of Conflict. If a conflicting interest develops (as, for
example, where a banking, investment banking, law or accounting firm with
an officer or partner serving as a director of the Company seeks to be retained
by the Company), the director involved should promptly report the conflict,
or potential conflict, to the Board of Directors whereupon the Company, after
due consideration, can only proceed to retain such firm if either (i) such
director resigns from the Board before such retention takes place or (ii)
the Board determines that retaining such firm does not impair the independent
judgment of such director.
4. Corporate Opportunities. Directors are prohibited from (a) taking
for themselves personally opportunities that are discovered through the use
of corporate property, information or position (b) using corporate property,
information or position for personal gain, and (c) competing with the Company
either directly or indirectly. Directors owe a duty to the Company to advance
its legitimate interests when the opportunity to do so arises. It is also
the Company's policy that directors are prohibited from diverting to others
any business opportunities that are discovered through the use of corporate
property, information or position in which he or she has reason to believe
the Company would be interested, without authorization from the Chief Executive
Officer. The purpose of this policy is to prevent a situation wherein a director
would fail to offer to the Company a business opportunity that comes to the
attention of the director and that the Company may wish to exploit.
5. The Chief Executive Officer, after review of all material facts, has authority
to determine the Company's interest in a business opportunity that has come
to the attention of any director. The fact that a particular business opportunity
is closely related to an existing line of business for the Company or represents
a desirable avenue of expansion of the Company's activities is a strong indication
that the Company would have an interest in the opportunity.
6. Conduct on Behalf of Associates of Directors. A director shall
not knowingly advance the pecuniary interest of an "associate" of
the director in a manner that would fail to comply with the foregoing provisions
in paragraph 2 of this section, had the director acted for himself or herself.
As used in this paragraph "associate" of a director would include
spouses, relatives, trusts or estates of which the director is a substantial
beneficiary or fiduciary and, generally, any person with respect to whom the
director has a business, financial or similar relationship which would reasonably
be expected to affect the director's judgment with respect to the transaction
in question in a manner adverse to the Company.
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Committees
1. General. As authorized by the Bylaws, the Board has adopted a committee
structure in order to assist in carrying out its functions in a timely and
efficient manner. The committees of the Board will consist of the following:
(a) Audit Committee. The Audit Committee shall consist of not less
than three directors, all of whom shall be Independent Directors. The Audit
Committee shall establish and maintain a committee charter which sets out
its purpose and responsibilities to include, at a minimum, the assistance
in the oversight of (i) the integrity of the Company's financial statements;
(ii) the performance of the Company's internal audit function and independent
auditors; (iii) the independent auditor's qualifications and independence;
and (iv) the Company's compliance with legal and regulatory requirements.
The committee shall be directly responsible for the appointment, compensation,
retention and oversight of the Company's independent auditors.
(b) Compensation Committee. The Compensation Committee shall consist
of not less than two directors, all of whom shall be Independent Directors.
The Compensation Committee shall establish and maintain a committee charter
which sets out its purpose and responsibilities to include, at a minimum,
(i) the review and approval of corporate goals and objectives relevant to
the Chief Executive Officer's compensation; (ii) the evaluation of the Chief
Executive Officer's performance in light of those goals and the approval
of compensation consistent with such performance; and (iii) the approval
of base salaries, annual incentives and other programs and benefits for
senior management other than the Chief Executive Officer; and (iv) approval
of compensation programs and benefits for other employees.
(c) Executive Committee. The Executive Committee shall consist of
not less than two directors. The Executive Committee shall establish and
maintain a committee charter which sets out its purpose and responsibilities
to include, at a minimum, its functioning on behalf of the Board during
intervals between meetings of the Board and the authority, to the fullest
extent necessary or appropriate, to discharge such functions during such
intervals.
(d) Governance & Nomination Committee. The Governance &
Nomination Committee shall consist of not less than two directors, all of
whom shall be Independent Directors. The Governance & Nomination Committee
shall establish and maintain a committee charter which sets out its purpose
and responsibilities to include, at a minimum, (i) the identification of
qualified individuals to serve as Board members; (ii) the recommendation
to the Board of nominees for director for the next annual meeting of stockholders;
(iii) the oversight of the Company's governance policies and guidelines;
and (iv) to oversee the evaluation of the Board and management.
In addition to the committees provided above, the Board may establish such
other committees as it deems desirable, each consisting of two or more directors,
and name the members and any alternates of such committees. Each such committee
shall have such powers and functions as may be provided in the resolution
of the Board. No committee of the Board shall have authority, however, as
to the taking of action, which is expressly required by statute, the Articles
of Incorporation or the Bylaws to be taken at a meeting of the Board or by
a specific proportion of the directors.
Each of these committees serves an important function in the management
and supervision of the Company; therefore, the committees are a critical factor
in the ability of the Board to satisfy its responsibilities to the Company
and the stockholders. On an annual basis, each committee will review its charter
with the Board and modify as appropriate. All committee charters are available
on the Company's website at www.capstead.com.
2. Rules of Procedure. Unless provided otherwise by resolution of
the Board, each committee shall fix its own rules of procedure and meet at
such places and times as it shall determine. Each committee shall keep a written
record of all its proceedings. At any meeting of a committee, a majority of
the members of the entire committee shall constitute a quorum. The vote of
a majority of those present at a meeting at which a quorum is present shall
be the act of the committee. Action may also be taken by a written consent
signed by each member of the committee. Each committee and the members thereof,
including alternates, if any, shall serve at the pleasure of the Board.
The Board shall appoint the chair for each committee on an annual basis,
as well as designate directors who will preside in the absence of the chair.
Each committee chair will preside at its committee meetings and will assist
in identifying issues which should be considered by the committee. Each committee
chair will coordinate with the Chief Executive Officer on issues that may
require further information. Each committees' chair will report the committee's
recommendations at the regular Board meetings.
3. Independent Professionals. There may be instances when a committee
finds that the assistance of independent outside professionals is needed in
order to effectively perform its function. Each committee chair is authorized
to engage outside professional assistance, at the expense of the Company,
when a majority of the members of the committee have determined that such
outside assistance is necessary. The committee chair shall report at each
regular Board meeting as to the status of work being performed by such outside
professionals and the expenses incurred in connection therewith.
4. Legal Counsel. There may be instances when a committee finds it
needs the advice of outside legal counsel. Each committee chair is authorized
to engage outside counsel, at the expense of the Company, when a majority
of the members of the committee have determined that such outside assistance
is necessary. Any communications between the Committee and outside legal counsel
in the course of obtaining legal advice will be considered privileged communications
of the Company and the Committee will take all necessary steps to preserve
the privileged nature of those communications. The committee chair shall report
at each regular Board meeting as to the status of work being performed by
such outside professionals and the expenses incurred in connection therewith.
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Confidentiality
Directors owe a duty to the Company to maintain the confidentiality of non-public
information obtained as a result of being a director. In addition, it is each
director's duty not to use this confidential information for his or her own
benefit.
In observance of this duty, directors should avoid sharing proprietary, non-public
Company information with persons outside the Company or with persons inside
the Company who do not have a need to know the information. Proprietary, non-public
information includes, by way of example, investment research, investment decisions,
information relating to new services, and financial report information. Directors
should exercise caution when engaging in conversations regarding non-public
Company information in public places. Directors should exercise similar care
in the handling of confidential documents. Confidential information should not
be taken away from Company premises, except where necessary for the director
to perform his duties or otherwise for the benefit of the Company and then only
with appropriate care for the security of that information.
If non-public information is inadvertently disclosed, the person making or
discovering that disclosure should immediately report the facts to the Chief
Executive Officer.
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Board of Directors' Guidelines (Printer Friendly Version)