Document:

exv4w2

 

EXHIBIT 4.2

      

AMENDED AND RESTATED DECLARATION

OF TRUST

by and among

WILMINGTON TRUST COMPANY,

as Delaware Trustee,

WILMINGTON TRUST COMPANY,

as Institutional Trustee,

CAPSTEAD MORTGAGE CORPORATION,

as Sponsor,

and

ANDREW F. JACOBS and PHILLIP A. REINSCH,

as Administrators,

Dated as of September 11, 2006

      

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	ARTICLE I INTERPRETATION AND DEFINITIONS	 	 	1	 
	Section 1.1.
	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II ORGANIZATION	 	 	7	 
	Section 2.1.
	 	Name	 	 	7	 
	Section 2.2.
	 	Office	 	 	7	 
	Section 2.3.
	 	Purpose	 	 	8	 
	Section 2.4.
	 	Authority	 	 	8	 
	Section 2.5.
	 	Title to Property of the Trust	 	 	8	 
	Section 2.6.
	 	Powers and Duties of the Trustees and the Administrators	 	 	8	 
	Section 2.7.
	 	Prohibition of Actions by the Trust and the Institutional Trustee	 	 	11	 
	Section 2.8.
	 	Powers and Duties of the Institutional Trustee	 	 	12	 
	Section 2.9.
	 	Certain Duties and Responsibilities of the Trustees and Administrators	 	 	13	 
	Section 2.10.
	 	Certain Rights of Institutional Trustee	 	 	15	 
	Section 2.11.
	 	Delaware Trustee	 	 	17	 
	Section 2.12.
	 	Execution of Documents	 	 	17	 
	Section 2.13.
	 	Not Responsible for Recitals or Issuance of Securities	 	 	17	 
	Section 2.14.
	 	Duration of Trust	 	 	17	 
	Section 2.15.
	 	Mergers	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE III SPONSOR	 	 	18	 
	Section 3.1.
	 	Sponsor’s Purchase of Common Securities	 	 	18	 
	Section 3.2.
	 	Responsibilities of the Sponsor	 	 	18	 
	Section 3.3.
	 	Expenses	 	 	19	 
	Section 3.4.
	 	Right to Proceed	 	 	19	 
	 
	 	 	 	 	 	 
	ARTICLE IV INSTITUTIONAL TRUSTEE AND ADMINISTRATORS	 	 	20	 
	Section 4.1.
	 	Number of Trustees	 	 	20	 
	Section 4.2.
	 	Delaware Trustee; Eligibility	 	 	20	 
	Section 4.3.
	 	Institutional Trustee; Eligibility	 	 	20	 
	Section 4.4.
	 	Administrators	 	 	21	 
	Section 4.5.
	 	Appointment, Removal and Resignation of Trustees and Administrators	 	 	21	 
	Section 4.6.
	 	Vacancies Among Trustees	 	 	22	 
	Section 4.7.
	 	Effect of Vacancies	 	 	22	 
	Section 4.8.
	 	Meetings of the Trustees and the Administrators	 	 	23	 
	Section 4.9.
	 	Delegation of Power	 	 	23	 
	Section 4.10.
	 	Conversion, Consolidation or Succession to Business	 	 	23	 
	 
	 	 	 	 	 	 
	ARTICLE V DISTRIBUTIONS	 	 	24	 
	Section 5.1.
	 	Distributions	 	 	24	 
	 
	 	 	 	 	 	 
	ARTICLE VI ISSUANCE OF SECURITIES	 	 	24	 
	Section 6.1.
	 	General Provisions Regarding Securities	 	 	24	 
	Section 6.2.
	 	Paying Agent, Transfer Agent and Registrar	 	 	25	 
	Section 6.3.
	 	Form and Dating	 	 	25	 
	Section 6.4.
	 	Mutilated, Destroyed, Lost or Stolen Certificates	 	 	25	 
	Section 6.5.
	 	Temporary Securities	 	 	26	 

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	 	 	 	 	Page
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Section 6.6.

	 	Cancellation
	 	 	26	 
	Section 6.7.

	 	Rights of Holders; Waivers of Past Defaults
	 	 	26	 
	 
	 	 	 	 	 	 
	ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST	 	 	28	 
	Section 7.1.

	 	Dissolution and Termination of Trust
	 	 	28	 
	 
	 	 	 	 	 	 
	ARTICLE VIII TRANSFER OF INTERESTS	 	 	28	 
	Section 8.1.

	 	General
	 	 	28	 
	Section 8.2.

	 	Transfer Procedures and Restrictions
	 	 	29	 
	Section 8.3.

	 	Deemed Security Holders
	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS	 	 	32	 
	Section 9.1.

	 	Liability
	 	 	32	 
	Section 9.2.

	 	Exculpation
	 	 	32	 
	Section 9.3.

	 	Fiduciary Duty
	 	 	32	 
	Section 9.4.

	 	Indemnification
	 	 	33	 
	Section 9.5.

	 	Outside Businesses
	 	 	35	 
	Section 9.6.

	 	Compensation; Fee
	 	 	35	 
	 
	 	 	 	 	 	 
	ARTICLE X ACCOUNTING	 	 	36	 
	Section 10.1.

	 	Fiscal Year
	 	 	36	 
	Section 10.2.

	 	Certain Accounting Matters
	 	 	36	 
	Section 10.3.

	 	Banking
	 	 	36	 
	Section 10.4.

	 	Withholding
	 	 	36	 
	 
	 	 	 	 	 	 
	ARTICLE XI AMENDMENTS AND MEETINGS	 	 	37	 
	Section 11.1.

	 	Amendments
	 	 	37	 
	Section 11.2.

	 	Meetings of the Holders of Securities; Action by Written Consent
	 	 	38	 
	 
	 	 	 	 	 	 
	ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE TRUSTEE	 	 	39	 
	Section 12.1.

	 	Representations and Warranties of Institutional Trustee
	 	 	39	 
	Section 12.2.

	 	Representations of the Delaware Trustee
	 	 	40	 
	 
	 	 	 	 	 	 
	ARTICLE XIII MISCELLANEOUS	 	 	40	 
	Section 13.1.

	 	Notices
	 	 	40	 
	Section 13.2.

	 	Governing Law
	 	 	41	 
	Section 13.3.

	 	Intention of the Parties
	 	 	42	 
	Section 13.4.

	 	Headings
	 	 	42	 
	Section 13.5.

	 	Successors and Assigns
	 	 	42	 
	Section 13.6.

	 	Partial Enforceability
	 	 	42	 
	Section 13.7.

	 	Counterparts
	 	 	42	 
	 
	 	 	 	 	 	 
	Annex I

	 	Terms of Securities	 	 	 	 
	Exhibit A-1

	 	Form of Capital Security Certificate	 	 	 	 
	Exhibit A-2

	 	Form of Common Security Certificate	 	 	 	 
	Exhibit B

	 	Specimen of Initial Debenture	 	 	 	 
	Exhibit C

	 	Placement Agreement	 	 	 	 

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

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AMENDED AND RESTATED

DECLARATION OF TRUST

OF

CAPSTEAD MORTGAGE TRUST III

September 11, 2006

     AMENDED AND RESTATED DECLARATION OF TRUST (“Declaration”) dated and effective as of
September 11, 2006, by the Trustees (as defined herein), the Administrators (as defined herein),
the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial
interests in the Trust (as defined herein) to be issued pursuant to this Declaration;

     WHEREAS, the Trustees, the Administrators and the Sponsor established Capstead Mortgage Trust
III (the “Trust”), a statutory trust under the Statutory Trust Act (as defined herein)
pursuant to a Declaration of Trust dated as of September 5, 2006 (the “Original
Declaration”), and a Certificate of Trust filed with the Secretary of State of the State of
Delaware on September 5, 2006, for the sole purpose of issuing and selling certain securities
representing undivided beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain debentures of the Debenture Issuer (as defined herein);

     WHEREAS, as of the date hereof, no interests in the Trust have been issued; and

     WHEREAS, the Trustees, the Administrators and the Sponsor, by this Declaration, amend and
restate each and every term and provision of the Original Declaration;

     NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a
statutory trust under the Statutory Trust Act and that this Declaration constitutes the governing
instrument of such statutory trust, the Trustees declare that all assets contributed to the Trust
will be held in trust for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to
the provisions of this Declaration. The parties hereto hereby agree as follows:

ARTICLE I

INTERPRETATION AND DEFINITIONS

     Section 1.1. Definitions. Unless the context otherwise requires:

     (a) Capitalized terms used in this Declaration but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;

     (b) a term defined anywhere in this Declaration has the same meaning throughout;

     (c) all references to “the Declaration” or “this Declaration” are to this Declaration as modified,
supplemented or amended from time to time;

     (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are
to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise
specified; and

     (e) a reference to the singular includes the plural and vice versa.

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     “Additional Interest” has the meaning set forth in the Indenture.

     “Administrative Action” has the meaning set forth in paragraph 4(a) of Annex I.

     “Administrators” means each of Andrew F. Jacobs and Phillip A. Reinsch, solely in such
Person’s capacity as Administrator of the Trust created and continued hereunder and not in such
Person’s individual capacity, or such Administrator’s successor in interest in such capacity, or
any successor appointed as herein provided.

     “Affiliate” has the same meaning as given to that term in Rule 405 of the Securities
Act or any successor rule thereunder.

     “Authorized Officer” of a Person means any Person that is authorized to bind such
Person.

     “Bankruptcy Event” means, with respect to any Person:

     (a) a court having jurisdiction in the premises shall enter a decree or order for relief in
respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any substantial part of its
property, or ordering the winding-up or liquidation of its affairs and such decree or order shall
remain unstayed and in effect for a period of 90 consecutive days; or

     (b) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, shall consent to the entry of an order for relief in
an involuntary case under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official)
of such Person of any substantial part of its property, or shall make any general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they become due.

     “Business Day” means any day other than Saturday, Sunday or any other day on which
banking institutions in New York City or Wilmington, Delaware are permitted or required by any
applicable law or executive order to close.

     “Capital Securities” has the meaning set forth in paragraph 1(a) of Annex I.

     “Capital Security Certificate” means a definitive Certificate in fully registered form
representing a Capital Security substantially in the form of Exhibit A-1.

     “Certificate” means any certificate evidencing Securities.

     “Closing Date” has the meaning set forth in the Placement Agreement.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any
successor legislation.

     “Common Securities” has the meaning set forth in paragraph 1(b) of Annex I.

     “Common Security Certificate” means a definitive Certificate in fully registered form
representing a Common Security substantially in the form of Exhibit A-2.

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     “Company Indemnified Person” means (a) any Administrator; (b) any Affiliate of any
Administrator; (c) any officers, directors, shareholders, members, partners, employees,
representatives or agents of any Administrator; or (d) any officer, employee or agent of the Trust
or its Affiliates.

     “Comparable Treasury Issue” has the meaning set forth in paragraph 4(a) of Annex I.

     “Comparable Treasury Price” has the meaning set forth in paragraph 4(a) of Annex I.

     “Corporate Trust Office” means the office of the Institutional Trustee at which the
corporate trust business of the Institutional Trustee shall, at any particular time, be principally
administered, which office at the date of execution of this Declaration is located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-1600, Attn: Corporate Trust
Administration.

     “Coupon Rate” has the meaning set forth in paragraph 2(a) of Annex I.

     “Covered Person” means: (a) any Administrator, officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) any of the Trust’s
Affiliates; and (b) any Holder of Securities.

     “Creditor” has the meaning set forth in Section 3.3.

     “Debenture Issuer” means Capstead Mortgage Corporation, a Maryland corporation, in its
capacity as issuer of the Debentures under the Indenture.

     “Debenture Trustee” means Wilmington Trust Company, as trustee under the Indenture
until a successor is appointed thereunder, and thereafter means such successor trustee.

     “Debentures” means the Fixed/Floating Rate Junior Subordinated Debentures due 2036 to
be issued by the Debenture Issuer under the Indenture.

     “Defaulted Interest” has the meaning set forth in the Indenture.

     “Delaware Trustee” has the meaning set forth in Section 4.2.

     “Determination Date” has the meaning set forth in paragraph 4(a) of Annex I.

     “Direct Action” has the meaning set forth in Section 2.8(d).

     “Distribution” means a distribution payable to Holders of Securities in accordance
with Section 5.1.

     “Distribution Payment Date” has the meaning set forth in paragraph 2(b) of Annex I.

     “Distribution Period” means (i) with respect to the Distribution paid on the first
Distribution Payment Date, the period beginning on (and including) the date of original issuance
and ending on (but excluding) the Distribution Payment Date in December 2006 and (ii) thereafter,
with respect to a Distribution paid on each successive Distribution Payment Date, the period
beginning on (and including) the preceding Distribution Payment Date and ending on (but excluding)
such current Distribution Payment Date.

     “Distribution Rate” means, for the Distribution Period beginning on (and including)
the date of original issuance and ending on (but excluding) the Distribution Payment Date in
September 2016, the

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rate per annum of 8.685%, and for each Distribution Period beginning on or
after the Distribution Payment Date in September 2016, the Coupon Rate for such Distribution
Period.

     “Event of Default” means any one of the following events (whatever the reason for such
event and whether it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

     (a) the occurrence of an Indenture Event of Default; or

     (b) default by the Trust in the payment of any Redemption Price or Special Redemption Price of
any Security when it becomes due and payable; or

     (c) default in the performance, or breach, in any material respect, of any covenant or
warranty of the Institutional Trustee in this Declaration (other than those specified in clause (a)
or (b) above) and continuation of such default or breach for a period of 60 days after there has
been given, by registered or certified mail to the Institutional Trustee and to the Sponsor by the
Holders of at least 25% in aggregate liquidation amount of the outstanding Capital Securities, a
written notice specifying such default or breach and requiring it to be remedied and stating that
such notice is a “Notice of Default” hereunder; or

     (d) the occurrence of a Bankruptcy Event with respect to the Institutional Trustee if a
successor Institutional Trustee has not been appointed within 90 days thereof.

     “Fiduciary Indemnified Person” shall mean each of the Institutional Trustee (including
in its individual capacity), the Delaware Trustee (including in its individual capacity), any
Affiliate of the Institutional Trustee or Delaware Trustee and any officers, directors,
shareholders, members, partners, employees, representatives, custodians, nominees or agents of the
Institutional Trustee or Delaware Trustee.

     “Fiscal Year” has the meaning set forth in Section 10.1.

     “Fixed Rate Period Remaining Life” has the meaning set forth in paragraph 4(a) of
Annex I.

     “Holder” means a Person in whose name a Certificate representing a Security is
registered, such Person being a beneficial owner within the meaning of the Statutory Trust Act.

     “Indemnified Person” means a Company Indemnified Person or a Fiduciary Indemnified
Person.

     “Indenture” means the Indenture dated as of the Closing Date, between the Debenture
Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the
Debentures are to be issued, as such Indenture and any supplemental indenture may be amended,
supplemented or otherwise modified from time to time.

     “Indenture Event of Default” means an “Event of Default” as defined in the Indenture.

     “Institutional Trustee” means the Trustee meeting the eligibility requirements set
forth in Section 4.3.

     “Interest” means any interest due on the Debentures including any Additional Interest
and Defaulted Interest.

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     “Investment Company” means an investment company as defined in the Investment Company
Act.

     “Investment Company Act” means the Investment Company Act of 1940, as amended from
time to time, or any successor legislation.

     “Investment Company Event” has the meaning set forth in paragraph 4(a) of Annex I.

     “Liquidation” has the meaning set forth in paragraph 3 of Annex I.

     “Liquidation Distribution” has the meaning set forth in paragraph 3 of Annex I.

     “Majority in liquidation amount of the Securities” means Holder(s) of outstanding
Securities voting together as a single class or, as the context may require, Holders of outstanding
Capital Securities or Holders of outstanding Common Securities voting separately as a class, who
are the record owners of more than 50% of the aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.

     “Maturity Date” has the meaning set forth in paragraph 4(a) of Annex I.

     “Officers’ Certificates” means, with respect to any Person, a certificate signed by
two Authorized Officers of such Person. Any Officers’ Certificate delivered with respect to
compliance with a condition or covenant providing for it in this Declaration shall include:

     (a) a statement that each officer signing the Certificate has read the covenant or condition
and the definitions relating thereto;

     (b) a brief statement of the nature and scope of the examination or investigation undertaken
by each officer in rendering the Certificate;

     (c) a statement that each such officer has made such examination or investigation as, in such
officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether
or not such covenant or condition has been complied with; and

     (d) a statement as to whether, in the opinion of each such officer, such condition or covenant
has been complied with.

     “Paying Agent” has the meaning specified in Section 6.2.

     “Person” means a legal person, including any individual, corporation, estate,
partnership, joint venture, association, joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or political subdivision thereof, or any
other entity of whatever nature.

     “Placement Agreement” means the Placement Agreement relating to the offering and sale
of Capital Securities in the form of Exhibit C.

     “Primary Treasury Dealer” has the meaning set forth in paragraph 4(a) of Annex I.

     “Property Account” has the meaning set forth in Section 2.8(c).

     “Pro Rata” has the meaning set forth in paragraph 8 of Annex I.

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     “Quorum” means a majority of the Administrators or, if there are only two
Administrators, both of them.

     “Quotation Agent” has the meaning set forth in paragraph 4(a) of Annex I.

     “Redemption Date” has the meaning set forth in paragraph 4(a) of Annex I.

     “Redemption/Distribution Notice” has the meaning set forth in paragraph 4(e) of Annex
I.

     “Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I.

     “Reference Treasury Dealer” has the meaning set forth in paragraph 4(a) of Annex I.

     “Reference Treasury Dealer Quotations” has the meaning set forth in paragraph 4(a) of
Annex I.

     “Registrar” has the meaning set forth in Section 6.2.

     “Relevant Trustee” has the meaning set forth in Section 4.5(a).

     “Responsible Officer” means, with respect to the Institutional Trustee, any officer
within the Corporate Trust Office of the Institutional Trustee, including any vice-president, any
assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer, any
trust officer or other officer of the Corporate Trust Office of the Institutional Trustee
customarily performing functions similar to those performed by any of the above designated officers
and also means, with respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer’s knowledge of and familiarity with the particular
subject.

     “Restricted Securities Legend” has the meaning set forth in Section 8.2(b).

     “Rule 3a-5” means Rule 3a-5 under the Investment Company Act.

     “Rule 3a-7” means Rule 3a-7 under the Investment Company Act.

     “Securities” means the Common Securities and the Capital Securities.

     “Securities Act” means the Securities Act of 1933, as amended from time to time, or
any successor legislation.

     “Special Event” has the meaning set forth in paragraph 4(a) of Annex I.

     “Special Redemption Date” has the meaning set forth in paragraph 4(a) of Annex I.

     “Special Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I.

     “Sponsor” means Capstead Mortgage Corporation, a Maryland corporation, or any
successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the
Trust.

     “Statutory Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. §§
3801, et seq. as may be amended from time to time.

     “Successor Entity” has the meaning set forth in Section 2.15(b).

     “Successor Delaware Trustee” has the meaning set forth in Section 4.5(e).

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     “Successor Institutional Trustee” has the meaning set forth in Section 4.5(b).

     “Successor Securities” has the meaning set forth in Section 2.15(b).

     “Super Majority” has the meaning set forth in paragraph 5(b) of Annex I.

     “Tax Event” has the meaning set forth in paragraph 4(a) of Annex I.

     “10% in liquidation amount of the Securities” means Holder(s) of outstanding
Securities voting together as a single class or, as the context may require, Holders of outstanding
Capital Securities or Holders of outstanding Common Securities voting separately as a class, who
are the record owners of 10% or more of the aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.

     “3-Month LIBOR” has the meaning set forth in paragraph 4(a) of Annex I.

     “Transfer Agent” has the meaning set forth in Section 6.2.

     “Treasury Rate” has the meaning set forth in paragraph 4(a) of Annex I.

     “Treasury Regulations” means the income tax regulations, including temporary and
proposed regulations, promulgated under the Code by the United States Treasury, as such regulations
may be amended from time to time (including corresponding provisions of succeeding regulations).

     “Trust Property” means (a) the Debentures, (b) any cash on deposit in, or owing to,
the Property Account and (c) all proceeds and rights in respect of the foregoing and any other
property and assets for the time being held or deemed to be held by the Institutional Trustee
pursuant to the trusts of this Declaration.

     “Trustee” or “Trustees” means each Person who has signed this Declaration as a
trustee, so long as such Person shall continue in office in accordance with the terms hereof, and
all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in
accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.

     “U.S. Person” means a United States Person as defined in Section 7701(a)(30) of the
Code.

ARTICLE II

ORGANIZATION

     Section 2.1. Name. The Trust is named “Capstead Mortgage Trust III,” as such name may be modified from time to
time by the Administrators following written notice to the Holders of the Securities. The Trust’s
activities may be conducted under the name of the Trust or any other name deemed advisable by the
Administrators.

     Section 2.2. Office. The address of the principal office of the Trust is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-1600. On at least 10 Business Days written notice to the Holders of the Securities, the
Administrators may designate another principal office, which shall be in a state of the United
States or in the District of Columbia.

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     Section 2.3. Purpose. The exclusive purposes and functions of the Trust are (a) to
issue and sell the Securities representing undivided beneficial interests in the assets of the
Trust, (b) to invest the gross proceeds from such sale to acquire the Debentures, (c) to facilitate
direct investment in the assets of the Trust through issuance of the Common Securities and the
Capital Securities and (d) except as otherwise limited herein, to engage in only those other
activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or
reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be classified for United
States federal income tax purposes as a grantor trust.

     Section 2.4. Authority. Except as specifically provided in this Declaration, the
Institutional Trustee shall have exclusive and complete authority to carry out the purposes of the
Trust. An action taken by a Trustee in accordance with its powers shall constitute the act of and
serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person
shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing
with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration. The Administrators shall have only those ministerial duties set forth
herein with respect to accomplishing the purposes of the Trust and are not intended to be trustees
or fiduciaries with respect to the Trust or the Holders. The Institutional Trustee shall have the
right, but shall not be obligated except as provided in Section 2.6, to perform those duties
assigned to the Administrators.

     Section 2.5. Title to Property of the Trust. Except as provided in Section 2.8 with
respect to the Debentures and the Property Account or as otherwise provided in this Declaration,
legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have
legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest
in the assets of the Trust.

     Section 2.6. Powers and Duties of the Trustees and the Administrators.

     (a) The Trustees and the Administrators shall conduct the affairs of the Trust in accordance
with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this
Section, and in accordance with the following provisions (i) and (ii), the Trustees and the
Administrators shall have the authority to enter into all transactions and agreements determined by
the Institutional Trustee to be appropriate in exercising the authority, express or implied,
otherwise granted to the Trustees or the
Administrators, as the case may be, under this Declaration, and to perform all acts in
furtherance thereof, including without limitation, the following:

     (i) Each Administrator shall have the power and authority to act on behalf of the Trust
with respect to the following matters:

     (A) the issuance and sale of the Securities;

     (B) to cause the Trust to enter into, and to execute and deliver on behalf of
the Trust, such agreements as may be necessary or desirable in connection with the
purposes and function of the Trust, including agreements with the Paying Agent;

     (C) ensuring compliance with the Securities Act, applicable state securities or
blue sky laws;

     (D) the sending of notices (other than notices of default), and other
information regarding the Securities and the Debentures to the Holders in accordance
with this Declaration;

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     (E) the consent to the appointment of a Paying Agent, Transfer Agent and
Registrar in accordance with this Declaration, which consent shall not be
unreasonably withheld or delayed;

     (F) execution and delivery of the Securities in accordance with this
Declaration;

     (G) execution and delivery of closing certificates pursuant to the Placement
Agreement and the application for a taxpayer identification number;

     (H) unless otherwise determined by the Holders of a Majority in liquidation
amount of the Securities or as otherwise required by the Statutory Trust Act, to
execute on behalf of the Trust (either acting alone or together with any or all of
the Administrators) any documents that the Administrators have the power to execute
pursuant to this Declaration;

     (I) the taking of any action incidental to the foregoing as the Institutional
Trustee may from time to time determine is necessary or advisable to give effect to
the terms of this Declaration for the benefit of the Holders (without consideration
of the effect of any such action on any particular Holder);

     (J) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including Distributions, voting
rights, redemptions and exchanges, and to issue relevant notices to the Holders of
Capital Securities and Holders of Common Securities as to such actions and
applicable record dates; and

     (K) to duly prepare and file all applicable tax returns and tax information
reports that are required to be filed with respect to the Trust on behalf of the
Trust.

     (ii) As among the Trustees and the Administrators, the Institutional Trustee shall have
the power, duty and authority to act on behalf of the Trust with respect to the following
matters:

     (A) the establishment of the Property Account;

     (B) the receipt and holding of legal title of the Debentures;

     (C) the collection of interest, principal and any other payments made in
respect of the Debentures in the Property Account;

     (D) the distribution through the Paying Agent of amounts owed to the Holders in
respect of the Securities;

     (E) the exercise of all of the rights, powers and privileges of a holder of the
Debentures;

     (F) the sending of notices of default and other information regarding the
Securities and the Debentures to the Holders in accordance with this Declaration;

     (G) the distribution of the Trust Property in accordance with the terms of this
Declaration;

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     (H) to the extent provided in this Declaration, the winding up of the affairs
of and liquidation of the Trust and the preparation, execution and filing of the
certificate of cancellation with the Secretary of State of the State of Delaware;

     (I) after any Event of Default (provided that such Event of Default is
not by or with respect to the Institutional Trustee) the taking of any action
incidental to the foregoing as the Institutional Trustee may from time to time
determine is necessary or advisable to give effect to the terms of this Declaration
and protect and conserve the Trust Property for the benefit of the Holders (without
consideration of the effect of any such action on any particular Holder); and

     (J) to take all action that may be necessary for the preservation and the
continuation of the Trust’s valid existence, rights, franchises and privileges as a
statutory trust under the laws of the State of Delaware.

     (iii) The Institutional Trustee shall have the power and authority to act on behalf of
the Trust with respect to any of the duties, liabilities, powers or the authority of the
Administrators set forth in Section 2.6(a)(i)(D), (E) and (F) herein but shall not have a
duty to do any such act unless specifically requested to do so in writing by the Sponsor,
and shall then be fully protected in acting pursuant to such written request; and in the
event of a conflict between the action of the Administrators and the action of the
Institutional Trustee, the action of the Institutional Trustee shall prevail.

     (b) So long as this Declaration remains in effect, the Trust (or the Trustees or
Administrators acting on behalf of the Trust) shall not undertake any business, activities or
transaction except as expressly provided herein or contemplated hereby. In particular, neither the
Trustees nor the Administrators may cause the Trust to (i) acquire any investments or engage in any
activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage,
pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including
to Holders, except as expressly provided herein, (iii) take any action that would reasonably be
expected (x) to cause the Trust to fail or cease to qualify as a grantor trust for United States
federal income tax purposes or (y) to require the trust to register as an Investment Company under
the Investment Company Act, (iv) incur any indebtedness for borrowed money or issue any other debt
or (v) take or consent to any action that would result in the placement of a lien on any of the
Trust Property. The Institutional Trustee shall, at the sole cost and expense of the Trust, defend
all claims and demands of all Persons at any time claiming any lien on any of the Trust Property
adverse to the interest of the Trust or the Holders in their capacity as Holders.

     (c) In connection with the issuance and sale of the Capital Securities, the Sponsor shall have the
right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the
following (and any actions taken by the Sponsor in furtherance of the following prior to the date
of this Declaration are hereby ratified and confirmed in all respects):

     (i) the taking of any action necessary to obtain an exemption from the Securities Act;

     (ii) the determination of the States in which to take appropriate action to qualify or
register for sale all or part of the Capital Securities and the determination of any and all
such acts, other than actions which must be taken by or on behalf of the Trust, and the
advice to the Administrators of actions they must take on behalf of the Trust, and the
preparation for execution and filing of any documents to be executed and filed by the Trust
or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply
with the applicable laws of any such States in connection with the sale of the Capital
Securities;

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     (iii) the negotiation of the terms of, and the execution and delivery of, the Placement
Agreement providing for the sale of the Capital Securities; and

     (iv) the taking of any other actions necessary or desirable to carry out any of the
foregoing activities.

     (d) Notwithstanding anything herein to the contrary, the Administrators and the Holders of a
Majority in liquidation amount of the Common Securities are authorized and directed to conduct the
affairs of the Trust and to operate the Trust so that the Trust will not (i) be deemed to be an
Investment Company required to be registered under the Investment Company Act, and (ii) fail to be
classified as a grantor trust for United States federal income tax purposes. The Administrators
and the Holders of a Majority in liquidation amount of the Common Securities shall not take any
action inconsistent with the treatment of the Debentures as indebtedness of the Debenture Issuer
for United States federal income tax purposes. In this connection, the Administrators and the
Holders of a Majority in liquidation amount of the Common Securities are authorized to take any
action, not inconsistent with applicable laws, the Certificate of Trust or this Declaration, as
amended from time to time, that each of the Administrators and the Holders of a Majority in
liquidation amount of the Common Securities determines in their discretion to be necessary or
desirable for such purposes.

     (e) All expenses incurred by the Administrators or the Trustees pursuant to this Section 2.6
shall be reimbursed by the Sponsor, and the Trustees and the Administrators shall have no
obligations with respect to such expenses (for purposes of clarification, this Section 2.6(e) does
not contemplate the payment by the Sponsor of acceptance or annual administration fees owing to the
Trustees under this Declaration or the fees and expenses of the Trustees’ counsel in connection
with the closing of the transactions contemplated by this Declaration).

     (f) The assets of the Trust shall consist of the Trust Property.

     (g) Legal title to all Trust Property shall be vested at all times in the Institutional
Trustee (in its capacity as such) and shall be held and administered by the Institutional Trustee
and the Administrators for the benefit of the Trust in accordance with this Declaration.

     (h) If the Institutional Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Declaration and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Institutional Trustee or to such Holder, then
and in every such case the Sponsor, the Institutional Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Institutional Trustee and the Holders
shall continue as though no such proceeding had been instituted.

     Section 2.7. Prohibition of Actions by the Trust and the Institutional Trustee.

     (a) The Trust shall not, and the Institutional Trustee shall cause the Trust not to, engage in
any activity other than as required or authorized by this Declaration. In particular, the Trust
shall not and the Institutional Trustee shall cause the Trust not to:

     (i) invest any proceeds received by the Trust from holding the Debentures, but shall
distribute all such proceeds to Holders of the Securities pursuant to the terms of this
Declaration and of the Securities;

     (ii) acquire any assets other than as expressly provided herein;

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     (iii) possess Trust Property for other than a Trust purpose;

     (iv) make any loans or incur any indebtedness other than loans represented by the
Debentures;

     (v) possess any power or otherwise act in such a way as to vary the Trust assets or the
terms of the Securities in any way whatsoever other than as expressly provided herein;

     (vi) issue any securities or other evidences of beneficial ownership of, or beneficial
interest in, the Trust other than the Securities;

     (vii) carry on any “trade or business” as that phrase is used in the Code; or

     (viii) other than as provided in this Declaration (including Annex I), (A) direct the
time, method and place of exercising any trust or power conferred upon the Debenture Trustee
with respect to the Debentures, (B) waive any past default that is waivable under the
Indenture, (C) exercise any right to rescind or annul any declaration that the principal of
all the Debentures shall be due and payable, or (D) consent to any amendment, modification
or termination of the Indenture or the Debentures where such consent shall be required
unless the Trust shall have received a written opinion of counsel to the effect that such
modification will not cause the Trust to cease to be classified as a grantor trust for
United States federal income tax purposes.

     Section 2.8. Powers and Duties of the Institutional Trustee.

     (a) The legal title to the Debentures shall be owned by and held of record in the name of the
Institutional Trustee in trust for the benefit of the Trust and the Holders of the Securities. The
right, title and interest of the Institutional Trustee to the Debentures shall vest automatically
in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section
4.5. Such vesting and cessation of title shall be effective whether or not conveyancing documents
with regard to the Debentures have been executed and delivered.

     (b) The Institutional Trustee shall not transfer its right, title and interest in the
Debentures to the Administrators or to the Delaware Trustee.

     (c) The Institutional Trustee shall:

     (i) establish and maintain a segregated non-interest bearing trust account (the
“Property Account”) in the name of and under the exclusive control of the
Institutional Trustee, and maintained in the Institutional Trustee’s trust department, on
behalf of the Holders of the Securities and, upon the receipt of payments of funds made in
respect of the Debentures held by the Institutional Trustee, deposit such funds into the
Property Account and make payments, or cause the Paying Agent to make payments, to the
Holders of the Capital Securities and Holders of the Common Securities from the Property
Account in accordance with Section 5.1. Funds in the Property Account shall be held
uninvested until disbursed in accordance with this Declaration;

     (ii) engage in such ministerial activities as shall be necessary or appropriate to effect
the redemption of the Capital Securities and the Common Securities to the extent the
Debentures are redeemed or mature; and

     (iii) upon written notice of distribution issued by the Administrators in accordance
with the terms of the Securities, engage in such ministerial activities as shall be necessary or

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appropriate to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of certain circumstances pursuant to the terms of the
Securities.

     (d) The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort
to legal action with respect to, or otherwise adjust claims or demands of or against, the Trust
which arises out of or in connection with an Event of Default of which a Responsible Officer of the
Institutional Trustee has actual knowledge or arises out of the Institutional Trustee’s duties and
obligations under this Declaration; provided, however, that if an Event of Default
has occurred and is continuing and such event is attributable to the failure of the Debenture
Issuer to pay interest or principal on the Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, on the redemption date), then a Holder of the
Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of
the principal of or interest on the Debentures having a principal amount equal to the aggregate
liquidation amount of the Capital Securities of such Holder (a “Direct Action”) on or after
the respective due date specified in the Debentures. In connection with such Direct Action, the
rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of
the Capital Securities to the extent of any payment made by the Debenture Issuer to such Holder of
the Capital Securities in such Direct Action; provided, however, that no Holder of
the Common Securities may exercise such right of subrogation so long as an Event of Default with
respect to the Capital Securities has occurred and is continuing.

     (e) The Institutional Trustee shall continue to serve as a Trustee until either:

     (i) the Trust has been completely liquidated and the proceeds of the liquidation
distributed to the Holders of the Securities pursuant to the terms of the Securities and
this Declaration; or

     (ii) a Successor Institutional Trustee has been appointed and has accepted that
appointment in accordance with Section 4.5.

     (f) The Institutional Trustee shall have the legal power to exercise all of the rights, powers
and privileges of a Holder of the Debentures under the Indenture and, if an Event of Default occurs
and is continuing, the Institutional Trustee may, for the benefit of Holders of the Securities,
enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to
this Declaration (including Annex I) and the terms of the Securities.

     The Institutional Trustee must exercise the powers set forth in this Section 2.8 in a manner
that is consistent with the purposes and functions of the Trust set out in Section 2.3, and the
Institutional Trustee shall not take any action that is inconsistent with the purposes and
functions of the Trust set out in Section 2.3.

     Section 2.9. Certain Duties and Responsibilities of the Trustees and Administrators.

     (a) The Institutional Trustee, before the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred, shall undertake to perform
only such duties as are specifically set forth in this Declaration and no implied covenants shall
be read into this Declaration against the Institutional Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 6.7), the Institutional Trustee
shall exercise such of the rights and powers vested in it by this Declaration, and use the same
degree of care and skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.

     (b) The duties and responsibilities of the Trustees and the Administrators shall be as
provided by this Declaration. Notwithstanding the foregoing, no provision of this Declaration
shall

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require any Trustee or Administrator to expend or risk their own funds or otherwise incur any
financial liability in the performance of any of their duties hereunder, or in the exercise of any
of their rights or powers if it shall have reasonable grounds to believe that repayment of such
funds or adequate protection against such risk of liability is not reasonably assured to it.
Whether or not therein expressly so provided, every provision of this Declaration relating to the
conduct or affecting the liability of or affording protection to the Trustees or Administrators
shall be subject to the provisions of this Article. Nothing in this Declaration shall be construed
to relieve an Administrator or a Trustee from liability for its own negligent act, its own
negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity,
a Trustee or an Administrator has duties and liabilities relating to the Trust or to the Holders,
such Trustee or such Administrator shall not be liable to the Trust or to any Holder for such
Trustee’s or such Administrator’s good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and liabilities of the
Administrators or the Trustee otherwise existing at law or in equity, are agreed by the Sponsor and
the Holders to replace such other duties and liabilities of the Administrators or the Trustees.

     (c) All payments made by the Institutional Trustee or a Paying Agent in respect of the
Securities shall be made only from the revenue and proceeds from the Trust Property and only to the
extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the
Institutional Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each
Holder, by its acceptance of a Security, agrees that it will look solely to the revenue and
proceeds from the Trust Property to the extent legally available for distribution to it as herein
provided and that the Trustees and the Administrators are not personally liable to it for any
amount distributable in respect of any Security or for any other liability in respect of any
Security. This Section 2.9(c) does not limit the liability of the Trustees expressly set forth
elsewhere in this Declaration.

     (d) The Institutional Trustee shall not be liable for its own acts or omissions hereunder except
as a result of its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

     (i) the Institutional Trustee shall not be liable for any error of judgment made in
good faith by an Authorized Officer of the Institutional Trustee, unless it shall be proved
that the Institutional Trustee was negligent in ascertaining the pertinent facts;

     (ii) the Institutional Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the Holders of
not less than a Majority in liquidation amount of the Capital Securities or the Common
Securities, as applicable, relating to the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee, or exercising any trust or
power conferred upon the Institutional Trustee under this Declaration;

     (iii) the Institutional Trustee’s sole duty with respect to the custody, safekeeping
and physical preservation of the Debentures and the Property Account shall be to deal with
such property in a similar manner as the Institutional Trustee deals with similar property
for its fiduciary accounts generally, subject to the protections and limitations on
liability afforded to the Institutional Trustee under this Declaration;

     (iv) the Institutional Trustee shall not be liable for any interest on any money
received by it except as it may otherwise agree in writing with the Sponsor; and money held
by the Institutional Trustee need not be segregated from other funds held by it except in
relation to the Property Account maintained by the Institutional Trustee pursuant to Section
2.8(c)(i) and except to the extent otherwise required by law; and

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     (v) the Institutional Trustee shall not be responsible for monitoring the compliance by
the Administrators or the Sponsor with their respective duties under this Declaration, nor
shall the Institutional Trustee be liable for any default or misconduct of the
Administrators or the Sponsor.

     Section 2.10. Certain Rights of Institutional Trustee. Subject to the provisions of
Section 2.9:

     (a) the Institutional Trustee may conclusively rely and shall fully be protected in acting or
refraining from acting in good faith upon any resolution, opinion of counsel, certificate, written
representation of a Holder or transferee, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal,
bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed, sent or presented by the proper party or parties;

     (b) if (i) in performing its duties under this Declaration, the Institutional Trustee is
required to decide between alternative courses of action, (ii) in construing any of the provisions
of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any
other provisions contained herein, or (iii) the Institutional Trustee is unsure of the application
of any provision of this Declaration, then, except as to any matter as to which the Holders of
Capital Securities are entitled to vote under the terms of this Declaration, the Institutional
Trustee may deliver a notice to the Sponsor requesting the Sponsor’s written instructions as to the
course of action to be taken and the Institutional Trustee shall take such action, or refrain from
taking such action, as the Institutional Trustee shall be instructed in writing, in which event the
Institutional Trustee shall have no liability except for its own negligence or willful misconduct;

     (c) any direction or act of the Sponsor or the Administrators contemplated by this Declaration
shall be sufficiently evidenced by an Officers’ Certificate;

     (d) whenever in the administration of this Declaration, the Institutional Trustee shall deem
it desirable that a matter be proved or established before undertaking, suffering or omitting any
action hereunder, the Institutional Trustee (unless other evidence is herein specifically
prescribed) may request and conclusively rely upon an Officers’ Certificate as to factual matters
which, upon receipt of such request, shall be promptly delivered by the Sponsor or the
Administrators;

     (e) the Institutional Trustee shall have no duty to see to any recording, filing or
registration of any instrument (including any financing or continuation statement or any filing
under tax or securities laws) or any rerecording, refiling or reregistration thereof;

     (f) the Institutional Trustee may consult with counsel of its selection (which counsel may be
counsel to the Sponsor or any of its Affiliates) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and in accordance with such advice; the
Institutional Trustee shall have the right at any time to seek instructions concerning the
administration of this Declaration from any court of competent jurisdiction;

     (g) the Institutional Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Declaration at the request or direction of any of the Holders pursuant
to this Declaration, unless such Holders shall have offered to the Institutional Trustee security
or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction; provided, that nothing
contained in this Section 2.10(g) shall be taken to relieve the Institutional Trustee, subject to
Section 2.9(b), upon the occurrence of an Event of

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Default (that has not been cured or waived
pursuant to Section 6.7), to exercise such of the rights and powers vested in it by this
Declaration, and use the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own affairs;

     (h) the Institutional Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other
paper or document, unless requested in writing to do so by one or more Holders, but the
Institutional Trustee may make such further inquiry or investigation into such facts or matters as
it may see fit;

     (i) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through its agents or attorneys and the Institutional
Trustee shall not be responsible for any misconduct or negligence on the part of or for the
supervision of, any such agent or attorney appointed with due care by it hereunder;

     (j) whenever in the administration of this Declaration the Institutional Trustee shall deem it
desirable to receive instructions with respect to enforcing any remedy or right or taking any other
action hereunder the Institutional Trustee (i) may request instructions from the Holders of the
Capital Securities which instructions may only be given by the Holders of the same proportion in
liquidation amount of the Capital Securities as would be entitled to direct the Institutional
Trustee under the terms of the Capital Securities in respect of such remedy, right or action, (ii)
may refrain from enforcing such remedy or right or taking such other action until such instructions
are received, and (iii) shall be fully protected in acting in accordance with such instructions;

     (k) except as otherwise expressly provided in this Declaration, the Institutional Trustee
shall not be under any obligation to take any action that is discretionary under the provisions of
this Declaration;

     (l) when the Institutional Trustee incurs expenses or renders services in connection with a
Bankruptcy Event, such expenses (including the fees and expenses of its counsel) and the
compensation for such services are intended to constitute expenses of administration under any
bankruptcy law or law relating to creditors rights generally;

     (m) the Institutional Trustee shall not be charged with knowledge of an Event of Default
unless a Responsible Officer of the Institutional Trustee obtains actual knowledge of such event or
the Institutional Trustee receives written notice of such event from any Holder, the Sponsor or the
Debenture Trustee;

     (n) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust
and the Holders of the Securities, and the signature of the Institutional Trustee or its agents
alone shall be sufficient and effective to perform any such action and no third party shall be
required to inquire as to the authority of the Institutional Trustee to so act or as to its
compliance with any of the terms and provisions of this Declaration, both of which shall be
conclusively evidenced by the Institutional Trustee’s or its agent’s taking such action; and

     (o) no provision of this Declaration shall be deemed to impose any duty or obligation on the
Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the
Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Institutional Trustee shall be construed to be a
duty.

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     Section 2.11. Delaware Trustee. Notwithstanding any other provision of this
Declaration other than Section 4.1, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and responsibilities of any of the
Trustees or the Administrators described in this Declaration (except as may be required under the
Statutory Trust Act). Except as set forth in Section 4.1, the Delaware Trustee shall be a Trustee
for the sole and limited purpose of fulfilling the requirements of § 3807 of the Statutory Trust
Act.

     Section 2.12. Execution of Documents. Unless otherwise determined in writing by the
Institutional Trustee, and except as otherwise required by the Statutory Trust Act, the
Institutional Trustee, or any one or more of the Administrators, as the case may be, is authorized
to execute on behalf of the Trust any documents that the Trustees or the Administrators, as the
case may be, have the power and authority to execute pursuant to Section 2.6.

     Section 2.13. Not Responsible for Recitals or Issuance of Securities. The recitals
contained in this Declaration and the Securities shall be taken as the statements of the Sponsor,
and the Trustees do not assume any responsibility for their correctness. The Trustees make no
representations as to the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this Declaration, the
Debentures or the Securities.

     Section 2.14. Duration of Trust. The Trust, unless earlier dissolved pursuant to the
provisions of Article VII hereof, shall be in existence for 35 years from the Closing Date.

     Section 2.15. Mergers.

     (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets substantially as an entirety to any corporation
or other body, except as described in Section 2.15(b) and (c) and except in connection with the
liquidation of the Trust and the distribution of the Debentures to Holders of Securities pursuant
to Section 7.1(a)(iv) of the Declaration or Section 4 of Annex I.

     (b) The Trust may, with the consent of the Institutional Trustee and without the consent of
the Holders of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced
by a trust organized as such under the laws of any state; provided that:

     (i) if the Trust is not the surviving entity, such successor entity (the “Successor
Entity”) either:

     (A) expressly assumes all of the obligations of the Trust under the Securities;
or

     (B) substitutes for the Securities other securities having substantially the
same terms as the Securities (the “Successor Securities”) so that the
Successor Securities rank the same as the Securities rank with respect to
Distributions and payments upon Liquidation, redemption and otherwise;

     (ii) the Sponsor expressly appoints a trustee of the Successor Entity that possesses
substantially the same powers and duties as the Institutional Trustee as the Holder of the
Debentures;

     (iii) such merger, consolidation, amalgamation or replacement does not adversely affect
the rights, preferences and privileges of the Holders of the Securities (including any
Successor Securities) in any material respect;

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     (iv) the Institutional Trustee receives written confirmation from Moody’s Investor
Services, Inc. and any other nationally recognized statistical rating organization that
rates securities issued by a Holder of the Capital Securities at the time of such merger,
consolidation, amalgamation or replacement that it will not reduce or withdraw the rating of
any such securities because of such merger, conversion, consolidation, amalgamation or
replacement;

     (v) such Successor Entity has a purpose substantially identical to that of the Trust;

     (vi) prior to such merger, consolidation, amalgamation or replacement, the Trust has
received an opinion of a nationally recognized independent counsel to the Trust experienced
in such matters to the effect that:

     (A) such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the Holders of the Securities
(including any Successor Securities) in any material respect;

     (B) following such merger, consolidation, amalgamation or replacement, neither the
Trust nor the Successor Entity will be required to register as an Investment
Company; and

     (C) following such merger, consolidation, amalgamation or replacement, the
Trust (or the Successor Entity) will continue to be classified as a grantor trust
for United States federal income tax purposes;

     (vii) the Sponsor owns 100% of the common securities of any Successor Entity; and

     (viii) prior to such merger, consolidation, amalgamation or replacement, the
Institutional Trustee shall have received an Officers’ Certificate of the Administrators and
an opinion of counsel, each to the effect that all conditions precedent under this Section
2.15(b) to such transaction have been satisfied.

     (c) Notwithstanding Section 2.15(b), the Trust shall not, except with the consent of Holders
of 100% in aggregate liquidation amount of the Securities, consolidate, amalgamate, merge with or
into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes.

ARTICLE III

SPONSOR

     Section 3.1. Sponsor’s Purchase of Common Securities. On the Closing Date, the
Sponsor will purchase all of the Common Securities issued by the Trust in an amount at least equal
to 3% of the capital of the Trust, at the same time as the Capital Securities are sold.

     Section 3.2. Responsibilities of the Sponsor. In connection with the issue and sale
of the Capital Securities, the Sponsor shall have the exclusive right and responsibility to engage
in, or direct the Administrators to engage in, the following activities:

     (a) to determine the States in which to take appropriate action to qualify the Trust or to
qualify or register for sale all or part of the Capital Securities and to do any and all such acts,
other than

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actions which must be taken by the Trust, and advise the Trust of actions it must take,
and prepare for execution and filing any documents to be executed and filed by the Trust, as the
Sponsor deems necessary or advisable in order to comply with the applicable laws of any such
States, to protect the limited liability of
the Holders of the Capital Securities or to enable the Trust to effect the purposes for which
it was created; and

     (b) to negotiate the terms of and/or execute on behalf of the Trust, the Placement Agreement
and other related agreements providing for the sale of the Capital Securities and the Common
Securities.

     Section 3.3. Expenses. In connection with the offering, sale and issuance of the
Debentures to the Trust and in connection with the sale of the Securities by the Trust, the
Sponsor, in its capacity as Debenture Issuer, shall:

     (a) pay all reasonable costs and expenses owing to the Debenture Trustee pursuant to Section
6.6 of the Indenture;

     (b) be responsible for and shall pay all debts and obligations (other than with respect to the
Securities) and all costs and expenses of the Trust, the offering, sale and issuance of the
Securities (including fees to the placement agents in connection therewith), the costs and expenses
(including reasonable counsel fees and expenses) of the Institutional Trustee and the
Administrators, the costs and expenses relating to the operation of the Trust, including, without
limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services,
expenses for printing and engraving and computing or accounting equipment, Paying Agents,
Registrars, Transfer Agents, duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the acquisition, financing, and
disposition of Trust assets and the enforcement by the Institutional Trustee of the rights of the
Holders (for purposes of clarification, this Section 3.3(b) does not contemplate the payment by the
Sponsor of acceptance or annual administration fees owing to the Trustees pursuant to the services
to be provided by the Trustees under this Declaration or the fees and expenses of the Trustees’
counsel in connection with the closing of the transactions contemplated by this Declaration); and

     (c) pay any and all taxes (other than United States withholding taxes required to be withheld
that are attributable to the Trust or its assets) and all liabilities, costs and expenses with
respect to such taxes of the Trust.

     The Sponsor’s obligations under this Section 3.3 shall be for the benefit of, and shall be
enforceable by, any Person to whom such debts, obligations, costs, expenses and taxes are owed (a
“Creditor”) whether or not such Creditor has received notice hereof. Any such Creditor may
enforce the Sponsor’s obligations under this Section 3.3 directly against the Sponsor and the
Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action
against the Trust or any other Person before proceeding against the Sponsor. The Sponsor agrees to
execute such additional agreements as may be necessary or desirable in order to give full effect to
the provisions of this Section 3.3.

     Section 3.4. Right to Proceed. The Sponsor acknowledges the rights of Holders to
institute a Direct Action as set forth in Section 2.8(d) hereto.

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ARTICLE IV

INSTITUTIONAL TRUSTEE AND ADMINISTRATORS

     Section 4.1. Number of Trustees. The number of Trustees shall initially be two, and;

     (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument,
increase or decrease the number of Trustees; and

     (b) after the issuance of any Securities, the number of Trustees may be increased or decreased
by vote of the Holder of a Majority in liquidation amount of the Common Securities voting as a
class at a meeting of the Holder of the Common Securities; provided, however, that
there shall be a Delaware Trustee if required by Section 4.2; and there shall always be one Trustee
who shall be the Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements, in which case Section 2.11 shall have no application to such
entity in its capacity as Institutional Trustee.

     Section 4.2. Delaware Trustee; Eligibility.

     (a) If required by the Statutory Trust Act, one Trustee (the “Delaware Trustee”) shall be:

     (i) a natural person at least 21 years of age who is a resident of the State of
Delaware; or

     (ii) if not a natural person, an entity which is organized under the laws of the United
States or any state thereof or the District of Columbia, has its principal place of business
in the State of Delaware, and otherwise meets the requirements of applicable law, including
§ 3807 of the Statutory Trust Act.

     (b) The initial Delaware Trustee shall be Wilmington Trust Company.

     Section 4.3. Institutional Trustee; Eligibility.

     (a) There shall at all times be one Trustee which shall:

     (i) not be an Affiliate of the Sponsor;

     (ii) not offer or provide credit or credit enhancement to the Trust; and

     (iii) be a banking corporation or trust company organized and doing business under the
laws of the United States of America or any state thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000.00), and subject to supervision or
examination by Federal, state, or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the requirements of
the supervising or examining authority referred to above, then for the purposes of this
Section 4.3(a)(iii), the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of condition so
published.

     (b) If at any time the Institutional Trustee shall cease to be eligible to so act under
Section 4.3(a), the Institutional Trustee shall immediately resign in the manner and with the
effect set forth in Section 4.5.

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     (c) If the Institutional Trustee has or shall acquire any “conflicting interest” within the
meaning of Section 310(b) of the Trust Indenture Act of 1939, as amended, the Institutional Trustee
shall either eliminate such interest or resign, to the extent and in the manner provided by, and
subject to this Declaration.

     (d) The initial Institutional Trustee shall be Wilmington Trust Company.

     Section 4.4. Administrators. Each Administrator shall be a U.S. Person, 21 years of
age or older and authorized to bind the Sponsor. The initial Administrators shall be Andrew F.
Jacobs and Phillip A. Reinsch. There shall at all times be at least one Administrator. Except
where a requirement for action by a specific number of Administrators is expressly set forth in
this Declaration and except with respect to any action the taking of which is the subject of a
meeting of the Administrators, any action required or permitted to be taken by the Administrators
may be taken by, and any power of the Administrators may be exercised by, or with the consent of,
any one such Administrator.

     Section 4.5. Appointment, Removal and Resignation of Trustees and Administrators.

     (a) No resignation or removal of any Trustee (the “Relevant Trustee”) and no
appointment of a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the applicable requirements
of this Section 4.5.

     (b) Subject to Section 4.5(a), a Relevant Trustee may resign at any time by giving written
notice thereof to the Holders of the Securities and by appointing a successor Relevant Trustee.
Upon the resignation of the Institutional Trustee, the Institutional Trustee shall appoint a
successor by requesting from at least three Persons meeting the eligibility requirements their
expenses and charges to serve as the successor Institutional Trustee on a form provided by the
Administrators, and selecting the Person who
agrees to the lowest expense and charges (the “Successor Institutional Trustee”). If
the instrument of acceptance by the successor Relevant Trustee required by this Section 4.5 shall
not have been delivered to the Relevant Trustee within 60 days after the giving of such notice of
resignation or delivery of the instrument of removal, the Relevant Trustee may petition, at the
expense of the Trust, any federal, state or District of Columbia court of competent jurisdiction
for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing
such notice, if any, as it may deem proper, appoint a Relevant Trustee. The Institutional Trustee
shall have no liability for the selection of such successor pursuant to this Section 4.5.

     (c) Unless an Event of Default shall have occurred and be continuing, any Trustee may be
removed at any time by an act of the Holders of a Majority in liquidation amount of the Common
Securities. If any Trustee shall be so removed, the Holders of the Common Securities, by act of
the Holders of a Majority in liquidation amount of the Common Securities delivered to the Relevant
Trustee, shall promptly appoint a successor Relevant Trustee, and such successor Trustee shall
comply with the applicable requirements of this Section 4.5. If an Event of Default shall have
occurred and be continuing, the Institutional Trustee or the Delaware Trustee, or both of them, may
be removed by the act of the Holders of a Majority in liquidation amount of the Capital Securities,
delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). If any
Trustee shall be so removed, the Holders of Capital Securities, by act of the Holders of a Majority
in liquidation amount of the Capital Securities then outstanding delivered to the Relevant Trustee,
shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall
comply with the applicable requirements of this Section 4.5. If no successor Relevant Trustee
shall have been so appointed by the Holders of a Majority in liquidation amount of the Capital
Securities and accepted appointment in the manner required by this Section 4.5 within 30 days after
delivery of an instrument of removal, the Relevant Trustee or any Holder who has been a Holder of
the Securities for at least six months may, on behalf of himself and all others similarly situated,
petition any federal, state or District of Columbia court of competent jurisdiction for the

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appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a successor Relevant Trustee or Trustees.

     (d) The Institutional Trustee shall give notice of each resignation and each removal of a
Trustee and each appointment of a successor Trustee to all Holders and to the Sponsor. Each notice
shall include the name of the successor Relevant Trustee and the address of its Corporate Trust
Office if it is the Institutional Trustee.

     (e) Notwithstanding the foregoing or any other provision of this Declaration, in the event a
Delaware Trustee who is a natural person dies or is adjudged by a court to have become incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by
the Institutional Trustee following the procedures in this Section 4.5 (with the successor being a
Person who satisfies the eligibility requirement for a Delaware Trustee set forth in this
Declaration) (the “Successor Delaware Trustee”).

     (f) In case of the appointment hereunder of a successor Relevant Trustee, the retiring
Relevant Trustee and each successor Relevant Trustee with respect to the Securities shall execute
and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such
appointment and which
(a) shall contain such provisions as shall be necessary or desirable to transfer and confirm
to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of
the retiring Relevant Trustee with respect to the Securities and the Trust and (b) shall add to or
change any of the provisions of this Declaration as shall be necessary to provide for or facilitate
the administration of the Trust by more than one Relevant Trustee, it being understood that nothing
herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the
execution and delivery of such amendment the resignation or removal of the retiring Relevant
Trustee shall become effective to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any
successor Relevant Trustee, such retiring Relevant Trustee shall duly assign, transfer and deliver
to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such
retiring Relevant Trustee hereunder with respect to the Securities and the Trust subject to the
payment of all unpaid fees, expenses and indemnities of such retiring Relevant Trustee.

     (g) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to
act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be.

     (h) The Holders of the Capital Securities will have no right to vote to appoint, remove or
replace the Administrators, which voting rights are vested exclusively in the Holders of the Common
Securities.

     (i) Any successor Delaware Trustee shall file an amendment to the Certificate of Trust with
the Secretary of State of the State of Delaware identifying the name and principal place of
business of such Delaware Trustee in the State of Delaware.

     Section 4.6. Vacancies Among Trustees. If a Trustee ceases to hold office for any
reason and the number of Trustees is not reduced pursuant to Section 4.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by the Trustees or, if there are more than two,
a majority of the Trustees, shall be conclusive evidence of the existence of such vacancy. The
vacancy shall be filled with a Trustee appointed in accordance with Section 4.5.

     Section 4.7. Effect of Vacancies. The death, resignation, retirement, removal,
bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee
shall not operate to dissolve, terminate or annul the Trust or terminate this Declaration.
Whenever a vacancy in the number

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of Trustees shall occur, until such vacancy is filled by the
appointment of a Trustee in accordance with Section 4.5, the Institutional Trustee shall have all
the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration.

     Section 4.8. Meetings of the Trustees and the Administrators. Meetings of the
Administrators shall be held from time to time upon the call of an Administrator. Regular meetings
of the Administrators may be held in person in the United States or by telephone, at a place (if
applicable) and time fixed by resolution of the Administrators. Notice of any in-person meetings
of the Trustees with the Administrators or meetings of the Administrators shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight
courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the
Trustees with the Administrators or meetings of the Administrators or any committee thereof shall
be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by
overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief
statement of the time, place and anticipated purposes of the meeting. The presence (whether in
person or by telephone) of a Trustee or an Administrator, as the case may be, at a meeting shall
constitute a waiver of notice of such meeting except where the Trustee or an Administrator, as the
case may be, attends a meeting for the express purpose of objecting to the transaction of any
activity on the grounds that the meeting has not been lawfully called or convened. Unless provided
otherwise in this Declaration, any action of the Trustees or the Administrators, as the case may
be, may be taken at a meeting by vote of a majority of the Trustees or the Administrators present
(whether in person or by telephone) and eligible to vote with respect to such matter, provided that
a Quorum is present, or without a meeting by the unanimous written consent of the Trustees or the
Administrators. Meetings of the Trustees and the Administrators together shall be held from time
to time upon the call of any Trustee or an Administrator.

     Section 4.9. Delegation of Power.

     (a) Any Administrator may, by power of attorney consistent with applicable law, delegate to
any other natural person over the age of 21 that is a U.S. Person his or her power for the purpose
of executing any documents contemplated in Section 2.6; and

     (b) the Administrators shall have power to delegate from time to time to such of their number
the doing of such things and the execution of such instruments either in the name of the Trust or
the names of the Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the provisions of the
Trust, as set forth herein.

     Section 4.10. Conversion, Consolidation or Succession to Business. Any Person into
which the Institutional Trustee or the Delaware Trustee may be merged or converted or with which it
may be consolidated, or any Person resulting from any merger, conversion or consolidation to which
the Institutional Trustee or the Delaware Trustee shall be a party, or any Person succeeding to all
or substantially all the corporate trust business of the Institutional Trustee or the Delaware
Trustee shall be the successor of the Institutional Trustee or the Delaware Trustee hereunder,
provided such Person shall be otherwise qualified and eligible under this Article and,
provided, further, that such Person shall file an amendment to the Certificate of
Trust with the Secretary of State of the State of Delaware as contemplated in Section 4.5(i).

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ARTICLE V

DISTRIBUTIONS

     Section 5.1. Distributions. Holders shall receive Distributions in accordance with
the applicable terms of the relevant Holder’s Securities. Distributions shall be made on the
Capital Securities and the Common Securities in accordance with the preferences set forth in their
respective terms. If and to the extent that the Debenture Issuer makes a payment of Interest or any principal on the Debentures held by the
Institutional Trustee, the Institutional Trustee shall and is directed, to the extent funds are
available for that purpose, to make a distribution (a “Distribution”) of such amounts to
Holders.

ARTICLE VI

ISSUANCE OF SECURITIES

     Section 6.1. General Provisions Regarding Securities.

     (a) The Administrators shall, on behalf of the Trust, issue one series of capital securities
substantially in the form of Exhibit A-1 representing undivided beneficial interests in the assets
of the Trust having such terms as are set forth in Annex I and one series of common securities
substantially in the form of Exhibit A-2 representing undivided beneficial interests in the assets
of the Trust having such terms as are set forth in Annex I. The Trust shall issue no securities or
other interests in the assets of the Trust other than the Capital Securities and the Common
Securities. The Capital Securities rank pari passu to, and payment thereon shall be made Pro Rata
with, the Common Securities except that, where an Event of Default has occurred and is continuing,
the rights of Holders of the Common Securities to payment in respect of Distributions and payments
upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders
of the Capital Securities as set forth in Annex I.

     (b) The Certificates shall be signed on behalf of the Trust by one or more Administrators.
Such signature shall be the facsimile or manual signature of any Administrator. In case any
Administrator of the Trust who shall have signed any of the Securities shall cease to be such
Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates
nevertheless may be delivered as though the person who signed such Certificates had not ceased to
be such Administrator, and any Certificate may be signed on behalf of the Trust by such persons
who, at the actual date of execution of such Security, shall be an Administrator of the Trust,
although at the date of the execution and delivery of the Declaration any such person was not such
an Administrator. A Capital Security shall not be valid until authenticated by the facsimile or
manual signature of an Authorized Officer of the Institutional Trustee. Such signature shall be
conclusive evidence that the Capital Security has been authenticated under this Declaration. Upon
written order of the Trust signed by one Administrator, the Institutional Trustee shall
authenticate the Capital Securities for original issue. The Institutional Trustee may appoint an
authenticating agent that is a U.S. Person acceptable to the Trust to authenticate the Capital
Securities. A Common Security need not be so authenticated.

     (c) The consideration received by the Trust for the issuance of the Securities shall
constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust.

     (d) Upon issuance of the Securities as provided in this Declaration, the Securities so issued
shall be deemed to be validly issued, fully paid and, except as provided in Section 9.1(b) with
respect to the Common Securities, non-assessable.

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     (e) Every Person, by virtue of having become a Holder in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be
bound by, this Declaration.

     Section 6.2. Paying Agent, Transfer Agent and Registrar. The Trust shall maintain in
Wilmington, Delaware, an office or agency where the Capital Securities may be presented for payment
(“Paying Agent”), and an office or agency where Securities may be presented for
registration of transfer or exchange (the “Transfer Agent”). The Trust shall keep or cause
to be kept at such office or agency a register for the purpose of registering Securities, transfers
and exchanges of Securities, such register to be held by a registrar (the “Registrar”).
The Administrators may appoint the Paying Agent, the Registrar and the Transfer Agent and may
appoint one or more additional Paying Agents or one or more co-Registrars, or one or more co
Transfer Agents in such other locations as it shall determine. The term “Paying Agent” includes
any additional paying agent, the term “Registrar” includes any additional registrar or co Registrar
and the term “Transfer Agent” includes any additional transfer agent. The Administrators may
change any Paying Agent, Transfer Agent or Registrar at any time without prior notice to any
Holder. The Administrators shall notify the Institutional Trustee of the name and address of any
Paying Agent, Transfer Agent and Registrar not a party to this Declaration. The Administrators
hereby initially appoint the Institutional Trustee to act as Paying Agent, Transfer Agent and
Registrar for the Capital Securities and the Common Securities. The Institutional Trustee or any
of its Affiliates in the United States may act as Paying Agent, Transfer Agent or Registrar.

     Section 6.3. Form and Dating. The Capital Securities and the Institutional Trustee’s
certificate of authentication thereon shall be substantially in the form of Exhibit A-1, and the
Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby
incorporated in and expressly made a part of this Declaration. Certificates may be typed, printed,
lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the
Administrators, as conclusively evidenced by their execution thereof. The Securities may have
letters, numbers, notations or other marks of identification or designation and such legends or
endorsements required by law, stock exchange rule, agreements to which the Trust is subject if any,
or usage (provided that any such notation, legend or endorsement is in a form acceptable to the
Sponsor). The Trust at the direction of the Sponsor shall furnish any such legend not contained in
Exhibit A-1 to the Institutional Trustee in writing. Each Capital Security shall be dated on or
before the date of its authentication. The terms and provisions of the Securities set forth in
Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this
Declaration and to the extent applicable, the Institutional Trustee, the Delaware Trustee, the
Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly
agree to such terms and provisions and to be bound thereby. Capital Securities will be issued only
in blocks having a stated liquidation amount of not less than $100,000.00 and any multiple of
$1,000.00 in excess thereof.

     The Capital Securities are being offered and sold by the Trust pursuant to the Placement
Agreement in definitive, registered form without coupons and with the Restricted Securities Legend.

     Section 6.4. Mutilated, Destroyed, Lost or Stolen Certificates.

     If:

     (a) any mutilated Certificates should be surrendered to the Registrar, or if the Registrar
shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate;
and

     (b) there shall be delivered to the Registrar, the Administrators and the Institutional
Trustee such security or indemnity as may be required by them to keep each of them harmless;

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then, in the absence of notice that such Certificate shall have been acquired by a protected
purchaser, an Administrator on behalf of the Trust shall execute (and in the case of a Capital
Security Certificate, the Institutional Trustee shall authenticate) and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
denomination. In connection with the issuance of any new Certificate under this Section 6.4, the
Registrar or the Administrators may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith. Any duplicate Certificate
issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in
the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

     Section 6.5. Temporary Securities. Until definitive Securities are ready for
delivery, the Administrators may prepare and, in the case of the Capital Securities, the
Institutional Trustee shall authenticate, temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that the Administrators
consider appropriate for temporary Securities. Without unreasonable delay, the Administrators
shall prepare and, in the case of the Capital Securities, the Institutional Trustee shall
authenticate, definitive Securities in exchange for temporary Securities.

     Section 6.6. Cancellation. The Administrators at any time may deliver Securities to
the Institutional Trustee for cancellation. The Registrar shall forward to the Institutional
Trustee any Securities surrendered to it for registration of transfer, redemption or payment. The
Institutional Trustee shall promptly cancel all Securities surrendered for registration of
transfer, payment, replacement or cancellation and shall dispose of such canceled Securities as the
Administrators direct. The Administrators may not issue new Securities to replace Securities that
have been paid or that have been delivered to the Institutional Trustee for cancellation.

     Section 6.7. Rights of Holders; Waivers of Past Defaults.

     (a) The legal title to the Trust Property is vested exclusively in the Institutional Trustee
(in its capacity as such) in accordance with Section 2.5, and the Holders shall not have any right
or title therein other than the undivided beneficial interest in the assets of the Trust conferred
by their Securities and they shall have no right to call for any partition or division of property,
profits or rights of the Trust except as described below. The Securities shall be personal
property giving only the rights specifically set forth therein and in this Declaration. The
Securities shall have no preemptive or similar rights.

     (b) For so long as any Capital Securities remain outstanding, if upon an Indenture Event of
Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the
outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due
and payable, the Holders of a Majority in liquidation amount of the Capital Securities then
outstanding shall have the right
to make such declaration by a notice in writing to the Institutional Trustee, the Sponsor and
the Debenture Trustee.

     At any time after a declaration of acceleration with respect to the Debentures has been made
and before a judgment or decree for payment of the money due has been obtained by the Debenture
Trustee as provided in the Indenture, if the Institutional Trustee, subject to the provisions
hereof, fails to annul any such declaration and waive such default, the Holders of a Majority in
liquidation amount of the Capital Securities, by written notice to the Institutional Trustee, the
Sponsor and the Debenture Trustee, may rescind and annul such declaration and its consequences if:

     (i) the Debenture Issuer has paid or deposited with the Debenture Trustee a sum
sufficient to pay

     (A) all overdue installments of interest on all of the Debentures,

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     (B) any accrued Additional Interest on all of the Debentures,

     (C) the principal of (and premium, if any, on) any Debentures that have become
due otherwise than by such declaration of acceleration and interest and Additional
Interest thereon at the rate borne by the Debentures, and

     (D) all sums paid or advanced by the Debenture Trustee under the Indenture and
the reasonable compensation, expenses, disbursements and advances of the Debenture
Trustee and the Institutional Trustee, their agents and counsel; and

     (ii) all Events of Default with respect to the Debentures, other than the non-payment
of the principal of the Debentures that has become due solely by such acceleration, have
been cured or waived as provided in Section 5.7 of the Indenture.

     The Holders of at least a Majority in liquidation amount of the Capital Securities may, on
behalf of the Holders of all the Capital Securities, waive any past default under the Indenture or
any Indenture Event of Default, except a default or Indenture Event of Default in the payment of
principal or interest on the Debentures (unless such default or Indenture Event of Default has been
cured and a sum sufficient to pay all matured installments of interest and principal due otherwise
than by acceleration has been deposited with the Debenture Trustee) or a default under the
Indenture or an Indenture Event of Default in respect of a covenant or provision that under the
Indenture cannot be modified or amended without the consent of the holder of each outstanding
Debenture. No such rescission shall affect any subsequent default or impair any right consequent
thereon.

     Upon receipt by the Institutional Trustee of written notice declaring such an acceleration, or
rescission and annulment thereof, by Holders of any part of the Capital Securities, a record date
shall be
established for determining Holders of outstanding Capital Securities entitled to join in such
notice, which record date shall be at the close of business on the day the Institutional Trustee
receives such notice. The Holders on such record date, or their duly designated proxies, and only
such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders
after such record date; provided, that unless such declaration of acceleration, or
rescission and annulment, as the case may be, shall have become effective by virtue of the
requisite percentage having joined in such notice prior to the day that is 90 days after such
record date, such notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled and of no further
effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new written notice of declaration of acceleration, or
rescission and annulment thereof, as the case may be, that is identical to a written notice that
has been canceled pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 6.7.

     (c) Except as otherwise provided in paragraphs (a) and (b) of this Section 6.7, the Holders of
at least a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders
of all the Capital Securities, waive any past default or Event of Default and its consequences.
Upon such waiver, any such default or Event of Default shall cease to exist, and any default or
Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon.

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ARTICLE VII

DISSOLUTION AND TERMINATION OF TRUST

     Section 7.1. Dissolution and Termination of Trust.

     (a) The Trust shall dissolve on the first to occur of:

     (i) unless earlier dissolved, on December 15, 2040, the expiration of the term of the
Trust;

     (ii) upon a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture
Issuer;

     (iii) upon the filing of a certificate of dissolution or its equivalent with respect to
the Sponsor (other than in connection with a merger, consolidation or similar transaction
not prohibited by the Indenture or this Declaration, as the case may be) or upon the
revocation of the charter of the Sponsor and the expiration of 90 days after the date of
revocation without a reinstatement thereof;

     (iv) upon the distribution of the Debentures to the Holders of the Securities, upon
exercise of the right of the Holder of all of the outstanding Common Securities to dissolve
the Trust as provided in Annex I hereto;

     (v) upon the entry of a decree of judicial dissolution of the Holder of the Common
Securities, the Sponsor, the Trust or the Debenture Issuer;

     (vi) when all of the Securities shall have been called for redemption and the amounts
necessary for redemption thereof shall have been paid to the Holders in accordance with the
terms of the Securities; or

     (vii) before the issuance of any Securities, with the consent of all of the Trustees
and the Sponsor.

     (b) As soon as is practicable after the occurrence of an event referred to in Section 7.1(a),
and after satisfaction of liabilities to creditors of the Trust as required by applicable law,
including of the Statutory Trust Act, and subject to the terms set forth in Annex I, the
Institutional Trustee shall terminate the Trust by filing a certificate of cancellation with the
Secretary of State of the State of Delaware.

     (c) The provisions of Section 2.9 and Article IX shall survive the termination of the Trust.

ARTICLE VIII

TRANSFER OF INTERESTS

     Section 8.1. General.

     (a) Subject to Section 8.1(c), where Capital Securities are presented to the Registrar or a
co-registrar with a request to register a transfer or to exchange them for an equal number of
Capital Securities represented by different certificates, the Registrar shall register the transfer
or make the exchange if its requirements for such transactions are met. To permit registrations of
transfer and exchanges, the Trust shall issue and the Institutional Trustee shall authenticate
Capital Securities at the Registrar’s request.

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     (b) Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial
and record ownership of the Common Securities and for so long as the Securities remain outstanding,
and to the fullest extent permitted by applicable law, the Sponsor shall maintain 100% ownership of
the Common Securities; provided, however, that any permitted successor of the
Sponsor, in its capacity as Debenture Issuer, under the Indenture that is a U.S. Person may succeed
to the Sponsor’s ownership of the Common Securities.

     (c) Capital Securities may only be transferred, in whole or in part, in accordance with the terms
and conditions set forth in this Declaration and in the terms of the Securities. To the fullest
extent permitted by applicable law, any transfer or purported transfer of any Security not made in
accordance with this Declaration shall be null and void and will be deemed to be of no legal effect
whatsoever and any such transferee shall be deemed not to be the holder of such Capital Securities
for any purpose, including but not limited to the receipt of Distributions on such Capital
Securities, and such transferee shall be deemed to have no interest whatsoever in such Capital
Securities.

     (d) The Registrar shall provide for the registration of Securities and of transfers of
Securities, which will be effected without charge but only upon payment (with such indemnity as the
Registrar may require) in respect of any tax or other governmental charges that may be imposed in
relation to it. Upon surrender for registration of transfer of any Securities, the Registrar shall
cause one or more new Securities of the same tenor to be issued in the name of the designated
transferee or transferees. Every Security surrendered for registration of transfer shall be
accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed
by the Holder or such Holder’s attorney duly authorized in writing. Each Security surrendered for
registration of transfer shall be canceled by the Institutional Trustee pursuant to Section 6.6. A
transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder
hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each
transferee shall be deemed to have agreed to be bound by this Declaration.

     (e) The Trust shall not be required (i) to issue, register the transfer of, or exchange any
Securities during a period beginning at the opening of business fifteen days before the day of any
selection of Securities for redemption and ending at the close of business on the earliest date on
which the relevant notice of redemption is deemed to have been given to all Holders of the
Securities to be redeemed, or (ii) to register the transfer or exchange of any Security so selected
for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in
part.

     Section 8.2. Transfer Procedures and Restrictions.

     (a) The Capital Securities shall bear the Restricted Securities Legend, which shall not be
removed unless there is delivered to the Trust such satisfactory evidence, which may include an
opinion of counsel satisfactory to the Institutional Trustee, as may be reasonably required by the
Trust, that neither the legend nor the restrictions on transfer set forth therein are required to
ensure that transfers thereof comply with the provisions of the Securities Act. Upon provision of
such satisfactory evidence, the Institutional Trustee, at the written direction of the Trust, shall
authenticate and deliver Capital Securities that do not bear the legend.

     (b) Except as permitted by Section 8.2(a), each Capital Security shall bear a legend (the
“Restricted Securities Legend”) in substantially the following form and a Capital Security
shall not be transferred except in compliance with such legend, unless otherwise determined by the
Sponsor, upon the advice of counsel expert in securities law, in accordance with applicable law:

     THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), ANY
STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.

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NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE SPONSOR OR THE TRUST, (B) PURSUANT
TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH
RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A) OF
RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE SPONSOR’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF
TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST. HEDGING
TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE SECURITIES ACT.

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE TRUST THAT (A) THIS
SECURITY MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO THE TRUST OR
(II) TO A PERSON WHO CERTIFIES TO THE HOLDER THAT SUCH PERSON IS A “QUALIFIED
PURCHASER” (AS DEFINED IN SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY CAPITAL SECURITIES
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS
AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR
OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING
ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY,
AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE

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OR HOLD THE
SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION
OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY
PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE
REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN
EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO
WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON
BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE
ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH
PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR
ADMINISTRATIVE EXEMPTION.

      THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A
LIQUIDATION AMOUNT OF NOT LESS THAN $100,000.00 (100 SECURITIES) AND MULTIPLES OF
$1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING
A LIQUIDATION AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER.

      THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.

     (c) To permit registrations of transfers and exchanges, the Trust shall execute and the
Institutional Trustee shall authenticate Capital Securities at the Registrar’s request.

     (d) Registrations of transfers or exchanges will be effected without charge, but only upon
payment (with such indemnity as the Registrar or the Sponsor may require) in respect of any tax or
other governmental charge that may be imposed in relation to it.

     (e) All Capital Securities issued upon any registration of transfer or exchange pursuant to
the terms of this Declaration shall evidence the same security and shall be entitled to the same
benefits under this Declaration as the Capital Securities surrendered upon such registration of
transfer or exchange.

     Section 8.3. Deemed Security Holders. The Trust, the Administrators, the Trustees,
the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any
Certificate shall be registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for
purposes of receiving Distributions and for all other purposes whatsoever and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in such Certificate or
in the Securities represented by such Certificate on the part of any Person, whether or not the
Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar
shall have actual or other notice thereof.

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ARTICLE IX

LIMITATION OF LIABILITY OF

HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS

     Section 9.1. Liability.

     (a) Except as expressly set forth in this Declaration and the terms of the Securities, the
Sponsor shall not be:

     (i) personally liable for the return of any portion of the capital contributions (or
any return thereon) of the Holders of the Securities which shall be made solely from assets
of the Trust; or

     (ii) required to pay to the Trust or to any Holder of the Securities any deficit upon
dissolution of the Trust or otherwise.

     (b) The Holder of the Common Securities shall be liable for all of the debts and obligations
of the Trust (other than with respect to the Securities) to the extent not satisfied out of the
Trust’s assets.

     (c) Pursuant to the Statutory Trust Act, the Holders of the Capital Securities shall be
entitled to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State of Delaware.

     Section 9.2. Exculpation.

     (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise
to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified
Person’s negligence or willful misconduct with respect to such acts or omissions.

     (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of
the Trust and upon such information, opinions, reports or statements presented to the Trust by any
Person as to matters the Indemnified Person reasonably believes are within such other Person’s
professional or expert competence and, if selected by such Indemnified Person, has been selected by
such Indemnified Person with reasonable care by or on behalf of the Trust, including information,
opinions, reports or statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from which Distributions
to Holders of Securities might properly be paid.

     Section 9.3. Fiduciary Duty.

     (a) To the extent that, at law or in equity, an Indemnified Person has duties (including
fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other
Covered Person for its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified
Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such
other duties and liabilities of the Indemnified Person.

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     (b) Whenever in this Declaration an Indemnified Person is permitted or required to make a
decision:

     (i) in its “discretion” or under a grant of similar authority, the Indemnified Person
shall be entitled to consider such interests and factors as it desires, including its own
interests, and shall have no duty or obligation to give any consideration to any interest of
or factors affecting the Trust or any other Person; or

     (ii) in its “good faith” or under another express standard, the Indemnified Person
shall act under such express standard and shall not be subject to any other or different
standard imposed by this Declaration or by applicable law.

     Section 9.4. Indemnification.

     (a) The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified Person
who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Trust) arising out of or in connection with the acceptance or
administration of this Declaration by reason of the fact that he is or was an Indemnified Person
against expenses (including reasonable attorneys’ fees and expenses), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Indemnified Person did
not act in good faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

     (b) The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified Person
who was or is a party or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in its favor arising out of or
in connection with the acceptance or administration of this Declaration by reason of the fact that
he is or was an Indemnified Person against expenses (including reasonable attorneys’ fees and
expenses) actually and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Trust; provided, however, that no such
indemnification shall be made in respect of any claim, issue or matter as to which such Indemnified
Person shall have been adjudged to be liable to the Trust unless and only to the extent that the
court in which such action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall deem proper.

     (c) To the extent that an Indemnified Person shall be successful on the merits or otherwise
(including dismissal of an action without prejudice or the settlement of an action without
admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (a)
and (b) of this Section 9.4, or in defense of any claim, issue or matter therein, he shall be
indemnified, to the full extent permitted by law, against expenses (including attorneys’ fees and
expenses) actually and reasonably incurred by him in connection therewith.

     (d) Any indemnification of an Administrator under paragraphs (a) and (b) of this Section 9.4
(unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case
upon a determination that indemnification of the Indemnified Person is proper in the circumstances
because he

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has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (i) by the Administrators by a majority vote of a Quorum consisting of
such Administrators who were not parties to such action, suit or proceeding, (ii) if such a Quorum
is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs,
by independent legal counsel in a written opinion, or (iii) by the Common Security Holder of the
Trust.

     (e) To the fullest extent permitted by law, expenses (including reasonable attorneys’ fees and
expenses) incurred by an Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 9.4
shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by the Sponsor as
authorized in this Section 9.4. Notwithstanding the foregoing, no advance shall be made by the
Sponsor if a determination is reasonably and promptly made (i) by the Administrators by a majority
vote of a Quorum of disinterested Administrators, (ii) if such a Quorum is not obtainable, or, even
if obtainable, if a quorum of disinterested Administrators so directs, by independent legal counsel
in a written opinion or (iii) by the Common Security Holder of the Trust, that, based upon the
facts known to the Administrators, counsel or the
Common Security Holder at the time such determination is made, such Indemnified Person acted
in bad faith or in a manner that such Indemnified Person did not believe to be in the best
interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person
believed or had reasonable cause to believe his conduct was unlawful. In no event shall any
advance be made in instances where the Administrators, independent legal counsel or the Common
Security Holder reasonably determine that such Indemnified Person deliberately breached his duty to
the Trust or its Common or Capital Security Holders.

     (f) The Trustees, at the sole cost and expense of the Sponsor, retain the right to
representation by counsel of their own choosing in any action, suit or any other proceeding for
which they are indemnified under paragraphs (a) and (b) of this Section 9.4, without affecting
their right to indemnification hereunder or waiving any rights afforded to it under this
Declaration or applicable law.

     (g) The indemnification and advancement of expenses provided by, or granted pursuant to, the
other paragraphs of this Section 9.4 shall not be deemed exclusive of any other rights to which
those seeking indemnification and advancement of expenses may be entitled under any agreement, vote
of stockholders or disinterested directors of the Sponsor or Capital Security Holders of the Trust
or otherwise, both as to action in his official capacity and as to action in another capacity while
holding such office. All rights to indemnification under this Section 9.4 shall be deemed to be
provided by a contract between the Sponsor and each Indemnified Person who serves in such capacity
at any time while this Section 9.4 is in effect. Any repeal or modification of this Section 9.4
shall not affect any rights or obligations then existing.

     (h) The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who
is or was an Indemnified Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the Sponsor would have the
power to indemnify him against such liability under the provisions of this Section 9.4.

     (i) For purposes of this Section 9.4, references to “the Trust” shall include, in addition to
the resulting or surviving entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any Person who is or was a director,
trustee, officer or employee of such constituent entity, or is or was serving at the request of
such constituent entity as a director, trustee, officer, employee or agent of another entity, shall
stand in the same position under the

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provisions of this Section 9.4 with respect to the resulting
or surviving entity as he would have with respect to such constituent entity if its separate
existence had continued.

     (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this
Section 9.4 shall, unless otherwise provided when authorized or ratified, (i) continue as to a
Person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a Person; and (ii) survive the termination or expiration of
this Declaration or the earlier removal or resignation of an Indemnified Person.

     Section 9.5. Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee may engage
in or possess an interest in other business ventures of any nature or description, independently or
with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or improper. None of any
Covered Person, the Sponsor, the Delaware Trustee or the Institutional Trustee shall be obligated
to present any particular investment or other opportunity to the Trust even if such opportunity is
of a character that, if presented to the Trust, could be taken by the Trust, and any Covered
Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to
take for its own account (individually or as a partner or fiduciary) or to recommend to others any
such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the
Institutional Trustee may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act
on any committee or body of holders of, securities or other obligations of the Sponsor or its
Affiliates.

     Section 9.6. Compensation; Fee. The Sponsor agrees:

     (a) to pay to the Trustees from time to time such compensation for all services rendered by
them hereunder as the parties shall agree from time to time (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an express trust);
and

     (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for
all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance
with any provision of this Declaration (including the reasonable compensation and the expenses and
disbursements of their respective agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence, bad faith or willful misconduct.

     For purposes of clarification, this Section 9.6 does not contemplate the payment by the
Sponsor of acceptance or annual administration fees owing to the Trustees under this Declaration or
the fees and expenses of the Trustees’ counsel in connection with the closing of the transactions
contemplated by this Declaration.

     The provisions of this Section 9.6 shall survive the dissolution of the Trust and the
termination of this Declaration and the removal or resignation of any Trustee.

     No Trustee may claim any lien or charge on any property of the Trust as a result of any amount
due pursuant to this Section 9.6.

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ARTICLE X

ACCOUNTING

     Section 10.1.
Fiscal Year. The fiscal year (“Fiscal Year”) of the Trust shall be the calendar year, or such other
year as is required by the Code.

     Section 10.2. Certain Accounting Matters.

     (a) At all times during the existence of the Trust, the Administrators shall keep, or cause to
be kept at the principal office of the Trust in the United States, as defined for purposes of
Treasury Regulations section 301.7701-7, full books of account, records and supporting documents,
which shall reflect in reasonable detail each transaction of the Trust. The books of account shall
be maintained, at the Sponsor’s expense, in accordance with generally accepted accounting
principles, consistently applied. The books of account and the records of the Trust shall be
examined by and reported upon (either separately or as part of the Sponsor’s regularly prepared
consolidated financial report) as of the end of each Fiscal Year of the Trust by a firm of
independent certified public accountants selected by the Administrators.

     (b) The Administrators shall cause to be duly prepared and delivered to each of the Holders of
Securities Internal Revenue Service Form 1099 or such other annual United States federal income tax
information statement required by the Code, containing such information with regard to the
Securities held by each Holder as is required by the Code and the Treasury Regulations.
Notwithstanding any right under the Code to deliver any such statement at a later date, the
Administrators shall endeavor to deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.

     (c) The Administrators, at the Sponsor’s expense, shall cause to be duly prepared at the
principal office of the Sponsor in the United States, as ‘United States’ is defined in Section
7701(a)(9) of the Code (or at the principal office of the Trust if the Sponsor has no such
principal office in the United States), and filed an annual United States federal income tax return
on an Internal Revenue Service Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by the Administrators
on behalf of the Trust with any state or local taxing authority.

     Section 10.3. Banking. The Trust shall maintain in the United States, as defined for
purposes of Treasury Regulations section 301.7701-7, one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Institutional Trustee shall be made directly to the Property
Account and no other funds of the Trust shall be deposited in the Property Account. The sole
signatories for such accounts (including the Property Account) shall be designated by the
Institutional Trustee.

     Section 10.4. Withholding. The Institutional Trustee or any Paying Agent and the
Administrators shall comply with all withholding requirements under United States federal, state
and local law. The Institutional Trustee or any Paying Agent shall request, and each Holder shall
provide to the Institutional Trustee or any Paying Agent, such forms or certificates as are
necessary to establish a complete exemption from withholding with respect to the Holder, and any
representations and forms as shall reasonably be requested by the Institutional Trustee or any
Paying Agent to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Administrators shall file required forms with applicable
jurisdictions and, unless a complete exemption from withholding is properly established by a
Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To
the extent that the Institutional Trustee or any Paying Agent is required to withhold and pay over
any amounts to any authority with respect to distributions or allocations to any Holder, the amount
withheld

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shall be deemed to be a Distribution in the amount of the withholding to the Holder. In
the event of any claimed overwithholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld from actual
Distributions made, the Institutional Trustee or any Paying Agent may reduce subsequent
Distributions by the amount of such withholding.

ARTICLE XI

AMENDMENTS AND MEETINGS

     Section 11.1. Amendments.

     (a) Except as otherwise provided in this Declaration or by any applicable terms of the
Securities, this Declaration may only be amended by a written instrument approved and executed (i)
by the Institutional Trustee, or (ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, by the Delaware Trustee.

     (b) Notwithstanding any other provision of this Article XI, an amendment may be made, and any
such purported amendment shall be valid and effective only if:

     (i) the Institutional Trustee shall have first received

     (A) an Officers’ Certificate from each of the Trust and the Sponsor that such
amendment is permitted by, and conforms to, the terms of this Declaration (including
the terms of the Securities); and

     (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that
such amendment is permitted by, and conforms to, the terms of this Declaration
(including the terms of the Securities); and

     (ii) the result of such amendment would not be to

     (A) cause the Trust to cease to be classified for purposes of United States
federal income taxation as a grantor trust; or

     (B) cause the Trust to be deemed to be an Investment Company required to be
registered under the Investment Company Act.

     (c) Except as provided in Section 11.1(d), (e) or (h), no amendment shall be made, and any
such purported amendment shall be void and ineffective, unless the Holders of a Majority in
liquidation amount of the Capital Securities shall have consented to such amendment.

     (d) In addition to and notwithstanding any other provision in this Declaration, without the
consent of each affected Holder, this Declaration may not be amended to (i) change the amount or
timing of any Distribution on the Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Securities as of a specified date or change any
conversion or exchange provisions or (ii) restrict the right of a Holder to institute suit for the
enforcement of any such payment on or after such date.

     (e) Sections 9.1(b) and 9.1(c) and this Section 11.1 shall not be amended without the consent
of all of the Holders of the Securities.

     (f) Article III shall not be amended without the consent of the Holders of a Majority in
liquidation amount of the Common Securities.

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     (g) The rights of the Holders of the Capital Securities under Article IV to appoint and remove
Trustees shall not be amended without the consent of the Holders of a Majority in liquidation
amount of the Capital Securities.

     (h) This Declaration may be amended by the Institutional Trustee and the Holders of a Majority
in liquidation amount of the Common Securities without the consent of the Holders of the Capital
Securities to:

     (i) cure any ambiguity;

     (ii) correct or supplement any provision in this Declaration that may be defective or
inconsistent with any other provision of this Declaration;

     (iii) add to the covenants, restrictions or obligations of the Sponsor; or

     (iv) modify, eliminate or add to any provision of this Declaration to such extent as
may be necessary to ensure that the Trust will be classified for United States federal
income tax purposes at all times as a grantor trust and will not be required to register as
an Investment Company (including without limitation to conform to any change in Rule 3a-5,
Rule 3a-7 or any other applicable rule under the Investment Company Act or written change in
interpretation or application thereof by any legislative body, court, government agency or
regulatory authority) which amendment does not have a material adverse effect on the rights,
preferences or privileges of the Holders of Securities;

     provided, however, that no such modification, elimination or addition referred
to in clauses (i), (ii), (iii) or (iv) shall adversely affect in any material respect the powers,
preferences or special rights of Holders of Capital Securities.

     Section 11.2. Meetings of the Holders of Securities; Action by Written Consent.

     (a) Meetings of the Holders of any class of Securities may be called at any time by the
Administrators (or as provided in the terms of the Securities) to consider and act on any matter on
which Holders of such class of Securities are entitled to act under the terms of this Declaration
or the terms of the Securities. The Administrators shall call a meeting of the Holders of such
class if directed to do so by the Holders of at least 10% in liquidation amount of such class of
Securities. Such direction shall be given by delivering to the Administrators one or more calls in
a writing stating that the signing Holders of the Securities wish to call a meeting and indicating
the general or specific purpose for which the meeting is to be called. Any Holders of the
Securities calling a meeting shall specify in writing the Certificates held by the Holders of the
Securities exercising the right to call a meeting and only those Securities represented by such
Certificates shall be counted for purposes of determining whether the required percentage set forth
in the second sentence of this paragraph has been met.

     (b) Except to the extent otherwise provided in the terms of the Securities, the following
provisions shall apply to meetings of Holders of the Securities:

     (i) notice of any such meeting shall be given to all the Holders of the Securities
having a right to vote thereat at least 7 days and not more than 60 days before the date of
such meeting. Whenever a vote, consent or approval of the Holders of the Securities is
permitted or required under this Declaration, such vote, consent or approval may be given at
a meeting of the Holders of the Securities. Any action that may be taken at a meeting of
the Holders of the Securities may be taken without a meeting if a consent in writing setting
forth the action so taken is signed by the Holders of the Securities owning not less than
the minimum amount of Securities

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in liquidation amount that would be necessary to authorize
or take such action at a meeting at which all Holders of the Securities having a right to
vote thereon were present and voting. Prompt notice of the taking of action without a
meeting shall be given to the Holders of the Securities entitled to vote who have not
consented in writing. The Administrators may specify that any written ballot
submitted to the Holders of the Securities for the purpose of taking any action without
a meeting shall be returned to the Trust within the time specified by the Administrators;

     (ii) each Holder of a Security may authorize any Person to act for it by proxy on all
matters in which a Holder of Securities is entitled to participate, including waiving notice
of any meeting, or voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Holder of the Securities executing it.
Except as otherwise provided herein, all matters relating to the giving, voting or validity
of proxies shall be governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders of the Securities were stockholders of a Delaware
corporation; each meeting of the Holders of the Securities shall be conducted by the
Administrators or by such other Person that the Administrators may designate; and

     (iii) unless the Statutory Trust Act, this Declaration, or the terms of the Securities
otherwise provides, the Administrators, in their sole discretion, shall establish all other
provisions relating to meetings of Holders of Securities, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by any Holders of the
Securities, waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote; provided,
however, that each meeting shall be conducted in the United States (as that term is
defined in Treasury Regulations section 301.7701-7).

ARTICLE XII

REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE TRUSTEE

     Section 12.1. Representations and Warranties of Institutional Trustee. The initial
Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this
Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Institutional Trustee’s acceptance of its appointment as
Institutional Trustee, that:

     (a) the Institutional Trustee is a Delaware banking corporation with trust powers, duly
organized and validly existing under the laws of the State of Delaware with trust power and
authority to execute and deliver, and to carry out and perform its obligations under the terms of,
this Declaration;

     (b) the execution, delivery and performance by the Institutional Trustee of this Declaration
has been duly authorized by all necessary corporate action on the part of the Institutional
Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and
it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable
against it in accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting
creditors’ rights generally and to general principles of equity (regardless of whether
considered in a proceeding in equity or at law);

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     (c) the execution, delivery and performance of this Declaration by the Institutional Trustee
does not conflict with or constitute a breach of the charter or by-laws of the Institutional
Trustee; and

     (d) no consent, approval or authorization of, or registration with or notice to, any state or
federal banking authority is required for the execution, delivery or performance by the
Institutional Trustee of this Declaration.

     Section 12.2. Representations of the Delaware Trustee. The Trustee that acts as
initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of
this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee’s acceptance of its appointment as Delaware
Trustee that:

     (a) if it is not a natural person, the Delaware Trustee is duly organized, validly existing
and in good standing under the laws of the State of Delaware;

     (b) if it is not a natural person, the execution, delivery and performance by the Delaware
Trustee of this Declaration has been duly authorized by all necessary corporate action on the part
of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware
Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and
binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws
affecting creditors’ rights generally and to general principles of equity and the discretion of the
court (regardless of whether considered in a proceeding in equity or at law);

     (c) if it is not a natural person, the execution, delivery and performance of this Declaration
by the Delaware Trustee does not conflict with or constitute a breach of the charter or by-laws of
the Delaware Trustee;

     (d) it has trust power and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration;

     (e) no consent, approval or authorization of, or registration with or notice to, any state or
federal banking authority governing the trust powers of the Delaware Trustee is required for the
execution, delivery or performance by the Delaware Trustee of this Declaration; and

     (f) the Delaware Trustee is a natural person who is a resident of the State of Delaware or, if
not a natural person, it is an entity which has its principal place of business in the State of
Delaware and, in either case, a Person that satisfies for the Trust the requirements of Section
3807 of the Statutory Trust Act.

ARTICLE XIII

MISCELLANEOUS

     Section 13.1. Notices. All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered, telecopied (which
telecopy shall be followed by notice delivered or mailed by first class mail) or mailed by first
class mail, as follows:

     (a) if given to the Trust, in care of the Administrators at the Trust’s mailing address set
forth below (or such other address as the Trust may give notice of to the Holders of the
Securities):

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40

 

Capstead Mortgage Trust III

c/o Capstead Mortgage Corporation

8401 North Central Expressway, Suite 800

Dallas, Texas 75225-4410

Attention: Andrew F. Jacobs

Telecopy: 214-874-2398

     (b)

     if given to the Delaware Trustee, at the Delaware Trustee’s mailing address set forth below
(or such other address as the Delaware Trustee may give notice of to the Holders of the
Securities):

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

Attention: Corporate Trust Administration

Telecopy: 302-636-4140

     (c) if given to the Institutional Trustee, at the Institutional Trustee’s mailing address set
forth below (or such other address as the Institutional Trustee may give notice of to the Holders
of the Securities):

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

Attention: Corporate Trust Administration

Telecopy: 302-636-4140

     (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set
forth below (or such other address as the Holder of the Common Securities may give notice of to the
Trust):

Capstead Mortgage Corporation

8401 North Central Expressway, Suite 800

Dallas, Texas 75225-4410

Attention: Andrew F. Jacobs

Telecopy: 214-874-2398

     (e) if given to any other Holder, at the address set forth on the books and records of the
Trust.

     All such notices shall be deemed to have been given when received in person, telecopied with
receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other
document is refused delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.

     Section 13.2. Governing Law. This Declaration and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the law of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to the principles of conflict of
laws of the State of Delaware or any other jurisdiction that would call for the application of the
law of any jurisdiction

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other than the State of Delaware; provided, however, that
there shall not be applicable to the Trust, the Trustees or this Declaration any provision of the
laws (statutory or common) of the State of Delaware pertaining to trusts that relate to or
regulate, in a manner inconsistent with the terms hereof (a) the filing with any court or
governmental body or agency of trustee accounts or schedules of trustee fees and charges, (b)
affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (c)
the necessity for obtaining court or other governmental approval concerning the acquisition,
holding or disposition of real or personal property, (d) fees or other sums payable to trustees,
officers, agents or employees of a trust, (e) the allocation of receipts and expenditures to income
or principal, or (f) restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other manner of holding or
investing trust assets.

     Section 13.3. Intention of the Parties. It is the intention of the parties hereto
that the Trust be classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of the parties.

     Section 13.4. Headings. Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this Declaration or any
provision hereof.

     Section 13.5. Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or referred to, the successors
and assigns of such party shall be deemed to be included, and all covenants and agreements in this
Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether or not so expressed.

     Section 13.6. Partial Enforceability. If any provision of this Declaration, or the
application of such provision to any Person or circumstance, shall be held invalid, the remainder
of this Declaration, or the application of such provision to persons or circumstances other than
those to which it is held invalid, shall not be affected thereby.

     Section 13.7. Counterparts. This Declaration may contain more than one counterpart of
the signature page and this Declaration may be executed by the affixing of the signature of each of
the Trustees and Administrators to any of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the same force and
effect as though all of the signers had signed a single signature page.

Signatures appear on the following page

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     IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day
and year first above written.

	 	 	 	 	 	 	 
	 	 	WILMINGTON TRUST COMPANY,

as Delaware Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ CHRISTOPHER J. MONIGLE
 

Name: Christopher J. Monigle
	 	 
	 

	 	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	WILMINGTON TRUST COMPANY,

as Institutional Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ CHRISTOPHER J. MONIGLE	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Christopher J. Monigle	 	 
	 

	 	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION, as

Sponsor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ PHILLIP A. REINSCH	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Phillip A. Reinsch

Title: Executive Vice President & CFO	 	 
	 
	 	 	 	 	 	 
	 	 	ADMINISTRATORS OF CAPSTEAD MORTGAGE TRUST III	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ PHILLIP A. REINSCH	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Administrator	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ ANDREW F. JACOBS	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Administrator	 	 

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ANNEX I

TERMS OF SECURITIES

          Pursuant to Section 6.1 of the Amended and Restated Declaration of Trust, dated as of
September 11, 2006 (as amended from time to time, the “Declaration”), the designation, rights,
privileges, restrictions, preferences and other terms and provisions of the Capital Securities and
the Common Securities are set out below (each capitalized term used but not defined herein has the
meaning set forth in the Declaration):

     1. Designation and Number.

          (a) 25,000 Fixed/Floating Rate Capital Securities of Capstead Mortgage Trust III (the
“Trust”), with an aggregate stated liquidation amount with respect to the assets of the Trust of
twenty-five million dollars ($25,000,000.00) and a stated liquidation amount with respect to the
assets of the Trust of $1,000.00 per Capital Security, are hereby designated for the purposes of
identification only as the “Capital Securities”. The Capital Security Certificates
evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the
Declaration, with such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice.

          (b) 774 Fixed/Floating Rate Common Securities of the Trust (the “Common Securities”)
will be evidenced by Common Security Certificates substantially in the form of Exhibit A-2 to the
Declaration, with such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice.

     2. Distributions.

          (a) Distributions will be payable on each Security for the Distribution Period beginning on
(and including) the date of original issuance and ending on (but excluding) the Distribution
Payment Date in September 2016 at a rate per annum of 8.685% and shall bear interest for each
successive Distribution Period beginning on (and including) the Distribution Payment Date in
September 2016, and each succeeding Distribution Payment Date, and ending on (but excluding) the
next succeeding Distribution Payment Date at a rate per annum equal to the 3-Month LIBOR,
determined as described below, plus 3.30% (the “Coupon Rate”), applied to the stated
liquidation amount thereof, such rate being the rate of interest payable on the Debentures to be
held by the Institutional Trustee. Distributions in arrears will bear interest thereon compounded
quarterly at the applicable Distribution Rate (to the extent permitted by law). Distributions, as
used herein, include cash distributions and any such compounded distributions unless otherwise
noted. A Distribution is payable only to the extent that payments are made in respect of the
Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of the Distribution payable (i) for any Distribution Period
commencing on or after the date of original issuance but before the Distribution Payment Date in
September 2016 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii)
for the Distribution Period commencing on the Distribution Payment Date in September 2016 and each
succeeding Distribution Period will be calculated by applying the Distribution Rate to the stated
liquidation amount outstanding at the commencement of the Distribution Period on the basis of the
actual number of days in the Distribution Period concerned divided by 360. All percentages
resulting from any calculations on the Capital Securities will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage
point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and
all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upward)).

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          (b) Distributions on the Securities will be cumulative, will accrue from the date of original
issuance, and will be payable, quarterly in arrears on March 15, June 15, September 15 and December
15 of each year, or if such day is not a Business Day, then the next succeeding Business Day (each
a “Distribution Payment Date”), commencing on the Distribution Payment Date in December
2006 when, as and if available for payment. Distributions on the Securities must be paid on the
dates payable to the extent that the Trust has funds available for the payment of such
distributions in the Property Account of the Trust. The Trust’s funds available for Distribution
to the Holders of the Securities will be limited to payments received from the Debenture Issuer.

          (c) Distributions on the Securities will be payable to the Holders thereof as they appear on
the books and records of the Trust on the relevant record dates. The relevant record dates shall
be fifteen days before the relevant Distribution Payment Date. Distributions payable on any
Securities that are not punctually paid on any Distribution Payment Date, as a result of the
Debenture Issuer having failed to make a payment under the Debentures, as the case may be, when
due, will cease to be payable to the Person in whose name such Securities are registered on the
relevant record date, and such defaulted Distribution will instead be payable to the Person in
whose name such Securities are registered on the special record date or other specified date
determined in accordance with the Indenture.

          (d) In the event that there is any money or other property held by or for the Trust that is
not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among
the Holders of the Securities.

     3. Liquidation Distribution Upon Dissolution. In the event of the voluntary or
involuntary liquidation, dissolution, winding-up or termination of the Trust (each a
“Liquidation”) other than in connection with a redemption of the Debentures, the Holders of
the Securities will be entitled to receive out of the assets of the Trust available for
distribution to Holders of the Securities, after satisfaction of liabilities to creditors of the
Trust (to the extent not satisfied by the Debenture Issuer), distributions equal to the aggregate
of the stated liquidation amount of $1,000.00 per Security plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the “Liquidation Distribution”), unless
in connection with such Liquidation, the Debentures in an aggregate stated principal amount equal
to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the
Distribution Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on, and having the same record date as, such Securities, after paying or
making reasonable provision to pay all claims and obligations of the Trust in accordance with the
Statutory Trust Act, shall be distributed on a Pro Rata basis to the Holders of the Securities in
exchange for such Securities.

     The Sponsor, as the Holder of all of the Common Securities, has the right at any time to
dissolve the Trust (including, without limitation, upon the occurrence of a Special Event), and,
after satisfaction of liabilities to creditors of the Trust, cause the Debentures to be distributed
to the Holders of the Securities on a Pro Rata basis in accordance with the aggregate stated
liquidation amount thereof.

     If a Liquidation of the Trust occurs as described in clause (i), (ii), (iii) or (v) in Section
7.1(a) of the Declaration, the Trust shall be liquidated by the Institutional Trustee as
expeditiously as it determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust, to the Holders of the Securities, the Debentures on a Pro Rata basis to the
extent not satisfied by the Debenture Issuer, unless such distribution is determined by the
Institutional Trustee not to be practical, in which event such Holders will be entitled to receive
out of the assets of the Trust available for distribution to the Holders, after satisfaction of
liabilities of creditors of the Trust to the extent not satisfied by the Debenture Issuer, an
amount equal to the Liquidation Distribution. An early Liquidation of the Trust pursuant to clause
(iv) of Section 7.1(a) of the Declaration shall occur if the Institutional Trustee determines that
such

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Liquidation is possible by distributing, after satisfaction of liabilities to creditors of the
Trust, to the Holders of the Securities on a Pro Rata basis, the Debentures, and such distribution
occurs.

     If, upon any such Liquidation the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution,
then the amounts payable directly by the Trust on such Capital Securities shall be paid to the
Holders of the Trust Securities on a Pro Rata basis, except that if an Event of Default has
occurred and is continuing, the Capital Securities shall have a preference over the Common
Securities with regard to such distributions.

     After the date for any distribution of the Debentures upon dissolution of the Trust (i) the
Securities of the Trust will be deemed to be no longer outstanding, (ii) upon surrender of a
Holder’s Securities certificate, such Holder of the Securities will receive a certificate
representing the Debentures to be delivered upon such distribution, (iii) any certificates
representing the Securities still outstanding will be deemed to represent undivided beneficial
interests in such of the Debentures as have an aggregate principal amount equal to the aggregate
stated liquidation amount with an interest rate identical to the Distribution Rate of, and bearing
accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities until such
certificates are presented to the Debenture Issuer or its agent for transfer or reissuance (and
until such certificates are so surrendered, no payments of interest or principal shall be made to
Holders of Securities in respect of any payments due and payable under the Debentures;
provided, however that such failure to pay shall not be deemed to be an Event of
Default), and (iv) all rights of Holders of Securities under the Declaration shall cease, except
the right of such Holders to receive Debentures upon surrender of certificates representing such
Securities.

     4. Redemption and Distribution.

          (a) The Debentures will mature on September 15, 2036. The Debentures may be redeemed by the
Debenture Issuer, in whole or in part, at any Distribution Payment Date on or after the
Distribution Payment Date in September 2016, at the Redemption Price. In addition, the Debentures
may be redeemed by the Debenture Issuer at the Special Redemption Price, in whole but not in part,
at any Distribution Payment Date, upon the occurrence and continuation of a Special Event within
120 days following the occurrence of such Special Event at the Special Redemption Price, upon not
less than 30 nor more than 60 days’ notice to holders of such Debentures so long as such Special
Event is continuing. The Sponsor shall appoint a Quotation Agent, which shall be a designee of the
Institutional Trustee, for the purpose of performing the services contemplated in or by reference
in, the definition of Special Redemption Price. Any error in the calculation of the Special
Redemption Price by the Quotation Agent or the Debenture Trustee may be corrected at any time by
notice delivered to the Sponsor and the holders of the Capital Securities. Subject to the
corrective rights set forth above, all certificates, communications, opinions, determinations,
calculations, quotations and decisions given, expressed, made or obtained for the purposes of the
provisions relating to the payment and calculation of the Special Redemption Price on the
Debentures or the Capital Securities by the Debenture Trustee, the Quotation Agent or the
Institutional Trustee, as the case may be, shall (in the absence of willful default, bad faith or
manifest error) be final, conclusive and binding on the holders of the Debentures and the Capital
Securities, the Trust and the Sponsor, and no liability shall attach (except as provided above) to
the Debenture Trustee, the Quotation Agent or the Institutional Trustee in connection with the
exercise or non-exercise by any of them of their respective powers, duties and discretion.

     “3-Month LIBOR” means the London interbank offered interest rate for three-month, U.S.
dollar deposits determined by the Debenture Trustee in the following order of priority:

     (1) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a
three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on
the related Determination Date (as defined below). “Telerate Page 3750” means the display

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designated as “Page 3750” on the Moneyline Telerate Service or such other page as may
replace Page 3750 on that service or such other service or services as may be nominated by
the British Bankers’ Association as the information vendor for the purpose of displaying
London interbank offered rates for U.S. dollar deposits;

     (2) if such rate cannot be identified on the related Determination Date, the Debenture
Trustee will request the principal London offices of four leading banks in the London
interbank market to provide such banks’ offered quotations (expressed as percentages per
annum) to prime banks in the London interbank market for U.S. dollar deposits having a
three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least
two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations;

     (3) if fewer than two such quotations are provided as requested in clause (2) above,
the Debenture Trustee will request four major New York City banks to provide such banks’
offered quotations (expressed as percentages per annum) to leading European banks for loans
in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two
such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations;
and

     (4) if fewer than two such quotations are provided as requested in clause (3) above,
3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period
immediately preceding such current Distribution Period.

     If the rate for U.S. dollar deposits having a three-month maturity that initially appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded
on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination
Date, then the corrected rate as so substituted on the applicable page will be the applicable
3-Month LIBOR for such Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher than the maximum
rate then permitted by New York law as the same may be modified by United States law.

     “Comparable Treasury Issue” means with respect to any Special Redemption Date the
United States Treasury security selected by the Quotation Agent as having a maturity comparable to
the Fixed Rate Period Remaining Life that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the Fixed Rate Period Remaining Life. If no United States Treasury security
has a maturity which is within a period from 3 months before to 3 months after the Distribution
Payment Date in September 2016, the two most closely corresponding United States Treasury
securities as selected by the Quotation Agent shall be used as the Comparable Treasury Issue, and
the Treasury Rate shall be interpolated and extrapolated on a straight-line basis, rounding to the
nearest month using such securities.

     “Comparable Treasury Price” means (a) the average of 5 Reference Treasury Dealer
Quotations for such Special Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (b) if the Quotation Agent obtains fewer than 5 such Reference
Treasury Dealer Quotations, the average of all such Quotations.

     “Determination Date” means the date that is two London Banking Days (i.e., a business
day in which dealings in deposits in U.S. dollars are transacted in the London interbank market)
preceding the particular Distribution Period for which a Coupon Rate is being determined.

     “Fixed Rate Period Remaining Life” means, with respect to any Debenture, the period
from the Special Redemption Date for such Debenture to the Distribution Payment Date in September
2016.

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     “Investment Company Event” means the receipt by the Debenture Issuer and the Trust of
an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence
of a change in law or regulation or written change (including any announced prospective change) in
interpretation or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that the Trust is or,
within 90 days of the date of such opinion, will be considered an Investment Company that is
required to be registered under the Investment Company Act which change or prospective change
becomes effective or would become effective, as the case may be, on or after the date of the
issuance of the Debentures.

     “Maturity Date” means September 15, 2036.

     “Primary Treasury Dealer” shall mean either a primary United States Government
securities dealer or an entity of nationally recognized standing in matters pertaining to the
quotation of treasury securities that is reasonably acceptable to the Sponsor and the Institutional
Trustee.

     “Quotation Agent” means a designee of the Institutional Trustee who shall be a Primary
Treasury Dealer.

     “Redemption Date” shall mean the date fixed for the redemption of Capital Securities,
which shall be any Distribution Payment Date on or after the Distribution Payment Date in September
2016.

     “Redemption Price” means 100% of the principal amount of the Debentures being
redeemed, plus accrued and unpaid Interest on such Debentures to the Redemption Date.

     “Reference Treasury Dealer” means (i) the Quotation Agent and (ii) any other Primary
Treasury Dealer selected by the Debenture Trustee after consultation with the Debenture Issuer.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury
Dealer and any Special Redemption Date, the average, as determined by the Quotation Agent, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Debenture Trustee by such Reference Treasury Dealer
at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

     “Special Event” means a Tax Event or an Investment Company Event.

     “Special Redemption Date” means a date on which a Special Event redemption occurs,
which shall be a Distribution Payment Date.

     “Special Redemption Price” means (a) if the Special Redemption Date occurs before the
Distribution Payment Date in September 2016, the greater of (i) 107.5% of the principal amount of
the Debentures, plus accrued and unpaid Interest on the Debentures to the Special Redemption Date,
or (ii) as determined by the Quotation Agent, (A) the sum of the present values of the scheduled
payments of principal and Interest on the Debentures during the Fixed Rate Period Remaining Life of
the Debentures (assuming the Debentures matured on September 15, 2016) discounted to the Special
Redemption Date on a quarterly basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate, plus (B) accrued and unpaid Interest on the Debentures to such Special
Redemption Date, or (b) if the Special Redemption Date occurs on or after the Distribution Payment
Date in September 2016, 100% of the principal amount of the Debentures being redeemed, plus accrued
and unpaid Interest on such Debentures to the Special Redemption Date.

     “Tax Event” means the receipt by the Debenture Issuer and the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any amendment to or change
(including any

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announced prospective change) in the laws or any regulations thereunder of the United States
or any political subdivision or taxing authority thereof or therein, or as a result of any official
administrative pronouncement (including any private letter ruling, technical advice memorandum,
field service advice, regulatory procedure, notice or announcement including any notice or
announcement of intent to adopt such procedures or regulations) (an “Administrative
Action”) or judicial decision interpreting or applying such laws or regulations, regardless of
whether such Administrative Action or judicial decision is issued to or in connection with a
proceeding involving the Debenture Issuer or the Trust and whether or not subject to review or
appeal, which amendment, clarification, change, Administrative Action or decision is enacted,
promulgated or announced, in each case on or after the date of original issuance of the Debentures,
there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect to income received
or accrued on the Debentures; (ii) interest payable by the Debenture Issuer on the Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by the Debenture
Issuer, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is,
or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.

     “Treasury Rate” means (i) the yield, under the heading which represents the average
for the week immediately prior to the date of calculation, appearing in the most recently published
statistical release designated H.15 (519) or any successor publication which is published weekly by
the Federal Reserve and which establishes yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the
maturity corresponding to the Fixed Rate Period Remaining Life (if no maturity is within three
months before or after the Fixed Rate Period Remaining Life, yields for the two published
maturities most closely corresponding to the Fixed Rate Period Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line
basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain such yields, the rate
per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such Special Redemption Date. The
Treasury Rate shall be calculated by the Quotation Agent on the third Business Day preceding the
Special Redemption Date.

          (b) Upon the repayment in full at maturity or redemption in whole or in part of the Debentures
(other than following the distribution of the Debentures to the Holders of the Securities), the
proceeds from such repayment or payment shall concurrently be applied to redeem Pro Rata at the
applicable Redemption Price or Special Redemption Price, as applicable, Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or
redeemed; provided, however, that holders of such Securities shall be given not
less than 30 nor more than 60 days’ notice of such redemption (other than at the scheduled maturity
of the Debentures).

          (c) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities
and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will
be redeemed Pro Rata from each Holder of Capital Securities.

          (d) The Trust may not redeem fewer than all the outstanding Capital Securities unless all
accrued and unpaid Distributions have been paid on all Capital Securities for all quarterly
Distribution periods terminating on or before the date of redemption.

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          (e) Redemption or Distribution Procedures.

               (i) Notice of any redemption of, or notice of distribution of the Debentures in
exchange for, the Securities (a “Redemption/Distribution Notice”) will be given by
the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30
nor more than 60 days before the date fixed for redemption or exchange thereof which, in the
case of a redemption, will be the date fixed for redemption of the Debentures. For purposes
of the calculation of the date of redemption or exchange and the dates on which notices are
given pursuant to this paragraph 4(e)(i), a Redemption/Distribution Notice shall be deemed
to be given on the day such notice is first mailed by first-class mail, postage prepaid, to
Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the
Holders of such Securities at the address of each such Holder appearing on the books and
records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing
thereof with respect to any Holder shall affect the validity of the redemption or exchange
proceedings with respect to any other Holder.

               (ii) If the Securities are to be redeemed and the Trust gives a Redemption/
Distribution Notice, which notice may only be issued if the Debentures are redeemed as set
out in this paragraph 4 (which notice will be irrevocable), then, provided that the
Institutional Trustee has a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant
Redemption Price or Special Redemption Price, as applicable, to the Holders of such
Securities by check mailed to the address of each such Holder appearing on the books and
records of the Trust on the Redemption Date. If a Redemption/Distribution Notice shall have
been given and funds deposited as required then immediately prior to the close of business
on the date of such deposit Distributions will cease to accrue on the Securities so called
for redemption and all rights of Holders of such Securities so called for redemption will
cease, except the right of the Holders of such Securities to receive the applicable
Redemption Price or Special Redemption Price specified in paragraph 4(a), but without
interest on such Redemption Price or Special Redemption Price. If payment of the Redemption
Price or Special Redemption Price in respect of any Securities is improperly withheld or
refused and not paid by the Trust, Distributions on such Securities will continue to accrue
at the Distribution Rate from the original Redemption Date to the actual date of payment, in
which case the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price or Special Redemption Price. In the event of
any redemption of the Capital Securities issued by the Trust in part, the Trust shall not be
required to (i) issue, register the transfer of or exchange any Security during a period
beginning at the opening of business fifteen days before any selection for redemption of the
Capital Securities and ending at the close of business on the earliest date on which the
relevant notice of redemption is deemed to have been given to all Holders of the Capital
Securities to be so redeemed or (ii) register the transfer of or exchange any Capital
Securities so selected for redemption, in whole or in part, except for the unredeemed
portion of any Capital Securities being redeemed in part.

               (iii) Redemption/Distribution Notices shall be sent by the Administrators on behalf of
the Trust to (A) in respect of the Capital Securities, the Holders thereof and (B) in
respect of the Common Securities, the Holder thereof.

               (iv) Subject to the foregoing and applicable law (including, without limitation, United
States federal securities laws), and provided that the acquiror is not the Holder of the
Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries
may at any time and from time to time purchase outstanding Capital Securities by tender, in
the open market or by private agreement.

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     5. Voting Rights — Capital Securities.

          (a) Except as provided under paragraphs 5(b) and 7 and as otherwise required by law and the
Declaration, the Holders of the Capital Securities will have no voting rights. The Administrators
are required to call a meeting of the Holders of the Capital Securities if directed to do so by
Holders of at least 10% in liquidation amount of the Capital Securities.

          (b) Subject to the requirements of obtaining a tax opinion by the Institutional Trustee in
certain circumstances set forth in the last sentence of this paragraph, the Holders of a Majority
in liquidation amount of the Capital Securities, voting separately as a class, have the right to
direct the time, method, and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee
under the Declaration, including the right to direct the Institutional Trustee, as holder of the
Debentures, to (i) exercise the remedies available under the Indenture as the holder of the
Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the Debentures shall be due and
payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment,
modification or termination of the Indenture or the Debentures where such consent shall be
required; provided, however, that, where a consent or action under the Indenture
would require the consent or act of the holders of greater than a simple majority in aggregate
principal amount of Debentures (a “Super Majority”) affected thereby, the Institutional
Trustee may only give such consent or take such action at the written direction of the Holders of
at least the proportion in liquidation amount of the Capital Securities outstanding which the
relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding.
If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of
a Majority in liquidation amount of such Capital Securities have so directed the Institutional
Trustee, to the fullest extent permitted by law, a Holder of the Capital Securities may institute a
legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustee’s
rights under the Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing and such event is attributable to the failure of the
Debenture Issuer to pay interest or principal on the Debentures on the date the interest or
principal is payable (or in the case of redemption, the Redemption Date or the Special Redemption
Date, as applicable), then a Holder of record of the Capital Securities may directly institute a
proceeding for enforcement of payment, on or after the respective due dates specified in the
Debentures, to such Holder directly of the principal of or interest on the Debentures having an
aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of
such Holder. The Institutional Trustee shall notify all Holders of the Capital Securities of any
default actually known to the Institutional Trustee with respect to the Debentures unless (x) such
default has been cured prior to the giving of such notice or (y) the Institutional Trustee
determines in good faith that the withholding of such notice is in the interest of the Holders of
such Capital Securities, except where the default relates to the payment of principal of or
interest on any of the Debentures. Such notice shall state that such Indenture Event of Default
also constitutes an Event of Default hereunder. Except with respect to directing the time, method
and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of
the actions described in clauses (i), (ii) or (iii) above unless the Institutional Trustee has
obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will
not be classified as other than a grantor trust for United
 States federal income tax purposes.

     In the event the consent of the Institutional Trustee, as the holder of the Debentures, is
required under the Indenture with respect to any amendment, modification or termination of the
Indenture, the Institutional Trustee shall request the direction of the Holders of the Securities
with respect to such amendment, modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a Majority in liquidation amount of the
Securities voting together as a single class; provided, however, that where a
consent under the Indenture would require the consent of a Super-

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Majority, the Institutional Trustee may only give such consent at the direction of the Holders
of at least the proportion in liquidation amount of the Securities outstanding which the relevant
Super-Majority represents of the aggregate principal amount of the Debentures outstanding. The
Institutional Trustee shall not take any such action in accordance with the directions of the
Holders of the Securities unless the Institutional Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not be classified as other than a
grantor trust for United States federal income tax purposes.

     A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Event
of Default hereunder. Any required approval or direction of Holders of the Capital Securities may
be given at a separate meeting of Holders of the Capital Securities convened for such purpose, at a
meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The
Institutional Trustee will cause a notice of any meeting at which Holders of the Capital Securities
are entitled to vote, or of any matter upon which action by written consent of such Holders is to
be taken, to be mailed to each Holder of record of the Capital Securities. Each such notice will
include a statement setting forth the following information (i) the date of such meeting or the
date by which such action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such matter upon which
written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote
or consent of the Holders of the Capital Securities will be required for the Trust to redeem and
cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and
the terms of the Securities.

     Notwithstanding that Holders of the Capital Securities are entitled to vote or consent under
any of the circumstances described above, any of the Capital Securities that are owned by the
Sponsor or any Affiliate of the Sponsor shall not entitle the Holder thereof to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Capital Securities were not
outstanding.

     In no event will Holders of the Capital Securities have the right to vote to appoint, remove
or replace the Administrators, which voting rights are vested exclusively in the Sponsor as the
Holder of all of the Common Securities of the Trust. Under certain circumstances as more fully
described in the Declaration, Holders of Capital Securities have the right to vote to appoint,
remove or replace the Institutional Trustee and the Delaware Trustee.

     6. Voting Rights — Common Securities.

          (a) Except as provided under paragraphs 6(b), 6(c) and 7 and as otherwise required by law and
the Declaration, the Common Securities will have no voting rights.

          (b) The Holders of the Common Securities are entitled, in accordance with Article IV of the
Declaration, to vote to appoint, remove or replace any Administrators.

          (c) Subject to Section 6.7 of the Declaration and only after each Event of Default (if any)
with respect to the Capital Securities has been cured, waived, or otherwise eliminated and subject
to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in
liquidation amount of the Common Securities, voting separately as a class, may direct the time,
method, and place of conducting any proceeding for any remedy available to the Institutional
Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the
Declaration, including (i) directing the time, method, place of conducting any proceeding for any
remedy available to the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its
consequences that is waivable under the Indenture, or (iii) exercising any right to rescind or
annul a declaration that the principal of all the Debentures shall be due and payable;
provided, however, that, where a consent or action under the Indenture would
require a Super Majority, the Institutional Trustee may only give such consent or take such action
at the written direction

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I-9

 

of the Holders of at least the proportion in liquidation amount of the Common Securities which
the relevant Super Majority represents of the aggregate principal amount of the Debentures
outstanding. Notwithstanding this paragraph 6(c), the Institutional Trustee shall not revoke any
action previously authorized or approved by a vote or consent of the Holders of the Capital
Securities. Other than with respect to directing the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set
forth above, the Institutional Trustee shall not take any action described in (i), (ii) or (iii)
above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that
for the purposes of United States federal income tax the Trust will not be classified as other than
a grantor trust on account of such action. If the Institutional Trustee fails to enforce its
rights, to the fullest extent permitted by law, under the Declaration, any Holder of the Common
Securities may institute a legal proceeding directly against any Person to enforce the
Institutional Trustee’s rights under the Declaration, without first instituting a legal proceeding
against the Institutional Trustee or any other Person.

     Any approval or direction of Holders of the Common Securities may be given at a separate
meeting of Holders of the Common Securities convened for such purpose, at a meeting of all of the
Holders of the Securities in the Trust or pursuant to written consent. The Administrators will
cause a notice of any meeting at which Holders of the Common Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken, to be mailed to
each Holder of the Common Securities. Each such notice will include a statement setting forth (i)
the date of such meeting or the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the delivery of proxies
or consents.

     No vote or consent of the Holders of the Common Securities will be required for the Trust to
redeem and cancel Common Securities or to distribute the Debentures in accordance with the
Declaration and the terms of the Securities.

     7. Amendments to Declaration and Indenture.

          (a) In addition to any requirements under Section 11.1 of the Declaration, if any proposed
amendment to the Declaration provides for, or the Trustees, Sponsor or Administrators otherwise
propose to effect, (i) any action that would adversely affect the powers, preferences or special
rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the
Liquidation of the Trust, other than as described in Section 7.1 of the Declaration, then the
Holders of outstanding Securities, voting together as a single class, will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a Majority in liquidation amount of the Securities, affected
thereby; provided, however, if any amendment or proposal referred to in clause (i)
above would adversely affect only the Capital Securities or only the Common Securities, then only
the affected class will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a Majority in liquidation amount of
such class of Securities.

          (b) In the event the consent of the Institutional Trustee as the holder of the Debentures is
required under the Indenture with respect to any amendment, modification or termination of the
Indenture or the Debentures, the Institutional Trustee shall request the written direction of the
Holders of the Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification, or termination as directed by a Majority in
liquidation amount of the Securities voting together as a single class; provided,
however, that where a consent under the Indenture would require a Super Majority, the
Institutional Trustee may only give such consent at the direction of

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I-10

 

the Holders of at least the proportion in liquidation amount of the Securities which the
relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding.

          (c) Notwithstanding the foregoing, no amendment or modification may be made to the Declaration
if such amendment or modification would (i) cause the Trust to be classified for purposes of United
States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely
affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an Investment
Company which is required to be registered under the Investment Company Act.

          (d) Notwithstanding any provision of the Declaration, the right of any Holder of the Capital
Securities to receive payment of distributions and other payments upon redemption or otherwise, on
or after their respective due dates, or to institute a suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without the consent of such
Holder. For the protection and enforcement of the foregoing provision, each and every Holder of the
Capital Securities shall be entitled to such relief as can be given either at law or equity.

     8. Pro Rata. A reference in these terms of the Securities to any payment,
distribution or treatment as being “Pro Rata” shall mean pro rata to each Holder of the
Securities according to the aggregate liquidation amount of the Securities held by the relevant
Holder in relation to the aggregate liquidation amount of all Securities then outstanding unless,
in relation to a payment, an Event of Default has occurred and is continuing, in which case any
funds available to make such payment shall be paid first to each Holder of the Capital Securities
Pro Rata according to the aggregate liquidation amount of the Capital Securities held by the
relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding,
and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each
Holder of the Common Securities Pro Rata according to the aggregate liquidation amount of the
Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all
Common Securities outstanding.

     9. Ranking. The Capital Securities rank pari passu with and payment thereon shall be
made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is
continuing, the rights of Holders of the Common Securities to receive payment of Distributions and
payments upon liquidation, redemption and otherwise are subordinated to the rights of the Holders
of the Capital Securities with the result that no payment of any Distribution on, or Redemption
Price (or Special Redemption Price) of, any Common Security, and no other payment on account of
redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all outstanding Capital Securities for
all distribution periods terminating on or prior thereto, or in the case of payment of the
Redemption Price (or Special Redemption Price) the full amount of such Redemption Price (or Special
Redemption Price) on all outstanding Capital Securities then called for redemption, shall have been
made or provided for, and all funds immediately available to the Institutional Trustee shall first
be applied to the payment in full in cash of all Distributions on, or the Redemption Price (or
Special Redemption Price) of, the Capital Securities then due and payable.

     10. Acceptance of Indenture. Each Holder of the Capital Securities and the Common
Securities, by the acceptance of such Securities, agrees to the provisions of the Indenture,
including the subordination provisions therein.

     11. No Preemptive Rights. The Holders of the Securities shall have no preemptive or
similar rights to subscribe for any additional securities.

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     12. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will
provide a copy of the Declaration and the Indenture to a Holder without charge on written request
to the Sponsor at its principal place of business.

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EXHIBIT A-1

FORM OF CAPITAL SECURITY CERTIFICATE

[FORM OF FACE OF SECURITY]

     THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE SPONSOR OR THE TRUST, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER
THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE SPONSOR’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE
SPONSOR OR THE TRUST. HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.

     THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE TRUST THAT (A) THIS SECURITY MAY BE
OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO THE TRUST OR (II) TO A PERSON WHO CERTIFIES
TO THE HOLDER THAT SUCH PERSON IS A “QUALIFIED PURCHASER” (AS DEFINED IN SECTION 2(a)(51) OF THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY
CAPITAL SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

     THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT
IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION
4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY
WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND
NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-1

 

INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE
UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR
84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT
PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR
HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE
REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN
WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY
OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH
PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE
EXEMPTION.

     THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT
OF NOT LESS THAN $100,000.00 (100 SECURITIES) AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY
ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000.00
SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

     THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

     IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT
SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE DECLARATION TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

	 	 	 	 	 
	 

	 	Certificate Number P-1
	 	25,000 Capital Securities
	 

	 	[CUSIP NO. [___] **To be inserted at the request of a subsequent transferee]	 	 

September 11, 2006

Certificate Evidencing Fixed/Floating Rate Capital Securities

of

Capstead Mortgage Trust III

(liquidation amount $1,000.00 per Capital Security)

     Capstead Mortgage Trust III, a statutory trust created under the laws of the State of Delaware
(the “Trust”), hereby certifies that First Tennessee Bank National Association is the registered
owner of capital securities of the Trust representing undivided beneficial interests in the assets
of the Trust, (liquidation amount $1,000.00 per capital security) (the “Capital Securities”).
Subject to the Declaration (as defined below), the Capital Securities are transferable on the books
and records of the Trust in person or by a duly authorized attorney, upon surrender of this
Certificate duly endorsed and in proper form for transfer. The Capital Securities represented
hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities shall in all respects be subject to, the
provisions of the Amended and Restated Declaration of Trust of the Trust dated as of September 11,
2006, among Andrew F. Jacobs and Phillip A. Reinsch, as Administrators, Wilmington Trust Company,
as Delaware Trustee, Wilmington Trust Company, as Institutional Trustee,

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-2

 

Capstead Mortgage Corporation, as Sponsor, and the holders from time to time of undivided
beneficial interests in the assets of the Trust, including the designation of the terms of the
Capital Securities as set forth in Annex I to such amended and restated declaration as the same may
be amended from time to time (the “Declaration”). Capitalized terms used herein but not defined
shall have the meaning given them in the Declaration. The Sponsor will provide a copy of the
Declaration and the Indenture to the Holder without charge upon written request to the Sponsor at
its principal place of business.

     Upon receipt of this Security, the Holder is bound by the Declaration and is entitled to the
benefits thereunder.

     By acceptance of this Security, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial
ownership in the Debentures.

     This Capital Security is governed by, and construed in accordance with, the laws of the State
of Delaware, without regard to principles of conflict of laws.

Signatures appear on following page

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-3

 

     IN WITNESS WHEREOF, the Trust has duly executed this certificate.

	 	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE TRUST III	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title: Administrator	 	 

CERTIFICATE OF AUTHENTICATION

     This is one of the Capital Securities referred to in the within-mentioned Declaration.

	 	 	 	 	 	 	 
	 	 	WILMINGTON TRUST COMPANY,

as the Institutional Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Authorized Officer
	 	 

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-4

 

[FORM OF REVERSE OF CAPITAL SECURITY]

     Distributions payable on each Capital Security will be payable at an annual rate equal to
8.685% beginning on (and including) the date of original issuance and ending on (but excluding) the
Distribution Payment Date in September 2016 and at an annual rate for each successive period
beginning on (and including) the Distribution Payment Date in September 2016, and each succeeding
Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment
Date (each a “Distribution Period”), equal to 3-Month LIBOR, determined as described below, plus
3.30% (the “Coupon Rate”), applied to the stated liquidation amount of $1,000.00 per Capital
Security, such rate being the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears will bear interest thereon compounded quarterly at
the Distribution Rate (to the extent permitted by applicable law). The term “Distributions” as
used herein includes cash distributions and any such compounded distributions unless otherwise
noted. A Distribution is payable only to the extent that payments are made in respect of the
Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. As used herein, “Determination Date” means the date that is two London Banking
Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the
London interbank market) preceding the commencement of the relevant Distribution Period. The
amount of the Distribution payable (i) for any Distribution Period commencing on or after the date
of original issuance but before the Distribution Payment Date in September 2016 will be computed on
the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period
commencing on the Distribution Payment Date in September 2016 and each succeeding Distribution
Period will be calculated by applying the Distribution Rate to the stated liquidation amount
outstanding at the commencement of the Distribution Period on the basis of the actual number of
days in the Distribution Period concerned divided by 360.

     “3-Month LIBOR” as used herein, means the London interbank offered interest rate for
three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of
priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a
three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the
related Determination Date (“Telerate Page 3750” means the display designated as “Page 3750” on the
Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such
other service or services as may be nominated by the British Bankers’ Association as the
information vendor for the purpose of displaying London interbank offered rates for U.S. dollar
deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture
Trustee will request the principal London offices of four leading banks in the London interbank
market to provide such banks’ offered quotations (expressed as percentages per annum) to prime
banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of
11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided,
3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such
quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four
major New York City banks to provide such banks’ offered quotations (expressed as percentages per
annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such
Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the
arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as
requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to
the Distribution Period immediately preceding such current Distribution Period. If the rate for
U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as
of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page
3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected
rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such
Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher than the maximum
rate then permitted by New York law as the same may be modified by United States law.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-5

 

     All percentages resulting from any calculations on the Capital Securities will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of
a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or
..0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward)).

     Except as otherwise described below, Distributions on the Capital Securities will be
cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears
on March 15, June 15, September 15 and December 15 of each year or if any such day is not a
Business Day, then the next succeeding Business Day (each such day, a “Distribution Payment Date”),
commencing on the Distribution Payment Date in December 2006. Distributions on the Securities must
be paid on the dates payable to the extent that the Trust has funds available for the payment of
such distributions in the Property Account of the Trust. The Trust’s funds available for
Distribution to the Holders of the Securities will be limited to payments received from the
Debenture Issuer.

     The Capital Securities shall be redeemable as provided in the Declaration.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-6

 

ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate
to:

	 	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Insert assignee’s social security or tax identification number)                                                     	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Insert address and zip code of assignee) and irrevocably appoints	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

     agent to transfer this Capital Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.

     Date:                                                                

     Signature:                                                            

          (Sign exactly as your name appears on the other side of this Capital Security Certificate)

     Signature Guarantee:1

 

			
	1	 	Signature must be guaranteed by an
“eligible guarantor institution” that is a bank, stockbroker,
savings and loan association or credit union meeting the requirements of the
Security registrar, which requirements include membership or participation in
the Securities Transfer Agents Medallion Program (“STAMP”) or such
other “signature guarantee program” as may be determined by the
Security registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-1-7

 

EXHIBIT A-2

FORM OF COMMON SECURITY CERTIFICATE

     THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM
REGISTRATION.

     THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH SECTION 8.1 OF THE DECLARATION.

	 	 	 	 	 
	 

	 	Certificate Number C-1
	 	774 Common Securities

September 11, 2006

Certificate Evidencing Fixed/Floating Rate Common Securities

of

Capstead Mortgage Trust III

     Capstead Mortgage Trust III, a statutory trust created under the laws of the State of Delaware
(the “Trust”), hereby certifies that Capstead Mortgage Corporation (the “Holder”) is the registered
owner of common securities of the Trust representing undivided beneficial interests in the assets
of the Trust (the “Common Securities”). The Common Securities represented hereby are issued
pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities shall in all respects be subject to, the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of September 11, 2006, among Andrew
F. Jacobs and Phillip A. Reinsch, as Administrators, Wilmington Trust Company, as Delaware Trustee,
Wilmington Trust Company, as Institutional Trustee, Capstead Mortgage Corporation, as Sponsor, and
the holders from time to time of undivided beneficial interest in the assets of the Trust including
the designation of the terms of the Common Securities as set forth in Annex I to such amended and
restated declaration, as the same may be amended from time to time (the “Declaration”).
Capitalized terms used herein but not defined shall have the meaning given them in the Declaration.
The Sponsor will provide a copy of the Declaration and the Indenture to the Holder without charge
upon written request to the Sponsor at its principal place of business.

     As set forth in the Declaration, when an Event of Default has occurred and is continuing, the
rights of Holders of Common Securities to payment in respect of Distributions and payments upon
Liquidation, redemption or otherwise are subordinated to the rights of payment of Holders of the
Capital Securities.

     Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to
the benefits thereunder.

     By acceptance of this Certificate, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of
undivided beneficial ownership in the Debentures.

     This Common Security is governed by, and construed in accordance with, the laws of the State
of Delaware, without regard to principles of conflict of laws.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-2-1

 

     IN WITNESS WHEREOF, the Trust has duly executed this certificate.

	 	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE TRUST III	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:

Title: Administrator
	 	 

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-2-2

 

[FORM OF REVERSE OF COMMON SECURITY]

     Distributions payable on each Common Security will be payable at an annual rate equal to
8.685% beginning on (and including) the date of original issuance and ending on (but excluding) the
Distribution Payment Date in September 2016 and at an annual rate for each successive period
beginning on (and including) the Distribution Payment Date in September 2016, and each succeeding
Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment
Date (each a “Distribution Period”), equal to 3-Month LIBOR, determined as described below, plus
3.30% (the “Coupon Rate”), applied to the stated liquidation amount of $1,000.00 per Common
Security, such rate being the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears will bear interest thereon compounded quarterly at
the Distribution Rate (to the extent permitted by applicable law). The term “Distributions” as
used herein includes cash distributions and any such compounded distributions unless otherwise
noted. A Distribution is payable only to the extent that payments are made in respect of the
Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. As used herein, “Determination Date” means the date that is two London Banking
Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the
London interbank market) preceding the commencement of the relevant Distribution Period. The
amount of the Distribution payable (i) for any Distribution Period commencing on or after the date
of original issuance but before the Distribution Payment Date in September 2016 will be computed on
the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period
commencing on the Distribution Payment Date in September 2016 and each succeeding Distribution
Period will be calculated by applying the Distribution Rate to the stated liquidation amount
outstanding at the commencement of the Distribution Period on the basis of the actual number of
days in the Distribution Period concerned divided by 360.

     “3-Month LIBOR” as used herein, means the London interbank offered interest rate for
three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of
priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a
three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the
related Determination Date (“Telerate Page 3750” means the display designated as “Page 3750” on the
Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such
other service or services as may be nominated by the British Bankers’ Association as the
information vendor for the purpose of displaying London interbank offered rates for U.S. dollar
deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture
Trustee will request the principal London offices of four leading banks in the London interbank
market to provide such banks’ offered quotations (expressed as percentages per annum) to prime
banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of
11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided,
3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such
quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four
major New York City banks to provide such banks’ offered quotations (expressed as percentages per
annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such
Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the
arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as
requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to
the Distribution Period immediately preceding such current Distribution Period. If the rate for
U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as
of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page
3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected
rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such
Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher than the maximum
rate then permitted by New York law as the same may be modified by United States law.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-2-3

 

     All percentages resulting from any calculations on the Common Securities will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of
a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or
..0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward)).

     Except as otherwise described below, Distributions on the Common Securities will be
cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears
on March 15, June 15, September 15 and December 15 of each year or if any such day is not a
Business Day, then the next succeeding Business Day (each such day, a “Distribution Payment Date”),
commencing on the Distribution Payment Date in December 2006. Distributions on the Securities must
be paid on the dates payable to the extent that the Trust has funds available for the payment of
such distributions in the Property Account of the Trust. The Trust’s funds available for
Distribution to the Holders of the Securities will be limited to payments received from the
Debenture Issuer.

     The Common Securities shall be redeemable as provided in the Declaration.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-2-4

 

ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to:

	 	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Insert assignee’s social security or tax identification number)                                                         	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Insert address and zip code of assignee) and irrevocably appoints	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

	 	 	 
	 

	 	                                                            agent to transfer this Common Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
	 
	 	 
	 

	 	Date:                                                                 
	 
	 	 
	 

	 	Signature:                                                            
	 
	 	 
	 

	 	(Sign exactly as your name appears on the other side of this Common Security
Certificate)
	 
	 	 
	 

	 	Signature:                                                            
	 
	 	 
	 

	 	(Sign exactly as your name appears on the other side of this Common Security
Certificate)

     Signature Guarantee2

 

			
	2	 	Signature must be guaranteed by an
“eligible guarantor institution” that is a bank, stockbroker,
savings and loan association or credit union, meeting the requirements of the
Security registrar, which requirements include membership or participation in
the Securities Transfer Agents Medallion Program (“STAMP”) or such
other “signature guarantee program” as may be determined by the
Security registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

A-2-5

 

EXHIBIT B

SPECIMEN OF INITIAL DEBENTURE

(See Document No. 16)

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

B-1

 

EXHIBIT C

PLACEMENT AGREEMENT

(See Document No. 1)

Capstead Mortgage Corporation/Amended and Restated Declaration of Trust

C-1exv10w1

 

EXHIBIT 10.1

CAPSTEAD MORTGAGE CORPORATION

25,000 Capital Securities

Fixed/Floating Rate Capital Securities

(Liquidation Amount $1,000.00 per Capital Security)

PLACEMENT AGREEMENT

 

September 8, 2006

FTN Financial Capital Markets

845 Crossover Lane, Suite 150

Memphis, Tennessee 38117

Keefe, Bruyette & Woods, Inc.

787 7th Avenue

4th Floor

New York, New York 10019

Ladies and Gentlemen:

     Capstead Mortgage Corporation, a Maryland corporation (the “Company”), and its financing
subsidiary, Capstead Mortgage Trust III, a Delaware statutory trust (the “Trust,” and hereinafter
together with the Company, the “Offerors”), hereby confirm their agreement (this “Agreement”) with
you as placement agents (the “Placement Agents”), as follows:

     Section 1. Issuance and Sale of Securities.

     1.1. Introduction. The Offerors propose to issue and sell at the Closing (as defined
in Section 2.3.1 hereof) 25,000 of the Trust’s Fixed/Floating Rate Capital Securities, with a
liquidation amount of $1,000.00 per capital security (the “Capital Securities”), to First Tennessee
Bank National Association, a national banking association organized under the laws of the United
States of America (the “Purchaser”) pursuant to the terms of a Subscription Agreement entered into,
or to be entered into on or prior to the Closing Date (as defined in Section 2.3.1 hereof), between
the Offerors and the Purchaser (the “Subscription Agreement”), the form of which is attached hereto
as Exhibit A and incorporated herein by this reference.

     1.2. Operative Agreements. The entire proceeds from the sale by the Trust to the
holders of the Capital Securities shall be combined with the entire proceeds from the sale by the
Trust to the Company of its common securities (the “Common Securities”), and shall be used by the
Trust to purchase $25,774,000.00 in principal amount of the Fixed/Floating Rate Junior Subordinated
Debentures (the “Debentures”) of the Company. The Capital Securities and the Common Securities for
the Trust shall be issued pursuant to an Amended and Restated Declaration of Trust among WTC, as
Delaware trustee (the “Delaware Trustee”), WTC, as institutional trustee (the “Institutional Trustee”), the Administrators named therein, and the
Company, to be dated as of the Closing Date and in substantially the form heretofore

Capstead Mortgage Corporation/Placement Agreement

 

 

delivered to
the Placement Agents (the “Trust Agreement”). The Debentures shall be issued pursuant to an
Indenture (the “Indenture”), to be dated as of the Closing Date, between the Company and WTC, as
indenture trustee (the “Indenture Trustee”). The documents identified in this Section 1.2 and in
Section 1.1 are referred to herein as the “Operative Documents.”

     1.3. Rights of Purchaser. The Capital Securities shall be offered and sold by the
Trust directly to the Purchaser without registration of any of the Capital Securities, the
Debentures under the Securities Act of 1933, as amended (the “Securities Act”), or any other
applicable securities laws in reliance upon exemptions from the registration requirements of the
Securities Act and other applicable securities laws. The Offerors agree that this Agreement shall
be incorporated by reference into the Subscription Agreement and the Purchaser shall be entitled to
each of the benefits of the Placement Agents and the Purchaser under this Agreement and shall be
entitled to enforce obligations of the Offerors under this Agreement as fully as if the Purchaser
were a party to this Agreement. The Offerors and the Placement Agents have entered into this
Agreement to set forth their understanding as to their relationship and their respective rights,
duties and obligations.

     1.4. Legends. Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the Capital Securities and
Debentures certificates shall each contain a legend as required pursuant to any of the Operative
Documents.

     Section 2. Purchase of Capital Securities.

     2.1. Exclusive Rights; Purchase Price. From the date hereof until the Closing Date
(which date may be extended by mutual agreement of the Offerors and the Placement Agents), the
Offerors hereby grant to the Placement Agents the exclusive right to arrange for the sale of the
Capital Securities to the Purchaser at a purchase price of $1,000.00 per Capital Security.

     2.2. Subscription Agreement. The Offerors hereby agree to evidence their acceptance
of the subscription by countersigning a copy of the Subscription Agreement and returning the same
to the Placement Agents.

     2.3. Closing and Delivery of Payment.

          2.3.1. Closing; Closing Date. The sale and purchase of the Capital Securities by the
Offerors to the Purchaser shall take place at a closing (the “Closing”) at the offices of Lewis,
Rice & Fingersh, L.C., at 10:00 a.m. (St. Louis time) on September 11, 2006, or such other business
day as may be agreed upon by the Offerors and the Placement Agents (the “Closing Date”);
provided, however, that in no event shall the Closing Date occur later than
September 29, 2006 unless consented to by the Purchaser. Payment by the Purchaser shall be payable
in the manner set forth in the Subscription Agreement and shall be made prior to or on the Closing
Date.

          2.3.2. Delivery. The certificates for the Capital Securities shall be in definitive form, registered in the
name of the Purchaser, or the Purchaser’s designee, and in the aggregate amount of the Capital
Securities purchased by the Purchaser.

          2.3.3. Transfer Agent. The Offerors shall deposit the certificates representing the
Capital Securities with the Institutional Trustee or other appropriate party prior to the Closing
Date.

     2.4. Placement Agents’ Fees and Expenses.

          2.4.1. Placement Agents’ Compensation. Because the proceeds from the sale of the
Capital Securities shall be used to purchase the Debentures from the Company, the Company shall pay
an

Capstead Mortgage Corporation/Placement Agreement

2

 

aggregate of $27.50 for each $1,000.00 of principal amount of Debentures sold to the Trust
(excluding the Debentures related to the Common Securities purchased by the Company). Of this
amount, $13.75 for each $1,000.00 of principal amount of Debentures shall be payable to FTN
Financial Capital Markets and $13.75 for each $1,000.00 of principal amount of Debentures shall be
payable to Keefe, Bruyette & Woods, Inc. Such amount shall be delivered to WTC or such other
person designated by the Placement Agents on the Closing Date and shall be allocated between and
paid to the respective Placement Agents as directed by the Placement Agents.

          2.4.2. Costs and Expenses. Whether or not this Agreement is terminated or the sale of
the Capital Securities is consummated, the Company hereby covenants and agrees that it shall pay or
cause to be paid (directly or by reimbursement) all reasonable costs and expenses incident to the
performance of the obligations of the Offerors under this Agreement, including all fees, expenses
and disbursements of counsel and accountants for the Offerors; all reasonable expenses incurred by
the Offerors incident to the preparation, execution and delivery of the Trust Agreement and the
Indenture; and all other reasonable costs and expenses incurred by the Offerors incident to the
performance of the obligations of the Company hereunder and under the Trust Agreement. The
Placement Agents shall pay or cause to be paid all costs and expenses incident to the performance
of its obligations under this Agreement, including all fees, expenses and disbursements of its
counsel and all other costs and expenses incurred by the Placement Agents incident to the
performance of its obligations hereunder.

     2.5. Failure to Close. If any of the conditions to the Closing specified in this
Agreement shall not have been fulfilled to the satisfaction of the Placement Agents or if the
Closing shall not have occurred on or before 10:00 a.m. (St. Louis time) on September 29, 2006,
then each party hereto, notwithstanding anything to the contrary in this Agreement, shall be
relieved of all further obligations under this Agreement without thereby waiving any rights it may
have by reason of such nonfulfillment or failure; provided, however, that the
obligations of the parties under Sections 2.4.2, 7.5 and 9 shall not be so relieved and shall
continue in full force and effect.

     Section 3. Closing Conditions. The obligations of the Purchaser and the Placement
Agents on the Closing Date shall be subject to the accuracy, at and as of the Closing Date, of the
representations and warranties of the Offerors contained in this Agreement, to the accuracy, at and
as of the Closing Date, of the statements of the Offerors made in any certificates pursuant to this
Agreement, to the performance by the Offerors of their
respective obligations under this Agreement, to compliance, at and as of the Closing Date, by
the Offerors with their respective agreements herein contained, and to the following further
conditions:

     3.1. Opinions of Counsel. On the Closing Date, the Placement Agents shall have
received the following favorable opinions, each dated as of the Closing Date: (a) from Andrews
Kurth LLP, counsel for the Company and addressed to the Purchaser, the Placement Agents, the
Offerors and WTC in substantially the form set forth on Exhibit B-1 attached hereto and
incorporated herein by this reference, (b) from Hogan & Hartson L.L.P., Maryland counsel for the
Company and addressed to the Purchaser, the Placement Agents, the Offerors and WTC in substantially
the form set forth on Exhibit B-2 attached hereto and incorporated herein by this
reference, (c) from Richards, Layton & Finger, P.A., special Delaware counsel to the Trust and
addressed to the Purchaser, the Placement Agents and the Offerors, in substantially the form set
forth on Exhibit B-3 attached hereto and incorporated herein by this reference and (d) from
Lewis, Rice & Fingersh, L.C., special tax counsel to the Offerors, and addressed to the Placement
Agents and the Offerors, addressing the items set forth on Exhibit B-4 attached hereto and
incorporated herein by this reference, subject to the receipt by Lewis, Rice & Fingersh, L.C. of a
representation letter from the Company in the form set forth in Exhibit B-4 completed in a
manner reasonably satisfactory to Lewis, Rice & Fingersh, L.C. (collectively, the “Offerors’
Counsel Opinions”). In rendering the Offerors’ Counsel Opinions, counsel to the Offerors may rely
as to factual matters upon

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certificates or other documents furnished by officers, directors and
trustees of the Offerors (copies of which shall be delivered to the Placement Agents and the
Purchaser) and by government officials, and upon such other documents as counsel to the Offerors
may, in their reasonable opinion, deem appropriate as a basis for the Offerors’ Counsel Opinions.
Counsel to the Offerors may specify the jurisdictions in which they are admitted to practice and
that they are not admitted to practice in any other jurisdiction and are not experts in the law of
any other jurisdiction. If the Offerors’ counsel is not admitted to practice in the State of New
York, the opinion of Offerors’ counsel may assume, for purposes of the opinion, that the laws of
the State of New York are substantively identical, in all respects material to the opinion, to the
internal laws of the state in which such counsel is admitted to practice. Such Offerors’ Counsel
Opinions shall not state that they are to be governed or qualified by, or that they are otherwise
subject to, any treatise, written policy or other document relating to legal opinions, including,
without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).

     3.2. Officer’s Certificate. At the Closing Date, the Purchaser and the Placement
Agents shall have received certificates from an authorized officer of the Company, dated as of the
Closing Date, stating that (i) the representations and warranties of the Offerors set forth in
Section 5 hereof are true and correct as of the Closing Date and that the Offerors have complied
with all agreements and satisfied all conditions on their part to be performed or satisfied at or
prior to the Closing Date, (ii) since the date of this Agreement the Offerors have not incurred any
liability or obligation, direct or contingent, or entered into any material transactions, other
than in the ordinary course of business, which is material to the Offerors, and (iii) covering such
other matters as the Placement Agents may reasonably request.

     3.3. Administrator’s Certificate. At the Closing Date, the Purchaser and the
Placement Agents shall have received a certificate of one or more Administrators of the Trust,
dated as of the Closing Date, stating that the representations and warranties of the Trust set
forth in Section 5 are true and correct as of the Closing Date and that the Trust has complied with
all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to
the Closing Date.

     3.4. Purchase Permitted by Applicable Laws; Legal Investment. The purchase of and
payment for the Capital Securities as described in this Agreement and pursuant to the Subscription
Agreement shall (a) not be prohibited by any applicable law or governmental regulation, (b) not
subject the Purchaser or the Placement Agents to any penalty or, in the reasonable judgment of the
Purchaser and the Placement Agents, other onerous conditions under or pursuant to any applicable
law or governmental regulation, and (c) be permitted by the laws and regulations of the
jurisdictions to which the Purchaser and the Placement Agents are subject.

     3.5. Consents and Permits. The Company and the Trust shall have received all
consents, permits and other authorizations, and made all such filings and declarations, as may be
required from any person or entity pursuant to any law, statute, regulation or rule (federal,
state, local and foreign), or pursuant to any agreement, order or decree to which the Company or
the Trust is a party or to which either is subject, in connection with the transactions
contemplated by this Agreement.

     3.6. Information. Prior to or on the Closing Date, the Offerors shall have furnished
to the Placement Agents such further information, certificates, opinions and documents addressed to
the Purchaser and the Placement Agents, which the Placement Agents may reasonably request,
including, without limitation, a complete set of the Operative Documents or any other documents or
certificates required by this Section 3; and all proceedings taken by the Offerors in connection
with the issuance, offer and sale of the Capital Securities as herein contemplated shall be
reasonably satisfactory in form and substance to the Placement Agents.

     If any condition specified in this Section 3 shall not have been fulfilled when and as
required in this Agreement, or if any of the opinions or certificates mentioned above or elsewhere
in this Agreement

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shall not be reasonably satisfactory in form and substance to the Placement
Agents, this Agreement may be terminated by the Placement Agents by notice to the Offerors at any
time at or prior to the Closing Date. Notice of such termination shall be given to the Offerors in
writing or by telephone or facsimile confirmed in writing.

     Section 4. Conditions to the Offerors’ Obligations. The obligations of the Offerors
to sell the Capital Securities to the Purchaser and consummate the transactions contemplated by
this Agreement shall be subject to the accuracy, at and as of the Closing Date, of the
representations and warranties of the Placement Agents contained in this Agreement and to the
following further conditions:

     4.1. Executed Agreement. The Offerors shall have received from the Placement Agents
an executed copy of this Agreement.

     4.2. Fulfillment of Other Obligations. The Placement Agents shall have fulfilled all
of their other obligations and duties required to be fulfilled under this Agreement prior to or at
the Closing.

     Section 5. Representations and Warranties of the Offerors.
Except as set forth on the Disclosure Schedule (as defined in Section 11.1) attached hereto,
if any, the Offerors jointly and severally represent and warrant to the Placement Agents and the
Purchaser as of the date hereof and as of the Closing Date as follows:

     5.1. Securities Law Matters.

          (a) Neither the Company nor the Trust, nor any of their “Affiliates” (as defined in Rule
501(b) of Regulation D under the Securities Act (“Regulation D”)), nor any person acting on any of
their behalf has, directly or indirectly, made offers or sales of any security, or solicited offers
to buy any security, under circumstances that would require the registration under the Securities
Act of any of the Capital Securities or the Debentures (collectively, the “Securities”).

          (b) Neither the Company nor the Trust, nor any of their Affiliates, nor any person acting on
its or their behalf has (i) other than the Placement Agents, offered for sale or solicited offers
to purchase the Securities or (ii) engaged in any form of offering, general solicitation or general
advertising (within the meaning of Regulation D) in connection with any offer or sale of any of the
Securities.

          (c) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the
Securities Act.

          (d) Neither the Company nor the Trust is or, after giving effect to the offering and sale of
the Capital Securities and the consummation of the transactions described in this Agreement, will
be an “investment company” or an entity “controlled” by an “investment company,” in each case
within the meaning of Section 3(a) of the Investment Company Act of 1940, as amended (the
“Investment Company Act”).

          (e) Neither the Company nor the Trust has paid or agreed to pay to any person or entity (other
than the Placement Agents) any compensation for soliciting another to purchase any of the
Securities.

          (f) The Company is a “qualified purchaser” within the meaning of section 2(a)(51) of the
Investment Company Act and will purchase the Common Securities for its own account.

     5.2. Organization, Standing and Qualification of the Trust. The Trust has been duly
created and is validly existing in good standing as a statutory trust under the Delaware Statutory
Trust Act

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(the “Statutory Trust Act”) with the power and authority to own property and to conduct
the business it transacts and proposes to transact and to enter into and perform its obligations
under the Operative Documents. The Trust is duly qualified to transact business as a foreign
entity and is in good standing in each jurisdiction in which such qualification is necessary,
except where the failure to so qualify or be in good standing would not have a material adverse
effect on the Trust. The Trust is not a party to or otherwise bound by any agreement other than
the Operative Documents. The Trust is and will, under current law, be classified for federal
income tax purposes as a grantor trust and not as an association taxable as a corporation.

     5.3. Trust Agreement. The Trust Agreement has been duly authorized by the Company
and, on the Closing Date, will have been duly executed and delivered by the Company and the
Administrators of the Trust, and, assuming due authorization, execution and delivery by the
Delaware Trustee and the Institutional Trustee, will be a valid and binding obligation of the
Company and such Administrators, enforceable against them in accordance with its terms, subject to
(a) applicable bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation and
other laws relating to or affecting creditors’ rights generally, and (b) general principles of
equity (regardless of whether considered and applied in a proceeding in equity or at law)
(“Bankruptcy and Equity”). Each of the Administrators of the Trust is an employee or a director of
the Company and has been duly authorized by the Company to execute and deliver the Trust Agreement.

     5.4. Indenture. The Indenture has been duly authorized by the Company and, on the
Closing Date, will have been duly executed and delivered by the Company, and, assuming due
authorization, execution and delivery by the Indenture Trustee, will be a valid and binding
obligation of the Company enforceable against it in accordance with its terms, subject to
Bankruptcy and Equity.

     5.5. Capital Securities and Common Securities. The Capital Securities and the Common
Securities have been duly authorized by the Trust Agreement and, when issued and delivered against
payment therefor on the Closing Date to the Purchaser, in the case of the Capital Securities, and
to the Company, in the case of the Common Securities, will be validly issued and represent
undivided beneficial interests in the assets of the Trust. None of the Capital Securities or the
Common Securities is subject to preemptive or other similar rights. On the Closing Date, all of
the issued and outstanding Common Securities will be directly owned by the Company free and clear
of any pledge, security interest, claim, lien or other encumbrance.

     5.6. Debentures. The Debentures have been duly authorized by the Company and, at the
Closing Date, will have been duly executed and delivered to the Indenture Trustee for
authentication in accordance with the Indenture, and, when authenticated in the manner provided for
in the Indenture and delivered against payment therefor by the Trust, will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture enforceable against
the Company in accordance with their terms, subject to Bankruptcy and Equity.

     5.7. Power and Authority. This Agreement has been duly authorized, executed and
delivered by the Company and the Trust and constitutes the valid and binding obligation of the
Company and the Trust, enforceable against the Company and the Trust in accordance with its terms,
subject to Bankruptcy and Equity.

     5.8. No Defaults. The Trust is not in violation of the Trust Agreement or, to the
knowledge of the Administrators, any provision of the Statutory Trust Act. The execution, delivery
and performance by the Company or the Trust of this Agreement or the Operative Documents to which
it is a party, and the consummation of the transactions contemplated herein or therein and the use
of the proceeds therefrom, will not conflict with or constitute a breach of, or a default under, or
result in the creation or imposition of any lien, charge
or other encumbrance upon any property or assets of the Trust, the Company or any of

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the
Company’s Subsidiaries (as defined in Section 5.11 hereof) pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Trust, the Company or any of
its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the
property or assets of any of them is subject, except for a conflict, breach, default, lien, charge
or encumbrance which could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect nor will such action result in any violation of the Trust Agreement or the
Statutory Trust Act or require the consent, approval, authorization or order of any court or
governmental agency or body. As used herein, the term “Material Adverse Effect” means any one or
more effects that individually or in the aggregate (i) are material and adverse to the Offerors’
ability to consummate the transactions contemplated herein or in the Operative Documents, (ii)
could cause the Company to fail to be organized or operated in conformity with the requirements for
qualification and taxation as a real estate investment trust (“REIT”) under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the “Code”), or (iii) are material and
adverse to the financial condition, earnings, business, liabilities and assets of the Company and
its Subsidiaries taken as whole, whether or not arising from transactions occurring in the ordinary
course of business.

     5.9. Organization, Standing and Qualification of the Company. The Company has been
duly incorporated and is validly existing as a corporation in good standing under the laws of
Maryland, with all requisite corporate power and authority to own its properties and conduct the
business it transacts and proposes to transact, and is duly qualified to transact business and is
in good standing as a foreign corporation in each jurisdiction where the nature of its activities
requires such qualification, except where the failure of the Company to be so qualified would not,
singly or in the aggregate, have a Material Adverse Effect.

     5.10. Capital Stock of the Company. All of the issued and outstanding shares of
capital stock of the Company are validly issued, fully paid and non-assessable; and none of the
issued and outstanding capital stock of the Company was issued in violation of any preemptive or
similar rights arising by operation of law, under the charter or by-laws of such entity or under
any agreement to which the Company is a party.

     5.11. Subsidiaries of the Company. The Company has no “significant subsidiaries” (as
defined in Section 1-02(w) of Regulation S-X to the Securities Act.

     5.12. Permits. The Company and each of its subsidiaries (as defined in Section
1-02(x) of Regulation S-X to the Securities Act) (the “Subsidiaries”) have all requisite power and
authority, and all necessary authorizations, approvals, orders, licenses, certificates and permits
of and from regulatory or governmental officials, bodies and tribunals, to own or lease their
respective properties and to conduct their respective businesses as now being conducted, except
such authorizations, approvals, orders, licenses, certificates and permits which, if not obtained
and maintained, would not, singly or in the aggregate, have a Material Adverse Effect, and neither
the Company nor any of its Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorizations, approvals, orders, licenses, certificates or
permits which, singly or in the aggregate, if the failure to be so licensed or approved is the
subject of an unfavorable decision, ruling or finding, would, singly or in the aggregate, have a
Material Adverse Effect; and the Company and its Subsidiaries are in compliance with
all applicable laws, rules, regulations and orders and consents, the violation of which would,
singly or in the aggregate, have a Material Adverse Effect.

     5.13. Conflicts, Authorizations and Approvals. Neither the Company nor any of its
Subsidiaries is in violation of its respective articles or certificate of incorporation, charter or
by-laws or similar organizational documents or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note,

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lease or other agreement or instrument to which either the Company or any of its
Subsidiaries is a party, or by which it or any of them may be bound or to which any of the property
or assets of the Company or any of its Subsidiaries is subject, the effect of which violation or
default in performance or observance would have, singly or in the aggregate, a Material Adverse
Effect.

     5.14. Financial Statements.

          (a) The consolidated balance sheets of the Company and all of its Subsidiaries as of December
31, 2005 and December 31, 2004 and related consolidated income statements and statements of changes
in shareholders’ equity for the three years ended December 31, 2005 together with the notes
thereto, and the consolidated balance sheets of the Company and all of its Subsidiaries as of June
30, 2006 and the related consolidated income statements and statements of changes in shareholders’
equity for the six months then ended, copies of each of which have been provided to the Placement
Agents (together, the “Financial Statements”), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein) and fairly present in all material respects the financial position and the results of
operations and changes in shareholders’ equity of the Company and all of its Subsidiaries as of the
dates and for the periods indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which shall be material).

          (b) Since the respective dates of the Financial Statements, there has been (i) no material
adverse change or development with respect to the financial condition or earnings of the Company
and all of its Subsidiaries, taken as a whole, or (ii) any dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock other than regular
quarterly dividends on the Company’s common stock, regular quarterly dividends on the Company’s
Series A preferred stock and regular monthly dividends on the Company’s Series B preferred stock.

          (c) The accountants of the Company who certified the Financial Statements are independent
public accountants of the Company and its Subsidiaries within the meaning of the Securities Act and
the rules and regulations thereunder.

          (d) The books, records and accounts of the Company accurately and fairly reflect, in
reasonable detail, the transactions in, and dispositions of, the assets of, and the results of
operations of, the Company. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed in accordance with
management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP and to maintain asset accountability, (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 the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

     5.15. Exchange Act Reporting. The reports filed with the Securities and Exchange
Commission (the “Commission”) by the Company under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the regulations thereunder at the time they were filed with the Commission
complied as to form in all material respects with the requirements of the Exchange Act and such
reports did not contain an 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 in which they were made, not misleading. Other than such instruments, agreements,
contracts and other documents as are filed as exhibits to the Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, there are no instruments,
agreements, contracts or documents of a character described in Item 601 of Regulation S-K
promulgated by the Commission to which the Company is a party, other than the Operative Documents.

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     5.16. Governmental Matters. Neither the Company nor any of its Subsidiaries is
subject or is party to, or has received any notice or advice that any of them may become subject or
party to, any investigation with respect to, any cease-and-desist order, agreement, consent
agreement, memorandum of understanding or other regulatory enforcement action, proceeding or order
with or by, or is a party to any commitment letter or similar undertaking to, has adopted any board
resolutions at the request of, any government, governmental authority, agency or instrumentality or
court, domestic or foreign, having jurisdiction over the Company or its Subsidiaries or their
respective property or assets (collectively, the “Governmental Entities”) that currently restricts
in any material respect the conduct of their business or that in any material manner relates to
their capital adequacy, their ability or authority to pay dividends or make distributions to their
shareholders or make payments of principal or interest on their debt obligations, their management
or their business. No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any Governmental Entity, other than those that have been
made or obtained, is necessary or required for the performance by the Trust or the Company of their
respective obligations under the Operative Documents, as applicable, or the consummation by the
Trust and the Company of the transactions contemplated by the Operative Documents. Neither the
Company nor any of the Subsidiaries is currently unable to pay dividends or make distributions to
its shareholders with respect to any class of its equity securities, or prohibited from paying
principal or interest on its debt obligations, due to a restriction or limitation, whether by
statute, contract or otherwise, and, in the reasonable judgment of the Company’s management,
neither the Company nor any of the Subsidiaries will be unable in the foreseeable future to pay
dividends or make distributions with respect to any class of equity securities, or be prohibited
from paying principal or interest on its debt obligations, due to a restriction or limitation,
whether by statute, contract or otherwise.

     5.17. No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has
any material liability, whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or
to become due, including any liability for taxes (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit, proceeding, hearing,
charge, complaint, claim or demand against the Company or its
Subsidiaries giving rise to any such liability) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, except (i) for liabilities set forth in
the Financial Statements and (ii) normal fluctuation in the amount of the liabilities referred to
in clause (i) above occurring in the ordinary course of business of the Company and all of its
Subsidiaries since the date of the most recent balance sheet included in the Financial Statements.

     5.18. Litigation. No charge, investigation, action, suit or proceeding is pending or,
to the knowledge of the Offerors, threatened, against or affecting the Company or its Subsidiaries
or any of their respective properties before or by any courts or any regulatory, administrative or
governmental official, commission, board, agency or other authority or body, or any arbitrator,
wherein an unfavorable decision, ruling or finding could have, singly or in the aggregate, a
Material Adverse Effect.

     5.19. Labor Matters. No labor dispute with the employees of the Trust or the Company
exists or, to the knowledge of the executive officers of the Trust or the Company, is imminent,
except those which would not, singly or in the aggregate, have a Material Adverse Effect.

     5.20. Property. Except as disclosed in the Company’s Exchange Act reports and for
liens for (i) taxes and other governmental charges and assessments which are not yet delinquent or
the amount of which is being contested in good faith by appropriate proceedings; (ii) encumbrances
in the nature of zoning restrictions, easements, rights or restrictions of record on the use of
real property; (iii) statutory or common law liens to secure landlords, lessors or renters under
leases or rental agreements confined to the premises rented; (iv) liens created under or in
connection with asset securitizations, repurchase agreements, warehouse credit facilities or other
loan facilities; and (v) other liens incurred in the ordinary

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course of business not material in
amount, the Company and each Subsidiary has good and marketable title to all of its respective real
and personal properties, in each case free and clear of all liens and defects, except for those
that would not, singly or in the aggregate, have a Material Adverse Effect; and all of the leases
and subleases under which the Trust or any Subsidiary holds properties are in full force and
effect, except where the failure of such leases and subleases to be in full force and effect would
not, singly or in the aggregate, have a Material Adverse Effect; and neither the Company nor any
Subsidiary has any notice of any claim of any sort that has been asserted by anyone adverse to the
rights of a Subsidiary or the Company under any such leases or subleases, or affecting or
questioning the rights of such entity to the continued possession of the leased or subleased
premises under any such lease or sublease, except for such claims that would not, singly or in the
aggregate, have a Material Adverse Effect.

     5.21. Tax Matters.

          (a) Commencing with its taxable year ended December 31, 1985 the Company has been, and upon
the completion of the transactions contemplated hereby, the Company will continue to be, organized
and operated in conformity with the requirements for qualification and taxation as a REIT under
Sections 856 through 860 of the Code, and the Company’s proposed method of operation will enable it
to continue to meet the requirements for qualification and taxation as a REIT under the Code, and
no actions have been taken (or not taken which are required to be taken) which would reasonably be
expected to cause such qualification to be lost. The Company expects to continue to be organized
and to operate in a manner so as to qualify as a REIT in the taxable year ending December 31, 2006
and succeeding taxable years.

          (b) The Company and each Subsidiary has timely and duly filed all Tax Returns (as defined
below) required to be filed by them, and all such Tax Returns are true, correct and complete,
except for such failures to timely file or inaccuracies that would not, singly or in the aggregate,
have a Material Adverse Effect. The Company and each Subsidiary has timely and duly paid in full
all material Taxes (as defined below) required to be paid by them (whether or not such amounts are
shown as due on any Tax Return) and has timely and duly paid all required estimated Tax payments in
accordance with applicable law. There are no federal, state, or other Tax audits or deficiency
assessments proposed or pending with respect to the Company or any Subsidiary, and, to the
knowledge of the Offerors, no such audits or assessments are threatened. As used herein, the terms
“Tax” or “Taxes” mean (i) all federal, state, local, and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding), including any interest, additions
to tax, or penalties applicable thereto, imposed by any Governmental Entity, and (ii) all
liabilities in respect of such amounts arising as a result of being a member of any affiliated,
consolidated, combined, unitary or similar group, as a successor to another person or by contract.
As used herein, the term “Tax Returns” means all federal, state, local, and foreign Tax returns,
declarations, statements, reports, schedules, forms, and information returns and any amendments
thereto filed or required to be filed with any Governmental Entity.

          (c) To the knowledge of the Offerors, there are no rulemaking or similar proceedings before
the United States Internal Revenue Service or comparable federal, state, local or foreign
government bodies which involve or affect the Company or any Subsidiary, which, if the subject of
an action unfavorable to the Company or any Subsidiary, could result in a Material Adverse Effect.

     5.22. Insurance. The Company and each Subsidiary and their respective assets and
businesses are insured by insurers of recognized financial responsibility against such losses and
risks and in such amounts in all material respects as are customary in the businesses in which they
are engaged or propose to engage after giving effect to the transactions contemplated hereby. All
policies of insurance and fidelity or surety bonds insuring the Company and each Subsidiary or
their respective business, assets, employees, officers and directors are in full force and effect.
The Company and each Subsidiary are in

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compliance with the terms of such policies and instruments
in all material respects. The Company does not have reason to believe that it or any Subsidiary
will not be able to renew such existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue their respective
business at a cost that would not have a Material Adverse Effect. Within the past twelve months,
neither the Company nor any Subsidiary has been denied any insurance coverage which it has sought
or for which it has applied.

     5.23. Corporate Funds. The Company or, to the knowledge of the Offerors, any person
acting on behalf of the Company, including, without limitation, any director, officer, agent or
employee of the Company, has not, directly or indirectly, while acting on behalf of the Company (i)
used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or campaigns from
corporate funds; (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any other unlawful payment.

     5.24. Environmental Compliance.

          (a) Except as would not, individually or in the aggregate, have a Material Adverse Effect, (i)
the Company and each Subsidiary have been and are in compliance with applicable Environmental Laws
(as defined below), (ii) neither the Company nor any Subsidiary nor, to the knowledge of the
Offerors, any other owners of any of the real properties currently or previously owned, leased or
operated by the Company or any Subsidiary (the “Properties”) at any time or any other party, has at
any time released (as such term is defined in CERCLA (as defined below)) or otherwise disposed of
Hazardous Materials (as defined below) on, to, in, under or from the Properties, (iii) neither the
Company nor any Subsidiary intends to use or will use the Properties or any subsequently acquired
properties, other than in compliance with applicable Environmental Laws, (iv) neither the Company
nor any Subsidiary has received any notice of, or has any knowledge of any occurrence or
circumstance which, with notice or passage of time or both, would give rise to a claim under or
pursuant to any Environmental Law with respect to the Properties, or their respective assets or
arising out of the conduct of the Company or any Subsidiary, (v) none of the Properties are
included or, to the knowledge of the Offerors, proposed for inclusion, on the National Priorities
List issued pursuant to CERCLA by the United States Environmental Protection Agency or, to the
knowledge of the Offerors, proposed for inclusion on any similar list or inventory issued pursuant
to any other Environmental Law or issued by any other Governmental Entity, (vi) none of the
Company, any Subsidiary, any of their respective agents or, to the knowledge of the Offerors, any
other person or entity for whose conduct any of them is or may be held responsible, has generated,
manufactured, refined, transported, treated, stored, handled, disposed, transferred, produced or
processed any Hazardous Material at any of the Properties, except in compliance with all applicable
Environmental Laws, and has not transported or arranged for the transport of any Hazardous Material
from the Properties to another property, except in compliance with all applicable Environmental
Laws, (vii) no lien has been imposed on the Properties by any Governmental Entity in connection
with the presence on or off such Property of any Hazardous Material, and (vii) neither the Company
nor any Subsidiary nor, to the knowledge of the Offerors, any other person or entity for whose
conduct the Company or any Subsidiary is or may be held responsible, has entered into or been
subject to any consent decree, compliance order, or administrative order with respect to the
Properties or any facilities or improvements or any operations or activities thereon.

          (b) As used herein, “Hazardous Materials” shall include, without limitation, any flammable
materials, explosives, radioactive materials, hazardous materials, hazardous substances, hazardous
wastes, toxic substances or related materials, asbestos, petroleum, petroleum products and any
hazardous material as defined by any federal, state or local environmental law, statute, ordinance,
rule or regulation, including, without limitation, the Comprehensive Environmental Response,
Compensation,

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and Liability Act of 1980, as amended, 42 U.S.C. §§9601-9675 (“CERCLA”), the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. §§5101-5127, the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. §§6901-6992k, the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. §§11001-11050, the Toxic Substances Control Act, 15
U.S.C. §§2602-2692, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§136-136y,
the Clean Air Act, 42 U.S.C. §§7401-7642, the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C. §§1251-1387, the Safe Drinking Water Act, 42 U.S.C. §§300f-300j-26, and the
Occupational Safety and Health Act, 29 U.S.C. §§651-678, and any analogous state laws, as any of
the above may be amended from time to time and in the regulations promulgated pursuant to each of
the foregoing (including environmental statutes and laws not specifically defined herein)
(individually, an “Environmental Law” and collective, the “Environmental Laws”) or by any
Governmental Entity.

          (c) In the ordinary course of their respective businesses, the Company and each Subsidiary
periodically review the effect of Environmental Laws on their respective businesses, operations and
properties, and periodically identify and evaluate associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third parties). On the basis
of such reviews and the amount of their respective established reserves, the Company has reasonably
concluded that such associated costs and liabilities would not, individually or in the aggregate,
have a Material Adverse Effect.

     5.25. OSHA Compliance. Neither the Company nor any of its Subsidiaries is in
violation of any federal or state law or regulation relating to occupational safety and health, and
the Company and its Subsidiaries have received all permits, licenses or other approvals required of
them under applicable federal and state occupational safety and health and environmental laws and
regulations to conduct their respective businesses, and the Company and each of its Subsidiaries
are in compliance with all terms and conditions of any such permit, license or approval, except any
such violation of law or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, result in a Material Adverse Effect.

     Section 6. Representations and Warranties of the Placement Agents. Each Placement
Agent represents and warrants to the Offerors as to itself (but not as to the other Placement
Agent) as follows:

     6.1. Organization, Standing and Qualification.

          (a) FTN Financial Capital Markets is a division of First Tennessee Bank National Association,
a national banking association duly organized, validly existing and in good standing under the laws
of the United States, with full power and authority to own, lease and operate its properties and
conduct its business as currently being conducted. FTN Financial Capital Markets is duly qualified
to transact business as a foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases property or conducts its business so as to require such qualification and
in which the failure to so qualify would, individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), earnings, business, prospects or results of
operations of FTN Financial Capital Markets.

          (b) Keefe, Bruyette & Woods, Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, with full power and authority to own, lease
and operate its properties and conduct its business as currently being conducted. Keefe, Bruyette &
Woods, Inc. is duly qualified to transact business as a foreign corporation and is in good standing
in each other jurisdiction in which it owns or leases property or conducts its business so as to
require such qualification

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and in which the failure to so qualify would, individually or in the
aggregate, have a material adverse effect on the condition (financial or otherwise), earnings,
business, prospects or results of operations of Keefe, Bruyette & Woods, Inc.

     6.2. Power and Authority. The Placement Agent has all requisite power and authority
to enter into this Agreement, and this Agreement has been duly and validly authorized, executed and
delivered by the Placement Agent and constitutes the legal, valid and binding agreement of the
Placement Agent, enforceable against the Placement Agent in accordance with its terms, subject to
Bankruptcy and Equity and except as any indemnification or contribution provisions thereof may be
limited under applicable securities laws. No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any Governmental Entity, other than those
that have been made or obtained, is necessary or required for the performance by the Placement
Agent of its obligations under this Agreement or the consummation by the Placement Agent of the
transactions contemplated by this Agreement.

     6.3. General Solicitation. In the case of the offer and sale of the Capital
Securities, no form of general solicitation or general advertising was used by the Placement Agent
or its representatives including, but not limited to, advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium or broadcast over television
or radio or any seminar or meeting whose attendees have been invited by any general solicitation or
general advertising. Neither the Placement Agent nor its representatives have engaged or will
engage in any “directed selling efforts” within the meaning of Regulation S with respect to the
Capital Securities.

     6.4. Purchaser. The Placement Agent has made such reasonable inquiry as is necessary
to determine that the Purchaser is acquiring the Capital Securities for its own account, except as
contemplated in Section 7.8 hereto, that the Purchaser does not intend to distribute the Capital
Securities in contravention of the Securities Act or any other applicable securities laws.

     6.5. Qualified Purchasers. The Placement Agent has not offered or sold and will not
arrange for the offer or sale of the Capital Securities except (a) to those the Placement Agent
reasonably believes are “qualified purchasers” within the meaning of Section 2(a)(51) of the
Investment Company Act and (b)(i) to those the Placement Agent reasonably believes are
institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation
D) and (ii) in any other manner that does not require registration of the Capital Securities under
the Securities Act. In connection with each such sale, the Placement Agent has taken or will take
reasonable steps to ensure that the respective purchaser is aware that (y) such sale is being made
in reliance on an exemption under the Securities Act and (z) future transfers of the Capital
Securities will not be made except in compliance with applicable securities laws.

     6.6. Offering Circulars. Neither the Placement Agent nor its representatives will
include any non-public information about the Company, the Trust or any of their Affiliates in any
registration statement, prospectus, offering circular or private placement memorandum used in
connection with any purchase of Capital Securities without the prior written consent of the Trust
and the Company.

     Section 7. Covenants of the Offerors. The Offerors covenant and agree with the
Placement Agents and the Purchaser as follows:

     7.1. Compliance with Representations and Warranties. During the period from the date
of this Agreement to the Closing Date, the Offerors shall use their best efforts and take all
action necessary or appropriate to cause their representations and warranties contained in Section
5 hereof to be true as of the Closing Date, after giving effect to the transactions contemplated by
this Agreement, as if made on and as of the Closing Date.

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     7.2. Sale and Registration of Securities. The Offerors and their Affiliates shall not
nor shall any of them permit any person acting on their behalf (other than the Placement Agents),
to directly or indirectly (i) sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any security (as defined in the Securities Act) that would or could be integrated
with the sale of the Capital Securities in a manner that would require the registration under the
Securities Act of the Securities or (ii) make offers or sales of any such Security, or solicit
offers to buy any such Security, under circumstances that would require the registration of any of
such Securities under the Securities Act.

     7.3. Use of Proceeds. The Trust shall use the proceeds from the sale of the Capital
Securities and the Common Securities to purchase the Debentures from the Company.

     7.4. Investment Company. The Offerors shall not engage, or permit any Subsidiary to
engage, in any activity which would cause it or any Subsidiary to be an “investment company” under
the provisions of the Investment Company Act.

     7.5. Reimbursement of Expenses. If the sale of the Capital Securities provided for
herein is not consummated (i) because any condition set forth in Section 3 hereof is not satisfied,
or (ii) because of any refusal, inability or failure on the part of the Company or the Trust to
perform any agreement herein or comply with any provision hereof other than by reason of a breach
by the Placement Agents, the Company shall reimburse the Placement Agents upon demand for all of
their pro rata share of out-of-pocket expenses (including reasonable fees and disbursements of
counsel) in an amount not to exceed $50,000.00 that shall have been incurred by them in connection
with the proposed purchase and sale of the Capital Securities. Notwithstanding the foregoing, the
Company shall have no obligation to reimburse the Placement Agents for their out-of-pocket expenses
if the sale of the Capital Securities fails to occur because the Placement Agents fail to fulfill a
condition set forth in Section 4.

     7.6. Solicitation and Advertising. In connection with any offer or sale of any of the
Securities, the Offerors shall not, nor shall either of them permit any of their Affiliates or any
person acting on their behalf, other than the Placement Agents, to engage in any form of general
solicitation or general advertising (as defined in Regulation D).

     7.7. Compliance with Rule 144A(d)(4) under the Securities Act. So long as any of the
Securities are outstanding and are “restricted securities” within the meaning of Rule 144(a)(3)
under the Securities Act, the Offerors will, during any period in which they are not subject to and
in compliance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or the Offerors are not exempt from such reporting requirements
pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, provide to each holder of
such restricted securities and to each prospective purchaser (as designated by such holder) of such
restricted securities, upon the request of such holder or prospective purchaser in connection with
any proposed transfer, any information required to be provided by Rule 144A(d)(4) under the
Securities Act, if applicable. This covenant is intended to be for the benefit of the holders, and
the prospective purchasers designated by such holders, from time to time of such restricted
securities. The information provided by the Offerors pursuant to this Section 7.7 will not, at the
date thereof, contain any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading.

     7.8. Transfer Notice. The Offerors acknowledge that the Purchaser may transfer the
Capital Securities, in whole or in part, at any time and from time to time following the Closing
Date by delivering the notice (the “Transfer Notice”) attached as Exhibit B to the Master
Custodian Agreement, dated May 27, 2004, as amended, and attached as Exhibit A to the
Subscription Agreement. In order to facilitate such transfer, the Company shall execute in blank
five additional Capital Securities certificates, to be delivered at Closing, such certificates to
be completed with the name of the transferee(s) to which

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the Capital Securities, in whole or in
part, will be transferred upon the receipt of a Transfer Notice and authenticated by the
Institutional Trustee at the time of each such transfer.

     7.9. Quarterly Reports. Within 50 days of the end of each calendar quarter and within
100 days of the end of each calendar year during which the Debentures are issued and outstanding,
the Offerors shall submit to The Bank of New York a completed quarterly report in the form attached
hereto as Exhibit C, with a copy provided to the Purchaser during the period when it holds
any of the Capital Securities; provided, that the financial statements of the Company required to
be delivered pursuant to such quarterly report shall be deemed to have been furnished in compliance
with such quarterly report if such financial statements have been duly filed with the Commission as
part of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports
on Form 8-K, as applicable. If the Purchaser transfers the Capital Securities as contemplated by
Section 7.8, in addition to the reporting obligations of the Offerors to The Bank of New York and
the Purchaser provided for in this Section 7.9, the Offerors shall submit to the trustee designated
in the Transfer Notice such periodic reports as may be required by such trustee in the form and at
such times as such trustee may require. The Offerors acknowledge and agree that The Bank of New
York and such designated trustee and its successors and assigns are third party beneficiaries of
this Section 7.9.

     7.10. Continued REIT Status. Unless and until the Company’s Board of Directors
determines that it is not in the best interests of the Company’s stockholders, the Company will use
its commercially reasonable efforts to meet the requirements to qualify as a REIT under Sections
856 through 860 of the Code for the taxable year ending December 31, 2006 and succeeding taxable
years.

     Section 8. Covenants of the Placement Agents. The Placement Agents covenant and agree
with the Offerors that, during the period from the date of this Agreement to the Closing Date, the
Placement Agents shall use their best efforts and take all action necessary or appropriate to cause
their representations and warranties contained in Section 6 to be true as of the Closing Date,
after giving effect to the transactions contemplated by this Agreement, as if made on
and as of the Closing Date. The Placement Agents further covenant and agree not to engage in
hedging transactions with respect to the Capital Securities unless such transactions are conducted
in compliance with the Securities Act.

     Section 9. Indemnification.

     9.1. Indemnification Obligation. The Offerors shall jointly and severally indemnify
and hold harmless the Placement Agents and the Purchaser and each of their respective agents,
employees, officers and directors and each person that controls either of the Placement Agents or
the Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and agents, employees, officers and directors or any such controlling person of either of the
Placement Agents or the Purchaser (each such person or entity, an “Indemnified Party”) from and
against any and all losses, claims, damages, judgments, liabilities or expenses, joint or several,
to which such Indemnified Party may become subject under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written consent of the
Offerors, but excluding any such losses, claims, damages, judgments, liabilities or expenses that
are caused by the gross negligence or willful misconduct of the Indemnified Party), insofar as such
losses, claims, damages, judgments, liabilities or expenses (or actions in respect thereof) arise
out of, or are based upon, or relate to, in whole or in part, (a) any untrue statement or alleged
untrue statement of a material fact contained in any information (whether written or oral) or
documents executed in favor of, furnished or made available to the Placement Agents or the
Purchaser by the Offerors, or (b) any omission or alleged omission to state in any information
(whether written or oral) or documents executed in favor of, furnished or made available to the
Placement Agents or the Purchaser by the Offerors a material fact required to be stated therein or
necessary to make the statements therein

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not misleading, and shall reimburse each Indemnified Party
for any legal and other expenses as such expenses are reasonably incurred by such Indemnified Party
in connection with investigating, defending, settling, compromising or paying any such loss, claim,
damage, judgments, liability, expense or action described in this Section 9.1. In addition to
their other obligations under this Section 9, the Offerors hereby agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other proceeding arising out
of, or based upon, or related to the matters described above in this Section 9.1, they shall
reimburse each Indemnified Party on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Indemnified Party shall promptly return such amounts
to the Offerors together with interest, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced from time to time
by First Tennessee Bank National Association (the “Prime Rate”). Any such interim reimbursement
payments which are not made to an Indemnified Party within 30 days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.

     9.2. Conduct of Indemnification Proceedings. Promptly after receipt by an Indemnified
Party under this Section 9 of notice of the commencement of any action, such Indemnified Party
shall, if a claim in respect thereof is to be made against the Offerors under this Section 9,
notify the Offerors in writing of the commencement thereof; but, subject to Section 9.4, the
omission to so notify the Offerors shall not relieve them from any liability pursuant to Section
9.1 which the Offerors may have to any Indemnified Party unless and to the extent
that the Offerors did not otherwise learn of such action and such failure by the Indemnified
Party results in the forfeiture by the Offerors of substantial rights and defenses. In case any
such action is brought against any Indemnified Party and such Indemnified Party seeks or intends to
seek indemnity from the Offerors, the Offerors shall be entitled to participate in, and, to the
extent that they may wish, to assume the defense thereof with counsel reasonably satisfactory to
such Indemnified Party; provided, however, if the defendants in any such action
include both the Indemnified Party and the Offerors and the Indemnified Party shall have reasonably
concluded that there may be a conflict between the positions of the Offerors and the Indemnified
Party in conducting the defense of any such action or that there may be legal defenses available to
it and/or other Indemnified Parties which are different from or additional to those available to
the Offerors, the Indemnified Party shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on behalf of such
Indemnified Party. Upon receipt of notice from the Offerors to such Indemnified Party of their
election to so assume the defense of such action and approval by the Indemnified Party of counsel,
the Offerors shall not be liable to such Indemnified Party under this Section 9 for any legal or
other expenses subsequently incurred by such Indemnified Party in connection with the defense
thereof unless (i) the Indemnified Party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso in the preceding sentence (it being
understood, however, that the Offerors shall not be liable for the expenses of more than one
separate counsel representing the Indemnified Parties who are parties to such action), or (ii) the
Offerors shall not have employed counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel of such Indemnified Party shall be
at the expense of the Offerors.

     9.3. Contribution. If the indemnification provided for in this Section 9 is required
by its terms, but is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an Indemnified Party under Section 9.1 in respect of any losses, claims, damages,
liabilities or expenses referred to

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herein or therein, then the Offerors shall contribute to the
amount paid or payable by such Indemnified Party as a result of any losses, claims, damages,
judgments, liabilities or expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Offerors, on the one hand, and the Indemnified Party,
on the other hand, from the offering of such Capital Securities, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also the relative fault
of the Offerors, on the one hand, and the Placement Agents, on the other hand, in connection with
the statements or omissions or inaccuracies in the representations and warranties herein or other
breaches which resulted in such losses, claims, damages, judgments, liabilities or expenses, as
well as any other relevant equitable considerations. The respective relative benefits received by
the Offerors, on the one hand, and the Placement Agents, on the other hand, shall be deemed to be
in the same proportion, in the case of the Offerors, as the total price paid to the Offerors for
the Capital Securities sold by the Offerors to the Purchaser (net of the compensation paid to the
Placement Agents hereunder, but before deducting expenses), and in the case of the Placement
Agents, as the compensation received by them, bears to the total of such amounts paid to the
Offerors and received by the Placement Agents as compensation. The relative fault of the Offerors
and the Placement Agents shall be determined by reference to, among other things, whether the
untrue statement or alleged untrue statement of a material fact or the omission or alleged omission
of a material fact or the inaccurate or the alleged inaccurate representation and/or warranty
relates to information supplied by the Offerors or the Placement Agents and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or
omission. The provisions set forth in Section 9.2 with respect to notice of commencement of any
action shall apply if a claim for contribution is made under this Section 9.3; provided,
however, that no additional notice shall be required with respect to any action for which
notice has been given under
Section 9.2 for purposes of indemnification. The Offerors and the Placement Agents agree that
it would not be just and equitable if contribution pursuant to this Section 9.3 were determined by
pro rata allocation or by any other method of allocation that does not take account of the
equitable considerations referred to in this Section 9.3. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, judgments, liabilities or expenses
referred to in this Section 9.3 shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. In no event shall the liability of the
Placement Agents hereunder be greater in amount than the dollar amount of the compensation (net of
payment of all expenses) received by the Placement Agents upon the sale of the Capital Securities
giving rise to such obligation. No person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person
who was not found guilty of such fraudulent misrepresentation.

     9.4. Additional Remedies. The indemnity and contribution agreements contained in this
Section 9 are in addition to any liability that the Offerors may otherwise have to any Indemnified
Party.

     9.5. Additional Indemnification. The Company shall indemnify and hold harmless the
Trust against all loss, liability, claim, damage and expense whatsoever, as due from the Trust
under Sections 9.1 through 9.4 hereof.

     Section 10. Rights and Responsibilities of Placement Agents.

     10.1. Reliance. In performing their duties under this Agreement, the Placement Agents
shall be entitled to rely upon any notice, signature or writing which they shall in good faith
believe to be genuine and to be signed or presented by a proper party or parties. The Placement
Agents may rely upon any opinions or certificates or other documents delivered by the Offerors or
their counsel or designees to either the Placement Agents or the Purchaser.

     10.2. Rights of Placement Agents. In connection with the performance of their duties
under this Agreement, the Placement Agents shall not be liable for any error of judgment or any
action taken or

Capstead Mortgage Corporation/Placement Agreement

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omitted to be taken unless the Placement Agents were grossly negligent or engaged
in willful misconduct in connection with such performance or non-performance. No provision of this
Agreement shall require the Placement Agents to expend or risk their own funds or otherwise incur
any financial liability on behalf of the Purchaser in connection with the performance of any of
their duties hereunder. The Placement Agents shall be under no obligation to exercise any of the
rights or powers vested in them by this Agreement.

     Section 11. Miscellaneous.

     11.1. Disclosure Schedule. The term “Disclosure Schedule,” as used herein, means the
schedule, if any, attached to this Agreement that sets forth items the disclosure of which is
necessary or appropriate as an exception to one or more representations or warranties contained in
Section 5 hereof; provided, that any item set forth in the Disclosure Schedule as an
exception to a representation or warranty shall be deemed an admission by the Offerors that such
item represents an exception, fact, event or circumstance that is reasonably likely to
result in a Material Adverse Effect. The Disclosure Schedule shall be arranged in paragraphs
corresponding to the section numbers contained in Section 5. Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or warranty made herein
unless the Disclosure Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. Without limiting the generality of the immediately
preceding sentence, the mere listing (or inclusion of a copy) of a document or other item in the
Disclosure Schedule shall not be deemed adequate to disclose an exception to a representation or
warranty made herein unless the representation or warranty has to do with the existence of the
document or other item itself. Information provided by the Company in response to any due
diligence questionnaire shall not be deemed part of the Disclosure Schedule and shall not be deemed
to be an exception to one or more representations or warranties contained in Section 5 hereof
unless such information is specifically included on the Disclosure Schedule in accordance with the
provisions of this Section 11.1.

     11.2. Legal Expenses. At Closing, the Placement Agents shall provide a credit for the
Offerors’ transaction-related legal expenses in the amount of $10,000.00.

     11.3. Non-Disclosure. Except as required by applicable law, including without
limitation securities laws and regulations promulgated thereunder, the Offerors shall not, and will
cause their advisors and representatives not to, issue any press release or other public statement
regarding the transactions contemplated by this Agreement or the Operative Documents prior to or on
the Closing Date. Notwithstanding anything to the contrary, the Offerors may (1) consult any tax
advisor regarding U.S. federal income tax treatment or tax structure of the transaction
contemplated under this Agreement and the Operative Documents and (2) disclose to any and all
persons, without limitation of any kind, the U.S. Federal income tax structure (in each case,
within the meaning of Treasury Regulation § 1.6011-4) of the transaction contemplated under this
Agreement and the Operative Documents and all materials of any kind (including opinions or other
tax analyses) that are provided to you relating to such tax treatment and tax structure. For this
purpose, “tax structure” is limited to any facts relevant to the U.S. federal income tax treatment
of the transaction and does not include information relating to identity of the parties.

     11.4. Notices. Prior to the Closing, and thereafter with respect to matters
pertaining to this Agreement only, all notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier or
overnight air courier guaranteeing next day delivery:

     if to the Placement Agents, to:

FTN Financial Capital Markets

845 Crossover Lane, Suite 150

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Memphis, Tennessee 38117

Telecopier: 901-435-4706

Telephone: 800-456-5460

Attention: James D. Wingett

                                        and

Keefe, Bruyette & Woods, Inc.

787 7th Avenue

4th Floor

New York, New York 10019

Telecopier: 212-403-2000

Telephone: 212-403-1004

Attention: Mitchell Kleinman, General Counsel

with a copy to:

Lewis, Rice & Fingersh, L.C.

500 North Broadway, Suite 2000

St. Louis, Missouri 63102

Telecopier: 314-241-6056

Telephone: 314-444-7600

Attention: Thomas C. Erb, Esq.

                                        and

Sidley Austin LLP

787 7th Avenue

New York, New York 10019

Telecopier: 212-839-5599

Telephone: 212-839-5300

Attention: Renwick Martin, Esq.

if to the Offerors, to:

Capstead Mortgage Corporation

8401 North Central Expressway, Suite 800

Dallas, Texas 75225-4410

Telecopier: 214-874-2398

Telephone: 214-874-2350

Attention: Andrew F. Jacobs

with a copy to:

Andrews Kurth LLP

1717 Main Street, Suite 3700

Dallas, Texas 75201

Telecopier: 214-659-4401

Telephone: 214-659-4400

Attention: David A. Barbour, Esq.

Capstead Mortgage Corporation/Placement Agreement

19

 

     All such notices and communications shall be deemed to have been duly given (i) at the time
delivered by hand, if personally delivered, (ii) five business days after being deposited in the
mail, postage prepaid, if mailed, (iii) when answered back, if telexed, (iv) the next business day
after being telecopied, or (v) the next business day after timely delivery to a courier, if sent by
overnight air courier guaranteeing next day delivery. From and after the Closing Date, the
foregoing notice provisions shall be superseded by any notice provisions of the Operative Documents
under which notice is given. The Placement Agents, the Offerors, and their respective counsel, may
change their respective notice addresses from time to time by written notice to all of the
foregoing persons.

     11.5. Parties in Interest, Successors and Assigns.
Except as expressly set forth herein, this Agreement is made solely for the benefit of the
Placement Agents, the Purchaser and the Offerors and any person controlling the Placement Agents,
the Purchaser or the Offerors and their respective successors and assigns; and no other person
shall acquire or have any right under or by virtue of this Agreement. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the parties.

     11.6. Counterparts. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

     11.7. Headings. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.

     11.8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAWS PERTAINING TO CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.

     11.9. Entire Agreement. This Agreement, together with the Operative Documents and the
other documents delivered in connection with the transactions contemplated by this Agreement, is
intended by the parties as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This Agreement,
together with the Operative Documents and the other documents delivered in connection with the
transaction contemplated by this Agreement, supersedes all prior agreements and understandings
between the parties with respect to such subject matter.

     11.10. Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions hereof shall not be in any way impaired or
affected, it being intended that all of the Placement Agents’ and the Purchaser’s rights and
privileges shall be enforceable to the fullest extent permitted by law.

     11.11. Survival. The Placement Agents and the Offerors, respectively, agree that the
representations, warranties and agreements made by each of them in this Agreement and in any
certificate or other instrument delivered pursuant hereto shall remain in full force and effect and
shall survive the delivery of, and payment for, the Capital Securities.

Signatures appear on the following page

Capstead Mortgage Corporation/Placement Agreement

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     If this Agreement is satisfactory to you, please so indicate by signing the acceptance of this
Agreement and deliver such counterpart to the Offerors whereupon this Agreement will become binding
between us in accordance with its terms.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ PHILLIP A. REINSCH	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Phillip A. Reinsch	 	 
	 

	 	Title:
	 	Executive Vice President & CFO	 	 
	 
	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE TRUST III	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ PHILLIP A. REINSCH	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Phillip A. Reinsch	 	 
	 

	 	Title:
	 	Administrator	 	 

CONFIRMED AND ACCEPTED,

as of the date first set forth above

FTN FINANCIAL CAPITAL MARKETS,

a division of First Tennessee Bank National Association,

as a Placement Agent

	 	 	 	 	 
	 

	 	 	 	 
	By:

	 	/s/ JAMES D. WINGETT	 	 
	 

	 	 	 	 
	Name:

	 	James D. Wingett	 	 
	Title:

	 	Senior Vice President	 	 

KEEFE, BRUYETTE & WOODS, INC.,

a New York corporation, as a Placement Agent

	 	 	 	 	 
	 

	 	 	 	 
	By:

	 	/s/ PETER J. WIRTH	 	 
	 

	 	 	 	 
	Name:

	 	Peter J. Wirth	 	 
	Title:

	 	Managing Director	 	 

Capstead Mortgage Corporation/Placement Agreement

21

 

EXHIBIT A

FORM OF SUBSCRIPTION AGREEMENT

CAPSTEAD MORTGAGE TRUST III

CAPSTEAD MORTGAGE CORPORATION

SUBSCRIPTION AGREEMENT

September 11, 2006

     THIS SUBSCRIPTION AGREEMENT (this “Agreement”) made among Capstead Mortgage Trust III (the
“Trust”), a statutory trust created under the Delaware Statutory Trust Act (Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. §§ 3801, et seq.), Capstead Mortgage Corporation, a Maryland
corporation, with its principal offices located at 8401 North Central Expressway, Suite 800,
Dallas, Texas 75225-4410 (the “Company” and, collectively with the Trust, the “Offerors”), and
First Tennessee Bank National Association (the “Purchaser”).

RECITALS:

     A. The Trust desires to issue 25,000 of its Fixed/Floating Rate Capital Securities (the
“Capital Securities”), liquidation amount $1,000.00 per Capital Security, representing an undivided
beneficial interest in the assets of the Trust (the “Offering”), to be issued pursuant to an
Amended and Restated Declaration of Trust (the “Declaration”) by and among the Company, Wilmington
Trust Company (“WTC”), the administrators named therein, and the holders (as defined therein); and

     B. The proceeds from the sale of the Capital Securities will be combined with the proceeds
from the sale by the Trust to the Company of its common securities, and will be used by the Trust
to purchase an equivalent amount of Fixed/Floating Rate Junior Subordinated Debentures of the
Company (the “Debentures”) to be issued by the Company pursuant to an indenture to be executed by
the Company and WTC, as trustee (the “Indenture”); and

     C. In consideration of the premises and the mutual representations and covenants hereinafter
set forth, the parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF CAPITAL SECURITIES

     1.1. Upon the execution of this Agreement, the Purchaser hereby agrees to purchase from the
Trust 25,000 Capital Securities at a price equal to $1,000.00 per Capital Security (the “Purchase
Price”) and the Trust agrees to sell such Capital Securities to the Purchaser for said Purchase
Price. The rights and preferences of the Capital Securities are set forth in the Declaration. The
Purchase Price is payable in immediately available funds on September 11, 2006, or such other
business day as may be designated by the Purchaser, but in no event later than September 29, 2006
(the “Closing Date”). The Offerors shall provide the Purchaser wire transfer instructions no later
than 3 days prior to the Closing Date.

     1.2. As a condition to its purchase of the Capital Securities, Purchaser shall enter into the
Joinder Agreement to the Master Custodian Agreement, the form of which is attached hereto as
Exhibit A (the “Custodian Agreement”) and, in accordance therewith, the certificate for the Capital
Securities shall be delivered by the Trust on the Closing Date to the custodian in accordance with
the Custodian

Capstead Mortgage Corporation/Placement Agreement

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Agreement. Purchaser shall not transfer the Capital Securities to any person or entity except
in accordance with the terms of the Custodian Agreement.

     1.3. The Placement Agreement, dated September 8, 2006 (the “Placement Agreement”), among the
Offerors and the placement agents identified therein (the “Placement Agents”) includes certain
representations and warranties, covenants and conditions to closing and certain other matters
governing the Offering. The Placement Agreement is hereby incorporated by reference into this
Agreement and the Purchaser shall be entitled to each of the benefits of the Placement Agents and
the Purchaser under the Placement Agreement and shall be entitled to enforce the obligations of the
Offerors under such Placement Agreement as fully as if the Purchaser were a party to such Placement
Agreement.

     1.4. Anything herein or in the Placement Agreement notwithstanding, the Offerors acknowledge
and agree that, so long as Purchaser holds some or all of the Capital Securities, the Purchaser may
in its discretion from time to time transfer or sell, or sell or grant participation interests in,
some or all of such Capital Securities to one or more parties, provided that any such transaction
complies, as applicable, with the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”) and any other applicable securities laws, is pursuant to an
exemption therefrom, or is otherwise not subject thereto.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PURCHASER

     2.1. The Purchaser understands and acknowledges that neither the Capital Securities nor the
Debentures have been registered under the Securities Act or any other applicable securities law,
are being offered for sale by the Trust in transactions not requiring registration under the
Securities Act, and may not be offered, sold, pledged or otherwise transferred by the Purchaser
except in compliance with the registration requirements of the Securities Act or any other
applicable securities laws, pursuant to an exemption therefrom or in a transaction not subject
thereto.

     2.2. The Purchaser represents and warrants that, except as contemplated under Section 1.4
hereof, it is purchasing the Capital Securities for its own account, for investment, and not with a
view to, or for offer or sale in connection with, any distribution thereof in violation of the
Securities Act or other applicable securities laws, subject to any requirement of law that the
disposition of its property be at all times within its control and subject to its ability to resell
such Capital Securities pursuant to an effective registration statement under the Securities Act or
under Rule 144A or any other exemption from registration available under the Securities Act or any
other applicable securities law.

     2.3. The Purchaser represents and warrants that neither the Offerors nor the Placement Agents
are acting as a fiduciary or financial or investment adviser for the Purchaser.

     2.4. The Purchaser represents and warrants that it is not relying (for purposes of making any
investment decision or otherwise) upon any advice, counsel or representations (whether written or
oral) of the Offerors or of the Placement Agents.

     2.5. The Purchaser represents and warrants that (a) it has consulted with its own legal,
regulatory, tax, business, investment, financial and accounting advisers in connection herewith to
the extent it has deemed necessary, (b) it has had a reasonable opportunity to ask questions of and
receive answers from officers and representatives of the Offerors concerning their respective
financial condition and results of operations and the purchase of the Capital Securities, and any
such questions have been answered to its satisfaction, (c) it has had the opportunity to review all
publicly available records and filings concerning the Offerors and it has carefully reviewed such
records and filings that it considers

Capstead Mortgage Corporation/Placement Agreement

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relevant to making an investment decision, and (d) it has made its own investment decisions
based upon its own judgment, due diligence and advice from such advisers as it has deemed necessary
and not upon any view expressed by the Offerors or the Placement Agents.

     2.6. The Purchaser represents and warrants that it is a “qualified institutional buyer” as
defined under Rule 144A under the Securities Act. If the Purchaser is a dealer of the type
described in paragraph (a)(1)(ii) of Rule 144A under the Securities Act, it owns and invests on a
discretionary basis not less than U.S. $25,000,000.00 in securities of issuers that are not
affiliated with it. The Purchaser is not a participant-directed employee plan, such as a 401(k)
plan, or any other type of plan referred to in paragraph (a)(1)(i)(D) or (a)(1)(i)(E) of Rule 144A,
or a trust fund referred to in paragraph (a)(1)(i)(F) of Rule 144A that holds the assets of such a
plan, unless investment decisions with respect to the plan are made solely by the fiduciary,
trustee or sponsor of such plan.

     2.7. The Purchaser represents and warrants that on each day from the date on which it acquires
the Capital Securities through and including the date on which it disposes of its interests in the
Capital Securities, either (i) it is not (a) an “employee benefit plan” (as defined in Section 3(3)
of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”))
which is subject to the provisions of Part 4 of Subtitle B of Title I of ERISA, or any entity whose
underlying assets include the assets of any such plan (an “ERISA Plan”), (b) any other
“plan” (as defined in Section 4975(e)(1) of the United States Internal Revenue Code of 1986, as
amended (the “Code”)) which is subject to the provisions of Section 4975 of the Code or any
entity whose underlying assets include the assets of any such plan (a “Plan”), (c) an
entity whose underlying assets include the assets of any such ERISA Plan or other Plan by reason of
Department of Labor regulation section 2510.3-101 or otherwise, or (d) a governmental or church
plan that is subject to any federal, state or local law which is substantially similar to the
provisions of Section 406 of ERISA or Section 4975 of the Code (a “Similar Law”); or (ii)
the purchase, holding and disposition of the Capital Securities by it will satisfy the requirements
for exemptive relief under Prohibited Transaction Class Exemption (“PTCE”) 84-14, PTCE
90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or a similar exemption, or, in the case of a plan subject
to a Similar Law, will not result in a non-exempt violation of such Similar Law.

     2.8. The Purchaser represents and warrants that it is acquiring the Capital Securities as
principal for its own account for investment and, except as contemplated under Section 1.4 hereof,
not for sale in connection with any distribution thereof. It was not formed solely for the purpose
of investing in the Capital Securities, and additional capital or similar contributions were not
specifically solicited from any person owning a beneficial interest in it for the purpose of
enabling it to purchase any Capital Securities. The Purchaser is not a (i) partnership, (ii)
common trust fund or (iii) special trust, pension, profit sharing or other retirement trust fund or
plan in which the partners, beneficiaries or participants, as applicable, may designate the
particular investments to be made or the allocation of any investment among such partners,
beneficiaries or participants, and except as contemplated under Section 1.4 hereof, it agrees that
it shall not hold the Capital Securities for the benefit of any other person and shall be the sole
beneficial owner thereof for all purposes and that it shall not sell participation interests in the
Capital Securities or enter into any other arrangement pursuant to which any other person shall be
entitled to a beneficial interest in the distribution on the Capital Securities. The Capital
Securities purchased directly or indirectly by the Purchaser constitute an investment of no more
than 40% of its assets. The Purchaser understands and agrees that any purported transfer of the
Capital Securities to a purchaser which would cause the representations and warranties of Section
2.6 and this Section 2.8 to be inaccurate shall be null and void ab initio and the Offerors retain
the right to resell any Capital Securities sold to non-permitted transferees.

     2.9. The Purchaser represents and warrants that it has full power and authority to execute and
deliver this Agreement, to make the representations and warranties specified herein, and to
consummate

Capstead Mortgage Corporation/Placement Agreement

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the transactions contemplated herein and it has full right and power to subscribe for Capital
Securities and perform its obligations pursuant to this Agreement.

     2.10. The Purchaser represents and warrants that no filing with, or authorization, approval,
consent, license, order, registration, qualification or decree of, any governmental body, agency or
court having jurisdiction over the Purchaser, other than those that have been made or obtained, is
necessary or required for the performance by the Purchaser of its obligations under this Agreement
or to consummate the transactions contemplated herein.

     2.11. The Purchaser represents and warrants that this Agreement has been duly authorized,
executed and delivered by the Purchaser.

     2.12. The Purchaser understands and acknowledges that the Company will rely upon the truth and
accuracy of the foregoing acknowledgments, representations, warranties and agreements and agrees
that, if any of the acknowledgments, representations, warranties or agreements deemed to have been
made by it by its purchase of the Capital Securities are no longer accurate, it shall promptly
notify the Company.

     2.13. The Purchaser understands that no public market exists for any of the Capital
Securities, and that it is unlikely that a public market will ever exist for the Capital
Securities.

     2.14. The Purchaser is an “accredited investor” pursuant to Regulation D promulgated under the
Securities Act.

     2.15. The Purchaser is a “qualified purchaser” within the meaning of Section 2(a)(51) of the
Investment Company Act.

ARTICLE III

MISCELLANEOUS

     3.1. Any notice or other communication given hereunder shall be deemed sufficient if in
writing and sent by registered or certified mail, return receipt requested, international courier
or delivered by hand against written receipt therefor, or by facsimile transmission and confirmed
by telephone, to the following addresses, or such other address as may be furnished to the other
parties as herein provided:

	 	 	 	 	 
	 

	 	To the Offerors:
	 	Capstead Mortgage Corporation
	 

	 	 	 	8401 North Central Expressway, Suite 800
	 

	 	 	 	Dallas, Texas 75225-4410
	 

	 	 	 	Attention: Andrew F. Jacobs
	 

	 	 	 	Fax: 214-874-2398
	 
	 	 	 	 
	 

	 	To the Purchaser:
	 	First Tennessee Bank National Association
	 

	 	 	 	845 Crossover Lane, Suite 150
	 

	 	 	 	Memphis, Tennessee 38117
	 

	 	 	 	Attention: David Work
	 

	 	 	 	Fax: 901-435-7983

     Unless otherwise expressly provided herein, notices shall be deemed to have been given on the
date of mailing, except notice of change of address, which shall be deemed to have been given when
received.

Capstead Mortgage Corporation/Placement Agreement

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     3.2. This Agreement shall not be changed, modified or amended except by a writing signed by
the parties to be charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.

     3.3. Upon the execution and delivery of this Agreement by the Purchaser, this Agreement shall
become a binding obligation of the Purchaser with respect to the purchase of Capital Securities as
herein provided.

     3.4. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES
HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.

     3.5. The parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or appropriate to carry out
the purposes and intent of this Agreement.

     3.6. This Agreement may be executed in one or more counterparts each of which shall be deemed
an original, but all of which shall together constitute one and the same instrument.

     3.7. In the event that any one or more of the provisions contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired or affected, it being intended
that all of the Offerors’ and the Purchaser’s rights and privileges shall be enforceable to the
fullest extent permitted by law.

Signatures appear on the following page

Capstead Mortgage Corporation/Placement Agreement

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     IN WITNESS WHEREOF, this Agreement is agreed to and accepted as of the day and year first
written above.

FIRST TENNESSEE BANK NATIONAL ASSOCIATION

	 	 	 	 	 
	 

	 	 	 	 
	By:
	 	 	 	 
	 
	 	 
	Print Name:
	 	 	 	 
	 

	 	 	 
	Title:
	 	 	 	 
	 
	 	 

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE TRUST III	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Title: Administrator	 	 

Capstead Mortgage Corporation/Placement Agreement

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EXHIBIT A TO SUBSCRIPTION AGREEMENT

MASTER CUSTODIAN AGREEMENT

     This Master Custodian Agreement (this “Agreement”) is made and entered into as of May 27, 2004
by and among each purchaser (each a “Purchaser” and collectively the “Purchasers”) that enters into
a Joinder Agreement attached hereto as Exhibit A (the “Joinder Agreement”), Wilmington Trust
Company, a Delaware banking corporation (the “Custodian”) and each financial institution (each an
“Issuer” and collectively the “Issuers”) that enters into a Joinder Agreement. The Purchasers and
the Issuers are sometimes referred to herein as the “Interested Parties”.

RECITALS

     A. The Purchasers intend to purchase from the Issuers or their respective statutory business
trust subsidiaries Securities issued by such Issuers (the “Securities”).

     B. In order to facilitate any future transfer of all or any portion of the Securities by the
Purchasers, the Interested Parties intend to provide for the custody of the Securities and certain
other securities on the terms set forth herein.

     C. The Custodian is willing to hold and administer such securities and to distribute the
securities held by it in accordance with the agreement of the Interested Parties and/or arbitral or
judicial orders and decrees as set forth in this Agreement.

     NOW, THEREFORE, in consideration of the foregoing, the mutual covenants herein contained and
other good and valuable consideration (the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties by their execution hereof), the parties agree as follows:

1. Joinder Agreement. On or before the delivery to the Custodian of any Securities issued
by an Issuer, such Issuer and the applicable Purchaser or Purchasers shall enter into a Joinder
Agreement substantially in the form of Exhibit A attached hereto, with such additional provisions
as the Interested Parties may wish to add from time to time. An executed copy of each such Joinder
Agreement shall be delivered to the Custodian on or before the date on which such Issuer’s
Securities are issued. This Agreement and each Joinder Agreement constitute the entire agreement
among the Purchasers, Issuers and the Custodian pertaining to the subject matter hereof.

2. Delivery of Securities. On or before each date on which an Issuer enters into a Joinder
Agreement:

(a) The applicable Issuer shall deliver to the Custodian a signed, authenticated certificate
representing a beneficial interest in such Issuer’s Securities, with the Purchaser
designated as owner thereof (the “Original Securities”). The Custodian shall have no
responsibility for the genuineness, validity, market value, title or sufficiency for any
intended purpose of the Original Securities.

(b) The applicable Issuer shall deliver to the Custodian five signed, unauthenticated and
undated certificates with no holder designated, each of which when completed representing a
beneficial interest in such Issuer’s Securities (the “Replacement Securities”). The
Custodian shall have no responsibility for the genuineness, validity, market value, title or
sufficiency for any intended purpose of the Replacement Securities.

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3. Timing of Release from Custody. Upon receipt of a signed transfer notice in the form of
Exhibit B to be delivered in connection with the Purchaser’s transfer of all or any portion of an
Issuer’s Securities, on the effective date set forth in such transfer notice, the Custodian shall:

(a) Deliver the Original Securities certificate corresponding to the Issuer identified in
the transfer notice to Wilmington Trust Company, as Institutional Trustee under the Amended
and Restated Declaration of Trust, dated as of the date of the applicable Joinder Agreement,
among the Institutional Trustee, the Company and the administrators named therein (the
“Declaration”) or as Trustee under the Indenture, dated as of the date of the applicable
Joinder Agreement, between the Company and the Trustee (the “Indenture”), as applicable, for
the purpose of canceling the applicable Original Securities certificate in accordance with
the terms of the Issuer’s Amended and Restated Declaration of Trust or Indenture, as
applicable; and

(b) Deliver the Replacement Securities certificate(s) corresponding to the Issuer identified
in the transfer notice in the amount designated in and in accordance with the transfer
notice for the purpose of completing and authenticating the applicable Replacement
Securities certificate(s) in accordance with the terms of the Issuer’s Declaration or
Indenture, as applicable.

The initial term of this Agreement shall be one year (the “Initial Term”). Unless FTN
Financial Capital Markets or Keefe, Bruyette & Woods, Inc. shall otherwise notify the
Custodian in writing, upon expiration of the Initial Term, this Agreement shall
automatically renew for an additional one-year term and shall continue to automatically
renew for succeeding one-year terms until terminated. Upon termination of this Agreement,
the Custodian and the Interested Parties shall be released from all obligations hereunder,
except for the indemnification obligations set forth in paragraphs 5(b) and 5(c) hereof.

4. Concerning the Custodian.

(a) Each Interested Party acknowledges and agrees that the Custodian (i) shall not be
responsible for any of the agreements referred to or described herein (including without
limitation any Issuer’s Declaration or Indenture relating to such Issuer’s Securities), or
for determining or compelling compliance therewith, and shall not otherwise be bound
thereby, (ii) shall be obligated only for the performance of such duties as are expressly
and specifically set forth in this Agreement on its part to be performed, each of which are
ministerial (and shall not be construed to be fiduciary) in nature, and no implied duties or
obligations of any kind shall be read into this Agreement against or on the part of the
Custodian, (iii) shall not be obligated to take any legal or other action hereunder which
might in its judgment involve or cause it to incur any expense or liability unless it shall
have been furnished with acceptable indemnification, (iv) may rely on and shall be protected
in acting or refraining from acting upon any written notice, instruction, instrument,
statement, certificate, request or other document furnished to it hereunder and believed by
it to be genuine and to have been signed or presented by the proper person, and shall have
no responsibility for determining the accuracy thereof, and (v) may consult counsel
satisfactory to it, including in-house counsel, and the opinion or advice of such counsel in
any instance shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in accordance with the
opinion or advice of such counsel.

(b) The Custodian shall not be liable to anyone for any action taken or omitted to be taken
by it hereunder except in the case of the Custodian’s negligence or willful misconduct in
breach of the terms of this Agreement. In no event shall the Custodian be liable for
indirect, punitive, special or consequential damage or loss (including but not limited to
lost profits) whatsoever, even if the

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Custodian has been informed of the likelihood of such loss or damage and regardless of the
form of action.

(c) The Custodian shall have no more or less responsibility or liability on account of any
action or omission of any book-entry depository, securities intermediary or other
subcustodian employed by the Custodian than any such book-entry depository, securities
intermediary or other subcustodian has to the Custodian, except to the extent that such
action or omission of any book-entry depository, securities intermediary or other
subcustodian was caused by the Custodian’s own negligence, bad faith or willful misconduct
in breach of this Agreement.

(d) The recitals contained herein shall be taken as the statements of each of the Issuers
and the Purchaser, and the Custodian assumes no responsibility for the correctness of the
same. The Custodian makes no representations as to the validity or sufficiency of this
Agreement or the Securities. The Custodian shall not be accountable for the use or
application by any of the Issuers or the Purchaser of any Securities or the proceeds of any
Securities.

5. Compensation, Expense Reimbursement and Indemnification.

(a) The Custodian shall be compensated pursuant to a separate fee agreement.

(b) Each of the Interested Parties agrees, jointly and severally, to reimburse the Custodian
on demand for all costs and expenses incurred in connection with the administration of this
Agreement or the performance or observance of its duties hereunder which are in excess of
its customary compensation for normal services hereunder, including without limitation,
payment of any legal fees and expenses incurred by the Custodian in connection with
resolution of any claim by any party hereunder.

(c) Each of the Interested Parties covenants and agrees, jointly and severally, to indemnify
the Custodian (and its directors, officers and employees) and hold it (and such directors,
officers and employees) harmless from and against any loss, liability, damage, cost and
expense of any nature incurred by the Custodian arising out of or in connection with this
Agreement or with the administration of its duties hereunder, including but not limited to
attorney’s fees and other costs and expenses of defending or preparing to defend against any
claim of liability unless and except to the extent such loss, liability, damage, cost and
expense shall be caused by the Custodian’s negligence, bad faith, or willful misconduct.
The provisions in this paragraph 5 shall survive the expiration of this Agreement and the
resignation or removal of the Custodian.

6. Voting Rights. The Custodian shall be under no obligation to preserve, protect or
exercise rights in the Original Securities, and shall be responsible only for reasonable measures
to maintain the physical safekeeping thereof, and otherwise to perform and observe such duties on
its part as are expressly set forth in this Agreement. The Custodian shall not be responsible for
forwarding to any Interested Party, notifying any Interested Party with respect to, or taking any
action with respect to, any notice, solicitation or other document or information, written or
otherwise, received from an issuer or other person with respect to the Original Securities,
including but not limited to, proxy material, tenders, options, the pendency of calls and
maturities and expiration of rights.

7. Resignation. The Custodian may at any time resign as Custodian hereunder by giving
thirty (30) days’ prior written notice of resignation to each of the Interested Parties. Prior to
the effective date of the resignation as specified in such notice, the Interested Parties will
issue to the Custodian a written instruction authorizing redelivery of the Original Securities and
the Replacement Securities to a bank or trust company that they select as successor to the
Custodian hereunder. If, however, the Interested Parties shall fail to name such a successor
custodian within twenty days after the notice of resignation from the

Capstead Mortgage Corporation/Placement Agreement

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Custodian, the Purchasers shall be entitled to name such successor custodian. If no successor
custodian is named by the Interested Parties or the Purchasers, the Custodian may apply to a court
of competent jurisdiction for appointment of a successor custodian.

8. Dispute Resolution. It is understood and agreed that should any dispute arise with
respect to the delivery, ownership, right of possession, and/or disposition of the Original
Securities or the Replacement Securities, or should any claim be made upon the Custodian, the
Original Securities or the Replacement Securities by a third party, the Custodian upon receipt of
notice of such dispute or claim is authorized and shall be entitled (at its sole option and
election) to retain in its possession without liability to anyone, all or any of said Original
Securities and Replacement Securities until such dispute shall have been settled either by the
mutual written agreement of the parties involved or by a final order, decree or judgment of a court
in the United States of America, the time for perfection of an appeal of such order, decree or
judgment having expired. The Custodian may, but shall be under no duty whatsoever to, institute or
defend any legal proceedings which relate to the Original Securities and Replacement Securities.

9. Consent to Jurisdiction and Service. Each of the Interested Parties hereby absolutely
and irrevocably consents and submits to the jurisdiction of the courts in the State of Delaware and
of any Federal court located in said State in connection with any actions or proceedings brought
against any of the Interested Parties (or each of them) by the Custodian arising out of or relating
to this Agreement. In any such action or proceeding, the Interested Parties each hereby absolutely
and irrevocably (i) waives any objection to jurisdiction or venue, (ii) waives personal service of
any summons, complaint, declaration or other process, and (iii) agrees that the service thereof may
be made by certified or registered first-class mail directed to such party, as the case may be, at
their respective addresses in accordance with paragraph 10 hereof.

10. Force Majeure. The Custodian shall not be responsible for delays or failures in
performance resulting from acts beyond its control. Such acts shall include but not be limited to
acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, computer viruses, power failures,
earthquakes or other disasters.

11. Notices.

(a) Any notice permitted or required hereunder shall be in writing, and shall be sent by
personal delivery, overnight delivery by a recognized courier or delivery service, mailed by
registered or certified mail, return receipt requested, postage prepaid, or by confirmed
facsimile accompanied by mailing of the original on the same day by first class mail,
postage prepaid, in each case the parties at their address set forth below (or to such other
address as any such party may hereafter designate by written notice to the other parties).

If to an Issuer, to the address appearing on such Issuer’s Joinder Agreement

If to the Purchaser, to the address appearing on such Purchaser’s Joinder Agreement

If to the Custodian:

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

Attention: Chris Slaybaugh — Corporate Trust Administration

Fax: 302-636-4140

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12. Miscellaneous.

(a) Binding Effect. This Agreement shall be binding upon the respective parties
hereto and their heirs, executors, successors and assigns.

(b) Modifications. This Agreement may not be altered or modified without the
express written consent of the parties hereto. No course of conduct shall constitute a
waiver of any of the terms and conditions of this Agreement, unless such waiver is specified
in writing, and then only to the extent so specified. A waiver of any of the terms and
conditions of this Agreement on one occasion shall not constitute a waiver of the other
terms of this Agreement, or of such terms and conditions on any other occasion.

(c) Governing Law. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Delaware.

(d) Reproduction of Documents. This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications which may hereafter
be executed, and (b) certificates and other information previously or hereafter furnished,
may be reproduced by any photographic, photostatic, microfilm, optical disk, micro-card,
miniature photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any judicial or
administrative proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

(e) Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the
same instrument.

signatures appear on the following page

Capstead Mortgage Corporation/Placement Agreement

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day first above
written.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	WILMINGTON TRUST COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By: /s/ Christopher J. Slaybaugh	 	 
	 

	 	 
	 	 
	 

	 	Print Name: 
	Christopher J. Slaybaugh	 	 
	 

	 	Title: Financial Services Officer	 	 

Capstead Mortgage Corporation/Placement Agreement

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EXHIBIT A TO MASTER CUSTODIAN AGREEMENT

FORM OF JOINDER AGREEMENT

September 11, 2006

     This Joinder Agreement (this “Agreement”) is entered into as of September 11, 2006 by First
Tennessee Bank National Association (the “Purchaser”) and Capstead Mortgage Corporation (the
“Issuer”).

RECITALS

     A. Wilmington Trust Company (the “Custodian”) is party to that certain Master Custodian
Agreement dated as of May 27, 2004, as amended (the “Custodian Agreement”).

     B. The Custodian Agreement provides that certain financial institutions that have issued
securities (or whose statutory trust subsidiaries have issued securities) and the Purchaser of such
securities will join into the Custodian Agreement pursuant to the terms of a joinder agreement.

     C. On the date hereof, Issuer is issuing securities to the Purchaser and the Issuer and the
Purchaser desire to enter into this Agreement to facilitate the subsequent transfer of the Issuer’s
securities by the Custodian.

     NOW, THEREFORE, in consideration of the foregoing, the mutual covenants herein contained and
other good and valuable consideration (the receipt, adequacy and sufficiency of which are hereby
acknowledged by the Issuer by its execution hereof), the Issuer agrees as follows:

     1. Joinder. The Issuer and Purchaser hereby join in the Custodian Agreement and agree
to be subject to, and bound by, the terms and provisions of the Custodian Agreement that are
ascribed to “Issuers” and “Purchasers” respectively therein to the same extent as if the Issuer and
Purchaser had signed the Custodian Agreement as an original party thereto; provided,
however, that the Issuer does not join in the Custodian Agreement with respect to
compensation, cost and expense reimbursement and indemnification of the Custodian by the Interested
Parties pursuant to Section 5 of the Custodian Agreement, it being understood that the Issuer shall
have no obligations whatsoever under Section 5 of the Custodian Agreement.

     2. Notice. Any notice permitted or required to be sent to an Issuer under the
Custodian Agreement shall be sent to the following address:

Capstead Mortgage Corporation

8401 North Central Expressway, Suite 800

Dallas, Texas 75225-4410

Attention: Andrew F. Jacobs

     Any notice permitted or required to be sent to a Purchaser under the Custodian Agreement shall
be sent to the following address:

First Tennessee Bank National Association

845 Crossover Lane, Suite 150

Memphis, Tennessee 38117

Attention: David Work

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A-A-A-1

 

     3. Termination. This Agreement and the Purchaser’s and Issuer’s respective rights and
obligations under the Custodian Agreement shall terminate upon the transfer of all of Issuer’s
securities pursuant to the Custodian Agreement.

     4. Entire Agreement. This Agreement and the Custodian Agreement constitute the entire
agreement among the Purchaser, Issuer and the Custodian pertaining to the subject matter hereof.

     IN WITNESS WHEREOF, the Issuer and Purchaser have executed this Agreement as of the day first
above written.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	FIRST TENNESSEE BANK NATIONAL ASSOCIATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

Capstead Mortgage Corporation/Placement Agreement

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EXHIBIT B TO MASTER CUSTODIAN AGREEMENT

FORM OF TRANSFER NOTICE

[DATE]

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

Attention: Corporate Trust Administration

Dear Sir or Madam:

     The undersigned hereby notifies you of the transfer of [                    ] of the Capital Securities of
Capstead Mortgage Trust III, such transfer to be effective on [DATE OF TRANSFER]. In accordance
with Section 7.9 of the Placement Agreement dated September 8, 2006 between the Offerors and the
placement agents named therein (the “Placement Agreement”), periodic reports shall be delivered to
[                    ] in accordance with such Section 7.9 during the term of the Capital Securities, in
the form attached thereto. Capitalized terms used in this notice and not otherwise defined shall
have the meanings ascribed to such terms in the Placement Agreement.

     The undersigned hereby instructs you as Custodian to deliver the Original Securities
certificate to Wilmington Trust Company, as Institutional Trustee (the “Trustee”) under the Amended
and Restated Trust Agreement dated September 11, 2006 among the Trustee, Capstead Mortgage
Corporation and the administrative trustees named therein (the “Trust Agreement”) for cancellation
in accordance with the terms of the Trust Agreement and to deliver the Replacement Securities
certificate to the Trustee for authentication in accordance with the terms of the Trust Agreement.

     By copy of this notice, the Institutional Trustee is hereby instructed to make the Replacement
Securities certificate registered to [NAME, ADDRESS AND IDENTITY OF TRANSFEREE] in the liquidation
amount of [                    ] and bearing the identification number “CUSIP NO. [                    ]” and to
authenticate and deliver the Replacement Securities certificate to [                    ].

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	FIRST TENNESSEE BANK NATIONAL ASSOCIATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 
	cc:

	 	Capstead Mortgage Corporation
	 

	 	Wilmington Trust Company, as Trustee

Capstead Mortgage Corporation/Placement Agreement

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EXHIBIT B-1

FORM OF COMPANY COUNSEL OPINION

September 11, 2006

	 	 	 
	First Tennessee Bank National Association

	 	FTN Financial Capital Markets
	845 Crossover Lane, Suite 150

	 	845 Crossover Lane, Suite 150
	Memphis, Tennessee 38117

	 	Memphis, Tennessee 38117
	 
	 	 
	Capstead Mortgage Corporation

	 	Keefe, Bruyette & Woods, Inc.
	8401 North Central Expressway, Suite 800

	 	787 7th Avenue, 4th Floor
	Dallas, Texas 75225

	 	New York, New York 10019
	 
	 	 
	 

	 	Wilmington Trust Company
	 

	 	Rodney Square North
	 

	 	1100 North Market Street
	 

	 	Wilmington, Delaware 19890-1600

Ladies and Gentlemen:

     We have acted as special counsel to Capstead Mortgage Corporation, a Maryland corporation (the
“Company”) and Capstead Mortgage Trust III, a Delaware statutory trust (the “Trust”), in connection
with the negotiation and execution of the Placement Agreement dated as of September 8, 2006 (the
“Placement Agreement”) among the Company, the Trust, FTN Financial Capital Markets and Keefe,
Bruyette & Woods, Inc. (collectively, the “Placement Agents”). We are delivering this opinion to
you pursuant to Section 3.1 of the Placement Agreement. Capitalized terms used and not otherwise
defined herein have the meanings given them in the Placement Agreement.

     In our examination we have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity, completeness and accuracy of all documents submitted to us as
originals, and the conformity to authentic original documents of all documents submitted to us as
facsimile, certified or photostatic copies. In making our examination of documents executed by
parties other than the Company or the Trust, we have assumed that such parties had the power to
enter into and perform all obligations thereunder and have also assumed the due authorization by
all requisite action, and due execution and delivery by such parties of such documents and the
validity and binding effect thereof. As to any facts material to this opinion that we did not
independently establish or verify, we have relied, to the extent we deemed appropriate, upon (i)
written representations of (or made on behalf of) (a) the Company and the officers and other
representatives of the Company and representations made in the Placement Agreement and (b) the
Trust and the officers and other representatives of the Trust, and (ii) statements and
certifications of public officials.

     In rendering the opinions set forth herein, we have examined and relied on originals or
copies, certified or otherwise identified to our satisfaction, of the following:

	 	1.	 	The Placement Agreement;
	 
	 	2.	 	The Indenture, dated as of the date hereof (the “Indenture”), between
the Company and Wilmington Trust Company, as Trustee (in such capacity, the
“Trustee”), pursuant to which the Company will issue fixed/floating rate junior
subordinated debentures (the “Debentures”) to evidence loans made to the Company of
the proceeds from the issuance by the Trust of the Capital Securities and the
Common Securities;

Capstead Mortgage Corporation/Placement Agreement

B-1-1

 

	 	3.	 	The Amended and Restated Declaration of Trust, dated as of the date
hereof (the “Trust Agreement”) by and among Wilmington Trust Company, as Delaware
Trustee, Wilmington Trust Company, as Institutional Trustee, the Company, as
Sponsor, and Andrew F. Jacobs and Phillip A. Reinsch, as Administrators (Messrs.
Jacobs and Reinsch collectively, the “Administrators”);
	 
	 	4.	 	The Certificate of Trust filed with the Secretary of State of the State
of Delaware on September 5, 2006 with respect to the formation of the Trust;
	 
	 	5.	 	Form of Common Securities;
	 
	 	6.	 	Form of Capital Securities;
	 
	 	7.	 	The agreements and other documents set forth in Schedule I hereto;
	 
	 	8.	 	A certificate dated the date hereof (the “Company’s Opinion Support
Certificate”), executed by the Chief Financial Officer of the Company, a copy of
which is attached hereto as Exhibit A;
	 
	 	9.	 	A certificate dated the date hereof (the “Trust’s Opinion Support
Certificate”), executed by an Administrator of the Trust, a copy of which is
attached hereto as Exhibit B; and
	 
	 	10.	 	Such other documents as we have deemed necessary or appropriate as a
basis for the opinions set forth below.

     The Placement Agreement, the Indenture, the Trust Agreement, the Capital Securities and the
Common Securities are collectively referred to herein as the “Operative Documents.”

     We express no opinion in paragraphs (1) through (8) below as to the laws of any jurisdiction
other than (i) the Applicable Laws of the State of Texas, (ii) the Applicable Laws of the State of
New York, (iii) the Applicable Laws of the United States of America, and (iv) certain specified
laws of the United States of America to the extent referred to specifically herein.

     As used herein, the following terms have the respective meanings set forth below:

     “Applicable Laws” means those laws, rules and regulations that, in our experience, are
normally applicable to transactions of the type contemplated by the Placement Agreement, without
our having made any special investigation as to the applicability of any specific law, rule or
regulation, and which are not the subject of a specific opinion herein referring expressly to a
particular law or laws; provided that the term “Applicable Laws” does not include:

	 	1.	 	any municipal or other local law, rule or regulation, and any other law, rule or
regulation relating to (i) pollution or protection of the environment, (ii) zoning, land
use, building or construction codes or guidelines, (iii) labor, employee rights and
benefits, or occupational safety and health, or (iv) utility regulation;
	 
	 	2.	 	antitrust laws and other laws regulating competition;
	 
	 	3.	 	tax laws, rules or regulations;
	 
	 	4.	 	antifraud laws;
	 
	 	5.	 	state securities or blue sky laws, rules or regulations;

Capstead Mortgage Corporation/Placement Agreement

B-1-2

 

	 	6.	 	the rules and regulations of the National Association of Securities Dealers, Inc.; or
	 
	 	7.	 	any law, rule or regulation that may have become applicable because of any facts
specifically pertaining to the Purchaser or the Placement Agents or relating to the legal
or regulatory status of the Purchaser or the Placement Agents.

     Based upon the foregoing and subject to the limitations, qualifications, exceptions and
assumptions set forth herein, and with due regard to such legal considerations as we deem relevant,
we are of the opinion that:

     1. Neither the issuance and sale of the Common Securities or the Capital Securities nor the
purchase by the Trust of the Debentures, nor the execution and delivery of and compliance with the
Operative Documents by the Trust nor the consummation of the transactions contemplated thereby will
constitute a breach or violation of the Trust Agreement or the Certificate of Trust.

     2. Assuming the Indenture has been duly authorized, executed and delivered by the Indenture
Trustee and the Company and is a legal and enforceable agreement against the Indenture Trustee, the
Indenture constitutes a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms under the law of the State of New York, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by the
application of general principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity) including, without limitation (A) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy, (B) concepts of materiality,
reasonableness, good faith and fair dealing, and (C) the unenforceability under certain
circumstances of provisions providing for indemnification or contribution for liabilities where
such indemnification or contribution is against public policy.

     3. When the Debentures have been duly authorized, executed and delivered by the Company,
authenticated by the Trustee in accordance with the provisions of the Indenture and delivered to
the Trust against payment therefore, the Debentures will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with their terms under
the law of the State of New York, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors’ rights generally (including, without
limitation, fraudulent conveyance laws) and by the application of general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in equity) including,
without limitation (A) the possible unavailability of specific performance, injunctive relief or
any other equitable remedy, (B) concepts of materiality, reasonableness, good faith and fair
dealing, and (C) the unenforceability under certain circumstances of provisions providing for
indemnification or contribution for liabilities where such indemnification or contribution is
against public policy.

     4. Neither the Trust nor the Company is and, following the issuance and sale of the Capital
Securities and the consummation of the transactions contemplated by the Operative Documents and the
application of the net proceeds therefrom, neither the Trust nor the Company will be an “investment
company” within the meaning of Section 3(a) of the Investment Company Act of 1940, as amended.

     5. Assuming (a) the truth and accuracy of the representations and warranties of the Company,
the Trust and the Placement Agents in the Placement Agreement, (b) compliance by the Purchaser with
the transfer restrictions applicable to the Capital Securities, (c) compliance by the Company with
the transfer restrictions applicable to the Common Securities and (d) compliance by the Trust with
the transfer restriction applicable to the Debentures, it is not necessary in connection with the
offer, sale and delivery of the Common Securities, the Capital Securities and the Debentures
register the same under the Securities Act of 1933, as amended, as contemplated in the Placement
Agreement and the Trust

Capstead Mortgage Corporation/Placement Agreement

B-1-3

 

Agreement, or to require qualification of the Indenture under the Trust Indenture Act of 1939,
as amended.

     6. The execution, delivery and performance of the Placement Agreement, the Indenture and the
Trust Agreement by the Company and the consummation of the transactions contemplated by such
documents do not and will not (A) result in the creation or imposition of any material lien, claim,
charge encumbrance or restriction upon any property or assets of the Company pursuant to, or (B) to
the best of our knowledge, constitute a material breach or violation of, or constitute a material
default under, with or without notice or lapse of time or both, any of the terms, provisions or
conditions of (x) any contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease, franchise, license or any other agreement or instrument listed on Schedule I hereto or (y)
any order, decree, judgment, franchise, license, permit, rule or regulation of any court,
arbitrator, government, or governmental agency or instrumentality, domestic or foreign, known to us
having jurisdiction over the Company or its properties which, in the case of each of (A) or (B)
above, is material to the Company.

     7. To our knowledge, (A) no action, suit or proceeding at law or in equity is pending or
threatened to which the Company or the Trust is or may be a party, and (B) no action, suit or
proceeding is pending or threatened against or affecting the Company or the Trust or any of their
properties, before or by any court or governmental official, commission, board or other
administrative agency, authority or body, or any arbitrator, wherein an unfavorable decision,
ruling or finding could reasonably be expected to have a material adverse effect on the
consummation of the transactions contemplated by the Operative Documents or the issuance and sale
of the Common Securities or the Capital Securities as contemplated therein or the condition
(financial or otherwise), earnings, affairs, business, or results of operations of the Company and
the Trust on a consolidated basis.

     8. Except for filings, registrations or qualifications that may be required by applicable
securities laws, no authorization, approval, consent or order of, or filing, registration or
qualification with, any person (including, without limitation, any court, governmental body or
authority) is required under the laws of the State of New York in connection with the transactions
contemplated by the Operative Documents in connection with the offer and sale of the Capital
Securities or the Common Securities as contemplated by the Operative Documents.

* * * * *

     Our opinions are subject to the following assumptions and qualifications:

     A. The opinion expressed in paragraph 4 above is given in reliance upon facts set forth in the
Trust’s Opinion Support Certificate.

     B. We express no opinion as to the effect on the opinions expressed herein of the compliance
or non-compliance of the Placement Agents, the Purchaser or any other party (other than the
Company) with any state, federal or other laws or regulations applicable to it.

     C. We express no opinion as to the last paragraph of Section 6.12 of the Indenture.

     D. We express no opinion as to any provision (i) relating to severability or separability;
(ii) purporting to require the disregard of mandatory choice of law rules; (iii) purporting to
convey jurisdiction on any Federal court located in the State of New York to the extent said court
does not have such jurisdiction; or (iv) providing that the assertion or employment of any right or
remedy shall not prevent the concurrent assertion or employment of any other right or remedy, or
that each and every remedy shall be cumulative and in addition to every other remedy or that any
delay or omission to exercise any right or remedy shall not impair any other right or remedy or
constitute a waiver thereof.

     This opinion is being furnished only to you in connection with the sale of the Capital
Securities under the Placement Agreement occurring today and is solely for your benefit and is not
to be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by any
other person or entity,

Capstead Mortgage Corporation/Placement Agreement

B-1-4

 

including any purchaser of any Capital Securities from you and any subsequent purchaser of any
Capital Securities, without our express written permission. The opinions expressed herein are as
of the date hereof only and are based on laws, orders, contract terms and provisions, and facts as
of such date, and we disclaim any obligation to update this opinion letter after such date or to
advise you of changes of facts stated or assumed herein or any subsequent changes in applicable
law.

Very truly yours,

Capstead Mortgage Corporation/Placement Agreement

B-1-5

 

EXHIBIT B-2

FORM OF COMPANY COUNSEL OPINION

September 11, 2006

	 	 	 
	First Tennessee Bank National Association

	 	FTN Financial Capital Markets
	845 Crossover Lane, Suite 150

	 	845 Crossover Lane, Suite 150
	Memphis, Tennessee 38117

	 	Memphis, Tennessee 38117
	 
	 	 
	Capstead Mortgage Corporation

	 	Keefe, Bruyette & Woods, Inc.
	8401 North Central Expressway, Suite 800

	 	787 7th Avenue, 4th Floor
	Dallas, Texas 75225

	 	New York, New York 10019
	 
	 	 
	 

	 	Wilmington Trust Company
	 

	 	Rodney Square North
	 

	 	1100 North Market Street
	 

	 	Wilmington, Delaware 19890-1600

Ladies and Gentlemen:

This firm has acted as special Maryland counsel to Capstead Mortgage Corporation, a Maryland
corporation (the “Company”), in connection with the authorization, execution and delivery by the
Company of a Placement Agreement among the Company, Capstead Mortgage Trust III, FTN Financial
Capital Markets and Keefe, Bruyette & Woods, Inc. dated as of September 8, 2006 (the “Placement
Agreement”). This opinion letter is furnished to you pursuant to the requirements set forth in
Section 3.1(b) of the Placement Agreement in connection with the closing thereunder on the date
hereof. Capitalized terms not otherwise defined herein have the meanings specified in Schedule
1 attached hereto.

For purposes of this opinion letter, we have examined copies of the documents listed on
Schedule 1 attached hereto (the “Documents”).

In our examination of the Placement Agreement and other Documents, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the accuracy and completeness of all
of the Documents, the authenticity of all originals of the Documents and the conformity to the
authentic originals of all of the Documents submitted to us as copies (including telecopies). As
to all matters of fact relevant to the opinions expressed and other statements made herein, we have
relied on the representations and statements of fact made in the Documents, we have not
independently established the facts so relied on and we have not made any investigation or inquiry
other than our examination of the Documents. We have also assumed the validity and
constitutionality of each relevant statute, rule, regulation and agency action covered by this
opinion letter. This opinion letter is given, and all statements herein are made, in the context
of the foregoing.

This opinion letter is based as to matters of law solely on applicable provisions of the General
Corporation Law of the State of Maryland, as amended, as currently in effect (the “MGCL”).

Based upon, subject to and limited by the foregoing, we are of the opinion that:

Capstead Mortgage Corporation/Placement Agreement

B-2-1

 

     (a) The Company is validly existing as a corporation and in good standing as of the date of
the certificate specified in paragraph 3 of Schedule 1 attached hereto under the laws of
the State of Maryland.

     (b) The Company has the corporate power to own and lease its properties and to conduct its
business as described under “Business” and “Properties” in its Annual Report on Form 10-K for the
year ended December 31, 2005 referred to in paragraph 5 of Schedule 1 attached hereto.

     (c) The Company has the corporate power to execute and deliver the Operative Documents and the
Subscription Agreements and to perform its obligations under the Operative Documents.

     (d) The execution and delivery of the Operative Documents and the Subscription Agreements and
the performance on the date hereof by the Company of the Operative Documents do not violate the
Charter or By-Laws of the Company.

     (e) The Operative Documents and the Subscription Agreements have each been duly authorized,
executed and delivered on behalf of the Company.

     (f) No authorization, approval, consent or order of, or filing, registration or qualification
is required to be obtained or made by the Company with, any Maryland governmental authority under
the MGCL in connection with the execution and delivery of the Operative Documents and the
Subscription Agreements and the performance on the date hereof by the Company of its obligations
under the Operative Documents.

We express no opinion herein as to any other laws and regulations not specifically identified above
(and in particular, we express no opinion as to any effect that such other laws and regulations may
have on the opinions expressed herein). We express no opinion herein as to federal or state
securities, antitrust, unfair competition, banking, or tax laws or regulations or laws or
regulations of any political subdivision below the state level.

We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of
this opinion letter. This opinion letter has been prepared solely for your use in connection with
the closing under the Placement Agreement on the date hereof, and should not be quoted in whole or
in part or otherwise be referred to, and should not be filed with or furnished to any governmental
agency or other person or entity, without the prior written consent of this firm.

Very truly yours,

HOGAN & HARTSON L.L.P.

Capstead Mortgage Corporation/Placement Agreement

B-2-2

 

Schedule 1

	1.	 	The charter of the Company, as certified by the Maryland State Department of
Assessments and Taxation on December 13, 2005, and as certified by the Secretary of the
Company on the date hereof as being complete, accurate and in effect on the date hereof
(the “Charter”).
	 
	2.	 	The by-laws of the Company, as certified by the Secretary of the Company on the
date hereof as being complete, accurate and in effect on the date hereof (the
“By-laws”).
	 
	3.	 	A certificate of good standing of the Company issued by the Maryland State
Department of Assessments and Taxation dated September 8, 2006.
	 
	4.	 	Certain resolutions of the Board of Directors of the Company adopted July 20,
2006 and a written consent of the Executive Committee of the Board of Directors of the
Company adopted on August 16, 2006, each as certified by the Secretary of the Company
on the date hereof as being complete, accurate and in effect, relating to, among other
things, the authorization of the Placement Agreement and the performance of the
transactions contemplated thereby.
	 
	5.	 	The Company’s Annual Report on Form 10-K for the year ended December 31, 2005
as filed with the Securities and Exchange Commission on March 13, 2006 via the EDGAR
database of the Securities and Exchange Commission.
	 
	6.	 	An executed copy of the Placement Agreement.
	 
	7.	 	An executed copy of the Subscription Agreement dated as of September 11, 2006,
made among the Company, Capstead Mortgage Trust III and First Tennessee Bank National
Association (the “First Tennessee Subscription Agreement”).
	 
	8.	 	An executed copy of the Amended and Restated Trust Agreement establishing
Capstead Mortgage Trust III dated as of September 11, 2006 among the Company,
Wilmington Trust Company, and the Administrators named therein (the “Trust Agreement”).
	 
	9.	 	An executed copy of the Indenture, dated as of September 11, 2006, between the
Company, as issuer, and Wilmington Trust Company, as trustee (the “Indenture”).
	 
	10.	 	An executed copy of the Fixed/Floating Rate Capital Securities dated as of
September 11, 2006 issued by the Company to the Trust (the “Debenture,” and together
with the Placement Agreement, the Trust Agreement and the Indenture, the “Operative
Documents”).
	 
	11.	 	Certificates of certain officers of the Company, dated the date hereof, as to
certain facts relating to the Company and as to the incumbency and signature of certain
officers of the Company.

Capstead Mortgage Corporation/Placement Agreement

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EXHIBIT B-3

FORM OF DELAWARE COUNSEL OPINION

To Each of the Persons

Listed on Schedule A Hereto

          Re: Capstead Mortgage Trust III

Ladies and Gentlemen:

          We have acted as special Delaware counsel for Capstead Mortgage Trust III, a Delaware
statutory trust (the “Trust”), in connection with the matters set forth herein. At your request,
this opinion is being furnished to you.

          For purposes of giving the opinions hereinafter set forth, our examination of documents has
been limited to the examination of originals or copies of the following:

          (a) The Certificate of Trust of the Trust (the “Certificate of Trust”), as filed in the office
of the Secretary of State of the State of Delaware (the “Secretary of State”) on September 5, 2006;

          (b) The Declaration of Trust, dated as of September 5, 2006, among Capstead Mortgage
Corporation, a Maryland corporation (the “Company”), Wilmington Trust Company, a Delaware banking
corporation (“WTC”), as trustee and the administrators named therein (the “Administrators”);

          (c) The Amended and Restated Declaration of Trust of the Trust, dated as of September 11, 2006
(including the form of Capital Securities Certificate attached thereto as Exhibits A-1 and A-2 and
the terms of the Capital Securities attached as Annex I) (the “Declaration of Trust”), among the
Company, as sponsor, WTC, as Delaware trustee (the “Delaware Trustee”) and institutional trustee
(the “Institutional Trustee”), the Administrators and the holders, from time to time, of undivided
beneficial interests in the assets of the Trust;

          (d) The Placement Agreement, dated September 8, 2006 (the “Placement Agreement”), among the
Company, the Trust, and FTN Financial Capital Markets and Keefe, Bruyette & Woods, Inc., as
placement agents;

          (e) The Subscription Agreement, dated September 11, 2006 (the “Subscription Agreement”), among
the Trust, the Company and First Tennessee Bank National Association (the documents identified in
items (c) through (e) being collectively referred to as the “Operative Documents”);

          (f) The Capital Securities being issued on the date hereof (the “Capital Securities”);

          (g) The Common Securities being issued on the date hereof (the “Common Securities”) (the
documents identified in items (f) and (g) being collectively referred to as the “Trust
Securities”); and

          (h) A Certificate of Good Standing for the Trust, dated September 8, 2006, obtained from the
Secretary of State.

Capstead Mortgage Corporation/Placement Agreement

B-3-1

 

          Capitalized terms used herein and not otherwise defined are used as defined in the Declaration
of Trust, except that reference herein to any document shall mean such document as in effect on the
date hereof. This opinion is being delivered pursuant to Section 3.1 of the Placement Agreement.

          For purposes of this opinion, we have not reviewed any documents other than the documents
listed in paragraphs (a) through (h) above. In particular, we have not reviewed any document
(other than the documents listed in paragraphs (a) through (h) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed that there exists no
provision in any document that we have not reviewed that is inconsistent with the opinions stated
herein. We have conducted no independent factual investigation of our own but rather have relied
solely upon the foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to be true, complete and
accurate in all material respects.

          With respect to all documents examined by us, we have assumed (i) the authenticity of all
documents submitted to us as authentic originals, (ii) the conformity with the originals of all
documents submitted to us as copies or forms, and (iii) the genuineness of all signatures.

          For purposes of this opinion, we have assumed (i) that the Declaration of Trust constitutes
the entire agreement among the parties thereto with respect to the subject matter thereof,
including with respect to the creation, operation, and termination of the Trust, and that the
Declaration of Trust and the Certificate of Trust are in full force and effect and have not been
amended further, (ii) that there are no proceedings pending or contemplated, for the merger,
consolidation, liquidation, dissolution or termination of the Trust, (iii) except to the extent
provided in paragraph 1 below, the due creation, due formation or due organization, as the case may
be, and valid existence in good standing of each party to the documents examined by us under the
laws of the jurisdiction governing its creation, formation or organization, (iv) that each party to
the documents examined by us is qualified to do business in each jurisdiction where such
qualification is required generally or necessary in order for such party to enforce its rights
under the documents examined by us, (v) the legal capacity of each natural person who is a party to
the documents examined by us, (vi) except to the extent set forth in paragraph 2 below, that each
of the parties to the documents examined by us has the power and authority to execute and deliver,
and to perform its obligations under, such documents, (vii) except to the extent provided in
paragraph 3 below, that each of the parties to the documents examined by us has duly authorized,
executed and delivered such documents, (viii) the receipt by each Person to whom a Capital Security
is to be issued by the Trust (the “Capital Security Holders”) of a Capital Security Certificate for
the Capital Security and the payment for the Capital Securities acquired by it, in accordance with
the Declaration of Trust and the Subscription Agreement, (ix) that the Capital Securities are
issued and sold to the Holders of the Capital Securities in accordance with the Declaration of
Trust and the Subscription Agreement, (x) the receipt by the Person (the “Common Securityholder”)
to whom the common securities of the Trust representing common undivided beneficial interests in
the assets of the Trust (the “Common Securities” and, together with the Capital Securities, the
“Trust Securities”) are to be issued by the Trust of a Common Security Certificate for the Common
Securities and the payment for the Common Securities acquired by it, in accordance with the
Declaration of Trust, (xi) that the Common Securities are issued and sold to the Common
Securityholder in accordance with the Declaration of Trust, (xii) that each of the parties to the
documents reviewed by us has agreed to and received the stated consideration for the incurrence of
its obligations under such documents, (xiii) that each of the documents reviewed by us (other than
the Declaration of Trust) is a legal, valid, binding and enforceable obligation of the parties
thereto in accordance with the terms thereof and (xiv) that the Trust derives no income from or
connected with sources within the State of Delaware and has no assets, activities (other than
having a trustee and the filing of documents with the Secretary of State) or employees in the State
of Delaware. We have not participated in the preparation of any offering materials with respect to
the Trust Securities and assume no responsibility for its contents.

Capstead Mortgage Corporation/Placement Agreement

B-3-2

 

          This opinion is limited to the laws of the State of Delaware (excluding the securities laws of
the State of Delaware), and we have not considered and express no opinion on the laws of any other
jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are
rendered only with respect to Delaware laws and rules, regulations and orders thereunder that are
currently in effect.

          We express no opinion as to (i) the effect of suretyship defenses, or defenses in the nature
thereof, with respect to the obligations of any applicable guarantor, joint obligor, surety,
accommodation party, or other secondary obligor or any provisions of the Declaration of Trust with
respect to indemnification or contribution and (ii) the accuracy or completeness of any exhibits or
schedules to the Operative Documents. No opinion is given herein as to the choice of law or
internal substantive rules of law that any court or other tribunal may apply to the transactions
contemplated by the Operative Documents.

          We express no opinion as to the enforceability of any particular provision of the Declaration
of Trust or the other Operative Documents relating to remedies after default.

          We express no opinion as to the enforceability of any particular provision of any of the
Operative Documents relating to (i) waivers of rights to object to jurisdiction or venue, or
consents to jurisdiction or venue, (ii) waivers of rights to (or methods of) service of process, or
rights to trial by jury, or other rights or benefits bestowed by operation of law, (iii) waivers of
any applicable defenses, setoffs, recoupments, or counterclaims, (iv) waivers or variations of
provisions which are not capable of waiver or variation under the Uniform Commercial Code (“UCC”)
of the State, (v) the grant of powers of attorney to any person or entity, or (vi) exculpation or
exoneration clauses, indemnity clauses, and clauses relating to releases or waivers of unmatured
claims or rights.

          We have made no examination of, and no opinion is given herein as to the Trustee’s or the
Trust’s title to or other ownership rights in, or the existence of any liens, charges or
encumbrances on, or adverse claims against, any asset or property held by the Institutional Trustee
or the Trust. We express no opinion as to the creation, validity, attachment, perfection or
priority of any mortgage, security interest or lien in any asset or property held by the
Institutional Trustee or the Trust.

          We express no opinion as to the effect of events occurring, circumstances arising, or changes
of law becoming effective or occurring, after the date hereof on the matters addressed in this
opinion letter, and we assume no responsibility to inform you of additional or changed facts, or
changes in law, of which we may become aware.

          We express no opinion as to any requirement that any party to the Operative Documents (or any
other persons or entities purportedly entitled to the benefits thereof) qualify or register to do
business in any jurisdiction in order to be able to enforce its rights thereunder or obtain the
benefits thereof.

          Based upon the foregoing, and upon our examination of such questions of law and statutes of
the State of Delaware as we have considered necessary or appropriate, and subject to the
assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion
that:

          1. The Trust has been duly created and is validly existing in good standing as a statutory
trust under the Delaware Statutory Trust Act (12 Del. C. § 3801, et seq.)
(the “Act”). All filings required under the laws of the State of Delaware with respect to the
creation and valid existence of the Trust as a statutory trust have been made.

Capstead Mortgage Corporation/Placement Agreement

B-3-3

 

          2. Under the Declaration of Trust and the Act, the Trust has the trust power and authority to
(A) execute and deliver the Operative Documents, (B) perform its obligations under such Operative
Documents and (C) issue the Trust Securities.

          3. The execution and delivery by the Trust of the Operative Documents, and the performance by
the Trust of its obligations thereunder, have been duly authorized by all necessary trust action on
the part of the Trust.

          4. The Declaration of Trust constitutes a legal, valid and binding obligation of the Company,
the Trustees and the Administrators, and is enforceable against the Company, the Trustees and the
Administrators, in accordance with its terms.

          5. Each of the Operative Documents constitutes a legal, valid and binding obligation of the
Trust, enforceable against the Trust, in accordance with its terms.

          6. The Capital Securities have been duly authorized for issuance by the Declaration of Trust,
and, when duly executed and delivered to and paid for by the purchasers thereof in accordance with
the Declaration of Trust, the Subscription Agreement and the Placement Agreement, the Capital
Securities will be validly issued, fully paid and, subject to the qualifications set forth in
paragraph 8 below, nonassessable undivided beneficial interests in the assets of the Trust and will
entitle the Capital Securities Holders to the benefits of the Declaration of Trust. The issuance
of the Capital Securities is not subject to preemptive or other similar rights under the Act or the
Declaration of Trust.

          7. The Common Securities have been duly authorized for issuance by the Declaration of Trust
and, when duly executed and delivered to the Company as Common Security Holder in accordance with
the Declaration of Trust, will be validly issued, fully paid and, subject to paragraph 8 below and
Section 9.1(b) of the Declaration of Trust (which provides that the Holder of the Common Securities
are liable for debts and obligations of Trust), nonassessable undivided beneficial interests in the
assets of the Trust and will entitle the Common Security Holder to the benefits of the Declaration
of Trust. The issuance of the Common Securities is not subject to preemptive or other similar
rights under the Act or the Declaration of Trust.

          8. Under the Declaration of Trust and the Act, the Holders of the Capital Securities, as
beneficial owners of the Trust, will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the General Corporation
Law of the State of Delaware. We note that the Holders of the Capital Securities and the Holder of
the Common Securities may be obligated, pursuant to the Declaration of Trust, (A) to provide
indemnity and/or security in connection with and pay taxes or governmental charges arising from
transfers or exchanges of Capital Security Certificates and the issuance of replacement Capital
Security Certificates, and (B) to provide security or indemnity in connection with requests of or
directions to the Institutional Trustee to exercise its rights and powers under the Declaration of
Trust.

          9. Neither the execution, delivery and performance by the Trust of the Operative Documents,
nor the consummation by the Trust of any of the transactions contemplated thereby, requires the
consent or approval of, the authorization of, the withholding of objection on the part of, the
giving of notice to, the filing, registration or qualification with, or the taking of any other
action in respect of, any governmental authority or agency of the State of Delaware, other than the
filing of the Certificate of Trust with the Secretary of State (which Certificate of Trust has been
duly filed).

          10. Neither the execution, delivery and performance by the Trust of the Trust Documents, nor
the consummation by the Trust of the transactions contemplated thereby, (i) is in

Capstead Mortgage Corporation/Placement Agreement

B-3-4

 

violation of the Declaration of Trust or of any law, rule or regulation of the State of Delaware
applicable to the Trust or (ii) to the best of our knowledge, without independent investigation,
violates, contravenes or constitutes a default under, or results in a breach of or in the creation
of any lien (other than as permitted by the Operative Documents) upon any property of the Trust
under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank
loan or credit agreement, license or other agreement or instrument to which the Trust is a party or
by which it is bound.

          11. Assuming that the Trust will not be taxable as a corporation for federal income tax
purposes, but rather will be classified for such purposes as a grantor trust under Subpart E, Part
I of Subchapter J of the Internal Revenue Code of 1986, as amended, the Trust will not be subject
to any tax, fee or governmental charge under the laws of the State of Delaware.

          The opinions expressed in paragraph 4, 5, 6, 7 and 8 above are subject, as to enforcement, to
the effect upon the Declaration of Trust of (i) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance and transfer, and other similar laws relating to
or affecting the rights and remedies of creditors generally, (ii) principles of equity, including
applicable law relating to fiduciary duties (regardless of whether considered and applied in a
proceeding in equity or at law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution.

          Circular 230 Notice. Any advice contained in this communication with respect to any federal
tax matter was not intended or written to be used, and it cannot be used by any taxpayer, for the
purpose of avoiding penalties that the Internal Revenue Service may impose on the taxpayer. If any
such advice is made to any person other than to our client for whom the advice was prepared, the
advice expressed above is being delivered to support the promotion or marketing (by a person other
than Richards, Layton & Finger) of the transaction or matter discussed or referenced, and such
taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent
tax advisor.

          In basing the opinions set forth herein on “our knowledge,” the words “our knowledge” signify
that no information has come to the attention of the attorneys in the firm who are directly
involved in the representation of the Trust in this transaction that would give us actual knowledge
that any such opinions are not accurate. Except as otherwise stated herein, we have undertaken no
independent investigation or verification of such matters.

          We consent to your relying as to matters of Delaware law upon this opinion in connection with
the Placement Agreement. We also consent to Lewis, Rice & Fingersh, L.C.’s and Andrews Kurth LLP’s
relying as to matters of Delaware law upon this opinion in connection with opinions to be rendered
by them on the date hereof pursuant to the Placement Agreement. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or relied upon by, any
other Person for any purpose.

Very truly yours,

Capstead Mortgage Corporation/Placement Agreement

B-3-5

 

SCHEDULE A

Wilmington Trust Company

FTN Financial Capital Markets

Keefe, Bruyette & Woods, Inc.

First Tennessee Bank National Association

Capstead Mortgage Corporation

Capstead Mortgage Trust III

Capstead Mortgage Corporation/Placement Agreement

B-3-6

 

EXHIBIT B-4

TAX COUNSEL OPINION ITEMS

	1.	 	The Debentures will be classified as indebtedness of the Company for U.S. federal income tax
purposes.
	 
	2.	 	The Trust will be characterized as a grantor trust and not as an association taxable as a
corporation for U.S. federal income tax purposes.

Capstead Mortgage Corporation/Placement Agreement

B-4-1

 

Lewis, Rice & Fingersh, L.C.

500 N. Broadway, Suite 2000

St. Louis, Missouri 63102

	 	 	 	 	 
	 

	 	Re:
	 	Representations Concerning the Issuance of Junior Subordinated Debentures (the
“Debentures”) to Capstead Mortgage Trust III (the “Trust”) and Sale of Trust Securities
(the “Trust Securities”) of the Trust

Ladies and Gentlemen:

     In accordance with your request, Capstead Mortgage Corporation (the “Company”) hereby makes
the following representations in connection with the preparation of your opinion letter as to the
United States federal income tax consequences of the issuance by the Company of the Debentures to
the Trust and the sale of the Trust Securities.

     Company hereby represents that:

     1. The sole assets of the Trust will be the Debentures, any interest paid on the Debentures to
the extent not distributed, proceeds of the Debentures, or any of the foregoing.

     2. The Company intends to use the net proceeds from the sale of the Debentures for general
corporate purposes.

     3. The Trust was not formed to conduct any trade or business and is not authorized to conduct
any trade or business. The Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of Trust Securities to acquire the
Debentures, and (iii) engaging only in activities necessary or incidental thereto.

     4. The Company has not entered into an agency agreement with the Trust or authorized the
trustee to act as its agent in dealing with third parties. To the Company’s knowledge, after due
inquiry, the Trust has not acted as the agent of the Company or of anyone else in dealing with
third parties.

     5. The Trust was formed to facilitate direct investment in the assets of the Trust, and the
existence of multiple classes of ownership is incidental to that purpose. There is no intent to
provide holders of such interests in the Trust with diverse interests in the assets of the Trust.

     6. The Company intends to create a debtor-creditor relationship between the Company, as
debtor, and the Trust, as a creditor, upon the issuance and sale of the Debentures to the Trust by
the Company. The Company will (i) record and at all times continue to reflect the Debentures as
indebtedness on its separate books and records for financial accounting purposes, and (ii) treat
the Debentures as indebtedness for all United States tax purposes.

     7. During each year, the Trust’s income will consist solely of payments made by the Company
with respect to the Debentures. Such payments will not be derived from the active conduct of a
financial business by the Trust. Both the Company’s obligation to make such payments and the
measurement of the amounts payable by the Company are defined by the terms of the Debentures.
Neither the Company’s obligation to make such payments nor the measurement of the amounts payable
by the Company is dependent on income or profits of the Company or any affiliate of the Company.

Capstead Mortgage Corporation/Placement Agreement

B-4-2

 

     8. The Company expects that it will be able to make, and will make, timely payment of amounts
identified by the Debentures as principal and interest in accordance with the terms of the
Debentures with available capital or accumulated earnings.

     9. Immediately after the issuance of the Debentures, the debt-to-equity ratio of the Company
(as determined on a consolidated basis for financial accounting purposes) will be within industry
norms of debt-to-equity ratios of publicly traded real estate investment trusts whose principal
holdings are mortgage-backed securities and, in any event, will be no higher than fifteen to one
(15 : 1).

     10. The Company believes that, were it not issuing the Debentures, the Company would be able
to borrow Twenty-Five Million Dollars from financial institutions or other lenders not related to
the Company through stock ownership, on terms and conditions closely comparable to the terms and
conditions set forth in the Debentures. The Company has not received advice from any financial
institution or any investment banker with which it works that is inconsistent with this belief.

     11. To the best of our knowledge, the Company is currently in compliance with all federal,
state, and local capital requirements, except to the extent that failure to comply with any such
requirements would not have a material adverse effect on the Company and its affiliates.

     12. The Company will not issue any class of common stock or preferred stock senior to the
Debentures during their term.

     13. The Internal Revenue Service has not challenged the interest deduction on any class of the
Company’s debt in the last ten (10) years on the basis that such debt constitutes equity for
federal income tax purposes.

     The above representations are accurate as of the date below and will continue to be accurate
through the issuance of the Trust Securities, unless you are otherwise notified by us in writing.
The undersigned understands that you will rely on the foregoing in connection with rendering
certain legal opinions, and possesses the authority to make the representations set forth in this
letter on behalf of the Company.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	Date: September 8, 2006

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

Capstead Mortgage Corporation/Placement Agreement

B-4-3

 

EXHIBIT C

FORM OF QUARTERLY REPORT

The Bank of New York

Collateralized Debt Obligation Group

101 Barclay Street, 8E

New York, New York 10286

Attention: Franco B. Talavera

CDO Relationship Manager

     The undersigned, the [Chairman/Vice Chairman/Chief Executive Officer/President/Vice
President/Chief Financial Officer/Treasurer/Assistant Treasurer], hereby certifies, pursuant to
Section 7.9 of the Placement Agreement, dated as of September 8, 2006, among Capstead Mortgage
Corporation. (the “Company”), Capstead Mortgage Trust III (the “Trust”), on the one hand, and FTN
Financial Capital Markets and Keefe, Bruyette & Woods, Inc., on the other hand, that, as of [date],
[20___], the Company, if applicable, and its subsidiaries, if applicable, had the following ratios
and balances:

As of [Quarterly/Annual Financial Date], 20__

	 	 	 	 	 	 	 
	Senior secured indebtedness for borrowed money (“Debt”)
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Senior unsecured Debt
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Subordinated Debt
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Total Debt
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Preferred Stock
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Total Shareholders’ Equity
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Ratio of senior secured and unsecured Debt to total Debt
	 	 	 	 	%	 
	 
	 	 	 	 	 	 
	 
	Ratio of total Debt to total Capital
	 	 	 	 	%	 
	 
	 	 	 	 	 	 
	 
	Net Interest Margin
	 	 	 	 	%	 
	 
	 	 	 	 	 	 
	 
	Interest coverage ratio (EBITDA/Interest expense)
	 	 	 	 	%	 
	 
	 	 	 	 	 	 
	 
	Fixed charge coverage ratio (EBITDA/Interest expense + preferred dividends +
amortization of amortized debt)
	 	 	 	 	%	 
	 
	 	 	 	 	 	 
	 
	Net Income
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	Most recently declared common stock dividend per share (amount per share and
date of declaration)
	 	$	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	          /            /	 	 

Capstead Mortgage Corporation/Placement Agreement

C-1

 

[FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial statements (including
the balance sheet, income statement and statement of cash flows, and notes thereto, together with
the report of the independent accountants thereon) of the Company and its consolidated subsidiaries
for the three years ended [date], 20___and all financial statements required to be filed with any
Governmental Entity (as defined in the Placement Agreement) other than the Securities and Exchange
Commission for the year ended [date], 20___]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated and consolidating
financial statements (including the balance sheet and income statement) of the Company and its
consolidated subsidiaries and all financial statements required to be filed with any Governmental
Entity (as defined in the Placement Agreement) other than the Securities and Exchange Commission
for the fiscal quarter ended [date], 20___.]

The financial statements fairly present in all material respects, in accordance with U S generally
accepted accounting principles (“GAAP”), the financial position of the Company and its consolidated
subsidiaries, and the results of operations and changes in financial condition as of the date, and
for the [___quarter interim] [annual] period ended [date], 20___, and such financial statements have
been prepared in accordance with GAAP consistently applied throughout the period involved (except
as otherwise noted therein).

     IN WITNESS WHEREOF, the undersigned has executed this Officer’s Financial Certificate as of
this                      day of                     , 20___.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	CAPSTEAD MORTGAGE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	8401 North Central Expressway, Suite 800	 	 
	 	 	Dallas, Texas 75225-4410	 	 
	 	 	214-874-2350	 	 

Capstead Mortgage Corporation/Placement Agreement

C-2

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